[Federal Register: July 16, 1999 (Volume 64, Number 136)]
[Notices]
[Page 38509-38525]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jy99-140]
[[Page 38509]]
_______________________________________________________________________
Part III
Department of the Treasury
_______________________________________________________________________
Fiscal Service
_______________________________________________________________________
Federal Agency Disbursements; Electronic Funds Transfer; Notice
[[Page 38510]]
DEPARTMENT OF THE TREASURY
Fiscal Service
RIN 1510-AA56
Electronic Transfer Account
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Notice of Electronic Transfer Account features.
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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) after January 1, 1999. The Department of the
Treasury (Treasury) published a final rule implementing this mandate,
31 CFR Part 208 (Part 208), on September 25, 1998. 63 FR 51490. Part
208 provides that any individual who receives a Federal benefit, wage,
salary, or retirement payment is eligible to open an Electronic
Transfer Account, or ``ETASM,'' at any Federally insured
financial institution that elects to offer ETAsSM. This
notice describes the required features of the ETASM. In
addition, Treasury is publishing, as an appendix to this notice, the
ETASM Financial Agency Agreement (FAA) that Treasury will
enter into with financial institutions that offer ETAsSM.
DATES: This notice is effective July 16, 1999.
ADDRESSES: This notice is available on the Financial Management
Service's ETASM web site at the following address: http://
www.fms.treas.gov/eta.
FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial
Program Specialist, at (202) 874-7106; Matthew Friend, Financial
Program Specialist, at (202) 874-7032; Natalie H. Diana at (202) 874-
6590; Cynthia L. Johnson, Director, Cash Management Policy and Planning
Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor,
at (202) 874-6681. In addition, inquiries about the ETASM
may be submitted electronically via e-mail to
eta.inquiries@fms.sprint.com or by filling out an inquiry form
available on the ETASM web site at http://www.fms.treas.gov/
eta. Financial institutions may call 1-888-ETA-FRBK (382-3725) for more
information about enrolling in the ETASM program.
SUPPLEMENTARY INFORMATION:
A. Background
On September 25, 1998, Treasury issued Part 208, which provides, in
part, that any individual who receives a Federal benefit, wage, salary,
or retirement payment shall be eligible to open an account called an
ETASM at any Federally insured financial institution that
chooses to offer ETAsSM. 63 FR 51490, 51504. The
ETASM has been developed to maximize opportunities for
individuals required to receive Federal payments electronically to have
access to an account at reasonable cost and with the same consumer
protections available to other account holders at the same financial
institution.
On November 23, 1998, Treasury published for comment in the Federal
Register a notice setting forth proposed terms, conditions, and
attributes of the ETASM (hereafter the ``Notice''). 63 FR
64820. Treasury received 198 comment letters in response to the Notice.
Comments were received primarily from financial institutions, financial
institution trade associations, and consumer and community-based
organizations. Recipients, non-financial institution trade
associations, non-financial institution payment service providers, and
Federal agencies also commented on the Notice.
The majority of comments on the proposed ETASM features
were supportive of Treasury's efforts to design a low-cost account for
those recipients without accounts at financial institutions in order to
bring them more fully into the financial services mainstream. The
comments reflected divergent views on many proposed ETASM
features, including account eligibility, fees associated with the
account, number of cash withdrawals, methods of access, and whether a
monthly statement should be provided. Comments were also divided on the
question of whether to allow financial institutions the option of
offering, as part of the ETASM, certain additional features
at an additional cost, if any, to the recipient.
Based on the comments received, Treasury has developed a listing of
required attributes and optional features for the ETASM,
which are the subject of this notice. In addition, Treasury is
publishing, as an appendix to this notice, the FAA that Treasury will
enter into with each financial institution that elects to offer
ETAsSM.
B. Compensation to Financial Institutions
In order to maximize the number of financial institutions that
choose to offer ETAsSM, Treasury will offer financial
institutions compensation to establish the account. Treasury will
reimburse each financial institution that offers the ETASM a
one-time fee of $12.60 per account established, in order to offset the
costs of setting up the account. The fee will be paid regardless of
whether the recipient has or had an existing account.
Financial institutions that commented on the proposed amount of
compensation were divided as to whether $12.60 is adequate to cover the
cost of opening the account. However, almost all financial institutions
that commented on this question agreed that the amount of compensation
should not depend on whether the customer is new or existing, pointing
out that the costs of opening the account are the same in either
circumstance. Comments from some consumer organizations similarly
stated that the amount of compensation paid should not differ based on
whether a recipient has or does not have an existing account.
There was little comment on the question of whether compensation
should increase as the number of accounts opened increases. In general,
large financial institutions favored increased compensation whereas
small institutions did not. Treasury has determined that a standard
compensation amount of $12.60 per account is appropriate regardless of
the number of ETAs' a financial institution opens.
C. Availability of ETAsSM
In order to provide a convenient source of information for
recipients regarding the availability of ETAsSM, Treasury
will maintain and make publicly available to recipients and program
agencies, by telephone and other electronic means, a list of
participating ETASM providers. In addition, financial
institutions offering ETAsSM will be required to display
prominently a logo to be supplied by Treasury indicating that the
ETASM is available at that financial institution.
Some financial institutions have indicated that they already offer
low-cost accounts that may meet the requirements for the
ETASM and have inquired whether they can receive
compensation for offering those accounts. Any account that has the
attributes set forth in this notice can qualify as an ETASM
provided that the financial institution opens the account after
entering into an FAA with Treasury, and that the account is identified
to the public as an ETASM. As with all other
ETAsSM, a low-cost account that is designated as an
ETASM may offer only those features set forth in this
notice. It may not offer additional features, such as a check writing
feature, even if the cost of providing such a feature falls within the
maximum
[[Page 38511]]
monthly fee. Compensation for opening these accounts will be provided
to the financial institution on the same basis as for opening all other
ETAsSM.
Some commenters on the Notice asked whether Community Reinvestment
Act (CRA) credit would be available for financial institutions that
offer ETAsSM. The Federal Financial Institutions Examination
Council recently supplemented and republished in the Federal Register
its Interagency Questions and Answers Regarding Community Reinvestment.
Interagency Question & Answer 3 addressing Secs. __.12(j) 1
and 563e.12(i) has been amended to state that providi ng
ETAsSM qualifies as a community development service. See 64
FR 23618, 23630 (May 3, 1999).
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\1\ The Interagency Questions and Answers employ an abbreviated
method to cite to the relevant regulations. Because the CRA
regulations of the four Federal banking agencies are substantially
identical, corresponding sections of the different regulations
usually bear the same suffix. Therefore the Interagency Questions
and Answers typically cite only to the suffix. See 64 FR 23618,
23619.
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D. Summary of ETASM Attributes
After considering the comments received, Treasury has determined
that the ETASM account will have the following attributes.
These attributes are explained in more detail below. The
ETASM shall:
Be an individually owned account at a Federally insured
financial institution;
Be available to any individual who receives a Federal
benefit, wage, salary, or retirement payment;
Accept electronic Federal benefit, wage, salary, and
retirement payments and such other deposits as a financial institution
agrees to permit;
Be subject to a maximum price of $3.00 per month;
Have a minimum of four cash withdrawals and four balance
inquiries per month, to be included in the monthly fee, through (a) the
financial institution's proprietary (on-us) automated teller machines
(ATMs),2 (b) over-the-counter transactions at the main
office or a branch of the financial institution, or (c) any combination
of on-us ATM access and over-the-counter access at the option of the
financial institution; 3
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\2\ As explained below in the discussion of ETASM
attributes, the term proprietary (on-us) ATM refers to an ATM which
a financial institution's customers may use without being subject to
a fee of any kind, including a surcharge.
\3\ Financial institutions may provide additional withdrawals or
balance inquiries at no charge or for a fee.
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Provide the same consumer protections that are available
to other account holders at the financial institution, including, for
accounts that provide electronic access, Regulation E protections
regarding disclosure, limitations on liability, procedures for
reporting lost or stolen cards, and procedures for error resolution;
For financial institutions that are members of an on-line
point-of-sale (POS) network, allow on-line POS purchases, cash
withdrawals, and cash back with purchases at no additional charge by
the financial institution offering the ETASM;
Require no minimum balance, except as required by Federal
or State law;
At the option of the financial institution, be either an
interest-bearing or a non-interest-bearing account; and
Provide a monthly statement.
E. Discussion of ETASM Attributes
Individually Owned Account at Federally Insured Financial Institution
Treasury proposed in the Notice that the ETASM be an
individually owned account established at a Federally insured financial
institution. Many commenters stated that the account should be
available as a jointly held account at the option of the recipient in
order to maximize the utility of the account. Other commenters asked
that Treasury clarify whether or not the ETASM could be held
by a representative payee receiving payments on behalf of the
recipient.
It was not Treasury's intention to require that ETAsSM
be titled only in the name of the recipient. By characterizing the
ETASM as an individually owned account, Treasury intended to
indicate that the ETASM would not be a Treasury owned
account or an account owned by a corporation, organization, or other
entity. An ETASM may be titled in any way that meets the
requirements of 31 CFR 208.6 and 31 CFR 210.5, except that an
ETASM may not be established in the name of a corporation or
other entity. 31 CFR 208.6 and 31 CFR 210.5 provide that all Federal
payments, other than vendor payments, made by electronic funds
transfer, including those made through an ETASM, shall be
deposited into an account at a financial institution in the name of the
recipient, with certain exceptions, including payments made to a
representative payee. As discussed in the supplementary information
accompanying the promulgation of 31 CFR Part 210, 210.5 does not
require that the recipient's name be the only name on the account, and
thus would not prohibit the use of a joint account.
Most consumer organizations supported the requirement that
financial institutions be Federally insured as an important consumer
protection. Several credit unions commented that credit unions which
are privately insured should be permitted to offer ETAsSM.
Treasury believes that Federal deposit or share insurance is an
important consumer protection which should be afforded to
ETASM holders. Accounts at institutions that are insured by
the Federal Deposit Insurance Corporation (FDIC) or National Credit
Union Administration (NCUA) are insured for the full amount in the
account, up to $100,000. In contrast, accounts at some institutions
that are other than Federally insured are insured for only 50% of the
amount in the account. In addition, Federally insured financial
institutions are subject to comprehensive Federal regulation and
oversight through examinations for safety-and-soundness and compliance
with consumer protection laws. Accordingly, Treasury is requiring that
in order to be eligible to offer ETAsSM, a financial
institution must be Federally insured.
As proposed in the Notice, financial institutions offering
ETAsSM are prohibited under the FAA from entering into
arrangements with non-financial institutions to provide access to
ETAsSM, other than access through a national or regional
ATM/POS network. Treasury continues to be concerned that such
arrangements might be confusing or misleading to recipients and,
therefore, will not permit financial institutions to enter into such
arrangements with respect to the offering of the ETASM.
Available to any Individual Who Receives a Federal Benefit, Wage,
Salary, or Retirement Payment
With two exceptions, a financial institution that chooses to offer
ETAsSM must open an ETASM for any recipient of a
Federal benefit, wage, salary, or retirement payment who requests an
ETASM and who, by enrolling through the institution in the
Federal Government's Direct Deposit program, agrees to have such
payments electronically transferred to the ETASM. Each
financial institution may establish its own account-opening procedures
for the ETASM. For example, some institutions may choose to
open ETAsSM through a telephone application process whereas
others may choose to require recipients to apply in person.
The two exceptions to the account-opening requirement are: (a) A
financial institution may not open an ETASM for any
individual if the institution does not have authority under its charter
to maintain a deposit or share account for the individual (for example,
where a
[[Page 38512]]
recipient does not meet a credit union's field of membership
requirements); and (b) a financial institution is not required to open
an ETASM for any individual if (i) the institution is aware
that the individual previously was the owner of an ETASM
that was closed because of fraud at that institution or any other
financial institution, or (ii) the institution, for reasons of account
misuse, previously closed an ETASM held by the individual at
that institution.
The Notice indicated that financial institutions would not be
permitted to deny an ETASM to any eligible recipient, and
that financial institutions would be permitted to close an
ETASM only in certain circumstances to be delineated by
Treasury. This requirement drew extensive comment from financial
institutions.
In general, financial institutions commented that it is essential
that they be able to refuse an account to an individual who has a
history of abusing accounts, such as repeated overdrafts or fraud. Many
institutions commented that denying accounts to individuals who have a
history of previous account misuse or credit problems is their primary
method for reducing the risk of account fraud and losses. Some
institutions expressed concern that they might be faced with
overwhelmingly large numbers of ETASM applicants. Other
institutions commented that the prohibition against denying
ETAsSM to eligible individuals would impose an unacceptable
risk of loss to banks and violate bank ``safety and soundness''
principles.
Most consumer organizations, on the other hand, supported making
the ETASM available to all Federal payment recipients so
that all eligible recipients would have the opportunity to enter the
financial services mainstream regardless of their credit history.
Several financial institutions were concerned with how long they
would be committed to participating as ETASM providers. Some
institutions urged Treasury to permit them to offer ETAsSM
for a ``trial period,'' after which they could close the accounts if
they were not profitable. Similarly, institutions commented that they
must have the ability to close an ETASM for overdrafts,
fraud, or excessive Regulation E claims.
31 CFR 208.5 provides that any individual who receives a Federal
benefit, wage, salary or retirement payment is eligible to open an
ETASM. Treasury believes that it is important to ensure that
even individuals who may have experienced prior checking account
management problems or credit problems have access to an
ETASM. Accordingly, a financial institution will be required
to open an ETASM for any eligible recipient, regardless of
the recipient's previous account experience, except where the
individual has engaged in fraud with respect to another
ETASM or where the individual has misused an
ETASM at that same institution. The distinction between
fraud and misuse in this context is that although a recipient could
unintentionally or negligently misuse an account in various ways (for
example, by inadvertently causing an overdraft to the account or
failing to safeguard a PIN number), fraud represents actions by an
individual with the intent to obtain funds wrongfully from the
financial institution (for example, where an individual authorizes a
third party to withdraw funds from an account using an ATM card and
then falsely represents to the financial institution that the
withdrawal was unauthorized). Treasury takes seriously this distinction
and reserves the right to take corrective action to address any
violation of the account-opening requirements, including by terminating
a financial institution's participation in the ETASM
program.
Treasury believes that the risk of fraud or misuse of an
ETASM is minimal because of the way in which the account has
been designed. For example, as discussed below, the potential for
overdrafts will be very low, in contrast to a checking account or an
account with off-line debit card access. In addition, financial
institutions that provide POS access will be permitted to impose
overdraft fees (subject to certain limitations discussed below) or
withdraw a recipient's POS access if a POS card is misused, including
by overdrawing the account.
In light of the fact that financial institutions will not be
permitted to deny an ETASM to an eligible individual except
in limited circumstances, Treasury recognizes that it is important for
financial institutions to have the ability to close an individual
ETASM that is misused. Accordingly, a financial institution
will be permitted to close an ETASM where the financial
institution has cause to believe that fraud has occurred in connection
with the account or that the account has been misused. Any
determination that fraud or misuse has occurred must be consistent with
the financial institution's usual criteria for closing accounts. Those
criteria could include, for example, where the institution determines
that fraud has occurred after conducting the investigation required
under Regulation E; excessive overdrafts; negligence in safeguarding an
ATM and/or POS card or personal identification number (PIN); or failure
to pay an overdraft within a reasonable period of time.
In addition to the foregoing provisions, Treasury intends to
monitor any issues that may arise as institutions begin offering
ETAsSM and to work with institutions where necessary to deal
with any unanticipated problems, including working with institutions
that experience an overwhelming number of requests by eligible
recipients to open ETAsSM.
Accept Electronic Federal Benefit, Wage, Salary, and Retirement
Payments and Such Other Deposits as a Financial Institution Agrees to
Permit
Treasury had proposed to limit the types of funds that could be
deposited to an ETASM to electronic Federal benefit, wage,
salary, and retirement payments. Most commenters supported allowing
deposits other than electronic Federal benefit, wage, salary, and
retirement payments into the ETASM. Many financial
institutions commented that permitting other electronic deposits into
the ETASM would enhance utility for the recipient. Some
financial institutions commented that their systems cannot distinguish
among, and restrict, types of electronic deposits which are sent to an
account. All consumer organizations supported allowing other electronic
(and non-electronic) deposits into the account as a way to make the
account a more meaningful entry into the financial services mainstream.
In view of the comments received, Treasury will permit (but not
require) financial institutions to offer recipients the option of
depositing to the ETASM other funds in addition to
electronic Federal benefit, wage, salary, and retirement payments. A
financial institution may choose to limit such other deposits to
electronic deposits or may allow recipients to deposit cash and/or
checks in addition to other electronic deposits. Financial institutions
may specify whether deposits of other funds can be made by mail, at an
ATM, and/or over-the-counter. Financial institutions may not charge any
fee in connection with allowing deposits of other funds.
Attachment
One of the reasons that Treasury had proposed to limit the types of
funds that could be deposited to an ETASM was to reduce the
potential that funds in an ETASM would be subject to
attachment. Several consumer organizations requested that Treasury
prohibit attachment of all funds. These commenters stated that
recipients may
[[Page 38513]]
not understand the implications of an attachment, and may be unable to
organize a defense against the attachment. One consumer organization
suggested that when presented with an attachment order, financial
institutions should determine which funds are attachable (or not
attachable) as a way to assist recipients.
Financial institutions opposed any shifting of the burden for
defending against an attachment in this manner. A number of financial
institutions commented that they should not have any disclosure
requirement with respect to the potential attachment of
ETAsSM, noting that this would be expensive and would
constitute the provision of legal advice, for which they could be
subject to litigation risk. Some institutions commented that Treasury
should provide model disclosure language regarding attachment. Others
commented that it must be made clear that it is not the financial
institution's responsibility to claim any exemption from attachment.
Most Federal benefit payments deposited to an account at a
financial institution, including Social Security benefits, Supplemental
Security Income benefits, Veteran's benefits, and Federal Railroad
Retirement benefits, are protected from attachment and the claims of
judgment creditors by Federal law, subject to certain limited
exceptions.4 If a financial institution receives an order of
attachment or garnishment for an ETASM, it must immediately
send a copy of the order and the name of the creditor and contact
person, if any, to the recipient. In addition, in order to ensure that
recipients understand that Federal benefit payments deposited to an
ETASM generally are protected from attachment, Treasury will
require institutions that open an ETASM to provide the
following disclosure, in writing, to the holder:
\4\ See 42 U.S.C. 407(a); 42 U.S.C. 1383; 38 U.S.C. 530; and 45
U.S.C. 231m(a). The prohibition against attaching such funds is
subject to certain exceptions, including to satisfy child support
and alimony obligations. See, e.g., 42 U.S.C. Sec. 659. Philpott v.
Essex County Welfare Board, 409 U.S. 413, 416 (1973).
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Many Federal benefit payments, including Social Security
benefits, Supplemental Security Income benefits, Veteran's benefits,
and Railroad Retirement benefits, are protected from attachment
under Federal law. This means that your creditors do not have the
right to have these funds taken out of your ETASM. There
are a few exceptions, however. For example, funds in your
ETASM can be taken to satisfy child support or alimony
obligations you owe. [If you deposit funds other than Federal
benefit payments to your ETASM, your creditors may be
able to have those funds taken out of your account, but your Federal
benefits would still be protected.] 5
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\5\ This sentence must be included only if the financial
institution permits the recipient to deposit into the
ETASM funds other than Federal benefit, wage, salary, and
retirement payments.
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If we/[name of Institution] receive an order of attachment,
garnishment, or levy, we will immediately send you a copy of the
order and the name of the creditor and contact person, if any.
If you have questions about a creditor's right to remove funds
from your ETASM, contact your benefit agency or your
local legal services organization.
Set Off
Treasury had proposed to prohibit financial institutions that elect
to offer ETAsSM from exercising any right of set off against
an ETASM, with the exception of the monthly account fee or
charges for additional cash withdrawals or balance inquiries. All
consumer organizations who commented on the issue opposed any right of
the financial institution to set off funds held in an ETASM
under any circumstances. In contrast, financial institutions strongly
objected to any prohibition against their right of set off. They argued
that a financial institution's right of set off is essential to
mitigate the risks posed by overdrafts, amounts mistakenly credited to
an account, and amounts provisionally credited to accounts as required
under Regulation E. They also argued that prohibiting set off will
reduce the incentives for cross selling other bank services to
recipients, thereby reducing the potential profitability of servicing
these customers and the attractiveness of offering the
ETASM. Financial institutions commented that eliminating
incentives for cross selling will reduce the availability of credit and
other bank services, such as cashing checks, that are often provided to
customers on the basis of an available account balance. Several
institutions requested clarification as to whether the prohibition
against set off would prevent recipients from pledging the account or
having automatic loan payments debited from the account.
In response to the comments requesting clarification of Treasury's
intent, Treasury will permit financial institutions to deduct from an
ETASM amounts representing certain obligations of the
recipient that are directly related to the maintenance of the
ETASM itself. Those obligations include: (a) The monthly
fee; (b) any other fees incurred by the recipient in connection with
the maintenance of the ETASM; (c) any amount mistakenly
credited to an ETASM to which the recipient has no legal
right; (d) the amount of any overdraft on an ETASM; and (e)
any amount for which the recipient is liable under Regulation E,
including any amount provisionally credited to the ETASM for
which the financial institution determines, after conducting the
investigation required under Regulation E, that the recipient is
liable.
Treasury will not permit financial institutions to set off against
an ETASM obligations incurred by a recipient in connection
with other products or services offered by the institution. In response
to questions raised by commenters, this prohibition means that
recipients may not pledge the account or have automatic loan payments
transferred from the account to another account. Treasury encourages
financial institutions offering ETAsSM to market other
products and services to recipients, but will not allow payment for
such products and services to be set off against the account.
Subject to a Maximum Price of $3.00 Per Month
Financial institutions that choose to offer ETAsSM may
charge a fee not to exceed $3.00 per month. Treasury will evaluate the
appropriateness of this fee from time to time, and will make
adjustments periodically as warranted. All attributes listed in the
``Summary of ETASM Attributes'' section of this notice must
be included within the monthly fee to the recipient.
In general, consumer and community-based organizations commenting
on the Notice favored the establishment of a maximum monthly fee for
the ETASM. Some of these organizations expressed a concern
that $3.00 a month would be too expensive for some recipients. On the
other hand, many financial institutions indicated that $3.00 per month
would not cover the costs of maintaining the ETASM as
proposed. A number of financial institutions requested clarification
that they would be allowed to charge additional fees for account
research, card replacement, overdrafts, cashier's checks, money orders
and other special services. Consumer organizations urged Treasury to
regulate any fees for additional withdrawals so they do not exceed
actual financial institution costs or some other reasonable cost.
Treasury believes that $3.00 represents a reasonable maximum
monthly fee for the ETA.6 However, in
[[Page 38514]]
recognition of costs that may be incurred by financial institutions for
providing services beyond those required by this notice, Treasury will
permit financial institutions to charge the holder of an
ETASM for other services for which the institution usually
charges fees to its customers. Examples of such fees include fees for
ATM withdrawals in excess of four per month; replacement card fees; and
account research fees. Financial institutions may impose such fees at
their customary rates, except that the amount of any overdraft fee may
not exceed $10.00. In addition, a financial institution may not charge
a recipient more than one overdraft fee during a 24-hour settlement
period even if several items on the recipient's account are returned
during that period. Treasury believes that $10.00 represents a fee
that, in the context of the ETASM, is reasonable both for
financial institutions and recipients, particularly in view of the very
limited risk of overdraft in the ETASM.
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\6\ In response to a question raised by some credit unions,
Treasury will not regard the membership share which an individual is
required to purchase in order to become a credit union member to
constitute a fee. Treasury understands that the membership share is
returned to the individual when the account is closed.
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Prior to opening an ETASM, a financial institution must
clearly and conspicuously disclose, in writing, the amount of any
applicable fees to the recipient, as described more fully in the FAA.
Have a Minimum of Four Cash Withdrawals and Four Balance Inquiries Per
Month Included in the Monthly Fee
Access to funds and balance information may be provided by
ETASM providers through one of three methods: (1) The
financial institution's proprietary (on-us) ATMs, (2) over-the-counter
at the ETASM provider's main office or branch locations, or
(3) through a combination of ATM and over-the-counter transactions. In
addition, access to balance information may be provided over the
telephone or, if the recipient agrees, through other electronic means.
Any of these methods may be used at the option of the financial
institution as long as a minimum of four cash withdrawals and four
balance inquiries are provided within the $3.00 monthly fee and
provided that, as discussed below, institutions that are members of on-
line POS networks provide on-line POS access.
A majority of consumer organizations supported the proposed methods
of access to the account, although some commented that the number of
cash withdrawals included in the monthly fee should be increased.
Financial institutions generally commented that two or three
withdrawals per month would be more reasonable in light of the cost
structure of the account. Some financial institutions requested
clarification on the meaning of ``proprietary'' ATMs.
By using the term proprietary (on-us) ATMs, Treasury is referring
to those ATMS which a financial institution's customers may use without
being subject to a fee of any kind, including a surcharge. In
determining the number of cash withdrawals and balance inquiries to
include in the monthly account fee, Treasury weighed the advantages of
providing multiple withdrawals and inquiries against their cost,
recognizing that the more transactions provided, the higher the monthly
cost. With regard to transaction fees, it should be noted that Treasury
is not restricting the imposition of ATM fees or surcharges generally,
provided that the ETASM holder has four cash withdrawals and
four balance inquiries within the monthly fee.
In the Notice, Treasury requested comment on one other kind of
account access, i.e., whether financial institutions should be
permitted to offer preauthorized Automated Clearing House (ACH) debit
capability as an additional feature, at the option of the financial
institution and at an additional fee, if any, to the recipient.
Comments from all sources were evenly divided over whether Treasury
should allow ETASM providers to offer this feature.
Supporters of the feature pointed to increased utility to the
recipient, in that it would provide a convenient and cost-saving means
for recipients to pay certain recurring bills such as utility,
insurance, and car payments. Some financial institutions commented that
it is beyond their capability to know about, or restrict, ACH debits to
the account.
Institutions that opposed allowing ACH debit capability were
concerned that the account could compete with other products, that this
feature would complicate account management and confuse consumers, and
that the occurrence of overdrafts would increase. Some commenters
opposing the inclusion of this feature pointed to the potential for
fraud against the account holder. Commenters observed that ACH debit
capability could be very expensive for the financial institution, given
the costs of servicing the account and dealing with customer inquiries.
In response to the issues raised by commenters as well as low
public acceptance at this time, Treasury is not including ACH debit as
a feature of the ETASM, optional or otherwise. However, in
light of the operational concerns expressed by some commenters,
financial institutions will not be required to reject preauthorized ACH
debit transactions, if any, initiated by recipients.
Consumer Protections
ETAsSM will be subject to those consumer protections
available to other account holders at the same financial institution.
Most commenters supported this requirement. Thus, an ETASM
will be protected by Federal deposit or share insurance, subject to the
Truth in Savings Act disclosures found in Regulation DD (12 CFR Part
230) and, if electronic access is provided, subject to Regulation E (12
CFR Part 205).
For Financial Institutions That Are Members of an On-line Point-of-Sale
(POS) Network, Allow On-line POS Transactions
A majority of consumer organizations and other non-financial
institution commenters supported on-line POS access to the account.
Many financial institutions opposed the on-line POS access requirement
because of the cost of providing POS access, as well as the increased
possibility of overdrafts. Some financial institutions who offer off-
line POS access to customers through VISA Check and MasterMoney cards
questioned whether they would be required to provide such cards to
ETASM holders.
By referring to on-line POS access, Treasury is excluding access to
the ETASM through off-line debit systems. Treasury is aware
that off-line debit systems carry the same risks of overdraft as check
writing capability. Therefore, institutions that generally offer this
type of POS access to customers are not permitted to offer off-line POS
access to the ETASM. On-line POS access, in contrast to off-
line, carries minimal risk of overdraft in most situations. For small
institutions that rely on batch processing for on-line POS access,
which presents a greater possibility for overdraft, Treasury believes
that the risk presented is mitigated by the right to offset overdrafts
against an ETASM, to charge a fee for overdrafts or returned
items, and to discontinue POS access or close the ETASM for
repeated overdrafts.
Financial institutions that provide POS access may not impose a fee
in connection with POS purchases, cash withdrawals, and cash back with
purchases. Treasury is aware that some merchants impose fees on
cardholders for such transactions, and is not prohibiting or regulating
merchant fees.
No Minimum Balance
In general, financial institutions may not require that a recipient
maintain a
[[Page 38515]]
minimum balance in his or her ETASM. The only exception to
this requirement is where a minimum balance is mandated by Federal or
State law. For example, in the case of credit unions, under 12 U.S.C.
1759, a Federal credit union member must subscribe to at least one
share of stock.
Consumer organizations generally were supportive of this
requirement. Most financial institutions did not indicate that a
minimum balance would be necessary, except in order to support the
payment of interest on an ETASM, as discussed below.
At the Option of the Financial Institution, be Either an Interest-
bearing or a Non-interest-bearing Account
Consumer organizations generally supported allowing financial
institutions to pay interest on the ETASM, though most
conceded that any interest paid might be negligible. Some organizations
pointed out that the benefit of interest to recipients could be
partially or fully offset if additional fees were imposed in connection
with the payment of interest. A few consumer organizations opposed
allowing interest because it would complicate the account, indicating
that the account should be kept simple and understandable in order to
attract those recipients who have avoided accounts at financial
institutions in the past.
A majority of financial institutions were opposed to allowing the
payment of interest on the ETASM. Many commented that, given
the pricing structure of the account and the prohibition against a
minimum balance, it would not be feasible to pay interest on the
account. Other financial institutions commented that the account should
be kept simple so as not to confuse recipients. A number of
institutions indicated that paying interest on the ETASM
would compete with existing products and therefore they would be
reluctant to offer the ETASM.
Treasury believes that the availability of interest-bearing
ETAsSM could encourage and facilitate savings by low income
recipients. Treasury believes that recipients may find the payment of
interest to be an attractive feature that could encourage more
individuals to sign up for interest-bearing ETAsSM at
financial institutions that choose to offer them. At the same time,
Treasury understands that some financial institutions may not find it
economically viable to offer an interest-bearing ETASM, and
does not wish to discourage those institutions from offering
ETAsSM. Accordingly, the payment of interest will be offered
solely at the option of the financial institution.
Financial institutions may not require a minimum balance in
connection with the payment of interest. If a financial institution
offers both interest-bearing and non-interest-bearing
ETAsSM, the institution may charge a higher monthly fee for
the interest-bearing ETASM, than it charges for the non-
interest-bearing ETASM, but in no case may the monthly fee
exceed $3.00.
Financial institutions are prohibited by Federal law from paying
interest (which includes certain premiums and other payments) on demand
deposit accounts. See, e.g., 12 U.S.C. Secs. 371a, 1828(g), and
1464(b)(1)(B); 12 CFR Sec. 217.101. In order for a financial
institution to pay interest (or certain other amounts) on an
ETASM, it must reserve the right to require the holder of an
account to provide at least seven days' written notice prior to
withdrawal of any funds in the ETASM. See 12 CFR
204.2(b)(3)(ii). (Such accounts are sometimes known as NOW accounts and
are authorized under 12 U.S.C. 1832(a).) Treasury understands that
financial institutions rarely exercise this right. In order to ensure
that ETASM holders are treated like other NOW account
holders in this respect, the FAA will provide that if a financial
institution, in order to establish the ETASM as a NOW
account, reserves the right to require seven days' written notice prior
to withdrawal of any funds in the ETASM, the institution
shall not exercise this right with respect to any ETASM
holder unless the institution requires such notice of all its NOW
account holders.7
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\7\ The legal staff of the Board of Governors of the Federal
Reserve System has informally advised Treasury that such a
restriction will not preclude treating the ETASM as a NOW
account.
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In addition, to ensure that recipients are aware of both their
rights and the financial institution's rights, financial institutions
that pay interest on an ETASM must provide the following
disclosure, in writing, to the holder:
Under Federal regulations, financial institutions that offer
interest-bearing transaction accounts (including ETAsSM)
must reserve the right to require you to provide at least seven
days' written notice prior to withdrawing any funds in your
ETASM. We/[name of Institution] agree that we will not
require this notice from you unless we require it for all interest-
bearing transaction accounts we offer.
Monthly Statement
Most consumer organizations supported the requirement that a
monthly statement be provided for the ETASM. A number of
financial institutions objected to the requirement that a monthly
statement be provided, on the basis of the associated costs. Several
institutions commented that the statement requirements of Regulation E
should be adequate. Others commented that balance information via a
voice response unit or ATM would be more useful to recipients. Some
said a passbook should be sufficient.
Treasury believes that it is important to provide recipients with a
monthly statement, particularly since the ETASM allows for
POS withdrawals and purchases, and account balances may not always be
provided in connection with such transactions. A monthly statement will
facilitate a recipient's ability to track their withdrawals and POS
transactions and thus be helpful for financial planning and account
management purposes. The monthly statement may be provided
electronically (e.g., at an ATM) if the recipient agrees, subject to
the requirements of Regulation E. See 63 FR 14527, March 25, 1998.
Dated: July 13, 1999.
Richard L. Gregg,
Commissioner.
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[FR Doc. 99-18174 Filed 7-15-99; 8:45 am]
BILLING CODE 4810-35-C