Electronic Funds Networks Struggling To Operate

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Bank and credit union regulators and electronic funds networks were struggling last week to untangle the payments systems, which was tied in knots by Hurricane Katrina and its disastrous aftermath.

With hundreds of credit union and bank branches, including the Federal Reserve's Atlanta Bank branch, underwater and out of commission, officials were working to ensure that an adequate supply of cash was available for the hundreds of thousands of refugees fleeing their homes in New Orleans, Biloxi and elsewhere in this hurricane-ravaged area.

Electronic funds transfer networks were all providing services to the refugees as they fled to dry ground in Texas, Florida and other areas, even as thousands of ATMs, point-of-sale terminals and other electronic transaction devices were destroyed or rendered useless by flooding, lack of electricity or even looting. "A huge base of ATMs and POS terminals has been virtually wiped out," said Stan Paur, president of PULSE EFT Association, which has one of the broader EFT operations in the region.

But because PULSE maintains operations in Dallas and Houston, its services were not affected in the outlying areas, enabling the payments network to continue serving the hundreds of thousands of refugees from the hurricane, many of them who were piling into Texas.

PULSE, the credit union-owned CO-OP Network, and other EFT providers in the region were all operating on a "stand-in" basis, allowing cardholders to access their accounts even though electronic data processing systems at their home credit unions or banks were down. Under stand-in procedures, transactions will be reconciled later on, after the systems are returned to full functioning.

"In the current mode you just have to worry about servicing the members. You have to give them reasonable access to their funds," said Jim Hanisch, executive vice president of the CO-OP Network, based in Ontario, California.

Even with remote access and stand-in policies, the storm's aftermath was wreaking havoc on the electronic payments systems, with power outages interfering with the ability of consumers and businesses to use the now ubiquitous credit or debit cards.

"Businesses aren't accepting ATM or debit cards because the circuits are so backed up, so we're working to get cash to people," said John Milazzo, president of Campus FCU, located in Baton Rouge, where tens of thousands of refugees were fleeing from nearby New Orleans. Richard Baker, the Louisiana congressman, said he tried his credit card at three different New Orleans-area gas stations but was unable to complete a transaction.

Milazzo said his credit union's main aim was to make cash readily available to victims and refugees to help them buy much-needed food, clothing and shelter.

But the cash pipeline from the Federal Reserve was also backed-up because of the damage to the roads and other methods of transportation. Credit unions in the three affected states were reporting long lines at branches and ATMs for cash withdrawals. Some were running out of cash at their operations (see story, right).

A Federal Reserve official said the storm's immediate damage caused back-ups in check clearing, as flights were delayed, presentments and some Automated Clearing House transactions. Some New Orleans-area banks and credit unions started presenting checks through the Fed on an emergency basis because they were unable to make direct presentments to each other.

Most of the EFT networks were making special concessions to help affected cardholders. The CO-OP said it was waiving transaction fees for cardholders in the affected areas. PULSE was urging its members to waive non-customer (member) surcharges on people in the hardest-hit areas.

Many credit unions unaffected by the storm were pressed into action to cash government relief vouchers issued by the Federal Emergency Management Agency. Envisions FCU in Tallahassee, where thousands of storm refugees had fled remained open through the long Labor Day weekend to cash 114 $200 FEMA vouchers for needy storm victims.

Other credit unions were heeding a regulatory directive and providing emergency financial services, like check cashing, for non-members. More than a dozen credit unions in Houston, where as many as 250,000 New Orleans residents had fled, were cashing checks and providing deposit services for non-members.

"Credit unions are coming up with their own particular ways of helping out," said Lynda Milton, president of Houston Teamsters FCU, whose credit union was accepting deposit from non-member Teamsters who had direct deposit. "We trying to make sure people have access to their funds."

By week's end FEMA had introduced its own stored value debit card it was issuing to refugees in Texas with an initial value of $2,000. The emergency agency said it was prepared to issue as many as 600,000 of the cards.

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