U.S. Plans Waiver on Direct Deposit

Addressing a major consumer fear about the federal government’s mandate to make virtually all its payments electronically by 1999, the Treasury Department proposed Thursday to allow certain recipients of Social Security and other benefits to continue to get their payments by check if direct deposit would impose a financial hardship.

But the federal agency left unanswered numerous questions about how and in what manner the government would push millions of government beneficiaries, including veterans and those on welfare who do not have bank accounts, to receive payments electronically.

About 10 million people nationwide, including an estimated 800,000 in California, now receive government benefits but do not have bank accounts. Consumer groups are concerned that these people, most of whom are elderly or poor, would be forced to open bank accounts--and pay bank fees--to conform to the 1996 law requiring the federal government to eliminate paper checks by the end of 1998 as a cost-saving move.

But in outlining for the first time its plans to implement the law, Treasury officials proposed exempting certain individuals from the requirements of direct electronic deposit of their benefit payments. Besides financial hardship, waivers would also be given to certain government beneficiaries--with or without accounts--who have a physical disability or geographic barrier. For example, if a Social Security recipient could not access his money because of a lack of banking services in his area, that person could continue to receive checks.

The Treasury Department would give the waivers on a simple self-certification basis.

“I think it’s very good they have waivers in there,” said Alan Fisher, executive director of the California Reinvestment Committee, a statewide coalition of community groups. “It seems to me that they’re giving some flexibility.”

However, Fisher and other consumer groups expressed concern about what kinds of protections would be provided to those who are not eligible for waivers.

The Treasury Department’s proposal says Social Security recipients and other government beneficiaries could voluntarily open a bank account so that their payments could be sent electronically. But for those beneficiaries who do not open accounts and aren’t eligible for exemptions, the department is proposing to hook them up with certain banks that would provide a sort of stripped-down, checkless account that would receive funds by direct deposit and enable customers to make withdrawals at automated teller machines.

The federal agency has not signed any agreements with banks, which stand to gain millions of new customers under the plan. The agency said it would contract with only federally insured financial institutions, but it has not said what sort of fees these banks, savings and loans or credit unions could charge beneficiaries.

“These issues of other consumer protections, the costs and other attributes of the accounts, have not been resolved,” said Margot Saunders, managing attorney at the National Consumer Law Center in Washington.

The state’s two biggest banks, Bank of America and Wells Fargo, declined to comment, saying they had not studied the Treasury Department’s proposals, which will be published in the Federal Register next week, after which the department will review comments and suggestions for 90 days. It will also hold public hearings next month in Dallas, New York and Baltimore before issuing final rules.