Individuals on Social Security typically aren’t amenable to giving away their benefits. This is why there’s word in the government that paper Social Security checks should be routed out. The Treasury has plans to phase the checks out by 2013 and send funds via direct deposit and prepaid debit cards, writes The Wall Street Journal. The intention is to save taxpayer dollars and make benefits more secure. Unfortunately, big banks like Wells Fargo couldn’t leave well enough alone; consumer groups fear they will market their own high-cost cash advance loans to Social Security customers at an even more frenetic pace.
Banks target seniors and disabled on fixed incomes
According to the National Consumer Law Center, these new cash advance-like products are drawn from customers’ Social Security benefits as collateral. Such personal loans originate via customer phone call or online request. When the next benefits check comes through direct deposit, the bank takes its cut for the cash advance service. If the loan isn’t paid in full within 35 days, the bank automatically withdraws the amount owed, frequently producing overdraft and a morass of fees.
Generating funds from disadvantaged customers
As the latest Wall Street reform bill approaches law status, banks fear the effect the loss of automatic overdraft loans could have on their bottom line. The National Consumer Law Center finds no surprise in the fact that banks are pushing on their payday loan products harder now, considering the financial reform restrictions to come. Banks make as much as $700 million a year from Social Security customers on overdraft charges alone.
Afraid of what banks will do with your Social Security direct deposit?
The Wall Street Journal addresses the other disbursement option: prepaid debit cards. Costs are low and the cards are FDIC insured. Like an ATM card, it can be used for purchases and bill payments.
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