Stop Dawdling. People Need Money.
Source: https://www.nytimes.com/2020/04/15/opinion/coronavirus-stimulus-check-payment.htmlAn antiquated financial system is slowing distribution of federal stimulus to families. Policymakers are making things worse.
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The
economic shutdown caused by the coronavirus has left a growing number
of American families desperately short of money. Images of hundreds of
cars waiting in long lines
at food banks across the country have become a symbol of the crisis, a
contemporary equivalent of the old black-and-white images of Americans
standing in bread lines during the Great Depression.
To ease the pain,
at least a little, Congress voted in late March to send $1,200 each to
most American adults. In this era of high-speed trading, digital wallets
and instant payments, one might have imagined that the federal stimulus
payments would be distributed quickly, too.
Instead, the first large wave of payments is only landing in bank accounts on Wednesday.
And tens of millions of Americans won’t get their stimulus payments until May — or later.
The
slow pace is the result of a combination of outdated financial
infrastructure and a remarkable lack of urgency. The mass distribution
of stimulus payments has become a standard feature of the government’s
response to economic downturns. Payments went out in 2001, and again in
2008, and now for the third time this century. Yet the government has
not constructed a system to ensure that everyone gets money quickly.
That’s a particularly consequential failure in this downturn, because of the rapidity of the collapse. Job losses in the last month are likely to exceed job gains over the last decade.
The
government has made matters worse by dawdling. Thanks to outdated
Federal Reserve regulations that let banks delay deposits, the money
that reached Americans on Wednesday was dispatched from Washington on
Friday. That’s barely faster than the Pony Express.
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President
Trump, meanwhile, has insisted on putting his name on each of the tens
of millions of checks that will be mailed to households that don’t get
direct deposits — a self-indulgence no previous president ever demanded.
The Washington Post reported Tuesday
that the decision could delay mailings by a few days. The
administration denies it, but redesigning the checks is certainly not
helping to expedite payments.
The
problems begin with the basic challenge of reaching every eligible
household. The first round of payments is being deposited directly into
the bank accounts of the roughly 80 million American families who
provided account information to the Internal Revenue Service on their
tax returns for 2018 or 2019. A second round of payments, this time
paper checks, will be mailed over the next few months to the roughly 70
million American families that filed tax returns without account
information. A final group of several million low-income families that
did not file tax returns are also eligible, but they need to apply to
get the money.
As a general rule, the
process is likely to deliver aid first to those who need it least — and
many of those with the greatest need may never see a dime.
The government could improve this process significantly by establishing a bank account for every American
at the Federal Reserve. House Democrats floated the idea in their
version of the legislation authorizing the stimulus payments, but it
didn’t make the final draft. Sweden actually launched its own version in
February. The premise is simple: If everyone has a Fed account, with
none of the fees or minimum balance restrictions that discourage
millions of Americans from opening accounts at commercial banks, then it
would be easier to distribute stimulus payments — particularly to those
who are both most in need and hardest to reach. The government could
deposit funds directly; people could withdraw the money at ATMs, make
payments with debit cards or move the money to a bank.
Under
the current system, even the fastest payments — direct deposits — move
much more slowly in the United States than in many other developed
nations.
The Treasury initiated the
payments on Friday afternoon by instructing the Fed to remove money from
the government’s account and transfer it to individual accounts at
banks across the country. The Fed, however, doesn’t work on weekends, so
banks were not notified of the deposits until Monday. Furthermore, the
Fed allows banks to wait at least one business day before making the
full amount of a federal deposit available for withdrawal.
A handful of banks voluntarily provided the money early; most waited until Wednesday.
Such
a waiting period once was unavoidable. A bank presented with a check
from another bank needed time to confirm that the check was real and
that the funds were available, and then for the money to move. The
waiting period still exists, however, because the Fed, which operates
the system used for most of those confirmations and transfers, has been
dragging its feet.
Japan has required real-time payments since the 1990s.
Mexico mandated instant transfers in 2004. The United Kingdom joined
the club in 2008. And last year, the Fed announced that it, too, finally
was developing a real-time payment system, but it wouldn’t come online before 2023.
The
banking industry doesn’t mind the wait. Banks have developed a
lucrative business in allowing customers — particularly those waiting
for a check to clear — to withdraw more money than is legally available,
and then charging a hefty fee for the overdraft. Aaron Klein, a fellow
at the Brookings Institution, calculates delayed deposits have cost
consumers more than $100 billion since 2008
— a combination of bank overdraft fees plus fees collected by
check-cashing companies that offer an alternative to waiting, at a high
price.
The effect is a transfer of
wealth from poor customers to rich shareholders. Some 75 percent of
overdraft fees are paid by 8 percent of customers, according to a study by the Consumer Financial Protection Bureau. These are lower-income customers with low balances. Meanwhile, the chief executive of a Minnesota bank named his boat the “Overdraft.”
The long-term solution is for the Fed to expedite construction of a real-time payment system.
But
even with current technology, the Fed could expedite payments: It could
require banks to make payments from the government available
immediately. Banks have no need to fear that the checks will bounce; the
Fed has the authority. But it has not used it.
The
Trump administration also has informed banks that they can withhold a
portion of the federal payments from customers to cover unpaid fees and
debts. Congress gave the Trump administration the authority to prohibit
banks from doing so, and senators from both parties have urged the
administration to act. But the Treasury quietly informed banks last week
that it would not tie their hands, according to a recording obtained by
The American Prospect. As a result, some of the stimulus payments will go to cover old overdrafts.
The
administration is taking great care in deciding what will appear on the
front of the stimulus checks. Americans would be better off if the
government put similar effort into getting out as much money to as many
people as quickly as possible.
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