Federal Recipients May Continue Receiving Paper Checks
There has been much confusion in recent months about the 1996 federal law requiring
that all federal payments -- except tax refunds -- be made electronically by
January 1, 1999.(1) Although the law provides
that some individuals can qualify for a waiver, if they would experience a hardship
as a result of the requirement for electronic deposit, many recipients have
been concerned about the criteria that would enable people to avoid the requirement.
Finally, on September 25, 1998 Treasury addressed many of these concerns when
it issued the Final Regulations for implementing the new law. The most important
aspects of the final rules are the criteria established for eligibility for
the hardship waiver, and how that eligibility is determined, and who is eligible
for the special Treasury "approved" bank account --called the ETA.
Treasury envisions that recipients will receive their federal payment in one
of five ways:
1) recipients will continue receiving a paper check because they qualify for
a hardship waiver;
2) the federal payments will be electronically deposited in an existing bank
accounts;
3) recipients will voluntarily establish new accounts to receive the electronic
deposit of the federal payments;
4) recipients will sign up for the Treasury controlled "ETA" account,
which will presumably be low cost; or
5) if recipients receives state benefits electronically, they could choose
to receive both federal and state benefits over the same electronic card (this
is called the EBT option).
Hardship Waivers.(2) In a significant change
from the proposed regulation, Treasury has declared that electronic deposit
is not required where the recipient "determines, in his or her sole discretion,
that payment by electronic funds would impose a hardship . . . ."(3)
The grounds for the hardship waiver include:
In addition all recipients without bank accounts are automatically excluded
from the requirement of electronic funds transfer, regardless of whether they
want to claim eligibility for a hardship waiver, until the ETA is available.(5)
Waiver Can Be Claimed At Any Time. One of the most important aspects of these
new waiver rules is that a recipient can claim a hardship waiver based on any
of these criteria at any time.(6) The proposed
regulations had delineated between recipients based on their date of eligibility
for federal payments. The final rule makes no such distinction. This means that
any federal recipient, regardless of the date of eligibility for federal payments,
regardless of whether they have a bank account, and regardless of whether they
have previously signed up to have their federal moneys electronically deposited,
can clam a hardship waiver.
Recipients determine their own eligibility and simply inform the agency of that
determination. Further, a failure to inform the agency of a waiver, requires
the agency to maintain payment by check:
[T]he final rule makes clear Treasury's intent that the waiver process will
be based on an individual's self-determination that a hardship exists. By changing
the language from "certifies" to "determines" and adding
the phrase "in his or her sole discretion," Treasury is indicating
that an individual has the right to determine whether he or she qualifies for
a waiver. . . . [A]n agency may request that the individual inform the agency
of his or her election to rely upon a waiver. However, the agency may not require
evidence of any condition underlying the recipient's election of a waiver. In
addition, if the agency receives no response from a recipient, the agency must
continue to make payment by check.(7)
Treasury's ETA Account to Be Available to All. Treasury has redefined the account
that it will provide it to recipients. This account -- called the "ETA"
-- will be available to all recipients of federal payments,(8)
whether or not they had previously waived the requirement for electronic deposit,
or had elected to receive payments electronically through an existing bank account
or had established a new account just to receive electronic deposit.(9)
Banks and other federally insured financial institutions will have the option
to offer these ETAs based on guidelines to be developed by Treasury with public
comment.(10)
Unfortunately, Treasury has not specifically articulated its verbal commitment
to advocates to ensure access by federal recipients directly to the ETA only
through the bank or other financial institution. Nothing in the Final Regulation
indicates that check cashers and others will be prohibited from participating
in the access to federal payments through ETAs. On the other hand, there is
also nothing to indicate that access will be permitted either. This issue should
be resolved when Treasury publishes the ETA guidelines.
Voluntary Accounts Still Not Regulated. Many federal recipients have been erroneously
told by Social Security staff(11) and by alternative
financial providers(12) that recipients must
have a bank account to continue receiving their federal funds. As a result,
we believe that many have signed up for accounts through check cashers and other
non-regulated financial providers that may only provide access to the federal
funds through these alternative financial providers.(13)
These accounts are likely to be expensive with few real benefits for recipients.(14)
Despite vigorous advocacy from consumer and community advocates from all over
the nation regarding the importance for Treasury to limit access to federal
payments to financial institutions, and to regulate the costs in some way,(15)
Treasury has refused to do this in the context of this Final Regulation. Instead,
the Supplementary Information discusses the potential problems that may result
from these types of accounts and promises that Treasury will monitor the situation
and may yet propose a regulation covering these arrangements.(16)
Treasury has verbally informed NCLC staff and others that before the end of
1998, it will propose a number of different regulatory schemes over these Voluntary
Accounts, and ask for public comment. These requests for comments will also
ask for examples of problems which result from the lack of regulation.
Federal Payees May Also Use State EBT Systems to Receive Federal Money. Some
recipients of federal payments may also receive food stamps, or other state
administered benefits provided electronically through a state EBT system.(17)
In some states, the federal payments, such as Social Security or SSI, can be
combined with the state payment of food stamps on a single card.(18)
The details of these joint programs have not been addressed in the Final Regulations.(19)
Authorized Payment Agents Can Must Have Fiduciary Duty to Recipients. Despite
intense pressure from check cashers and other non-financial institutions to
expand the definition of authorized payment agent to include themselves, Treasury
chose the cautious route. Under the Final Rule, "authorized payment agent"
is defined as "any individual or entity that is appointed or otherwise
selected as a representative payee or fiduciary, under" the federal regulations
governing the core payment program.(20)
Nursing homes, have in the past had their residents sign their monthly benefit
checks over to them for payment of services rendered. The Treasury rules do
not be permit nursing homes to be authorized payment agents just for purposes
of receiving electronic deposit of federal payments. Recipients in nursing homes
must either pay the nursing home by check or cash, or determine they are eligible
for a waiver of the electronic deposit requirement and continue receiving the
paper check and sign it over the home. Only if the nursing home qualifies to
be a representative payee under the Social Security or VA rules, may it qualify
as an authorized payment agent to receive direct electronic deposit of their
federal payments to its residents.(21)
Agencies' Obligation To Notify Recipients. Federal agencies are only required
to notify newly eligible recipients and those receiving checks about the rule
on waiver.(22) Unfortunately, the Final Regulation
provides that all recipients already receiving their payments electronically
-- many of whom may be low income people who have signed up for overly expensive
or inaccessible accounts through check cashers and the like -- will be only
notified about this change in policy if they happen to hear about it through
Treasury's public education campaign.(23)
2. Additionally, electronic funds transfer is not required
in various temporary or permanent situations such as where the recipient is
in a foreign country which does not support electronic funds transfer (208.4(b)),
in disaster areas (208.4(c)), in cases of war (208.4(d)); in cases where electronic
transfer would compromise the physical safety of a person or a law enforcement
action (208.4(f)); or "where an agency's need for good and services is
of such unusual and compelling urgency that the Government would be seriously
injured unless payment is made by a method other than electronic funds transfer
(208.4(g)).
6. See discussion of waivers, 31 CFR § 208.4, in Treasury's
Supplementary Information, Federal Register: September 25, 1998 (Volume 63,
Number 186), page 51495. As compared to the requirement in the Proposed Regulation,
that certain of the waivers were unavailable to recipients who had bank accounts:
"Treasury has deleted from the hardship waiver category any reference to
persons having or not having an account at a financial institution."
7. Federal Register: September 25, 1998 (Volume 63, Number
186), page 51496.
8. Note that ETAs will only be available to recipient
of federal benefits.
10. Federal Register: September 25, 1998 (Volume 63, Number
186), page 51497. In conversations with Treasury officials, NCLC staff have
been assured of several important points relating to the ETA: 1) that set-off
and attachment prohibitions will apply to these accounts; 2) that costs for
the accounts will indeed be minimal; and 3) that check cashers and other alternative
providers will not be permitted to provide access to the ETA, other than an
ATM machine on the premises. But the proof is in the pudding -- we will see
what the attributes will be only once they have been published by Treasury.
11. We have reports of this misinformation being distributed
at SSA offices in Massachusetts, Minnesota, South Carolina, Maryland, as well
as a host of other states.
12. There has been extensive, incorrect advertising by
Western Union, for example.
13. Treasury has mandated that it will only deposit the
federal money into an individual account at a financial institution in the name
of the recipient. 31 CFR 208.6(a). However, check cashers have contracted with
financial institutions to provide access to these accounts only through the
check casher.
14. Recipients who sign up for accounts through alternative
financial providers will likely pay more for access to their federal money,
have fewer places and methods to access their money, and will be more likely
to lose portions of their funds through illegal setoff and attachments imposed
upon their federal moneys by the providers.
15. Advocates have based their arguments on the requirements
of the federal law:
Regulations under this subsection shall ensure that individuals required under
subsection (g) to have an account at a financial institution because of the
application of subsection (f)(1)--
(A) will have access to such an account at a reasonable cost; and
(B) are given the same consumer protections with respect to the account as
other account holders at the same financial institution. (Emphasis added.)
31 U.S.C. § 3332(i)(2); P.L. 104-134.
16. Federal Register: September 25, 1998 (Volume 63, Number
186), page 51498.
17. The Welfare Reform Act of 1996 (cite) mandated that
all states provide food stamps electronically by 2002. Approximately one half
of the states have already converted, or are in the process of converting, their
delivery system to an EBT operation. See, Barbara Leyser, Clearinghouse Review,
September, 1998.
18. Currently this program is only available in some southern
states, members of the SAS - Southern Alliance of States. The SAS is the only
region to have reached an accord with Treasury regarding the joint delivery
of state and federal benefits. Even in the SAS states the joint program has
not been too popular, as it is rarely a good idea to combine one's entire income
and assets on a single electronic card. See, Leyser, >>> for more discussion.
19. In fact, we are concerned that Treasury has indicated
that crucial details of the delivery system for the joint provision of state
and federal benefits will be negotiated with the individual contractors providing
the state EBT system. (Federal Register: September 25, 1998 (Volume 63, Number
186), page 51491.) It is highly inappropriate for the cost and the delivery
mechanisms for one means of delivery of federal payments to low income recipients
to not be published for public comment; and instead to be left to the
vagaries of the Financial Agency Agreement negotiated.
20. 31 CFR § 208.2(b). Treasury requires that, unless the
electronic payment is made to an authorized payment agent's account, the federal
payments may only be deposited into an account in the name of the recipient.
31 CFR § 208.6. The only other exception to the requirement that the account
be in the name of the recipient is for investment accounts with an investment
company registered under the Investment Company Act of 1940.
21. Federal Register: September 25, 1998 (Volume 63, Number
186), page 51499.
and NCLC