1. U.S. Treasury Efforts to Deliver Federal Benefit Payments Electronically Walt Henderson Director, Electronic Funds Transfer (EFT) Strategy Division Financial Management Service U.S. Department of the Treasury February 3, 2011

2. 31 CFR Part 208 Final Rule  On June 17, 2010, the U.S. Department of the Treasury issued a Notice of Proposed Rulemaking (NPRM) to amend 31 CFR Part 208 to require individuals to receive non-tax Federal payments electronically by March 1, 2011.  Treasury received 33 comments in response to the NPRM  Requested that Treasury provide limited waivers for elderly recipients and for mental impairment, geographic impediment, physical hardship, and language or literacy barriers.  Requested changes to the Direct Express ® Debit MasterCard ® card, such as free monthly statements, unlimited free ATM withdrawals, and specific changes to the Direct Express ® Terms and Conditions of Use  Request that Treasury delay the effective date of the rule to allow time for recipient outreach and education.  FMS should regulate the banking industry (and prepaid cards) if they plan to require all Federal payments to be made electronically, namely improper garnishment of Federal benefits, requiring consumer protections for prepaid cards, and prohibiting lines of credit attached to recipient’s accounts/cards.

3. 31 CFR Part 208 Final Rule  On December 22, 2010, Treasury issued a final rule amending 31 CFR Part 208.  New recipients on or after May 1, 2011 will be required to receive payments by EFT.  Delayed implementation date from March to May to address comments to NPRM  Current check recipients are not required to receive payments by EFT until March 1, 2013.  The rule provide for limited waivers, including:  An automatic waiver for anyone over the age of 90 on May 1, 2011 and also receiving Federal payments by check by March 1, 2013.  An automatic waiver where the Direct Express ® card is not available recipient.  An automatic waiver for individuals not eligible for the Direct Express ® card because the card has been suspended or cancelled.  Hardship waivers that require the individual to submit a notarized request in writing: Geographic barrier and Mental impairment  The rule also refers the public to the Prepaid Card Interim Rule at 31 CFR Part 210 and the upcoming Garnishment rule at 31 CFR Part 212 to address concerns expressed about payments to prepaid cards and bank accounts with high fees, attached lines of credit, that lack consumer protections, and that permit the improper garnishment of Federal funds.

4. Direct Express ® card  A low-cost prepaid debit card offered to Federal beneficiaries.  No monthly fees associated with the card and most services are free.  The Direct Express card can be used to make purchases and/or access cash at retail locations, ATMs, and financial institutions.  The Direct Express card provides an electronic payment solution for unbanked Federal payment recipients.  More than 1.5 million Federal recipients have signed up for card since June 2008.  The Direct Express card is currently available to all Social Security and Supplemental Security Income recipients and to certain beneficiaries of Railroad Retirement Board and Veterans Administration payments.  FMS is aggressively working with benefit agencies to ensure that all Federal benefit recipients have access to the card, if necessary.

5. Prepaid Card Interim Rule at 31 CFR Part 210  Received 12 comments in response to the 31 CFR Part 210 NPRM issued on May 14, 2010. Most commented on the proposed provision to allow Federal payments to be deposited to prepaid card accounts.  Many were supportive because prepaid products can expand beneficiaries’ options to receive Federal payments, especially underbanked Federal benefit recipients.  Most supported the proposed requirement that the prepaid cardholder’s balance be FDIC-insured via the FDIC’s requirements for pass-through insurance.  Some suggested that Regulation E be extended to cover all prepaid cards, even though FMS does not have the authority to amend Regulation E to cover prepaid cards.  Several requested clarification on Regulation E coverage  Only payroll cards currently receive Regulation E coverage  Some financial institutions commented that requiring issuers to voluntarily provide cardholders with the protections of Regulation E would increase costs to cardholders and adversely impact innovation in the prepaid card industry.  Some expressed concern that Federal benefits might be deposited onto prepaid and stored value products that carry high fees or other features, such as lines of credit, that may impact the amount of the Federal benefit ultimately available to the Federal benefit recipient.  Some expressed concern about the enforcement of requirements on prepaid card providers

6. Prepaid Card Interim Rule at 31 CFR Part 210 (Cont.)  Issued on December 22, 2010 with request for comment  Treasury permits Federal payments to prepaid cards if the following requirements are met:  Provide the cardholder with pass-through deposit or share insurance  Provide the cardholder with the same consumer protections afforded by Regulation E for Payroll Cards  Card accounts cannot have an attached line of credit or loan feature that triggers an automatic repayment from the card account  Entities offering prepaid cards that accept Federal deposits must meet the above requirements  FMS may refer any violations of this regulation to the appropriate State or Federal regulator, as FMS is not a Regulatory agency  FMS does not have authority to regulate fees  Other provisions of 210 NPRM will be addressed at a later time  Comment period was extended to April 25, 2011  FMS plans to address the current effective date in light of public comments received thus far

7. Moving Forward  Aggressive Public Education Campaign on electronic choices – direct deposit or the Direct Express ® debit card  Promote awareness of the benefits of Direct Deposit  Help educate federal benefit recipients about the new electronic payments requirement and what it means for them  Convenient enrollment options for recipients  Online at www.GoDirect.org  Toll-free number at (800) 333-1795  Work with Prepaid Industry to ensure compliance with 31 CFR 210 requirements  Issue final garnishment rule