Testimony before the Subcommittee
on Financial Institutions and Consumer Credit
U.S. House of Representatives regarding
The impact of Treasury's Proposed Regulation under the
"EFT 99" Provisions of the Debt Collection Improvement Act of 1996
On the Poor, the Elderly and the "Unbanked"
March 4, 1998
Presented by: Margot Saunders, Managing Attorney, National Consumer
Law Center, also on behalf of the
Consumer Federation of America, National Community Reinvestment Coalition, and
Organization For A New Equality
Ms. Chairman and Members of the Subcommittee, the National Consumer Law Center(1)
thanks you for inviting us to testify today regarding the implications of EFT
99 on the unbanked recipients of federal payments. We offer our testimony here
today on behalf of our low income clients, as well as the Consumer Federation
of America,(3) the National Community Reinvestment
Coalition,(4) and the Organization for A New
Equality.(5) This is an issue in which we are
all vitally interested, because the limited income of so many low income recipients
of federal payments will be affected so directly by the decisions that Treasury
makes in the Final Regulations. Unfortunately, unless Treasury makes significant
changes in the Final Regulations we are convinced that low income recipients
of Social Security, SSI and Veterans Benefits will be harmed.
Given the thoughtful and comprehensive nature of the questions posed to witnesses
in this Committee hearing, we will provide most of the information in the form
of answers to those questions. However, there are four crucial points we wish
to emphasize on behalf of our low income clients:
The goal of bringing the unbanked into the financial mainstream will not
be achieved by these regulations. By refusing to regulate the "voluntary"
accounts established by recipients to comply with the new law, Treasury has
chosen to establish a system which will push many unbanked recipients of federal
payments into the arms of the unregulated, unsupervised wing of the financial
services industry: the check cashers, the finance companies and other fringe
bankers. This is very harmful for the residents of low income communities.
Treasury's Proposed Regulations fail to provide waivers for persons with
mental disabilities, literacy problems and language barriers. Treasury's proposal
to disallow waivers for persons on the basis of mental disabilities, literacy
problems, and language barriers will create serious problems for many federal
recipients.
Critical questions of cost and real access to banking services are still
undetermined in the design of ETA. The design of the account provided to the
unbanked by Treasury is completely undetermined at this point; yet the attributes
of the account, who will be entitled to the account, the cost to recipients,
and the extent to which the banks providing the account will expand their
presence in the low income community are all crucial issues which still must
be addressed.
There are no protections against attachment, garnishment and set-off. Despite
the clear protections in federal law against attachment and garnishment of
Social Security, Supplemental Security Income (SSI) and Veterans' Benefits,
numerous consumers do not use banks because they are afraid their limited
funds will be taken by judgment creditors. Providing crystal clear prohibitions
against attachment and set-off of funds in EFT accounts would bring many consumers
back into the financial mainstream. Treasury's proposed regulations do not
address these issues.
Answers to Chairman Roukema's Questions
Question # 1
A large number of the comments that were provided in response to Treasury's
September 16, 1997 proposed rule indicated that the criteria for hardship waivers
is too narrow. Please explain if and how the criteria for waivers should be
expanded.
Answer # 1
The scheme proposed by Treasury of allowing recipients to self-certify their
eligibility for a hardship exemption so as to continue to receive payment by
check rather than EFT is good, in so far as it goes.(6)
Treasury anticipates that "a waiver from payment by EFT will be automatic
and based solely on the individual's certification."(7)
Serious hardships will be caused, however, to many federal recipients because
the criteria for hardship waivers are far too narrow. There will be one of two
adverse results: either 1) federal recipients will be forced to surrender a
level of independence, and be subjected to unacceptable charges and abusive
practices they would not have encountered in the check based environment; or
2) they will have to lie on their self-certification waiver to avoid expensive
or inaccessible electronic deposits -- a result which should not be encouraged
by a federal regulation.
A. No Waivers Are Provided for Those with Mental Disabilities, Literacy Problems
or English Fluency Issues.
Treasury ignores the legislative history on the hardship exemption in the Act
by excluding from the enumeration of qualifying criteria:
mental handicap,
educational hindrances,
language problems,
financial hardship if the recipient has a bank account, and
any criteria whatsoever, if the recipient has a bank account and
becomes eligible for the federal payment after July 26, 1996.
Treasury seems to have ignored the explicit intent of Congress, as evidenced
in the Legislative History, to use hardship waivers to ease the transition to
an electronic payment system:
The Secretary of the Treasury is given broad discretion to waive the requirements
of this section to avoid imposing a hardship on a beneficiary. Congress
expects the Department of the Treasury to promulgate regulations addressing
such hardship waivers and to consider various factors in defining hardship.
Congress recognizes that adherence to these provisions may be difficult for
a variety of beneficiaries. We are concerned that individuals who have geographical,
physical, mental, educational, or language barriers or as a result
of natural or environmental disasters will not be able to receive benefits.
Recipients in this category include small businesses as well as individuals.
Waivers should be provided in order to minimize disruptions to any beneficiary.(8)
Under the proposed regulations, none of these conditions would be just cause
for the granting of a waiver from the EFT requirement. Only physical handicap,
geographic barrier, or financial hardship for the unbanked, would qualify as
a hardship criteria. The rationale offered by Treasury for this decision in
the preamble to the proposed regulations evidences a lack of true understanding
or compassion for the populations that would be affected.
Mental Disability. Treasury simply states that waivers would not be required
for persons with a mental disability. The rationale offered is that those who
have a mental disability that makes them incapable of managing their own funds
would have a representative payee appointed for them by the applicable program
agency and such payee would presumably be able to handle an EFT payment arrangement
unless he or she individually met one of the other exemption criteria.(9)
There are several very important considerations that Treasury leaves out of
its overly simplistic justification. First, there are a very large number of
recipients with mental impairments who are quite capable of managing their own
funds in a check based system and who, absent a transition to an electronic
delivery system, could function independently without the need of turning their
finances over to a representative payee. Some of these recipients may simply
be unable to remember a PIN; others may have a limited ability to think conceptually
and, while they can count out money to make purchases or even write checks to
pay bills, cannot deal with abstract benefits they cannot see and feel. It is
simply unconscionable to say that, because the government wants to save some
money, such individuals should now have to put someone else in charge of their
funds and give up that level of control over their own lives.
The second consideration that Treasury ignores is that there is already a great
difficulty in finding persons or entities willing to serve as representative
payees for those government benefit recipients who are truly incapable of managing
their own funds. In some parts of the country there is a thriving business of
individuals and agencies that sell their services to be a representative payee
to persons who can not otherwise find someone. By forcing even more people into
a situation where they will have to have a representative payee in order to
receive their government benefits, Treasury will in effect be supporting the
growth of this industry that takes money out of the pockets of some of our neediest
citizens without any tangible benefit to the program recipients.
A final consideration ignored by Treasury's justification for its position is
the possible risk of loss of benefits to recipients if they are forced into
a representative payee situation. The Reg E(10)
limitations on consumer liability for losses that are associated with the use
of a valid card and PIN do not apply if those benefits are accessed by a representative
payee who misappropriates the funds for his own use. Thus, there would be no
protection for recipients who felt compelled to pay some stranger to serve as
their representative payee so that they could get their government benefits
only to find that such person wiped out their accounts and moved on.
Limited Literacy Skills and English Fluency. Treasury's proposed rule also does
not envision permitting a hardship waiver on the basis of educational level,
limited literacy skills, or lack of fluency in English. Here Treasury argues
first that these factors do not pose any barriers unique to an EFT delivery
mechanism as opposed to a check system.(11)
Such an assertion is again simply untrue. Many persons who fall within one of
these categories can in fact operate in a paper based environment, sometimes
alone and sometimes with the help of friends and family, even if they cannot
read or write or are not fluent in English. It does not take an ability to read
or write to sign a check with an "X" or an ability to read English
to sign your name on the back of a check. It does on the other hand require
an ability to read English or one of the other limited languages that may be
available on a POS or ATM screen to negotiate an electronic debit of funds.
It is those who are not literate and/or fluent in English that are most likely
to end up with an electronic debit only account. It is these populations who
will not otherwise have a relationship with a bank and therefore will not even
be able to avail themselves of teller assistance when they cannot negotiate
the ATM.
Treasury's next argument is that whatever problems EFT may pose for these segments
of the population are merely a "short-lived" "transitional hurdle"
that it asserts will be overcome by targeted educational programs.(12)
Since, to the best of our knowledge, Treasury has no plans to offer any in-person
training on how to use debit card technology or on how to shop around for low
cost bank accounts that will permit direct deposit , it is unclear how they
plan to "educate" this population to get them through the transition.
The printed materials they appear to be relying on most heavily for their educational
campaign will be of little use to those who cannot read the materials, nor is
there any indication that they will be made available in anything other than
a very limited number of languages. Public service announcements, the other
major vehicle Treasury plans to employ, are unlikely to provide much in the
way of substantive information. It is certainly unrealistic for Treasury to
count on already over-extended and under-funded community based organizations
to take on the role of educating and training those among the 10 million unbanked
recipients of direct federal benefits who are out there who will need such assistance
because of their educational or language problems.
It is not enough to note, as Treasury does in the preamble to the proposed regulations,
that in some areas ATMs and POS terminals offer language options other than
English(13) as this does nothing to answer the
question of whether on-screen messages in the appropriate language are in fact
available to those who need them where and when they need them. The obvious
answer is "no" if your primary language is something other than Spanish
or English.
Moreover, Congress specifically instructed Treasury to address the problems
that recipients with these handicaps have in transitioning to an electronic
system. Simply saying that the problems are not problems, is not addressing
them, it is ignoring them. There will be, as Congress recognized, significant
difficulties faced by recipients with mental problems, and literacy and English
fluency barriers in this changed environment. There is simply no justification
for excluding these populations from the ability to seek a hardship waiver.
B. No Waivers Are Available to Those with Bank Accounts Who Become Eligible
for Federal Benefits after July 26, 1996.
No waivers are available whatsoever for recipients who become eligible for federal
payments after July 26, 1996 who have bank accounts. Treasury's justification
for this is slim:
Treasury's proposal to tie the availability of a waiver for an individual who
has a bank account to the date an individual became eligible for the federal
payment is based on a review of its experience, and the experience of the agencies
responsible for the vast majority of Federal payments, during phase one ....
The SSA . . . reports that approximately 76% of the recipients who became eligible
to receive Social Security and Supplemental Security Income payments since July
26, 1996, are receiving payment by EFT.(14)
There are several problems with this justification. One: We have heard reports
from recipients that they are being told when they go into SSA offices and apply
for benefits that they must have a bank account.(15)
So recipients are going out and obtaining new bank accounts -- whether or not
they can afford them -- solely because they are led to believe that obtaining
one is a prerequisite to qualifying for federal benefits. Recipients should
not be misled in this way. Congress never intended that unbanked new recipients
be pressured into obtaining bank accounts for the sole purpose of qualifying
for federal payments, especially when there is no federal oversight of the costs
for the accounts established just for receipt of federal benefits. The fact
that as a result of this misinformation, many new recipients are signing up
for EFT, and are obtaining bank accounts in the process, cannot be a reasonable
basis for disallowing hardship waivers to this population.
The second problem is if only 76% of the recipients who become eligible are
receiving payment by EFT, what about the rest? This means that 24% of new recipients
are NOT signing up for EFT. How does Treasury propose to handle them? In its
discussion of the hardship waiver, Congress made no distinction between individuals
based on when they become eligible for federal benefits:
(2)(A) The Secretary of the Treasury may waive application of this subsection
to payments--
(i) for individuals or classes of individuals for whom compliance imposes a
hardship;(16)
New recipients need waivers based on physical, geographic, mental, English
fluency, and literacy reasons as much as other recipients. There should not
be any distinctions based on when eligibility for federal benefits occurred.
Moreover, this proposed system of waivers makes no allowance for future changes
in the circumstances of a recipient. For example, if a recipient moves from
one area in which banks are accessible to another in which they are not, the
recipient should be able to claim a geographic hardship. Or if a recipient becomes
non-ambulatory and can no longer walk to the bank, the physical hardship waiver
should always be available. Further, if banks merge, close branches, or fees
and charges increase to an unaffordable amount, recipients need to be able to
claim hardship waivers.
Finally, having different waiver criteria based on the date of eligibility for
federal payments confuses and unnecessarily complicates the already difficult
educational process. Also, as the years go by, this distinction becomes more
arbitrary and unreasonable.
C. Financial Hardship Waivers Are Not Available to Recipients Who Have Accounts.
Treasury proposes to disallow any waiver based on financial hardship to those
with bank accounts. This might not be so disastrous if Treasury were ensuring
that the bank accounts which recipients are securing are: a) accessible through
the financial institution, b) at a reasonable cost, and c) have consumer protections,
as the law requires. Yet, Treasury is engaging in a massive public education
effort designed to promote direct deposit for federal recipients, and many recipients
are under the impression that obtaining a bank account is a prerequisite to
qualifying for federal benefits. (17) Additionally,
the fringe bankers themselves are launching an ambitious campaign to maintain
and increase their business, by telling federal recipients that they must have
electronic deposit.(18) Also, some recipients
who seek accounts at banks are being denied them because of their credit history.(19)
The result of all this is tremendous confusion by unbanked recipients about
whether they need to go out and obtain their own accounts, and what will happen
to their federal benefits if they do not.
The combination of these three factors -- the failure to tell recipients that
may qualify for a waiver of the EFT requirement only if they do not
have a bank account, and the complete failure to regulate the bank accounts
that recipients obtain in order to receive benefits, combined with the heavy
advertising campaign by the fringe bankers to establish electronic accounts
through them -- is clearly in derogation of Congress' intent to protect low
income recipients from expensive consequences of the EFT mandate. Congress explicitly
said:
The Secretary of the Treasury is given broad discretion to waive the requirements
of this section to avoid imposing a hardship on a beneficiary. (Emphasis
added.).(20)
Also, what about all the recipients who may have an affordable bank account
now, for which the institution raises prices, or if the financial circumstances
of the recipient changes, such that an account is no longer affordable? Surely
recipients who find themselves unable to afford bank accounts should be able
to qualify for this waiver based on financial hardship as well.
The absolute prohibition against a waiver based on financial hardship for anyone
who has a bank account is far too broad, and clearly outside the parameters
of Congress' intention for Treasury to design a waiver system "to avoid
imposing a hardship on a beneficiary." Waivers should be available to everyone
based on financial hardship, regardless of whether they have an account at the
time they became eligible for the federal payment, or when EFT went into effect.
Question # 2
Considering the concerns of recipients as well as the business needs of financial
institutions, please describe your suggestions for the design of an electronic
transfer account, including a reasonable monthly service charge, the number
of permissible transactions, degree of accessibility to ATMs and any other basic
services. Who should have access to an ETA account?
Answer #2
The ETA Should Be Available to Any Recipient Of Federal Benefits. Under the
proposed rules Treasury contemplates that the ETA will only be provided
to
"an individual [who] either certifies that he or she does not have an account
with a financial institution, or [who] fails to provide information pursuant
to Sec. 208.8 . . . .(21)
Inexplicably, Treasury proposes to not provide the only accounts regulated
for reasonable costs and consumer protections to individuals who already have
accounts. Thus, all of the following recipients are prohibited from participating
in these regulated, limited fee, and protected accounts:
1) Those who were misled into believing that they had to have an account to
qualify for or maintain their federal benefits; (22)
2) those who were good citizens and responded to the insistent advertisements
from the Social Security Administration that they had to obtain an account and
signed up for a bad one through a check casher or even an account with a bank
that does not work for them for some reason or another; or
3) those who may already have an account with a financial institution but find
that it is too expensive or inconvenient.
We are led to believe that the reason that Treasury will not provide the ETAs
to those already with accounts is because Treasury does not want to compete
with the private sector. Treasury cannot have it both ways. Treasury should
not be in the business of providing accounts if it does not want to compete
for those accounts. Congress expressly required Treasury to ensure that recipients
do not suffer as a result of the EFT 99. Treasury seems most concerned that
the private sector not suffer as the result of EFT 99. If Treasury is concerned
about competing with financial institutions for business then the simple solution
is for Treasury not to offer an ETA. Rather, Treasury should establish
a baseline of minimum consumer protections that would apply to all accounts
established to access federal money, as Congress mandated.
Further, it is entirely unreasonable to assume, as Treasury does, that recipients
of federal benefits, who rely on their monthly checks for subsistence will close
existing bank accounts to become eligible for the ETA. To qualify for an ETA,
a recipient would be required to close an existing account, obtain and send
in the Treasury waiver form, then be assigned an ETA, all within one month.
This would be necessary to ensure the federal benefit payments arrive in a timely
manner. The process is complicated and unwieldy. How many sophisticated
consumers would trust the combined bureaucracies of the federal government
and two financial institutions to make a transfer of an essential payment from
one institution to another on timely basis? Imagine the consternation of a fairly
unsophisticated recipient who is facing this prospect as the only way to obtain
the ETA.
The cost of the account to the recipient should be the most important factor
in the design of the ETA for needs-based recipients. Cost would be less critical
if Treasury were willing to permit the majority of the currently unbanked to
claim a waiver from ETA on the basis of financial hardship, as most of these
individuals are now able to have checks cashed at little or no cost.(23)
One of the major reason some recipients have avoided establishing bank accounts
is because they cannot afford the fees and have found alternative means for
cashing their benefit checks.(24) For low income
recipients living on fixed incomes any new expense is in fact a financial hardship.
Accordingly, we would urge that Treasury waive all fees for a basic ETA for
all unbanked recipients of needs based federal benefits and that some sort of
sliding fee scale be established for all other recipients based on their actual
monthly income.
By offering a menu of services, decisions about cost can be made by the individual
recipients. Encouraging saving should be included among the goals to be met
by the ETA.
The account should be structured to provide a basic withdrawal service at the
lowest possible cost, with additional service charges for additional features.
Many recipients will want nothing more than basic withdrawal services and should
not be required to pay routine monthly fees for services they never or rarely
use. Those who want additional services can shop around for them and then decide
whether to obtain them on their own or elect to have them provided as part of
their ETA at an additional cost.
No fewer than four ATM withdrawals should be included in the base price of the
account plus a reasonable number of ATM balance inquiries, as well as an unlimited
number of POS transactions including withdrawals. In the absence of ATM availability,
the same general rules should apply to teller withdrawals. Recipients who use
the ATMs of the financial agent with whom the account has been established or
any of its subcontractors, on a more frequent basis than for four withdrawals
a month, should be charged no more than the actual cost of the transaction to
the financial agent.(25)
Surcharging should be prohibited for all ETA transactions at either ATMs or
POS devices, whether they are owned by the account provider or not. There is
already precedent for such a position as several states expressly prohibit surcharging
for EBT transactions or have otherwise worked out arrangements with the business
sector to waive surcharges for such transactions.
Question # 3
Do you feel that the definition of an "authorized payment agent"
should be broader than only financial institutions? What do you view as the
risks and benefits that are associated with allowing nonfinancial institutions
to participants in the process?
Answer # 3
The definition of "authorized payment agent" should be exactly as
Treasury has proposed. In writing the proposed rules, Treasury was cognizant
of the lack of consumer protections and inherent risks that would flow from
allowing non-financial institutions to be the conduits of federal payments for
some recipients. In proposed rule §208.2(b), Treasury quite appropriately defined
"authorized payment agents" as any individual or entity that is appointed
or otherwise selected as a representative payee or fiduciary, under regulations
of the Social Security Administration, the Department of Veterans Affairs, the
Railroad Retirement Board, or other agency making Federal payments, to act on
behalf of an individual entitled to a Federal payment.
As Treasury has appropriately recognized, there are no adequate safeguards to
protect federal recipients from loss of funds if others were allowed to be authorized
payment agents. Fringe bankers, such as check cashiers, finance companies, and
others, do business in the low income community because of the large profits
that they can make. Expensive services, extraordinarily high fees, and abusive
transaction terms are standard business practices for these alternative providers.
They have succeeded because of the vacuum created by the absence of banks from
these communities. These fringe bankers make no reinvestment of their substantial
profits back into the communities. They charge as much for financial services
as the regulatory structure - or lack of regulation - allows. And the low income
residents of the community gain little benefit other than the specific service
provided from their presence. If this non-regulated industry is allowed to be
the conduit of federal payments, the financial problems in the low income communities
will not only continue to be ignored, they will be exacerbated.
Low income advocates fear the use of alternative financial providers as conduits
largely because of the other services that will undoubtedly be sold to the recipients.
If recipients must go through the doors of the fringe bankers at least one time
each month, it is very likely that they will fall prey to the expensive -- and
unregulated -- other financial products of these fringe bankers, such as check
cashing,(26) payday loans,(27)
high cost home equity loans, even rent-to-own transactions. While recipients
may always be able to opt for these services if they care to, they should not
be required to go through the doors of these alternative providers every single
month in order to obtain their federal entitlement.
Question # 4
Public awareness of EFT '99 is considered as an integral component for successful
implementation. Do you feel current efforts to increase public awareness is
sufficient? If not, what efforts could be made by government agencies, financial
institutions, community groups, or other parties to provide for a smooth transition?
Answer # 4
We have a real problem here. Treasury and the Social Security Administration
have proceeded with the implementation of EFT '99 in a piecemeal fashion. Both
agencies have initiated a massive public education campaign to inform people
of the mandates of EFT '99, and to encourage voluntary compliance with the direct
deposit requirements. The problem is that as a number of critical issues have
not yet been determined, a great deal of misinformation has been provided
to federal recipients.
The public education materials that Treasury and Social Security have disseminated
to date seem designed to encourage federal recipients a) to use direct deposit
for their federal payments with existing bank accounts, and b) to establish
new accounts with banks in order to receive the electronic payment of the federal
payment. There are significant problems with this approach given Treasury's
proposed rules. The public education materials fail to inform adequately recipients
of two facts:
that many recipients may be eligible for hardship waivers from the electronic
transfer requirement, or
that if recipients do establish bank accounts, under Treasury's proposed
rules, the recipient will then become ineligible for either a financial
hardship waiver or the low cost ETA to be provided by Treasury.
This is unfair and an inappropriate result of the public education campaign.
As explained above, under the proposed rules none of the account relationships
established voluntarily by recipients will be regulated, subject to minimum
consumer protection standards, or reasonable cost provisions. Moreover, there
is no prohibition in the proposed rules against alternative bankers -- check
cashers, finance companies, pawnshops -- from establishing account relationships
with banks such that the recipient must go through the alternative banker every
month to access their federal payment. Given this lack of regulation
or cost controls, it is very likely that thousands of low income federal recipients
will establish accounts that have no consumer protections and are very expensive.
However, under the proposed regulations no recipient who has a bank account
will be eligible either for the ETA, or for the waiver for financial hardship.
The strong encouragement by Treasury to recipients to establish accounts, without
informing recipients of the effect of establishing those account seems to be
somewhat misleading.
Additionally, we have heard reports from advocates for low income people in
several states that applicants for SSI are being told that they must have a
bank account in order to qualify for their federal payment. This is flat wrong,
and should be stopped.
Question # 5
Please provide comments on any other aspects of Treasury's proposed rule that
you would like to share with the Subcommittee.
Answer # 5
We have heard one overwhelming concern from low income recipients of federal
payments, and their legal services attorneys: The reason that many low income
recipients do not have bank accounts is their fear of losing their limited funds
to judgment creditors. Low income elderly and disabled people are particularly
vulnerable because of their inability to pay all of their doctor or hospital
bills. They deliberately avoid keeping their money in bank accounts to ensure
that the bank does not allow their funds to be attached by creditors.
Treasury could go a considerable distance in convincing many recipients of federal
payments to feel comfortable in doing business with a bank, if they would assure
recipients that their funds would be safe from the claims of creditors. Although
many federal payments are protected by law from attachment and the claims of
judgment creditors, banks routinely fail to abide by these restrictions. The
provision on Social Security is typical of these protections:
(a) The right of any person to any future payment under this subchapter shall
not be transferable or assignable, at law or in equity, and none of the moneys
paid or payable or rights existing under this subchapter shall be subject to
execution, levy, attachment, garnishment, or other legal process, or to the
operation of any bankruptcy or insolvency law.(28)
There are similar provisions in the governing statutes for SSI benefits(29)
and Veteran's benefits.(30) However, the only
remedy available for a recipient whose funds have been wrongly attached is to
file a lawsuit against the financial institution. That does little good for
the recipient who is living month to month and in dire need of the funds that
were wrongly attached. As a result, cautious recipients simply do not allow
their funds to be kept in a bank account.
We have notified Treasury of our concerns in this regard and requested that
they issue a regulation that flatly prohibits the attachment or garnishment
of any funds in an account into which the covered federal funds have been deposited.
However, the proposed regulations are completely silent on this point.
Thank you very much for us to testify today on behalf of our low income clients.
_____________________________
1. The National Consumer Law Center is a nonprofit organization
specializing in consumer credit issues on behalf of low-income people. We work
with thousands of legal services, government and privates attorneys around the
country, representing low-income and elderly individuals, who request our assistance
with the analysis of credit transactions to determine appropriate claims and
defenses their clients might have.(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.
4. The National Community Reinvestment Coalition (NCRC)
is the nation's largest CRA (Community Reinvestment Act) membership organization.
The goal of NCRC is to increase fair and equal access to credit, capital and
banking services. NCRC, representing over 615 national, regional and local community
organizations seeks to support and provide tools to build community and individual
net worth.
5. The Organization for a New Equality (O.N.E.) is a multi-racial
organization whose top priority is expanding economic opportunity to people
who have historically been excluded from the economic mainstream. Established
in 1985 by the Reverend Dr. Charles R. Stith as a non-profit organization, O.N.E.
is working to develop and implement new economic strategies to promote equal
opportunity and encourage change.
17. We have heard this from advocates in several states.
18. A Minneapolis check casher advertised electronic deposit
through a bank, with the delivery of a paper check at the check casher. Total
cost each month for a $500 Social Security check - $13.95.
19. We have heard this problem from an advocate in Illinois.
The client was told that in order for the client's disabled child to receive
SSI payments, the mother must establish a bank account. Because of the mother's
credit problems, no bank would provide her an account.
22. Advocates from several states report that recipients
are being misled in this way.
23. The Mandatory EFT Demographic Study found
that for respondents to the mail survey two-thirds of the unbanked recipients
use banks, credit unions or grocery stores to cash their federal checks, 12%
get friends or relatives to cash the checks for them, and only 12% pay check
cashing outlets to cash their checks; corresponding figures from the telephone
survey found 81% of respondents using primarily banks and grocery stores and
8% using check cashing outlets (the telephone survey did not include a comparable
question about the use of friends and relatives for check cashing purposes).
Thus, the survey results fully support the fact that most unbanked recipients
of federal benefits are able to find a way to have their federal checks cashed
for free.
24. Findings from the Mandatory EFT Demographic Study
were that 67% of respondents to the mail survey and 47% of respondents
to the telephone survey felt that they did not have enough money to make having
a bank account worthwhile while 24% and 40% respectively cited high fees and
costs as their primary reason for not having an account.
25. Evaluators of the Maryland EBT Project found that cash
assistance recipients averaged 1.7 transactions per $100 in cash benefits. Given
that the basic SSI grant for a single individual will be in excess of $500 per
month by January 1999, it would appear that providing only four free ATM transactions
is, if anything, already on the low side.
26. According to a recent study of fringe banking in Milwaukee:
"Customers pay far more for services provided by a check cashing business
than they pay for the same services at a conventional bank. Fees for cashing
payroll checks nationwide generally range between one percent and three percent
of the face value of the check For personal checks the range was generally between
1.7 percent and 20 percent, averaging around 8 percent. In some instances, however,
fees and interest rates have been reported as high as 2000 percent. A study
by the New York Office of the Public Advocate found that a check cashing customer
with an annual income of $17,000 will pay almost $250 a year at a check cashing
business for services that would cost $60 at a bank. The Federal Reserve Bank
of Kansas City reported that a family with a $24,000 annual income using a check
cashing business will spend almost $400 in fees for services that would cost
under $110 at a bank." (Citations omitted). Squires and O'Connor, Fringe
Banking in Milwaukee: The Rise of Check Cashing Businesses and the Emergence
of Two-Tiered Banking System. (1997) at 5,6.
27. Payday loans are generally provided by check cashiers
who agree to cash a post-dated personal check with the understanding that it
will not be deposited until the customer's next payday. "Customers can
receive $50 for a check written in the amount of $60 and dated 14 days after
the cash is provided. ... The effective annual interest rate for this loan is
1,092 percent." Ibid, at 11, 12.
