What's the most popular financial product among low-income Americans?
Your mind might jump to popular fintech and peer-to-peer apps like Chime, Cash App or PayPal, which have grown rapidly in recent years. You might think of prepaid cards like Green Dot or Netspend. Or, given the amount of press and regulatory scrutiny afforded them, you might think it is a payday lender.
In actuality, it's none of these. By a landslide, the most popular financial product among low-income Americans is the EBT card, used by more than 41 million people each month to receive Supplemental Nutrition Assistance Program benefits. In 2022,
Unfortunately, compared to users of private-sector banking products, SNAP recipients have historically lacked the same right to access account information such as balance and transaction history. This gap has widened in recent years, making the SNAP program overall less effective and allowing theft of benefits to proliferate undeterred. Having received the authority to meaningfully address this issue from Congress more than 12 years ago, the Consumer Financial Protection Bureau should now use it.
Although SNAP is a federal program administered by the states, EBT accounts are patterned after private-sector debit cards. State governments currently contract with EBT processors to administer EBT cards, which account holders can use to pay for their food purchases.
Much like the traditional banking system, EBT processors are currently not required to provide SNAP beneficiaries with open access to their data, including account balances and transaction history. Moreover, EBT households often experience data unavailability, slow connectivity, and intentional restrictions when attempting to check their account balances.
As is the case in the traditional banking system, third-party providers have entered the market to provide low-income families with opportunities to access their EBT account balances and view their transaction histories via mobile applications more quickly and efficiently.
Innovation in the space currently enables millions of EBT account holders to use third-party applications to more quickly view their account information. This allows them to plan their monthly household budget more easily and ensure the security of their accounts.
However, these third parties need access to account holders' EBT account data to provide the opportunity for users to manage their public benefits. As in the traditional banking system, though, the absence of any legally binding right allowing SNAP beneficiaries to share access to their data with third parties continually results in needless user friction and, in some cases, complete blockages.
However, these third parties need to facilitate access to account holders' EBT account data to provide the opportunity for users to manage their public benefits. But, as with the traditional banking system, the absence of any legally binding right allowing SNAP beneficiaries to share access to their data with third parties continually results in needless user friction and, in some cases, complete blockages.
Beyond the self-evident benefits to EBT account holders of having stable and reliable access to their account information electronically, the current lack of this guaranteed electronic access allows fraud and theft from EBT accounts to persist for longer than it otherwise would. Amid a
And, because Congress enacted legislation nearly three decades ago exempting EBT accounts from Regulation E consumer protections, EBT account holders in most states who fall victim to fraud or theft have little recourse.
For the CFPB, the parallels between the traditional banking system and the EBT universe don't end at the consumer experience. The Dodd-Frank Act provided the bureau under Section 1033 with the authority to require "covered persons" to allow consumers to access and share access to their data electronically. Beyond banks, Dodd-Frank's definition of covered persons includes entities "providing payments or other financial data processing products or services to a consumer by any technological means" — a definition that inarguably includes EBT processors.
Once implemented, a Section 1033 rule will not only provide a legal right of access — and sharing access — to account information electronically for American consumers, but it will also hold all third-party providers that access account information electronically with consumers' permission to minimum data privacy and security standards. These protections will be important for many consumers. But for the most vulnerable consumers across the country, such protections would be particularly vital.
The CFPB recognized in its Small Business Regulatory Enforcement Fairness Act outline for its upcoming Section 1033 rulemaking, which was released in October, that it has the ability to address the issues that EBT account holders today experience when trying to access their accounts electronically. In that document, the bureau asked for public comment on whether "providers of government benefit accounts used to distribute needs-based benefits programs'' should be included within the scope of its forthcoming rule.
To avoid creating a financial system in which low-income consumers have fewer rights and protections than higher-income Americans, the answer should unequivocally be yes.
