January 7, 1999

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

Re: Comments on Notice of Proposed Electronic Transfer Account Features

These comments respond to the Department of the Treasury Notice of Proposed Electronic Transfer Account Features, published at 63 Fed. Reg. 64820 (November 23, 1998). Consumers Union, publisher of Consumer Reports is an active advocate for consumers' interest in financial services and in the implementation of the Debt Collection Improvement Act of 1996 (Act) as it pertains to electronic funds transfer and the establishment of electronic fund accounts (ETAs) for recipients of Federal payments. Consumers Union appreciates the opportunity to comment on the characteristics of the ETA.

We are hopeful that the new system of disbursing federal funds electronically will help promote our long-standing goal of bringing more consumers into the banking system by making the pricing and other terms associated with a bank account more accessible. At a time when financial institutions are merging at a non-stop pace and bank fees are rising, making attractive low-cost accounts available, particularly to currently non-banked Americans, is a crucial need. Treasury has been given an unprecedented opportunity to address the needs of the unbanked as it implements the Act.

All taxpayers will benefit from the availability of ETAs. Treasury is looking at significant savings -- more than $100 million a year. At the same time, institutions offering ETAs benefit by getting new customers, in addition to having the initial cost of opening the accounts subsidized.

Treasury should be commended for defining the attributes of ETAs as published in the Notice. But certain aspects of the ETA remain unclear or need to be defined if the account is to adequately implement the Act, provide for appropriate accounts at a reasonable cost with necessary protections, and encourage unbanked recipients to obtain an account.

Treasury's Authority to Establish the Attributes of ETAs

Treasury has the authority to establish the attributes of ETAs. Congress explicitly instructed Treasury to protect the unbanked from potentially costly consequences of the EFT mandate:

Since this section will require participating beneficiaries to obtain a bank account, Congress expects the Secretary of the Treasury to work vigorously to accommodate the needs of the unbanked recipients through such means as: (1) the planned implementation of a national electronic benefits transfer system for Federal payments through the designation of depositories and financial agents under the Secretary's existing authority (1).

Moreover, the Act itself requires that Treasury ensure access to an account at a financial institution for individuals covered by EFT '99. Treasury is also responsible for ensuring that ETAs are provided at reasonable cost and with the same consumer protections that are provided to other account holders at the same financial institution (2).

Additionally, because Treasury is proposing to compensate institutions for administrative and other costs associated with opening up and ETA (3), it is appropriate that Treasury establish the minimum attributes of the account, including fees and service charges, allowable withdrawals, and the services related to the account.

Fees

Fees Designated in the Notice

Consumers Union supports Treasury's setting the maximum monthly price for an ETA. The cost of the account is a vital attribute that recipients will consider when choosing to obtain an ETA. Based upon the research cited by Treasury this amount appears to be reasonably related to the cost to the institution providing the ETA (4). This amount is also consistent with state laws mandating low-cost basic banking accounts (5).

Likewise, it is important that no minimum balance be required. Imposition of higher or additional account charges because a minimum balance is not maintained could be a disincentive for recipients to obtain an account. Instead, institutions should be encouraged to waive fees if an ETA holder maintains a low minimum balance.

It is also fair that recipients be allowed to make point-of-sale (POS) purchases at no additional charge by the financial institution offering the ETA. This attribute is consistent with current practices at most institutions. There should be no additional charges imposed for a POS transaction unless the same charges are imposed on consumers with other accounts. If charges are imposed there should be clear notice to the account holder that there will be a fee and how much that fee will be prior to concluding the transaction. The account holder should then be allowed to not proceed with the transaction.

Fees Not Contemplated in the Notice

Fees are one of the primary reasons cited by unbanked Americans for not having a bank account (6). It is vital that all possible fees associated with the initial relationship an unbanked person has with a financial institution be clear, reasonable, and defined up front. Limits on fees should be included in Treasury's agreement with institutions offering ETAs.

The ETA as proposed in the Notice allows fees to be imposed after a limited number of free transactions. There were no fees set, or any fee caps, for these additional transactions. Likewise, the Notice fails to restrict other fees or surcharges that institutions may impose on ETA holders, including fees to visit a teller, replacement charges if an access card is lost or stolen, or for balance inquiries. There is no assurance that institutions offering ETAs will set reasonable fees.

All fees associated with the ETA must be identified and meet the following criteria:

• be reasonable;
• not exceed the fee charged other account holders at the same institution; and
• be based on the cost of providing the service, not on what the market will bear.
  

The terms and conditions associated with the account, especially with regard to fees, should be reviewed and approved by Treasury as part of the agreement between Treasury and the institution offering the ETA. Treasury should review and approve any changes to the fees or surcharges related to the account. Any change to the monthly service charge or other initial attributes of the account should require public notice and comment. ETA holders should be able to change accounts, at no cost, if new fees are imposed.

Additionally, all fees, such as those for additional withdrawals, should be specifically identified and disclosed to the recipient at the time the ETA is obtained. Further, the account holder should be notified of any changes in fees or services.

Limitation on Number of Withdrawals

Treasury's proposal limits the number of free withdrawals on an ETA. Four withdrawals may be insufficient, however, and notwithstanding the ability to access funds via a POS transaction, Treasury should specifically provide that there is no limit on the amount an ETA holder can access in any one of the four free withdrawals (up to the balance available in the account). Again, it is imperative that ETA holders not get hit with high additional fees for withdrawals over the allowed amount.

Deposits of Other Funds

Treasury has stated repeatedly that a major goal in implementing ETAs is to help the unbanked enter the financial services mainstream. Allowing only federal benefit checks to be deposited into an ETA runs counter to this purpose. Allowing other funds, including cash and paper checks, to be deposited into and ETA could help a recipient better manage their finances, encourage savings, and obviate the need to open a second account. There should be no charge for these deposits and deposits with cashback should not count against the allowable monthly withdrawals.

Attachments

The Notice cites the need to protect ETAs from attachment as a reason for limiting deposits to federal payments (which are exempt from attachment). The possibility of an attachment should not preclude other funds from being deposited in the account. It is clear that certain funds are exempt from attachment. Treasury should not allow attachments for ETA. Another option would be to adopt the approach used in California, which limits the amount that can be attached from an account into which social security or welfare payments are directly deposited (7).

Compatibility with State EBT Programs

Recipients of federal benefits may also receive funds from the state. It makes sense to ensure that the ETA contemplated by Treasury is "compatable" with state efforts. It would be ironic if currently unbanked recipients of federal payments were forced to establish multiple accounts if they also receive state benefits. A recipient should be allowed to have his or her federal benefit check deposited in an account set-up as part of a state EBT program.

Bill Payment Feature

Treasury requests comments on whether recipients be allowed to initiate preauthroized third-party debit transactions to pay recurring bills, such as rent, utilities, and cable television. Consumers Union agrees that it is important that the ETA includes a low- or no- cost bill payment feature. In addition to third party ACH debits, we urge Treasury to encourage or require institutions providing ETAs to provide account holders with no- or low-cost money orders. Money orders or other form of payment mechanism are needed to pay individuals or businesses that do not take ACH debits, such as landlords.

Education Efforts

An important aspect of implementing the Act and establishing ETAs is the confidence of recipients in the system. It is vital that unbanked recipients receive effective, targeted education about the availability of the account and how to use it. Recipients should be given clear and understandable information about the nature of the account, associated fees for the account, the free items, additional fees, the types of transactions that are allowed, etc. Any educational effort should contemplate potential cultural and language barriers that could inhibit understanding of the ETA in the unbanked population.. One approach would be to insure informational materials are provided and customer service lines are available in a wide variety of languages.

Access

Treasury should anticipate the possibility that there may be areas where no or too few banking institutions voluntarily offer these accounts. In those areas it may be worthwhile to explore the possibility of encouraging banks to partner with agents such as Post Offices, grocery stores, senior citizen or community centers. The same consumer protections and account features as set by the Treasury would apply to those accounts.

Accessibility is also a serious concern if there is only a limited number of ATM machines or locations where a recipient will not be charged a fee to access the account:

• Need reasonable access to benefits from the network of free locations without regard to the availability of additional, surcharging, locations.
• It must be easy for recipients to find the places where they can make the free cash withdrawal transactions per month.
• There must be clear signs at each cash withdrawal site showing whether or not it is a free location.
  

Access to a Bank Representative

Treasury proposes that institutions providing ETAs be allowed to offer access to the accounts only through automated teller machines (ATMs). Individuals who have not had any experience in the banking system will need in-person customer service. This could make the transition into the banking system for those individuals much less daunting. Further, non-teller banking complicates providing other basic services, such as low-cost money orders.

Consumer Protections

It is appropriate that ETA accounts have the same protections that other customers of the banking institution receive and follows Congress' mandate. Treasury should be commended for designating the use of on-line debit cards, which are covered by Regulation E. Regulation E protects account holders by limiting potential losses if funds are stolen or losses through accounting errors. Regulation E also requires banks to provide reciepts so those account holders can track their transactions. These protections are vital to all consumers.

Conclusion

Consumers Union appreciates the opportunity to comment on the Electronic Transfer Accounts. Establishing ETAs as contemplated in the Notice, with additional parameters and a more complete articulation of their features will be a positive step in providing a mechanism to bring the unbanked into the financial system.

Frank C. Torres, III Legislative Counsel	Gail Hillebrand Senior Staff Attorney
Shelly Curran Policy Analyst	Rob Schneider Senior Staff Attorney