As we discussed on this blog in February, early this year the Treasury Department issued new rules about how federal benefits, including Social Security Disability Insurance and Supplemental Security Income, are to be paid. The rules required most beneficiaries to switch from receiving paper checks to getting their benefits through direct deposit into a bank account or through pre-loaded Debit Express cards provided by Comerica Bank.

The main purpose of the change was to save money. It costs the government $1.05 to send a single Social Security disability check, and it was thought that the direct deposit or Debit Express cards could save taxpayers some $1 billion over 10 years. Another important purpose was security: the Treasury Department assumed that transferring the funds electronically instead of by mail would cut way down on lost or stolen benefits.

As it turns out, the program did not cut down on lost and stolen benefits. In fact, since Oct. 2011 the Social Security Administration received as many as 37,000 reports of questionable attempts to change beneficiaries’ direct deposit accounts, along with thousands of other reports of phone scams. The AARP estimates that stolen Debit Express cards and telephone scams aimed at personal banking information have resulted in $28 million in lost payments.

Perhaps even worse is the problem with Comerica’s Debit Express cards. Beneficiaries of Social Security disability and some other programs receive a subsistence income, with monthly benefits as little as $1,000 and many didn’t have bank accounts for direct deposit. These low-income beneficiaries, therefore, tend to be overrepresented among those accepting Debit Express cards.

Unfortunately, Comerica has been charging fees on the Debit Express cards for everything from online bill payment to ATM withdrawals, and those fees are eating away at the minimal incomes of Social Security disability beneficiaries.

The ATM fees alone add up quickly. Beneficiaries are only entitled to one free ATM withdrawal per month, but limits on withdrawal amounts mean that at least four withdrawals are required to get a full month’s benefits out, according to the Center for Public Integrity. Each withdrawal from a Comerica-network ATM costs 90 cents, and the out-of-network ATM fee is a minimum of $2.

Comerica got a profitable contract from the Treasury Department to run the program — and it recently renegotiated an even better deal in which taxpayers now pay the bank an additional $5 per card to cover the cost of a call center expansion.

The sad truth appears to be that the electronic payment program is driving profits for a private bank and saving the Treasury Department money — but at the expense of some of the most vulnerable Americans.

Sources: 

  • Mainstreet.com, “Are Fees, Fraud Eating Away at Your Social Security?” Shelby Bremer, Credit.com, July 1, 2013
  • The Center for Public Integrity, “Benefit payment change hurts poor: Fees mount under debit card system,” Daniel Wagner, June 19, 2013