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Credit Card Applications » News » Other » Government Prepaid Debit Card Program Questioned

Government Prepaid Debit Card Program Questioned

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Government Prepaid Debit Card Program Questioned

Prepaid debit cards have replaced paper checks for millions of Social Security and Supplemental Security Income (SSI) recipients since the government switched from paper to plastic payments. But not everyone is happy with the change.

The U.S. Senate Special Committee on Aging recently held a hearing to determine whether seniors are being well served by the prepaid debit card program. And a recent investigation by the Center for Public Integrity (CPI) says that the program may not be good for poor people who rely on SSI payments.

Electronic payment savings

As of March 2013, the U.S. Treasury Department stopped issuing paper checks to Social Security and SSI recipients. Over the last few years, benefit recipients have been encouraged to sign up for direct deposit to their bank accounts, saving the government millions of dollars.

It costs about $1.05 to process and mail each benefit check, while electronic payments cost an estimated nine cents each. There are nearly 58 million Americans receiving Social Security alone.

The push to direct deposit was largely successful. By 2010 more than 85% of government payments were electronic. But not all government recipients have bank accounts, and the solution for unbanked customers was to receive electronic payments via prepaid debit card.

Fees scrutinized

The government contracted with Comerica Bank to issue the DirectExpress Debit MasterCard for Social Security and SSI recipients. Anyone can sign up for one, whether or not they have a bank account. Part of the problem with this, according to the CPI, is that people who do have bank accounts would be better advised to choose direct deposit rather than the fee-laden DirectExpress prepaid card.

The CPI says the fees associated with the card are too high and present an unfair burden to poor and elderly people receiving benefits. The DirectExpress prepaid card charges 75 cents for a paper statement, 90 cents for each ATM withdrawal after the first free one each month, and $1.50 to transfer funds to a bank account.

Big business of prepaid

One thing is not up for debate: prepaid cards are big business. Comerica has issued more than four million DirectExpress cards and is the second-biggest issuer of federal government prepaid cards. State governments also use prepaid cards for benefit payments; other issuers include Bank of America, Chase, U.S. Bancorp and Citigroup.

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