New recipients of Social Security, Supplemental Security Income, Veterans Affairs and Railroad Retirement beginning 2011 will receive payment in two ways: through bank account direct deposits or debit cards for non-account holders. Current payees are required to sign up to one on or before March 31, 2013.
With a yearly $120 million saving for non-printing and mailing of checks, the approximate savings of Social Security is $1 billion in 10 years according to Walt Henderson of the Treasury Department. It is also seen to reduce thefts.
EFT strategy director for the Treasury, Henderson, said there is no worry that this will inconvenience Social Security’s oldest recipients as 75% of recipients older than 80 are already using direct deposit. If this proves to be difficult, he added, the Treasury will make an exception and resume mailing checks.
Their transactions will be free and may use their cards in purchases and withdraw cash without charges. The only worry is it makes the elderly vulnerable to payday lenders who charge high interest and 55% of retirees with only Social Security to rely on but become open to the lender’s trap when they are in need of cash.
“Runaway Bandwagon: How the Government’s Push for Direct Deposit of Social Security Exposes Seniors to Predatory Bank Loans”, the report written by National Consumer Law Center urges government regulation for payday lenders and Social Security recipients transactions.
The NCLC wants financial institutions to clearly assess whether a payday loan can be afforded by a borrower who relies on Social Security checks with the following conditions as well: cap annual percentage rates, fees not over 36%, a 90-day loan limit or 30 days for each $100 borrowed and permit settlement in installments. Additionally, the NCLC asks the Treasury to disallow lenders electronic access to borrowers’ accounts for loan repayment.
This is not for the U.S. government to meddle with decisions of people old enough to make their own even if payday loan can be the only option in dire needs. However, payday lenders are undeniably very aggressive.