What Do I Need to Know about the Federal Electronic Benefits Rules?

  1. What does the new electronic benefits system mean for me?
  2. Tips on using the "Direct Express" card
  3. If I have debts, won't my creditors be able to take my money?
  4. Direct Express Card vs. Bank Account: How do I choose?
  5. How do I keep my bank fees down?

What does the new electronic benefits system mean for me?

As of May 1, 2011 all new applicants for federal benefits will get their benefits electronically. Paper checks will no longer be a choice. You will have one of two options: 

  • You may have your benefit directly-deposited into your bank account, or
  • If you do not have a bank account, you may enroll in the government’s Direct Express Debit MasterCard program. You can use this card to make purchases, pay bills or get cash at ATM’s.

If you now get your checks by mail, you will have until  March 1, 2013 to switch to electronic payments. There is a “hardship waiver,” but the rules make it difficult to claim a "hardship." Generally, waivers will be limited to those with mental impairments and those in very remote areas (and even these waivers may be hard to get). However, anyone born before March 1, 1921 and still getting a paper check as of February 28, 2013 may choose to continue getting paper checks.

Note: A third option is to have your benefit deposited on another brand of "pre-paid" card.  Although banks and others may be marketing these cards to low-income people for this purpose, we do not recommend them. Most include numerous fees and charges. Read more here

The federal government has negotiated with the Direct Express group (Comerica Bank) for a card with fewer fees.  See more about the "Direct Express" card fees below.

What types of benefits are covered by the new delivery system?

Almost all federal payments are included. Here is a list of the most common benefits that will be affected:

  • Veterans benefits
  • Social Security
  • Supplemental Security Income 
  • Wages for federal employees
  • Military, railroad and other retirement benefits
  • Black lung payments
  • Indian Trust Fund payments

NOTE: Some exceptions are made, where necessary, for active duty military pay during military actions, wars and national emergencies.

Tax refunds, which can be direct deposited voluntarily, are not covered by this new law. 

Tips on using the "Direct Express" card

  1. Limit yourself to only one ATM withdrawal per month. This is free. Each additional ATM withdrawal will cost you $ .90. Also, you can make withdrawals through a bank teller (at any MasterCard bank) for free. And you can get cash back when you buy something with no fee.
  2. You can opt for free automatic notice when your benefit is deposited. This can be by phone, e-mail or text.  This will help you to keep track of how much money is in your account.
  3. For $.75 per month, you can also get a monthly paper statement. Again, this can help you keep track of your account.

Most other types of common transactions are free.  So you can use your card to make purchases and pay bills without fees.
Go here for more details about the "Direct Express" card (National Consumer Law Center)
Get even more details here

Again, beware of other pre-paid cards that may charge you for using the card, for overdraft fees, and other hidden costs.

If I have debts, won't my creditors be able to take my money?

If you have credit card debt, or other debt, that you can’t pay on time, your best strategy is to act early and speak with creditors. You may be able to make a payment arrangement which will put off being sued. If you are sued on the debt, and the court finds that you owe the debt, then the creditor may be allowed to “garnish” your paycheck or freeze the funds in your account.

There are two types of garnishment: wage garnishment and bank account garnishment. Wage garnishment is where your employer is required to withhold a portion of your wages to pay the debt you owe. Bank account garnishment is where the creditor attempts to “freeze” or take portion of the funds in your account. 

Federal law - and state laws - have, for a long time, prohibited creditors from garnishing certain kinds of benefit checks, such as Social Security, before the government sends them out. However, until now, money sitting in accounts of those benefit recipients was not protected.

The new federal law now prohibits “protected funds” from garnishment. This protection covers:

  • Veterans Benefits
  • Social Security
  • SSI
  • Railroad Retirement, Unemployment and Sickness Benefits
  • Federal Employee and Civil Service Retirement

Military retirement and other military benefit payments, Coast Guard payments, and payments from other federal agencies are not protected under this new protection from garnishment rule.

As for VA benefits, this new rule (effective May 1, 2011) will require banks to determine whether an account contains “protected funds.” If an account does contain such funds, the bank must protect two months of benefit payments from garnishment.

So if you are pursued by creditors and you do not want your account garnished, keep no more than two months of benefits in your account. If a creditor garnishes your account anyway, contact a free legal services office in your state.

Important exceptions: 

  1. Keep your benefits payments in the account where they were electronically deposited.  If you move that money to another account, it loses its "protected fund" status.
  2. The federal government, and state governments enforcing child support orders, do not have to follow this rule.  They can still garnish your account. This includes tax debts, student loan debts, and child support owed. However, in Maine, SSI recipients are protected from all DHHS child support collections.

NOTE: A few states have stronger protections.  For example, Pennsylvania protects the first $10,000 of any account containing "exempt benefits."  California and New York also have protections.

Direct Express Card vs. Bank Account: How do I choose?

Again, fees for using the "Direct Express" card - along with the tips above - may be the least expensive alternative. But if you would prefer to open a bank account, shop around and make sure that you understand all of the fees before you open an account. Also, we recommend that you avoid accounts with overdraft fees. And do not opt for overdraft "coverage," when offered.

Be wary of other pre-paid cards. They tend to have high fees. Read more here.  

How do I keep my bank fees down?

Be sure that you understand the fees that a bank will charge you.  Here are some common ones:

  • You may be required to keep a minimum balance in order to avoid a monthly fee.
  • Consider using a credit union account; they often have lower fees and lower minimum balance requirements.
  • Avoid the use of non-network ATM’s; they may charge additional fees for withdrawals.
  • You may need to limit the number of ATM withdrawals and balance inquires.
  • Linking a checking account to a savings account may lower your fees.
  • Avoid accounts with "overdraft fees" and opt out of "overdraft coverage."

Contact your credit union or bank for more information and specifics. Shop carefully and be sure you understand the fees before you sign up. 

May 2011