WASHINGTON – More than a month after it was supposed to be making all federal benefits payments by direct deposit, the federal government is still making almost one-third of those payments with paper checks.
The Treasury Department said one main reason it has not been able to switch entirely to electronic benefits transfers is that many of the recipients do not have bank accounts to send the deposits to — they are “unbankable.”
“Among many low-income people there is intimidation by banks, they are afraid of the overwhelming corporate structure of them,” said Becky Sherblom, executive director of the Maryland Center for Community Development in Baltimore.
She said “unbankables” can also include the elderly, who may distrust the technology needed to electronically transfer their money, and residents of low-income neighborhoods, where bank branches are closing down due to recent bank mergers.
“For various reasons, people don’t have bank accounts,” which makes electronic benefits payments impossible, said Cathy Donchatz, director of product promotion at the Treasury’s Financial Management Service.
That means the Treasury, which was supposed to have converted entirely to direct deposit by Jan. 2, is still cutting millions of checks a month for Social Security, veterans benefits and military retirement payments, among other benefits.
Of the almost 700 million benefits payments made by the federal government in fiscal 1998, 32 percent — almost 230 million — were still issued on paper checks. The Treasury said that rate has improved only slightly since then.
To remedy that problem, the Treasury is developing a low-cost electronic transfer account (ETA) for recipients of federal benefits. The accounts would take the place of a bank account and be designed solely to receive electronic payments.
“It may address a need,” Donchatz said. “We think that with the ETA we will offer them a choice that they didn’t have before.”
The American Bankers Association estimates that 10 million Americans do not have bank accounts and a 1997 study commissioned by the Treasury found that about 13 percent of all U.S. households do not have accounts.
But the Treasury report said that the number of people without bank accounts is even higher among people receiving federal benefits. Eighteen percent of benefit recipients surveyed by telephone did not have bank accounts and the number rose to 27 percent for those surveyed by mail.
The study said it was not surprising that people surveyed by mail were less likely to have a bank account, since “those with no telephone … are disproportionately low income.”
The study found that the number of unbankables was highest among recipients of Supplemental Security Income, who have very low incomes and are elderly or blind or disabled. Fifty-eight percent of SSI recipients surveyed by phone and 56 percent of those surveyed by mail did not have bank accounts. The Treasury said 60 percent of SSI recipients were paid by check in 1998.
By contrast, about 75 percent of Social Security recipients now get their benefits through electronic transfer, according to Donchatz.
But not all the Social Security recipients who are still getting paper checks are unbankable. Recipients who still want to feel that paper check in their hands can get a waiver from the direct deposit requirement for reasons like illiteracy, language barriers, disability or general financial hardship.
People who were receiving Social Security benefits before Jan. 2 do not even have to file for a waiver: Under regulations announced by the Treasury in September, those people will continue to get checks mailed to them unless they ask for direct deposit. People who started receiving Social Security after Jan. 2 must ask for a waiver.
Treasury officials note that they have increased the number of people receiving benefits electronically from half of all recipients in 1996 to almost 70 percent in 1998. But the Treasury was forced to begin granting waivers when it realized that converting all benefits recipients to electronic payments would be impossible.
Donchatz said there were other reasons for backing off the original Jan. 2
“The underlying concern is the individual’s needs,” Donchatz said. “There are certain cases when direct deposit is not going to be good for everybody.”