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Use of Master and Sub Accounts and Other Account Arrangements for the Payment of Benefits

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Information about this document as published in the Federal Register.

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Social Security Administration (SSA).


Notice of request for comments.


We are issuing this notice to obtain public input regarding an anticipated change to an Agency payment procedure that permits benefit payments to be deposited into a third-party's “master” account when the third party maintains separate “sub” accounts for individual beneficiaries. We anticipate changing our current procedure in light of concerns about how high-interest lenders are using this master/sub account procedure. We are also seeking comments on the practice that some beneficiaries follow of preauthorizing their banks to transfer their benefits to lenders immediately after the benefits are deposited into their accounts.


To be sure that your comments are considered, we must receive them by June 20, 2008.


You may submit comments by any one of four methods—Internet, facsimile, regular mail, or hand-delivery. Commenters should not submit the same comments multiple times or by more than one method. Regardless of which of the following methods you choose, please state that your comments refer to Docket No. SSA-2008-0023 to ensure that we can associate your comments with the correct regulation:

1. Federal eRulemaking portal at (This is the most expedient method for submitting your comments, and we strongly urge you to use it.) In the Comment or Submission section of the webpage, type “SSA-2008-0023”, select “Go,” and then click “Send a Comment or Submission.” The Federal eRulemaking portal issues you a tracking number when you submit a comment.

2. Telefax to (410) 966-2830.

3. Letter to the Commissioner of Social Security, P.O. Box 17703, Baltimore, Maryland 21235-7703.

4. Deliver your comments to the Office of Regulations, Social Security Administration, 922 Altmeyer Building, 6401 Security Boulevard, Baltimore, Maryland 21235-6401, between 8 a.m. and 4:30 p.m. on regular business days.

All comments are posted on the Federal eRulemaking portal, although they may not appear for several days after receipt of the comment. You may also inspect the comments on regular business days by making arrangements with the contact person shown in this preamble.

Caution: All comments we receive from members of the public are available for public viewing in their entirety on the Federal eRulemaking portal at Therefore, you should be careful to include in your comments only information that you wish to make publicly available on the Internet. We strongly urge you not to include any personal information, such as your Social Security number or medical information, in your comments.

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Ashley Harder, Office of the General Counsel, Social Security Administration, 6401 Security Boulevard, Baltimore, MD 21235-6401, (410) 966-9483, for information about this notice. For information on eligibility or filing for benefits, call our national toll-free number, 1-800-772-1213 or TTY 1-800-325-0778, or visit our Internet site, Social Security Online, at

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Section 205(i) of the Social Security Act (the Act) directs the Commissioner of Social Security to certify to the Department of Treasury, the name and address of the beneficiary or his representative payee, the amount of the benefit payments, and the time at which such payments should be made. The Department of Treasury's Financial Management Service then makes payments in accordance with our certification. Section 207 of the Act prohibits transfer or assignment of the right of any person to any future benefit payments under the Act and protects Start Printed Page 21404the benefits from levy, attachment, garnishment, or other legal process.

In addition to the foregoing requirements, the Department of Treasury's regulations governing the Federal Government's use of the direct deposit system generally require that Federal benefit payments may be deposited only into accounts at a financial institution in the name of the recipient. 31 CFR 208.6, 210.5.


For many years we have permitted individuals to have their benefits paid by direct deposit into a master account, under which the master account holder maintains separate sub accounts for each individual beneficiary. We began to accept master/sub account arrangements in order to make direct deposits to beneficiaries' investment accounts. We expanded this payment process to nursing homes as a convenience to their residents, and later to religious orders whose members rely upon these arrangements to honor their vows of poverty. We allowed the use of the master/sub account arrangement as long as individual sub accounts were carefully maintained, beneficiaries had complete access to the funds in their accounts, and the arrangements were freely revocable by the beneficiaries. Our intent in accepting these arrangements was to allow individuals to make choices that are appropriate and convenient for their situations.

In 1997, the Department of Treasury considered this payment process when it proposed rules to address account requirements for Federal payments made by electronic funds transfer. The proposed rules set forth a general rule requiring all Federal payments to be deposited into an account in the name of the recipient at a financial institution and proposed two exceptions for situations that involve an authorized payment agency, such as a representative payee, or an investment account established through a registered securities broker or dealer. 62 FR 48714, Sep. 16, 1997. There was some expectation that the exceptions would be revised to cover the existing master/sub accounts. However, rather than expanding the exceptions, Treasury decided that the payment-certifying agencies should address such additional situations by determining who is authorized to receive payment on behalf of a beneficiary. 63 FR 51490, 51500, Sep. 25, 1998.

The issue of master/sub accounts has recently come to our attention again in the context of “payday lenders” who solicit social security beneficiaries to take out high-interest loans. Based on the loan agreement between the beneficiary and the loan company, we may authorize the deposit of benefits directly into the loan company's master account. The loan company then deducts the loan principal, fees, and interest before depositing the remaining benefits into the beneficiary's sub account. We are also aware of check-cashing services that set up a master account at a financial institution, with sub accounts in beneficiaries' names. When a beneficiary wants to withdraw his benefits from the sub account, the check-cashing service prints a check payable to the beneficiary who can cash the check at the check-cashing service for an additional fee.

In addition, some beneficiaries preauthorize their banks to transfer funds from their accounts to their lender. Some lenders who utilize these arrangements attempt to exercise too much control over the beneficiaries' payments. They may require the use of specified banks and provide in the loan agreement that the beneficiary cannot discontinue this arrangement until the loan is repaid.

Request for Comments

We anticipate changing our current procedure in light of our concerns about how the high-interest lenders are using this master/sub account arrangement. We invite your comments about the current uses of master/sub accounts and the resulting effect on beneficiaries. We are also interested in hearing about beneficiaries who have been disadvantaged by authorizing the lender or bank to transfer their benefit payments to the lender as soon as benefits are deposited.

We recognize that merely eliminating our current master/sub account procedure may not solve all problems associated with payday lender activity. We are particularly concerned about high-interest payday lenders directing beneficiaries to set up accounts in their own name and authorizing the bank to transfer benefits to the loan company to pay back the loan and any associated interest and fees. Moreover, we are troubled by provisions in beneficiaries' loan agreements that are designed to prevent the beneficiaries from terminating direct deposit arrangements or pre-authorized transfers, and thus dissuade beneficiaries from taking actions that they may have the lawful right to take.

We expect that by obtaining information about these arrangements from beneficiaries, lenders, advocates, and other members of the public, we can revise our payment procedures to help beneficiaries avoid some of the unfortunate outcomes that may result when they enter into agreements with some payday lenders. We also would like to offer other payment alternatives that meet our statutory and regulatory obligations.

Please provide us with any comments and suggestions you have about these practices. The following questions raise issues that you may wish to consider. Feel free to raise other questions, thoughts, or comments.

  • Have master/sub account arrangements disadvantaged any of our beneficiaries, and if so, in what way?
  • To what extent will the elimination of the procedure allowing benefits to be deposited into master/sub accounts create significant costs and burdens on beneficiaries or organizations that currently utilize this account arrangement?
  • Are there alternative payment procedures that we could offer to ensure that beneficiaries receive their benefits and have control over them?
  • The Act allows us to select representative payees to receive benefits on behalf of beneficiaries when we determine the interest of the beneficiary will be served. Generally, a payee is appointed if we determine that the beneficiary is not able to manage or direct management of benefit payments. Would nursing homes and religious orders that handle monies for both incapable beneficiaries, who need a representative payee, and capable beneficiaries be able to receive and manage benefit payments without the use of master/sub accounts?
  • Without master/sub account arrangements, would creditors instead require beneficiaries to preauthorize the transfer of their benefits to the creditor when they are deposited into the beneficiary's account?
  • Do beneficiaries have sufficient control over their benefits when they have elected to automatically transfer their benefits into the accounts of creditors after the benefits are deposited into the beneficiary's own account?
  • How can we address the situation where the lender will not allow the beneficiary to terminate a direct deposit arrangement or a pre-authorized transfer of benefits?

How We Will Use Your Comments

We will not respond directly to comments you send us because of this notice. After we consider your comments in response to this notice, we will decide how to proceed with an anticipated change in the procedure we use for the payment of benefits.

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Dated: April 16, 2008.

Michael J. Astrue,

Commissioner of Social Security.

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[FR Doc. E8-8576 Filed 4-18-08; 8:45 am]