TN 17 (01-14)
PR 04505.001 Alabama
A. PR 13-120 Whether the Arrangement Between a Law Firm and Claimants to Deduct the Law Firm’s Expenses from the SimplyPaid Debit Card Used to Receive Benefits Constitutes an Assignment or Assignment-Like Situation
DATE: September 13, 2013
The arrangement which recommends use of the SimplyPaid debit card by clients is determined to be a prohibited practice. The claimant must grant the law firm pre-authorization to withdraw out-of-pocket expenses from the debit card before the claimant has an opportunity to exercise control over the funds. This would create a prohibited assignment of benefits under Section 207 of the Act.
You have asked whether an arrangement between the law firm of James, H~, & H~ and multiple claimants to pay the law firm’s out-of-pocket expenses from the SimplyPaid debit card creates a prohibited assignment or assignment-like situation.
To obtain the SimplyPaid debit card from the law firm, the claimant must also grant the law firm pre-authorization to withdraw its out-of-pocket expenses from the SimplyPaid debit card. Because the claimant authorizes the law firm to withdraw funds before the claimant has an opportunity to exercise control over the funds and the law firm does not get confirmation from the beneficiary to transfer the money after the funds are deposited, permitting the direct deposit of benefits on the SimplyPaid debit card would create an assignment-like situation prohibited by section 207 of the Social Security Act (Act).
The law firm of James, H~, & H~ (the law firm) contacted the Alabama Area Director’s Office stating that the law firm would be submitting requests for direct deposit to a SimplyPaid Visa debit card for their clients. According to the law firm, SimplyPaid is a local company that issues debit cards and does not charge a fee to the user. The materials provided indicate the Birmingham field office has determined SimplyPaid Visa debit card meets the criteria set out at Program Operations Manual System (POMS) GN 02402.030 for an acceptable type of account from an acceptable financial institution. In an August 28, 2013, letter to the Social Security Administration (SSA), the law firm stated it does not have access to the SimplyPaid accounts and the law firm’s name is not listed on the account. However, the law firm is able to withdraw its out-of-pocket expenses from the accounts through Automated Clearing House (ACH) debit entries pre-authorized by claimants. The law firm stated that it was not attempting to control the claimants’ benefits but was implementing the withdrawal as a convenience to claimants and an enhancement to the law firm’s ability to recover costs.
The law firm submitted a copy of its fee agreement and a letter it mails to claimants regarding the SimplyPaid debit card. The fee agreement provides that, regardless of the outcome of the claim, the claimant agrees to repay the law firm for all costs incurred in preparing the case, such as medical exam fees, postage, medical record fees, and copy expenses.
In the letter the law firm mails to claimants, the law firm explains that Social Security benefit payments must be made by electronic transaction and advises claimants that the law firm prefers claimants to use a debit card. The law firm informs claimants that the law firm can arrange for SimplyPaid to issue a debit card in the claimant’s name without a credit check and that the card has no monthly fees or fees to access the money. The law firm instructs claimants who elect to use the SimplyPaid debit card not to activate the debit card until contacted by the law firm.
The law firm also advises claimants that a debit card is more advantageous than providing SSA with a bank account because, if the claimant changes banks, there could be a delay in receipt of benefits while SSA updates the account information. The law firm claims that if the money is deposited in a bank account, creditor levies or bank fees could deplete it. The law firm further states that, as an additional advantage, the debit card is the easiest method for handling payment of expenses owed to the law firm because expenses can be immediately paid to the law firm through the debit card.
To obtain the debit card and authorize the payment of expenses, the law firm instructs the claimant to sign an “Authorization Form.” The authorization form includes a statement that the claimant agrees to obtain a SimplyPaid debit card from the law firm for receipt of any Social Security benefit payments. Additionally, by completing the authorization form the claimant authorizes the law firm to initiate a debit entry from the SimplyPaid card upon successful completion of the case for reasonable and necessary expenses incurred in handling the case. The authorization form states that prior to initiating the debit entry, the law firm will provide the claimant an accounting of the expenses.
Section 207 of the Act protects a beneficiary’s right to receive and use title II benefits by prohibiting the assignment of benefits. See Act § 207; POMS GN 02410.001C. Section 207 states in pertinent part:
The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.
See Act § 207(a). Section 1631(d)(1) of the Act states that the provisions of section 207 apply to Part B of title XVI of the Act. An assignment is the transfer of the right to, or payment of, benefits to a party other than the beneficiary. See POMS GN 02410.001B.1. As further explained in POMS GN 02410.001, section 207 protects a beneficiary’s right to receive benefits directly and use them as he or she sees fit. Therefore, SSA cannot directly pay benefits to anyone other than the beneficiary or his representative payee except in specific situations not applicable here. See POMS GN 02410.001D.1.
The POMS also states SSA must avoid assignment-like situations, which include situations where the beneficiary shares control of the funds with a person or entity that has an interest in collecting money from the beneficiary. See POMS GN 02410.001D.2. For example, SSA should not deposit benefits into an account from which the claimant’s representative has the power to withdraw funds to collect his fee directly from the claimant’s account. See POMS GN 02410.001D.2
As of March 1, 2013, all title II or title XVI beneficiaries not eligible for an exemption must select a form of electronic payment by either direct deposit or the Direct Express® debit card. See POMS GN 02402.001A. Direct deposit payments can go to several types of accounts, including prepaid card accounts at acceptable financial institutions. See POMS GN 02402.030B. As noted above, the Birmingham field office has determined the SimplyPaid Visa debit card qualifies as an acceptable type of account from an acceptable financial institution. However, before approving a direct deposit account, SSA must determine whether use of the account creates an assignment of benefits or an assignment-like situation. See POMS GN 02402.085, POMS GN 02410.001.
Here, there is no explicit assignment of benefits because the payments are deposited to a debit card account in the beneficiary’s sole name. See POMS GN 02410.001D.1. However, a prohibited assignment-like situation is created when, in order to set up the SimplyPaid debit card account, a claimant is required to sign a pre-authorization for the law firm to withdraw funds from future benefit payments directly from the claimant’s account.
The POMS instructs avoidance of assignment-like situations in which physical control of benefit payments are given to someone other than the beneficiary, e.g. sending money to a bank account from which the representative may withdraw funds to pay his or her fee directly. POMS GN 02410.001D.2. Here, to obtain a SimplyPaid Visa debit card from the law firm for direct deposit of Social Security benefits, the claimant must authorize the law firm to withdraw funds directly from the claimant’s account through an ACH debit entry to collect the law firm’s out-of-pocket expenses. Although the law firm does not have control over all the funds deposited on the debit card, the authorization signed by the claimant gives the law firm control over the portion of the funds equal to the expenses incurred by the law firm. See POMS GN 02410.001D.2. The prohibition against assignment of benefits or assignment-like situations does not differentiate between control over all or part of a claimant’s benefits. See Act § 207(a); POMS GN 02410.001. Furthermore, the authorization provided by the law firm concerns the disposition of “future payments” of benefits because the claimant signs the authorization prior to the resolution of the claim filed with SSA and prior to receipt of the funds. See Act § 207(a). Additionally, the law firm instructs the claimant not to activate the SimplyPaid debit card until contacted by the law firm, which suggests the law firm can withdraw the funds before the claimant (now a beneficiary) even has access to the benefits transferred to the debit card. Therefore, by agreeing to use the SimplyPaid debit card, the claimant authorizes the law firm to take benefit funds before he or she has a chance to exercise control over the funds, which creates an assignment-like situation.
Under certain circumstances, an assignment-like situation may not exist where a third party authorizes a representative to ensure a beneficiary’s debts are repaid immediately after the beneficiary starts to receive benefits. See POMS GN 02410.001D.3. To be an acceptable arrangement with a representative, the representative must have no financial interest in the beneficiary’s direct deposit account and the representative cannot charge the beneficiary a fee. See id. Additionally, the beneficiary must pre-authorize the withdrawal of funds from his account to repay the debt to the third party, and the representative cannot obtain the pre-authorization through deceit, coercion, or intimidation. See id. Finally, after SSA deposits the funds into the beneficiary’s account, the representative must obtain an additional confirmation from the beneficiary regarding the pre-authorization before withdrawing the money to pay the third-party debt. See id. The confirmation cures any assignment-like situation by ensuring the beneficiary agrees to the withdrawal itself and the amount of the withdrawal after having an opportunity to exercise control over the funds. See id.
Although there are similarities between the law firm’s arrangement with SimplyPaid and the third-party arrangement described in the POMS, the arrangements are distinguishable because the law firm/representative is withdrawing money to pay itself, not a third party. Here, the funds are withdrawn from the claimant’s financial institution and transferred to the law firm to pay the claimant’s debt to the law firm. There is no third party, so POMS GN 02410.001D.3 is inapplicable.
Even if POMS GN 02410.001D.3 was directly on point, the arrangement between the law firm, claimants, and SimplyPaid does not satisfy the conditions to create an acceptable arrangement. Neither the law firm nor SimplyPaid obtains the claimant’s authorization for the transfer of funds after Social Security pays benefits into the claimant’s account. See POMS GN 02410.001D.3. Although the law firm provides an itemization of expenses prior to initiating the withdrawal, this itemization does not cure the assignment-like situation. The authorization form with the law firm does not state that the itemization will be sent after SSA deposits funds into the debit card. The itemization of expenses also is not the same as the law firm or SimplyPaid confirming that, after receiving the funds, the claimant (now a beneficiary) still agrees to the withdrawal of expenses from his benefits. See POMS GN 02410.001D.3.a. The beneficiary also should have the