Examining Social Security's Electronic Payment Program

The Subcommittee on Social Security of the House Ways and Means Committee scheduled a hearing on Wednesday, Sept. 12 to take a look at the impact on Social Security payees of direct deposit of benefits. Among the topics on the table were exemptions from the mandatory electronic payment requirement and the fraud experience following the electronic payment mandate. The scheduled witness list was short and included Margot Saunders of the National Consumer Law Center and representatives of the Social Security Administration.

Before we look into the issues before the Subcommittee, a little history is in order. In 1996 Congress passed the Debt Collection Improvement Act. The DCIA required all federal payments, including Social Security benefits, to be made through electronic funds transfer (EFT) beginning in January 1999.  The law gave broad authority to the Treasury Dept. to grant so-called hardship waivers that would allow Social Security payees to continue receiving checks rather than electronic payments. That ultimately proved the law’s undoing.

To implement the law, Treasury  launched a program dubbed “EFT99.” The goal of the program was to meet the mandate of the DCIA to convert Social Security and other benefit programs to electronic payment by 1999. To do this Treasury contracted with a number of financial institutions to issue EFT99 debit cards that Social Security payees without a deposit account could obtain at a participating financial institution in order to access their benefits.

But perhaps EFT99 was a little too far in front of the electronic payment tsunami we’ve seen over the last decade. In 1999, shortly before the deadline for converting to electronic payments, Congress bowed to pressure on the mandatory nature of the program. As a result Treasury then instituted a program of self-certifying exemptions from the electronic payment requirement.  In effect, the “mandatory” program became an opt-in, rather than an opt-out, program. Banks that had expressed an interest in participating in EFT99 folded their cards and left the table. The opt-in program left them no way to evaluate the risk or the rewards of participating in the government’s program.  Social Security beneficiaries who wanted to participate had limited access to banks that would issue the EFT99 cards. The program foundered, despite Treasury’s game attempts to save it through advertising and outreach to payees.

In 2001 the Government Accountability Office flatly observed that no amount of effort could make the program effective. Treasury pulled the plug.

I bring up EFT99 as a cautionary tale of what happens when legislators or regulators bend to the will of parochial interests at the expense of the public at large. In 2005 Treasury attempted a reset of electronic payment of social security with the launch of the “Direct Express” campaign targeted once again at Social Security payees to emphasize the benefits of electronic payment.  In 2008 Treasury launched the Direct Express® Debit MasterCard. Following the successful example of state electronic benefits transfer projects, Treasury contracted with one bank to handle the program. However, issuers of private label prepaid cards can participate in the program, as long as those card programs meet Treasury’s standards.

Direct Express is a reloadable, debit card that allows payees to receive their Social Security allotments on an electronic card, even if they don’t have a bank account.  Payees can use the card wherever its brand is accepted. They can also get cash at ATMs or by requesting cash back when they make a purchase with the card. 

After 16 years of trying, the Direct Express card program has allowed the federal government to finally reduce the government’s cost of check processing, estimated to be $125 million, according to Saunders’ written testimony. But success always has its skeptics.  Critics have blasted the program for its hard-nose approach to minimizing the remaining number of check payments, for allowing debit card providers other than the contracted bank into the program, and for allegations of fraud and theft of payees’ identities.

In her prepared testimony Saunders generally praised the Go Direct program for its “laudable goal of saving money, saving trees and improving the security of the delivery of federal benefits.” However, she testified that the program needs “an articulated waiver procedure” for those payees for whom electronic payment won’t work. This could be because of a disability or geography. In fact, previous posts to this column have explained the hardships that the Department of Health and Human Services’ new restrictions on TANF EBT transactions might cause in some geographic areas.

When Treasury’s final regulations become effective next year only payees 92 years old and older and those who live in areas where electronic payment infrastructure is not convenient will be allowed to continue receiving paper checks. I don’t have any problem with those parameters. Frankly, I think there are a lot of people who are 70 years short of their ninety-second birthday who should probably think twice about having a debit card. But Saunders raises another interesting issue: the cumbersome, bureaucratic procedures for requesting a waiver.

Her testimony outlined the waiver process: Call and have a chat with a customer service rep. Then articulate exactly why you need a waiver. Then, once in hand, fill out the form. Take the completed form and find a notary to stamp it. Then mail it off to the Social Security Administration. Then wait. 

It’s not beyond possibility that a ninety-something year-old payee might get a waiver out of this world before she gets a waiver out of the Direct Express program.

There is a line between an efficient program and a bureaucratic one. And that line isn’t real fine. In fact, it’s pretty easy to see. I could never support any changes to the Direct Express program that results in another EFT99 opt-in fiasco. But Direct Express is hardly the camel’s nose under the tent flap. And it is nothing like EFT99. It is a well-conceived, well executed card program. Having a reasonable, well-articulated exception policy and an efficient adjudication process for waiver requests seems reasonable, provided it does not impact the objectives or ROI of the program.  

If the waiver process somehow starts reminding observers of EFT99, Treasury can always tighten ratchet down on requirements. It is Social Security and the churn in the program is not unsubstantial.

That’s my take. What’s yours?