U.S. aims to switch millions of benefit recipients to electronic payments

By Michelle Singletary
Thursday, April 22, 2010; A16

The Treasury Department is making a big push to go green -- and save a lot of green -- by switching millions of people who receive Social Security and other federal benefits from paper checks to electronic payments.

The announcement came just days before the 40th anniversary of Earth Day on Thursday. And although the move is expected to save paper, it is also expected to save the government more than $300 million over the first five years and $125 million each following year. It costs about $1 to cut and mail a check but only 10 cents for a direct deposit. Each year, the Treasury issues more than $135 million benefit payments via paper checks.

Beginning next March, new enrollees for Social Security, Supplemental Security Income, veterans, railroad retirement and federal civil servant retirement benefits will get their money through electronic transfers. People already receiving checks will be shifted to all-electronic payments beginning March 1, 2013.

If someone doesn't have a banking relationship or doesn't want to receive payments by direct deposit, there's the option of the Treasury's Direct Express debit card. A million people already get their benefits though the debit card.

"Treasury is beginning work immediately with Social Security and other agencies to get the word out," said Dick Gregg, the department's acting fiscal assistant secretary. "We want to allow plenty of time to educate benefit recipients in order to make the transition as smooth as possible."

This is a good move. Lord knows the government needs to save some cash anywhere it can. By Sept. 30, federal employees will no longer be able to purchase paper savings bonds through payroll deductions. The issuance of paper bonds through payroll sales will stop for the private sector Jan. 1.

Yet about a quarter of all households in the United States are "unbanked" or "underbanked," and those households are disproportionately low-income and/or minority, according to findings of a study completed for the Federal Deposit Insurance Corp. Those with annual incomes of $30,000 or less account for at least 71 percent of unbanked households.

Gregg said Treasury has a plan to reach out to people. "One key mechanism is to send information with the checks they currently receive," he said.

I know a little about unbanked and underbanked folks. Many don't trust financial institutions or have had some issues with a bank account or just don't want to get their money electronically. They are a tough group to access and reach. A notice inside an envelope with their checks won't be enough to effectively communicate this huge change to them. You have to advertise the switch or get in their face or in the faces of people who know them or work in their communities.

"This is going to be very different for a lot of people," said Nancy LeaMond, executive vice president for social impact for AARP, a senior citizen advocacy group. "For over half of all people on Social Security, this is their primary source of income. We have to make sure people have maximum comfort and security."

One thing Treasury needs to do is renegotiate the fee aspect of the debit card. Currently, people get one free ATM withdrawal per deposit of federal funds when using the card. Subsequent withdrawals cost 90 cents and don't include a surcharge that may be levied by the ATM owner. I can see millions of people using their one free withdrawal to pull out all their cash just to avoid other fees. At the very least, people ought to get up to three free ATM withdrawals. There is no fee for using a bank teller. Merchant purchases and cash back received during those transactions are also without a fee.

Finally, I have one major concern about this green-to-green move for recipients of federal benefits. Many financial institutions are violating a federal rule by garnisheeing the accounts of people who receive electronic deposits of Social Security payments. These funds are supposed to be protected from creditors except under certain very limited conditions.

To address this issue, Treasury has proposed toughening anti-garnisheeing regulations. The new rules would require financial institutions that have received an order to garnishee funds to conduct a review of the person's account going back 60 days before the judgment to determine whether any federal benefits were directly deposited into the account. If this is the case, the bank or financial institution would have to establish a protected amount equal to the sum of two months' worth of benefits or an amount equal to the balance in the account if it is less than the previously deposited federal benefits.

This new rule definitely needs to be put in place before millions of benefit recipients, many of whom are lower-income, can be weaned off of checks.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

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