[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Notices]
[Pages 64820-64825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31244]
[[Page 64819]]
_______________________________________________________________________
Part VI
Department of the Treasury
_______________________________________________________________________
Fiscal Service
_______________________________________________________________________
Electronic Transfer Account; Notice
Federal Register / Vol. 63, No. 225 / Monday, November 23, 1998 /
Notices
[[Page 64820]]
DEPARTMENT OF THE TREASURY
Fiscal Service
RIN 1510-AA56
Electronic Transfer Account
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Notice of proposed Electronic Transfer Account features;
request for comment.
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SUMMARY: The Debt Collection Improvement Act of 1996 (Act) amends 31
U.S.C. 3332 to provide that, subject to the authority of the Secretary
of the Treasury to grant waivers, all Federal payments, other than
payments under the Internal Revenue Code, must be made by electronic
funds transfer (EFT) beginning January 2, 1999. The Department of the
Treasury (Treasury) published a final rule implementing this mandate,
31 CFR part 208 (Part 208), on September 25, 1998. 63 FR 51490. Part
208 provides that any individual who receives a Federal benefit, wage,
salary, or retirement payment is eligible to open an Electronic
Transfer Account, or ``ETASM,'' at any Federally-insured
financial institution that elects to offer ETAsSM''. The
preamble to the final rulemaking indicated that Treasury would
separately publish for comment a notice of the proposed features of the
ETASM. This notice describes proposed features of the
ETASM and provides further opportunity for public comment.
In addition, it requests comment on three other features that are not
part of the basic ETASM to determine whether they should be
added to the ETASM at the option of the financial
institution and at additional cost, if any, to the account holder.
After evaluating the comments received, Treasury will publish a notice
in the Federal Register setting forth the required features for
ETAsSM.
DATES: Written comments on the proposed account features must be
received no later than January 7, 1999.
ADDRESSES: Comments should be sent to Cynthia L. Johnson, Director,
Cash Management Policy and Planning Division, Financial Management
Service, U.S. Department of the Treasury, Room 420, 401 14th Street,
S.W., Washington, D.C., 20227. Comments also may be submitted
electronically via e-mail to eta.comments@fms.sprint.com or by filling
out the ETASM comment form available on the EFT website at
http://www.fms.treas.gov/eft/eta/. The final rule for Part 208, the
proposed rule for Part 208 (208 NPRM), and comment letters received in
response to the 208 NPRM, including comments on the ETASM
and a summary of comments received in response to the specific
ETASM-related questions raised in the 208 NPRM, are
available on the Financial Management Service's EFT website at http://
www.fms.treas.gov/eft/. Comments received on this ETASM
notice will be available for public inspection and downloading at the
website address shown above and for public inspection and copying at
the Department of the Treasury Library, Room 5030, 1500 Pennsylvania
Avenue, N.W., Washington, D.C. To make an appointment to inspect
comments, please call (202) 622-0990.
FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial
Program Specialist, at (202) 874-7106; Matthew Friend, Financial
Program Specialist, at (202) 874-6754; Natalie H. Diana at (202) 874-
6950; Cynthia L. Johnson, Director, Cash Management Policy and Planning
Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor,
at (202) 874-6681.
SUPPLEMENTARY INFORMATION:
A. Background
Section 31001(x) of the Act provides that, subject to the authority
of the Secretary of the Treasury to grant waivers, all Federal
payments, other than payments under the Internal Revenue Code, must be
made by EFT beginning January 2, 1999.
The Act authorizes the Secretary of the Treasury to waive the
requirement to make Federal payments by EFT for individuals or classes
of individuals for whom compliance imposes a hardship; for
classifications or types of checks; or in other circumstances as may be
necessary. In addition, the Act requires Treasury to ensure access to
an account at a financial institution for individuals who are required
to have an account because of the EFT mandate. Treasury must ensure
that access is provided at reasonable cost and with the same consumer
protections that are provided to other account holders at the same
financial institution.
On September 25, 1998, Treasury issued as a final rule Part 208,
which implements the mandatory EFT requirement of the Act. 63 FR 51490.
Part 208 provides, in part, that payment by EFT is not required where
an individual determines, in his or her sole discretion, that payment
by EFT would impose a hardship due to a physical or mental disability
or a geographic, language, or literacy barrier, or would impose a
financial hardship. An automatic waiver is granted for all individuals
who do not have an account at a financial institution and who are
eligible to open an ETASM until the ETASM becomes
available.
In addition, Part 208 provides that any individual who receives a
Federal benefit, wage, salary, or retirement payment shall be eligible
to open an account called an ETASM at any Federally-insured
financial institution that chooses to offer ETAsSM. The
ETASM will be made available to maximize opportunities for
individuals receiving Federal payments electronically to have access to
an account at reasonable cost and with the same consumer protections as
other account holders at the same financial institution.
In the 208 NPRM published on September 16, 1997, under Section E of
the Section-by-Section Analysis, ``208.5--Access to Account Provided by
Treasury,'' Treasury invited comment on several questions related to
the ETASM and stated that it would publish proposed terms,
conditions, and attributes of the account for further comment. 62 FR
48714, 48721. Based on the comments received, Treasury has developed a
listing of ETASM attributes, which are the subject of this
notice. This notice is limited in scope to a discussion of the
ETASM; it does not address other provisions of the 208 NPRM.
Those provisions are discussed in the final rulemaking for Part 208,
which was published in the Federal Register on September 25, 1998.
Final Part 208 reflected a significant change in Treasury's
approach to the ETASM from what was proposed in the 208
NPRM. The 208 NPRM indicated that it was Treasury's intention to
solicit bids from organizations interested in providing an account that
would include certain specific attributes determined by Treasury. At
the time the 208 NPRM was published, Treasury proposed to obtain
account services through a competitive process that would select one or
more entities to act as Treasury's financial agent within predefined
geographic areas. After evaluating the comments received and conducting
further research,1 however, Treasury considered two
alternative approaches for offering the account. These two approaches
were the subject of public meetings held on May 21, 1998, for the
purpose of obtaining comments from consumer and
[[Page 64821]]
community-based organizations and from financial
institutions.2
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\1\ Treasury contracted for a study related to account features
and distribution network options for the ETASM. A copy of
the study is available at the Financial Management Service's EFT
website at http://www.fms.treas.gov/eft/eta/.
\2\ A summary of comments provided at the meetings held on May
21, 1998, is available at the Financial Management Service's EFT
website at http://www.fms.treas.gov/eft/eta/.
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The first approach involved selecting a small number of financial
institutions to act as Treasury's financial agents in providing
ETAsSM. These financial agents would then sign up local
financial institutions to market and originate ETAsSM. The
second approach involved publishing standards for providing the
ETASM, including account attributes, and allowing any
Federally-insured financial institution that chooses to offer ETAs' to
act as Treasury's financial agent to provide the ETASM in
accordance with these standards and subject to terms set forth in an
ETASM Financial Agency Agreement between Treasury and the
financial institution. The agreement would provide that
ETAsSM offered by the financial institution must meet the
criteria described in the Federal Register notice listing the required
ETASM features and would set forth the circumstances in
which a financial institution may close an account for fraud or other
reasons.
As indicated in final Part 208, based on the comments received on
the 208 NPRM and at public meetings and on geographic and economic data
and analysis, Treasury decided to pursue the second approach to make
the ETASM available to payment recipients. Representatives
from both consumer organizations and financial institutions indicated
that, while this approach does not ensure complete geographic coverage
because no financial institution will be required to offer the
ETASM, it encourages participation by financial institutions
of all sizes. In addition, of the two approaches, it provides the
greater opportunity for market competition. As a result, this approach
will likely encourage competing financial institutions to offer lower
cost accounts than might otherwise be offered. This approach also may
minimize the impact of automated teller machine (ATM) surcharging by
allowing recipients greater choice in selecting an ETASM at
a conveniently located financial institution that offers the account.
Moreover, research data indicate that the majority of check recipients
are located in a relatively small number of geographic locations. Under
the second approach, it is more likely that more than one financial
institution will provide ETAsSM in those areas where check
recipients are geographically concentrated, thereby further increasing
competition among financial institutions and increasing choice among
recipients living in those areas.
In order to maximize the number of financial institutions that
choose to offer ETAsSM, Treasury proposes to offer financial
institutions financial compensation to establish and market the
account. Treasury proposes to reimburse each financial institution that
offers the ETASM a one-time fee per account established to
offset the costs of setting up the account. Recent studies show that
these set-up costs, which typically include costs to enroll and work
with customers and the cost of issuing an on-line debit card, average
approximately $12.60 per account.3 As an added incentive to
financial institutions and to offset imputed marketing, training, and
education costs, Treasury is considering compensating participating
financial institutions an additional amount for each ETASM
opened above designated minimum threshold numbers of accounts.
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\3\ Cost estimates taken from Economic Waterfall Analyses, Dove
Associates, Inc., June 1998. A copy of the analyses is available at
the Financial Management Service's EFT website at http://
www.fms.treas.gov/eft/eta/.
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Treasury seeks comment on whether, for purposes of compensating
financial institutions, a distinction should be made between
ETAsSM opened by individuals who already have an account at
a financial institution and those who do not have an existing account,
i.e., should Treasury compensate financial institutions for opening an
ETASM for an individual who already has an existing account?
If a distinction is made, how should the basis for that distinction be
determined? In addition, Treasury seeks comment from financial
institutions on the extent to which the proposed compensation
arrangements will increase the number of financial institutions
providing ETAsSM and on the most appropriate way to
establish the minimum thresholds.
Treasury will maintain and make publicly available to recipients
and program agencies a list of participating ETASM
providers. In addition, financial institutions offering
ETAsSM will be permitted to display prominently a logo to be
supplied by Treasury indicating that the ETASM is available
at that financial institution.
B. Summary of ETASM Attributes
After considering the comments received, Treasury proposes that the
ETASM account have the following attributes, which would be
set forth in an ETASM Financial Agency Agreement between
Treasury and the financial institution offering the account. Specific
attributes are explained in more detail below. As proposed, the
ETASM would:
Be an individually owned account at a Federally-insured
financial institution;
Be available to any individual who receives a Federal
benefit, wage, salary, or retirement payment;
Accept only electronic Federal benefit, wage, salary, and
retirement payments;
Be subject to a maximum price of $3.00 per month;
Have a minimum of four cash withdrawals per month, to be
included in the monthly fee, through a) the financial institution's
proprietary (on-us) ATMs, b) over-the-counter transactions at the main
office or a branch of the financial institution, or c) any combination
of on-us ATM access and over-the-counter access at the option of the
financial institution; 4
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\4\ Financial institutions may provide additional withdrawals at
no charge or for a fee.
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Provide the same consumer protections that are available
to other account holders at the financial institution, including, for
accounts that provide electronic access, Regulation E protections
regarding disclosure, limitations on liability, procedures for
reporting lost or stolen cards, and procedures for error resolution;
For financial institutions that are members of point-of-
sale (POS) networks, allow POS purchases at no additional charge by the
financial institution offering the ETASM, as well as cash
withdrawals and cash back with purchases, consistent with current
commercial practice;
Require no minimum balance, except as required by Federal
or State law; and
Provide a monthly statement.
Treasury welcomes comments on the above attributes. Treasury also
seeks comments on three other features that are not part of the basic
ETASM to determine whether any or all of the features should
be added to the ETASM at the option of the financial
institution and at additional cost, if any, to the account holder.
These features--payment of interest on balances; allowing deposits of
other electronic funds; and providing pre-authorized Automated Clearing
House (ACH) debit capability--are discussed in Section D of this
notice.
[[Page 64822]]
C. Discussion of Proposed ETASM Attributes
Individual Account/Availability
The ETASM, as proposed, would be an individually owned
account established at a Federally-insured financial institution. A
financial institution that chooses to offer ETAsSM would be
required to make an ETASM available to any recipient of a
Federal benefit, wage, salary, or retirement payment who requests an
ETASM, unless the institution is prohibited by law from
maintaining an account for the recipient (for example, where a
recipient does not meet a credit union's field of membership
requirements). As mentioned above, financial institutions that choose
to offer ETAsSM would be permitted to close an
ETASM in certain circumstances to be delineated by Treasury.
However, financial institutions would not be permitted to deny an
ETASM to any eligible recipient.
By requiring that these accounts be held at Federally-insured
financial institutions, Treasury can ensure that ETASM
holders' funds are being deposited into accounts that have Federal
deposit insurance. Federally-insured financial institutions are subject
to comprehensive Federal regulation and oversight through examinations
for safety-and-soundness and compliance with consumer protection laws.
Deposits
Treasury is proposing to limit the types of funds that may be
deposited to an ETASM to electronic Federal benefit, wage,
salary, and retirement payments. Permitting financial institutions to
accept electronic deposits of other types of payments in addition to
Federal benefit, wage, salary, and retirement payments to the
ETASM would have implications with respect to the potential
attachment of funds in the account. As discussed more fully below, a
number of consumer and community-based organizations that commented on
the proposed rule pointed out that many individuals do not utilize
accounts at financial institutions because they fear that funds
deposited to such accounts will become subject to attachment by
creditors.
Most Federal benefit payments, including Social Security benefits,
Supplemental Security Income benefits, Veteran's benefits, and Federal
Railroad Retirement benefits, are protected from attachment and the
claims of judgment creditors by Federal law, subject to certain limited
exceptions.5 The U.S. Supreme Court has held that Federal
benefit payments remain exempt from attachment after they are deposited
in a bank account.6 Where all of the funds deposited into an
account are exempt Federal benefits, most courts have held that the
account itself is wholly exempt from attachment. If exempt funds are
commingled with funds from other sources in a bank account, the exempt
funds generally continue to be protected from attachment. However,
courts have held that the burden of proving that particular funds in an
account are not subject to attachment is on the depositor. Courts in
different jurisdictions have used different accounting methods to
determine whether funds in an account are considered to be exempt or
nonexempt.
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\5\ See 42 U.S.C. Sec. 407(a); 42 U.S.C. Sec. 1383; 38 U.S.C.
Sec. 530; and 45 U.S.C. Sec. 231m(a). The prohibition against
attaching such funds is subject to certain exceptions, including to
satisfy child support and alimony obligations. See, e.g., 42 U.S.C.
Sec. 659.
\6\ Philpott v. Essex County Welfare Board, 409 U.S. 413, 416
(1973).
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Limiting the types of funds that can be deposited to an
ETASM would facilitate a recipient's ability to defend
against impermissible attachments. Treasury expects that, although
Federal wage, salary, and retirement payments, in addition to Federal
benefit payments, could be deposited to an ETASM, the
majority of ETAsSM would be utilized for the receipt of
Federal benefit payments only. In those cases, ETAsSM would
not be subject to attachment, with limited exceptions (e.g., for child
support obligations). If other types of payments were allowed to be
deposited to an ETASM, however, those payments would be
subject to attachment, and the burden would be on the account holder to
defend against the attachment.
Some consumer and community-based organizations pointed out that
statutes protecting Federal benefit payments from attachment are not
necessarily construed to prohibit a financial institution that
maintains an account from setting off obligations of the depositor
against the account. Specifically, several courts have held that
statutes prohibiting attachment do not affect a bank's right to set off
a depositor's obligations to the bank 7 against an account
into which benefit payments have been deposited, on the grounds that a
bank's exercise of its right of set off does not constitute
``execution, levy, attachment or other legal process.'' 8
For this reason, some commenters urged Treasury to prohibit financial
institutions that establish ETAsSM from exercising any right
of set off against an ETASM.
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\7\ A bank may exercise a right of set off against an account
only for obligations owed by the depositor to the bank itself, and
not for obligations of the depositor to third parties, such as child
support or general creditor claims.
\8\ See Frazier v. Marine Midland Bank, 702 F. Supp. 1000
(W.D.N.Y. 1988)(citing In re Gillespie, 41 Bankr. 810 (Bankr. D.
Colo. 1984)).
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Treasury recognizes that it is not clear under existing case law
that Federal statutes prohibiting the attachment of Federal benefit
payments would prohibit a financial institution that offers
ETAsSM from debiting an ETASM, without the
account holder's consent, for fees, loan payments, or other obligations
owed by the account holder to the financial institution. Treasury
expects that financial institutions offering ETAsSM will
market other products and services to recipients. While Treasury
encourages financial institutions to offer recipients banking products
and services to further Treasury's goal of bringing persons without
accounts into the financial mainstream, Treasury is concerned that
financial institutions might offset fees and obligations related to
such products against ETAsSM. Many recipients depend on
their benefit payments to meet day-to-day living expenses. In light of
the special nature of payments deposited to ETAsSM and the
vulnerability of benefit recipients to any unexpected reduction in the
funds available in their account, Treasury intends, through the
ETASM Financial Agency Agreement, to prohibit institutions
that elect to offer ETAsSM from exercising any right of set
off against an ETASM, with the exception of the monthly
account fee or charges for additional withdrawals from the
ETASM.
Cost to Recipient
Treasury proposes that financial institutions that choose to offer
ETAsSM would be permitted to charge a monthly fee not to
exceed $3.00 per month. Treasury will evaluate the appropriateness of
this pricing from time to time, and will make adjustments periodically
as warranted. All attributes listed in the ``Summary'' section of this
notice must be included within the monthly fee to the recipient.
In general, consumer and community-based organizations favored the
establishment of a maximum monthly fee for the ETASM. In
their comments on the 208 NPRM, these organizations expressed a concern
that the price, if left to financial institutions, might be out of
reach for those recipients for whom traditional account fees are too
high. These organizations indicated that cost is one of the main
reasons some
[[Page 64823]]
recipients choose not to open an account at a financial institution.
In their comments, financial institutions expressed support for an
approach in which the institutions themselves would determine the
monthly account fee. They stated that only by allowing the institutions
offering the ETASM to determine fees would they be able to
develop accounts at the lowest possible cost. They also indicated that
more financial institutions would participate if fees were unregulated.
Treasury research indicates that the average monthly cost of
providing an account with the attributes listed in this notice,
including a reasonable profit, falls within the $3.00 maximum price.
Research data also indicate that, while some recipients cash their
checks for free, recipients who pay to cash checks pay anywhere from
one percent to six percent of the amount of the check for this
service.9 Based on the average Federal benefit payment,
recipients could pay anywhere from $6.50 to $39.30 to cash a check.
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\9\ Percentages taken from the Survey of Commercial Check
Cashing Rates, Chaddsford Planning Associates, June 12, 1997.
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Based on this information, Treasury believes that the $3.00 maximum
monthly fee should provide incentives both to financial institutions to
offer the account and to recipients to sign up for the account.
Treasury recognizes, however, that not all financial institutions may
elect to offer the ETASM account and not all recipients may
find the account attractive. Accordingly, recipients may elect to
continue to receive a check if the ETASM is unaffordable or
the financial institutions offering the account are not conveniently
located, or for another reason, by relying on a financial,
geographical, or other hardship waiver provided in Part 208.
Access to Funds and Balance Information
As proposed, access to funds and balance information may be
provided by ETASM providers through one of three methods:
(1) Electronically through ATMs or other electronic means, (2) over-
the-counter at ETASM provider main office or branch
locations, or (3) through a combination of electronic and over-the-
counter transactions. Any method may be used at the option of the
financial institution as long as a minimum of four cash withdrawals are
provided within the $3.00 monthly fee. A financial institution may
offer additional withdrawals at no cost or at an additional fee to the
account owner.
It is expected that over-the-counter cash withdrawals either
automatically include an account balance or will include an account
balance if requested by the recipient. Treasury further assumes that
on-us ATM cash withdrawals generally will produce a transaction receipt
that includes the balance of the account. Balance information will be
available on the required monthly statement, discussed below. Balance
information also may be included as part of a financial institution's
customer service program, to be offered to the ETASM account
holder at the ETASM provider's discretion.
In their comments on the 208 NPRM, consumer and community-based
organizations stated that some recipients may not be able to use ATMs
because of mental, language, literacy, or other barriers and may be
forced to rely on hardship waivers. These organizations explained that
these recipients, who may otherwise have been interested in a basic
low-cost ETASM, effectively will be denied an opportunity to
transition into the financial services mainstream because of this
inability to use ATMs. As an alternative to ATMs, these organizations
suggested that ETASM providers offer over-the-counter access
to funds, such as through a teller. A large association representing
older Americans commented that its constituency, in some cases, will
have difficulty using an ATM. This commenter also called for an option
for over-the-counter transactions.
A credit union association commented that many smaller credit
unions do not have ATMs and if ETAsSM were to be accessed
solely by electronic means these credit unions would be precluded from
offering ETAsSM. The association argued that these credit
unions are otherwise in a good position to provide the accounts because
of their locations in smaller communities and because they already
offer low-cost accounts. A consumer organization commented that many
smaller community banks also do not have ATMs.
It is Treasury's objective to provide recipients with as many
options for accessing funds as can be provided within the constraints
of a low monthly fee. Allowing over-the-counter transactions would give
financial institutions added flexibility in designing an account based
on their capabilities and their customers' needs. Treasury expects that
allowing over-the-counter transactions will increase the number of
financial institutions that elect to offer ETAsSM and the
number of recipients who sign up for an ETASM and thereby
bring more recipients into the financial services mainstream.
In determining the number of cash withdrawals to include in the
monthly account fee, Treasury weighed the advantages of providing
multiple cash withdrawals against their cost, recognizing that the more
transactions provided, the higher the monthly cost. Treasury used cost
data developed for it by an outside contractor (see footnote 1) in
reaching its determination.
The reference in the list of attributes to a ``minimum'' number of
cash withdrawals is intended to permit a financial institution, within
the ETASM structure, to offer additional cash withdrawals as
long as the first four withdrawals are included within the $3.00
maximum price. Additional withdrawals may be subject to fees that are
the responsibility of the recipient. Additionally, if the account is
accessed through a network ATM owned by another institution, the
account holder will be responsible for any charges assessed by the ATM
owner.
For accounts that offer electronic access, such electronic access
is proposed to be on-line electronic access only. Providing off-line
electronic access almost certainly would raise the cost of an account
to a payment recipient. Furthermore, as pointed out by some consumer
organizations, limiting access to on-line electronic access only will
reduce the possibility of overdrafts and associated fees.
In addition, financial institutions offering ETAsSM
would be prohibited under the ETASM Financial Agency
Agreement from entering into arrangements with non-financial
institutions to provide access to ETAsSM, other than access
through a national or regional ATM/POS network. Treasury is concerned
that such arrangements may be confusing or misleading to recipients
and, therefore, will not permit financial institutions to enter into
such arrangements with respect to the offering of the ETASM.
Treasury continues to explore ways to expand access to the
ETASM in areas underserved by financial institutions. These
efforts include working with other public entities to expand ATM
access.
Consumer Protections
ETAsSM will be subject to those consumer protections
available to other account holders at the same financial institution.
This requirement is in accordance with the Act's statutory mandate to
ensure that recipients ``are given the same consumer protections with
respect to the [ETASM] as other account holders at the same
financial
[[Page 64824]]
institution.'' This means, for example, that an ETASM will
be subject to the Truth in Savings Act disclosures found in Regulation
DD (12 CFR Part 230). Also, an ETASM that provides
electronic access will be subject to Regulation E (12 CFR Part 205),
i.e., the ETASM holder will be provided with disclosure of
terms and conditions of the account, limitations on the holder's
liability for unauthorized transfers, and procedures for reporting lost
or stolen cards and for error resolution.
POS
For those accounts that provide electronic access, the proposed
ETASM would allow for POS withdrawals and purchases that are
consistent with current commercial practice. Studies show that more and
more merchants are offering on-line POS purchases with cash back. This
means a recipient can withdraw funds at the same time he or she is
making a purchase using a debit card at a POS terminal. Some merchants
offer cash withdrawals with no purchase required. However,
ETASM holders should be aware that POS withdrawals, in some
cases, may be subject to fees by merchants offering POS transactions.
The recipient is responsible for any fees imposed by the merchant;
however, under the proposed ETASM, there would be no
additional fees for these transactions imposed by the financial
institution providing the ETASM.
Minimum Balance
Except in limited circumstances discussed below, the
ETASM would have no minimum balance requirement. The average
monthly dollar amount for Federal benefit payments is approximately
$650, and a majority of recipients withdraw most of their funds within
the first five days of deposit. Requiring a minimum balance would
effectively reduce the amount of the benefits available to the
recipient to pay bills and make other subsistence purchases. The only
exception to this required attribute is where a minimum balance is
mandated by Federal or State law. For example, in the case of credit
unions, under 12 U.S.C. 1759, a Federal credit union member must
subscribe to at least one share of stock.
Monthly Statement
The ETASM, as proposed, would have a monthly statement.
Treasury is aware that under Regulation E, when government benefits are
delivered electronically to a recipient, a periodic account statement
may not be required if the recipient has access to account information
through other specified means. See 12 CFR 205.15. Treasury also is
aware that the cost of providing a monthly statement necessarily will
be included in the monthly account charge to recipients. Treasury
believes, however, that it is important to provide recipients with a
monthly statement, particularly since the ETASM allows for
POS withdrawals and purchases, and account balances are often not
provided in connection with such transactions. In addition, providing a
monthly statement would provide account balances that may not be
available to a recipient if the ETASM provider does not
offer daily 24-hour telephone customer service for account balance
inquiries.
D. Discussion of Other Features
Treasury is requesting specific comment on three additional
features that are not included in the list of basic ETASM
attributes. Treasury is interested in obtaining feedback to determine
whether any or all of these other features should be added at the
option of the financial institution and at additional cost, if any, to
the recipient. These features are (1) paying interest on account
balances, (2) allowing for additional electronic deposits, and (3)
providing for third-party ACH payments.
Each of the additional features offers potential benefits to some
portion of eligible Federal payment recipients. Therefore, permitting
these features may encourage more recipients to sign up for an
ETASM, potentially resulting in increased long-term savings
to the Government. These additional features also may help to create a
useful intermediate step for those without accounts at financial
institutions in their transition to the financial services mainstream.
For these reasons, if these features are permitted to be offered by
financial institutions as part of the ETASM, Treasury would
consider whether to reimburse a financial institution an additional set
fee per ETASM providing for such features.
There may be, however, potential disadvantages and costs associated
with these additional features. Many financial institutions commented
that the ETASM should be designed as a basic account that
could be easily offered by any financial institution and easily
understood by recipients. Variation in ETASM features may be
confusing to recipients and more difficult to market as a standard
product. Additionally, variation in the features of the
ETASM may make it harder to protect the ETASM
mark and ensure that the mark is used only by those financial
institutions that have entered into an ETASM Financial
Agency Agreement. Adding features, even as options, poses the risk that
financial institutions will not be willing to participate, or that
recipients who already have an account at a financial institution may
switch to a low-cost ETASM.
Treasury seeks specific comment as to whether the potential
advantages of each of the three features outweigh the potential
disadvantages. Treasury will consider carefully the comments received,
but may decide not to add any of the features if it determines that the
potential disadvantages make the features unsuitable for the
ETASM or the associated cost is determined to be too high.
Further, if a decision is made to allow additional features, any
financial institution that offers an ETASM with the
additional features must also make available to recipients an
ETASM without the additional features.
Regardless of whether any of these other features is added to the
ETASM, financial institutions are encouraged to offer
recipients other non-ETASM accounts that meet recipients'
needs, including accounts that offer features beyond those contained in
the ETASM, such as checking accounts. However, while such
accounts may be used for the receipt of Federal payments by EFT, these
accounts are not considered to be ETAsSM and may not be
advertised as such.
Interest on Account Balance
Treasury believes that the payment of interest on ETAsSM
could encourage more individuals to sign up for ETAsSM and
could encourage and facilitate savings by low income recipients. In
addition, financial institutions could potentially benefit from the
higher daily balances that could result from permitting this feature.
However, Treasury research indicates that account balances will
likely be drawn down very quickly after deposit and, therefore,
interest earnings by recipients could be very small. Additionally,
interest accumulated in such accounts may be attachable. Finally,
including a savings feature may modestly increase the costs to the
financial institution of providing the account. These costs could
include interest payments and costs for Truth in Savings Act
disclosures and 1099 tax reporting.
Additional Deposits
Permitting financial institutions to accept electronic deposits of
other types of payments in addition to Federal benefit, wage, salary,
and retirement payments to the ETASM would enable broader
use of the ETASM for deposits and payments from other
sources,
[[Page 64825]]
including matching funds under individual development account programs.
This would help to meet Treasury's overall goal of bringing recipients
into the financial mainstream. In addition, this could assist financial
institutions that might find it difficult to refuse customer requests
to deposit other funds into their accounts.
However, as discussed previously in Section C of this notice under
the subheading ``Deposits,'' permitting other types of payments to be
deposited to the ETASM would have implications with respect
to the potential attachment of funds in the account, and could add
complexity and expense to the account. If financial institutions were
permitted to allow additional payments into the ETASM,
Treasury would want to assure that recipients were given appropriate
disclosures regarding the possible attachment of funds and would
encourage Federal payment agencies to issue clear resolution rules to
help recipients and financial institutions determine which funds cannot
be attached.
Third-Party ACH Debit
Treasury recognizes that the ability for recipients to initiate
preauthorized third-party debit transactions would be a convenient and
cost-saving means for recipients to pay recurring bills such as rent,
utilities, and cable television. Such a feature could reduce
recipients' reliance on money orders and cash, thereby enabling
recipients to avoid the cost of money orders, save time expended in
traveling to pay bills in cash, and reduce the potential losses and
thefts associated with carrying cash to pay bills. Thus, because of the
convenience of this feature, more recipients might sign up for
ETAsSM and more individuals might be brought into the
financial services mainstream.
However, because of differences in clearance mechanisms between ACH
debits and ATM withdrawals, permitting ACH debits might result in
overdrafts to ETAsSM or rejected transactions, which would
result in higher costs both to financial institutions and recipients.
Moreover, Treasury is concerned that recipients inadvertently could
authorize ACH debit entries to pay for goods and services that are not
delivered or are not as represented, thereby incurring unexpected
losses. Treasury is aware of some incidents of ACH debit fraud, as well
as the difficulties that consumers sometimes encounter in dealing with
legitimate merchants, including difficulties in revoking preauthorized
debit authorizations. In addition, Treasury believes that the costs of
administering the ETASM could increase as a result of the
additional customer service burden that would be imposed on financial
institutions in dealing with recipient inquiries related to such
transactions.
Dated: November 18, 1998.
Richard L. Gregg,
Commissioner.
[FR Doc. 98-31244 Filed 11-19-98; 8:45 am]
BILLING CODE 4810-35-P
