A Bid for Payments
To Become Cheaper
And More Secure
By ELEANOR LAISE
January 4, 2008
The Treasury Department plans to introduce a prepaid debit card for Social Security recipients in an effort to provide safer and cheaper benefits payments.
The Direct Express debit card, set to be announced today, will be introduced in a handful of states this spring and rolled out nationwide by the end of the summer. Dallas-based Comerica Inc.'s Comerica Bank has been selected as the card issuer for the program, which is targeted at Social Security and Supplemental Security Income recipients who don't have a bank account.
The card could mean significant cost savings for benefits recipients as well as the federal government, Treasury officials and banking experts say. People who sign up for the card will also gain faster access to their money and avoid some security problems, like stolen checks.
But there are some cardholder fees associated with Direct Express, and a significant education effort may be required to get users to accept and understand the card.
The debit card is part of a broader effort by the Treasury to move to electronic payments. In 2005, the department started its Go Direct campaign, which is designed to encourage benefits recipients with bank accounts to switch to direct deposit.
Many state agencies in recent years have offered prepaid debit cards to recipients of unemployment benefits or child support payments, and the Federal Emergency Management Agency in 2005 offered debit cards loaded with emergency-relief funds to hurricane victims.
"We've been working for a while to try to understand the needs of the unbanked," says Judith Tillman, commissioner of the Treasury's Financial Management Service, which disburses most government payments. "Combine that with problems we've seen with financial crimes and identity theft, problems with forged checks and stolen checks and so on -- the debit card seemed like the right answer."
As many as 40 million U.S. households either have no bank account or make little use of banking services, according to an estimate from the Chicago-based Center for Financial Services Innovation. For these people to save effectively, "the first step is to convert one's pay or benefits check into a convenient and usable form of money," says Jennifer Tescher, the center's director.
In April, Treasury plans to begin mailings to encourage benefits recipients without bank accounts to sign up for the debit card and those with bank accounts to sign up for direct deposit.
For benefits recipients who sign up for the card, Social Security retirement, disability and survivor benefits as well as SSI benefits will be automatically loaded onto the card account on the designated payment day. Card holders will be able to use the card at ATMs, bank branches, retail locations and online.
Fifteen financial institutions competed to issue the debit card. Comerica was chosen because of its previous experience running state-government debit-card programs, its ability to offer features like text-messaging of low-balance alerts and its reasonable fees, Ms. Tillman says.
Comerica will earn money on cardholder fees, interchange fees when cardholders use the card at the point of sale, and the float on funds sitting in cardholders' accounts. Comerica estimates that there may be anywhere from 2.5 million to 10 million Direct Express card holders in five years. The company's government card business, begun in 2004, now has over two million card holders.
The debit card should mean cost savings for many Social Security recipients who don't have a bank account and who use check-cashing services to cash their benefits checks, banking experts say.
Cardholders will get one free ATM cash withdrawal per deposit per month, but Comerica will charge 90 cents for each additional withdrawal. Like other debit-card holders, users may also face surcharges at many ATMs. Other fees include $3 for international ATM withdrawals, 3% on international currency exchanges, 50 cents for each online bill payment and 75 cents per month for paper statements.
Cardholders can avoid surcharges at more than 56,000 designated ATMs, including those run by 7-Eleven and PNC Bank. ATM balance inquiries and cash withdrawals at a teller window will be free, and there will be no fees for overdrafts, declined transactions, or inactivity. Cardholders can opt to receive free deposit notifications or low-balance alerts via text message, email or automated phone call.The card should bring substantial savings for the federal government. The government's cost to issue a paper check was 89 cents in fiscal year 2006, versus nine cents for an electronic payment. Four million recipients of Social Security and SSI don't have a bank account. If each of them signed up for the debit card, the government would save $44 million a year, Ms. Tillman says.
The debit cards should be more secure than paper checks, the Treasury and banking experts say. In 58,000 cases last year, Social Security checks were forged, Ms. Tillman says. Nine times out of 10, problems with benefits payments are associated with paper checks, she says. The debit-card accounts are protected by PIN numbers and FDIC insured.
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