# Presentation: 729652

## Electronic Disbursements – Direct Deposit and Debit Cards

- Iowa’s Presentation
- Terri Pollard
- Program Planner
- tpollar@dhs.state.ia.us

## Topics of Discussion

- Reviewing your disbursement structure
- How do you currently disburse payments
- Outreach and offering options
- Using both direct deposit and debit cards
- Possible system enhancements
- Supporting electronic disbursement
- Initial case selections
- The biggest impact in the shortest time
- On-going issues
- Loss of location, adding new cases, updating case information, closing cases

**Notes:**
Good morning. I am going to cover the following areas:
Reviewing your disbursement structure –the frequency of disbursing payment.
Outreach and offering options – using both direct deposit and debit cards for disbursement
Possible system enhancements – supporting the use of electronic payments
Initial case selections – once you’re ready to start going electronic, how do you decide which cases to switch first or - getting the biggest impact in the shortest time
On-going issues – loss of location, adding new cases, updating cases, closing cases

## Reviewing your disbursement structure

- How many payments have you sent out
- Payments sent out per case in last three, six, nine, and twelve months
- Current business practices
- Incarcerated custodial parents, international custodial parents, private enforcement agencies, payment errors

**Notes:**
In 2002 when Iowa began the process to mandate electronic disbursement, we first reviewed the number of payments disbursed to each custodial parent in the prior twelve months. When we looked at this data we only looked at the number of income withholding payments, un-employment insurance benefit payments, and regular payments (made by the obligor) that were sent to the family.  We did not review payments made through tax offsets, administrative offsets, or administrative levy.  (There are natural cutoffs at 12 payments per case per year (monthly), 24 payments per case per year (semi-monthly), 26 payments per case per year (bi-weekly) and 52 payments per case per year (weekly).)  We had cases that ranged from a single payment in a year to over 120 payments in a year.  In that situation we were withholding through income withholding and the obligor was also paying each week on their own to reduce the debt further.  Sarting with the cases receiving the most warrants was the most cost effective way for Iowa to save money.  But for you it could be different.
Review your current business practice.  Are there disbursement situations you want to by-pass for electronic disbursement and can you easily identify those situations?  There could be situations such as incarcerated parents still receiving support or payments to international custodial parents.  In each of these areas and more you may wish to review your current practices to determine if they remain the same or if you need to change them in order to support electronic disbursement.  Iowa found that our policies and procedures were fine.  Clear case identification was an issue.

## Outreach and Offering Options

- Direct Deposit
- Initial mailings offering direct deposit and information on additional electronic payment options
- Debit Cards
- Send custodial parent a notice they are eligible for debit card and offer exemption if allowed
- Send a reminder notice prior to receipt of card

**Notes:**
Iowa has been offering direct deposit since the early 1990’s, adding debit cards was an expansion.  In the fall of 2002 while our authority to mandate electronic payments was being approved, we reminded custodial parents of the option to sign-up for direct deposit and told them of the coming mandate.  In order to pursue this route, your direct deposit process must be ready for use by this time.  By reaching out early,  Iowa provided the custodial parent an opportunity to control the use of electronic disbursement.  Also at this time we began filtering out those situations where electronic payments were not appropriate.  More on this later.  Also keep in mind that a segment of your custodial parents don’t understand banking structure let alone electronic payments so the materials need to be easy to understand. 
Prepare all of your staff for the customer contacts.  Iowa provided all staff with a copy of mailings and a document providing anticipated questions and answers.  Always be ready to slow your process down in order to address higher than normal contact levels or questions or issues you have not anticipated.
Once you have chosen your vendor financial institution you can move to the next step. In early 2003, Iowa found it extremely helpful to send a notice to the custodial parent once we selected the vendor.  This allowed us to provide detailed information about fees, an example of the card, and to offer the custodial parent one more chance to sign up for direct deposit.  Iowa also advised the custodial parents of the right to an exemption from electronic deposit. Iowa only has 306 valid exemptions from electronic disbursement. Finally, when you send the parent’s information to the vendor to establish a debit card, send a final notice to the custodial parent advising them the card is on the way and to watch for it in the mail. We found this was necessary because of the high number of custodial parent’s who were throwing the card away.  When we sent it to them without first telling them it was coming the custodial parent’s thought it was a credit card solicitation.

## Possible System Enhancements

- Recording financial institution information
- A specific record or other area of your system to record bank information including routing number, account number, electronic payment type (checking , savings, debit card), start date, end date, and possibly a unique identifier
- Cash process
- Daily allocation and disbursement process to use the financial information instead of creating checks/warrants
- Outgoing EFT files
- Follow NACHA approved format to create the outgoing file.  Work closely with disbursing state agency or your own financial institution.

**Notes:**
Let’s quickly take a look at system support. You will need to take a critical look at your system to see what you need to do to support this process.  Iowa had been using direct deposit since the early 1990’s so for us to add debit cards it was a simple expansion of that process.  If you don’t use any electronic banking, you’ll have more system development to do.  
First make sure that you have a secure place in your system to record financial information.  For Iowa this information is located in a security class unique to our centralized payment center accounting staff.  Only these staff members have the ability to add, modify, or delete financial institution information.  While accounting staff can request a debit card, only the system itself can add debit card information and activate the process  The basic information I suggest you need to track for any electronic disbursement is the financial institution routing number, a unique account number, and the type of electronic banking .  For clarity regarding which type of electronic disbursement is used, be able to identify if the direct deposit goes to checking or savings and use a separate code to indicate the use of the debit card.  The unique number helps identify what portion of the funds in the larger debit card account belong to the individual custodial parent.  When a parent switches back and forth from direct deposit to debit card you may need to be able to generate new unique Ids for that person. 
You must also update your daily allocation and disbursement process to issue the electronic transactions instead of creating a warrant or check.  Since payment center cannot issue the disbursement (by state law that must be the Department of Revenue), we create the file as completely as possible.  Meaning the file is already in NACHA standard format when Revenue receives it.  They only have to combine it with other out-going EFT files for transmission to the state’s financial institution.  If you are able send the file to your state’s financial institution yourself, make sure you work with them regarding the proper file format for processing and secure transmission.
Also remember to review your system functions regarding canceling payments.  Depending on your own system you’ll probably want to treat an electronic payment in the same manner as a payment by warrant.  So if you cancel the electronic disbursement be sure your payment goes into a hold or non-disbursed status.  

## Initial Case Selections

- Cases without other electronic payment options
- Case is not already using direct deposit
- Cases without exemptions or exceptions
- Allowable exceptions disabilities, location, literacy, language
- Unique exceptions low payment level or  low balance amount

**Notes:**
Your system is ready, you’ve completed outreach, and you are finally ready to issue your card. Is there any more sorting that you need to do?  The short answer is yes.  First make sure your file is in the proper format for exchange with your vendor and test your connections.  For IT staff you also have security issues.  Does the file go FTP, Connect:Direct, or another secure process and does that work.  Once these technical pieces are in place you are ready to begin your final transition to electronic disbursement.  If your direct deposit ability is functional you don’t want to issue that custodial parent a card, make sure your system bypasses those cases during this round of selection.
Also during this round of selection you’ll want to bypass any unique exceptions you adopt.  Some examples are, the number of payments sent to the family is below the initial criteria for receipt of a debit card (low). Such as, the family received fewer than three payments last year so don’t include them.  Another exception could be defined as a “low balance case.”  Once we determined payment patterns on cases, we looked at how quickly the existing family balance due would be paid in full following the current pattern.  In other words, if the family balance would be paid off in one year or less provided the payments continued to arrive as they have been we would not issue the custodial parent a debit card. Again the situations you by-pass should be based upon your business practices and policies.  
Another big issue to deal with here is the start date of electronic deposits.  For direct deposit, Iowa sets a specific date at least 14 days from the entry of the account information to allow for the pre-note process.  For debit cards, Iowa receives a return file from the vendor when we submit new parents for cards.  Our system automatically adds a start date of the next working day.  So the next day payments go out as an electronic payment to the card.  Depending upon your system and business practices this could be earlier or later for your state.  But keep in mind the 2 days processing requirement in 654B.

## On-Going Issues

- Loss of location
- Less incentive for custodial parent to keep address current
- Switching from debit card to direct deposit
- Parents switching back and forth
- Updating case information
- Keeping names, addresses, demographic data in synch
- Dealing with new cases
- When do you initiate the debit card process
- Closing cases
- Proper notification

**Notes:**
Be prepared for an increased location workload.  Since the money is now deposited to a designated account or debit card there is less incentive for custodial parents to keep you advised of their addresses. 
Anticipate that some parents will periodically switch from debit card to direct deposit then back to debit card again and vice versa. Timing in this situation is everything so you don’t have a gap in electronic disbursement.  Also anticipate that if the custodial parent receives support from multiple obligors, they may wish to receive the support from one through debit card and another through direct deposit.  
Another question you must deal with is how quickly to issue debit cards on new cases or cases leaving assistance.  For NPA cases Iowa has included information on electronic disbursement in the cover letter that goes with the application.  We also send a direct deposit application with the NPA application.  For an NPA case that does not sign up for direct deposit or a former assistance case, upon receipt of the first payment that disburses to the family, Iowa sends an initial notice of electronic payment.  The custodial parent has 10 days to either sign up for direct deposit or request a valid exemption.  We allow 14 days in case the parent mails the request back on day 10.  After 14 days the parent’s information is sent to the vendor and a card is sent to them.  We also send the parent a notice advising them they will receive a debit card and watch for it in the mail.
You need to develop a process to keep your partner financial institution for debit cards in sync with your data.  So if the custodial parent changes their name, you can share that information with each other. Data to keep in sync is address, SSN, and date of birth. 
When a custodial parent switches from debit card to direct deposit or when the family balance is paid in full, or the case is paid in full; you need to advise your partner financial institution. In most cases just because you change to a different form of electronic banking or because the case is paid in full it does not close the card.  There could still be money on the card the parent can access.  Providing this information is necessary so the vendor understands no more deposits will be forth coming.  
This closes my portion of the presentation, now I’ll turn the microphone over to Dieter Wahl.  

## Administrative Rule Authority

**97.6(5) ***Warrants. *The collection services center may authorize generation of a warrant if any one
- of the following conditions applies:
*a. *Generation of a warrant is necessary to meet federal requirements to disburse a payment to an
- obligee within two working days when electronic transfer is not feasible.
*b. *The obligee has not requested automatic deposit to a designated account of the obligee, and
- payment is from a source that is nonrecurring or is not expected to continue in a 12-month period.
*c. *The obligee has not requested automatic deposit to a designated account of the obligee and has
- asserted in writing on Form 470-3972, Electronic Support Payments, that one of the exemptions listed
- in this paragraph applies. To claim an exemption, the obligee must return Form 470-3972 to the collection
- services center within ten days of the date the form was issued. An exemption granted under this
- paragraph is subject to periodic review by the collection services center. When the collection services
- center reviews an exemption, it shall issue Form 470-3973, Review of Electronic Transfer Exemption,
- to the obligee for completion. The exemptions available under this paragraph are:
- (1) A physical disability imposes a hardship in accessing an electronically transferred payment.
- (2) A mental disability imposes a hardship in accessing an electronically transferred payment.
- (3) A language barrier imposes a hardship in accessing an electronically transferred payment.
- (4) A literacy barrier imposes a hardship in accessing an electronically transferred payment.
- (5) The obligee’s home and work addresses are more than 30 miles from an automated teller machine
- and more than 30 miles from a financial institution where the account funds can be accessed.
*d. *The representative payee, court appointee, or trustee notifies the collection services center or
- unit in writing that one of the following applies:
- (1) The obligee is under a court-ordered guardianship or conservatorship.
- (2) The obligee is involved in other legal proceedings, including bankruptcy, which require payments
- to be sent to a trustee or other representative payee.

## Initial Notice  (First Page)

## Initial Notice (Page 2)

## Initial Notice (Page 3)

## Initial Notice (Page 4)

## Reminder Notice

## PAYEEEFT Screen

- D479HR13       IOWA COLLECTION AND REPORTING SYSTEM      DATE: 09/05/06
-                      PAYEE EFT AUTHORIZATION             TIME: 07:46:14
-  CASE NUMBER.....:                     PAYEE'S ID NUMBER..:
-  PAYEE...........:
-  PAYOR...........:
-  BANK NUMBER.....:                     BANK NAME:
-  ACCOUNT NUMBER..:                     ADDRESS..:
-  ACCOUNT TYPE....:                     EAC/DD NOTICE: 00  00  0000
-  START DATE......: 00  00  0000        REQUEST DATE.: 00  00  0000
-  STOP DATE.......: 00  00  0000        ISSUE DATE...: 00  00  0000
-  GENERATE NOTICE.: Y                   EXEMPTION....: LOW  00  00  0000
-  REQUIRE NOTICE..: N                   EAC ID.......: 0000000000
-  PRENOTIFICATION.:
-  PF2=ADD, PF3=MODIFY, PF4=DELETE EFT, PF5=INQUIRE, PF6= HISTORY
-  PF7=PAGE BACKWARD, PF8=PAGE FORWARD, PF9=REFRESH, PF22=NEW
-  NEXT SCREEN:            NOTES:
- PAYEE EFT NOT FOUND, ENTER INFORMATION AND USE PF2 TO ADD