Every month, when Thomas Dwier receives his tiny federal government disability check in the mail, he pays a friend $10 to drive him from his South Baltimore rooming house to a check-cashing store where he pays another $13 to have it cashed.
Dwier and 10 million other federal check recipients without bank accounts, in Baltimore and across the nation, pay millions of dollars annually that could be used for food or medicine to convert government aid checks to useful money. And the government wastes tens of millions more sending the checks.
The U.S. Treasury Department hopes to end that drain starting next year with a switch to direct deposit of virtually all Social Security, veterans' and other government aid checks. Officials say direct deposit would speed payments and reduce theft and fraud.
But there are serious doubts about how the system could affect some of the nation's most vulnerable citizens. Consumer activists say many can't pay for or deal with the checking accounts needed to make the system work for them.
And there are fears about the costs to Dwier and others like him who, activists say, pay the highest price for the current waste.
Many can't afford banks or check-cashing stores, said Sue Ward, director of the Maryland Office on Aging. "I think we need something definitive to protect people," she said.
Treasury and state officials across the country are scrambling for answers. In Maryland, legislation has been proposed that would require banks to provide the poor with basic, low-cost banking services.
For Dwier, a 42-year-old stroke victim, the problem is cash flow. A bank account is beyond his budget. "I can't afford it," he said last week during his monthly visit to a Patapsco Avenue check-cashing store. "By the time I pay all my bills, I ain't got much left at all."
And though there is agreement that the new system means getting their money faster and more safely, the elderly have other concerns.
"The major problem is, this is a generation of people who are not comfortable with electronic transfers," said Jason Frank, a Baltimore lawyer who represents seniors. "They hate ATM machines, and many are losing banks in their neighborhoods. They like the security of knowing the check is coming to their house into their hands."
Those fearing the proposed change represent a relative handful of the people who receive the 689 million benefits checks sent by the government last year. And the Treasury Department can reasonably expect large savings even if none of the 10 million recipients currently without checking accounts open them in order to receive electronic payments.
That's because it costs the Treasury 2 cents to deliver an electronic payment, compared with 43 cents to prepare and deliver a government check. And the government estimates that it loses more than $60 million a year to fraud and theft with the checks.
But those who don't participate will continue to pay a high price to convert their checks to dollars. Some activists believe the answer is to make checking more affordable and accessible.
A proposal to do just that is pending in Maryland's General Assembly. A bill sponsored by Del. Elizabeth Bobo that was drafted in response to the direct deposit plan would require banks to offer basic, low-cost accounts.
"My concern is not so much with the plan for direct deposit but that these people have access to no-frills accounts -- that they don't have to pay through the nose," said Bobo, a Howard County Democrat.
The bill would prohibit banks from requiring more than a $25 initial deposit for such accounts and from charging more than $3 per month. Customers could make at least eight transactions a month without additional charges.
The Maryland Bankers Association says it is unconditionally opposed.
"The vast majority of banks and thrifts already offer a no-cost or low-cost checking arrangement with special accounts for seniors and students," said John Bowers, executive vice president of the Maryland Bankers Association. Most, he said, require a $100 minimum deposit, allow 10 to 20 transactions a month, and charge 25 cents to 50 cents per transaction in excess of the limit.
"I think the market is addressing the problem," Bowers said.
"In poorer neighborhoods of the city, banks are closing, so they're not available at all," said Bobo. "And where they are available, the fees are going up just like they are in other areas."
Brian Satisky, president of the Maryland Check Cashers Association, said many check-cashing stores have begun to work in partnership with banks by offering access to accounts through the stores.
At one of his Baltimore locations, Hollinswood Shopping Center, two banks have closed in recent years and he has filled the gap. "We have become the bank for that shopping center," he said.
But John D. Hawke Jr., undersecretary for domestic finance at the Treasury Department, said many proposed remedies are headed in the wrong direction by continuing to rely on a paper check system.
"Those are the most costly kinds of accounts to provide," he said. "Processing is very expensive. And you run the risk of overdrafts. Those fees are very high.
"What's needed is a new kind of low-cost account that focuses on electronic banking."
The Treasury Department plans to offer low-cost "electronic transfer" accounts, as part of the solution, but doesn't know how much they will cost.
And concerns remain that direct deposit will be mandated.
The original proposal offered waivers in cases where a person would experience physical, geographic or economic hardships in dealing with electronic deposit, but did not spell out the government's definition of "hardship."
After months of consumer complaints, Hawke said Wednesday that no one would have an electronic account forced on them.
The final plan won't be known until late April, and consumer advocates continue to have doubts.
"The devil's always in the details," said Margot Saunders of the National Consumer Law Center. "I don't think Treasury is very sure how far it will go. We remain very concerned."
"It's encouraging news, but it doesn't alter our objectives," said Jo Reed of the American Association of Retired Persons. "Many people remain vulnerable.
"For a lot of people, making this conversion will be a challenge one way or another."
Pub Date: 3/09/98