A Government Initiative That Actually Offers Growth Opps

The U.S. Department of the Treasury has launched a new public education campaign, GoDirect, to inform newly entitled Social Security and other retirement beneficiaries that as of May 1, 2011 benefits will be paid electronically.

Potential recipients of federal benefit, wage, salary, or retirement payments-Social Security, Veterans Benefits, Railroad Retirement Board, and Department of Labor Black Lung-will be asked to choose an electronic option for receipt of payments-direct deposit to a credit union or bank account or Direct Express, a prepaid debit Master Card. By March 1, 2013 all current Social Security beneficiaries receiving paper checks must switch to electronic payments.

On Jan. 1, 2011 the first of the Baby Boom Generation reached the age of 65. It is expected that over the next 19 years 10,000 boomers a day will turn 65, the age linked to eligibility for retirement benefits. In 2010 the Social Security Administration celebrated its 75th anniversary, noting that over the years the agency has grown from 222,500 beneficiaries receiving $35 million in 1940 to over 57 million receiving a total of $740 billion in payments in 2010. In anticipation of the increasing numbers of entitled benefit recipients, the Social Security Administration (SSA) has begun to manage its business processes electronically and is promoting the online retirement and Medicare applications.

The GoDirect campaign continues efforts to advance Electronic Funds Transfer (EFT) provisions of the Debt Collection Improvement Act of 1996 that required that all federal payments (except tax returns) be made electronically by 1999. At the passage of the Debt Collection Improvement Act, Treasury was reporting $50 billion in delinquent, non-tax federal receivables often related to improper payments associated with paper checks. In a recent April 26 ceremony to highlight the importance of electronic payments, Treasurer Rosie Rios announced that the Department of the Treasury is retiring the paper Social Security check for millions of baby boomers and others applying for federal benefits. This mandatory EFT is projected to save taxpayers $1 billion over the next 10 years. "It costs 92 cents more to issue a payment by paper check than by direct deposit." Further citing the significance of the elimination of paper checks, Treasury noted that "Last year alone, more than 540,000 Social Security and Supplemental Security Income (SSI) paper checks were reported lost or stolen and had to be replaced."

The campaign to phase out benefit payments by paper checks began with published rules in July 1999 creating the Electronic Transfer Account or ETA, a low cost account for benefit recipients to receive payments by direct deposit to a federally insured financial institution.

Incentive To Participate

As incentives for a financial institution to participate as an ETA Provider, Treasury offers a one-time fee of $12.60 to offset the cost of setting up an account; an ETA Provider qualifies for Community Reinvestment Act credit; and a financial institution that offers an ETA account may charge a fee of up to $3 per month to maintain the account. Treasury officials are reporting that as a result of the GoDirect campaign, an increasing number of credit unions are signing up as ETA Providers.

In addition to ETA, other federal agencies have advanced electronic payment pilots to full implementation to reduce the volume of delinquent federal receivables related to improper payments associated with paper checks and vouchers. The replacement of food stamps with a debit card resulted in widespread acceptance and the renaming of the Food Stamps program to the Supplemental Nutrition Assistance Program (SNAP).

Agencies such as the Social Security Administration are making benefit payments by direct deposit and using debit cards to deliver retirement benefits to recipients that do not have access to an account at a federally insured financial institution. The renewed focus on electronic payments to reduce payment errors is being promoted under the banner Payment Accuracy as another attempt by the Office of Management and Budget (OMB) to reduce improper payments and delinquent receivables. These efforts offer expanded opportunities for credit unions to grow the customer base by expanding debit card and other financial services to federal benefit recipients. Consider for example a Social Security recipient with a modest income that is eligible for supplemental nutrition assistance and healthcare and/or prescription benefits (see chart).

A direct deposit account eliminates the redundancy of debit cards issued by multiple benefit programs, improves service delivery, results in a cost savings for Social Security Administration and other agencies, and provides an opportunity for a credit union to offer a debit card to benefit recipients. CUs can also serve as a partner with the Department of the Treasury and Social Security Administration in promoting other special initiatives focused on financial literacy and retirement savings. The current GoDirect campaign will, no doubt, serve as a model for receiving deposits of benefit payments from other federal programs.

Muriel Watkins is a credit union board member and former senior manager of Loss Share Agreements at the FSLIC and senior executive with the Resolution Trust Corporation.