Banks look to drain Social Security benefits with personal cash loan

Those who receive Social Security likely aren’t in a position to give their money away. In part, this is why paper Social Security checks are on the way 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. Doing so will ideally make benefit distribution more secure and save the taxpayers’ money. However, numerous consumer groups are now concerned that those Social Security recipients whose funds are directly deposited into accounts at major banks like U.S. Bancorp, Wells Fargo and Fifth 3rd Bancorp are being targeted for high cost cash advance-style loans by the very same banks.

Fixed income guests are the target of bank marketing

The National Consumer Law Center indicates that the new breed of bank-issued cash advance loans products draw straight from consumer Social Security benefits as the necessary collateral. Such personnel loans original via customer phone call or online request. When the next benefits check comes via direct deposit, the bank takes its cut for the cash today 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.

Milking boomers for the bank’s boon

Losing automatic overdraft is something banks fear, as the Wall Street reform bill gets set to become law. It appears like no small coincidence to the National Consumer Law Center that this aggressive push to get Social Security customers into payday loan-like products coincides with the coming of the financial reform law. Banks have squeezed their Social Security customers to the tune of $ 700 million in benefits each year for overdraft fees.

What can you do to escape the bank Social Security trap?

The Wall Street Journal recommends the prepaid debit card option for benefit disbursement. They do not cost much and they’re fully FDIC insured. They could be used like an ATM card, also as for purchases and bill payments.

Additional information at these websites

online.wsj.com/article/SB10001424052748704875004575375474092141764.html

en.wikipedia.org/wiki/Social_Security_%28United_States%29