Are Fees, Fraud Eating Away at Your Social Security?

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Getting Social Security payments by prepaid debit card or direct deposit hasn't worked out well for all recipients.

This post comes from Shelby Bremer at partner site

The U.S. Treasury Department has come under fire recently for a cost-cutting initiative to eliminate paper checks in disbursement of federal benefit payments. Recipients of Social Security and Supplemental Security Income have been required to switch to direct deposit or prepaid debit cards, rather than receiving printed checks mailed at a cost of $1.05 per check.

But while the Treasury Department is saving money, the prepaid debit cards have been increasing costs for recipients in the form of service fees for use, and the direct deposit option has led to an alarming rise in stolen benefits. Beneficiaries of these programs are predominantly senior citizens, veterans and other vulnerable populations who received an average of $1,024 per month in 2010, according to the American Bankers Association.

The shift away from paper checks

The initiative began in 1996, when the Debt Collection Improvement Act required that most funds be disbursed through an electronic funds transfer (EFT) program, with limited exceptions. By 2010, 85 percent of payments were electronic, and the Treasury Department published a final rule in December 2010 to eliminate checks entirely for the remaining 11 million citizens still receiving benefits by mail (7 million of whom had active bank accounts).

Two main reasons cited for the push were safety concerns — eliminating lost or stolen checks — and a savings of $1 billion in taxpayer money over 10 years. The final rule stated that starting in May 2011, newly eligible recipients enrolling in the system would not be able to select paper checks as a payment method, and that all existing participants must make the switch by March 2013.

According to a report by Daniel Wagner at the Center for Public Integrity, the initiative included an aggressive marketing campaign with handouts and fliers stating that beneficiaries who didn’t switch risked being “out of compliance with the law.” Call center employees were trained to strongly encourage callers to enroll in EFT or Direct Express, even if they called to request a waiver.

By the March 2013 deadline, the number of paper checks had been reduced to 3.5 million, but the electronic payments had already seen trouble. Between October 2011 and June 2013, the Social Security Administration Inspector General’s Office received more than 37,000 reports involving “questionable or attempted direct deposit changes,” according to a press release from the U.S. Senate Special Committee on Aging.

Traps for Social Security benefits

These incidents typically involved thieves contacting recipients and deceiving them into revealing personal details like their Social Security number and banking information (often claiming they had won a large sum of money and would receive it upon providing the necessary information). The swindler then contacted the bank or Social Security Administration and requested that funds be redirected to a new account. In other cases, thieves stole the prepaid Debit Express cards that served as an alternative to EFT.

AARP recently found that scams like these resulted in $28 million in stolen payments between October 2011 and June 2013.

Even beyond outright stealing of payments, the Debit Express cards, furnished by Dallas-based Comerica Bank as part of a government contract, have proven costly for beneficiaries. Online bill payments, ATM withdrawals and money transfers all carry fees that eat away at recipients’ fixed income.

Comerica Bank profits not only from these charges, but through its deal with the U.S. Treasury Department, which, in a renegotiation of its original contract, agreed to pay the bank an additional $5 per card to cover costs of operating call centers and assisting users.

These issues were all brought up in a Senate Special Committee on Aging hearing recently, in an attempt to discern what steps the SSA and Treasury are taking both to assist victims of fraud as well as prevent further theft of benefits.

The inspector general of the SSA urges that all those receiving direct deposit payments be aware of phishing and lottery scams, and never provide personal information during unsolicited phone calls. If you receive a call from someone claiming to be with the SSA, contact your local SSA office to confirm before revealing any information. Never agree to accept prepaid debit cards or credit cards in another person’s name, and if you suspect fraudulent activity, report it to the Social Security fraud hotline, or by phone at (800) 269-0271.

More on

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: Considering a Fixer-Upper? 15 Ways to Avoid a Money Pit

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,990 more deals!