The federal government is phasing out paper checks in favor of electronic payments this fall, and financial experts both welcomed and cautioned the move.
The shift could have “serious unintended consequences” for people who rely on paper checks, said Jasmine Carson, executive director of empowerment and integration for the Wayne Metropolitan Community Action Agency, in a statement.
Individuals who receive paper checks in the mail for their receiving tax returns, Supplemental Security Income, income will feel the biggest impact, she said. And people without bank accounts may struggle to transition, delaying payments, she said. One in four Detroiters is unbanked, owning neither a checking or savings account, according to a 2019 survey from the University of Michigan’s Detroit Metro Area Communities Study.
But Matt Hetherwick, chief program officer at the Detroit-based Accounting Aid Society, said the transition is a way to safeguard American taxpayers’ dollars. His agency has, for years, been encouraging direct deposits for refunds because paper checks are not as reliable or efficient, he said.
Here’s what local financial experts had to say about the potential merits and pitfalls of the transition:
What does the executive order say?
The change takes effect Sept. 30, according to a March executive order from President Donald Trump that directs the Secretary of the Treasury to “cease issuing paper checks for all Federal disbursements inclusive of intragovernmental payments, benefits payments, vendor payments, and tax refunds,” with exceptions, including people who don’t have access to banking services and national security or law enforcement activities. All executive departments and agencies must transition to direct deposit, prepaid card accounts and other digital payment methods. The President directed the change because, according to the order, paper checks and money orders impose “unnecessary costs, delays, and risks of fraud, lost payments, theft, and inefficiencies.”
Who will be impacted by the change?
The vast majority of people rely on direct deposits for their tax refunds and social security benefits. But there are individuals who still prefer paper checks and they may encounter some challenges, experts said.
The Wayne Metropolitan Community Action Agency partners with the city of Detroit and the Wayne County Treasurer’s Office to provide free financial counseling through the Financial Empowerment Center. The center’s clients could face unintended consequences, Carson warned. Wayne Metro will be doing outreach explaining the change and helping people transition to electronic options.
“Many individuals in our network who rely on paper checks face barriers to digital banking, whether due to limited technology access, lack of trust in financial institutions, or not having a bank account at all,” Carson said. “For clients receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), a sudden transition to direct deposit could lead to delays, confusion, and disruptions in access to essential income. Our goal is to eliminate barriers for the clients we serve and this transition could cause additional ones.”
Seniors may also struggle.
“Many are not familiar with mobile banking apps or digital wallets, and concerns about fraud or identity theft can make them hesitant to switch,” she said. “If a debit card tied to their benefits is lost or stolen, it may take time to get a replacement which delays access to funds and potentially delays bill payments.”
Carson said there’s growing momentum toward electronic payments for Social Security beneficiaries.
Across the country, 477,731 people get social security check payments as opposed to direct deposits, accounting for 0.7% of total payments from the Social Security Administration (SSA), according to government data from May. In Michigan, 13,349 beneficiaries out of about 2.4 million rely on check payments.
The Social Security Administration’s website directs people to receive benefits electronically, either through an existing bank account or onto a Direct Express or Debit Mastercard, citing federal law mandating that benefits be made electronically.
What are the pros and cons of the transition?
Hetherwick, of the Accounting Aid Society, which helps low-income residents in southeast Michigan with tax preparation, welcomed the move away from paper checks.
“There’s always going to be a subset of our community that this will be challenging for. There’s absolutely no doubt about that, but overall, it is a benefit to protect the refund getting to the people they’re supposed to get to, and in a timely manner and in an efficient manner,” Hetherwick said.
Paper checks can get lost and people move, he said. And once a person gets a paper check, they must cash it out, and if they don’t have a bank account they may incur fees to get their money.
“This is allowing them to keep every dollar of the refund in their pocket and not having to give it to somebody else just so they can access the money that’s due to them,” Hetherwick said.
For those who can adjust to the transition, Carson said the move away from paper checks could help people avoid late fees with auto bill pay, give 24/7 access to their balance and provide FDIC insurance to protect money, among other benefits.
But people who aren’t tech-savvy may struggle to use online banking, apps or websites, she said. Others may not trust financial institutions.
“Clients must update their banking information for direct deposit, which can be confusing or difficult,” Carson said. “This transition can cause payment delays, especially if they have bills due immediately and late payments can impact their credit scores. Waiting for a digital or physical card can take 7–10 business days. Those delays could stall critical income for weeks or months.”
The executive order directs the Secretary of Treasury and agencies to develop a public awareness campaign, and work with financial institutions and consumer groups to “address financial access for unbanked and underbanked populations.”
How to get help
- To schedule an appointment with the Financial Empower Center, go to www.waynemetro.org/financialempowermentcenter/ or by calling 313-322-6222.
- Go to the Accounting Aid Society website at accountingaidsociety.org/ or call 313-556-1920 to schedule an appointment.