Electronic Transfer Account

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 [email protected] 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