I thought RMD readers might find this story interesting… In early January the Direct Express debit card was announced by the Treasury Department and will be used as a prepaid debit card for Social Security recipients to provide safer and cheaper benefit payments. The card will be introduced in a handful of states this spring and rolled out nationwide by the end of the summer by Comerica Bank.
The card is targeted at Social Security and Supplemental Security Income recipients who don’t have a bank account. Banking experts believe the debit card should mean cost savings for many Social Security recipients who don’t have a bank account and who use check-cashing services to cash their benefits checks.
Cardholders will get one free ATM cash withdrawal per deposit per month, and Comerica will charge 90 cents for each additional withdrawal. Like other debit-card holders, users may also face surcharges at many ATMs. Other fees include $3 for international ATM withdrawals, 3% on international currency exchanges, 50 cents for each online bill payment and 75 cents per month for paper statements.
The card should also bring substantial savings for the federal government. The government’s cost to issue a paper check was 89 cents in fiscal year 2006, versus nine cents for an electronic payment. Four million recipients of Social Security and SSI don’t have a bank account. If each of them signed up for the debit card, the government would save $44 million a year, says Judith Tillman commissioner of the Treasury’s Financial Management Service.
Along with savings, the debit cards should be more secure than paper checks, the Treasury and banking experts say. In 58,000 cases last year, Social Security checks were forged, Ms. Tillman says. Nine times out of 10, problems with benefits payments are associated with paper checks, she says. The debit-card accounts are protected by PIN numbers and FDIC insured.
So what does Comerica get out of the deal? Lots. Comerica will earn money on cardholder fees, interchange fees when cardholders use the card at the point of sale, and the float on funds sitting in cardholders’ accounts. Comerica estimates that there may be anywhere from 2.5 million to 10 million Direct Express card holders in five years. The company’s government card business, begun in 2004, now has over two million card holders.
This isn’t the first initiative targeted at the “un-banked” population but it’s the first directed toward seniors that I’m aware of. There will be people that may criticize the plan because they feel that seniors are being hit with too many fees, but these same people generally aren’t the ones cashing checks at a currency exchange that charges hefty fees to cash checks. To read a copy of the press release click the link below.