Banks are making nearly $1.5 million a month in fees by charging California welfare recipients to withdraw their benefits using ATMs and debit cards - an amount that has nearly doubled since 2008.

The sharp increase comes as Gov. Arnold Schwarzenegger's administration has made cracking down on fraud in the state's welfare-to-work program a priority, most recently by barring use of welfare debit cards at casinos and cruise ships after media reports revealed that nearly $70 million in benefits had been withdrawn outside the state since 2007.

Advocates for the poor say that while Schwarzenegger has rightly cracked down on such abuses, he has failed to curb another source of waste: escalating bank fees that take money from needy families and from the California businesses where that money would otherwise flow.

By the end of this year, they estimate, more than $38 million will have been transferred from poor families to banks in the form of ATM and debit fees over the past three years. For example, in 2008, according to state figures, banks collected $10.1 million in fees from welfare recipients; this year, they are on track to collect more than $15 million. In June 2008, recipients paid out $833,000; banks collected $1.44 million the same month this year.

Schwarzenegger has pushed for deep cuts to the welfare program and even proposed eliminating it altogether in his budget - ideas that were eventually rejected.

Mike Herald of the Western Center on Law and Poverty said that while the governor has used cases of fraud to argue for such policies, he has been "asleep at the wheel" when it comes to bank fees and other issues. In August, The Chronicle reported that a commission appointed by the governor knew about welfare access at cardroom ATMs since at least 2006 but failed to act until last year.

Bailed-out banks

Herald also noted that many of the banks benefited from taxpayer funds in the federal government bailout, yet have increased their surcharges significantly in recent years. For example, Chase once offered free withdrawals at its ATMs for noncustomers but now charges $3. When asked about the increase, a spokeswoman for the bank only said, "We charge a fee to noncustomers who find our ATMs more convenient than their free alternatives."

Herald said that is unacceptable.

"Twenty or $25 a month (in fees) means a family doesn't have food at the end of the month for their kids, because they got taken by a bank that is getting a bunch of money from the federal government and now is taking money from poor families," he said, adding that the state's annual contribution to the welfare program has shrunk by about $1 billion since 1994.

"We feel the governor and other elected officials have been trying to use welfare recipients as scapegoats, trying to blame the state's ills on them when really the evidence doesn't demonstrate that at all," Herald added.

Federal money

CalWORKS, the state's welfare program, serves about 1.4 million people, two-thirds of whom are children. The $6.5 billion program - more than half of which is paid for by the federal government - offers cash assistance to needy families for clothing, food and housing. The typical recipient is a single mom with two children who receives up to $694 a month. Many recipients are too poor to qualify for free checking accounts.

Charr Lee Metsker, deputy director of the Welfare to Work Division at California's Department of Social Services, said the escalating fees are a concern, but noted that the state has no control over the banking industry. She said welfare recipients can make up to four free withdrawals per month at ATMs that are part of the Quest network, and that the state works to educate welfare recipients about that option.

"We have recently sent letters (to banks) requesting they discontinue this practice," Metsker said of the fees. "Over the years, we have appealed to the banks to be a little more charitable in this regard. ...We know that our families are very needy and need every single dime in their pocket, so we also educate them about how to do business in a way so they avoid these fees."

State Sen. Leland Yee, D-San Francisco, said that is not enough.

"It's pretty obscene. It's like a merchant going to a famine-ravaged country and selling marked-up food to make money off the misery of others," he said, adding he thinks the state could succeed in lowering the fees if it put more pressure on the banks. "Where there's a will there's a way."