News from the National Senior Citizens Law Center

SSA Seeks Comments on Protecting Benefits from Payday Lenders

The Social Security Administration (SSA) has published a notice of request for comments regarding an anticipated change in a problematic agency payment procedure.

In a potentially important positive development, the Social Security Administration (SSA) has published a notice of request for comments regarding an anticipated change in a problematic agency payment procedure. The procedure currently permits benefit payments to be deposited into a third party’s “master” account when the third party maintains separate “sub-accounts” for individual beneficiaries. 73 Fed. Reg. 21403 (Apr. 21, 2008). SSA states that it is considering this change because of concerns about the increasing use of this procedure by payday lenders who target Social Security beneficiaries.

The master/sub account procedure was originally set up for the purpose of making direct deposits to a beneficiary’s investment account. It was subsequently expanded to allow its use by nursing homes and religious orders whose members have to take a vow of poverty and has since been allowed to be used more broadly. However, the use of the procedure appears to violate 42 U.S.C. 407(a) which prohibits transfer or assignment of the right to future benefit payments and protects the benefits from levy, attachment, garnishment, or other legal process. It is also raises a question of consistency with the spirit of a Treasury regulation which requires that federal benefit payments may be deposited only into accounts at a financial institution in the name of the recipient. 31 C.F.R. 208.6, 210.5. Treasury regulations do provide exceptions for payment to a representative payee or to an investment account established through a registered securities broker or dealer. In addition, Treasury regulations authorize payment-certifying agencies, in this case SSA, to address additional situations.

The Federal Register notice also states that SSA is aware of check-cashing services that set up a master account at a financial institution with sub-accounts in beneficiaries’ names. If the individual wishes to access her benefits, the check-cashing company then writes a check and charges a check-cashing fee.

In addition, the request for comments calls attention to the practice of some lenders who require borrowers to pre-authorize their bank to transfer benefit funds from the borrower’s account to the lender. It also notes that, in some instances, the lender may require the use of a specified bank and may provide in the loan agreement that the beneficiary cannot discontinue this arrangement until the loan is repaid. SSA is seeking comments on this practice as well as on the practice of payments to master-sub accounts, and is particularly interested in comments on whether this preauthorization requirement might increase if the use of master/sub accounts were restricted.

SSA needs to hear from advocates on the impact these practices have on their clients. It is important not only that as many organizations and advocates as possible submit comments, but that those comments demonstrate the practical impact these practices have had on actual Social Security beneficiaries. SSA includes in its request a set of specific questions it would like to see addressed in comments. 73 Fed. Reg. at 21404.

[The National Senior Citizens Law Center] plans to submit comments in response to this notice and would appreciate hearing from advocates with direct client contact who can provide us with specific examples of the impact of these lender abuses on their clients. This information should be sent to Gerald McIntyre (gmcintyre@nsclc.org)  in the NSCLC Los Angles office.