Research and Statistics

States limit welfare, food stamp debit cards to ban ‘sin’ purchases


Prodded by abuses, states pass laws preventing food stamp and welfare debit cards from being used to buy tobacco, alcohol, lottery tickets and porn

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Legislators to welfare recipients: If you want to buy alcohol, tobacco, lottery tickets, tattoos or adult movies, that’s your business. But if you pay for them with a debit card funded by taxpayers, that’s our business — and we’re cutting you off.

Prodded by the federal government, fueled by ever-intensifying competition for precious tax dollars, dozens of states throughout the country are imposing new limitations on the debit cards now used virtually everywhere to distribute public financial assistance to presumably needy recipients.

The devices are called Electronic Benefit Transfer or EBT cards. They are reloaded monthly with funds from the two most common forms of public assistance — the food stamp program and the more general and less-focused program commonly known as welfare. Like most debit cards, EBT cards can be used to pay directly for goods and services and, in many cases, they can be used to withdraw cash from ATMs.

States limit welfare, food stamp debit cards to bar 'sin' purchases

And they are being abused — frequently, easily and infuriatingly, according to critics. While the abusers are a tiny minority, they are still costing taxpayers, with some saying the cost run into the billions of dollars.

Casinos, tattoos, strip clubs, liquor
Some people cash out their cards at casinos or strip clubs. Some buy liquor or cigarettes or tattoos or adult entertainment with EBT-card funds intended to buy food for their children. Some don’t even bother buying anything with the cards, instead selling them to others for 50 cents on the dollar.

“The fraud and abuse is obscene,” says state Rep. Shaunna O’Connell of Massachusetts, a leader of that state’s effort to reduce EBT-related scams.

“Taxpayers are willing to help people who are in need,” she adds. “With people getting into the system fraudulently, money is not being used for its intended purpose.”

Most at risk are funds from the Temporary Assistance for Needy Families (TANF) program, the general welfare benefits. About $30 billion in cash assistance was distributed to 4.4 million people by this program in fiscal 2011 and a significant portion of that money — several billion dollars every year, according to critics — was diverted to a variety of illicit purposes.

As part of the national crackdown, President Barack Obama in 2012 signed a measure that requires states to ban the use of TANF funds at casinos, liquor stores and strip clubs by 2014.

Quick crackdown on abuse
But a delay of two years is not acceptable to many state legislators, who say that funds from the other program, previously known as food stamps and now called the Supplemental Nutrition Assistance Program (SNAP), also are being used improperly.

“One-third of all the people who had the EBT card connected to our SNAP program had cashed their cards in casinos,” says state Sen. Mike Carrell of Washington state. “We’ve uncovered millions of dollars of fraud.”

A sponsor of legislation to combat the problem, Carrell says that Washington is hardly alone in this.

“It’s huge,” he says. “Every state has the same problem we have identified in our state.”

National experts agree and say that aggressive action is being taken in response. The National Conference of State Legislatures (NCSL), a group that monitors legislative developments around the country, says that 2012 was the most active yet when it comes to EBT-related legislation, but 2013 is shaping up as another busy year.

“Legislatures have always been concerned about fraud or misuse of public funds and services,” says Rochelle Finzel, director of the NCSL’s children and families program. “The specific topic around EBT cards has come to light after various media reports in the last few years on how many withdrawals have been made in casinos or other locations.”

One-third of all the people who had the EBT card connected to our SNAP program had cashed their cards in casinos. We’ve uncovered millions of dollars of fraud.

— Mike Carrell
State senator, Washington

12 states pass limits
In 2010, for instance, the Los Angeles Times reported that $1.8 million in welfare funds had been withdrawn from ATM machines in California casinos in just eight months. Newspapers in Massachusetts, Alabama, Georgia and elsewhere also have been looking into the problem.

Partially as a consequence, at least 12 states already have passed laws restricting the use of EBT cards and imposing punishments on those who abuse the system. Similar laws are in various stages of consideration in at least 22 states at the moment, according to the NCSL.

Among the measures already in place:

  • In the state of Washington, a law sponsored by Carrell and others and signed by the governor prohibits the use of EBT cards for the purchase of alcohol, tobacco, guns, adult entertainment and lottery tickets or other forms of gambling. Funds from EBT cards cannot be withdrawn at ATMs located in taverns, nightclubs, liquor stores or any other location where those under 18 are not allowed.

    An additional law under consideration would require EBT card users to show a photo ID when making purchases and would specifically limit the use of TANF funds to purposes that benefit children.

    As in many other states now, offenders can lose their welfare benefits or face prosecution. “We are aggressively pursuing individuals or the owners of stores who commit or allow these abuses,” Carrell says. “We can and will criminally prosecute them.”

  • In Massachusetts, restrictions similar to those in Washington were imposed by a law passed in 2012. In addition, TANF funds cannot be used in manicure shops, rent-to-own shops, jewelry stores or, yes, to pay for pleasure cruises. Trafficking in EBT cards and trading the cash attached to those cards for drugs has been a particular problem in Massachusetts.

    “In the past year alone, we have had five major drug busts with people trafficking their EBT cards in Massachusetts,” says O’Connell, the state representative. “We’re talking hundreds of thousands of dollars. People sell their cards at a convenience store for 50 cents on the dollar and buy their drugs at the same time.”

    Under the state’s law, anyone who accepts EBT cards for any illegal purpose can be fined $500 to $2,500 for each offense. “We can’t afford to have one dime of taxpayer money being used to fund fraud and abuse in public assistance programs,” O’Connell says.

  • In Minnesota, recipients of EBT cards can use them only in that state and the nearby states of Iowa, North Dakota, South Dakota and Wisconsin. (Food, however, can be bought with Minnesota’s cards in any state.) Anyone who uses an EBT card to buy tobacco or alcohol is dropped from the system for one year after the first offense, two years after the second offense and permanently after the third offense.
  • In Alabama, a bill already filed for consideration during 2013 would prohibit the use of EBT cards for the purchase of tobacco, alcohol and psychic services and would ban their use in bars, strip clubs, casinos, tattoo parlors, etc. Repeat offenders could be permanently kicked off the welfare rolls.

The restrictions already in force or being considered in dozens of other states tend to fall into similar patterns, and more are on the way. One suggestion gaining favor: Eliminate any possibility of turning the cards into cash by forbidding their use at ATM machines and paying all bills automatically through debits from the cards.

People sell their cards at a convenience store for 50 cents on the dollar and buy their drugs at the same time.

— Shaunna O’Connell
State representative, Massachusetts

“Some of these other states are behind the curve,” says Carrell, the Washington state senator. “But I would hope that the other states would realize we have a huge national problem here. We just jumped on it sooner than many others.”

In fact, this is one issue on which members of both major parties often agree. Although these measures most often are proposed by Republicans, the bills generally earn some degree of bipartisan support.

“Legislation has been proposed by members of both parties and passed in states that are considered to lean in one direction or the other,” says Finzel of the NCSL.

Carrell says that proponents of these controls rarely run into overwhelming partisan resistance.

“It’s pretty hard, when the facts slam you in the face, to oppose common sense restrictions,” Carrell says. “This is not something we should have to tolerate when we have such huge economic problems.

“You shouldn’t be giving money to crooks,” he adds. “We should be helping legitimate people who have fallen on hard times. But if people are fraudsters, if they are stealing from the state government and the federal government, we should hold them accountable.”

See related: With federal law vague, online gambling fans focus on states, You went into debt for THAT?!? Good examples of bad charging

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