We Need to Think Again on Paper Stimulus Checks

Eric Friedrichsen, CEO, Emburse

Congress has finally reached an agreement on the terms of an economic stimulus to mitigate the financial impact of the coronavirus outbreak. As part of this, $250 billion has been set aside to provide payments of up to $1,200 for each adult and $500 for each child.

It’s believed that those who opted for tax refunds to be issued by direct deposit will receive their funds electronically. While this covers an estimated 88% of tax filers, the remaining group that gets their IRS refunds via check will likely also be sent a physical check for these payments. There are several reasons why this could have a negative impact on some of the groups that need the funds the most:

  1. Physical risk: There’s likely a strong correlation between those who receive paper checks from the IRS and those who deposit them physically, versus using mobile or online deposit, typically elderly people who haven’t adopted online banking. Making this group have to travel to a bank branch risks the chance of infection during a period where they should be self-isolating.
  2. Unbanked individuals: It’s estimated that about 7% of Americans are unbanked, with this figure rising to almost 17% in Mississippi, and up to 40% in some of the lowest-income communities in the country. Issuing checks to these individuals may require them to use check-cashing services. While there may be exceptions due to the nature of these payments, check-cashing services typically charge a fee of anywhere from 1% to 5%, which could be up to $170 for a family of four.
  3. Time delay: Although Secretary Mnuchin suggested that checks will be mailed in two weeks, during the previous recession it took more than two months for all the checks to be mailed, as individuals needed to file tax returns to receive their funds. Adding time for individuals to have deposit these checks will be an extra unnecessary burden before they are able to use the funds.

The government has already moved away from paper checks in many areas of public assistance. In fact, many states use debit cards for unemployment benefits, disability and paid family leave. So there should be no reason why the federal government can’t issue plastic pre-funded debit cards for this stimulus, especially if ongoing stimulus will be provided to affected individuals. In addition to solving the three challenges listed above, it ensures that the money is spent - ideally in local businesses - not just added to the bank accounts of those who don’t need the money as much. With a considerable amount of purchases being made online during the current crisis, having a card number to make those purchases can also be an additional benefit to unbanked individuals. Last, should there need to be an additional round of stimulus payments to individuals, the government can just re-fund the cards electronically, instead of having to send out more checks.