The 1996 Act also instructed Treasury to ensure that individuals have access to an account at a federally insured financial institution, that such an account have the same consumer protections provided to other account holders, and that it be provided at a reasonable cost. Descriptions of these programs follow. In particular, Treasury and SSA initiated and continue activities to advise check recipients of the safety and convenience of receiving their benefits by electronic transfer and to facilitate switching check recipients to direct deposit. In 2001, Treasury made about 186 million check payments to about 14 million benefit recipients. Benefit recipients 65 and older have high direct deposit participation rates. Specifically, we estimated that about 11 million federal beneficiaries, or over half of all federal check recipients in 1998, did not have a bank account (see appendix I for details of our analysis). The ETA Has Had Limited Success

Despite Treasury’s efforts to market the ETA program, since the program was initiated in July 1999, about 36,000, or fewer than 1 percent, of unbanked federal beneficiaries had opened ETAs by June 2002. Second, many banks require that applicants complete at least some of the paperwork in person. Opportunities May Exist to Increase EFT Participation

Based on our discussions with representatives from the federal government, financial institutions, and consumer groups, we identified approaches that the Treasury could consider to further promote the use of EFT, especially by unbanked benefit recipients. These approaches, described below, include increasing cooperation between banks and local SSA offices to enroll beneficiaries for ETAs; exploring other electronic payment options besides the ETA to deliver benefits; partnering with banks to provide information on the general availability of low-cost banking products; and conducting further research to determine why certain states have unusually low direct deposit participation rates. Conclusions

The number of recipients of federal benefits using EFT climbed steadily throughout the 1990s, rising from around one-half to more than three- quarters of all beneficiaries. To meet this objective we (1) provided information on the extent of EFT usage and the steps federal agencies and others have taken to promote it; (2) identified obstacles to greater use of the EFT program and identified characteristics of recipients who do not have bank accounts; (3) provided information on the current status of the electronic transfer account (ETA) program, including steps the government has taken to promote it; and (4) identified options for Treasury to consider to further promote electronic transfers. To determine the number of unbanked beneficiaries, we analyzed data from the Census Bureau’s Survey of Income and Program Participation (SIPP).
What GAO Found

In 2001, the Department of the Treasury made 764 million payments valued at $549 billion to beneficiaries of federal programs, primarily programs administered by the Social Security Administration. Of these payments, 76 percent were made using electronic funds transfers (EFTs), potentially saving the government millions of dollars in costs associated with disbursing paper checks. In 1996, Congress passed legislation which required that federal payments except tax refunds be made electronically as of January 1999. The act also required that each person affected by this mandate have access to an account at a financial institution at a reasonable cost and with certain consumer protections. To meet this requirement, Treasury developed the Electronic Transfer Account (ETA). Most recipients of federal benefits have their payments deposited electronically. The number of recipients using EFT climbed steadily throughout the 1990s, rising from around half to more than three-quarters of all beneficiaries. Treasury and the Social Security Administration (SSA) have undertaken activities to increase the use of direct deposit, including developing marketing material and directly notifying check recipients of the advantages of using EFT, particularly safety and convenience. Although information describing the characteristics of these EFT users is limited, GAO determined that participation rates are highest for those 65 and older. The primary obstacle to using EFT was that many federal check recipients did not have a bank account. GAO's analysis of the Survey of Income and Program Participation's 1998 data indicated that 11 million benefit recipients, over half of all federal benefit check recipients in 1998, were unbanked. The ETA has not been widely accepted by banks or unbanked beneficiaries despite Treasury's efforts to promote it. Since initiation of the program in 1999, 36,000 ETAs have been opened, representing fewer than 1 percent of unbanked beneficiaries. Based on discussions with representatives from Treasury, SSA, financial institutions, and consumer groups, GAO identified several approaches that Treasury could consider to increase the use of electronic transfers. These approaches include increasing cooperation between banks and local SSA offices to more effectively enroll beneficiaries for ETAs; exploring other electronic payment options besides the ETA to deliver benefits; partnering with banks to provide information on the general availability of low cost banking products, especially in areas with low ETA coverage; and conducting further research to determine why certain states have low direct deposit participation rates.