Whether it will be a cost saving or an added cost for recipients depends on how informed they are and how they use the debit cards
Belleville, Ill. – June 10, 2008 – The nationwide rollout has begun and Social Security Disability Insurance (SSDI) recipients in some states already have the option of receiving their benefit payments electronically on a debit card, rather than via a paper check. However, eligible individuals – many of whom are “unbanked” – should have a clear understanding of the pros and cons of opting for the debit card, particularly the financial ramifications, according to Allsup, which represents tens of thousands of people in the SSDI process each year. It also offers services that support the financial and health well-being of individuals with disabilities.
“Before signing on to or totally dismissing the idea of the debit card program, potential cardholders should look at how they are likely to use a card,” said Paul Gada, personal financial planning director of the Allsup Disability Life Planning Center. “For some, the card may make sense. For others, they may realize after looking at their spending habits that getting a bank account may really be the best option. And there will be others that will always operate with cash only, regardless of the drawbacks it presents.”
The debit MasterCard program, called Direct Express, is run by the U.S. Treasury Department through Comerica Bank with the intent to encourage Social Security recipients who do not have a bank account to elect to have their benefits loaded electronically onto a debit card. Direct Express has been introduced in 10 states: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas. The rest of the nation will be phased in throughout the summer.
Cost savings for the government could be significant, based on estimates from the Treasury’s Financial Management Service. For example, it cost 89 cents to issue a paper check in 2006 compared with 9 cents to process an electronic payment. If the 4 million recipients of Social Security, SSDI and Supplemental Security Income (SSI) who don’t have bank accounts signed up for debit cards, the savings could be $44 million annually.
Having monthly benefits electronically deposited onto debit cards also has its advantages for recipients, most notably convenience and security. For example, people with limited mobility who have the debit card would not have to make a special trip to cash their SSDI check or be concerned if they were hospitalized or otherwise unable to retrieve their benefit payment. Funds on the card are FDIC insured, just like money in a bank account, so the money is fully protected if the card is lost or stolen, although there will be a fee the second time a card needs to be replaced in any given year.
Evaluating the Costs
While cost savings for the government – and taxpayers – are obvious, it may not be as clear-cut for debit-card recipients. They may pay even more in transaction fees than the average six dollars to have a paper check cashed, especially if they don’t pay attention to how they’re using the debit card.
The following questions are among those that Gada recommends before signing up for a debit card:
- How accessible to you is an ATM in the Comerica network?
- How often would you make ATM withdrawals and would they be at in- or out-of-network ATMs?
- How often would you use the electronic bill payment feature?
- Will the companies you are paying electronically charge you a fee for electronic payment?
- Is there a bank in your area that could provide you with a more cost-effective solution for the features you want, such as ATM, electronic bill pay or direct debit?
- If you are concerned about opening a bank account, have you spoken with a local bank to see if they can help alleviate your concerns?
Social Security recipients participating in the Direct Express program are allowed one free ATM cash withdrawal per month from a designated ATM. They are assessed a 90-cent fee for each additional ATM withdrawal. Cardholders may be charged an additional “surcharge fee” by ATM owners outside of the Comerica Bank network, which issues the debit cards. Additionally, program participants have access to online bill payment for a fee of 50 cents per online bill payment and can receive a paper statement for a 75-cent monthly fee.
Gada advises potential cardholders to consider how they would use the debit card. For example, rather than having to pay for a cashier check or carry large amounts of cash and pay bills in person, incurring a small transaction fee for electronic bill payment may be worth it, particularly for individuals who have a difficult time getting around. However, Gada noted, individuals should check to see if the organization they are paying will assess an additional charge for accepting electronic bill payment.
On the other hand, people who are going to head for an ATM every time they need cash will find transaction fees quickly adding up to little added value.
“In these cases, it’s time to seriously consider what is preventing you from getting an account at your local bank, because that probably would be your best option,” said Gada. “Many banks offer no minimum balance checking accounts where you can have your Social Security benefits direct deposited and electronically pay bills or use their ATMs at no additional charge.”
Overcoming Banking Barriers
One of the reasons that some Social Security recipients continue to insist on paper checks is the fear that their bank accounts could be attached by creditors. However, under federal law, Social Security benefit payments are protected from attachment, meaning creditors do not have the right to take these funds from a recipient’s bank account. The same rules will apply to funds placed on Direct Express debit cards. There are a few explicit exceptions to the rules guarding against attachment of Social Security benefits. For example, Social Security funds can be taken to pay child support or alimony payments the individual owes.
“At any given time, there are likely millions of dollars in Social Security payments that are at risk because people on fixed incomes got into debt or are having a dispute with a creditor,” said Gada. “Unfortunately, they are acting on inaccurate information that has them afraid to put their money into bank accounts where it can be protected and they can be afforded other benefits of being banked.”