Comments on Notice of Proposed Electronic Transfer Account
Features
(63 Federal Register 64820-64825, November 23, 1998)
These comments written by
the National Consumer Law Center(1) are provided
on behalf of our low income clients, and the Consumer Federation of America,
as well as the following national, state and local organizations(3)
representing low and moderate income recipients of federal benefits:
Community Legal Services
of Philadelphia
The Consumer Law Center
of the South
Consumer Action
The Disability Law Center
National Clearinghouse
for Legal Services
National Consumers League
The North Carolina Justice
Center
The Northeast Missouri
Client Council for Human Needs
National Senior Citizens
Law Center
The Welfare Law Center
Virginia Citizens Consumer
Council
There are many aspects of
the proposed features for Treasury's Electronic Transfer Account (ETA) about
which we are very pleased. Federal recipients will be well served by features
of the ETA structure which will facilitate ease of use by recipients and afford
needed safeguards:
The requirement that
the account be individually owned at a federally-insured financial institution.
The requirement that
the ETA require no minimum balance.
The provision of a monthly
statement.
The prohibition against
allowing financial institutions to contract with non-financial institutions
to provide access to ETAs.
The prohibition against
allowing financial institutions to set off other debts owed by the recipient
from funds deposited in the ETA.
The requirement that
the ETA be made available to all federal recipients, regardless
of credit status.
The basic structure
of the ETA providing for a number of free withdrawals as well as POS purchases
to be provided for one uniform monthly fee.
The prohibition of the use of off-line electronic transactions to reduce
the possibility of overdrafts and the associated fees.
There are, however, some serious concerns with Treasury's proposed structure
for the ETA. This structure must be expanded to include the following additional
features and protections:
I. Terms and Conditions for Creation and Termination of Accounts. The terms
for the creation and the termination of the ETA must be a matter of public record,
and enforceable by recipients, not simply a matter of contract between the financial
institutions and Treasury in the financial agency agreement, as proposed by
Treasury.
II. Regulation of All Fees and Charges Related to the ETA. All fees
imposed on ETA recipients by financial institutions for the access to and use
of deposited funds must be fully regulated by Treasury, not left to the discretion
of the financial institutions, including for example, fees for withdrawals over
the number included in the monthly fee, for balance inquiries, as well as those
charged for additional features which might be offered.
III. Attachment and Execution on Exempt Funds in ETAs Must Be Prohibited. Treasury
must specifically prohibit the attachment or execution of other legal process
upon exempt funds deposited into ETAs.(4) The
brief and confusing discussion of the attachment issue in the Supplementary
Information to the ETA features a grossly insufficient way of dealing with this
important issue. First, all exempt funds must be protected from attachment --
without requiring the recipient to go to court. Second, more explicit prohibitions
against set off are necessary. Third, there is no good reason to exclude non-exempt
funds from the account, because appropriate accounting methods can be employed
by the financial institution to ensure that exempt funds are protected, and
non-exempt funds are subject to attachment.
IV. The Necessity For all
ETA Providers to Offer Uniform Additional Attributes. Regulated access to electronic
transfers and reasonably priced money orders, as well as the ability to deposit
non-federal funds and to authorize automatic ACH bill payment for recurring
monthly expenses from the ETA or other bill payment mechanisms available at
the financial institution at little or no cost to the consumer are all attributes
which should be offered by participating financial institutions.
In addition, these comments will address some issues remaining from the final
version of 31 C.F.R. § 208.
V. Other Issues. After the publication of the final version of the EFT 99 regulations(5)
there are still several serious issues which must be addressed, including the
necessity for consistent treatment of state delivery of federal payments through
EBT systems, as well as the need for regulation of the accounts voluntarily
established by federal recipients to receive direct deposit for federal payments.(6)
I. Terms and Conditions for Creation and Termination of Accounts.
One of the most serious problems with the proposed structure of the ETA is
the complete lack of an enforcement structure that the public notice assumes.
There are no mechanisms for recipients to know what their rights are under either
the pubic notice or the financial agency agreement between the institution and
Treasury. There are several mandates that Treasury could require that would
rectify this situation:
a. Require that all providers of ETAs sign and deliver a written contract to
ETA account holders. This writing would disclose all of the terms and conditions,
including all fees, additional options that might be available, the recipient's
consumer protection rights, the grounds and procedure for termination of the
ETA, as well as the obligations of the recipient in a contractual agreement.
Treasury should mandate that the contract be signed and dated by both the recipient
and the financial institution when the ETA is opened. In this way, recipients
not only are provided with the basic information about their rights and obligations,
but they also have a method to enforce these rights. If the financial institution
charges more than allowed, or terminates the account improperly, the recipient
has a contract with which to enforce Treasury's required terms.
In fact, it would be best for Treasury to establish the basic language of the
contract in the financial agency agreements signed between Treasury and the
providing financial institutions. In this way there could be no dispute over
different interpretations of the terms and conditions required by Treasury and
the financial institution's individual legalistic articulation of them.
b. Publish all of the terms of the financial agency agreement in the Federal
Register. Despite Treasury's massive public education campaign launched over
the past few months, there is tremendous confusion around the nation regarding
the requirements of the EFT 99 mandate.(7) Clear,
objective, accurate information must be uniformly and widely available to all
recipients and their advocates regarding the rights and obligations of ETA account
holders. The best way to accomplish this is to publish all of this information
in the Federal Register. In this way, all of the important characteristics
would be subject to public scrutiny and open to public comment.
c. Allow a financial institution to terminate an ETA only for reasons specified
by Treasury such as fraud, theft, or gross mismanagement of the ETA which results
in uncompensated losses to the financial institution. In the Supplementary Information
to the ETA features, Treasury states that "financial institutions that
choose to offer ETAs would be permitted to close an ETA in certain circumstances
to be delineated by Treasury."(8) These
circumstances must be defined publicly, not left to the details of the financial
agency agreement negotiated between individual financial institutions and Treasury.
The grounds for termination should be uniform across the nation, the same for
each recipient, regardless of which financial institution they are using for
their ETA or the type of federal benefit they are receiving. These grounds should
also be a specific term of the contract entered into between the financial institution
and the recipient when the ETA is established.
We recognize the competing tensions at play in the development of appropriate
rules for termination of ETAs. On the one hand, if the criteria for termination
is too strict, financial institutions will face a greater likelihood for uncompensated
losses resulting from improper use of the ETA. That could drive up the real
-- or perceived -- cost of the ETA to financial institutions such that arguably
the $3 monthly fee, in addition to the contributions made by Treasury, would
not adequately compensate for these losses. To the extent that financial institutions
perceive these potential costs to outweigh the potential income, they will be
hesitant to offer ETAs. If this were to be the case, low income recipients could
find themselves with a wonderfully designed, Treasury sponsored ETA that
would not be widely available. Obviously this is a result which should
be avoided.
On the other hand, Treasury should keep in mind several, incontrovertible truths
while developing the criteria for involuntary termination of the ETA by the
financial institution. The purpose of the ETA is to provide an account at a
mainstream, federally regulated financial institution to recipients of federal
benefits who are not likely to have other bank accounts. The reasons
that there are over 10 million unbanked recipients of federal funds include
both objective criteria -- e.g., high costs to traditional bank accounts, as
well as subjective criteria -- e.g., feelings of unfair or unfriendly treatment.(9)
There is substantial distrust on both sides of these fledgling relationships.
The financial institutions are often loathe to provide services to a less wealthy,
unfamiliar population. The unbanked federal recipients are often fearful of
second class treatment and costly consequences to unintentional arithmetical
mistakes.(10) Moreover, the more features included
in the ETA, the more potential costs and areas of potential loss to the financial
institution there are.
Given these competing concerns, federal recipients should be entitled to the
basic ETA, with very limited potential for uncompensated losses to the financial
institution, which should include a high burden for the financial institution
to terminate. To the extent that additional features are provided by the financial
institution, the financial institution should be able to terminate the recipient
from the additional risk and cost adding features, but not from the
basic ETA.
It is critically important that federal recipients be and feel secure in the
ETA. Recipients should be protected from unexpected and unaffordable expenses,
such as fees for withdrawals over the allowed number and those which might result
from unintentional overdrafts. Appropriate grounds for termination of the ETA
should only include fraud, theft, or gross mismanagement of the ETA which results
in uncompensated losses to the providing financial institution.
Because of the importance of the availability of a basic, low cost ETA to federal
recipients, which does not include the opportunity for costly mistakes by the
recipient or losses to the financial institution, we applaud Treasury's proposed
structure of a basic ETA, with additional features to be added at the option
of the recipient. To the extent that these additional features add cost, ETA
recipients using those features can pay for the features on an as needed basis.
Just as importantly, to the extent that these additional features add risk of
loss to the financial institution, financial institutions should be permitted
to terminate recipients from eligibility for the additional features on a lighter
standard than termination from the basic ETA. In this way a recipient who may
become ineligible for a risk adding feature of the ETA, would not lose the ability
to participate in the basic ETA.
Treasury must make these rules of termination from the ETA and from the additional
features crystal clear, publish them in the Federal Register, and require
that they be included in each ETA contract entered into between a federal recipient
and a participating financial institution.
Treasury's compensation scheme should not only facilitate the establishment
of ETAs, but should also provide incentives to financial institutions to keep
their ETA customers happy. Treasury's proposal to compensate participating financial
institutions $12.60 per account, and possibly an additional amount for each
ETA opened above a designated minimum of threshold number of accounts, is good.
We appreciate Treasury's willingness to use some of the savings to be experienced
by the federal government from direct deposit to offset some of the costs to
be borne by federal recipients from direct deposit.
However, we should ensure that the expenditure of Treasury's funds facilitates
the goal -- access to federal funds directly deposited in federally insured
financial institutions. To accomplish this goal, the $12.60 compensation for
each ETA should be paid only if the financial institution still has the ETA
account 12 months after it was established, unless the recipient died, became
ineligible for federal benefits, or transferred the funds to another account
in the same financial institution. In other words, to be eligible for the $12.60
compensation for each ETA, the financial institution must show that it is still
in operation 12 months after it was established or that the recipient has moved
the funds into another account offered by the financial institution.
This principle is even more important if Treasury establishes the rule that
we advocate -- that the establishment of any ETA is eligible for the $12.60
compensation, regardless of whether the recipient previously had an ETA, or
even another bank account. It is critically important that the existence of
another bank account not be the grounds for excluding a recipient from
a compensated ETA account. After all, Treasury has to date refused to regulate
voluntary accounts, and many recipients have set up expensive accounts through
check cashers and other non-regulated financial providers under the mistaken
impression that this was necessary to receive federal payments. To exclude these
recipients from eligibility for the compensated account would be grossly wrong,
and potentially illegal.(11) If Treasury were
to penalize these recipients now for establishing accounts, based on misinformation
provided to them, Congress' explicit intention to protect unbanked federal recipients
from expensive consequences of EFT 99 would be violated. Thus, in answer to
the question posed by Treasury(12) there should
not be any distinction between ETAs opened by individuals who alr
II. Regulation of All Fees and Charges Related to the ETA. All fees
imposed on ETA recipients by financial institutions for the access to and use
of deposited funds must be fully regulated by Treasury, not left to the discretion
of the financial institutions. This would include, for example, fees for withdrawals
over the number included in the monthly fee and for balance inquiries, as well
as those charged for additional features that might be offered.
Treasury has appropriately proposed to regulate the monthly fees charged to
ETA recipients and to require a minimum number of withdrawals (as well as a
monthly statement). However, Treasury has failed to regulate the other
costs that recipients will undoubtedly incur by using the ETA. The following
fees and charges related to the ETA must be regulated:
Fees for ATM or teller withdrawals over the four included in the monthly
fee. These fees should not exceed the actual cost to the financial
institution for each withdrawal.(13)
Fees charged for use
of foreign ATMs must be prohibited or at least limited to a reasonable amount.
Surcharges for POS usage
at merchants. While it is not explicit in the published information provided
by Treasury, we assume that the four transactions allowed within the monthly
fee do not include POS transactions. This needs to be made clear.
Additionally, while it is a laudable that Treasury has proposed prohibiting
financial institutions from charging for POS transactions(14),
surcharges assessed by merchants must also be prohibited.(15)
Balance Inquiries. Treasury's
proposal is completely silent on balance inquiries. This is despite the
fact that Treasury's contractor specifically recommended that two free balance
inquiries be included every month.(16) Treasury
should require the following with respect to balance inquiries:
Any balance inquiries
which, when combined with the ATM and teller withdrawals for that month
do not exceed the allotted four, should not result in any charge to the
recipient.
Balance inquiries should
be made less necessary by the required automatic inclusion of balance
information on all receipts accompanying withdrawals provided by the account
holder's financial institution. In other words, every withdrawal at an ATM
owned by the financial institution providing the ETA must include balance
information. The same rule should be applied to withdrawals through tellers
at financial institutions where the ETA withdrawals are to be handled in
this way.
At least two monthly ATM or telephone balance inquiries should be allowed
for free, and others should be charged no more(17)
than the actual cost to the bank for providing the information.
Transaction History Upon Request. Whether or not a toll free telephone
service is available, recipients should be able to obtain a transaction
history upon request at minimal or no cost. Certainly whenever there is
a dispute, a transaction history should be available free upon request.
Training for ETA Recipients Should Be Provided for Free. Many of the 10
million unbanked recipients of federal payments may have never had a relationship
with a financial institution or used a credit or debit card prior to implementation
of EFT 99. In recognition of this, there should be an opportunity for anyone
who desires some personal training on how to use an ATM for a balance inquiry
or withdrawal to receive some minimal level of assistance from the financial
institution. This should be in addition to any written training material
that may be provided. In addition to providing written materials, financial
institutions offering federally established ETAs should be required to notify
recipients of the availability of in-person training.
Debit Card Issuance and PIN (personal identification numbers) Selection
Should Accommodate Recipients' Needs. Where PIN assignment is used, individuals
must be allowed to easily change their PIN to a self-selected number. Also,
the mailing of cards and PINs to recipients raises all the issues of theft,
loss, and delay within the mail system that already exist in the paper based
benefit delivery system. ETAs must be able to accommodate alternative card
issuance mechanisms for any recipients who express a concern about routine
mail issuance.
Fees and Procedures for PIN Replacement and Card Replacement Must Be Regulated.
A system for delivering federal payments should have established procedures
for promptly responding to recipient requests for a replacement of either
the ATM card or the PIN. The need to get a replacement card or PIN could
arise for any number of reasons, including the loss of the card, damage
to the card or the magnetic strip on the card, failure to remember the assigned
PIN, or recipient concern that the card and/or PIN has been compromised.
Use of the card and PIN may well be the only way that federal payees can
access the benefits they need to pay their bills and provide for the bare
necessities.
Financial agents must demonstrate that they will provide simple procedures
for requesting and promptly obtaining a replacement card and/or PIN and assure
that a clear explanation of the steps an individual must take to initiate this
process will be included in the informational materials that will be provided
about the account.
Further, there should be federal standards regarding the maximum amount that
financial institutions can charge for issuing a replacement card and the circumstances
under which such replacement fees can be assessed. For example, financial institutions
should be prohibited from charging fees for replacing a defective card, or for
the first card replacement in any twelve month period.
III. Attachment and Execution on Exempt Funds in ETA Must Be Explicitly Prohibited.
Treasury must specifically and deliberately prohibit the attachment or execution
of other legal process upon exempt funds deposited into ETAs.(18)
The brief and confusing discussion of the attachment issue in the Supplementary
Information to the ETA features a grossly insufficient way of dealing with this
important issue. There is no reason not to allow non-exempt funds to be deposited
into the ETA, unless exempt funds are to be accorded the protection federal
law requires but which they have not heretofore received.
As Treasury notes in the Supplementary Information, the law is clear that most
federal funds are exempt from most attachment orders or other legal process.(19)
However, as Treasury also acknowledges, financial institutions holding exempt
funds routinely ignore the federal law and allow attachment or execution against
exempt Social Security, SSI, veterans benefits deposits, and civil service retirement
benefits.(20) The burden is then on the recipient
to hire an attorney, bring an action, and prove that the funds are exempt. This
is even the case when the funds have not been commingled with non-exempt funds,
and the bank has only deposited clearly exempt funds in the account.(21)
The result of these illegal attachment and setoff procedures are always upsetting,
inconvenient, costly and often devastating to the elderly or disabled recipient
of federal benefits.(22)
Treasury has the authority to create regulations regarding the treatment of
all deposits of federal moneys in accounts held at financial institutions. Treasury
has avoided its obligations under this authority with the weak and confusing
verbiage in the Supplementary Information about attachment. Even the prohibition
against setoff against the ETA for other debts owed the financial institution
does not explicitly deal with the problems that we have brought to Treasury's
attention.
Treasury must explicitly and unequivocally prohibit attachment or other process
in all ETAs. Treasury should issue regulations which accomplish the following:
Attachment, execution
and garnishment must be prohibited against all exempt funds in ETAs.
If other funds are deposited
in the ETA, then the bank should engage in an accounting process to determine
which funds are exempt and which are non-exempt.(23)
Only the non-exempt funds should be subject to the attachment order. The
ETA should be charged -- only at the time of the accounting -- a fee, determined
by Treasury to be reasonable, to cover the cost of the accounting.
The setoff prohibition
in the ETA must also explicitly prohibit financial institutions from taking
federal benefits to repay the financial institution for:
mistaken overpayments.
Financial institutions have argued that prohibitions against setoff for
obligations owed to another account do not prevent the bank from
taking moneys due them based on overpayments made on the current account.(24)
provisional credits made under the Electronic Fund Transfer Act.(25)
After the bank has paid a provisional credit, it may determine that the
unauthorized transfer was not unauthorized under the law,(26)
such that the bank is entitled to recoup the provisional credit back.(27)
The correct policy should be that set-offs are never permitted for ETAs.
When provisional credits have been incorrectly made by the financial institution,
the institution should be able to recoup its money from the federal government
immediately. The government then should treat the provisional credit as
an accidental overpayment and apply the overpayment rules, including the
right to notice and hearing, accordingly.
Set Off and Attachment Should Be Prohibited on Exempt Funds in All Bank
Accounts. In fact, Treasury should take this opportunity to inform financial
institutions that they are prohibited under existing federal law from allowing
an attachment or performing a setoff against exempt federal funds in all
bank accounts, even those accounts which are not ETAs.(28)
The rule should be that a financial institution which has a reasonable belief
that the funds sought by the attachment, execution or garnishment order,
are exempt by reason of federal law, must refuse the state court order for
attachment on those grounds. When there has been an electronic transfer
of funds from the U.S. Government, the financial institution should be charged
with the knowledge that the funds are exempt.
IV. The Necessity For All ETA Providers to Offer Uniform Additional Attributes.
Regulated access to electronic transfers for bill payments and reasonably priced
money orders, as well as the ability to deposit non-federal funds into the ETA
are all attributes which should be offered by participating financial institutions.
There are several implicit purposes to Treasury's design and provisions for
the ETA. One is to provide unbanked federal recipients with a low cost method
of accessing their federal funds after they have been electronically deposited.
Another is to encourage the use of mainstream financial institutions by federal
recipients who are unbanked. Treasury's generous system of hardship waivers
does allow any federal recipient to continue receiving a paper check if the
available alternatives prove too costly. However, the hardship waiver does not
advance either Treasury's interest in increasing the use of electronic deposit
of federal funds, or the interest of those currently unbanked recipients desirous
of participating in the mainstream banking system.(29)
Advocates of low income recipients of federal funds continue to be concerned
that the baseline ETA account be as low cost as is possible, to at least ensure
essential access to the federal deposits.
Treasury's proposal to provide a two tiered system for the ETA is a good way
to balance all of these competing interests. The basic ETA should be a streamlined,
no cost or very low cost account with access guaranteed for all federal recipients,
and involuntary termination only for fraud, theft, or gross mismanagement of
the ETA which results in uncompensated losses to the financial institution.
To accomplish the other goal of encouraging the use of mainstream financial
institutions, providers of ETAs must also offer additional features to enable
federal recipients to accomplish their financial transactions through the
financial institution. If the additional features are not provided, then ETA
users will be in the anomalous position of withdrawing their federal funds from
the bank and then walking down the block to the check casher to buy money orders
with which to pay their bills.
Every ETA provider should be required to offer the following additional attributes,
with appropriate, regulated, fees charged to recipients for each attribute:
The deposit of non-federal
funds should be permitted as an additional attribute. Allowing the deposit
of non-federal funds is beneficial to both the financial institution and the
recipient. The recipient is able to use the ETA to handle more income, which
should reduce expenses and facilitate savings. The financial institution has
more funds deposited in the ETA on which to earn float. Assuming Treasury
does make the rule crystal clear that financial institutions are prohibited
from allowing an attachment or execution against an ETA, and requires that
the financial institution engage in an accounting exercise before allowing
an attachment, then it makes sense for the acceptance of non-federal deposits
to be a separate attribute, for which there may be imposed a separate charge.
However, this separate charge should only be imposed when, and if, the additional
accounting necessary to protect against an attachment or execution is necessary.(30)
In this way, no fee should be charged for the deposit of additional funds
in the account unless and until an attachment or execution order is served
on the financial institution. If Treasury does not impose the flat prohibition
against attachment for exempt funds, there is no reason whatsoever, to make
the deposit of other funds a separate, additional attribute. It does not add
cost or risk to the account.
Bill payment capacity should be provided as an additional attribute to
all ETA account holders. The unbanked ETA customers must be offered some
mechanism to pay their bills through the services provided by the financial
institution to its other customers. This can be accomplished in one or more
of the following ways:
Checking accounts should
be offered at no cost to credit worthy ETA account holders.
Low cost money orders
should be provided to ETA holders who are not eligible for the checking
accounts.
Financial institutions
offering ETAs should be required to agree to act as bill payment centers
for all local utilities that otherwise authorize the establishment of third
party bill payment locations where customers can pay their bills via cash
or electronic debit with the utility company absorbing the costs for this
service.
ACH bill payment capacity
should be provided as an additional, optional, feature available to ETA
account holders for housing and utility payments. Just as is true for other
customers, no fees should be charged for this service, because the financial
institution is likely to incur lower costs from this service. (See discussion
below.)
Any fees that are charged for the additional attributes must be reasonable.
Treasury has proposed the additional attributes, without proposing a fee
structure to be charged for those attributes. The fees must be determined
to be fair and reasonable by Treasury and specifically allowed in the financial
agency agreement, and set out in the contract between the financial institution
and ETA account holder.
Involuntary Termination from the Additional Attributes should be a separate
determination from termination from the basic ETA. To the extent that providing
any of these extra services adds real risk of uncompensated financial
loss to the financial institution, then it is for financial institutions
to be able to terminate ETA account holders from the additional attribute,
without meeting the same heavy standard for termination from the basic ETA.
Maintaining minimum balance should reduce fees. Financial institutions
offering ETAs should also offer federal recipients the opportunity to maintain
a certain amount in the account as a minimum balance in return for the waiver
of the monthly fee, or some other fees.
Regular, interest bearing
savings accounts should be offered to credit worthy federal recipients with
appropriate minimum balance requirements. These separate savings accounts
are a much better way of encouraging the unbanked to participate in the
financial mainstream than paying interest on carryover funds in the ETAs.
Discussion on ACH Bill Payment Capacity. The basic ETA structure should provide
for ACH debit payment for housing and utility costs at recipient option so long
as the housing or utility billers provide for such payment methods. We do not
recommend that ACH capacity be authorized for other payments such as to
creditors.(31) Treasury's concerns regarding
any ACH capacity are either unfounded or controllable by limiting the
types of third party bill payments available. The potential savings to both
the recipients and the financial institutions far outweigh any possible costs
from rejected ACH transactions due to insufficient funds.
Although ACH debit payment services are more frequently associated with checking
accounts, we have been advised that banks already provide for direct debit payments
from savings accounts when a depositor initiated request from the biller is
received by the bank. Moreover, as any bank with a connection to the Automated
Clearing House can accommodate these transactions, there is no reason that
smaller financial institutions would be unable to offer this service on a competitive
basis.(32) In ACH transactions, it is the billers'
bank that incurs most of the processing costs. Further, there is no evidence
that the risks in a savings situation are any greater than with a checking account.
While we agree with Treasury's concern that recipients might authorize ACH
debit entries for goods and services that are not delivered as promised, this
is not a valid reason to deny this important feature entirely. Instead, we recommend
that, in the ETA context, any ACH capacity only be authorized for housing and
necessary utility costs (like water, telephone, electricity, and gas). It also
would be appropriate for participating ETA financial institutions to provide
training on how to deal with the risks of ACH transfers for bill payments.(33)
No Overdraft Fees. When recommending the ACH bill payment capacity for ETA
accounts, we are relying on information provided by the National Automated Clearing
House Association (NACHA) According to NACHA staff, no responsible financial
institution would process an ACH request from a biller's bank when there are
insufficient funds in the account to cover the debit. As no overdraft would
result from the ACH debit, no overdraft fee would be assessed.(34)If this representation is incorrect, and overdraft fees could result, then
the ACH bill payment issue must be revisited.
The likelihood of the ACH bill payment feature creating overdraft situations
is minimal. The only situation in which it should occur would be when the customer
is making an ATM or POS withdrawal based on a balance reading that does not
reflect a third party bill payment transfer that is already scheduled. The ETA
financial institution can remedy this by charging all scheduled ACH transactions
to the account on the first minute of the billing day. In the situation where
the depository bank allows a withdrawal before the ACH transfer, which results
in insufficient funds being available fore the ACH transfer, the bank should
simply deny the ACH transaction, and send the transaction back to the biller's
bank as unpaid due to insufficient funds, resulting in a cost to the recipient's
bank of no more than the fee for a returned transaction. It would then be up
to the biller to collect the unpaid amount from the consumer, as is the case
in the ACH bill payment world currently.
ETA customers should be advised about how to stop payment in a particular month,
for one month or for all future months. Further, to deal with problems which
might result from a variable amount ACH debit, as would be typical for utility
bills, ETA customers should authorize a range of debit amounts. Also,
NACHA rules require billers of variable amount ACH debits to send a notice or
monthly to the customer at least 10 days prior to the scheduled ACH debit specifying
the amount to be debited, unless the charge is within the provisions of an existing
authorization.(35)
The biller's bank incurs almost all of the cost of an ACH transaction, not
the bank from which the money is electronically debited. As a result the financial
institution which provides the ACH debiting service will realize a savings
from this feature, because the small processing cost incurred for the ACH
transfer is far less than the cost incurred for other types of withdrawals from
the account. Therefore, the ACH debit feature should be offered to all ETA accounts
at no fee.
V. Other Issues
The publication of the final
EFT 99 regulations on September 25, 1998 and the release of this proposal on
ETAs still leave several serious issues of concern to low income recipients.
This seems an appropriate forum to address these issues.
Lack of Clear, Uniform Rules and Policies for federal/state EBT programs. There
is a total lack of rules, policies, or even proposals available for public comment
with respect to federal/state EBT programs. Final §208.2(d) defines EBT as including
both disbursement of the federal funds through an ETA as well as through a "Federal/State
EBT program", on which nothing has been published for public comment. Despite
the lack of information for public comment, there are several troubling statements
by Treasury included in the September 25, 1998 promulgation of Rule 208.
These statements uniformly suggest that features and requirements of an EBT
account may vary depending on the type of EBT program employed in the recipient's
state, and that the issues subject to these variations will only be determined
in the Financial Agency Agreements negotiated between Treasury and the individual
states.(36)
There is no justification for allowing variations in account characteristics
based on which state the recipient resides in or what type of federal benefits
are involved. Further, Treasury proposes no method of soliciting public input
on these characteristics. Worse, there is no method for recipients to have ready
access to the terms of these contracts. The states have evidenced strong opposition
to providing Reg E protections to EBT recipients of state administered benefits,
and have argued against even applying such protections to the federal portion
of the funds distributed through a combined federal/state account. It is therefore,
of considerable concern that Treasury may consider supporting a waiver of Reg
E coverage for federal benefits as a way of inducing more states to offer such
accounts to any recipient whose income is low enough to qualify them for a needs
based state assistance program.
Finally, Treasury must work with federal recipients and their advocates on
the development of these EBT programs. It is entirely inappropriate for Treasury
to consult only with the states on the development of these EBT programs,
as the promulgation suggests.
SAS Contract is a Bad Model for Other States. As approximately 11,000 recipients
have signed up for the combined delivery of federal and state benefits in the
Southern Alliance of States, we are concerned about how these accounts will
be handled in the future. The SAS combined EBT accounts are grossly inferior
to anything that will be available through the ETA offerings and they should
not serve as a model for what might be developed in other states.
No Requirements to Notify Electronic Recipients of Waiver and ETA Options.
The final §208 rules only requires agencies to notify new recipients and those
who are receiving federal benefits via check of the various options available.
This means that the 11,000 recipients mentioned above will not be informed of
the options of either hardship waiver or the availability of the less expensive
ETA options.(41) Not only will the 11,000 EBT
recipients in the SAS not be informed of their new options, but neither will
the multitudes of recipients who entered into costly electronic alternatives
thinking they had to do so in order to continue receiving their federal payments
have the necessary information to make an informed decision about the best possible
method for receiving their benefits in the future. This must be changed. All
recipients of federal benefits have a right to be notified of all the available
options to receive payment of federal moneys, regardless of the cost involved
to Treasury. It was confusing and incorrect information that emanated from the
U.S. government in the first place that caused many federal recipients to sign
up for accounts which may be too costly or inconvenient for them.
Failure to Regulate the Voluntary Accounts. To date, Treasury has still refused
to confront another serious issue: the voluntary accounts established by recipients
must be regulated to ensure access through financial institutions at reasonable
cost.
Congress specifically instructed Treasury to "ensure that individuals
required . . . to have an account at a financial institution . . . have access
to such an account at a reasonable cost; and ... are given the same consumer
protections . . . as other account holders." Treasury's design of the ETA
does not meet this mandate, because too many recipients have signed up for accounts
through check cashers and other fringe bankers which are expensive and potentially
extortionate. Treasury's failure to specify even minimum standards for the voluntary
accounts opened by recipients ignores the law, as well as the harsh costs to
recipients of these accounts.
Only financial institutions should be permitted to be conduits for federal
moneys. Partnering between a check casher and a bank should not be permitted.
Treasury must issue regulations to prohibit the deposit of federal payments
into accounts which are effectively accessible only through fringe bankers.
The recipient should be able to access the federal payment in his or her neighborhood
through ATMs and POS devices made available by the financial institution. The
partnership between federally-insured banks and fringe bankers (i.e. check cashers,
rent-to-own stores, money transfer corporations, etc.) benefits all parties
except the payment recipient. Banks operating as conduits between the federal
government and fringe bankers simply add another layer of fees to the price
of the fringe bankers' already costly services. We have seen a rise in the number
of questionable partnerships established between fringe bankers and mainstream
banks to take advantage of the opportunity and loophole that exists in the regulation
of EFT payments. EFT 99 represents a great opportunity to bring significant
numbers of the unbanked into the financial mainstream. Treasury's failure to
regulate the voluntary accounts will substantially undermine this goal, and
cost federal recipients.
It is essential that Treasury require that the fees charged for these new accounts
be reasonable in relation to the federal payment and the features of the account,
and that consumer protections apply to the transaction from the point the federal
payment is deposited in the account until the recipient withdraws the funds.
Treasury should require that the banking regulators ensure the reasonableness
of the fees charged for accounts used for electronic deposit of federal funds.
The implementation of EFT 99 must ensure the consumer protection mandates of
Congress. Millions of federal recipients will be substantially harmed if the
direction of the EFT regulations are not changed. The voluntary accounts must
be regulated for access, cost and consumer protections.
Conclusion
We appreciate this opportunity
to comment on the ETA proposal. We urge Treasury to adopt our recommendations
in order to adequately meet the needs of recipients of direct federal benefits
in an electronic environment.
________________________
1. The
National Consumer Law Center is a nonprofit organization specializing
in consumer issues on behalf of low-income people. We work with thousands of
legal services, government and private attorneys, as well as community groups
and organizations, from all states who represent low-income and elderly individuals
on consumer issues. (2)
2. The
National Consumer Law Center, Inc. (NCLC) is a nonprofit Massachusetts corporation
founded in 1969 at Boston College School of Law and dedicated to the interests
of low-income consumers. NCLC provides legal and technical consulting and assistance
on consumer law issues to legal services, government and private attorneys across
the country. Cost of Credit (NCLC 1995), Truth in Lending
(NCLC 1996) and Unfair and Deceptive Acts and Practices (NCLC 1991),
three of twelve practice treatises published and annually supplemented by NCLC,
and our newsletter, NCLC Reports Consumer Credit & Usury Ed., describe
the law currently applicable to all types of consumer loan transactions. - --
--
3. The
Consumer Federation of America, is a nonprofit association of some
250 pro-consumer groups, with a combined membership of 50 million people. CFA
was founded in 1968 to advance consumers' interests through advocacy and education.
Community Legal
Services, Inc. is a legal services program representing low income
individuals and groups in Philadelphia, Pennsylvania.
The Consumer Law
Center of the South is a nonprofit public interest organization incorporated
in Georgia. Established in 1995, its mission is to advocate for consumer protection
through consumer education, legislative reform, involvement in the regulatory
process, and litigation support.
Consumer Action
is a California based information and advocacy organization.
The Disability Law
Center, Inc. is a private non-profit organization that provides free
legal services for persons with disabilities throughout Massachusetts.
National Clearinghouse
for Legal Services is a not-for-profit communications, advocacy, and
policy organization that fosters and develops creative approaches to policy
research, development, analysis, and advocacy on issues affecting low-income
communities.
The National Consumers
League is America's pioneer consumer organization. NCL is a private,
non-profit membership organization dedicated to representing consumers.
The North Carolina
Justice Center is a non-profit, advocacy organization dedicated to
improving the lives of low income people in North Carolina. It is based in Raleigh,
North Carolina.
The Northeast Missouri
Client Council for Human Needs is a non-profit organization of low
income clients of legal services, in Hannibal, Missouri.
National Senior
Citizens Law Center is a national legal and policy organization that
works on behalf of low income senior citizens to help make their lives better
through legal analysis, legal representation, and support to advocates.
The Welfare Law
Center is a national legal and policy organization that works with
and on behalf of poor people to ensure that adequate income support is available
when necessary to meet basic needs and foster healthy individual and family
development. The Center achieves its goals through legal and policy analysis,
legal representation, public education, training, and aid and support to advocates.
Virginia Citizens
Consumer Council is a statewide consumer advocacy organization, headquartered
in Richmond.
4. Except
for those circumstances which are specifically permitted by federal law, such
as for some debts owed to the federal government or for child support.
5. 31
CFR Part 208, Fed. Reg. (Vol.63, No. 186), September 25, 1998.
6. These
voluntary accounts may well have been entered into solely because the recipient
feared that the recipient would otherwise no longer receive the federal benefit
due to the widespread misinformation about the requirements of EFT 99. Further,
these accounts may well lack access through the financial institution as well
as most consumer protections. Too often these accounts are provided through
a partnership between the financial institution and an alternative, unregulated
provider, such as a check casher or a money exchanger.
7. We
have relayed some of this confusion directly to Treasury officials, including
extensive misinformation provided to recipients by Social Security personnel
in public offices as well in a number of regional offices. For example, since
implementation of the law was first announced, recipients have been erroneously
told by Social Security officials that they were required to sign up
for a bank account or they would not be eligible for benefits (e.g. South Carolina,
Illinois); that they would have to prove the grounds for their hardship
waivers (e.g. California, Massachusetts); that if they had previously signed
up for direct deposit they would have to sign a statement and show the grounds
for a waiver in order to go back to a paper check( e.g. New York, Georgia, Pennsylvania).
9. Data
from the 1995 Survey of Consumer Finances, (which involved interviews of 4,299
families from all income brackets) found that 15 percent reported that they
did not have a checking account. The reasons provided by these families for
not having a checking account ranged:
27% said they did not
write enough checks to make one worthwhile;
20.5% said they did not
have enough money to afford a checking account;
Nearly 29% reported that
they did not like to deal with banks; and
Just under 10% each gave
as their reason either high minimum balance requirements, an inability to
manage or balance an account, or bank service charges they deemed to be too
high.
Family Finances in the
U.S.: Recent Evidence from the Survey of Consumer Finances. Federal Reserve
Bulletin, Col. 83, No. 1, Jan. 1997 at 7.
On the other hand, Treasury's
study involving a much smaller sample of unbanked direct federal benefit
recipients found:
47% said they did not
have enough money to have an account;
21% said they had no
need for an account; and
6% said that bank fees
were too high.
Much smaller percentages
cited concerns about bounced checks, overuse of ATM's, bad credit histories,
distrust of banks, privacy, or having their assets frozen in the event of
a legal judgment.
Department of the Treasury
Financial Management Service, Mandatory EFT Demographic Study, Executive
Summary, April 22, 1997 at 3-4.
10. And
this population is more likely to be illiterate. See,Adult Literacy
in America, National Center for Education Statistics, U.S. Dept. of Ed.
(Sept. 1993).
11. Congress
explicitly instructed Treasury to protect the unbanked from potentially costly
consequences of the EFT mandate by requiring that Treasury ensure by regulation
that recipients required to establish accounts have access to the accounts at
a financial institution at a reasonable cost with consumer protections. See 31 U.S.C. § 3332(I).
13. Treasury's
contractor recommended that the maximum fee allowed for additional ATM or teller
withdrawals be capped at $1.00 per transaction. ETA Initiative Final Report,
p. 75, Dove Associates, June 15, 1998.
15. Information
compiled by the National Consumer Law Center reveals that, in the state administered
EBT programs, POS surcharging has been prohibited in Connecticut, the District
of Columbia, Illinois, Maryland, Massachusetts, Maine, New Hampshire, New Jersey,
New York, Rhode Island and Vermont. Additionally, in several of these states
ATM surcharges are not charged by financial institutions for EBT transactions.
17. Seven
day, twenty four hour telephone support for access to balance inquiries, as
well as for recipients to report lost or stolen cards would be preferable. Treasury's
contractor found that the cost for providing this service would only be $.54
per recipient per month, and recommended that this service be included in the
basic ETA. Id, at 63 and 64.
18. Except
for those circumstances which are specifically permitted by federal law, such
as for some debts owed to the federal government or for child support.
19. See 42 U.S.C. § 407; 42 U.S.C. § 1383; 38 U.S.C. § 530; and 5 U.S.C. § 8346.
20. See,
e.g. Porter v. Aetna Casualty and Surety Co., 370 U.S. 159 (1962); Fillpot
v. Essex County Welfare Board, 409 U.S. 413 (1973); Tom v. First American
Credit Union, 151 F.3d 1289 (10th Cir. 1998); Crawford v. Gould, 56
F.3d 1162 (9th Cir. 1995); Blindman v. Rah, 878 F.2d 263 (9th Cir.
1989).
21. The
cases cited in the previous footnote are one small indication of this problem.
NCLC's experience and that of legal services attorney across the nation is another
illustration. In the month prior to filing these comments NCLC has worked with
legal aid attorneys in Arizona, California, Colorado, Massachusetts,
Mississippi, Nebraska, and Pennsylvania, regarding the illegal attachment
or setoff of funds that were unequivocally exempt under the Social Security
Act. These attorneys tell us that banks routinely allow illegal attachment and
execution orders of exempt funds. When the lawyers threaten suit, the banks
back off and make the clients whole. But the practice still goes unchallenged
by the many recipients who do not have access to free legal services.
22. In
one recent case, a mentally impaired SSI client noticed that her bank balance
was unexpectedly large. She asked the bank about this, and was told that was
the amount that had been deposited by the U.S. Government. The woman accepted
the situation - and spent the money. Then the bank discovered that it had credited
somebody else's tax refund to the SSI recipient's account. The bank then set
off the recipient's next three SSI checks. She got evicted from public housing,
ended up back on the street, and lost contact with legal services before they
could put together a case against the bank.
23. There
are a number of cases which authorize the first-in, first-out method of accounting
for determining which funds are exempt. See, e.g.NCNB Financial
Services v. Shumate, 829 F. Supp. 178 (W.D. Va. 1993), aff'd 45 F.3d 427
(4th Cir. 1994), cert. den. 515 U.S.1161 (1995); Dean v. Fred's Towing,
801 P.2d 579 (Mont. 1990); In re Moore, 214 B.R. 628 (Bankr. D.
Kan. 1997). However, the more logical method of accounting for exempt funds
would be a first-in, last-out analysis: this would assume that the first funds
deposited and the last funds used were exempt funds. In this way, a depositor
would deposit the non-exempt funds last, and spend them first.
24. In
one case in California, a mentally disabled SSI recipient was provided with
an ATM card which he gave to pay for a rental car. Before he returned the car,
he had a psychotic episode, so that the rental car company charged $1500 to
his account, which was substantially more than was in the account. There was
an optional credit agreement attached to the account. The bank took the next
several SSI deposits to pay itself back the credit, that the client never authorized
to be extended on his behalf. California has a statute explicitly prohibiting
set off of Social Security and SSI benefits (Cal.C.C.P. § 704.080) yet the bank
claims that it does not apply to this situation.
25. The
financial institution is required to provisionally credit a consumer's account
in the amount of the alleged error within 10 business days after receiving the
notice of error. 12 C.F.R. § 205.11(c).
26. An
example of when a transfer may be considered to have been unauthorized would
be when the recipient has reported a card stolen and money missing from the
account; the bank makes the provisional credit required by 12 C.F.R. § 205.11(c),
then determines that the transfer was made by the recipient's brother who knew
the PIN number because he had used the card with permission on previous occasions.
Under the definition of "unauthorized transfer" in the Electronic
Fund Transfer Act, this would not be considered an unauthorized transfer.
27. In
the recent Direct Payment system pilot project in Texas, it appears that in
this scenario the financial institution was simply going back and withdrawing
the money directly out of the account. No notice or hearing was offered, even
though the provisional credits are exactly analogous to an overpayment. Under
the Social Security statute, notice, hearing and an extended time period for
repayment are required. Thus, the bank's practice in these situations was wrong
and quite possibly illegal.
28. Except
for those circumstances which are specifically permitted by federal law, such
as for some debts owed to the federal government or for child support.
29. We
also recognize that because of the new, voluntary structure of the ETA, the
potential profit to financial institutions must still be sufficient to persuade
financial institutions to offer the account.
30. The
time for imposition of the additional charge is only when the accounting is
necessary -- when the financial institution receives the order of attachment
or execution.
31. ACH
capacity will be very valuable for payments for necessaries such as housing
and utility payments. There are too many risks of inappropriate ACH transfers
if payments to creditors or merchants are permitted.
32. While
it is true that the per transaction costs for smaller financial institutions
might be higher because of the lower volume of ACH payment transactions, this
same disparity exists in the ATM environment, where smaller financial institutions
are nonetheless often able to offer their customers lower fees and charges than
their larger competitors.
33. This "ACH training" would include advising consumers of the need to contact
the biller directly rather than their financial institution whenever they wish
to cancel an ACH debit arrangement and the procedures for advising the financial
institution to put a "stop payment" order on an ACH debit payment
for a particular month, a service for which the bank could charge an additional
fee to cover the costs involved.
34. Oral
information provided to NCLC by Cary Whaley, Director of Network Products, National
Automated Clearinghouse Association, December, 1998.
35. A
Consumers Guide to Electronic Payments, website maintained by the Mid-America
Payment Exchange at http://paytips.org/consumer.htm.
36. For
example, we are confronted with statements such as the following:
"The characteristics and requirements of EBT programs, including the duties
of the Financial Agent for a particular program, may vary according to the program.
Therefore, Treasury believes that these duties are best incorporated in the
Financial Agency Agreement for the particular program."(37)
37. 63 Federal Register 51491, September 25, 1998.
"Treasury also believes that the bases upon which it is appropriate
to permit a Financial Agent to close an account may vary among EBT programs,
depending on the nature and features of the accounts. The Financial Agency
Agreement will include program-specific criteria for the closing of accounts
....."(38)
38. 63 Federal Register 51493, September 25,
1998.
"The extent to which Regulation E applies to an account established
under a particular EBT program will be addressed on a program-by-program basis,
including in the context of a Federal/State EBT program."(39)
39. 63 Federal Register 51494, September 25,
1998.
"It is Treasury's intention to continue working with States
in designing and implementing Federal/State EBT programs. States will play an active role in developing the linkage between State and Federal
EBT programs and will have an opportunity to provide input on many of the
duties and qualifications of the Financial Agents designated by Treasury in
connection with Federal/State EBT programs."(40)
40. 63 Federal Register 51499, September 25,
1998.
