Are you receiving payments or benefits from the federal government in the form of paper checks? The Treasury wants to switch you to “direct deposit.” With direct payments, the money moves into your bank account electronically.
We’re talking here about Social Security, Supplemental Security Income (for low-income seniors), disability, veterans benefits, federal pensions, vendor payments–in fact, everything but tax-refund checks.
A switch to direct deposit won’t be mandatory, as was originally feared by advocates for older people and low-income consumers. But it will be strongly encouraged.
The government hopes for a clean transition into this new electronic world. Banks, check cashers and similar institutions will be offering special accounts to people who don’t already have a banking relationship.
But there’s going to be a lot of confusion.
Already, Western Union–which is peddling an electronic account–has been dishing out misleading information. Company officials say that it happened innocently or in error. But I cite it as a good example of what can occur.
Let me tell you what direct deposit will probably look like.
Starting Jan. 1, everyone who is getting paper checks from the government–and has a bank account–will be encouraged to switch.
Direct deposit has a lot of advantages. No one steals your check from your mailbox. You don’t have to mail or carry your check to the bank, or get someone to cash it for you. In the rare event that a deposit goes astray, it can generally be tracked within 24 hours.
If you love paper checks, however, you will not be forced to accept direct deposit. You can excuse yourself for any reason, says John D. Hawke Jr., the Treasury’s undersecretary for domestic finance.
Say, for example, that you’re on Social Security and get a notice asking if you want to switch to direct deposit. If you don’t return the notice, your checks will continue as usual, Hawke says.
What about the estimated 10 million people who get government benefits but don’t have a bank account? By early to mid-1999, they’ll be offered an optional Electronic Transfer Account (ETA).
ETAs, as currently conceived, will be federally insured accounts, with no minimum balance, costing somewhere around $3 a month. Any bank, S&L or credit union could offer them. If you sign up, your federal payment would be deposited there.
ETAs would have special protection from creditors. By law, creditors can’t seize Social Security checks, SSI, Railroad Retirement or veterans benefits.
Old-fashioned paper checks would still be attractive, however, if a retailer or relative cashes them free.
This brings me back to Western Union’s new program, called Benefits Quick Cash. Under it, your federal check is sent to a bank electronically, then switched to Western Union’s account. You can retrieve your money from any Western Union outlet, paying $7.50 for each withdrawal.
That’s a lot more expensive than ETA accounts are going to be. What’s more, your account won’t have the same protection against creditors, and won’t be federally insured.
Western Union’s telephone salespeople have been telling potential customers they must sign up for direct deposit or else their federal checks will stop next Jan. 1. False, false, false.
“That’s not in their script,” says Western Union’s Alexandra Hoy, director of business development. “We’ll go back and work with it immediately.”
Western Union’s brochures also say that federal payments “must” be distributed electronically, starting next year. Also not true.
