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?
