I have written a number of times (see http://goo.gl/Jj8C5) about the safety of using credit cards and debit cards for online transactions. Generally speaking, using a credit or debit card is much safer than sending a check in the mail where it can easily be stolen. Apparently, the Social Security Administration agrees. The Administration has announced new changes that will be significant for millions of Americans.
In 2010, more than 540,000 federal benefit checks were reported lost or stolen. The Social Security Administration is now switching to all electronic payments for several reasons. One reason is to reduce the thefts. Another reason is that the switch will save the government about $120 million a year. Social Security will save $1 billion over the next decade, according to the Treasury Department.
In fact, the Social Security Administration has been switching to electronic deposits for years. However, not everyone has a checking account or savings account to accept deposits. Many low income people, including many retirees, do not have bank accounts. Until now, the Social Security Administration has been forced to send paper checks to those individuals. Without a bank account, most recipients are forced to pay high fees to cash the checks. That's one of the reasons we see so many check cashing services in many cities.
The changes announced this week concern only those checks.
Instead of sending checks and dealing with all the thefts, the Treasury Department will now provide a debit card to each recipient who needs one. Each month, benefit payments are added to the cards, which can be used to make purchases or withdraw cash from ATMs. Experience has shown that the theft rate and financial losses are much less for debit cards than for checks in the mail.
"You think of that paper check floating out there in the delivery system, with personal information on it, it's much more susceptible to fraud versus an electronic payment," said Walt Henderson, director of the Treasury Department's electronic funds transfer division.
There are no fees for using the debit card to make purchases. Each recipient also may withdraw cash at any ATM once a month without paying fees. Additional withdrawals within a one month period will incur an ATM fee which typically still is much cheaper than a check cashing fee. In short, the retiree can keep more of the money by avoiding check cashing fees. The new debit cards can be used at any retailer that accepts MasterCard debit cards. Unlike checks, if a card is lost or stolen, the beneficiary is protected from unauthorized use as long as the missing card is reported promptly.
If this change applies to you or someone you know and if you would like more information, the government has created a website, www.GoDirect.org and a toll-free phone number, 1-800-333-1795 you can call for assistance.
There is one interesting side effect: the U.S. Postal Service has been struggling for years with the problem of declining usage of the mail systems. Companies and individuals have been switching from mailed letters to electronic methods of delivering letters and advertisements. Another huge change is the very popular "pay bills online" services now offered by almost all banks and merchants. Consumers are finding online bill payments to be safer and more convenient than sending checks in the mail. The Postal Service has seen declining revenues as a result. The U.S. Postal Service is already facing big budget problems, caused by declining mail volume. The Social Security Administration traditionally has been one of the biggest customers of the Postal System and now the mail volume will decrease even more, by several million mailings each month. This undoubtedly will cause even more problems for the Postal Service.
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