TN 41 (10-11)
GN 02402.030 Acceptable Types of Financial Institutions and Accounts
A. Policy for identifying acceptable and unacceptable financial institutions (FIs)
1. Acceptable types of FIs
Direct deposit payments can go to any of the following types of institutions:
These acceptable types of institutions meet Treasury’s criteria for receiving direct deposit and have routing transit numbers (RTN) assigned to them. Never recommend any individual financial institution (FI), or type of institution over another.
2. Unacceptable types of FIs
Direct deposit payments cannot go directly to any of the following types of institutions:
Although these companies may be associated with an FI, they do not meet the criteria of Treasury regulations. For investment accounts, see GN 02402.030B.1.
For information about paying benefits through master-sub accounts, see GN 02402.050A.
B. Policy for acceptable and unacceptable accounts
1. Acceptable types of accounts
Direct deposit payments can go to any of the following types of accounts in acceptable institutions (see GN 02402.030A.1.):
Other transaction accounts (e.g., electronic transfer accounts, money market accounts and share draft accounts);
Master-sub accounts only for specific categories of payments. (For a description of master-sub accounts, see GN 02402.050A, and for requirements that the beneficiary must meet, in order to approve direct deposit to a master account, see GN 02402.050B.) Payments must go directly to an acceptable type of FI as listed in GN 02402.030A.1. in this section;
Investment accounts established through a registered securities broker or dealer. The beneficiary must be the owner, or co-owner of an individual account, and must have the right to terminate the direct deposit, if desired. (For more information about investment accounts, see GN 02402.030C in this section.);
Prepaid card accounts. (For a description of prepaid card accounts, and when you can approve a request for direct deposit, see GN 02402.030D); or
Trust Accounts. (For a description of Trust Accounts, and when to approve a request for direct deposit to a Trust Account, see GN 02402.060B).
2. Unacceptable types of accounts
Direct deposit payments cannot go directly to any of the following types of accounts:
Commercial accounts (i.e., business accounts);
Other accounts from which funds cannot be withdrawn; or
IMPORTANT: Direct deposit cannot go directly to a Trust Agreement. A trust agreement account is a formal agreement between the beneficiary and the FI that describes how the FI manages the beneficiary’s funds. It is often in the name of the FI.
3. Preauthorized withdrawals
Beneficiaries may choose to preauthorize an FI, or other entity to withdraw funds from his or her account, or sub-account for a wide variety of purposes (e.g., utility bills, mortgage payments, loan repayments, investments, nursing home fees, etc.). SSA has no jurisdiction over preauthorized withdrawals arranged with the beneficiary's consent, provided the beneficiary requested direct deposit into an acceptable type of account, at an acceptable FI (see GN 02402.030A.1. in this section).
4. Direct deposit to master-sub accounts
For the requirements for master-sub accounts, see GN 02402.050. Benefits may only go by direct deposit to a master account at a FI that meets the requirements of GN 02402.030A.1. in this section. In this arrangement, the routing number and account number may be the same for all participants.
NOTE: There is a change in policy for acceptable master-sub accounts that now only include representative payees, members of religious groups that have taken a vow of poverty, nursing homes, investment accounts, and certain prepaid card accounts. Other arrangements are not suitable for title II or title XVI payments.
A master-sub account arrangement is acceptable for the prior listed categories, if they meet all of the following requirements:
The benefits go directly to an account at a FI that meets the requirements in GN 02402.030A.1. in this section.
Enrollment is voluntary on the part of the beneficiary or representative payee.
Each participant has his or her own sub-account record. The sub-account records show all money received and withdrawn, and the balance remaining in the sub-account for each participant. This information is available to the participant upon request.
The beneficiary or representative payee may terminate the direct deposit arrangement upon request.
EXAMPLE (Unacceptable Account): A payday loan company called the Dollar Branch in LA sets up a master account for customers at Good Value Bank in OH. When Good Value bank receives payments to the accounts, Good Value Bank transfers the funds to a Dollar Branch account, and notifies Dollar Branch of each transaction. The customers go to their local Dollar Branch each month to receive their payments in cash or check, after the deduction of any monthly loan payments. This is an unacceptable request for direct deposit of title II or title XVI benefits. A master account established for a payday loan service is not one of the categories for acceptable direct deposit.
C. Description of investment accounts
Direct deposit to an investment account does not constitute an assignment of benefits. The beneficiary is the owner or co-owner of an individual account and has the right to terminate the direct deposit, if desired. We prohibit an investment account’s direct deposit, if it is a condition of service. The field office (FO) or teleservice center (TSC) must determine if direct deposit is a condition of the services.
If the beneficiary wants benefits deposited to his or her account at an investment firm, contact the investment firm. The investment firm provides the RTN and DAN of the FI account to the beneficiary.
When the beneficiary provides the RTN and DAN to the FO or TSC, and requests direct deposit, the FO or TSC makes sure that the title of the account at the investment firm meets SSA's requirements in GN 02402.050B through GN 02402.060.
The FI acts as a conduit for funds direct deposited into an investment fund account, and the FI:
Receives the benefits into the account by direct deposit;
Deposits the funds in the investment firm's account; and
Notifies the investment firm of the deposit.
The investment firm then transfers the funds into the beneficiary's investment account.
EXAMPLE (Acceptable Account): Mr. Williams requests direct deposit to his investment account at Linden Investment Services. Linden maintains an account at Steadfast National Bank, for the purpose of receiving and transferring direct deposit payments for its customers. Mr. Williams provides the RTN and DAN for the account at Steadfast to the TSC. The TSC makes sure that Mr. Williams' name is on the investment account, and approves the direct deposit. When the Linden Investment Services receives Mr. Williams' benefits at the FI, Linden then transfers the benefits into his investment account.
D. Description of prepaid card accounts
Over the past decade, the use of prepaid card accounts has expanded substantially, and prepaid cards have become a vital payment delivery mechanism for the unbanked. Typically, prepaid card programs pool cardholders’ funds into a master account, with each cardholder having a sub account. In most cases, the individual cardholder’s name is not on the title of the deposit account that holds the funds.
Approve direct deposit of Federal payments to prepaid card accounts that meet all of the following requirements.
The account is at an acceptable financial institution (FI).
The Federal Deposit Insurance Corporation (FDIC) insures the account to the extent permitted by law, or the National Credit Union Share Insurance Fund (NCUSIF).
The card account must not have an attached line of credit, or loan feature that triggers automatic repayment from the card account.
The FI applies the Regulation E payroll card protections to prepaid debit card accounts.
Regulation E provides consumer protection that limits liability for unauthorized transactions, right to dispute errors, etc. Regulation E covers transactions initiated through an electronic terminal, telephone, or computer to either order, instruct, or authorize a financial institution to debit or credit an account. These transfers include, but are not limited to, point-of-sale (POS) and automated teller machine (ATM) transfers, direct deposits or withdrawals, telephone transfers, and transfers initiated through a debit card transaction.
Prepaid cards that do not meet the requirements described in this section, do not fall under the proposed exception; and therefore, we do not deliver Federal benefits via those cards. For example, some merchants offer prepaid cards that function in the same manner as gift certificates. Examples are cards sold by bookshops or coffee shops, or prepaid telephone cards. These cards do not provide access to money at a depository institution, and do not meet the requirements for FDIC or NCUSIF insurance. In addition, Federal Reserve’s Regulation E does not cover these cards, which provides consumer protection, when individuals access funds through an electronic terminal, or other specified device
E. Verifying prepaid card accounts
The function of prepaid cards has expanded over the years. This expansion requires the FO to distinguish acceptable from unacceptable prepaid card accounts, for receiving government payments. If the FO is unable to confirm whether a prepaid card meets the requirements identified in GN 02402.030D. in this section, apply the following steps:
Offer Direct Express, as an alternative prepaid card account.
Contact the RO support staff, or PSC about the prepaid card inquiry.
RO support staff or PSC refers unresolved prepaid card questions or problems to OPSOS.
OPSOS refers the inquiry to Central Office’s OFPO payment policy staff.
OFPO payment policy staff works with Treasury, to resolve whether the prepaid card account is acceptable for receiving government payments.
After addressing the inquiry, OPSOS disseminates the responses to the RO support staff, or PSC.