Starting on May 1, 2013 all Social Security and VA benefits recipients will get their benefits electronically. Paper checks will no longer be available. You will have two options for receiving 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 over the Direct Express Debit MasterCard program. 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.
Almost all federal payments are included. Here is a list of the most common benefits that will be affected:
Tax refunds, which can be direct deposited voluntarily, are not covered by this new law.
There is no cost to sign up and there are no monthly fees. However, there are fees for certain types of use. To avoid these fees, you should:
Most other types of common transactions are free. So you can use your card to make purchases and pay bills without fees.
Again, beware of other pre-paid cards that may charge you for using the card, for overdraft fees, and other hidden costs.
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 your monthly check, before Social Security sends it to you. However, until now, money sitting in your account was not protected.
Federal law now prohibits “protected funds” from garnishment. This protection covers direct deposit:
This rule (effective May 1, 2011) requires banks to determine whether an account contains protected funds. If an account contains protected funds that were direct deposited within the last two months, then the bank must protect those funds from garnishment. This means that the bank cannot freeze your account or pay out this money to your creditors. However, any remaining money that is not protected can be garnished from your bank account. Remember, only direct deposit federal benefits, like Social Security and Veterans Benefits, within the last two months are protected.
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 and you live in Maine, contact Pine Tree Legal Assistance. (Go here to find legal aid offices in other states.)
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.
Be sure that you understand the fees that a bank will charge you. Here are some common ones:
Contact your credit union or bank for more information and specifics. Shop carefully and be sure you understand the fees before you sign up.