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Will Social Security Checks Arrive?

Officials mum on default effect, but some banks plan to offer free overdraft loans

Worried their monthly benefit checks won't arrive next week, older Americans are flooding Social Security with phone calls to ask what to expect if the United States defaults on its debts.

See also: What a default could mean for you.

So far, the operators have nothing to say.

"We have been getting a lot of calls," says Corrie Drosnock, a spokesperson for the regional office in Allentown, Pa. "We're sorry, but we don't know. We've been told that that's the response we're to provide."

With Congress still deadlocked over raising the nation's $14.3 trillion debt limit, most everyone in the country remained in the dark Friday about the practical impact if the government runs out of money to pay its bills.

In the absence of guidance, some banks began laying plans on their own to honor — for a while, at least — any automatic payments that bounce because a Social Security benefit doesn't arrive on time.

In the event of a default, the U.S. Department of Treasury would decide which expenses — unemployment insurance, SNAP (food stamps), veterans benefits, defense contract disbursements, bond interest, civil servant wages and tax refunds among them — get priority for the limited funds on hand.

"While only Congress has the ability to ensure the government pays all of its bills, Treasury will provide more information as we get closer to Aug. 2 regarding how the government would operate … if the debt limit is not increased," an official says.

About $23 billion in Social Security checks is slated to go out Aug. 3, more than two-thirds of the $32 billion in government expenses due to be paid that day, according to an analysis by the Bipartisan Policy Center, a Washington research group. The Social Security bill for the whole month of August will be $49.2 billion.

Millions of retirees, widows and widowers, people with disabilities and dependents rely on Social Security to pay their bills. According to government surveys, about 34 percent of recipients rely on Social Security for at least 90 percent of their income.

Automated payments are a major concern for many recipients. One caregiver, whose disabled sister, 65, lives in government-subsidized senior housing in Washington, D.C., has arranged for all her sister's bills, including rent, to be automatically paid each month.

"I don't know what I'm going to do if the rent check hits the bank and the Social Security disability check doesn't," she says. "My sister doesn't have any savings."

Hunt Burke, CEO of Burke & Herbert, a family-owned community bank in Alexandria, Va., says he's telling his branch managers to "play this by ear and don't bounce checks" from accounts that regularly receive Social Security deposits.

"If we see this was because of the shenanigans on Capitol Hill, we'd be happy to float overdraft loans for a short period of time, which our customers would pay when money came back into their accounts," Burke says. "We would look at that on a case-by-case basis."

David Morrison, CEO of Ossian State Bank in Indiana, also says his bank would make good on automatic payment of bills if its customers' Social Security checks are delayed.

"We're just a small community bank … and we know our customers," he says. The checks from Social Security "are going to come. It's just a matter of time. We would cover the ordinary expenses without fees for a while at least."

If Wells Fargo Bank is making contingency plans, it's keeping quiet. "We're telling our customers now that we're not responding to [uncertain] scenarios," spokesman Ancel Martinez says. "We're focused on having enough capital and liquidity to meet our customers' needs."

Also of interest: Can you balance the federal budget? >>

Carole Fleck is a senior editor at the AARP Bulletin.

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