Treasury’s Federal Benefit Payments Clearing House Plan Open for Comment

The face of government payments is changing. Options for direct, speedy access to government payments have increased over the past 10 years from Social Security to emergency payments and tax refunds.

Now, in a follow-up to an Advanced Notice of Proposed Ruling, the Department of Treasury is seeking comment on a revised proposal that would allow federal benefit payments to be made through the Automated Clearing House directly to prepaid debit card accounts.

There are, of course, specific restrictions outlined in the proposal. The account must be held by an insured institution, must provide deposit or share insurance coverage, and have the same protections for a direct-deposit account as a payroll card account. Further, the card must not be attached to any type of credit or loan feature that automatically withdraws money from the account—an effort to keep organizations such as payday lenders from directly withdrawing payment from the account.

The goal of such a program is to help expedite payments, provide consumers options, save the government money (up to an estimated $45 million), and help serve the under- or un-banked. In many instances, people who receive checks from the federal government pay high check-cashing fees and end up carrying around large amounts of cash—both of which could be avoided through this program.

However, in considering such a proposal, what does this mean to the culture of banking as we know it? It seems there are a few broad issues to consider in responding to Treasury’s proposal:

  • Would increased participation in programs like this one direct funds out of credit unions and into major banks that have contracted with the government to receive deposits?
  • Is this a program in which credit unions would likely participate?
  • Especially in the current financial climate, where we are learning more and more about the value of financial literacy, would transferring benefit payments directly onto a debit card inhibit consumers from developing long-term savings? Does this create a new era of instant access to funds without the consideration of putting something away for a rainy day?
  • Would the program prevent consumers from developing long-term relationships with financial institutions?

The Association urges you to read and carefully consider the long-term effect of this proposal. To read more about this proposal and comment to Treasury, please follow the link here. Comments are due by April 25, 2011. Should you choose to submit comments, it must be done through regulations.gov; email and fax options are not available. Visit this link and simply select “Submit Comment” in the upper right-hand corner to begin the submission process.

Should you have any questions or if you would like to share your comments, please contact NWCUA Director of Regulatory Affairs Jaycee Winn: 503.350.2209, jwinn@nwcua.org.

Posted in Federal.