(Archived Content)
The Treasury Department announced today key provisions of a new regulation to carry out a 1996 law requiring most federal payments to be made electronically. The Treasury regulation will allow payment recipients to continue receiving paper checks if electronic deposit would cause them a hardship.
We want to strike the right balance between realizing the tremendous taxpayer cost savings from direct deposit while still protecting the payment recipients from possible disruption or hardship, Treasury Under Secretary John D. Hawke, Jr. said. The final rule will emphasize recipient choice and the importance of ensuring that recipients are not forced into choices that are not right for them.
Treasury expects to issue its final regulation this summer. Today's announcement is being made in order to give Federal payment recipients as much information as possible about their choices under this new law and also to provide federal benefit agencies with a head start in implementing this regulation.
The new regulation will implement provisions in the Debt Collection Improvement Act of 1996 requiring that all federal payments other than tax refunds be made by electronic funds transfer (EFT) beginning January 2, 1999. The law gives the Secretary of the Treasury broad authority to provide waivers from this requirement. The payments covered by EFT include Social Security, veterans benefits, Railroad Retirement benefits, federal salaries and federal retiree benefits and vendor payments.
Direct deposit of payments through EFT has become increasingly popular because it is safer, more secure and, for most recipients, more convenient than paper checks. The EFT initiative will therefore significantly improve the way many Americans receive their government payments. In addition, EFT will enable the government to achieve significant cost savings and will therefore save money for taxpayers.
In September 1997, Treasury and its Financial Management Service bureau issued a proposed EFT regulation and invited public comment. Treasury received more than 200 comment letters from individuals and organizations, including federal payment recipients, consumer organizations, government agencies, financial institutions, and non-bank financial service providers. Treasury also held public hearings in Dallas, New York City, Baltimore and Los Angeles.
Many of those providing comments urged Treasury to broaden and liberalize its original proposal for waivers available to allow individuals to continue to receive paper checks. Treasury has given serious consideration to all of the comments received in formulating this final rule.
EFT Final Regulation
Waivers
Any payment recipient who does not have an account at a financial institution will receive an automatic waiver from the EFT requirement until the Treasury Department provides notice that an account meeting its specifications is available to the recipient (see Access to Accounts Specified by Treasury below). Once that account is available, those payment recipients will be able to decide whether they wish to sign up for one of those accounts or continue receiving a paper check.
In addition, payment recipients may choose to continue receiving paper checks for other reasons: - Any individual will be eligible for a financial hardship waiver if receiving direct deposit will cost him or her more than receiving a check. - Any payment recipient with a physical or mental disability, or a geographic, language, or literacy barrier, will be eligible for a waiver from the EFT requirements.
The Treasury Department emphasizes that no payment will be withheld or delayed for any reason related to the implementation of EFT.
Waiver Information and Disclosure
Treasury is working with other federal paying agencies (such as the Social Security Administration) to ensure that payment recipients know what choices they have under this regulation and can choose whatever payment option is best for their particular circumstances. Under this final regulation, broad categories of waivers, as described above, allow recipients to continue receiving paper checks. The waivers are self certifying, which means that payment recipients make their own decisions as to whether or not to sign up for direct deposit; if they choose not to sign up for direct deposit, they will continue to receive paper checks. Federal agencies will have discretion whether to require recipients to submit written waiver certifications.
Treasury has been informed that the Social Security Administration will not require written waiver certifications. Therefore, any Social Security recipient who does not sign up for direct deposit will continue to receive his or her benefits by paper check. Federal agencies will be required to notify all current check recipients of all EFT options, including enrolling in direct deposit, awaiting the availability of the Treasury specified account, and electing waivers that allow recipients to continue receiving checks.
Access to Accounts Specified by Treasury
As part of the EFT initiative, Treasury is working to develop a low-cost account that will be offered through federally-insured financial institutions for electronic receipt of federal payments. This account will be known as the Electronic Transfer Account (ETASM). Individuals who receive a government payment would be able to select an ETASM at any participating institution. The ETASM will be available to all payment recipients, regardless of whether the recipient has an existing account at a financial institution. The specific characteristics of the ETASM will be proposed in a Federal Register notice to be released in the near future.
In addition, Treasury has been working with a number of States to link the delivery of federal payments to State Electronic Benefit Transfer programs. This would allow federal payment recipients to receive those federal payments on the same card on which they receive the state benefits, such as Food Stamps.
Next Steps
Treasury expects to publish the final EFT rule within 6 to 8 weeks. In addition, Treasury will publish a Federal Register notice describing the proposed characteristics of the ETASM in the near future. The public will have at least 30 days from the publication date of the ETA notice to provide Treasury with comments.
Treasury considers public education to be a crucial component for successful implementation of EFT. Based on comprehensive market research to learn more about the characteristics of federal payment recipients, Treasury is crafting an extensive nationwide public education campaign. This outreach will include grassroots education through consumer, community, and other organizations, as well as through the publication of information materials, media outreach, and public service advertising.
Further Considerations
In anticipation of the effective date for the EFT initiative, some federally insured depository institutions have entered into, or have announced plans to enter into, arrangements with non-depository providers of payment services, such as check cashers and money transmitters. Such arrangements may involve giving recipients access to EFT deposits in their insured accounts through the uninsured third-party provider. Treasury is considering whether to propose a regulation covering these arrangements. Any such proposed action would be published for public comment.