Federal government moving to mandatory direct deposit

Journalist Kay Bell reports that the federal government is announcing plans today to replace government checks with electronic payments--either via direct deposit to the recipient's bank account or via credits to a prepaid debit card system the federal government set up last year.

Kay wondered:

Tax refunds too? Preliminary reports on the federal e-payment program also mentioned mandatory e-payment of tax refunds. Later stories, however, leave out those billions of dollars that the IRS delivers annually to taxpayers.

Good question. According to OMB Director Peter Orzag, "The rule would not apply to the IRS." However, it seems to me that the Treasury Direct Express debit card option may be an alternative that would save check-cashing fees for many "unbanked" Americans.

Monday, June 14th, 2010 at 11:41 am

The Check is Not in the Mail

Peter R. Orszag, Director

Last week, I spoke about the President’s commitment to create a government that is efficient, effective, transparent, and responsive. Since then, the Administration has unveiled some of the stepswe are taking toward this goal: from identifying the bottom 5 percent of government programs to disposing of excess buildings and real estate and the Agriculture Department’s re-negotiating of itscontract with crop insurance companies (which will reduce deficits by $4 billion over ten years).

Today, the Department of the Treasury is moving forward with another way to modernize government and eliminate outdated, wasteful processes to create savings for taxpayers: making all payments from the US Government to consumers electronically, thus eliminating the need for paper checks for all benefits payments. (The rule would not apply to the IRS).

The efficiencies generated by this switch, which will occur over the next three years to electronic payments, will save more than $300 million over the first five years, and more than $120 million each year thereafter. Furthermore, as many private sector companies have found, moves to use IT to save money can provide a substantial benefit to consumers as well – and this switch is no exception.

Electronic payments will not only be more convenient for many Americans, they will also eliminate the risk that checks will be lost, stolen, altered, or fraudulently signed (a fate that more than half a million paper checks meet each year).

And for the millions of Americans who don’t have bank accounts, they will receive payment through the Treasury’s Direct Express debit card. Used like an ordinary debit card, this option – which will be available to those without accounts and those who choose not to have direct deposit – will save them from financial services like check cashing companies, which can charge exorbitant fees.

In sum, this is a win-win for the American public because it makes government more convenient and cost-effective. This is precisely the type of smart, streamlined improvement that this Administration is committed to making across government to boost efficiency and modernize how we do business. And OMB is working with agencies across the government to bring more ideas like this one online in the months to come.