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) after January 1, 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. This

notice describes the required features of the ETASM. In

addition, Treasury is publishing, as an appendix to this notice, the

ETASM Financial Agency Agreement (FAA) that Treasury will

enter into with financial institutions that offer ETAsSM.

DATES: This notice is effective July 16, 1999.

ADDRESSES: This notice is available on the Financial Management

Service's ETASM web site at the following address: http://

www.fms.treas.gov/eta.

FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial

Program Specialist, at (202) 874-7106; Matthew Friend, Financial

Program Specialist, at (202) 874-7032; Natalie H. Diana at (202) 874-

6590; Cynthia L. Johnson, Director, Cash Management Policy and Planning

Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor,

at (202) 874-6681. In addition, inquiries about the ETASM

may be submitted electronically via e-mail to

[email protected] or by filling out an inquiry form

available on the ETASM web site at http://www.fms.treas.gov/

eta. Financial institutions may call 1-888-ETA-FRBK (382-3725) for more

information about enrolling in the ETASM program.

SUPPLEMENTARY INFORMATION:

A. Background

On September 25, 1998, Treasury issued Part 208, which provides, in

part, 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. 63 FR 51490, 51504. The

ETASM has been developed to maximize opportunities for

individuals required to receive Federal payments electronically to have

access to an account at reasonable cost and with the same consumer

protections available to other account holders at the same financial

institution.

On November 23, 1998, Treasury published for comment in the Federal

Register a notice setting forth proposed terms, conditions, and

attributes of the ETASM (hereafter the ``Notice''). 63 FR

64820. Treasury received 198 comment letters in response to the Notice.

Comments were received primarily from financial institutions, financial

institution trade associations, and consumer and community-based

organizations. Recipients, non-financial institution trade

associations, non-financial institution payment service providers, and

Federal agencies also commented on the Notice.

The majority of comments on the proposed ETASM features

were supportive of Treasury's efforts to design a low-cost account for

those recipients without accounts at financial institutions in order to

bring them more fully into the financial services mainstream. The

comments reflected divergent views on many proposed ETASM

features, including account eligibility, fees associated with the

account, number of cash withdrawals, methods of access, and whether a

monthly statement should be provided. Comments were also divided on the

question of whether to allow financial institutions the option of

offering, as part of the ETASM, certain additional features

at an additional cost, if any, to the recipient.

Based on the comments received, Treasury has developed a listing of

required attributes and optional features for the ETASM,

which are the subject of this notice. In addition, Treasury is

publishing, as an appendix to this notice, the FAA that Treasury will

enter into with each financial institution that elects to offer

ETAsSM.

B. Compensation to Financial Institutions

In order to maximize the number of financial institutions that

choose to offer ETAsSM, Treasury will offer financial

institutions compensation to establish the account. Treasury will

reimburse each financial institution that offers the ETASM a

one-time fee of $12.60 per account established, in order to offset the

costs of setting up the account. The fee will be paid regardless of

whether the recipient has or had an existing account.

Financial institutions that commented on the proposed amount of

compensation were divided as to whether $12.60 is adequate to cover the

cost of opening the account. However, almost all financial institutions

that commented on this question agreed that the amount of compensation

should not depend on whether the customer is new or existing, pointing

out that the costs of opening the account are the same in either

circumstance. Comments from some consumer organizations similarly

stated that the amount of compensation paid should not differ based on

whether a recipient has or does not have an existing account.

There was little comment on the question of whether compensation

should increase as the number of accounts opened increases. In general,

large financial institutions favored increased compensation whereas

small institutions did not. Treasury has determined that a standard

compensation amount of $12.60 per account is appropriate regardless of

the number of ETAs' a financial institution opens.

C. Availability of ETAsSM

In order to provide a convenient source of information for

recipients regarding the availability of ETAsSM, Treasury

will maintain and make publicly available to recipients and program

agencies, by telephone and other electronic means, a list of

participating ETASM providers. In addition, financial

institutions offering ETAsSM will be required to display

prominently a logo to be supplied by Treasury indicating that the

ETASM is available at that financial institution.

Some financial institutions have indicated that they already offer

low-cost accounts that may meet the requirements for the

ETASM and have inquired whether they can receive

compensation for offering those accounts. Any account that has the

attributes set forth in this notice can qualify as an ETASM

provided that the financial institution opens the account after

entering into an FAA with Treasury, and that the account is identified

to the public as an ETASM. As with all other

ETAsSM, a low-cost account that is designated as an

ETASM may offer only those features set forth in this

notice. It may not offer additional features, such as a check writing

feature, even if the cost of providing such a feature falls within the

maximum

[[Page 38511]]

monthly fee. Compensation for opening these accounts will be provided

to the financial institution on the same basis as for opening all other

ETAsSM.

Some commenters on the Notice asked whether Community Reinvestment

Act (CRA) credit would be available for financial institutions that

offer ETAsSM. The Federal Financial Institutions Examination

Council recently supplemented and republished in the Federal Register

its Interagency Questions and Answers Regarding Community Reinvestment.

Interagency Question & Answer 3 addressing Secs. __.12(j) 1

and 563e.12(i) has been amended to state that providi ng

ETAsSM qualifies as a community development service. See 64

FR 23618, 23630 (May 3, 1999).

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\1\ The Interagency Questions and Answers employ an abbreviated

method to cite to the relevant regulations. Because the CRA

regulations of the four Federal banking agencies are substantially

identical, corresponding sections of the different regulations

usually bear the same suffix. Therefore the Interagency Questions

and Answers typically cite only to the suffix. See 64 FR 23618,

23619.

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D. Summary of ETASM Attributes

After considering the comments received, Treasury has determined

that the ETASM account will have the following attributes.

These attributes are explained in more detail below. The

ETASM shall:

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 electronic Federal benefit, wage, salary, and

retirement payments and such other deposits as a financial institution

agrees to permit;

Be subject to a maximum price of $3.00 per month;

Have a minimum of four cash withdrawals and four balance

inquiries per month, to be included in the monthly fee, through (a) the

financial institution's proprietary (on-us) automated teller machines

(ATMs),2 (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; 3

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\2\ As explained below in the discussion of ETASM

attributes, the term proprietary (on-us) ATM refers to an ATM which

a financial institution's customers may use without being subject to

a fee of any kind, including a surcharge.

\3\ Financial institutions may provide additional withdrawals or

balance inquiries 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 an on-line

point-of-sale (POS) network, allow on-line POS purchases, cash

withdrawals, and cash back with purchases at no additional charge by

the financial institution offering the ETASM;

Require no minimum balance, except as required by Federal

or State law;

At the option of the financial institution, be either an

interest-bearing or a non-interest-bearing account; and

Provide a monthly statement.

E. Discussion of ETASM Attributes

Individually Owned Account at Federally Insured Financial Institution

Treasury proposed in the Notice that the ETASM be an

individually owned account established at a Federally insured financial

institution. Many commenters stated that the account should be

available as a jointly held account at the option of the recipient in

order to maximize the utility of the account. Other commenters asked

that Treasury clarify whether or not the ETASM could be held

by a representative payee receiving payments on behalf of the

recipient.

It was not Treasury's intention to require that ETAsSM

be titled only in the name of the recipient. By characterizing the

ETASM as an individually owned account, Treasury intended to

indicate that the ETASM would not be a Treasury owned

account or an account owned by a corporation, organization, or other

entity. An ETASM may be titled in any way that meets the

requirements of 31 CFR 208.6 and 31 CFR 210.5, except that an

ETASM may not be established in the name of a corporation or

other entity. 31 CFR 208.6 and 31 CFR 210.5 provide that all Federal

payments, other than vendor payments, made by electronic funds

transfer, including those made through an ETASM, shall be

deposited into an account at a financial institution in the name of the

recipient, with certain exceptions, including payments made to a

representative payee. As discussed in the supplementary information

accompanying the promulgation of 31 CFR Part 210, 210.5 does not

require that the recipient's name be the only name on the account, and

thus would not prohibit the use of a joint account.

Most consumer organizations supported the requirement that

financial institutions be Federally insured as an important consumer

protection. Several credit unions commented that credit unions which

are privately insured should be permitted to offer ETAsSM.

Treasury believes that Federal deposit or share insurance is an

important consumer protection which should be afforded to

ETASM holders. Accounts at institutions that are insured by

the Federal Deposit Insurance Corporation (FDIC) or National Credit

Union Administration (NCUA) are insured for the full amount in the

account, up to $100,000. In contrast, accounts at some institutions

that are other than Federally insured are insured for only 50% of the

amount in the account. In addition, Federally insured financial

institutions are subject to comprehensive Federal regulation and

oversight through examinations for safety-and-soundness and compliance

with consumer protection laws. Accordingly, Treasury is requiring that

in order to be eligible to offer ETAsSM, a financial

institution must be Federally insured.

As proposed in the Notice, financial institutions offering

ETAsSM are prohibited under the FAA 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 continues to be concerned that such

arrangements might 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.

Available to any Individual Who Receives a Federal Benefit, Wage,

Salary, or Retirement Payment

With two exceptions, a financial institution that chooses to offer

ETAsSM must open an ETASM for any recipient of a

Federal benefit, wage, salary, or retirement payment who requests an

ETASM and who, by enrolling through the institution in the

Federal Government's Direct Deposit program, agrees to have such

payments electronically transferred to the ETASM. Each

financial institution may establish its own account-opening procedures

for the ETASM. For example, some institutions may choose to

open ETAsSM through a telephone application process whereas

others may choose to require recipients to apply in person.

The two exceptions to the account-opening requirement are: (a) A

financial institution may not open an ETASM for any

individual if the institution does not have authority under its charter

to maintain a deposit or share account for the individual (for example,

where a

[[Page 38512]]

recipient does not meet a credit union's field of membership

requirements); and (b) a financial institution is not required to open

an ETASM for any individual if (i) the institution is aware

that the individual previously was the owner of an ETASM

that was closed because of fraud at that institution or any other

financial institution, or (ii) the institution, for reasons of account

misuse, previously closed an ETASM held by the individual at

that institution.

The Notice indicated that financial institutions would not be

permitted to deny an ETASM to any eligible recipient, and

that financial institutions would be permitted to close an

ETASM only in certain circumstances to be delineated by

Treasury. This requirement drew extensive comment from financial

institutions.

In general, financial institutions commented that it is essential

that they be able to refuse an account to an individual who has a

history of abusing accounts, such as repeated overdrafts or fraud. Many

institutions commented that denying accounts to individuals who have a

history of previous account misuse or credit problems is their primary

method for reducing the risk of account fraud and losses. Some

institutions expressed concern that they might be faced with

overwhelmingly large numbers of ETASM applicants. Other

institutions commented that the prohibition against denying

ETAsSM to eligible individuals would impose an unacceptable

risk of loss to banks and violate bank ``safety and soundness''

principles.

Most consumer organizations, on the other hand, supported making

the ETASM available to all Federal payment recipients so

that all eligible recipients would have the opportunity to enter the

financial services mainstream regardless of their credit history.

Several financial institutions were concerned with how long they

would be committed to participating as ETASM providers. Some

institutions urged Treasury to permit them to offer ETAsSM

for a ``trial period,'' after which they could close the accounts if

they were not profitable. Similarly, institutions commented that they

must have the ability to close an ETASM for overdrafts,

fraud, or excessive Regulation E claims.

31 CFR 208.5 provides that any individual who receives a Federal

benefit, wage, salary or retirement payment is eligible to open an

ETASM. Treasury believes that it is important to ensure that

even individuals who may have experienced prior checking account

management problems or credit problems have access to an

ETASM. Accordingly, a financial institution will be required

to open an ETASM for any eligible recipient, regardless of

the recipient's previous account experience, except where the

individual has engaged in fraud with respect to another

ETASM or where the individual has misused an

ETASM at that same institution. The distinction between

fraud and misuse in this context is that although a recipient could

unintentionally or negligently misuse an account in various ways (for

example, by inadvertently causing an overdraft to the account or

failing to safeguard a PIN number), fraud represents actions by an

individual with the intent to obtain funds wrongfully from the

financial institution (for example, where an individual authorizes a

third party to withdraw funds from an account using an ATM card and

then falsely represents to the financial institution that the

withdrawal was unauthorized). Treasury takes seriously this distinction

and reserves the right to take corrective action to address any

violation of the account-opening requirements, including by terminating

a financial institution's participation in the ETASM

program.

Treasury believes that the risk of fraud or misuse of an

ETASM is minimal because of the way in which the account has

been designed. For example, as discussed below, the potential for

overdrafts will be very low, in contrast to a checking account or an

account with off-line debit card access. In addition, financial

institutions that provide POS access will be permitted to impose

overdraft fees (subject to certain limitations discussed below) or

withdraw a recipient's POS access if a POS card is misused, including

by overdrawing the account.

In light of the fact that financial institutions will not be

permitted to deny an ETASM to an eligible individual except

in limited circumstances, Treasury recognizes that it is important for

financial institutions to have the ability to close an individual

ETASM that is misused. Accordingly, a financial institution

will be permitted to close an ETASM where the financial

institution has cause to believe that fraud has occurred in connection

with the account or that the account has been misused. Any

determination that fraud or misuse has occurred must be consistent with

the financial institution's usual criteria for closing accounts. Those

criteria could include, for example, where the institution determines

that fraud has occurred after conducting the investigation required

under Regulation E; excessive overdrafts; negligence in safeguarding an

ATM and/or POS card or personal identification number (PIN); or failure

to pay an overdraft within a reasonable period of time.

In addition to the foregoing provisions, Treasury intends to

monitor any issues that may arise as institutions begin offering

ETAsSM and to work with institutions where necessary to deal

with any unanticipated problems, including working with institutions

that experience an overwhelming number of requests by eligible

recipients to open ETAsSM.

Accept Electronic Federal Benefit, Wage, Salary, and Retirement

Payments and Such Other Deposits as a Financial Institution Agrees to

Permit

Treasury had proposed to limit the types of funds that could be

deposited to an ETASM to electronic Federal benefit, wage,

salary, and retirement payments. Most commenters supported allowing

deposits other than electronic Federal benefit, wage, salary, and

retirement payments into the ETASM. Many financial

institutions commented that permitting other electronic deposits into

the ETASM would enhance utility for the recipient. Some

financial institutions commented that their systems cannot distinguish

among, and restrict, types of electronic deposits which are sent to an

account. All consumer organizations supported allowing other electronic

(and non-electronic) deposits into the account as a way to make the

account a more meaningful entry into the financial services mainstream.

In view of the comments received, Treasury will permit (but not

require) financial institutions to offer recipients the option of

depositing to the ETASM other funds in addition to

electronic Federal benefit, wage, salary, and retirement payments. A

financial institution may choose to limit such other deposits to

electronic deposits or may allow recipients to deposit cash and/or

checks in addition to other electronic deposits. Financial institutions

may specify whether deposits of other funds can be made by mail, at an

ATM, and/or over-the-counter. Financial institutions may not charge any

fee in connection with allowing deposits of other funds.

Attachment

One of the reasons that Treasury had proposed to limit the types of

funds that could be deposited to an ETASM was to reduce the

potential that funds in an ETASM would be subject to

attachment. Several consumer organizations requested that Treasury

prohibit attachment of all funds. These commenters stated that

recipients may

[[Page 38513]]

not understand the implications of an attachment, and may be unable to

organize a defense against the attachment. One consumer organization

suggested that when presented with an attachment order, financial

institutions should determine which funds are attachable (or not

attachable) as a way to assist recipients.

Financial institutions opposed any shifting of the burden for

defending against an attachment in this manner. A number of financial

institutions commented that they should not have any disclosure

requirement with respect to the potential attachment of

ETAsSM, noting that this would be expensive and would

constitute the provision of legal advice, for which they could be

subject to litigation risk. Some institutions commented that Treasury

should provide model disclosure language regarding attachment. Others

commented that it must be made clear that it is not the financial

institution's responsibility to claim any exemption from attachment.

Most Federal benefit payments deposited to an account at a

financial institution, 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.4 If a financial institution receives an order of

attachment or garnishment for an ETASM, it must immediately

send a copy of the order and the name of the creditor and contact

person, if any, to the recipient. In addition, in order to ensure that

recipients understand that Federal benefit payments deposited to an

ETASM generally are protected from attachment, Treasury will

require institutions that open an ETASM to provide the

following disclosure, in writing, to the holder:

\4\ See 42 U.S.C. 407(a); 42 U.S.C. 1383; 38 U.S.C. 530; and 45

U.S.C. 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. Philpott v.

Essex County Welfare Board, 409 U.S. 413, 416 (1973).

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Many Federal benefit payments, including Social Security

benefits, Supplemental Security Income benefits, Veteran's benefits,

and Railroad Retirement benefits, are protected from attachment

under Federal law. This means that your creditors do not have the

right to have these funds taken out of your ETASM. There

are a few exceptions, however. For example, funds in your

ETASM can be taken to satisfy child support or alimony

obligations you owe. [If you deposit funds other than Federal

benefit payments to your ETASM, your creditors may be

able to have those funds taken out of your account, but your Federal

benefits would still be protected.] 5

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\5\ This sentence must be included only if the financial

institution permits the recipient to deposit into the

ETASM funds other than Federal benefit, wage, salary, and

retirement payments.

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If we/[name of Institution] receive an order of attachment,

garnishment, or levy, we will immediately send you a copy of the

order and the name of the creditor and contact person, if any.

If you have questions about a creditor's right to remove funds

from your ETASM, contact your benefit agency or your

local legal services organization.

Set Off

Treasury had proposed to prohibit financial 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 cash withdrawals or balance inquiries. All

consumer organizations who commented on the issue opposed any right of

the financial institution to set off funds held in an ETASM

under any circumstances. In contrast, financial institutions strongly

objected to any prohibition against their right of set off. They argued

that a financial institution's right of set off is essential to

mitigate the risks posed by overdrafts, amounts mistakenly credited to

an account, and amounts provisionally credited to accounts as required

under Regulation E. They also argued that prohibiting set off will

reduce the incentives for cross selling other bank services to

recipients, thereby reducing the potential profitability of servicing

these customers and the attractiveness of offering the

ETASM. Financial institutions commented that eliminating

incentives for cross selling will reduce the availability of credit and

other bank services, such as cashing checks, that are often provided to

customers on the basis of an available account balance. Several

institutions requested clarification as to whether the prohibition

against set off would prevent recipients from pledging the account or

having automatic loan payments debited from the account.

In response to the comments requesting clarification of Treasury's

intent, Treasury will permit financial institutions to deduct from an

ETASM amounts representing certain obligations of the

recipient that are directly related to the maintenance of the

ETASM itself. Those obligations include: (a) The monthly

fee; (b) any other fees incurred by the recipient in connection with

the maintenance of the ETASM; (c) any amount mistakenly

credited to an ETASM to which the recipient has no legal

right; (d) the amount of any overdraft on an ETASM; and (e)

any amount for which the recipient is liable under Regulation E,

including any amount provisionally credited to the ETASM for

which the financial institution determines, after conducting the

investigation required under Regulation E, that the recipient is

liable.

Treasury will not permit financial institutions to set off against

an ETASM obligations incurred by a recipient in connection

with other products or services offered by the institution. In response

to questions raised by commenters, this prohibition means that

recipients may not pledge the account or have automatic loan payments

transferred from the account to another account. Treasury encourages

financial institutions offering ETAsSM to market other

products and services to recipients, but will not allow payment for

such products and services to be set off against the account.

Subject to a Maximum Price of $3.00 Per Month

Financial institutions that choose to offer ETAsSM may

charge a fee not to exceed $3.00 per month. Treasury will evaluate the

appropriateness of this fee from time to time, and will make

adjustments periodically as warranted. All attributes listed in the

``Summary of ETASM Attributes'' section of this notice must

be included within the monthly fee to the recipient.

In general, consumer and community-based organizations commenting

on the Notice favored the establishment of a maximum monthly fee for

the ETASM. Some of these organizations expressed a concern

that $3.00 a month would be too expensive for some recipients. On the

other hand, many financial institutions indicated that $3.00 per month

would not cover the costs of maintaining the ETASM as

proposed. A number of financial institutions requested clarification

that they would be allowed to charge additional fees for account

research, card replacement, overdrafts, cashier's checks, money orders

and other special services. Consumer organizations urged Treasury to

regulate any fees for additional withdrawals so they do not exceed

actual financial institution costs or some other reasonable cost.

Treasury believes that $3.00 represents a reasonable maximum

monthly fee for the ETA.6 However, in

[[Page 38514]]

recognition of costs that may be incurred by financial institutions for

providing services beyond those required by this notice, Treasury will

permit financial institutions to charge the holder of an

ETASM for other services for which the institution usually

charges fees to its customers. Examples of such fees include fees for

ATM withdrawals in excess of four per month; replacement card fees; and

account research fees. Financial institutions may impose such fees at

their customary rates, except that the amount of any overdraft fee may

not exceed $10.00. In addition, a financial institution may not charge

a recipient more than one overdraft fee during a 24-hour settlement

period even if several items on the recipient's account are returned

during that period. Treasury believes that $10.00 represents a fee

that, in the context of the ETASM, is reasonable both for

financial institutions and recipients, particularly in view of the very

limited risk of overdraft in the ETASM.

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\6\ In response to a question raised by some credit unions,

Treasury will not regard the membership share which an individual is

required to purchase in order to become a credit union member to

constitute a fee. Treasury understands that the membership share is

returned to the individual when the account is closed.

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Prior to opening an ETASM, a financial institution must

clearly and conspicuously disclose, in writing, the amount of any

applicable fees to the recipient, as described more fully in the FAA.

Have a Minimum of Four Cash Withdrawals and Four Balance Inquiries Per

Month Included in the Monthly Fee

Access to funds and balance information may be provided by

ETASM providers through one of three methods: (1) The

financial institution's proprietary (on-us) ATMs, (2) over-the-counter

at the ETASM provider's main office or branch locations, or

(3) through a combination of ATM and over-the-counter transactions. In

addition, access to balance information may be provided over the

telephone or, if the recipient agrees, through other electronic means.

Any of these methods may be used at the option of the financial

institution as long as a minimum of four cash withdrawals and four

balance inquiries are provided within the $3.00 monthly fee and

provided that, as discussed below, institutions that are members of on-

line POS networks provide on-line POS access.

A majority of consumer organizations supported the proposed methods

of access to the account, although some commented that the number of

cash withdrawals included in the monthly fee should be increased.

Financial institutions generally commented that two or three

withdrawals per month would be more reasonable in light of the cost

structure of the account. Some financial institutions requested

clarification on the meaning of ``proprietary'' ATMs.

By using the term proprietary (on-us) ATMs, Treasury is referring

to those ATMS which a financial institution's customers may use without

being subject to a fee of any kind, including a surcharge. In

determining the number of cash withdrawals and balance inquiries to

include in the monthly account fee, Treasury weighed the advantages of

providing multiple withdrawals and inquiries against their cost,

recognizing that the more transactions provided, the higher the monthly

cost. With regard to transaction fees, it should be noted that Treasury

is not restricting the imposition of ATM fees or surcharges generally,

provided that the ETASM holder has four cash withdrawals and

four balance inquiries within the monthly fee.

In the Notice, Treasury requested comment on one other kind of

account access, i.e., whether financial institutions should be

permitted to offer preauthorized Automated Clearing House (ACH) debit

capability as an additional feature, at the option of the financial

institution and at an additional fee, if any, to the recipient.

Comments from all sources were evenly divided over whether Treasury

should allow ETASM providers to offer this feature.

Supporters of the feature pointed to increased utility to the

recipient, in that it would provide a convenient and cost-saving means

for recipients to pay certain recurring bills such as utility,

insurance, and car payments. Some financial institutions commented that

it is beyond their capability to know about, or restrict, ACH debits to

the account.

Institutions that opposed allowing ACH debit capability were

concerned that the account could compete with other products, that this

feature would complicate account management and confuse consumers, and

that the occurrence of overdrafts would increase. Some commenters

opposing the inclusion of this feature pointed to the potential for

fraud against the account holder. Commenters observed that ACH debit

capability could be very expensive for the financial institution, given

the costs of servicing the account and dealing with customer inquiries.

In response to the issues raised by commenters as well as low

public acceptance at this time, Treasury is not including ACH debit as

a feature of the ETASM, optional or otherwise. However, in

light of the operational concerns expressed by some commenters,

financial institutions will not be required to reject preauthorized ACH

debit transactions, if any, initiated by recipients.

Consumer Protections

ETAsSM will be subject to those consumer protections

available to other account holders at the same financial institution.

Most commenters supported this requirement. Thus, an ETASM

will be protected by Federal deposit or share insurance, subject to the

Truth in Savings Act disclosures found in Regulation DD (12 CFR Part

230) and, if electronic access is provided, subject to Regulation E (12

CFR Part 205).

For Financial Institutions That Are Members of an On-line Point-of-Sale

(POS) Network, Allow On-line POS Transactions

A majority of consumer organizations and other non-financial

institution commenters supported on-line POS access to the account.

Many financial institutions opposed the on-line POS access requirement

because of the cost of providing POS access, as well as the increased

possibility of overdrafts. Some financial institutions who offer off-

line POS access to customers through VISA Check and MasterMoney cards

questioned whether they would be required to provide such cards to

ETASM holders.

By referring to on-line POS access, Treasury is excluding access to

the ETASM through off-line debit systems. Treasury is aware

that off-line debit systems carry the same risks of overdraft as check

writing capability. Therefore, institutions that generally offer this

type of POS access to customers are not permitted to offer off-line POS

access to the ETASM. On-line POS access, in contrast to off-

line, carries minimal risk of overdraft in most situations. For small

institutions that rely on batch processing for on-line POS access,

which presents a greater possibility for overdraft, Treasury believes

that the risk presented is mitigated by the right to offset overdrafts

against an ETASM, to charge a fee for overdrafts or returned

items, and to discontinue POS access or close the ETASM for

repeated overdrafts.

Financial institutions that provide POS access may not impose a fee

in connection with POS purchases, cash withdrawals, and cash back with

purchases. Treasury is aware that some merchants impose fees on

cardholders for such transactions, and is not prohibiting or regulating

merchant fees.

No Minimum Balance

In general, financial institutions may not require that a recipient

maintain a

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minimum balance in his or her ETASM. The only exception to

this requirement 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.

Consumer organizations generally were supportive of this

requirement. Most financial institutions did not indicate that a

minimum balance would be necessary, except in order to support the

payment of interest on an ETASM, as discussed below.

At the Option of the Financial Institution, be Either an Interest-

bearing or a Non-interest-bearing Account

Consumer organizations generally supported allowing financial

institutions to pay interest on the ETASM, though most

conceded that any interest paid might be negligible. Some organizations

pointed out that the benefit of interest to recipients could be

partially or fully offset if additional fees were imposed in connection

with the payment of interest. A few consumer organizations opposed

allowing interest because it would complicate the account, indicating

that the account should be kept simple and understandable in order to

attract those recipients who have avoided accounts at financial

institutions in the past.

A majority of financial institutions were opposed to allowing the

payment of interest on the ETASM. Many commented that, given

the pricing structure of the account and the prohibition against a

minimum balance, it would not be feasible to pay interest on the

account. Other financial institutions commented that the account should

be kept simple so as not to confuse recipients. A number of

institutions indicated that paying interest on the ETASM

would compete with existing products and therefore they would be

reluctant to offer the ETASM.

Treasury believes that the availability of interest-bearing

ETAsSM could encourage and facilitate savings by low income

recipients. Treasury believes that recipients may find the payment of

interest to be an attractive feature that could encourage more

individuals to sign up for interest-bearing ETAsSM at

financial institutions that choose to offer them. At the same time,

Treasury understands that some financial institutions may not find it

economically viable to offer an interest-bearing ETASM, and

does not wish to discourage those institutions from offering

ETAsSM. Accordingly, the payment of interest will be offered

solely at the option of the financial institution.

Financial institutions may not require a minimum balance in

connection with the payment of interest. If a financial institution

offers both interest-bearing and non-interest-bearing

ETAsSM, the institution may charge a higher monthly fee for

the interest-bearing ETASM, than it charges for the non-

interest-bearing ETASM, but in no case may the monthly fee

exceed $3.00.

Financial institutions are prohibited by Federal law from paying

interest (which includes certain premiums and other payments) on demand

deposit accounts. See, e.g., 12 U.S.C. Secs. 371a, 1828(g), and

1464(b)(1)(B); 12 CFR Sec. 217.101. In order for a financial

institution to pay interest (or certain other amounts) on an

ETASM, it must reserve the right to require the holder of an

account to provide at least seven days' written notice prior to

withdrawal of any funds in the ETASM. See 12 CFR

204.2(b)(3)(ii). (Such accounts are sometimes known as NOW accounts and

are authorized under 12 U.S.C. 1832(a).) Treasury understands that

financial institutions rarely exercise this right. In order to ensure

that ETASM holders are treated like other NOW account

holders in this respect, the FAA will provide that if a financial

institution, in order to establish the ETASM as a NOW

account, reserves the right to require seven days' written notice prior

to withdrawal of any funds in the ETASM, the institution

shall not exercise this right with respect to any ETASM

holder unless the institution requires such notice of all its NOW

account holders.7

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\7\ The legal staff of the Board of Governors of the Federal

Reserve System has informally advised Treasury that such a

restriction will not preclude treating the ETASM as a NOW

account.

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In addition, to ensure that recipients are aware of both their

rights and the financial institution's rights, financial institutions

that pay interest on an ETASM must provide the following

disclosure, in writing, to the holder:

Under Federal regulations, financial institutions that offer

interest-bearing transaction accounts (including ETAsSM)

must reserve the right to require you to provide at least seven

days' written notice prior to withdrawing any funds in your

ETASM. We/[name of Institution] agree that we will not

require this notice from you unless we require it for all interest-

bearing transaction accounts we offer.

Monthly Statement

Most consumer organizations supported the requirement that a

monthly statement be provided for the ETASM. A number of

financial institutions objected to the requirement that a monthly

statement be provided, on the basis of the associated costs. Several

institutions commented that the statement requirements of Regulation E

should be adequate. Others commented that balance information via a

voice response unit or ATM would be more useful to recipients. Some

said a passbook should be sufficient.

Treasury believes that it is important to provide recipients with a

monthly statement, particularly since the ETASM allows for

POS withdrawals and purchases, and account balances may not always be

provided in connection with such transactions. A monthly statement will

facilitate a recipient's ability to track their withdrawals and POS

transactions and thus be helpful for financial planning and account

management purposes. The monthly statement may be provided

electronically (e.g., at an ATM) if the recipient agrees, subject to

the requirements of Regulation E. See 63 FR 14527, March 25, 1998.

Dated: July 13, 1999.

Richard L. Gregg,

Commissioner.

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[FR Doc. 99-18174 Filed 7-15-99; 8:45 am]

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