As many in the electronic banking industry await a decision on Regulation E's applicability to smart cards and home banking, some are girding to fight an existing portion of the measure that deals with electronic benefits transfers.
Regulation E, which derives from the Electronic Funds Transfer Act, defines the fights and responsibilities of parties to electronic transactions.
The comment period for smart card and home banking issues ended a few weeks ago. Now the Federal Reserve Board is weighing how to apply Reg E to these offerings.
The Fed, however, has reached a decision regarding electronic benefits transfer. In March, the board indicated that the transfers in which government benefits, such as social security and food stamps, are delivered through automated teller machines and point of sale terminals -- will be covered by Reg E starting March 1997.
This means that if a consumer's electronic benefit account is the target of fraud, the government agency administering the program not the consumer will be liable for any amount over $50.
While the effective date of Reg E's applicability to EBT is still years off, many companies planning on new income from EBT projects are fretting about the consequences of the measure.
Specifically, companies such as Deluxe Data Corp., Glendale. Wis., and Internet Inc., the Reston, Va., company that runs the Most automated teller network, fear that the prospect of undetermined amounts of fraud costs will discourage government agencies from starting such projects and retard the spread of EBT.
"Based on numerous discussions with state EBT agencies. the [Electronic Funds Transfer] Association has concluded that the imposition of Regulation E's liability and error resolution rules will be an EBT 'show stopper' in many states and will substantially. delay progress of many other important state EBT initiatives," wrote Paul Schmetzer, chairman of the association m a letter to the Fed board.
Mr. Schmelzer's letter voices the concerns of a number of companies represented on the board of the association. The board is composed of executives from regional electronic banking networks, regional banks, and technology providers.
The association's concerns are shared by other organizations, including the American Bankers Association. However, the opponents of Reg E's application to EBT feel that there is little chance of getting the Fed to repeal the measure on its own.
"There are no plans in the works to reopen this for comment," said John 'Wood, a senior attorney at the Federal Reserve in Washington.
He added, "I cannot see the board reversing this decision in absence of some pretty convincing evidence." that Reg E would hurt the growth of EBT.
However, some evidence that could change the Fed's mind may be forthcoming.
Part of the reason for the three-year deferral of Reg E's application to EBT, Mr. Wood explained, is that the Fed is interested in piloting fraud reimbursement policies before implementing them nationwide.
Observers said it is possible, though not likely, that such programs could yield data that would persuade the Fed to change the way Reg E applies to EBT.
Failing that, the association and other groups are pursuing other avenues of change. The Reston, Va.-based association is encouraging lawmakers, including Sen. Joseph I. Lieberman, D-Conn.. to draft legislation that would exempt EBT programs from Reg E.
"There is little chance of administrative relief, but I think there's a good chance that we can get some legislative relief on this," said Mr. Schmelzer.
The likelihood is increased by the fact that electronic benefits transfer programs are a pet project of Vice President Albert Gore. If evidence arises supporting the thesis that Reg E impedes the development of EBT, Mr. Gore's office is expected to come down on the. side of exempting EBT from Reg E.
There is currently only one statewide EBT project in operation. But 28 states are in varying stages of adopting EBT, and Vice PreSident Gore envisions nationwide availability of EBT by 1999.
Observers noted that exempting EBT from Reg E would not leave benefits recipients who are victims of fraud without means to recover those funds.
"They would go through the same process that they go through today," Mr. Schmelzer said, seeking governmental relief on a case-by-case basis.
