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Boomers
are Urged to Use Direct Deposit
U.S. Effort Aims to Reduce Fraud and Lower Costs
By
Jeff D. Opdyke, Wall Street Journal
January 3, 2007
The Treasury Department and the Federal Reserve want America's baby boomers to go direct -- as in direct deposit.
The agencies are expected to announce today the launch of a "Countdown to Retirement" campaign aimed at encouraging more boomers to opt for direct deposit of their current paychecks as a way to get them to ultimately request direct deposit of their Social Security checks in retirement.
Currently, about 20% of all Social Security and Supplemental Security Income checks are issued in paper form. As the more than 70 million baby boomers retire, the costs of processing millions of additional checks, and the volume of fraud those checks will generate, could surge.
"The key to safety and security from a consumer standpoint is direct deposit," says Don Hammond, fiscal assistant secretary for the Treasury Department.
Next year, the oldest boomers will hit 62, the age at which they are first eligible for full Social Security benefits. But it is boomers between the ages of 51 and 60 who are least inclined to rely on direct deposit, according to a national survey completed this fall and sponsored by the two federal agencies. That survey indicated that older boomers lagged behind younger boomers in the use of online banking and are far less likely to enroll in direct deposit within the coming year.
A quarter of the boomers surveyed say they receive their wages, salary or other regular payment by paper, rather than direct deposit. By comparison, just 13% of respondents over the age of 61 receive paper checks. Moreover, some 40% of boomers who say they are unlikely to start using direct deposit in the next year say they don't trust the process, among other rationales.
The agencies want to change that mindset for two reasons: For consumers, direct deposit reduces fraud, and for the government it reduces costs.
Currently, 98% of all problems with Social Security payments happen with paper checks, according to Treasury officials. There were 1.5 million payment inquiries in 2005, while government-check fraud that year cost the nation about $54 million, the bulk of it tied to Social Security checks. Moreover, each paper check costs the government 80 cents more to process than does an electronic deposit.
Direct deposit also shortens the amount of time required to correct any problems that arise with wayward payments. With paper checks, a missing or lost Social Security payment takes between two and three weeks to replace, says Alvina McHale, Treasury's director of legislative and public affairs. If fraud or counterfeiting are suspected, weeks turn into months.
By comparison, if a direct-deposit payment doesn't show up on time, "the fix can be instantaneous while you're on the phone," Ms. McHale says. In fiscal 2006, ended in September, just 32,000 traces were requested for misrouted direct deposits out of more than 745 million electronic payments, a rate of 0.004%. The most common culprit: a bank routing number or an account number that was transposed or mistyped.
To encourage direct deposit, the Treasury and the Federal Reserve Banks have established a Web site (GoDirect.org) and a toll-free number (800-333-1795) where consumers can sign up for free for direct deposit of their government checks.
"The easy-to-convince people have all converted to direct deposit," says Mr. Hammond. "Now we're trying to make it easier for the rest to sign up."
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