No More Government Checks?

Phase-Out Starts July 26

Starting July 26, 1996, anyone who applies for social security, welfare, or veterans' benefits, or anyone who qualifies for a federal salary or pension will be asked to supply their bank account number on their application to the government. Instead of receiving checks, their payments will then be electronically transmitted to their account.

This legislation is part of the Omnibus Budget Act that President Clinton signed into law on April 26. It becomes effective on July 26th, 90 days from signing.

Even current check recipients
By January 1, 1999, all recipients, (not just new ones), of federal government payments who have accounts will be receiving their funds by electronic funds transfer. The only checks that will be issued by the federal government after that time will be income tax refunds, which number about 80 million a year, and even they will have the capability of being electronically transmitted if requested. By adding this procedure to past mandates for federal electronic tax payments, estimates are that by 1999 over 90% of payments coming in and going out of the federal government will be done electronically.

The numbers are awesome. Each year the government issues over 420 million payments in electronic form. The rest of its 840 million payments are done by writing checks. The result of all payments being made electronically will definitely impact financial institution check processing-now estimated to handle 60 billion checks a year.

Reduced costs
Representative Stephen Horn (R.-California) who sponsored this part of the Act, says it costs the government 44 cents to issue a check, versus 2 cents to make the payment through automated clearing house networks. He estimates the new process will save the government about $500 million over the next five years.

Elliott McEntee, CEO of the National Automated Clearing House Association, says the electronic transmission will save 80 cents in processing costs per payment-an annual cost savings for financial institutions of about $500 million.

About 6% "unbanked"
According to banking experts, only about 6% of the population eligible to receive payments from federal funds are "unbanked." Government officials point out that these individuals can access funds due them through automatic teller machines and point of sale terminals by means of the newly developed and growing national electronic benefits transfer system.

At this point, the largest problem is not that of the financial institutions, but rather the Social Security Administration. They are the ones facing the most newly eligible citizens each month who must have the account information included in their application for benefits.

Free Kit For Financial Institutions
BANKERS' HOTLINE went directly to Michael D. Johnson, director of payment and recovery policy of the Social Security Administration, who says they are trying to assist financial institutions by creating an automated enrollment system-to be in place by September 20th of this year. Instead of making calls to the Social Security Administration to arrange direct deposit, the financial institution can access user friendly screens to create automatic enrollment. It will be an easy "fill-in-the-blanks" type of form. You can send a FAX to Michael Johnson at (410) 965-0384 to get information in a "Quick$tart Kit" that will help your financial institution expedite enrollments and explain all the particulars and the entire process. Mike's telephone number is inside the kit if you have any further questions after you have reviewed it. The kit also has marketing materials you can use in your offices. The price is right-it's free-and we found Michael Johnson to be really and truly one of those people who say, "I'm from the government and I'm here to help you."?and actually means it!
FAX (410) 965-0384-ask for the free "Quick$tart Kit."

Copyright © 1996 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 6, No. 8, 6/96