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Consumer Banking and Payments Law: 9.2.2.3 Non-Recurring Transfers

A recipient can receive a check for non-recurring transfers “where the agency does not expect to make payments to the same recipient within a one-year period on a regular recurring basis and remittance data explaining the purpose of the payment is not readily available from the recipient’s financial institution.”22 This exception, for example, allows a one-time retroactive Social Security or SSI check payment when the recipient is not eligible for ongoing benefits.

Consumer Banking and Payments Law: 9.2.2.4 Waivers for Mental Impairment and Remote Locations

Waivers allowing check payments are permitted for mental impairment24 and for individuals who live in remote geographic areas that lack infrastructure to support electronic financial transactions.25 When a representative acts as the payee, entitlement to a waiver is based on the representative payee’s circumstances, not those of the beneficiary.26 Requests for a waiver must be made in writing to the Treasury Department.

Consumer Banking and Payments Law: 9.2.3 Disadvantages of Check Payments

While certain individuals can receive federal benefits by check, this may not be a good option for them. The check can be sent to the wrong address, lost, or stolen, which can delay access to the benefits. Cashing the check without depositing it in a bank account may incur check cashing fees.

Consumer Banking and Payments Law: 9.3.1 Direct Deposit Described

The most common method today for payment of federal benefits is the Treasury Department directly depositing the payment into the consumer’s account at a qualifying financial institution. The individual designates a financial institution through which the electronic funds transfers are to be made and provides the federal agency with the information it needs to process the payments.32

Consumer Banking and Payments Law: 9.3.3 Direct Deposits Fraudulently or Mistakenly Transmitted to a Wrong Account

A federal payment can be directly deposited into the wrong account—for example, if the recipient enters the incorrect account number or if someone posing as the recipient redirects the recipient’s money into their own bank account, to their own prepaid card account, or even to a prepaid card account fraudulently in the consumer’s name that is immediately emptied. Consumers, though, have protections in such cases, although there will be at least a temporary loss of access to the misdirected funds.

Consumer Banking and Payments Law: 9.3.4.1 Generally

Social Security, Supplemental Security Income (SSI), Department of Veterans Affairs (VA), and a number of other federal benefits are exempt from seizure by creditors, even when deposited into a bank account. However, before federal protections were enacted in 2011, banks that received a garnishment order would freeze funds in the consumer’s account up to the amount of that order, including exempt deposited federal benefits.

Consumer Banking and Payments Law: 9.3.4.2 How the Rule Operates

Upon receipt of a garnishment order against an account holder, the bank must review all accounts owned by that individual to determine whether any of the specified federal benefits were electronically deposited during the “look-back period”—the preceding two months. If so, the bank must protect from a freeze or seizure the lesser of the sum of all exempt benefits electronically deposited into the debtor’s account during the look-back period or the balance in the account at the time the review is conducted.53

Consumer Banking and Payments Law: 9.4 Payments to Master Accounts of Nursing Facilities and Religious Orders

In general, federal payments may only be deposited to an account in the name of the beneficiary or a representative payee.58 Nevertheless, payments can be made to a resident trust or patient fund account established by a nursing home or other nursing facility, pursuant to federal requirements relating to the protection of such funds.59 A nursing facility is defined at 42 U.S.C. § 1396r(a).

Consumer Banking and Payments Law: 9.5.1 Introduction

The Direct Express card is the default method of delivering federal benefits to any recipient who does not designate an account for direct deposit. According to the Treasury Department, there are 4.5 million active Direct Express cardholders each month.61

Consumer Banking and Payments Law: 9.5.2 Direct Express Card Fees and Terms of Use

The current terms and conditions of the Direct Express card and the rights of benefits recipients are set through the Treasury Department’s contract with Comerica Bank, which expires at the end of 2024.68 There are no regulations governing the card’s terms, but the terms and uses of the card are discussed in the explanatory material accompanying the final rule adopting the Direct Express card as the default method of making federal payments to those who have not set up direct dep

Consumer Banking and Payments Law: 9.5.4 Protection from Attachment or Garnishment

The Treasury Department’s rule that protects two months of benefits from garnishment and freeze applies to funds deposited in the Direct Express account, since it is an account at a bank.81 In addition, since the Direct Express card only permits deposit of federal payments, there is minimal risk of commingling exempt and non-exempt funds; even funds deposited prior to two months of a garnishment order should be protected from both garnishment and freeze, with the exception of some child support or alimony orders.

Consumer Banking and Payments Law: 9.7.1 Introduction

The Treasury Department has discontinued the Electronic Transfer Account (ETA) Program. ETAs allowed all recipients of Social Security, SSI, and other federal benefits to establish bank accounts, receive payments electronically, and avoid many fees that may accompany standard bank accounts. Effective September 2018, all ETAs have been closed.