Mr. Silverman, director of the National Check Cashers Association, testified March 27 against electronic delivery of government benefits before the House Banking Committee. His group represents more than 2,500 check-cashing centers in 35 states.
Mr. Silverman also is president of M. Silverman Management Corp. The Northbrook, Ill.-based concern owns more than 100 check-cashing centers in Illinois, Texas, Oklahoma, California, Nevada, and Arizona.
Excerpts from Mr. Silverman's testimony follow.
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Our industry is directly involved in delivering public assistance benefits. We are the financial service centers similar to the old neighborhood corner banks where recipients can purchase money orders, pay utility bills, purchase bus passes and tokens, or handle licensing transactions for their automobiles.
Due to the proximity of our stores to beneficiaries, several states have chosen our financial service centers to deliver benefits. In Illinois, for example, the state delivers benefits to our centers by armored car. By avoiding the use of the mail, Illinois has eliminated the largest cause of stolen or lost benefits.
Interestingly, we calculate that the cost of delivery for Illinois is less under this paper system than it would be under the proposed Illinois Electronic Benefits Transfer, or EBT, program. Thus, Illinois has an existing system which provides superior accessibility and cost- effectiveness while eliminating the fraud found in a paper-based system.
In Los Angeles, the FAIR system uses our network for benefit delivery by electronically transferring authorizations to locations where checks are then generated. It is important to note that this system involves the physical delivery of benefits, and includes photo identification. The system eliminates multiple payments to one beneficiary and also results in fewer claims of nonreceipt of funds than under the previous system of delivery by mail.
A third alternative system is used in New York City. Under the Electronic Payment File Transfer process, funds are advanced by the check cashers, who are later reimbursed by the state. Today, almost all benefits are delivered by more than 400 licensed check cashers who handle both AFDC and food stamps. This system is efficient, well received by beneficiaries, and it eliminates fraud without requiring a substantial access fee.
We are very concerned that the way EBT is developing will exclude our participation in benefit delivery to the detriment of the beneficiaries, small business, the states, as well as our industry. We don't believe these cost-effective systems, developed by the states to meet their local needs, should be discarded without any demonstration that they'll be replaced with something that serves the public better.
That's not to say that EBT doesn't have some commendable possibilities, particularly for food stamps. But implementation has raised several questions, especially with regard to cash distribution. Information available to date does not provide a rationale for using EBT for AFDC and other cash programs.
State and federal policymakers also need to be wary of the potential for low bids on initial contracts with the expectation that vendors will attempt to make higher profits on renewal contracts.
In Illinois, for example, two bidders have charged that the prevailing bidder won on the basis of predatory rates below market realities. Litigation has been scheduled in New York raising similar concerns. Business Week reported in its Feb. 26 issue that Deluxe, a major EBT provider, is considering abandoning the business due to its low margins. Once the current system is replaced by an expensive computer infrastructure, will any state be in a position to resist substantial price increases upon contract renewal?
Adoption of an EBT system relying on the use of Automated Teller Machines would seriously limit the ability of recipients to access their benefits. Banks have been accused of failing to serve disadvantaged communities. The industry's consolidation is sure to exacerbate this trend and further reduce bank services in low-income neighborhoods. We have found few ATMs in low-income areas.
Our industry already has an extensive network of financial service centers in place where the bulk of eligible beneficiaries live. Our industry was developed to fill a need not being met by banks. We have evolved with changes in technology to continue to serve these communities.
Our stores provide substantial benefits compared to other delivery systems. First, we provide security to our customers, particularly when compared to the total lack of security at ATMs. Second, we have the ability to help assure taxpayers that the benefits go to eligible recipients only. Delivering benefits at our centers, whether by an electronic or paper system, permits a teller to identify recipients through the use of photos and also to compare signatures before releasing payment.
The Treasury Department's proposal to restrict EBT bidders to depository institutions will effectively eliminate check cashers from EBT by encouraging the use of ATMs rather than point of sale facilities. The result of such a decision is that many of our centers will close their doors. This has been the experience in Maryland and Texas following the statewide rollout of EBT.
The National Check Cashers Association urges Congress to reexamine the manner in which EBT is being implemented in light of experience to date. Congress should reject the rush to judgment on EBT. And, while the shape of the welfare system is being debated, does it make sense to move ahead on its delivery system? Shouldn't we know the volume of transactions before deciding if EBT pays?
