U.S. to pay nearly everyone electronically by '99 Tax refunds excepted

$100 million to be saved

December 14, 1997|By Larry Lipman | Larry Lipman,COX NEWS SERVICE

WASHINGTON -- Soon, the federal government will never again promise "the check is in the mail."

Just over a year from now, on Jan. 2, 1999, the federal government plans to begin making almost all its payments except tax refunds electronically, mostly through direct deposits.

Already, more than half of the 1 billion payments the government makes each year -- to federal employees, vendors and beneficiaries, such as Social Security and Supplemental Security Income recipients -- are made electronically, and the pace is accelerating.

Since July 26, 1996, when by law all payments to new recipients with bank accounts had to be made electronically, 85 percent of new Social Security beneficiaries have signed up for direct deposit.

Sending money electronically is faster, cheaper and more reliable than mailing checks, John D. Hawke Jr., the Treasury Department's undersecretary for domestic finance, said at a House banking committee hearing in September.

An electronic transfer costs the government about 2 cents; sending a check costs 43 cents. Making all payments electronically is expected to save the government $100 million a year, Hawke said.

Replacing wayward checks -- and the government replaces more than 800,000 checks a year that were lost, stolen, delayed or destroyed -- often takes two weeks.

Missed electronic transfers can be repeated within a day.

Problems with checks occur 20 times more frequently than with electronic transfers.

Fraud is virtually nonexistent with electronic transfers, Hawke said. The Treasury Department estimates that about 75,000 checks a year are forged or fraudulently negotiated by someone other than the recipient or an authorized agent.

Paying electronically "will provide the best service to recipients, the lowest possible cost to taxpayers, and the greatest degree of transaction security," Hawke said.

But nearly a fifth of recipients who now receive federal checks -- roughly 10 million people -- do not have a bank account. For them, the government is working on a plan to create "electronic transfer accounts" in local banks.

These accounts would operate much like a bank account, and the money would be available through automated teller machines. The accounts are expected to be operating by January 2000.

Details of the shift from checks to electronic transfers are still being worked out. The Treasury has been receiving comments on proposed rules since September. The comment period ends Tuesday, and final regulations are expected early next year.

Even so, the landscape of the government's electronic check future has begun to emerge. Here are some of the highlights:

People who were receiving federal checks before July 26, 1996, will have the option of continuing to receive checks if they claim that the electronic deposits would present a hardship because they physically are unable to get to a bank or no bank is in their vicinity.

Paul Elliott, a Treasury Department spokesman, said people will "certify themselves" on a form that will be included next year with their benefits check.

People who were not receiving federal checks as of July 26, 1996, and who don't have a bank account will be allowed to apply for a waiver of the electronic deposit if they have a physical disability or if the direct deposit would pose a financial hardship or be geographically inconvenient.

The government may write checks to vendors for one-time payments or in cases of military deployments or when an electronic transfer would be more costly than a check.

Electronic deposits will be made only into financial institutions such as banks, credit unions and thrifts that are federally insured or eligible for federal insurance. The sole exception will be to accounts held by registered securities brokerage firms in individuals' names.

Recipients may designate relatives or other representatives authorized by the payment agency to receive payments in their behalf under rules similar to those used for check payments.

The effort to move the government more fully into electronic money transfers has won generally positive reviews from business, consumer and elderly groups.

But numerous questions have been raised about the impact on low-income, disabled or elderly beneficiaries, and there is a struggle over to what extent direct deposit accounts should be regulated and who should be eligible to disburse the money.

Consumer and elderly advocacy groups are worried about the fees that banks will be allowed to charge and the extent to which people will be able to use electronic transfer accounts.

Consumer advocates are also worried that the electronic transfer accounts would allow withdrawals using a card similar to an ATM card.

"That doesn't bring people into the mainstream banking system; it only encourages them to spend," said Larry White of the American Association of Retired Persons.

Pub Date: 12/14/97

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