How to prepare for paperless Social Security payments

No bank account? A prepaid debit card is in your future

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The Social Security check has gone the way of the door-to-door salesman and Green Stamps. After eight years of trying to get beneficiaries to switch voluntarily from checks to digital payments through its Go Direct campaign, the change became mandatory in March 2013. The Social Security Administration (SSA), the Department of Veterans Affairs and other federal agencies that pay out benefits now require consumers to have their checks directly deposited into bank accounts or loaded onto a Direct Express prepaid debit MasterCard. Goodbye federal benefit checks: Social Security goes paper-free

The electronic shift was intended to save taxpayers more than $100 million a year, and to eliminate theft of paper checks from mailboxes. But it has its own challenges, not the least of which are confusion and physical difficulties for the elderly and disabled. 

"For some, direct deposit or a debit card may be convenient, but for others, those options may be less affordable or harder to use than receiving a paper check," says Cristina Martin Firvida, AARP's director of consumer affairs and financial security. 

Bank accounts lessen difficulties
The deposit is made on the same day each month and the funds are instantly available. The only thing that's different is that there's no longer a physical check to deposit.

"We were sensitive to the fact that a lot of older people may not be comfortable with electronic payments," said Walt Henderson, director of the Go Direct campaign for the U.S. Treasury. Henderson said many were under the impression that they had to get a computer or get online to access their funds.

"It really doesn't change anything they're doing except they have to make one less trip to the bank," he said.

That makes sense for Leslie Straw, social services designee for Pioneer Lodge, a nursing home in Coldwater, Kan. As a representative payee -- a person who manages funds for benefit recipients who are unable to do so themselves -- Straw finds the new system beats the old one. "Direct deposit works better for me," she says. "It makes keeping track a lot easier."

Direct deposit fears
Still, Straw concedes that the change stresses out some senior citizens who like to hold a check in their hands.

Many are uncomfortable with digital payments and fear their money will get stolen or diverted, which is certainly a possibility. In September 2012, Social Security Administration Inspector General Patrick P. O'Carroll Jr. testified  that between October 2011 and August 2012, his office received nearly 20,000 reports concerning questionable direct deposit changes to Social Security beneficiaries and redirection of benefits to other accounts. He said his office was continuing to get about 50 such reports a day. Some were due to mistakes by the beneficiaries or banks. Many were related to identity theft.

The SSA has tried to tighten security controls, but as payments moved from the mailbox to digital delivery, thieves found more high-tech ways to steal payments. Frequently, the beneficiary gives the criminal just enough information over the phone to enable the hacker to divert funds. 

But it's not as if paper checks were safe. In fiscal 2010, more than 540,000 paper Social Security and SSI checks were reported lost or stolen according to the Treasury Department. It investigated nearly 50,000 cases of altered or fraudulently endorsed checks, totaling around $93 million. Those numbers suggest direct deposit is the safer bet as long as retirees know how to protect their digital information or have someone do it for them.

Cards for the unbanked
Beneficiaries who didn't have a bank account -- about 6.6 percent as of September 2012, according to statistics compiled by the Federal Deposit Insurance Corp. -- had to make even bigger changes, and not all were willing.

For example, the FDIC report found that the majority of people without bank accounts didn't think they had enough money to make an account economically feasible. Henderson, of Go Direct, says legal issues or mental disabilities prevented some from opening bank accounts.

The alternative to opening a bank account for direct deposit is the Direct Express prepaid card. About 3.5 million beneficiaries were already using Direct Express before the change, Henderson says. The card is automatically loaded every month with benefit funds, which can be used anywhere a MasterCard debit card is accepted, including online. Cardholders can make withdrawals at an ATM, get cash back from retailers and pay bills with Direct Express.

Direct Express debit card fees


As the prepaid debit card fee comparison chart below shows, Direct Express is competitive when compared with other prepaid debit cards on the market. There's no activation fee or monthly service charge. You get one free withdrawal each month from an in-network ATM. After that it costs 90 cents -- cheap, compared with $2 or more for subsequent withdrawals on commercial prepaid cards. Direct Express's surcharge-free ATM network includes Comerica, Charter One, Privileged Status, Alliance One, PNC Bank, MasterCard ATM Alliance and Money Pass.

Direct Express debit card fees

Direct Express is competitive when compared with other prepaid debit cards on the market. There's no activation fee or monthly service charge. You get one free withdrawal each month from an in-network ATM. After that it costs 90 cents -- cheap, compared with $2 or more for subsequent withdrawals on commercial prepaid cards. Direct Express's surcharge-free ATM network includes Comerica, Charter One, Privileged Status, Alliance One, PNC Bank, MasterCard ATM Alliance and Money Pass.

Using an out-of-network ATM for Direct Express, however, can be expensive. ATM owners may charge several dollars for each withdrawal. Go outside the U.S. and fees get even higher -- $3 per withdrawal plus a 3 percent surcharge.

There are other considerations, too, including usage limitations. For example, buying gas with the card requires a visit to the attendant. The card won't work at the pump. Other restrictions can be found in the Frequently Asked Questions section of the Direct Express website.

Card security
Another concern with the debit cards is what happens if they get lost. A federal rule called Regulation E holds that if debit card owners report their cards lost or stolen within two days of realizing what's happened, they can only be held liable for $50 worth of fraudulent charges. After that, they can be held liable for up to $500. For most cards, liability increases again after 60 days. Direct Express holders get 90 days to report their cards missing or stolen before their liability goes over $500.

Some people are exempt from having to give up paper checks -- but very few. They include:

  • People older than 91.
  • People with mental issues that prevent them from being able to make the switch.
  • People in rural areas without direct deposit capabilities.

Henderson said roughly 100,000 people had applied for an exemption as of Feb. 2013. Most of these, he said, were just uncomfortable with the change, and Social Security staff members were able to help them understand the new system and transition their accounts. A very small percentage were granted waivers.

Compare fees from Direct Express, other prepaid cards

 Card Purchase price / activation fee Monthly service charge ATM fees charged by issuer Card replacement fee
Direct Express
None None One free withdrawal per month at selected ATMs. 90 cents at selected ATMs thereafter One free replacement per year. $4 thereafter
Green Dot
Up to $4.95 for regular card. $6.95 for NASCAR card.
$5.95, waived if you deposit at least $1,000 or have 30 qualifying monthly transactions
None at MoneyPass ATMs. $2.50 per transaction at other ATMs $4.95
American Express Prepaid Card None but minimum load is $20 cash or $25 from bank account
None One free transaction per month. $2 per transaction thereafter None
Electronic Benefit Transfer (EBT) cards for food and welfare benefits. (Varies by state. California EBT program used as an example here) None in Calif.
None in Calif.
Four free transactions per month. 80 cents per transaction thereafter
None in Calif.

Additional fees for the Direct Express card include $0.75 each month for a paper statement, $1.50 each time you transfer funds to a bank account and $13.50 for overnight delivery of a replacement card. To keep your card fees low, Direct Express offers some tips:

  • Use a Direct Express surcharge-free network ATM for all withdrawals, if possible, to reduce additional ATM fees. You can use the Direct Express ATM locator to find one near you.
  • Pay for items at retail outlets with your Direct Express card instead of using cash.
  • Get cash back when paying with your Direct Express card using your PIN number at retailer checkouts.
  • Financial institutions displaying the MasterCard acceptance mark can give you cash from your Direct Express card for free.
  • Money orders can be purchased for a nominal fee ($1.20 for amounts less than $500) at your local post office. 

See related: No Social Security number, no credit report?

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Updated: 01-22-2019