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Debit Cards Issued by Social Security Raise Scam Opportunities

September 27, 2010

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

The Social Security Administration is moving more and more towards electronic payments via direct deposits or debit cards in lieu of paper checks.  See the July 2009 edition of the Disability Law News regarding Direct Express debit cards.  While the elimination of paper checks may offer convenience and safety to many beneficiaries, all is not rosy in the world of electronic payments.  A recent report by the National Consumer Law Center (NCLC) underscores the dangers of the federal government’s push to require all recipients of Social Security and other benefits to receive payments by direct deposit. 

According to “Runaway Bandwagon: How the Federal Government’s Push for Direct Deposit of Social Security Benefits Has Exposed Seniors to Predatory Bank Loans,” the push will expose many beneficiaries to predatory payday loans made by banks. See  http://www.nclc.org/images/pdf/pr-reports/pr-runaway-bandwagon.pdf.

In light of these and other concerns, the Empire Justice Center recently joined in comments offered by the NCLC to the Department of Treasury’s proposed regulations mandating direct deposit.  The comments are available as DAP #531.

All too real examples of the potential scams connected with Direct Express in particular, have already popped up.  Advocates relate a cautionary tale of a beneficiary who bought a temporary Net Spend debit card from a check cashing outlet while waiting to receive a permanent Direct Express card.  He did this on the “advice” of someone that he was lead to believe was speaking on behalf of SSA.  He purchased the card and was told that his Social Security Retirement benefits would be immediately accessible.  He could not, however, activate the card.  Neither could his lawyer at Community Legal Services in Philadelphia.  To do so, she had to fax his driver’s license, Social Security card, and utility bill to Net Spend.  After sending the documents twice, the lawyer was able to contact a representative who finally activated the card. 

Problem resolved?  No, it turns out there was no money on the card.  Why?  Because the beneficiary failed to access the funds within ten days.  After that period, he was told, the money is sent back to Treasury.  Even worse, it turns out that unbeknownst to the client, the document he signed at the check cashing outlet actually opted him out of direct express and provided for direct deposit of his benefits with Metabank, which has offices only in Iowa and South Dakota.

We would be interested in hearing from advocates who have heard of similar incidents involving beneficiaries without bank accounts who are required to use Direct Express.  The fear is that with the demise of Social Security and SSI paper checks on the immediate horizon, there may be an upsurge of such activity on the part of check cashing outlets and companies like Metabank.

 





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