August 27, 2020
Sarah Bloom Raskin, Duke University
My children couldn’t quite wrap their heads around the scene: a long line of cars snaking across a vast parking lot, inching slowly toward the food bank’s delivery window. They think there is a technological solution to problems of lines. “Can’t we create an app for that?” they like to say. But where they see lines of cars at a food bank, I see lines of anxious parents waiting for checks to clear. The pandemic has pushed people who entered this crisis with little financial security to the brink. Half of all Americans live paycheck to paycheck. Now that the job market has been decimated and roughly twenty-seven million of those paychecks are no longer forthcoming, it takes sitting in your car in a food bank line to get a meal on the table.
An equitable economic system would ensure that the people suffering loss of income from this crisis would benefit from the same swift, efficient technology that allows other people to execute a trade in a matter of minutes, even seconds. There is no such efficiency for those trying to cash their stimulus or unemployment checks. The benefits of technology don’t work for everyone. For example, 70 to 100 million people waited one to three months for their stimulus payments. In the meantime, many missed payments on their rent or their credit cards, jeopardizing credit scores and threatening personal bankruptcy. Whether or not you think this is fair, it is certain to slow the economic recovery.
Bravo to JustMoney.org for illuminating the opportunity that accounts at the Fed might provide. Unfortunately, the Fed tells us that it won’t be until 2023 before we see a real-time digital payments system. The sense of Fed urgency as it pertains to market functioning is not sufficiently present when it comes to the needs of people to pay their bills on time.
While a broader fix along the lines recommended by members of this Roundtable will take some time, there are two things that can be done now to expedite the delivery of money at this perilous economic moment for Americans.
The first action is for Treasury to make it clear when it sends its payments out the door that the full federal payment is for the beneficiary. The banks should be told – explicitly this time – that they are not to withhold any portion of the payments for the debt collectors or garnishment companies or apply the funds to overdrafts owed to the bank. The full and complete amount (whatever that amount turns out to be) needs to land with the beneficiary, with no holdbacks. Talk to one of the operational types within the Fiscal Division at Treasury and they will explain that there is a computer code – known as a “flag” – that already exists and needs but a mere click to execute. Once that flag is attached to the payment instructions, banks get their directions loud and clear; it is unequivocal that they are to provide the entire amount to the beneficiary without set-off or payments to creditors. This flag has been used extensively in the past, but Treasury chose not to use it during the last round of stimulus payments.
The second action is for the Federal Reserve to require banks to make stimulus payments available immediately – with no holds. Holds on checks make sense when the bank needs to check the creditworthiness of the check writer. But when the check writer is the US government, the full faith and credit is assured. The government’s check is not going to bounce. There is no rationale for a holding period on a U.S. government check, and allowing that check to clear immediately matters to economic well-being.
I look forward to learning from other Roundtable contributors about more comprehensive ways to expand access to faster and fairer electronic payments. Until those can be developed and implemented, Treasury and the Fed should use their existing authorities to accelerate the delivery of the cash Americans need now.