[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Notices]
[Pages 64820-64825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31244]



[[Page 64819]]

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Part VI





Department of the Treasury





_______________________________________________________________________



Fiscal Service



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Electronic Transfer Account; Notice

  Federal Register / Vol. 63, No. 225 / Monday, November 23, 1998 / 
Notices  

[[Page 64820]]



DEPARTMENT OF THE TREASURY

Fiscal Service
RIN 1510-AA56


Electronic Transfer Account

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed Electronic Transfer Account features; 
request for comment.

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SUMMARY: The Debt Collection Improvement Act of 1996 (Act) amends 31 
U.S.C. 3332 to provide that, subject to the authority of the Secretary 
of the Treasury to grant waivers, all Federal payments, other than 
payments under the Internal Revenue Code, must be made by electronic 
funds transfer (EFT) beginning January 2, 1999. The Department of the 
Treasury (Treasury) published a final rule implementing this mandate, 
31 CFR part 208 (Part 208), on September 25, 1998. 63 FR 51490. Part 
208 provides that any individual who receives a Federal benefit, wage, 
salary, or retirement payment is eligible to open an Electronic 
Transfer Account, or ``ETASM,'' at any Federally-insured 
financial institution that elects to offer ETAsSM''. The 
preamble to the final rulemaking indicated that Treasury would 
separately publish for comment a notice of the proposed features of the 
ETASM. This notice describes proposed features of the 
ETASM and provides further opportunity for public comment. 
In addition, it requests comment on three other features that are not 
part of the basic ETASM to determine whether they should be 
added to the ETASM at the option of the financial 
institution and at additional cost, if any, to the account holder. 
After evaluating the comments received, Treasury will publish a notice 
in the Federal Register setting forth the required features for 
ETAsSM.

DATES: Written comments on the proposed account features must be 
received no later than January 7, 1999.

ADDRESSES: Comments should be sent to Cynthia L. Johnson, Director, 
Cash Management Policy and Planning Division, Financial Management 
Service, U.S. Department of the Treasury, Room 420, 401 14th Street, 
S.W., Washington, D.C., 20227. Comments also may be submitted 
electronically via e-mail to [email protected] or by filling 
out the ETASM comment form available on the EFT website at 
http://www.fms.treas.gov/eft/eta/. The final rule for Part 208, the 
proposed rule for Part 208 (208 NPRM), and comment letters received in 
response to the 208 NPRM, including comments on the ETASM 
and a summary of comments received in response to the specific 
ETASM-related questions raised in the 208 NPRM, are 
available on the Financial Management Service's EFT website at http://
www.fms.treas.gov/eft/. Comments received on this ETASM 
notice will be available for public inspection and downloading at the 
website address shown above and for public inspection and copying at 
the Department of the Treasury Library, Room 5030, 1500 Pennsylvania 
Avenue, N.W., Washington, D.C. To make an appointment to inspect 
comments, please call (202) 622-0990.

FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial 
Program Specialist, at (202) 874-7106; Matthew Friend, Financial 
Program Specialist, at (202) 874-6754; Natalie H. Diana at (202) 874-
6950; Cynthia L. Johnson, Director, Cash Management Policy and Planning 
Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor, 
at (202) 874-6681.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 31001(x) of the Act provides that, subject to the authority 
of the Secretary of the Treasury to grant waivers, all Federal 
payments, other than payments under the Internal Revenue Code, must be 
made by EFT beginning January 2, 1999.
    The Act authorizes the Secretary of the Treasury to waive the 
requirement to make Federal payments by EFT for individuals or classes 
of individuals for whom compliance imposes a hardship; for 
classifications or types of checks; or in other circumstances as may be 
necessary. In addition, the Act requires Treasury to ensure access to 
an account at a financial institution for individuals who are required 
to have an account because of the EFT mandate. Treasury must ensure 
that access is provided at reasonable cost and with the same consumer 
protections that are provided to other account holders at the same 
financial institution.
    On September 25, 1998, Treasury issued as a final rule Part 208, 
which implements the mandatory EFT requirement of the Act. 63 FR 51490. 
Part 208 provides, in part, that payment by EFT is not required where 
an individual determines, in his or her sole discretion, that payment 
by EFT would impose a hardship due to a physical or mental disability 
or a geographic, language, or literacy barrier, or would impose a 
financial hardship. An automatic waiver is granted for all individuals 
who do not have an account at a financial institution and who are 
eligible to open an ETASM until the ETASM becomes 
available.
    In addition, Part 208 provides that any individual who receives a 
Federal benefit, wage, salary, or retirement payment shall be eligible 
to open an account called an ETASM at any Federally-insured 
financial institution that chooses to offer ETAsSM. The 
ETASM will be made available to maximize opportunities for 
individuals receiving Federal payments electronically to have access to 
an account at reasonable cost and with the same consumer protections as 
other account holders at the same financial institution.
    In the 208 NPRM published on September 16, 1997, under Section E of 
the Section-by-Section Analysis, ``208.5--Access to Account Provided by 
Treasury,'' Treasury invited comment on several questions related to 
the ETASM and stated that it would publish proposed terms, 
conditions, and attributes of the account for further comment. 62 FR 
48714, 48721. Based on the comments received, Treasury has developed a 
listing of ETASM attributes, which are the subject of this 
notice. This notice is limited in scope to a discussion of the 
ETASM; it does not address other provisions of the 208 NPRM. 
Those provisions are discussed in the final rulemaking for Part 208, 
which was published in the Federal Register on September 25, 1998.
    Final Part 208 reflected a significant change in Treasury's 
approach to the ETASM from what was proposed in the 208 
NPRM. The 208 NPRM indicated that it was Treasury's intention to 
solicit bids from organizations interested in providing an account that 
would include certain specific attributes determined by Treasury. At 
the time the 208 NPRM was published, Treasury proposed to obtain 
account services through a competitive process that would select one or 
more entities to act as Treasury's financial agent within predefined 
geographic areas. After evaluating the comments received and conducting 
further research,1 however, Treasury considered two 
alternative approaches for offering the account. These two approaches 
were the subject of public meetings held on May 21, 1998, for the 
purpose of obtaining comments from consumer and

[[Page 64821]]

community-based organizations and from financial 
institutions.2
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    \1\ Treasury contracted for a study related to account features 
and distribution network options for the ETASM. A copy of 
the study is available at the Financial Management Service's EFT 
website at http://www.fms.treas.gov/eft/eta/.
    \2\ A summary of comments provided at the meetings held on May 
21, 1998, is available at the Financial Management Service's EFT 
website at http://www.fms.treas.gov/eft/eta/.
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    The first approach involved selecting a small number of financial 
institutions to act as Treasury's financial agents in providing 
ETAsSM. These financial agents would then sign up local 
financial institutions to market and originate ETAsSM. The 
second approach involved publishing standards for providing the 
ETASM, including account attributes, and allowing any 
Federally-insured financial institution that chooses to offer ETAs' to 
act as Treasury's financial agent to provide the ETASM in 
accordance with these standards and subject to terms set forth in an 
ETASM Financial Agency Agreement between Treasury and the 
financial institution. The agreement would provide that 
ETAsSM offered by the financial institution must meet the 
criteria described in the Federal Register notice listing the required 
ETASM features and would set forth the circumstances in 
which a financial institution may close an account for fraud or other 
reasons.
    As indicated in final Part 208, based on the comments received on 
the 208 NPRM and at public meetings and on geographic and economic data 
and analysis, Treasury decided to pursue the second approach to make 
the ETASM available to payment recipients. Representatives 
from both consumer organizations and financial institutions indicated 
that, while this approach does not ensure complete geographic coverage 
because no financial institution will be required to offer the 
ETASM, it encourages participation by financial institutions 
of all sizes. In addition, of the two approaches, it provides the 
greater opportunity for market competition. As a result, this approach 
will likely encourage competing financial institutions to offer lower 
cost accounts than might otherwise be offered. This approach also may 
minimize the impact of automated teller machine (ATM) surcharging by 
allowing recipients greater choice in selecting an ETASM at 
a conveniently located financial institution that offers the account. 
Moreover, research data indicate that the majority of check recipients 
are located in a relatively small number of geographic locations. Under 
the second approach, it is more likely that more than one financial 
institution will provide ETAsSM in those areas where check 
recipients are geographically concentrated, thereby further increasing 
competition among financial institutions and increasing choice among 
recipients living in those areas.
    In order to maximize the number of financial institutions that 
choose to offer ETAsSM, Treasury proposes to offer financial 
institutions financial compensation to establish and market the 
account. Treasury proposes to reimburse each financial institution that 
offers the ETASM a one-time fee per account established to 
offset the costs of setting up the account. Recent studies show that 
these set-up costs, which typically include costs to enroll and work 
with customers and the cost of issuing an on-line debit card, average 
approximately $12.60 per account.3 As an added incentive to 
financial institutions and to offset imputed marketing, training, and 
education costs, Treasury is considering compensating participating 
financial institutions an additional amount for each ETASM 
opened above designated minimum threshold numbers of accounts.
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    \3\ Cost estimates taken from Economic Waterfall Analyses, Dove 
Associates, Inc., June 1998. A copy of the analyses is available at 
the Financial Management Service's EFT website at http://
www.fms.treas.gov/eft/eta/.
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    Treasury seeks comment on whether, for purposes of compensating 
financial institutions, a distinction should be made between 
ETAsSM opened by individuals who already have an account at 
a financial institution and those who do not have an existing account, 
i.e., should Treasury compensate financial institutions for opening an 
ETASM for an individual who already has an existing account? 
If a distinction is made, how should the basis for that distinction be 
determined? In addition, Treasury seeks comment from financial 
institutions on the extent to which the proposed compensation 
arrangements will increase the number of financial institutions 
providing ETAsSM and on the most appropriate way to 
establish the minimum thresholds.
    Treasury will maintain and make publicly available to recipients 
and program agencies a list of participating ETASM 
providers. In addition, financial institutions offering 
ETAsSM will be permitted to display prominently a logo to be 
supplied by Treasury indicating that the ETASM is available 
at that financial institution.

B. Summary of ETASM Attributes

    After considering the comments received, Treasury proposes that the 
ETASM account have the following attributes, which would be 
set forth in an ETASM Financial Agency Agreement between 
Treasury and the financial institution offering the account. Specific 
attributes are explained in more detail below. As proposed, the 
ETASM would:
     Be an individually owned account at a Federally-insured 
financial institution;
     Be available to any individual who receives a Federal 
benefit, wage, salary, or retirement payment;
     Accept only electronic Federal benefit, wage, salary, and 
retirement payments;
     Be subject to a maximum price of $3.00 per month;
     Have a minimum of four cash withdrawals per month, to be 
included in the monthly fee, through a) the financial institution's 
proprietary (on-us) ATMs, b) over-the-counter transactions at the main 
office or a branch of the financial institution, or c) any combination 
of on-us ATM access and over-the-counter access at the option of the 
financial institution; 4
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    \4\ Financial institutions may provide additional withdrawals at 
no charge or for a fee.
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     Provide the same consumer protections that are available 
to other account holders at the financial institution, including, for 
accounts that provide electronic access, Regulation E protections 
regarding disclosure, limitations on liability, procedures for 
reporting lost or stolen cards, and procedures for error resolution;
     For financial institutions that are members of point-of-
sale (POS) networks, allow POS purchases at no additional charge by the 
financial institution offering the ETASM, as well as cash 
withdrawals and cash back with purchases, consistent with current 
commercial practice;
     Require no minimum balance, except as required by Federal 
or State law; and
     Provide a monthly statement.
    Treasury welcomes comments on the above attributes. Treasury also 
seeks comments on three other features that are not part of the basic 
ETASM to determine whether any or all of the features should 
be added to the ETASM at the option of the financial 
institution and at additional cost, if any, to the account holder. 
These features--payment of interest on balances; allowing deposits of 
other electronic funds; and providing pre-authorized Automated Clearing 
House (ACH) debit capability--are discussed in Section D of this 
notice.

[[Page 64822]]

C. Discussion of Proposed ETASM Attributes

Individual Account/Availability

    The ETASM, as proposed, would be an individually owned 
account established at a Federally-insured financial institution. A 
financial institution that chooses to offer ETAsSM would be 
required to make an ETASM available to any recipient of a 
Federal benefit, wage, salary, or retirement payment who requests an 
ETASM, unless the institution is prohibited by law from 
maintaining an account for the recipient (for example, where a 
recipient does not meet a credit union's field of membership 
requirements). As mentioned above, financial institutions that choose 
to offer ETAsSM would be permitted to close an 
ETASM in certain circumstances to be delineated by Treasury. 
However, financial institutions would not be permitted to deny an 
ETASM to any eligible recipient.
    By requiring that these accounts be held at Federally-insured 
financial institutions, Treasury can ensure that ETASM 
holders' funds are being deposited into accounts that have Federal 
deposit insurance. Federally-insured financial institutions are subject 
to comprehensive Federal regulation and oversight through examinations 
for safety-and-soundness and compliance with consumer protection laws.

Deposits

    Treasury is proposing to limit the types of funds that may be 
deposited to an ETASM to electronic Federal benefit, wage, 
salary, and retirement payments. Permitting financial institutions to 
accept electronic deposits of other types of payments in addition to 
Federal benefit, wage, salary, and retirement payments to the 
ETASM would have implications with respect to the potential 
attachment of funds in the account. As discussed more fully below, a 
number of consumer and community-based organizations that commented on 
the proposed rule pointed out that many individuals do not utilize 
accounts at financial institutions because they fear that funds 
deposited to such accounts will become subject to attachment by 
creditors.
    Most Federal benefit payments, including Social Security benefits, 
Supplemental Security Income benefits, Veteran's benefits, and Federal 
Railroad Retirement benefits, are protected from attachment and the 
claims of judgment creditors by Federal law, subject to certain limited 
exceptions.5 The U.S. Supreme Court has held that Federal 
benefit payments remain exempt from attachment after they are deposited 
in a bank account.6 Where all of the funds deposited into an 
account are exempt Federal benefits, most courts have held that the 
account itself is wholly exempt from attachment. If exempt funds are 
commingled with funds from other sources in a bank account, the exempt 
funds generally continue to be protected from attachment. However, 
courts have held that the burden of proving that particular funds in an 
account are not subject to attachment is on the depositor. Courts in 
different jurisdictions have used different accounting methods to 
determine whether funds in an account are considered to be exempt or 
nonexempt.
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    \5\ See 42 U.S.C. Sec. 407(a); 42 U.S.C. Sec. 1383; 38 U.S.C. 
Sec. 530; and 45 U.S.C. Sec. 231m(a). The prohibition against 
attaching such funds is subject to certain exceptions, including to 
satisfy child support and alimony obligations. See, e.g., 42 U.S.C. 
Sec. 659.
    \6\ Philpott v. Essex County Welfare Board, 409 U.S. 413, 416 
(1973).
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    Limiting the types of funds that can be deposited to an 
ETASM would facilitate a recipient's ability to defend 
against impermissible attachments. Treasury expects that, although 
Federal wage, salary, and retirement payments, in addition to Federal 
benefit payments, could be deposited to an ETASM, the 
majority of ETAsSM would be utilized for the receipt of 
Federal benefit payments only. In those cases, ETAsSM would 
not be subject to attachment, with limited exceptions (e.g., for child 
support obligations). If other types of payments were allowed to be 
deposited to an ETASM, however, those payments would be 
subject to attachment, and the burden would be on the account holder to 
defend against the attachment.
    Some consumer and community-based organizations pointed out that 
statutes protecting Federal benefit payments from attachment are not 
necessarily construed to prohibit a financial institution that 
maintains an account from setting off obligations of the depositor 
against the account. Specifically, several courts have held that 
statutes prohibiting attachment do not affect a bank's right to set off 
a depositor's obligations to the bank 7 against an account 
into which benefit payments have been deposited, on the grounds that a 
bank's exercise of its right of set off does not constitute 
``execution, levy, attachment or other legal process.'' 8 
For this reason, some commenters urged Treasury to prohibit financial 
institutions that establish ETAsSM from exercising any right 
of set off against an ETASM.
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    \7\ A bank may exercise a right of set off against an account 
only for obligations owed by the depositor to the bank itself, and 
not for obligations of the depositor to third parties, such as child 
support or general creditor claims.
    \8\ See Frazier v. Marine Midland Bank, 702 F. Supp. 1000 
(W.D.N.Y. 1988)(citing In re Gillespie, 41 Bankr. 810 (Bankr. D. 
Colo. 1984)).
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    Treasury recognizes that it is not clear under existing case law 
that Federal statutes prohibiting the attachment of Federal benefit 
payments would prohibit a financial institution that offers 
ETAsSM from debiting an ETASM, without the 
account holder's consent, for fees, loan payments, or other obligations 
owed by the account holder to the financial institution. Treasury 
expects that financial institutions offering ETAsSM will 
market other products and services to recipients. While Treasury 
encourages financial institutions to offer recipients banking products 
and services to further Treasury's goal of bringing persons without 
accounts into the financial mainstream, Treasury is concerned that 
financial institutions might offset fees and obligations related to 
such products against ETAsSM. Many recipients depend on 
their benefit payments to meet day-to-day living expenses. In light of 
the special nature of payments deposited to ETAsSM and the 
vulnerability of benefit recipients to any unexpected reduction in the 
funds available in their account, Treasury intends, through the 
ETASM Financial Agency Agreement, to prohibit institutions 
that elect to offer ETAsSM from exercising any right of set 
off against an ETASM, with the exception of the monthly 
account fee or charges for additional withdrawals from the 
ETASM.

Cost to Recipient

    Treasury proposes that financial institutions that choose to offer 
ETAsSM would be permitted to charge a monthly fee not to 
exceed $3.00 per month. Treasury will evaluate the appropriateness of 
this pricing from time to time, and will make adjustments periodically 
as warranted. All attributes listed in the ``Summary'' section of this 
notice must be included within the monthly fee to the recipient.
    In general, consumer and community-based organizations favored the 
establishment of a maximum monthly fee for the ETASM. In 
their comments on the 208 NPRM, these organizations expressed a concern 
that the price, if left to financial institutions, might be out of 
reach for those recipients for whom traditional account fees are too 
high. These organizations indicated that cost is one of the main 
reasons some

[[Page 64823]]

recipients choose not to open an account at a financial institution.
    In their comments, financial institutions expressed support for an 
approach in which the institutions themselves would determine the 
monthly account fee. They stated that only by allowing the institutions 
offering the ETASM to determine fees would they be able to 
develop accounts at the lowest possible cost. They also indicated that 
more financial institutions would participate if fees were unregulated.
    Treasury research indicates that the average monthly cost of 
providing an account with the attributes listed in this notice, 
including a reasonable profit, falls within the $3.00 maximum price. 
Research data also indicate that, while some recipients cash their 
checks for free, recipients who pay to cash checks pay anywhere from 
one percent to six percent of the amount of the check for this 
service.9 Based on the average Federal benefit payment, 
recipients could pay anywhere from $6.50 to $39.30 to cash a check.
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    \9\ Percentages taken from the Survey of Commercial Check 
Cashing Rates, Chaddsford Planning Associates, June 12, 1997.
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    Based on this information, Treasury believes that the $3.00 maximum 
monthly fee should provide incentives both to financial institutions to 
offer the account and to recipients to sign up for the account. 
Treasury recognizes, however, that not all financial institutions may 
elect to offer the ETASM account and not all recipients may 
find the account attractive. Accordingly, recipients may elect to 
continue to receive a check if the ETASM is unaffordable or 
the financial institutions offering the account are not conveniently 
located, or for another reason, by relying on a financial, 
geographical, or other hardship waiver provided in Part 208.

Access to Funds and Balance Information

    As proposed, access to funds and balance information may be 
provided by ETASM providers through one of three methods: 
(1) Electronically through ATMs or other electronic means, (2) over-
the-counter at ETASM provider main office or branch 
locations, or (3) through a combination of electronic and over-the-
counter transactions. Any method may be used at the option of the 
financial institution as long as a minimum of four cash withdrawals are 
provided within the $3.00 monthly fee. A financial institution may 
offer additional withdrawals at no cost or at an additional fee to the 
account owner.
    It is expected that over-the-counter cash withdrawals either 
automatically include an account balance or will include an account 
balance if requested by the recipient. Treasury further assumes that 
on-us ATM cash withdrawals generally will produce a transaction receipt 
that includes the balance of the account. Balance information will be 
available on the required monthly statement, discussed below. Balance 
information also may be included as part of a financial institution's 
customer service program, to be offered to the ETASM account 
holder at the ETASM provider's discretion.
    In their comments on the 208 NPRM, consumer and community-based 
organizations stated that some recipients may not be able to use ATMs 
because of mental, language, literacy, or other barriers and may be 
forced to rely on hardship waivers. These organizations explained that 
these recipients, who may otherwise have been interested in a basic 
low-cost ETASM, effectively will be denied an opportunity to 
transition into the financial services mainstream because of this 
inability to use ATMs. As an alternative to ATMs, these organizations 
suggested that ETASM providers offer over-the-counter access 
to funds, such as through a teller. A large association representing 
older Americans commented that its constituency, in some cases, will 
have difficulty using an ATM. This commenter also called for an option 
for over-the-counter transactions.
    A credit union association commented that many smaller credit 
unions do not have ATMs and if ETAsSM were to be accessed 
solely by electronic means these credit unions would be precluded from 
offering ETAsSM. The association argued that these credit 
unions are otherwise in a good position to provide the accounts because 
of their locations in smaller communities and because they already 
offer low-cost accounts. A consumer organization commented that many 
smaller community banks also do not have ATMs.
    It is Treasury's objective to provide recipients with as many 
options for accessing funds as can be provided within the constraints 
of a low monthly fee. Allowing over-the-counter transactions would give 
financial institutions added flexibility in designing an account based 
on their capabilities and their customers' needs. Treasury expects that 
allowing over-the-counter transactions will increase the number of 
financial institutions that elect to offer ETAsSM and the 
number of recipients who sign up for an ETASM and thereby 
bring more recipients into the financial services mainstream.
    In determining the number of cash withdrawals to include in the 
monthly account fee, Treasury weighed the advantages of providing 
multiple cash withdrawals against their cost, recognizing that the more 
transactions provided, the higher the monthly cost. Treasury used cost 
data developed for it by an outside contractor (see footnote 1) in 
reaching its determination.
    The reference in the list of attributes to a ``minimum'' number of 
cash withdrawals is intended to permit a financial institution, within 
the ETASM structure, to offer additional cash withdrawals as 
long as the first four withdrawals are included within the $3.00 
maximum price. Additional withdrawals may be subject to fees that are 
the responsibility of the recipient. Additionally, if the account is 
accessed through a network ATM owned by another institution, the 
account holder will be responsible for any charges assessed by the ATM 
owner.
    For accounts that offer electronic access, such electronic access 
is proposed to be on-line electronic access only. Providing off-line 
electronic access almost certainly would raise the cost of an account 
to a payment recipient. Furthermore, as pointed out by some consumer 
organizations, limiting access to on-line electronic access only will 
reduce the possibility of overdrafts and associated fees.
    In addition, financial institutions offering ETAsSM 
would be prohibited under the ETASM Financial Agency 
Agreement from entering into arrangements with non-financial 
institutions to provide access to ETAsSM, other than access 
through a national or regional ATM/POS network. Treasury is concerned 
that such arrangements may be confusing or misleading to recipients 
and, therefore, will not permit financial institutions to enter into 
such arrangements with respect to the offering of the ETASM.
    Treasury continues to explore ways to expand access to the 
ETASM in areas underserved by financial institutions. These 
efforts include working with other public entities to expand ATM 
access.

Consumer Protections

    ETAsSM will be subject to those consumer protections 
available to other account holders at the same financial institution. 
This requirement is in accordance with the Act's statutory mandate to 
ensure that recipients ``are given the same consumer protections with 
respect to the [ETASM] as other account holders at the same 
financial

[[Page 64824]]

institution.'' This means, for example, that an ETASM will 
be subject to the Truth in Savings Act disclosures found in Regulation 
DD (12 CFR Part 230). Also, an ETASM that provides 
electronic access will be subject to Regulation E (12 CFR Part 205), 
i.e., the ETASM holder will be provided with disclosure of 
terms and conditions of the account, limitations on the holder's 
liability for unauthorized transfers, and procedures for reporting lost 
or stolen cards and for error resolution.

POS

    For those accounts that provide electronic access, the proposed 
ETASM would allow for POS withdrawals and purchases that are 
consistent with current commercial practice. Studies show that more and 
more merchants are offering on-line POS purchases with cash back. This 
means a recipient can withdraw funds at the same time he or she is 
making a purchase using a debit card at a POS terminal. Some merchants 
offer cash withdrawals with no purchase required. However, 
ETASM holders should be aware that POS withdrawals, in some 
cases, may be subject to fees by merchants offering POS transactions. 
The recipient is responsible for any fees imposed by the merchant; 
however, under the proposed ETASM, there would be no 
additional fees for these transactions imposed by the financial 
institution providing the ETASM.

Minimum Balance

    Except in limited circumstances discussed below, the 
ETASM would have no minimum balance requirement. The average 
monthly dollar amount for Federal benefit payments is approximately 
$650, and a majority of recipients withdraw most of their funds within 
the first five days of deposit. Requiring a minimum balance would 
effectively reduce the amount of the benefits available to the 
recipient to pay bills and make other subsistence purchases. The only 
exception to this required attribute is where a minimum balance is 
mandated by Federal or State law. For example, in the case of credit 
unions, under 12 U.S.C. 1759, a Federal credit union member must 
subscribe to at least one share of stock.

Monthly Statement

    The ETASM, as proposed, would have a monthly statement. 
Treasury is aware that under Regulation E, when government benefits are 
delivered electronically to a recipient, a periodic account statement 
may not be required if the recipient has access to account information 
through other specified means. See 12 CFR 205.15. Treasury also is 
aware that the cost of providing a monthly statement necessarily will 
be included in the monthly account charge to recipients. Treasury 
believes, however, that it is important to provide recipients with a 
monthly statement, particularly since the ETASM allows for 
POS withdrawals and purchases, and account balances are often not 
provided in connection with such transactions. In addition, providing a 
monthly statement would provide account balances that may not be 
available to a recipient if the ETASM provider does not 
offer daily 24-hour telephone customer service for account balance 
inquiries.

D. Discussion of Other Features

    Treasury is requesting specific comment on three additional 
features that are not included in the list of basic ETASM 
attributes. Treasury is interested in obtaining feedback to determine 
whether any or all of these other features should be added at the 
option of the financial institution and at additional cost, if any, to 
the recipient. These features are (1) paying interest on account 
balances, (2) allowing for additional electronic deposits, and (3) 
providing for third-party ACH payments.
    Each of the additional features offers potential benefits to some 
portion of eligible Federal payment recipients. Therefore, permitting 
these features may encourage more recipients to sign up for an 
ETASM, potentially resulting in increased long-term savings 
to the Government. These additional features also may help to create a 
useful intermediate step for those without accounts at financial 
institutions in their transition to the financial services mainstream. 
For these reasons, if these features are permitted to be offered by 
financial institutions as part of the ETASM, Treasury would 
consider whether to reimburse a financial institution an additional set 
fee per ETASM providing for such features.
    There may be, however, potential disadvantages and costs associated 
with these additional features. Many financial institutions commented 
that the ETASM should be designed as a basic account that 
could be easily offered by any financial institution and easily 
understood by recipients. Variation in ETASM features may be 
confusing to recipients and more difficult to market as a standard 
product. Additionally, variation in the features of the 
ETASM may make it harder to protect the ETASM 
mark and ensure that the mark is used only by those financial 
institutions that have entered into an ETASM Financial 
Agency Agreement. Adding features, even as options, poses the risk that 
financial institutions will not be willing to participate, or that 
recipients who already have an account at a financial institution may 
switch to a low-cost ETASM.
    Treasury seeks specific comment as to whether the potential 
advantages of each of the three features outweigh the potential 
disadvantages. Treasury will consider carefully the comments received, 
but may decide not to add any of the features if it determines that the 
potential disadvantages make the features unsuitable for the 
ETASM or the associated cost is determined to be too high. 
Further, if a decision is made to allow additional features, any 
financial institution that offers an ETASM with the 
additional features must also make available to recipients an 
ETASM without the additional features.
    Regardless of whether any of these other features is added to the 
ETASM, financial institutions are encouraged to offer 
recipients other non-ETASM accounts that meet recipients' 
needs, including accounts that offer features beyond those contained in 
the ETASM, such as checking accounts. However, while such 
accounts may be used for the receipt of Federal payments by EFT, these 
accounts are not considered to be ETAsSM and may not be 
advertised as such.

Interest on Account Balance

    Treasury believes that the payment of interest on ETAsSM 
could encourage more individuals to sign up for ETAsSM and 
could encourage and facilitate savings by low income recipients. In 
addition, financial institutions could potentially benefit from the 
higher daily balances that could result from permitting this feature.
    However, Treasury research indicates that account balances will 
likely be drawn down very quickly after deposit and, therefore, 
interest earnings by recipients could be very small. Additionally, 
interest accumulated in such accounts may be attachable. Finally, 
including a savings feature may modestly increase the costs to the 
financial institution of providing the account. These costs could 
include interest payments and costs for Truth in Savings Act 
disclosures and 1099 tax reporting.

Additional Deposits

    Permitting financial institutions to accept electronic deposits of 
other types of payments in addition to Federal benefit, wage, salary, 
and retirement payments to the ETASM would enable broader 
use of the ETASM for deposits and payments from other 
sources,

[[Page 64825]]

including matching funds under individual development account programs. 
This would help to meet Treasury's overall goal of bringing recipients 
into the financial mainstream. In addition, this could assist financial 
institutions that might find it difficult to refuse customer requests 
to deposit other funds into their accounts.
    However, as discussed previously in Section C of this notice under 
the subheading ``Deposits,'' permitting other types of payments to be 
deposited to the ETASM would have implications with respect 
to the potential attachment of funds in the account, and could add 
complexity and expense to the account. If financial institutions were 
permitted to allow additional payments into the ETASM, 
Treasury would want to assure that recipients were given appropriate 
disclosures regarding the possible attachment of funds and would 
encourage Federal payment agencies to issue clear resolution rules to 
help recipients and financial institutions determine which funds cannot 
be attached.

Third-Party ACH Debit

    Treasury recognizes that the ability for recipients to initiate 
preauthorized third-party debit transactions would be a convenient and 
cost-saving means for recipients to pay recurring bills such as rent, 
utilities, and cable television. Such a feature could reduce 
recipients' reliance on money orders and cash, thereby enabling 
recipients to avoid the cost of money orders, save time expended in 
traveling to pay bills in cash, and reduce the potential losses and 
thefts associated with carrying cash to pay bills. Thus, because of the 
convenience of this feature, more recipients might sign up for 
ETAsSM and more individuals might be brought into the 
financial services mainstream.
    However, because of differences in clearance mechanisms between ACH 
debits and ATM withdrawals, permitting ACH debits might result in 
overdrafts to ETAsSM or rejected transactions, which would 
result in higher costs both to financial institutions and recipients. 
Moreover, Treasury is concerned that recipients inadvertently could 
authorize ACH debit entries to pay for goods and services that are not 
delivered or are not as represented, thereby incurring unexpected 
losses. Treasury is aware of some incidents of ACH debit fraud, as well 
as the difficulties that consumers sometimes encounter in dealing with 
legitimate merchants, including difficulties in revoking preauthorized 
debit authorizations. In addition, Treasury believes that the costs of 
administering the ETASM could increase as a result of the 
additional customer service burden that would be imposed on financial 
institutions in dealing with recipient inquiries related to such 
transactions.

    Dated: November 18, 1998.
Richard L. Gregg,
Commissioner.
[FR Doc. 98-31244 Filed 11-19-98; 8:45 am]
BILLING CODE 4810-35-P