Determined to phase out paper checks as a form of payment, the Department of the Treasury paid a Texas-based bank millions of dollars to provide prepaid debit cards to Social Security recipients who are poor or don’t have bank accounts or don’t trust banks. The result: the bank did well by the switchover, while many Americans suffered.

The Treasury Department launched the program five years ago after signing a deal with Comerica Bank, based in Dallas, to issue the “Direct Express” debit cards to those receiving Social Security benefits. Treasury officials said the change would save the government millions of dollars a year in administrative costs.

Meanwhile, Comerica was paid $5 for every debit card it distributed to Social Security recipients—plus fees. For instance, Comerica was allowed to limit customers to only one free withdrawal a month. After that, a 90-cent fee per withdrawal was levied on the account.

Also, after signing its first exclusive deal with the Treasury Department, Comerica renegotiated the arrangement, which made it “more lucrative for the bank,” according to Daniel Wagner of The Center for Public Integrity. Comerica’s contract runs out in January 2015.

-Noel Brinkerhoff

To Learn More:

Benefit Payment Change Hurts Poor (by Daniel Wagner, Center for Public Integrity)

Are Your Electronic Social Security Benefits Safe? (by Carole Fleck, AARP Blog)