You should probably be training your tellers to recognize treasury checks. If people come in and are depositing them every month tell them that they need to be ready to shift to EFT. And if they're at your bank you can help explain to them how to find their routing number and account number that they're gonna need to provide to the, the federal agency.
From the American Bankers Association, this is the ABA Banking Journal podcast. Welcome back. I'm Evan Sparks. Today's episode is presented by nCino and I am joined by my ABA colleague Steve Kenneally. Steve is senior vice President for payments policy here at ABA and an expert on all things payments. And so Steve, welcome to the show. Thanks for having me. So we're here to talk, to talk a little bit about something, some big news that came out this week.
And that was an executive order from President Trump. There are a whole lot of these, and you can find ABAs analysis of all of the executive orders on our website at aba.com, there are staff analysis for all these. This one was a big one because it directs the treasury to stop issuing paper checks for disbursements. And that includes tax refunds, vendor payments, benefit payments, transfers between government agencies and basically as soon as practical and to the full extent permitted by law.
So that's a huge shift. And it has a lot of implications for banks, for the payment system, for banks' efforts to prevent fraud. And so I'm really glad to have Steve on to help banks break down what this means in the near term. So, Steve, thanks so much for, for being on to talk about it.
Thanks Evan. It actually goes even further than that. It's not just federal government disbursements, but it's payments to the federal government. Yeah, they wanna, they wanna eliminate the receiving of checks to make themselves more efficient. 'cause even when you. Put a check in the mail and send it, and it gets processed correctly. There's no fraud. It doesn't get stolen. It's still an expensive way to pay somebody someone's gonna hold it. Gotta process it, gotta take an image of it.
It's, it's a labor intensive sort of payment as opposed to a electronic payment.
I will say as somebody who only in the last couple years got on the board, the like direct payment train, I, you know, I kind of liked having the option when I was doing my estimated tax payments to, getting that check right in at the, at the postmark date, you know, and then it takes a little time for it to get processed. But obviously running these big facilities for the IRS to receive payments is a a is a bear.
And then the, the government takes and all kinds of payments beyond just payments to the IRS.
Yeah, and you should be able to still manage the timing of the payment with an EFT. You know, if you need to pay by April 15th, you pick April 15th. This is the payment date.
One of the challenges I know that banks have experienced is fraud around the use of treasury checks and fake checks that are being purported to be a treasury check. And we have the treasury check verification service. But to what extent is that, do you think this is going to affect banks exposure to check fraud?
Well, when it gets fully implemented, it's definitely going to shrink One of the threat vectors there. 'cause I mean, even the Secret Service had came out with a recommendation a couple of years ago saying, when it comes to treasury checks, don't open a new account with a treasury check and don't accept a treasury check for deposit for an account that's less than a year old. Hmm. Because they recognize that banks treat treasury checks differently and really they shouldn't.
And the fraudsters know that banks treat treasury checks differently, and that's why they, you know, changed the name or altered the amount or just to create a totally fraudulent check.
It was interesting being the conversations we had a couple weeks ago here at ABA at our check fraud symposium where, you know, hearing some of the interest in in perhaps seeking, you know, a legislative remedy that would cap the size of a treasury check. Right? But I mean, if this is, if this goes into place that sort of. Mitigates that entirely if you, if the treasury says, well, we're just, we're just really not doing 'em anymore.
Yeah, that, that would be fantastic. I mean, this goes beyond what we were considering asking for. And really it gives like new more oomph to a treasury requirement that's been in place for. More than 25 years. There was the EFT 99 law that was passed that required treasury to make all electronic payments by 1999. Obviously, they, they missed that, but they've really, they've done everything. They've got a hundred percent of the salary payments or EFT 99% of social security.
97% of VA and 97% of IRS tax refunds. So you could honestly say they've done all the The easy part.
Yeah.
But it's those last few percentage of recipients that we're really gonna have to, to work to maybe either provide them a bank account. Or a, a treasury issued debit cards. Receive a payment electronically.
Yeah. And that, that was what, you know, that's one of the questions I had looking at this at, at this executive order is the exceptions that are embedded in it. Because there are exceptions for you know, people without banking or electronic payments, access certain emergency payments, special cases, you know, like law enforcement activities where, you know, obviously. There may be there may be some issues there.
And, you know, what, what, where do you, I mean, we don't know what all those, how those, all those exceptions are gonna be interpreted yet. But if you're looking at this, what does the, what is the role of exceptions perhaps in driving the persistence of the of treasury checks down the road once this order is fully implemented?
Yeah, well, well, full disclosure, I worked at Treasury during the EFT 99 campaign. That was not as successful as it should have been. But a lot of the, the reports that we had were mostly from individual social security recipients who basically would say, you know, I've received a check for 40 years and I'm not gonna stop now. And they would call the congressman. Congressman would call treasury and say, don't stop that person's check. So there was, and and Treasury said, okay.
'cause they were, they were converting, they were going up from 50% to 90%. So what was the big deal with just one or two? And while those one or two were, when you put add 'em in the aggregate turn out to be a really big number of paper checks that are still being. Issued. So it all comes down to what's, what is the latitude that the administration will give to people that plead hardship?
Will they be will they be, you know, on a scale of one to 10, will they be accepting of those pleas or will they say, I understand, but we're still gonna give you a debit card. So a a lot of it comes down to some discretion on those smaller amounts on those smaller, you know, consumer payment types.
Yeah. I wanna take a quick moment here to thank our sponsor for this episode. Today's financial institutions strive to achieve efficiency, which obviously we're talking about that today, boost customer satisfaction and and adapt to changing markets. nCino provides tools to digitize processes, consolidate systems, and drive innovation. With over 1,800 institutions already benefiting from their platform, nCino is powering a new era in financial services.
You can learn more about taking the next step towards solving your institution's challenges with ncino at nCino.com. That's in CN o.com. And thanks again to nCino for sponsoring this episode. So coming back to the executive order here there's a six month timeline for this to be implemented September 30th.
Obviously 25 years after EFT 99, what are your thoughts on the six month timeframe and how reasonable it is and whether banks are gonna to, what, what banks need to know about gearing up for that timeline?
Well, that is a very aggressive timeframe. I mean, six months to do anything in the federal government is an aggressive timeframe. But I think that the banks there's a ABA can help the banks communicate with their customers that are receiving treasury checks. You should probably be training your tellers to recognize treasury checks. If people come in and are depositing them every month tell them that they need to be ready to shift to EFT.
And if they're at your bank you can help explain to them how to find their routing number and account number that they're gonna need to provide to the, the federal agency. The, the other side of the coin here is that the incoming checks, the federal government they're going to need to do a lot of work internally. Say for instance, you're renewing your passport and so you would attach your check to your old passport mm-hmm. And your new picture.
In order for that payment to be made electronically, it's gonna be a lot more complex because you would need to somehow associate the electronic payment that you send to them, however they direct you to do it. With the hard copy of the, the paper passport and they need to make that connection and that's gonna be a bigger challenge for for them to. Accomplish, especially in just six months. Yeah,
we are, we are renewing a couple kids' passports this spring and and I have, so I have refreshed my, my sense of the guidelines and I am always amazed that it still requires actually a paper check or a money order or something like that instead of some kind of electronic payment. Yeah. For that, for that
process. Yeah. So it's gonna be a big change. And but the, the federal governments they. They're actually in the midst of Rebidding their lockbox network, which is what they call the, the banks that manage these incoming payment streams. And the numbers aren't that big, surprisingly. They, they processed an incoming 15 million checks last year, which really is a pretty small number considering the, the total number of checks that was issued.
In 2021. The last day we have, last year we have data was about 11 billion. So, I mean, 15 million is a really small percentage of 11 billion. So again, they've done the easy part. It's the hard part that they need to do now on the incoming payments.
You know, one of the things that we talked about, we put ABA put out a statement from Rob Nichols. We talked about how, you know, what we, all the things that ABAnks have already done to move a lot of customers onto you know, in into payment accounts, the EFT capable accounts, and you know, we've got the unbanked rate down to 4% here. You know, what, what else can banks do to continue supporting the migration of customers into.
In the bank accounts and, and, and minimizing the use of the, the need minimizing any need for an exception on these treasury checks.
Well, I think we're gonna have to look at the people that aren't bank customers. Now, those that don't have bank accounts if you don't have ABAnk account, you're not receiving your, your payment electronically. So that's the first step is to get them. On board there. We do a lot of work with the bank on program that offers, you know, sort of a, ABAsic transaction account at a low cost.
I think that more banks should be considering offering those to, to customers that don't have bank accounts currently. That's, you know, getting their foot in the door of the banking, of the banking industry. And really it's better for the recipient. I mean. Electronic payments are safer, faster, and cheaper to use than, you know, waiting for a paper check to come in the mail, hoping it doesn't get stolen, and then taking it to a check cashier and paying $10 to cash your check.
I mean, that's, that's, that's a horrible way to get paid. I. Yeah, absolutely.
Well Steve, this has been a, this has been great, helpful conversation. I know this is something that bankers are gonna need to be focused on both on the, on the fraud front teller education and on the payment strategy front. So thank you so much for sharing your insights with us today. Great. Thank you very much. All right. And for our listeners, Steve is actually about to head out and head out to opening day at the at the Nats Park. So go Nats and and, and let's play ball.
Thanks for thanks to nCino for sponsoring this episode. If you wanna find more episodes in the podcast series, just go to aba.com/banking journal podcast. Steve mentioned the Bank on Program. You can learn more about that at aba.com/join bank on, lots of great resources to to help you reaching this last mile problem in efficient payments. So have a great day and we'll be back with you again very soon.