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Federal Reserve Bank of Dallas HELEN E.HOLCOMB DALLAS, TEXAS FIRST VICE PR ES ID EN T AND 7526 5-5906 CH IE F O PE R A TIN G OFFICER December 8, 1998 Notice 98-114 TO: The Chief Operating Officer of each financial institution and others concerned in the Eleventh Federal Reserve District SUBJECT Notice and Request for Public Comment on Proposed Electronic Transfer Account Features DETAILS The Department of the Treasury, Financial Management Service, has issued a notice and requested public comment on proposed Electronic Transfer Account (ETA) features. In cluded for comment are three additional features that are not part of the basic ETA. The Trea sury wants to determine whether to add the additional features to the ETA at the option of the financial institution and at additional cost, if any, to the account holder. Emphasizing the significance of this notice to individual account holders and finan cial institutions, the Treasury requests that the notice be reviewed carefully. All comments, whether suggestions or clarifications, must be received by January 7, 1999. Please address comments 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, DC 20227. Comments also may be submitted via the Internet at <http:// www.fms.treas/eft/eta>, or you may E-mail comments to firstname.lastname@example.org. ATTACHMENT A copy of the Treasury Department’s notice as it appears on pages 64820-25, Vol. 63, No. 225 of the Federal Register dated November 23, 1998, is attached. For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) MORE INFORMATION If you have any questions, please contact (at the Board) Sally Phillips, Senior Finan cial Program Specialist at (202) 874-7106, or Matthew Friend, Financial Program Specialist at (202) 874-6754. For additional copies of this Bank’s notice, contact the Public Affairs Depart ment at (214) 922-5254. Sincerely, Monday November 23, 1998 Part VI Department of the Treasury Fiscal Service Electronic Transfer Account; Notice 64820 Federal Register/Vol. 63, No. 225/Monday, November 23, 1998/Notices DEPARTMENT OF THE TREASURY Fiscal Service RIN 1510-AA56 Electronic Transfer Account AGENCY: Financial M anagement Service, Fiscal Service, Treasury. ACTION: Notice of proposed Electronic Transfer A ccount features; request for comment. The Debt Collection Improvem ent 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 paym ents, other than paym ents under the Internal Revenue Code, m ust be m ade by electronic funds transfer (EFT) beginning January 2,1999. The D epartm ent of the Treasury (Treasury) published a final rule im plem enting 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 retirem ent paym ent is eligible to open an Electronic Transfer Account, or “ETASM,” at any Federally-insured financial institution that elects to offer ETAsSM” . The pream ble to the final rulem aking indicated that Treasury w ould separately p ublish for com m ent 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 com m ent on three other features that are not part of the basic ETASM to determ ine w hether 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 com ments received, Treasury w ill publish a notice in the Federal Register setting forth the required features for ETAsSM. DATES: W ritten comments on the proposed account features m ust be received no later than January 7,1999. ADDRESSES: Comments should be sent to Cynthia L. Johnson, Director, Cash M anagement Policy and Planning Division, Financial Management Service, U.S. D epartment of the Treasury, Room 420, 401 14th Street, S.W., W ashington, D.C., 20227. Comments also m ay be subm itted electronically via e-mail to eta.comments@ fms.sprint.com or by filling out the ETASM com m ent form available on the EFT w ebsite at http:// w w w .fm s.treas.gov/eft/eta/. The final rule for Part 208, the proposed rule for Part 208 (208 NPRM), and comment SUMMARY: letters received in response to the 208 NPRM, including comm ents on the ETASM and a sum m ary of comments received in response to the specific ETASM -related questions raised in the 208 NPRM, are available on the Financial M anagement Service’s EFT website at http://w w w .fm s.treas.gov/ eft/. Comments received on this ETASM notice w ill be available for public inspection and dow nloading at the website address show n above and for public inspection and copying at the D epartm ent of the Treasury Library, Room 5030,1500 Pennsylvania Avenue, N.W., W ashington, D.C. To make an appointm ent to inspect comments, please call (202) 622-0990. FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial Program Specialist, at (202) 874-7106; M atthew Friend, Financial Program Specialist, at (202) 874-6754; Natalie H. Diana at (202) 874-6950; Cynthia L. Johnson, Director, Cash M anagement 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 paym ents under the Internal Revenue Code, m ust be m ade by EFT beginning January 2, 1999. The Act authorizes the Secretary of the Treasury to waive the requirem ent to make Federal paym ents by EFT for individuals or classes of individuals for w hom com pliance imposes a hardship; for classifications or types of checks; or in other circum stances as may be necessary. In addition, the Act requires Treasury to ensure access to an account at a financial institution for individuals w ho are required to have an account because of the EFT mandate. Treasury m ust ensure that access is provided at reasonable cost and w ith the same consum er 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, w hich im plem ents the m andatory EFT requirem ent of the Act. 63 FR 51490. Part 208 provides, in part, that paym ent by EFT is not required w here an individual determ ines, in his or her sole discretion, th at paym ent by EFT w ould impose a hardship due to a physical or m ental disability or a geographic, language, or literacy barrier, or w ould impose a financial hardship. An autom atic waiver is granted for all individuals w ho do not have an account at a financial institution and w ho are eligible to open an ETASM u ntil the ETASM becomes available. In addition, Part 208 provides that any individual w ho receives a Federal benefit, wage, salary, or retirem ent paym ent shall be eligible to open an account called an ETASM at any Federally-insured financial institution that chooses to offer ETAsSM. The ETASM w ill be made available to m aximize opportunities for individuals receiving Federal paym ents electronically to have access to an account at reasonable cost and w ith the same consum er protections as other account holders at the same financial institution. In the 208 NPRM published on September 16, 1997, u n d er 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 w ould publish proposed terms, conditions, and attributes of the account for further comment. 62 FR 48714, 48721. Based on the com m ents received, Treasury has developed a listing of ETASM attributes, w hich are the subject of this notice. This notice is lim ited 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 rulem aking for Part 208, w hich 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 w hat 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 w ould include certain specific attributes determ ined by Treasury. At the tim e the 208 NPRM was published, Treasury proposed to obtain account services through a com petitive process that w ould select one or more entities to act as Treasury’s financial agent w ithin 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 consum er and 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/. Federal Register/Vol. 63, No. 225/Monday, November 23, 1998/Notices com m unity-based organizations and from financial institutions.2 The first approach involved selecting a small num ber of financial institutions to act as Treasury’s financial agents in providing ETAsSM. These financial agents w ould then sign up local financial institutions to m arket and originate ETAsSM. The second approach involved publishing standards for providing the ETASM, including account attributes, and allowing any Federallyinsured financial institution that chooses to offer ETAs’ to act as Treasury’s financial agent to provide the ETASM in accordance w ith these standards and subject to term s set forth in an ETASM Financial Agency Agreement betw een Treasury and the financial institution. The agreement w ould provide that ETAsSM offered by the financial institution m ust m eet the criteria described in the Federal Register notice listing the required ETASM features and w ould set forth the circum stances in w hich a financial institution m ay 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 paym ent recipients. Representatives from both consum er organizations and financial institutions indicated that, w hile this approach does not ensure com plete geographic coverage because no financial institution w ill 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 com petition. As a result, this approach w ill likely encourage competing financial institutions to offer low er cost accounts than m ight otherwise be offered. This approach also may m inim ize the im pact of autom ated teller m achine (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 num ber of geographic locations. Under the second approach, it is more likely that more than one financial institution will provide ETAsSM in those areas w here check recipients are geographically concentrated, thereby 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/. further increasing com petition among financial institutions and increasing choice among recipients living in those areas. In order to maxim ize the num ber of financial institutions that choose to offer ETAsSM, Treasury proposes to offer financial institutions financial com pensation to establish and market the account. Treasury proposes to reim burse 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, w hich typically include costs to enroll and w ork w ith custom ers and the cost of issuing an on-line debit card, average approxim ately $12.60 per account.3 As an added incentive to financial institutions and to offset im puted marketing, training, and education costs, Treasury is considering com pensating participating financial institutions an additional am ount for each ETASM opened above designated m inim um threshold numbers of accounts. Treasury seeks com ment on w hether, for purposes of compensating financial institutions, a distinction should be m ade betw een ETAsSM opened by individuals w ho already have an account at a financial institution and those w ho do not have an existing account, i.e., should Treasury com pensate financial institutions for opening an ETASM for an individual w ho already has an existing account? If a distinction is made, how should the basis for that distinction be determ ined? In addition, Treasury seeks com ment from financial institutions on the extent to w hich the proposed com pensation arrangements w ill increase the num ber of financial institutions providing ETAsSM and on the m ost appropriate way to establish the m inim um thresholds. Treasury w ill m aintain and make publicly available to recipients and program agencies a list of participating ETASM providers. In addition, financial institutions offering ETAsSM w ill be perm itted to display prom inently 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 comm ents received, Treasury proposes that the ETASM account have the following attributes, w hich w ould be set forth in 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/. 64821 an ETASM Financial Agency Agreement betw een Treasury and the financial institution offering the account. Specific attributes are explained in m ore detail below. As proposed, the ETASM would: • Be an individually ow ned account at a Federally-insured financial institution; • Be available to any individual who receives a Federal benefit, wage, salary, or retirem ent payment; • A ccept only electronic Federal benefit, wage, salary, and retirem ent payments; • Be subject to a m axim um price of $3.00 per month; • Have a m inim um of four cash w ithdraw als per m onth, to be included in the m onthly fee, through a) the financial institution’s proprietary (on us) ATMs, b) over-the-counter transactions at the m ain office or a branch of the financial institution, or c) any com bination of on-us ATM access and over-the-counter access at the option of the financial institutio n ;4 • Provide the same consum er protections that are available to other account holders at the financial institution, including, for accounts that provide electronic access, Regulation E protections regarding disclosure, lim itations 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 w ithdraw als and cash back w ith purchases, consistent w ith current commercial practice; • Require no m inim um balance, except as required by Federal or State law; and • Provide a m onthly statement. Treasury welcomes comments on the above attributes. Treasury also seeks com ments on three other features that are not part of the basic ETASM to determ ine w hether 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— paym ent of interest on balances; allowing deposits of other electronic funds; and providing pre-authorized A utom ated Clearing House (ACH) debit capability—are discussed in Section D of this notice. 4 Financial institutions may provide additional withdrawals at no charge or for a fee. 64822 Federal Register/Vol. 63, No. 225/M onday, November 23, 1998/Notices C. Discussion of Proposed ETASM Attributes Individual A ccount/A vailability The ETASM, as proposed, w ould be an individually ow ned account established at a Federally-insured financial institution. A financial institution that chooses to offer ETAsSM w ould be required to make an ETASM available to any recipient of a Federal benefit, wage, salary, or retirem ent paym ent who requests an ETASM, unless the institution is prohibited by law from m aintaining an account for the recipient (for example, w here a recipient does not m eet a credit u n io n ’s field of m em bership requirements). As m entioned above, financial institutions that choose to offer ETAsSM w ould be perm itted to close an ETASM in certain circum stances to be delineated by Treasury. However, financial institutions w ould not be perm itted 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. Federallyinsured financial institutions are subject to com prehensive Federal regulation and oversight through exam inations for safety-and-soundness and com pliance w ith consum er protection laws. Deposits Treasury is proposing to lim it the types of funds that may be deposited to an ETASM to electronic Federal benefit, wage, salary, and retirem ent payments. Perm itting financial institutions to accept electronic deposits of other types of paym ents in addition to Federal benefit, wage, salary, and retirem ent paym ents to the ETASM w ould have im plications w ith respect to the potential attachm ent of funds in the account. As discussed more fully below, a num ber of consum er and com munitybased organizations that com m ented on the proposed rule pointed out that m any individuals do not utilize accounts at financial institutions because they fear that funds deposited to such accounts w ill become subject to attachm ent by creditors. Most Federal benefit payments, including Social Security benefits, Supplem ental Security Income benefits, Veteran’s benefits, and Federal Railroad Retirement benefits, are protected from attachm ent and the claims of judgm ent creditors by Federal law, subject to certain lim ited exceptions.5 The U.S. 5 See 42 U.S.C. § 407(a); 42 U.S.C. §1383; 38 U.S.C. § 530; and 45 U.S.C. § 231m(a). The Supreme Court has held that Federal benefit paym ents rem ain exem pt from attachm ent after they are deposited in a bank account.6 W here all of the funds deposited into an account are exem pt Federal benefits, m ost courts have held that the account itself is w holly exem pt from attachm ent. If exem pt funds are com m ingled w ith funds from other sources in a bank account, the exempt funds generally continue to be protected from attachm ent. However, courts have h eld that the burden of proving that particular funds in an account are not subject to attachm ent is on the depositor. Courts in different jurisdictions have used different accounting m ethods to determ ine w hether funds in an account are considered to be exempt or nonexempt. Limiting the types of funds that can be deposited to an ETASM w ould facilitate a recipient’s ability to defend against im perm issible attachments. Treasury expects that, although Federal wage, salary, and retirem ent payments, in addition to Federal benefit payments, could be deposited to an ETASM, the majority of ETAsSM w ould be utilized for the receipt of Federal benefit paym ents only. In those cases, ETAsSM w ould not be subject to attachment, w ith lim ited exceptions (e.g., for child support obligations). If other types of paym ents were allow ed to be deposited to an ETASM, however, those paym ents w ould be subject to attachm ent, and the burden w ould be on the account holder to defend against the attachment. Some consum er and communitybased organizations pointed out that statutes protecting Federal benefit paym ents from attachm ent are not necessarily construed to prohibit a financial institution that m aintains an account from setting off obligations of the depositor against the account. Specifically, several courts have held that statutes prohibiting attachm ent do not affect a b ank’s right to set off a depositor’s obligations to the b a n k 7 against an account into w hich benefit paym ents have been deposited, on the grounds that a bank’s exercise of its right of set off does not constitute “ execution, levy, attachm ent or other legal process.” 8 For this reason, some com m enters urged Treasury to prohibit financial institutions that establish ETAsSM from exercising any right of set off against an ETASM. Treasury recognizes that it is not clear u nder existing case law that Federal statutes prohibiting the attachm ent of Federal benefit paym ents w ould prohibit a financial institution that offers ETAsSM from debiting an ETASM, w ithout the account holder’s consent, for fees, loan paym ents, or other obligations owed by the account holder to the financial institution. Treasury expects that financial institutions offering ETAsSM w ill m arket other products and services to recipients. W hile Treasury encourages financial institutions to offer recipients banking products and services to further Treasury’s goal of bringing persons w ithout accounts into the financial m ainstream , Treasury is concerned that financial institutions m ight offset fees and obligations related to such products against ETAsSM. Many recipients depend on their benefit paym ents to m eet day-to-day living expenses. In light of the special nature of paym ents 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, w ith the exception of the m onthly account fee or charges for additional w ithdraw als from the ETASM. Cost to Recipient Treasury proposes that financial institutions that choose to offer ETAsSM w ould be perm itted to charge a m onthly fee not to exceed $3.00 per month. Treasury w ill evaluate the appropriateness of this pricing from time to time, and w ill make adjustm ents periodically as w arranted. All attributes listed in the “Sum m ary” section of this notice m ust be included w ithin the m onthly fee to the recipient. In general, consum er and communitybased organizations favored the establishm ent of a m axim um m onthly fee for the ETASM. In their comments on the 208 NPRM, these organizations expressed a concern that the price, if left prohibition against attaching such funds is subject to financial institutions, might be out of to certain exceptions, including to satisfy child support and alimony obligations. See, e.g., 42 reach for those recipients for w hom U.S.C. §659. traditional account fees are too high. 6Philpott v. Essex County Welfare Board, 409 These organizations indicated that cost U.S. 413, 416 (1973). 7 A bank may exercise a right of set off against an is one of the m ain reasons some 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)). Federal Register/Vol. 63, No. 225/M onday, November 23, 1998/Notices recipients choose not to open an account at a financial institution. In their comments, financial institutions expressed support for an approach in w hich the institutions them selves w ould determ ine the m onthly account fee. They stated that only by allowing the institutions offering the ETASM to determ ine fees w ould they be able to develop accounts at the lowest possible cost. They also indicated that m ore financial institutions w ould participate if fees were unregulated. Treasury research indicates that the average m onthly cost of providing an account w ith the attributes listed in this notice, including a reasonable profit, falls w ithin the $3.00 m axim um price. Research data also indicate that, w hile some recipients cash their checks for free, recipients w ho pay to cash checks pay anywhere from one percent to six percent of the am ount of the check for this service.9 Based on the average Federal benefit paym ent, recipients could pay anyw here from $6.50 to $39.30 to cash a check. Based on this information, Treasury believes that the $3.00 m axim um m onthly 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 m ay 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. A ccess to Funds a nd Balance Inform ation As proposed, access to funds and balance inform ation m ay 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 m ain office or branch locations, or (3) through a com bination of electronic and over-the-counter transactions. Any m ethod may be used at the option of the financial institution as long as a m inim um of four cash w ithdraw als are provided w ith in the $3.00 m onthly fee. A financial institution m ay offer additional w ithdraw als at no cost or at an additional fee to the account owner. 9 Percentages taken from the Survey of Commercial Check Cashing Rates, Chaddsford Planning Associates, June 12,1997. It is expected that over-the-counter cash w ithdraw als either autom atically include an account balance or w ill include an account balance if requested by the recipient. Treasury further assum es that on-us ATM cash withdraw als generally w ill produce a transaction receipt that includes the balance of the account. Balance inform ation w ill be available on the required m onthly statement, discussed below. Balance inform ation also may be included as part of a financial in stitution’s custom er service program, to be offered to the ETASM account holder at the ETASM provider’s discretion. In their com ments on the 208 NPRM, consum er and community-based organizations stated that some recipients may not be able to use ATMs because of m ental, 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 w ill be denied an opportunity to transition into the financial services m ainstream 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 com m ented that its constituency, in some cases, w ill have difficulty using an ATM. This com m enter also called for an option for over-the-counter transactions. A credit union association com m ented that m any sm aller credit unions do not have ATMs and if ETAsSM were to be accessed solely by electronic m eans these credit unions w ould 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 com m unities and because they already offer low-cost accounts. A consum er organization com m ented that many smaller com m unity banks also do not have ATMs. It is Treasury’s objective to provide recipients w ith as many options for accessing funds as can be provided w ithin the constraints of a low m onthly fee. Allowing over-the-counter transactions w ould give financial institutions added flexibility in designing an account based on their capabilities and their custom ers’ needs. Treasury expects that allowing over-thecounter transactions w ill increase the num ber of financial institutions that elect to offer ETAsSM and the num ber of recipients w ho sign up for an ETASM 64823 and thereby bring more recipients into the financial services mainstream. In determ ining the num ber of cash w ithdraw als to include in the m onthly account fee, Treasury w eighed the advantages of providing m ultiple cash w ithdraw als against their cost, recognizing that the m ore transactions provided, the higher the m onthly 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 “m in im u m ” num ber of cash w ithdraw als is intended to perm it a financial institution, w ithin the ETASM structure, to offer additional cash w ithdraw als as long as the first four w ithdraw als are included w ithin the $3.00 m axim um price. A dditional w ithdraw als may be subject to fees that are the responsibility of the recipient. A dditionally, if the account is accessed through a netw ork ATM ow ned by another institution, the account holder w ill 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 alm ost certainly w ould raise the cost of an account to a paym ent recipient. Furtherm ore, as pointed out by some consum er organizations, lim iting access to on-line electronic access only w ill reduce the possibility of overdrafts and associated fees. In addition, financial institutions offering ETAsSM w ould be prohibited under the ETASM Financial Agency Agreement from entering into arrangements w ith 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 m isleading to recipients and, therefore, w ill n ot perm it financial institutions to enter into such arrangements w ith 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 w ith other public entities to expand ATM access. Consumer Protections ETAsSM w ill be subject to those consum er protections available to other account holders at the same financial institution. This requirem ent is in accordance w ith the A ct’s statutory m andate to ensure that recipients “are given the same consum er protections w ith respect to the [ETASM] as other account holders at the same financial 64824 Federal Register/Vol. 63, No. 225/Monday, November 23, 1998/Notices institution.” This means, for example, that an ETASM w ill be subject to the Truth in Savings Act disclosures found in Regulation DD (12 CFR Part 230). Also, an ETASM that provides electronic access w ill be subject to Regulation E (12 CFR Part 205), i.e., the ETASM holder w ill be provided w ith disclosure of term s and conditions of the account, lim itations on the hold er’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 w ould allow for POS w ithdraw als and purchases that are consistent w ith current commercial practice. Studies show that more and m ore m erchants are offering on-line POS purchases w ith cash back. This m eans a recipient can w ithdraw funds at the same tim e he or she is making a purchase using a debit card at a POS terminal. Some m erchants offer cash w ithdraw als w ith no purchase required. However, ETASM holders should be aware that POS w ithdraw als, in some cases, may be subject to fees by m erchants offering POS transactions. The recipient is responsible for any fees im posed by the m erchant; however, u nder the proposed ETASM, there w ould be no additional fees for these transactions im posed by the financial institution providing the E T A sm . M inim um Balance Except in lim ited circum stances discussed below, the ETASM w ould have no m inim um balance requirem ent. The average m onthly dollar am ount for Federal benefit payments is approxim ately $650, and a majority of recipients w ithdraw most of their funds w ithin the first five days of deposit. Requiring a m inim um balance w ould effectively reduce the am ount of the benefits available to the recipient to pay bills and make other subsistence purchases. The only exception to this required attribute is w here a m inim um balance is m andated by Federal or State law. For example, in the case of credit unions, u nder 12 U.S.C. 1759, a Federal credit u nion m em ber m ust subscribe to at least one share of stock. M onthly Statem ent The ETASM, as proposed, w ould have a m onthly statement. Treasury is aware that u nder Regulation E, w hen governm ent benefits are delivered electronically to a recipient, a periodic account statem ent may n ot be required if the recipient has access to account inform ation through other specified means. See 12 CFR 205.15. Treasury also is aware that the cost of providing a m onthly statem ent necessarily w ill be included in the m onthly account charge to recipients. Treasury believes, however, that it is im portant to provide recipients w ith a m onthly statement, particularly since the ETASM allows for POS w ithdraw als and purchases, and account balances are often not provided in connection w ith such transactions. In addition, providing a m onthly statem ent w ould provide account balances that may not be available to a recipient if the ETASM provider does not offer daily 24hour telephone custom er service for account balance inquiries. D. Discussion of Other Features Treasury is requesting specific comm ent on three additional features that are not included in the list of basic ETASM attributes. Treasury is interested in obtaining feedback to determ ine w hether 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 paym ent recipients. Therefore, perm itting 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 interm ediate step for those w ithout accounts at financial institutions in their transition to the financial services m ainstream . For these reasons, if these features are perm itted to be offered by financial institutions as part of the ETASM, Treasury w ould consider w hether to reim burse a financial institution an additional set fee per ETASM providing for such features. There may be, however, potential disadvantages and costs associated w ith these additional features. Many financial institutions com m ented 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. A dding features, even as options, poses the risk that financial institutions will not be w illing to participate, or that recipients w ho already have an account at a financial institution m ay sw itch to a low-cost ETASM. Treasury seeks specific com m ent as to w hether the potential advantages of each of the three features outweigh the potential disadvantages. Treasury w ill consider carefully the comments received, but m ay decide not to add any of the features if it determ ines that the potential disadvantages make the features unsuitable for the ETASM or the associated cost is determ ined to be too high. Further, if a decision is made to allow additional features, any financial institution that offers an ETASM w ith the additional features m ust also make available to recipients an ETASM w ithout the additional features. Regardless of w hether any of these other features is added to the ETASM, financial institutions are encouraged to offer recipients other non-ETASM accounts that m eet recipients’ needs, including accounts that offer features beyond those contained in the ETASM, such as checking accounts. However, w hile such accounts may be used for the receipt of Federal paym ents by EFT, these accounts are not considered to be ETAsSM and may not be advertised as such. Interest on A cco un t Balance Treasury believes that the paym ent of interest on ETAsSM could encourage more individuals to sign up for ETAsSM and could encourage and facilitate savings by low incom e recipients. In addition, financial institutions could potentially benefit from the higher daily balances that could result from perm itting this feature. However, Treasury research indicates that account balances w ill likely be draw n dow n very quickly after deposit and, therefore, interest earnings by recipients could be very small. A dditionally, interest accum ulated in such accounts may be attachable. Finally, including a savings feature may m odestly increase the costs to the financial institution of providing the account. These costs could include interest paym ents and costs for Truth in Savings Act disclosures and 1099 tax reporting. A dditional Deposits Permitting financial institutions to accept electronic deposits of other types of paym ents in addition to Federal benefit, wage, salary, and retirem ent payments to the ETASM w ould enable broader use of the ETASM for deposits and paym ents from other sources, Federal Register/Vol. 63, No. 225/Monday, November 23, 1998/Notices including m atching funds under individual developm ent account programs. This w ould 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 custom er requests to deposit other funds into their accounts. However, as discussed previously in Section C of this notice u n d er the subheading “Deposits,” perm itting other types of paym ents to be deposited to the ETASM w ould have im plications w ith respect to the potential attachm ent of funds in the account, and could add com plexity and expense to the account. If financial institutions w ere perm itted to allow additional paym ents into the ETASM, Treasury w ould w ant to assure that recipients were given appropriate disclosures regarding the possible attachm ent of funds and w ould encourage Federal paym ent agencies to issue clear resolution rules to help recipients and financial institutions determ ine w hich funds cannot be attached. Third-Party AC H Dehit Treasury recognizes that the ability for recipients to initiate preauthorized third-party debit transactions w ould 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 m oney orders and cash, thereby enabling recipients to avoid the cost of m oney orders, save tim e expended in traveling to pay bills in cash, and reduce the potential losses and thefts associated w ith 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 m echanism s betw een ACH debits and ATM w ithdraw als, perm itting ACH debits m ight result in overdrafts to ETAsSM or rejected transactions, w hich w ould result in 64825 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 consum ers sometimes encounter in dealing w ith legitimate m erchants, including difficulties in revoking preauthorized debit authorizations. In addition, Treasury believes that the costs of adm inistering the ETASM could increase as a result of the additional customer service b urden that w ould be imposed on financial institutions in dealing w ith recipient inquiries related to such transactions. Dated: N o v e m b e r 18, 1998 . Richard L. Gregg, Commissioner. [FR D oc. 9 8 - 3 1 2 4 4 F ile d 1 1 - 1 9 - 9 8 ; 8:45 am] BILLING CODE 4810— 35— P