Conversion to Digital Payments by the Treasury Department
In March of this year, President Trump issued Executive Order 14247 (EO) mandating that the U.S. Treasury Department undergo a transition to digital payments, aiming to eliminate paper checks for all federal disbursements by September 30, 2025. This includes tax refunds, Social Security benefits, and vendor payments. The transition also includes limited exceptions for individuals who lack access to banking or electronic payment systems, as well as for certain emergency payments and national security contexts. Consequently, the use of Electronic Funds Transfers (EFTs) such as direct deposit, prepaid card accounts, and other digital payment options, will be the primary method of payments. This transition is part of a broader modernization strategy that reflects both technological advancements and evolving expectations in how we interact with financial systems.
The EO highlighted that the continued reliance on paper payments has led to unnecessary costs, delays, fraud facilitation and inefficiencies. Paper checks are significantly more expensive to produce and process than electronic transfers. According to data from the Treasury’s Bureau of the Fiscal Service, issuing a paper check can cost approximately $0.50 per item, compared to a few cents for a direct deposit. When scaled across millions of disbursements each month, the cost savings become substantial.
The EO further added that digital payments are faster and more secure than paper checks, which are more vulnerable to theft, alteration and fraud. According to the U.S. Treasury Department press release, check fraud has skyrocketed (nearly doubled) since the pandemic, with the number of Suspicious Activity Reports (SARs) being filed going from 350,000 in 2021 to 680,000 in 2022, with most related to mail theft and tampering. Furthermore, electronic payments provide a clear audit trail, making it easier to detect and investigate suspicious activity. Initiatives like Direct Express—a prepaid debit card for unbanked recipients—also ensure that vulnerable populations can access benefits without needing traditional bank accounts, reducing their exposure to check-cashing fees and financial predators.
However, there are some concerns, such as what to do about members who may be accustomed to receiving checks by mail or individuals who may not have digital accessibility (e.g. older adults, people with disabilities, and those living in rural or underserved communities). If those members stop receiving physical checks due to Treasury policy changing in September and are told they need to establish direct deposit accounts, there is a risk that i) they are unfamiliar with the process or ii) they may be induced to establish an account with a fraudulent entity posing as the credit union. Criminals could potentially send fake notices advising members to establish accounts if they want to continue receiving funds from Treasury, which could lead to identity theft.
Credit unions may face increased responsibility to help advise members, especially those who do not have digital access, of this transition and guard against suspicious mailers that tell them to go to a specific website or dial a phone number that doesn't look familiar. This includes integrating with Electronic Funds Transfer (EFT) systems, ensuring customer access to Treasury-preferred channels like Direct Deposit and Direct Express®, and adopting fraud prevention protocols. Furthermore, the transition raises privacy and cybersecurity concerns. As more Americans rely on digital platforms for government benefits, the risk of cyberattacks and data breaches increases. Ensuring strong encryption, multi-factor authentication, and secure infrastructure will be critical to maintaining public trust.
Ultimately, the Treasury Department’s conversion to digital payments represents a forward-looking step toward a more efficient and secure system of government disbursements. While it promises numerous benefits, its success hinges on thoughtful implementation that accounts for accessibility, education, and cybersecurity. As the digital payment ecosystem continues to evolve, a collaborative approach involving government, financial institutions, and community organizations will be essential to ensure that the system works equitably for all Americans.
America’s Credit Unions previously mentioned the Executive Order in a Compliance blog here. Additionally, in June of this year America’s Credit Unions posted a Regulatory Comment for the Request for Information (RFI) Related to the EO.
