Check-Cashing firms threatened by welfare automation. (Up Front).

A pending shift to distribution of welfare benefits through automated teller machines and checkout registers in L.A. County is being challenged by check cashing companies that would be cut out of the new system.

Two large check cashers, threatened with the loss of several million dollars in annual revenues, have offered an alternative they say would cost less to the county, and be safer for recipients of cash assistance. Their plan would keep them in the distribution loop, but tie welfare recipients to fewer than 100 check-cashing locations countywide.

"It is a business opportunity for us, absolutely," said John Nickerson, vice president of corporate development with Contenental Currency Services of Santa Ana, operator of 27 L.A. County check-cashing locations that currently distribute welfare checks.

As the L.A. County Department of Social Services evaluates both plans, consumer groups and County Supervisor Yvonne Brathwaite Burke, who has played a central role in the issue, are disposed toward the ATM-centered plan--versions of which are being rolled out nationwide.

"To me the important thing is to move to an electronic system," Burke said, citing lower cost to users and the higher number of locations--more than 5,000 countywide--in the ATM plan. "There's no question that ... the ATM is more convenient."

Differing systems

Each month, $124 million in aid flows to county recipients under several cash assistance programs, chiefly CalWorks, which serves needy families, and General Relief, serving single adults.

Under the existing Food Stamp Automated Issuance and Reporting system, or FAIR, aid recipients in L.A. County take a plastic card to any of 100 check cashing locations.

There, the checks are printed at no cost, and recipients have the option of cashing them, for a fee of up to 2 percent of the check total. About half of them are cashed on the spot, generating more than $1 million per month for the check cashing stores. The stores earn additional fees when customers purchase money orders to pay bills.

Food stamps are distributed in a similar way through check-cashing stores. But a federal mandate has placed every county in California on a schedule to switch over distribution of food stamps to a system of electronic benefits transfer, or EBT. This allows food stamp benefits to be stored on ATM-like cards that would work at participating retail outlets equipped with point-of-sale systems.

While the food stamp switchover is mandatory, counties can choose whether to switch cash benefits to this system as well.

To date, 39 of the state's 58 counties have decided to switch cash benefits to EBT under a contract with Citibank, said Debra Garcia, policy analyst with Consumers Union in San Francisco.

Board decision

Under the EBT plan, users receive four free withdrawals per month, but after that, they're charged for usage just like holders of bank ATMs are. While it's possible to receive one's benefit for free under the new system, an inefficient user can rack up charges.

"The basic concern," said Toby Rothschild, general counsel for Legal Aid Foundation of Los Angeles, "is (aid recipients) have a system that allows them to get their money at low or no cost, convenient to where they are. If the EBT system can do that, we think that's the way (the county) should go."

The board's decision has been complicated by the introduction of an alternative plan by Continental Currency and Nix Check Cashing in Carson.

Under that plan, welfare checks would continue to be issued at check cashing locations, saving the cash-strapped county at least $27 million over seven years in network costs and other expenses, said John Nickerson, vice president of corporate development at Continental Currency.

Continental and Nix would cut the fees they charge to cash welfare checks by roughly half, capping them at 1 percent, and issue two free money orders as well.

Tom Nix, president and chief executive of Nix Check Cashing, said the check cashers' plan provides a safe, reliable service for less than aid recipients pay now. With the EBT plan, he said, there is the potential for ATM malfunctions and cash outages.

The Board of Supervisors voted to have the Department of Social Services study the feasibility of distributing cash benefits via EBT, said Margaret Quinn, chief of the department's Cash Programs Division.

The state will deliver a final draft of its EBT plan around April 1, Quinn said. At that point, the board must decide whether to go ahead with a switch that would take place around August.