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Published: October 2010

Push for electronic deposit shouldn’t penalize vulnerable recipients of federal benefits

Coalition: Electronic deposit of federal benefits

Consumer Action signed on to a letter aimed at the Department of Treasury's ongoing push to make federal benefits deposits electronic. The letter asks for an articulated waiver procedure that is disclosed and accessible to the minority of recipients for whom direct deposit into a bank account or the Direct Express Card will not work because of factors such as disability or geography.

Below is an excerpt from the letter:

Treasury’s ongoing push for electronic deposit of federal benefits makes sense for many – even most – people. Electronic deposit is not for everyone, however. The proposed regulation in this docket is inadequate: it mandates electronic deposit, deletes all waiver provisions from the regulations, and purports to protect recipients from the abuses of the financial services marketplace by relying on the Direct Express. The transfer away from paper checks must not be done at the expense of the most vulnerable federal benefit recipients, the elderly and the disabled.
The National Consumer Law Center ("NCLC") on behalf of its low-income clients, and the Consumer Federation of America (CFA), as well as the additional two dozen national, state and local advocates for low and moderate income recipients of federal benefits, submit the following comments on the Treasury Department’s proposal to mandate all electronic deposits by 2013.
We do not oppose Treasury’s proposal to increase substantially the number of recipients of federal benefits receiving the payments electronically. We support Treasury’ s laudable goal of saving money, saving trees, and improving the security of the delivery of federal benefits. We agree that there are numerous advantages to receiving electronic deposit for federal benefit recipients.

However, even while electronic deposit is right for most recipients, it is not right for all recipients. There must be an articulated waiver procedure disclosed and accessible to the minority of recipients for whom direct deposit into a bank account or the Direct Express Card will not work because of factors such as disability or geography.

We are very concerned that as Treasury pushes the most vulnerable of federal recipients into the arms of banks and prepaid card providers, Treasury must adhere to its obligation to make sure that these accounts are safe for people to use. Federal payments are exempt by law from the claims of creditors. Banks and prepaid card providers should not be permitted unfettered access to these funds for high fees or overpriced credit.

These comments are written in conjunction with those we recently submitted to Treasury on the expansion of prepaid cards as conduits for federal payments.4 Everything said in those comments should be understand as incorporated into these comments, with particular attention to the following point: we have significant concerns about the authorization for the deposit of federal benefit payments onto prepaid, stored value cards or similar products which are only subject to the conditions outlined in the proposed rule. More substantial protections are essential before these transactions should be authorized and sanctioned by Treasury.

In these comments, we urge Treasury to recognize several crucial areas in which action must be taken:

• The need for explicit and disclosed waivers of the direct deposit requirement. While we agree that the current waiver formulae can be considerably tightened, articulated and available grounds to allow some federal benefit recipients to continue to receive paper checks must remain.
• The legal and moral need for Treasury to establish minimal rules for safe banking and prepaid card products which protect federal benefit recipients from predatory and expensive credit arrangements tied to the direct deposit of federal payments.
• The need for improvements to the Direct Express Card. I. Waivers Must Be Granted Based on Articulated, Clear, and Limited Standards.

Treasury proposes to completely eliminate the current waiver provisions from the regulations. This would leave in place only the vaguest of waiver standards. The Secretary of the Treasury would have the authority to waive the requirement for direct deposit, and the payment agencies could waive the requirement in circumscribed situations such as payments to payees in foreign countries, certain disaster and military situations, and the like.

The key – and most drastic – change proposed would be the complete elimination of the current hardship waiver requirement.5
Under current Treasury regulations, waivers are automatically granted to any benefit recipient who fails to provide information about a bank account to receive direct deposits. Recipients can determine – in their sole and exclusive discretion – whether they have any one of the following hardship grounds to qualify for a waiver:

•  physical or mental disability
• geographic
• language or literacy barrier
• direct deposit would impose a financial hardship.

The bottom line in the current system the default rule is that a paper check must be used if the consumer does not do anything. In other words, if the recipient does not provide information about a bank account and then does not answer the question about whether a waiver is desired, the agency must make the payments by paper check.

Lead Organization

National Consumer Law Center

Other Organizations

National Consumer Law Center on behalf of its low-income clients | Consumer Federation of America | Center for Responsible Lending | Consumers Union | National Association of Consumer Advocates | National Legal Aid and Defender Association | National Senior Citizens Law Center | US Public Interest Research Group | Community Legal Services of Arizona, Phoenix, Arizona | California Reinvestment Coalition, San Francisco, California | Jacksonville Area Legal Aid, Inc., Jacksonville, Florida | Land of Lincoln Legal Assistance Foundation, Inc., Alton, Illinois | Legal Assistance Foundation of Metropolitan Chicago, Illinois | Coordinated Advice & Referral Program for Legal Services of Chicago, Illinois | Legal Aid of the Bluegrass, Covington, Kentucky | Maryland Legal Aid Bureau, Inc., Baltimore, Maryland | Mississippi Center for Justice, Jackson, Mississippi | Empire Justice of Center, Albany, New York | North Carolina Justice Center, Raleigh, North Carolina | Advocates for Basic Legal Equality, Dayton, Ohio | Ohio Association for Justice, Dublin, Ohio | South Carolina Appleseed, Columbia, South Carolina | Legal Aid Society of Roanoke Valley, Roanoke Virginia | Mountain State Justice Charleston, West Virginia

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