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21st Century SSA: Direct Deposits, Express Cards, Garnishments, and Tax Offsets

March 21, 2011

Author: Louise M. Tarantino| Catherine M. Callery (Kate)

The work of representing an applicant for Social Security or SSI benefits does not end with a favorable decision.  Our representation of disabled adults and children, or elderly beneficiaries extends to insuring that their hard sought benefits actually end up in their pockets.  But what form of currency will actually be in their pockets in the months ahead: cash, credit or debit card, or some form of government IOU?  Maybe there’s an app for that!  Read on to find out how the Social Security Administration (SSA) and other agencies propose to pay out, protect or pocket federal benefits in the days ahead.

Direct Deposit Payments

As far as paying out, with some exceptions, any client applying for federal benefits on or after May 1, 2011, must receive all “checks” through direct deposit.  The Department of the Treasury promulgated a final regulation [75 Fed. Reg. 80315 (Dec. 22, 2010)] that will phase out paper checks for non-tax federal disbursements going forward.  This regulation will apply to benefits checks from the Social Security Administration (Social Security and SSI), Veterans Affairs, Railroad Retirement Board, Office of Personnel Management (federal employees/retirees) or Department of Labor (Black Lung).

The new regulation goes into effect May 1, 2011.  The effective date will be deferred until March 1, 2013, for those individuals who receive benefits by check on May 1, 2011, and for those who file a claim for benefits before May 1, 2011, and request payment by check when they file.  For those who do not have bank accounts or who do not have information on their bank accounts, the deposits will be made to Direct Express debit cards. (See below).  SSA estimates that moving to electronic payments will save the agency $1 billion over the next ten years.

Automatic Waivers - The new rule contains an automatic waiver for persons born before May 1, 1921, who are receiving payments by paper check.  The requirement is also waived for payments not eligible for payment to a Direct Express card and for individuals whose Direct Express card has been suspended or cancelled.

Hardship Waivers are authorized if the individual has filed a waiver request with Treasury and certifies before a notary public that imposition of the electronic transfer rule would impose a hardship 1) because of the individual's inability to manage an account at a financial institution or a Direct Express account due to a mental impairment, or 2) because the individual lives in a remote geographic location lacking the infrastructure to support electronic financial transactions.

Direct Express Card Payments

If direct deposit into a bank or credit union account is not a viable option, the Direct Express card, provided by Comerica Bank, Treasury's financial agent, is an alternative to paper checks for benefit payments.  According to SSA’s press release, advantages of the card include:

  • Cardholders can make purchases, pay bills, and get cash at thousands of locations nationwide.
  • Cardholders have access to one free cash withdrawal with each deposit to the Direct Express card account. For cash withdrawals at ATMs outside the Direct Express ATM network, the ATM owner may charge a surcharge fee.
  • No bank account or credit check is required.
  • The card accounts are FDIC-insured up to the maximum amount allowed by law.
  • There are no sign-up fees, monthly fees or overdraft charges. Some fees for optional services may apply.
  • Money is immediately available on payment day.

SSA has a new website that allows beneficiaries to sign up for the card, or to learn more about its features and fees.  A toll free number is also available. (1-800-333-1795).  SSA also has a link on its website to information about the Direct Express Card. Recently, the Shriver Center presented a webinar training on electronic benefits cards that might also provide some useful information for advocates so that they can counsel their clients on these issues.

The National Consumer Law Center (NCLC) has an information sheet with useful information for consumers on the direct express card.  In addition, the NCLC is presenting a Webinar on New Electronic Payments Rules on May 11, 2011.  To sign up, email Jessica Hiemenz, at

Although much of the available literature extols the many virtues of the direct express card, some questions still linger. For example, a recent post on the DAP listserv indicated that clients who receive their public assistance benefits on similar prepaid cards experienced difficulty avoiding usage fees and could not pay all bills, including utilities, with the card. We at the Empire Justice Center would be interested in hearing from advocates if their clients experience similar difficulties with the direct express card.

Garnishment Protections

In conjunction with its push to move most if not all beneficiaries of federal benefits to an electronic deposit system, the same agencies listed above issued interim final rules to implement statutory restrictions on the garnishment of federal benefit payments. These rules are intended to help guarantee the statutory protections exempting federal benefits such as Social Security from seizure by creditors. 76 Fed. Reg. 9939 (Feb. 23, 2011).

The rules require financial institutions that receive garnishment orders to determine the sum of such federal benefit payments deposited to the account during a two month period, and to ensure that the account holder has access to an amount equal to that sum or to the current balance of the account, whichever is lower.  The interim final rule is effective May 1, 2011.  Comments must be received on or before May 24, 2011.

This interim final rule follows the publication of a proposed rule in April 2010.  See the June 2010 Disability Law News for a discussion of the proposed rules.  Comments on that proposal are summarized and responded to in the Federal Register announcement.  The Empire Justice Center submitted comments on the proposal.  The issue of setoff by financial institutions for banks fees, etc., remains a thorn in the side of recipients. In response to concerns raised in comments by both consumer and financial institution advocates, the agencies state that this issue “is outside the scope of the interim final rule.”  We are in the process of fully analyzing the interim final rule with an eye towards filing comments by the May 24, 2011 deadline.  A more comprehensive analysis will appear in the June 2011 Disability Law News.  The new rule appears to provide much needed protections to recipients of federal benefits, including Social Security.  See New York Times editorial in support of these protections.

Picking the Pocket?

After much ado about protecting Social Security beneficiaries from lost or stolen checks, and providing same day access to funds, SSA then turns to a better way to recover those same funds when a federal debt is involved.  SSA proposes to amend its Tax Refund Offset (TRO) and Administrative Offset regulations to conform to those of the Department of the Treasury (Treasury) for the following reasons: (1) Treasury removed the 10-year limitation to collect delinquent debts owed the United States by reducing eligible Federal payments, and (2) more States are participating in reciprocal agreements with Treasury to offset State payments, including tax refunds to reduce or extinguish a federally owed debt.  76 Fed. Reg. 11402 (Mar. 2, 2011). SSA noted in its proposed regulation that the potential exists to increase collection of Federal debts for two reasons: the agency would be authorized to collect debts indefinitely by offsetting eligible Federal payments through the Treasury Offset Program (TOP), and States that have reciprocal agreements with Treasury are authorized to offset payments to reduce or extinguish debts owed to the Federal agencies.

Comments to the proposed rulemaking are due by May 2, 2011.


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