Statement of John Dyer,
Acting Principal Deputy Commissioner, Social Security Administration
before the House Committee Banking and Financial Services
Subcommittee on Financial Institutions and Consumer Credit

March 4, 1998

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss the Social Security Administration's (SSA's) experience with electronic funds transfer (EFT), and our efforts to implement the EFT provisions of Public Law 104-134, the Omnibus Consolidated Rescissions and Appropriations Act of 1996.


SSA has offered the safety, convenience and reliability of EFT, also known as direct deposit, to those receiving Social Security and Supplemental Security Income (SSI) benefits for more than 20 years. Today, more than 33 million of the 50 million payments generated by SSA each month are delivered electronically. Beneficiaries who use direct deposit have an overwhelmingly positive view of this service

Advantages of EFT

Direct deposit significantly improves payment delivery services. It is a safer, more reliable method of payment. This is particularly important since the incidence of check thefts have increased dramatically over the past 10 years. In contrast, not one direct deposit payment has ever been lost in the 21 years it has been available to Social Security beneficiaries. With direct deposit, 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 benefici aries 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 (ATM) cards to obtain money immediately without the inconvenience of first having to cash a check. Direct deposit to interest bearing accounts earns the most interest on beneficiaries' money because their payment will be in the accounts at the earliest possible moment. Direct deposit avoids check cashing fees. If direct deposit to a checking account is used, fees for money orders and similar charges are avoided. Many financial institutions offer free services for customers who use direct deposit.

Direct deposit is also more convenient. With direct deposit, beneficiaries are not required to be home to receive their payment. They do not have to arrange vacation schedules around their check delivery dates, nor do they have to be concerned about their check being delivered during an unexpected absence from home, such as a medical emergency. 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.

Of equal importance is the fact that direct deposit saves taxpayers a substantial amount of money. According to Treasury, it costs approximately $0.43 per item to issue Federal payments by check versus only $0.02 per item when the payment is directly deposited into a beneficiary's account. If all remaining check receivers would convert to direct deposit immediately, the savings to taxpayers would be substantial.

EFT Legislation

P.L. 104-134 was enacted on April 26, 1996. It included a pro vision that expanded the use of direct deposit for those receiving Federal payments. SSA implemented the initial phase of the new requirement effective August 1, 1996. Anyone applying for benefits as of this date is required to receive them by direct deposit if they indicated at the time of application that they have an account with a fmancial institution. This requirement is waived if the individual certifies that he or she does not have an account with a financial institution.

SSA's experience with the initial phase requirement has been good. Virtually no problems have been encountered. At present, 85 percent of all new Social Security applicants are enrolled in direct deposit automatically from the outset of their entitlement, while 35 percent of SSI beneficiaries are enrolled this way.

Anyone who had established entitlement to Social Security or SSI benefits prior to August 1, 1996 is not required to use direct deposit at this time. The law does specify, however, that the Secretary of the Treasury is responsible for developing regulations outlining how the final requirements will be implemented, including any waiver conditions and the development of electronic payment services for individuals who do not have a relationship with a financial institution.

SSA faces the challenge of encouraging its remaining check receivers to convert to direct deposit or some other form of EFT. In fact, Social Security is the largest and most visible program affected by this legislation.

There are two significant issues to be addressed in regulations on the EFT mandate. The first is to identify all of the exception conditions under which current and future beneficiaries with special circumstances will be exempt from having to be paid electronically. The second issue is to develop a program to meet the electronic payment needs of individuals without bank accounts and to develop this service at the lowest possible cost. Both SSA and Treasury have been studying this particular issue for a number of years. Unbanked individuals often have limited resources. They also may be unfamiliar with how to go about maintaining an account at a financial institution.

SSA and Treasury have undertaken several pilots designed to test the feasibility of establishing special types of electronic payment accounts for unbanked beneficiaries. Programs have operated in the States of Maryland, Texas and elsewhere that deposit benefits in special accounts established for the panicipants. Funds are made available to these individuals by means of ATM or point-of-service (POS) terminals Beneficiaries panicipating in these special programs seem to like them. They enjoy the convenience and safety of having their monthly benefits delivered to them electronically. They also enjoy becoming a part of the great majority of our society who participate in mainstream financial services. The monthly account fees associated with the program have not been an issue because they appear to be comparable to or less than similar fees encountered by the participants previously when cashing their benefit checks.

SSA endorses the Department of the Treasury's efforts to develop electronic payment alternatives at a reasonable cost for the unbanked. We will continue to work closely with Treasury to ensure this alternative is made available nationally as quickly as possible. Based on our experience with these programs to date, we do not anticipate our unbanked population will have any significant problems with the proposed Federal program. SSA will do all it can, working with Treasury, to monitor this area to ensure the program operates as intended.

Implementing the EFT Mandate

SSA supports the Department of the Treasury's proposed implementation plan for EFT '99 because it provides a well-constructed framework for the "humane enforcement" of the expanded use of electronic funds transfer to receive Federal payments. It articulates a sound new public policy to encourage Federal benefit recipients to use electronic funds transfer technology. while recognizing that many current check receivers may have valid concerns or issues which require the Government to continue their payments by check.

As stated in Under Secretary Hawke's testimony, Treasury is effectively addressing the two areas that were of concern to SSA. Treasury plans to expand the waiver categories to include additional conditions that were cited in recent public hearings. In addition to geographic remoteness and physical limitations, Treasury may add literacy, English proficiency and mental impairments. SSA supports this enhancement in Treasury's ftnal regulations.

Treasury is also addressing our other concern by scheduling the implementation of the final phase of the EFT mandate to coincide with the availability of Treasury's "electronic transfer account" (ETA) prog ram for unbanked Federal recipients and for those recipients who prefer to use the ETA program. We believe this change is the most feasible approach because it imposes the least burden on both the public and SSA.

SSA will continue to work closely with the Department of the Treasury to carry out the most feasible implementation strategy, including:

  • Continuing to apply the Phase I conditions which is to require all persons with bank accounts applying for Social Security or SSI benefits to be paid by direct deposit. (This has proven to be quite successful.);
  • Working with Treasury to undertake a very robust public education campaign designed to convince current check receivers of the distinct advantages of EFT; and
  • Facilitating direct deposit enrollments. The Agency sponsored the Quick$tart service. a new electronic banking standard that allows financial institutions to provide Federal agencies with direct deposit sign up information electronically through the Federal Reserve. Approximately 1 million enrollments have been processed by this new method.
Once the Department of the Treasury' s ETA program for the unbanked is available, SSA plans to:


  • Notify all remaining check receivers of the EFT mandate requirements. Beneficiaries who have a relationship with a financial institution will be encouraged to sign up for direct deposit through their financial institution;
  • Inform all unbanked recipients about the ETA program including instructions on how to enroll in the program if they are unable to establish a traditional direct deposit arrangement; and
  • Provide all check recipients with information on the waiver conditions, including information on how to apply for a waiver if the use of EFT presents a hardship.


SSA believes electronic payments are distinctly superior because they provide Social Security and SSI recipients who use them with a service that is safer, more reliable and more convenient than any other payment method, including checks.

This Agency is well on its way in meeting the objectives of EFT 99. The Department of the Treasury has been very receptive to our comments and concerns. We will continue to work closely with Treasury to successfully carry out this important piece of social legislation.