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Oh, SNAP! FNS Issues Final Rule That Discriminates Against Minority Retailers

The United States Department of Agriculture (USDA) has been frequently referred to as “The Last Plantation,” based on what has been described as a “deeply ingrained culture of racism that manifested itself in both the way its programs were administered—and whom it hired, and didn’t, to administer those programs.”  Despite sincere efforts during recent years to address these endemic problems , it appears that things may not have changed much at USDA’s Food & Nutrition Service (FNS).  

FNS is the federal agency that administers the nation’s nutrition programs, including the Supplemental Nutrition Assistance Program (SNAP).  Formerly known as the food stamp program, SNAP provides supplemental nutrition benefits to approximately 50 million Americans; the precise number of current SNAP beneficiaries is not publicly available because FNS has not published data since April 2020.  While states issue SNAP benefits and EBT cards to impoverished households, FNS regulates the retail food stores at which beneficiaries redeem their SNAP dollars.  Currently, more than 240,000 convenience stores, groceries, supermarkets, and specialty retailers are authorized to accept SNAP benefits. While half are convenience stores or small groceries, those stores redeem less than 7% of the more than $55 billion in annual SNAP redemptions.  It may therefore come as a surprise that these small retailers, many of which are owned by persons of color and recent immigrants, comprise more than 90% of the stores that are permanently disqualified for trafficking in SNAP benefits according to FNS’s Retailer Management Year End Summary.

SNAP retailers who find themselves on the receiving end of an FNS’s Charge Letter have long complained about the inherent inequities in the agency’s administrative process.  For example, unlike the administrative review systems in place at every other USDA agency, SNAP retailer decisions are not made by licensed attorneys who are appointed as administrative law judges; to the contrary, at FNS, retailers make a written submission to Administrative Review Officers with no legal training.  No discovery is available during Administrative Review proceedings and hearings with testimony from FNS officials who are subject to cross-examination are never held.  Attorneys who represent SNAP retailers before FNS have referred to the agency’s decision-making as “Kafkaesque” and “akin to a Star Chamber.”  Without question, true due process of law is not available to SNAP retailers who face FNS’s gauntlet.  It should therefore come as no surprise that less than 1% of SNAP retailers who sought administrative review during Fiscal Year 2019 succeeded in having FNS’s initial adverse determination reversed.

SNAP retailers faced with trafficking are able to learn more about the charges levied against their stores by filing a Freedom of Information Act (FOIA) request with the agency.   Until recently, retailers who timely filed FOIA Requests after receiving a charge letter from FNS would, pursuant to a 2014 FNS policy memorandum, had administrative proceedings held in abeyance pending the resolution of FOIA proceedings.   While this should have been a quick process given the 20 working day period for federal agencies to respond to FOIA Requests, FNS rarely complied with this statutory requirement.  FNS typically takes more than three months to respond to FOIA Requests from SNAP retailers; the agency’s track record with FOIA Appeals is far worse – more than 900 FOIA Appeals are currently pending and it takes the agency an average of 675 days – nearly two years, to issue decisions.

It was therefore not surprising that FNS often took a substantial period of time before it issued decisions in SNAP administrative proceedings .  Did USDA Secretary Perdue order FNS to fix these long-standing problems in its FOIA Office or provide it with additional funding to increase staff in order to permit the agency to comply with its statutory obligations? No.  Instead, during a hearing before the House Agriculture Committee, he cast blame on a “cottage industry” of lawyers that represent SNAP-authorized retailers for causing these delays. Since Secretary Perdue’s Congressional testimony more than eighteen months ago, the delays in FNS’s FOIA Office have only worsened.  Rather than attempting to cure the problem by complying with FOIA, FNS instead issued a regulation that eliminates holding administrative proceedings in abeyance pending resolutions of FOIA proceedings. 

Unfortunately for SNAP retailers charged with trafficking and other program violations, FNS’s new regulation by FNS has effectively taken this valuable investigatory tool away.  In practical terms, FNS’s regulatory action means that a SNAP retailer accused of trafficking will no longer have the opportunity to receive any records from the agency before its response to a charge letter is due. 

In response to FNS’s proposed rule, retailers and the U.S. Small Business Administration (SBA) submitted comments expressing concern about the adverse impacts on retailers and proposing reasonable alternatives, including requiring FNS to produce all records in its possession that it will use in making its administrative determination.  Retailers also proposed reform of the entire system and replacing it with Administrative Law Judges.  SBA commented that the proposed rule is economically significant because it will have more than $100 million in annual impacts.  After the closure of the comment period, attorneys for SNAP retailers spoke with the Office of Information and Regulatory Affairs about the proposed rule, including the discriminatory impacts that the rule would have on small retailers, many of whom are persons of color and/or immigrants.

The comments submitted by retailers and SBA fell on deaf ears and on August 26, 2020, FNS issued its Final Rule unchanged.  The preamble to the Final Rule contains a veritable plethora of unsupportable and self-serving statements, including the ludicrous contention that “FNS provides a significant amount of substantial information to a retail food store in a clear and concise manner” when issuing a Charge Letter.  To the contrary, FNS’s charge letters are largely boilerplate issuances that hardly contain “significant” or “substantial” amounts of information.  Other than a list of transactions – with much identifying information redacted, these issuances contain little of the information that FNS’s officials will review in making a determination that usually results in the permanent disqualification of the store.

FNS even had the temerity to note that Congress intended for retailers to be afforded a “robust administrative due process.”  Anyone that encounters the agency’s administrative process quickly learns that it is hardly robust and does not afford retailers with due process.  FNS knows that few retailers can afford to take a case to federal court where retailers have the right to engage in discovery, including the depositions of FNS officials.  Those depositions often provide a gold mine of information that is not publicly disclosed.  For example, during a 2017 deposition, an FNS section chief admitted that she and her team of Program Specialists permanently disqualified all but one of the more than 3,000 retailers charged with trafficking over a dozen year period; that lone retailer didn’t get off scot-free and paid a substantial civil monetary penalty.  Retailers who seek judicial review usually fare far better before a district court judge than before FNS’s one-sided administrative process.

FNS’s Final Rule went into effect on October 26, 2020, and FOIA Requests submitted by SNAP retailers no longer result in holding administrative proceedings in abeyance.  This is likely to result in additional innocent retailers being permanently disqualified from what was previously referred to as the food stamp program.  This will adversely impact socio-economically distressed communities, resulting in the loss of jobs due to store closures and the expansion of food deserts, especially in communities with large numbers of minorities. There is no doubt that FNS’s Final Rule will have a disparate impact on minority store owners and their customers.

It is long past due for Congress to step in and fix the mess.  The legislative branch should conduct a comprehensive overview of FNS’s entire retailer administrative process and should enact broad reforms as soon as possible.  While FNS’s goal of eliminating SNAP fraud is admirable, its methods of doing so are arbitrary and callous.  Numerous innocent retailers get caught in FNS’s overbroad net and the Final Rule will make it nearly impossible for them to defend themselves.  During these troubled times, we have seen rapid increases in SNAP participation with little hope that things will improve dramatically in the near future.  Fixing FNS’s broken and inequitable SNAP administrative review system would be a good first step.

OFW Principal Stewart Fried provides regulatory advice, training, and representation during administrative and judicial review proceedings to SNAP and WIC retailers across the United States.

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