It took 17 years, but Friday marks the deadline to switch federal benefit checks to electronic payments, an initiative Treasury Department officials say will save up to $1 billion over a decade.
In 1996, Congress enacted a law that required all federal payments except tax refunds to be issued electronically by 1999. By December 1998, 75 percent of Social Security payments were being made through direct deposit. Today, 94 percent of Social Security and Supplemental Security Income recipients use direct deposit, said Walt Henderson, director of the Treasury’s electronic fund transfer strategy.
As of May 2011, all new applicants for federal benefits are required to choose an electronic payment method. Those receiving Social Security payments, supplemental security income and veterans benefits have the option of receiving funds by direct deposit to a bank or credit union or on a pre-loaded debit card.
But those who haven’t gone digital won’t be kicked off the rolls, Henderson said, noting they will continue to receive paper checks in the mail. There’s also a chance to apply for a waiver to the paperless requirement if circumstances require it, he said.
The Treasury has not set a date for the permanent termination of paper checks, he said.
The agency didn’t reach its near 100 percent compliance without resistance from members of the check-cashing industry.
People without bank accounts who use check-cashing services may also be hesitant to make the switch, said Edward D’Alessio, general counsel for the Financial Service Centers of America, a trade organization that represents financial-service-center providers.
“The population in this country that is un-banked has concentrations in racial and ethnic minorities and the elderly,” he said. “These are people who may have never been into a bank before. We’re in the neighborhoods, we speak the languages and we’re open extended hours.”
The industry will take a financial hit as paper checks disappear.
“There’s not much that can be done,” said Robert Frimet, the president of a money-service business-consulting firm in Las Vegas. “We’re slowly working our way to a check-free society.”
A check-free society might pose problems for seniors uncomfortable with technology, D’Alessio said, though there has not been much outcry from seniors.
Cristina Martin Firvida, the director of financial security and consumer affairs at AARP, said, “To date, we have not yet heard from a lot of our members that this is a big area of concern or that they want more information or guidance.”
The National Committee to Preserve Social Security and Medicare agreed.
“Irrespective of age, it’s so much more secure than delivery of a paper check,” said Web Phillips, the senior legislative representative for the advocacy group. “If a problem comes up . . . it’s much easier to fix than if a check is lost in the mail.”
Beneficiaries are 125 times as likely to have a problem with a paper check as with an electronic payment, according to written testimony from the Treasury at a Ways and Means Committee hearing in September.
Some exemptions are automatic, Henderson said. People over 90 will automatically continue to receive paper checks without requesting a waiver.
Others eligible for waivers include the mentally incapacitated, people in remote locations without access to banks or ATMs and people who cannot receive electronic payments for religious reasons.
Check recipients can sign up for direct deposit or the Direct Express debit card by calling 800-333-1795.
The Direct Express card was specifically designed for un-banked federal benefit recipients, Henderson said. There is no application or monthly fee. The card can be used to pay bills, make purchases and receive cash back. It is accepted anywhere MasterCard is taken.
“These are benefit payments people depend on, and we want to make sure we deliver them in the safest manner possible,” Henderson said. “Now it’s all about compliance and getting people switched over. It’s about getting them to take the action.”
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