WASHINGTON, D.C. - The Ways and Means Subcommittee on Social Security held a hearing today to examine how certain payday lending and other financial institution practices may harm vulnerable Social Security beneficiaries, and may undermine the intent of the Social Security Act. Representative Earl Pomeroy (D-ND), a senior member of the Subcommittee, presided over the hearing and delivered the following opening statement:
“Today’s hearing will examine how certain banking, debt collection and lending practices affect Social Security and Supplemental Security Income (SSI) benefit payments, and may undermine provisions of the Social Security Act intended to protect beneficiaries’ basic income. We are concerned that these practices have the potential to harm vulnerable beneficiaries.
“The Social Security Act contains special provisions to protect Social Security and SSI benefits from creditors, in order to ensure that funds are available for basic needs such as food, clothing and shelter. Section 207 of the Social Security Act generally protects benefits from garnishment, assignment, and other legal processes related to the collection of debt.
“However, a number of financial practices have come to light which undermine these protections. These practices include freezes on beneficiary bank accounts, garnishment, high-fee direct deposit arrangements, and payday lending to un-banked SSA beneficiaries. The hearing is not intended to foster debate over the general advantages or disadvantages of payday or “advance payment" loans. Instead, we are looking to learn how to better protect Social Security beneficiaries from being steered into high-cost direct deposit arrangements by check-cashing and short-term loan operations.
“This is clearly important because the average Social Security monthly benefit is $990, and for SSI it is $477. As the testimony today will show, fees to access these benefits from check-cashing stores can add up to as much as three percent of the total benefits, which is bigger than the 2.3 percent cost-of-living adjustment just provided in 2008. Bank fees related to bank freezes can reach $175, and additional bounced-check fees can reach $40. When we consider that Social Security provides more than half of monthly income for 54% of senior couples and 74% of non-married seniors, and is the only income for 29% of non-married seniors, these fees represent a significant portion of funds intended to provide for basic needs.
“There is general consensus among the relevant federal agencies and consumer protection advocates that these practices present a problem that should be addressed. The question is, how quickly will we act? It seems that the federal agencies responsible for protecting beneficiaries have been on a long, slow road to nowhere.
“The witnesses on our first panel will discuss the difficulties created by bank account freezes, and the effect of short-term “payday loans" and high-fee direct deposit accounts on beneficiaries.
“I’ll note that Chairman McNulty has long been concerned with ensuring that beneficiaries retain ultimate control of how they receive their benefits, and how they use them. I also am concerned that vulnerable seniors may be losing such control when they are steered into high-fee direct deposit arrangements by some payday lenders or check-cashing stores. Our first panel will give us a better sense of the magnitude of these problems, as well as suggest some ways to address them.
“Our second panel consists of three federal agencies that are working together on a variety of initiatives which may help address these problems.
“One such initiative is the Department of the Treasury’s recent roll-out of the “Direct Express Debit Card," a low-fee debit card through which individuals can voluntarily opt to receive their benefits. With this card, a beneficiary who does not have a bank account could avoid the fees charged by check-cashing operators, maintain control over all of their benefits, and utilize a quicker and more secure payment mechanism than a paper check.
“In another positive development, SSA is currently reexamining its direct deposit policy in light of the concerns about abusive and predatory financial practices.
“Finally, I understand that a proposal that would help enforce the Social Security Act’s prohibition on garnishment of benefits is forthcoming from SSA, Treasury and the bank regulating agencies. I applaud the agencies for taking this initiative. Prompt action on this matter is critical, as requiring seniors and people with disabilities to navigate through complex legal channels in order to enforce federal law is unacceptable.
“I look forward to hearing the testimony and to learning how we may swiftly take the next steps to better protect beneficiaries. We owe it to our most vulnerable citizens to ensure that the longstanding protections in the Social Security Act are not being undermined by today’s financial practices."
