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Hearing on the Direct Deposit of Social Security Benefits

Statement for the Record by Max Richtman, President and CEO
National Committee to Preserve Social Security and Medicare
10 G Street, N.E. Suite 600 Washington, DC 20002

House Committee on Ways and Means
Subcommittee on Social Security

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I want to thank Subcommittee Chairman Johnson and Ranking Member Becerra for holding this hearing to examine the impact on beneficiaries of the mandatory use of direct deposit for the purpose of paying Social Security benefits.

Background

Since its effective date of January 1999, the Debt Collection Improvement Act of 1996 has required that all federal payments be made through electronic funds transfers.  At the same time, the law granted the Secretary of the Treasury broad latitude to grant exceptions to the general rule for those without access to a bank account in order to reduce the hardship that might be attendant on an overly-aggressive implementation of this mandate. 

Since that time, the Treasury Department has honored requests by individuals receiving Social Security or Supplemental Security Income benefits to continue to be paid via paper checks if that was the desire of the beneficiary.  New regulations recently promulgated by the Treasury Department changed that policy.

On March 1, 2011, the federal government began requiring new federal benefit recipients to collect their monthly benefit via direct deposit.  Recipients whose benefits started before that date will be able to continue getting paper checks until May 1, 2013. Beneficiaries without bank accounts will be paid using the Treasury Department's Direct Express Debit MasterCard program.

Currently, there are about 4 million Social Security and Supplemental Security Income recipients that still receive paper checks. The Treasury Department contends that converting benefit payments to direct deposit will make it easier and faster for consumers to get paid and will save taxpayers money, which Treasury estimates at $303 million over the first five years and about $120 million each subsequent year. However, absent significant changes to regulations, this new rule is likely to inflict more financial harm on low-income seniors and other benefits recipients.

Direct Deposit

The National Committee believes that direct deposit or other forms of electronic delivery of payments is generally safer and more reliable than is on paper checks.  Direct deposit is a safe and convenient service that transfers salary payments and government benefits into an individual’s bank account with little likelihood that the benefit will be lost or misappropriated.

Mandatory use of direct deposit or other alternate methods of electronic payment will, as we said earlier, affect about 4 million beneficiaries, almost all of whom are either severely disabled or elderly.  Many of them will be frail elders who will find a transition of this nature at best, and it is important that the rules that govern such a change be handled with sensitivity and compassion. 

Treasury Procedures

While we are pleased that the Treasury rules provide an exemption for beneficiaries who reached the age of 90 as of May 1, 2011, we are concerned about the process the Department established for handling two other exemptions that it included in its final rules.

These exemptions, or waivers, as they are called, apply to current Social Security and SSI beneficiaries who were under the age of 90 as of May 2011, and who are in one of two categories.  First, there are those who ask to continue to be paid by a paper check by certifying they believe that direct deposit would, in the words of the Treasury Department’s regulations, “…impose a hardship because of the individual’s inability to manage an account at a financial institution or a Direct Express card account due to a mental impairment, and Treasury has not rejected the request.”

The second basis for waiving mandatory electronic payment applies to individuals who certify that payment by direct deposit would impose a hardship “…due to the individual living in a remote geographic location lacking the infrastructure to support electronic financial transactions, and the Treasury has not rejected the request.” 

These rules seem extremely restrictive.  First, the only Social Security and SSI beneficiaries who will automatically be allowed to continue to receive their benefits via a paper check as of March 1, 2013 are those who are over 92 years old as of that date.  We believe that limiting automatic waivers to only those over 92 is unduly restrictive. 

In fact, the entire system of waivers, as established in the regulations, and as they are being implemented by the Treasury Department seem to be onerous.  Again, quoting from the Treasury regulations, individuals requesting waivers because of mental incapacity or geographic remoteness “…shall attest to the certification before a notary public or otherwise file the certification in such form as the Treasury may prescribe.”

It seems to us that the adjudicative process being used by the Treasury lacks compassion and sensitivity.  Requiring frail elderly or disabled individuals, some of whom will be well past 90, to appear before a Notary Public to swear they are mentally impaired or are living in a remote

geographical area just to continue to receive a paper check is wrong.  Such policies completely disregard the limitations of this population and appear to be disproportionate to any financial advantage that might accrue to the government from them.

Direct Express

We are concerned that the Treasury Department, in its zeal to end issuance of all paper checks, will rely on its Direct Express option too heavily.  We are especially concerned as to how this might affect individuals who do not have a relationship with a bank or financial institution, such as low-income elderly or those who receive Supplemental Security Income.  We have heard reports of serious problems with customer service regarding these cards, and wonder whether the needs of a senior or disabled person facing eviction from their homes or apartments due to a problem relating to a Direct Express card will receive the kind of help that traditionally has been provided by SSA to people who have faced similar situations arising from problems accessing their benefits.  SSA’s role in cases of this nature needs to be clarified.

Role of the Social Security Administration  

From what we can determine, there is little or no role for the SSA in implementing the final phase of mandatory direct deposit.  This concerns us, as their system of local, community-based offices are the first place seniors think of when handling matters related to payment of their Social Security or SSI benefits.

Given the strict limits that the Treasury Department has established on waivers, it seems likely there could be a great deal of confusion and anxiety created by the letters that the Treasury Department is sending to elders affected by the final phase of mandatory direct deposit.  These communications are likely to cause tremendous confusion, anxiety, and possibly lead to temporary loss of benefits to the elderly and disabled population who rely so heavily on Social Security to meet basic needs for food and shelter.

Having a more prominent role for SSA in these cases seems sensible and desirable.  The Treasury Department, in this process is no more than a telephone number and a post office box.  SSA’s network of some 1,300 local community-based field offices should play a key role in a change that affects so many of America’s seniors.  Instead, it seems to have been relegated to a role as passive observer rather than a key player.  We strongly recommend that SSA be more involved in the run-up to the March 2013 conversion.

Conclusion

In conclusion, Mr. Chairman, the National Committee to Preserve Social Security and Medicare supports the widest possible application of direct deposit that is consistent with the wishes and the best interests of our nation’s seniors.  In addition, seniors who experience problems with benefit payments should continue to rely on assistance from the SSA, whether their method of payment is through check, direct deposit or Direct Express. 

Toward those ends, we urge the Treasury Department to adopt a less burdensome process for requesting waivers and a more expansive approach in adjudicating them.  In addition, we urge the Treasury Department and the SSA to work more closely in providing assistance to seniors who need their help in dealing with the transition to mandatory direct deposit.  In that regard, we believe that harnessing the expertise of the local Social Security offices in these issues is essential.



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