Beginning in 2011, all new recipients of Social Security, Supplemental Security Income, Veterans Affairs and Railroad Retirement pay will receive it either through direct deposit into their bank accounts or via a prepaid debit card if they don’t have a bank account. Existing recipients have to sign up for one of these options by March 31, 2013.

Walt Henderson, the guy in charge of making the switch for the Department of Treasury, estimates that this will save Social Security $1 billion over 10 years, due in part to the $120 million annual savings from not having to print and mail checks. That’s a good thing, and so are the lowered fraud and outright theft rates that result from direct deposit.

Henderson, who is the director of EFT (electronic funds transfer) strategy for Treasury, says don’t worry that this change will inconvenience the oldest recipients of Social Security. Just about 75 percent of recipients older than 80 already use direct deposit. And if this change proves to be a terrible hardship, he says the Treasury will make an exception and continue to put the check in the mail.

There’s no charge for direct deposit, nor is there a fee for one withdrawal via ATM per check for those users of the prepaid debit cards. Debit users also can use their cards without fees to buy something and simultaneously withdraw extra cash, also with no fee.

The one drawback to this system is the vulnerability it creates for people in retirement who get themselves ensnared by a payday lender. A payday loan isn’t part of anybody’s retirement planning, but the 55 percent of retirees who rely almost solely on Social Security are vulnerable to high-interest lenders if they find themselves strapped for cash.

The nonprofit National Consumer Law Center, or NCLC, has written a report called  “Runaway Bandwagon: How the Government’s Push for Direct Deposit of Social Security Exposes Seniors to Predatory Bank Loans.” It urges the government to regulate how payday lenders can deal with Social Security recipients.

The NCLC would like to force financial institutions to evaluate whether a borrower can afford a payday loan if the loan will be backed by the person’s Social Security check. It also would cap annual percentage rates, including fees, to no more than 36 percent, limit loan terms to a maximum of 90 days or one month per $100 borrowed, and allow for repayment in installments.

The NCLC also thinks the Treasury should prohibit lenders from requiring borrowers to provide electronic access to a bank account in order to pay the loan. But if borrowers do allow lenders access to their accounts, the NCLC believes they should be permitted to cut off that access at any point.

I hate to see Uncle Sam playing nanny to people who are certainly old enough to make their own decisions, and some people argue that a payday loan is a better alternative than having the power cut off, for instance. But payday lenders can be a cutthroat bunch.