The House Committee on Banking and Financial Services, Subcommittee on General Oversight and Investigations (King) on Electronic Funds Transfer

John Dyer, Principal Deputy Commissioner, testified,
March 2, 1999.


Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to bring you up to date on the Social Security Administration's (SSA's) progress in implementing electronic funds transfer (EFT) provisions of the Debt Collection Improvement Act of 1996, commonly called EFT-99. SSA has been very successful in its efforts to expand and implement the use of EFT and to educate the public about the benefits of direct deposit.

What is SSA's Experience With Direct Deposit?

SSA has offered the safety, convenience and reliability of EFT, also known as direct deposit, to our beneficiaries for over 20 years. At the beginning of 1998, there were 33 million monthly payments through direct deposit. An additional 3.5 million monthly payments have been added since then so that by last month, 36.5 million of SSA's 50.8 million payments are through direct deposit. Beneficiaries who use direct deposit have an overwhelmingly positive view of this service. In 16 States over 80 percent of Social Security beneficiaries are paid by direct deposit. It is clear that for the vast majority of Social Security beneficiaries direct deposit is the preferred type of payment.

What are the Advantages of EFT?

Let me say that SSA is a strong supporter of EFT as a service to our beneficiaries. Direct deposit significantly improves payment delivery services. There is an electronic audit trail to ensure that the payment can always be located. Payments can be traced through the banking system and beneficiaries have a permanent record of their payment through their bank records.

There are economic advantages of EFT for beneficiaries as well. Benefits are credited to accounts at the opening of business on the scheduled payment date. Beneficiaries can write checks to pay bills or use automated teller machine cards to obtain money immediately without

the inconvenience of first having to cash a check. Also, direct deposit avoids check cashing fees and fees for money orders and similar charges can be avoided. Many financial institutions offer free services for customers who use direct deposit.

There are also economic advantages to society. Direct deposit avoids the costs included in Secret Service investigations and financial institution liability associated with forged checks. Direct deposit is also more convenient. Beneficiaries are not required to be home to receive their payment, nor do they have to be concerned about their check being delivered during an unexpected absence from home, such as a medical emergency that requires a hospital stay. Beneficiaries can write checks payable to themselves (or use an ATM) to obtain cash immediately and thus are in no different a position than if they are paid by check.

What Have We Done So Far?

The Debt Collection Improvement Act of 1996 was designed to bring about more efficient and cost-effective Government operations by encouraging Federal check recipients to convert to electronic payment. The legislation called for a phased approach to implementing EFT-99. Under the first phase, new applicants for benefits were paid by direct deposit unless they said they did not have a bank account. In that event, they were paid by check. That phase lasted until January 1999.

In September 1998, the Treasury Department issued a final rule, as required by the legislation, outlining the circumstances under which the requirement for paying by EFT could be waived. Under these rules, SSA implemented Phase two. Our approach now is to request bank account information from applicants for the purpose of delivering their payments. If an individual with a bank account questions why we plan to pay them by direct deposit, our interviewers describe its advantages. If the individual indicates that direct deposit is a hardship, we pay by check.

For those individuals who indicate that they do not have bank accounts, we also describe the advantages of direct deposit and suggest they open an account. For the future, we will advise them of the Treasury sponsored Electronic Transfer Account(s) (ETAs). If these alternatives are not acceptable to the beneficiary, we will make payment by check.

Concurrent with our development of these policy guidelines for the handling of new claims, we have continued our ongoing efforts to increase the number of recipients who use EFT. We have maintained our long-standing public information campaign which partners us with the Treasury Department, the financial community, and the National Automated Clearinghouse Association in an effort to educate the public about the benefits of EFT-99. The campaign consists of printed materials that we make available to financial institutions, check stuffers included with monthly checks, as well as broadcast public service announcements on television and radio.

SSA, in partnership with the Treasury, Financial Management Service, and the contractor, Henry J. Kaufman & Co., developed and conducted a national publicity campaign to encourage the public to use EFT-99. To provide further support for the EFT-99 national campaign, SSA generated additional EFT-99 public information materials directed to Social Security beneficiaries and SSI recipients, plus a complete Spanish public information campaign to be used in Puerto Rico.

We have also initiated projects to facilitate direct deposit enrollments. For example, the Quick$tart program has made it much easier for a beneficiary to enroll in EFT by allowing financial institutions to provide Federal agencies with enrollment information electronically.

We have seen the number of Social Security beneficiaries who receive paper checks decrease from 17 million in August 1996 to 10.7 million as of January 31, 1999. The number of SSI payment check recipients went from 4.9 million to 3.6 million in the same time period.

What are Our Next Steps?

Our next task is to inform our beneficiaries of the availability of ETA accounts. On

November 23, 1998 the Treasury Department published in the Federal Register a notice describing the proposed ETA accounts. These accounts are designed to provide a low cost

account at a Federally-insured financial institution for those who do not have existing accounts. The ETA structure that Treasury has proposed allows any financial institution to participate and to offer a varying combination of service options.

An ETA account, as proposed, generally would:

  • be an individually owned account at a Federally-insured financial institution;
  • be available to any individual who receives a Federal benefit, wage, salary, or retirement payment;
  • accept only electronic Federal benefit, wage, salary, and retirement payments;
  • be subject to a maximum price of $3.00 per month;
  • provide, at no additional charge, at least four cash withdrawals per month, through the financial institution's ATMs;
  • provide the same consumer protections that are available to other account holders at the financial institution, including protections regarding disclosure, limitations on liability, procedures for reporting lost or stolen cards, and procedures for error resolution;
  • for financial institutions that are members of point-of-sale (POS) networks, allow POS purchases at no additional charge by the financial institution offering the ETA, as well as cash withdrawals and cash back with purchases, consistent with current commercial practice;
  • require no minimum balance, except as required by Federal or State law; and
  • provide a monthly statement.

We support the establishment of these accounts and stand ready to work with the Treasury Department to promote them and facilitate the enrollment process once the final characteristics of the account have been determined.

Our plans include notifying each of our check recipients of the options available to them for receiving future payments. Specifically, we will explain that they can receive their payments by direct deposit at the financial institution of their choice, by establishing an ETA account at a financial institution that chooses to offer the account under terms established by the Treasury Department, or by check if either of these alternatives poses a hardship. For those individuals who choose to establish an ETA account, we will help them by providing information about financial institutions that offer these accounts. We will also advise them that there may be other direct deposit options available to them and they may want to contact other financial institutions in their area.


SSA has long been a proponent of EFT as the preferred method of payment delivery . This is both from the perspective of efficiency as well for the convenience and safety of our

beneficiaries. We have historically encouraged and promoted its use. We will continue to work with the Treasury Department to meet the objectives of EFT-99 as well as the needs of our beneficiaries.