Toronto will be the first Canadian city to replace its welfare cheques with reloadable debit cards, allowing users to avoid cheque-cashing fees at payday lending outlets and saving the city as much as $2.5-million a year, according to a city staff report.

The cards will use pin and chip technology, like bank-issued debit cards, and will be reloaded monthly.

“For the residents, it’s a much easier way to manage their funds than having to cash cheques,” Toronto Employment and Social Services general manager Heather MacVicar told CityNews.ca. “For the city, it represents a lot of administrative streamlining,”

The switch could save the city between $1-million and $2.5-million every year, according to a June 14 report by the deputy city manager’s office.

The cards will be distributed in the fall or winter and will not identify the user as a welfare recipient. They will not be mandatory for those on social assistance but the city’s goal is that most, if not, all recipients make the switch.

“Our aim is that everyone will use the card,” MacVicar said, but adding that “if there would be a situation where it’s impossible for someone to use a card, we wouldn’t force people.’

Nearly 65,000 welfare recipients in Toronto receive their payment through direct bank deposit every month.

About 35,000 recipients who receive their benefits by cheque are “often low income, marginalized and excluded from access to mainstream financial institutions” and are forced to pay high cheque-cashing fees at payday lending outlets, the report says.

“Cheques are much harder for people to cash if they don’t have sufficient identification or for people who don’t have bank accounts,” MacVicar said.”So they tend to go to third party people or businesses to cash cheques where they’re charged fairly high fees.”

The debit card system has been successful in several U.S. states, including New York and California. But in some states, politicians have tried to prevent recipients from using state-issued debit cards at massage parlours, casinos and liquor stores and other places deemed inconsistent with its intended use.

MacVicar played down concerns that easier access would encourage more spending.  

“Absolutely not,” she said. “The benefits right now are extremely stringent in terms of the eligibility for them. Already two-thirds of the people who are on assistance have direct bank deposit so that’s in fact as easy, if not, easier than a card.”

The debit card system will also reduce the stigma associated with welfare cheques and keep recipients safer as they won’t be carrying large amounts of cash after cashing a cheque. It will also allow for 24-hour access to funds. The cards will also eliminate cheque fraud and can be cancelled if they are lost or stolen.

Cardholders will be able to use the card wherever debit cards are accepted and will be able to withdraw cash at any ATM or at a branch location of any bank even without a chequing account. Whether users will be charged ATM withdrawal fees has yet to be determined.