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Prepaid Debit Cards for Social Security Payments Under Scrutiny

[Friday, July 5th, 2013]

The government has long been trying to go paperless when it comes to benefits payments like Social Security.

Paper checks are expensive to print, process and mail – and for recipients who do not have bank accounts, they can be costly to cash. Instead, government agencies have been pushing people to get government-sponsored prepaid debit cards, issued by Comerica Bank. These are easy to use, cheaper to produce, and easier on the environment. Each paper check costs $1.05 to produce and mail. Electronic transfers cost about nine cents each. That means the government will save almost a dollar per check by doing away with paper payments.

However, not everyone is convinced that prepaid cards are the answer. The Senate’s Special Committee on Aging recently held a hearing to determine whether the new prepaid card program is in the best interest of America’s senior citizens. Meanwhile, the Center for Public Integrity (CPI) has raised concerns about whether the program hurts people living in poverty. They conducted an investigation and shared their findings with the Senate committee.

One of the CPI’s main concerns is whether seniors and other benefits recipients are paying too much in fees. The prepaid debit card issued by Comerica bank-called the DirectExpress Debit MasterCard-does have higher fees than some other prepaid cards on the market. Yes, there are cards with much higher fees, but charging seniors who may not be comfortable accessing their account online 75 cents per month to get a paper statement seems unnecessary. There is also a fee of $1.50 to transfer money to a bank account, and 90 cents per ATM withdrawal after the first one each month, which is free.

There are many prepaid cards on the market with lower fees, like Bluebird from American Express. That card has virtually no fees and unlimited in-network ATM withdrawals. Serve, also from American Express, is another no-fee prepaid debit card option. Some prepaid debit cards also offer rewards and other user benefits.

The CPI also found that over one million people who have checking accounts are signed up for the Comerica-issued debit card offered by the government. The card was aimed at people who do not have bank accounts, sometimes called the unbanked. Those who have bank accounts can sign up for direct deposit to their account, no card required.

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