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

September 25, 1997

Mr. Chairman and Members of the Committee:

I am pleased to be here today 10 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 which was passed by the Congress and signed by the President last year.


SSA has offered the safety, convenience and reliability of EFT through direct deposit, to those receiving Social Security and Supplemental Security Income (SSI) benefits for more than 20 years. Today, more than 31 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.

All Social Security and SSI benefits are issued by the Department of the Treasury. From the inception of the Social Security program through the mid-1970s, all benefits were issued by check. By the early 1970s, the volume of paper checks, coupled with related nonreceipt complaints and forgery workloads, threatened Treasury's ability to adequately provide check disbursement services to program agencies like SSA and, more important, to the public. To meet this challenge, Treasury developed an electronic payment alternative which it called the direct deposit program. Because Social Security payments are Treasury's largest workload, Social Security and SSI beneficiaries were among the first to be offered direct deposit in 1976.

In the late 1980s, SSA began to focus on the distinct service delivery advantages of direct deposit and looked for ways to improve the efficiency and effectiveness of this program. Our Agency took a more proactive position in encouraging beneficiaries to use EFT. Steps were taken to better inform the public about the distinct advantages associated with direct deposit and to simplify the sign up process for those who wanted to begin using this service. As a result, more than 62 percent of all payments generated by SSA today are delivered by means of direct deposit.

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 checks lost or stolen has 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 arc economic advantages of EFT for beneficiaries. 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 machi ne 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 payments 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 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 in operational costs would be substantial. SSA is already saving $156 million per year because many beneficiaries currently use direct depos it.

FET Legislation

P.L. 104-134 was enacted on April 26, 1996. It included a provision 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 indicate at the time of application that they have an account with a financial 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 requirements has been very encouraging. Virtually no problems have been encountered. As of August 1997, 85 percent of all new Social Security applicants were enrolled in direct deposit automatically from the outset of their entitlement, while 34 percent of SSI beneficiaries were enrolled.

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. There are two significant issues to be addressed 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 proposed regulations for implementing the second phase of mandatory EFT, recently printed by the Department of the Treasury in the Federal Register, provide for a number of circumstances under which agencies can waive the EFT requirements that meet the needs of beneficiaries who cannot use EFT.

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 a reasonable cost. The latter has been an area that both our agencies have been studying 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 in 23 other States that deposit benefits in special Electronic Benefits Transfer (EBT) accounts established for the participants. Funds are made available to these individuals by means of automated teller machines or point of service terminals. Beneficiaries participating in these special programs seem to like them. They enjoy the convenience and safety of having their monthly benefits delivered to them electronically. The monthly account fees charged by the Federal Government associated with the program have not been an issue because they appear to be comparable to or less than similar private sector fees encountered by the participants previously when cashing their benefit checks. We understand that most States are working to establish similar accounts for Federally administered benefits.

SSA endorses the Department of the Treasury's efforts to develop electronic payment alternatives at a reasonable cost for the unbanked, including Treasury's work with the States on EST. We will 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 regulation because it provides a well-constructed framework for the balanced implementation 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 Govenunent to continue their payments by check.

SSA is working closely with the Department of the Treasury to develop a feasible implementation strategy. Our preliminary plans include:

  • Continuing to require new applicants with bank accounts to use EFT, which has
    proven quite successful to date.
  • Working with Treasury to undertake a very robust public education campaign designed to convince current check receivers of the distinct advantages of EFT.
  • Monitoring the effectiveness of the public education efforts to convert current check receivers to EFT until mid-1998.
  • Undertaking a study in mid-1998 to determine the degree to which the residual check receiver s are either unbanked or otherwise likely to request a hardship waiver under Treasury's regulations.
  • Based on the results of the special study, developing a suitable process for applying waivers to the remaining check receivers. With the Depamnent of the Treasury's approval. this may include consideration of either a simple written certification process or some other administrative process to certify that using direct deposit constitutes a hardship.
  • Working closely with Treasury to develop its electronic transfer account program for "unbanked" recipi ents as quickly as possib le and working with SSA's unbanked beneficiaries to convert to ETA.

We estimate that by January 1999 SSA will still be sending out 12.8 to 15.1 million checks. Those numbers include approximately 7 million checks being sent to unbanked recipients who would automatically receive a waiver until the Government's electronic transfer account program becomes available. SSA's mid 1998 review of the remaining banked check receivers will provide the agency with the characteristics of those remaining check recipients and the extent to which they would seek or otherwise qualify for waivers.


SSA believes electronic payments are distinctly superior because they provide Social Security recipients who use them with a service that is safer, more reliable and more convenient than any other payment method, including check deliveries. We pledge to work closely with the Secretary of the Treasury as he develops regulations outlining how the remaining provisions of P.L. 104-134 will be implemented.