Social Security Will Soon End Paper Checks

Under Treasury rules, all federal benefit programs will require direct deposit of money by next March.

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The movement to direct deposit of Social Security benefits is nearly complete. More than 52 million beneficiaries receive their payments electronically, and about 3.3 million—only 6 percent—are still paid with paper checks. Disability recipients of Supplemental Security Income payments are less likely to have made the switch. Nearly 1.5 million SSI recipients, or more than 17 percent, are still getting paper checks as of this month.

By next March, U.S. Treasury Department rules will require most people to have switched to electronic payments. Under its "Go Direct" program, people can have federal benefit payments deposited directly into their bank or credit union account or put into a Direct Express Debit MasterCard card account. Paper checks will continue for a limited number of hardship cases and people in their 90s, but the number of allowable waivers will dwindle over time.

Direct deposit is a good deal for nearly everyone. Gone are the fears of stolen checks, the demands of taking the check somewhere to be cashed or deposited, and just the general uncertainty of wondering if something has or will happen to your check. It's also a good deal for the government, which saves hundreds of millions of dollars in expenses with electronic deposits.

If you're a recipient or a family member, make sure you understand the rules for the use and fees surrounding direct deposit accounts for your Social Security benefits. And if you ever feel something is wrong with how your benefit payments are being handled, call the agency's national number (1-800-772-1213) or visit your local Social Security office.

The spectrum of reasons for third-party control of a recipient's Social Security payments includes many practical needs. A nursing home, for example, may be caring for someone with dementia and that person's payments are used to fund their residency and care. Or a disabled recipient may authorize a financial institution or perhaps a family member to manage their Social Security payments. The agency deals with many such requests. Treasury rules on direct deposits include special recognition of nursing homes and religious orders.

However, the fair treatment of recipients can get much murkier. Many financial institutions provide fee-based services to seniors that are linked to their Social Security deposits. For example, providing Social Security funds for use via a bank debit card can be a convenience to consumers and a revenue source to financial companies. But not all debit cards are created equal. There are regular horror stories of seniors being exploited by companies, having their identities stolen, and other abuses. High usage fees and ATM charges may be levied. Seniors may overdraw their cards and be socked with big fees.

The National Consumer Law Center (NCLC) has long been critical of the new Treasury rules, fearing they will harm many older beneficiaries who don't use computers or have Internet access. The group is also worried that the new direct deposit rules don't provide enough consumer safeguards.

The new rules transfer the cost and burden of receiving benefits from the government to the individual, says NCLC attorney Margot Saunders. Among other proposals, the group wants the Treasury to permit more waivers so that people can continue receiving paper checks.

Also, while the Treasury's Direct Express credit card gets high marks, the NCLC thinks its consumer support services could be overwhelmed when millions of people now getting paper checks finally realize they are being forced to accept electronic deposits of their benefits. It also wants stepped-up federal oversight of other fee-based cards and of third-party dunning practices and payday lenders.

Social Security rules have long prohibited payments from being garnished to satisfy other obligations. But as black-and-white as this rule may appear, the real world is much grayer. Social Security has long permitted recipients to set up "master-sub account" arrangements with banks and other financial institutions. Recipients' Social Security payments go directly into these accounts, and the financial institutions may have the right to use some of the funds to meet beneficiaries' obligations to the institution.

Rules have been strengthened to exclude check-cashing and payday lenders as sub-account recipients. In nearly all cases, government rules specify that federal payments can only be deposited in an account titled in the name of the recipient.

Twitter: @PhilMoeller