Mellody Hobson talks about the news that the government is making the switch to electronic payments for Social Security and disability checks.

The government is requiring all beneficiaries of federal benefit payments to go electronic by March 1, 2013. That means you have just 4 days left to make sure you’ve made the switch.

Why go with direct deposit now after so many years of paper checks?
First and foremost, this is absolutely a cost-savings measure.  The Treasury estimates that moving from paper checks that are mailed out to electronic payments will save over $1 billion over the next ten years and $120 million in the first year alone. Of course, they also note other benefits of electronic payments, and safety is a big one. In 2011, more than 440,000 Social Security checks were reported lost or stolen, while $70 million worth of checks were fraudulently endorsed. They hope that electronic payments will help address this problem, though there are still issues around identity theft with this new law.  And lastly, they make the case that electronic payments are more convenient for most people.  You no longer need to visit a financial institution to cash or deposit a check. This may be particularly important for the elderly, disabled or those who lack transportation.

Some seniors just aren’t comfortable with technology or don’t have a bank account. Are there any exceptions to this new law?
This is an interesting mandate by the government because this new policy is based on the assumption that individuals, particularly seniors, are familiar with online banking and have Internet access. However, only 10 percent of seniors (65 years and older) said they preferred receiving financial information electronically and 45 percent of seniors do not even own a computer. This makes it more difficult for those who may just be starkly opposed to traditional banking and the millions who do not have Internet access to confirm online that their benefits were ever deposited. And even if they do have Internet access, some seniors may not be technologically savvy enough to bank online. With that said, there is NOT an option for those who simply do not want to make the switch. While exceptions do exist, they are very rare. They include an automatic waiver for those born on or before May 1, 1921 as well as some people living in remote areas where banks are few and far between, but you must apply for the waiver. That is also the case for recipients with a mental impairment where electronic payments would impose a hardship. I have heard that these waivers are difficult to obtain and only about 20 percent of people who wanted a waiver were actually given one.

What if a senior who lives alone doesn’t watch the news or read the paper… How are they going to find out about the switch?
Seniors have likely received notifications about the switch in the mail along with their paper checks, and may also have been notified through their national or local banks.  The Go Direct campaign being led by the US Department of Treasury began in 2005 with this initiative and has tried to get banks on board. Other partners include credit unions, social service agencies and community-based groups. I encourage loved ones of those receiving benefit payments to ask them if they have made the switch as well – just to be sure seniors are aware of this.

What will happen to the inevitable seniors who fail to make the switch… Will their checks just stop coming?
While roughly 93% of federal payments are currently being made electronically, there are still 5 million checks being mailed out each month.  The states with the most people still receiving paper checks are also the biggest – California, New York and Texas.  It is likely that many of those who haven’t made the switch are seniors. While monthly checks will NOT just stop being mailed, the government will be sending more frequent and more urgently-worded requests in the mail urging people to go electronic.  The Treasury is using the language “you are failing to comply with the law” – basically stating that you are breaking the law if you do not make the switch by March 1, 2013. There is also talk that the Treasury may just send those who fail to switch a Direct Express card instead of paper checks.

What’s a Direct Express card?
This is an option for people who don’t have a bank account. The Direct Express Mastercard is it a debit card that works just like an ATM card. When you sign up for it, you will receive the card in the mail, and then each month your payments are automatically added to the card.  While most of the services are free, there are optional services (for a fee) that include additional cash withdrawals over the one free withdrawal per month and transferring funds to a bank account.

What about fraud… Can this new system open up the elderly to scam artists?
One of my biggest concerns about a nationwide sweeping change like involving money like this is fraud, especially when older Americans are involved. While ultimately, the Treasury believes electronic payments will dampen cases for fraud, they may be more rampant now during this transitional period. In fact, the Inspector General has already found that this new policy has led to an increase in fraud perpetrated primarily on elderly beneficiaries. In most cases, criminals obtained sensitive personal information and were redirecting direct-deposits to fraudulent accounts. If you receive the Direct Express card, you may also be at risk because it works very similarly to an ATM card with little identity verification needed. I urge seniors to be cognizant of scam artists who may try to call or send requests through email. The government will never call you asking for this information. They will ask you to all their toll-free number of go online, so do not give any personal information to unsolicited callers.

Finally, what can seniors or their loved ones do to make sure they are getting their payments?
If you choose direct deposit, go online every month to make sure your federal benefit has been received or if you do not have internet access, go directly to your bank. If you choose the Direct Express card, make sure the money was automatically loaded every month by visiting the website or checking the card’s balance at an ATM machine.  You may also sign up for notifications of deposits on the debit card by phone, email or text message. Loved ones can certainly help seniors with this as well. My aunt doesn’t know how to text message, so the odds are that granny doesn’t either.

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