A Thing
The Green SheetGreen Sheet

The Green Sheet Online Edition

July 08, 2013 • Issue 13:07:01

Issues surface over Direct Express

sellingprepaidA June 19, 2013, congressional hearing revealed problems with the U.S. Department of the Treasury's Direct Express program, which gives unbanked recipients of federal benefit payments the ability to receive payments on MasterCard Worldwide-branded prepaid debit cards. Testimony at the United States Senate Special Committee on Aging raised concerns about security and customer service, as well as about a $30 million payment the Treasury Department made to the Direct Express card issuer Comerica Bank to compensate for unexpected growth.

Lawmakers and consumer advocates agree that the Direct Express program has been a success in transitioning unbanked recipients of paper checks to the prepaid card option, with over 5 million recipients now enrolled in the program. However, identity theft remains a persistent threat.

Florida resident and benefit recipient Alexandra J. Lane testified at the hearing about an ordeal she experienced when her account was hijacked and payments were diverted to a UniRush LLC-managed RushCard. Lane underwent numerous bureaucratic hassles to get the issue resolved.

Rebecca Vallas, Staff Attorney at Philadelphia-based Community Legal Services Inc., supported Lane's testimony with several examples of Direct Express users victimized by fraud and less than stellar customer service. In one instance, a Direct Express representative reportedly told a victim of identity theft that if she continued to pursue her case, she would be prosecuted.

Waiver problems

Vallas brought to light another concern. The Treasury Department allows benefit recipients to opt out of receiving electronic disbursements in favor of continuing to receive paper checks by submitting waivers. But the waiver process is cumbersome and confusing, apparently on purpose. The waiver form is not publicly available for download on a website. Instead, beneficiaries must call a special waiver hotline and convince call center representatives why they should be given the waiver, Vallas said.

If recipients fit the narrow requirements for receiving a waiver – based on age, geographic remoteness and impairment – they may still not receive the form, Vallas added. And if they do, they may be confused to see that the form requires a notary public, even though the Treasury Department eliminated that requirement last February.

Vallas emphasized that the small percentage of recipients who need waivers is advanced in age, poor and infirm. Vallas said she doesn't understand the Department's desire to get 100 percent of recipients onto an electronic benefit disbursal method, such as direct deposit or the Direct Express card, when the oldest consumers will "age out" and be replaced by consumers who grew up in the electronic age and are more comfortable with newer technologies.

$30 million to Comerica

Perhaps the most contentious issue concerns a $30 million payment the Treasury Department made to Comerica. When the bank won the bid in 2008 to manage the Direct Express program, Comerica did not require government funds, instead reasoning that the program would pay for itself via fees and interchange from card use.

However, the Department's Fiscal Assistant Secretary, Richard L. Gregg, told the senators at the hearing that the program grew larger than either the bank or the agency projected, and as the program grew, the requirements for it changed. Additionally, Comerica did not receive the amount of fees it expected from ATM withdrawals, as Direct Express users surprised everyone by routinely withdrawing entire deposit amounts at one time, Gregg said. So when the agency requested additional features for the program to compensate for its size, which added to the revenue shortfall experienced by Comerica, the Treasury Department cut the bank the $30 million check, according to Gregg.

Senators Bill Nelson, D-Fla., who chairs the committee, and Elizabeth Warren, D-Mass., were skeptical. Nelson read from the contract between Comerica and the government that the bank could scale its program to facilitate 20 million or more cardholders. And Warren asked Gregg to explain his assertion that Comerica was not making a profit on the program when the most valuable aspect to the profitability of the program – the number of cards in circulation – grew fivefold from its original projections.

When Gregg backtracked and admitted he didn't know whether Comerica was making a profit on the program, Warren asked him why the Department gave $30 million to the bank with no knowledge of Direct Express' relative profitability. Nelson said the Treasury's inspector general is investigating the $30 million payment.

Despite the apparent problems with Direct Express, the program is expected to save U.S. taxpayers $1 billion over 10 years. The hearing, entitled Social Security Payments Go Paperless: Protecting Seniors from Fraud and Confusion, can be accessed at www.aging.senate.gov/hearing_detail.cfm?id=344057& . end of article

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

Prev Next
A Thing