Sen. Alfonse M. D'Amato on Monday blasted the Treasury Department's plan to pay benefits electronically, saying it would permit banks to rip off senior citizens and welfare recipients.

"It would be irresponsible for Treasury to require seniors and others to sign up for these accounts and then allow banks absolute freedom to extract huge fees for the most basic services," the New York Republican testified at a public hearing.

The department proposed in September to assign electronic accounts to millions of poor and elderly federal benefits recipients who do not have bank accounts. Banks could then charge these consumers fees for withdrawing their funds.

But Sen. D'Amato, chairman of the Banking Committee, said the proposal leaves too many questions unanswered. For instance, he said, it does not address what fees would be imposed on these electronic accounts nor does it specify how many free automated teller machine withdrawals the account holders would get.

"Until these key factors are known, people have every reason to be apprehensive about being forced into an account relationship with a bank," he said.

Despite his harsh comments, Sen. D'Amato appears to have moderated his stance since lambasting the Treasury's preliminary proposal in May, industry and government officials said.

"His comments were very good, very constructive," said John D. Hawke Jr., under secretary of the Treasury for domestic finance.

"They were really toned down from the hearing he had," said William H. Phillips, director of policy development for the American Bankers Association.

Sen. D'Amato even complimented the agency for some improvements from earlier versions of its proposal.

For example, it dropped a plan to grant only one free withdrawal a month and designed a way for people to continue to receive paper checks, he said.

And in the banking industry's favor, Sen. D'Amato opposed having the government set fees.

However, he said, fee estimates based on state pilot programs in Texas and elsewhere are disturbing. A husband and wife could pay more than $300 per year, he claimed.

The senator also knocked banks for failing to develop their own "affordable, consumer-friendly" accounts.

"In an era of direct deposit and ATMs, when technology is revolutionizing banking, driving down costs, and providing opportunities for innovative new services, there is simply no excuse for banks to fail to serve these citizens," he said.

More than 10 million recipients of Social Security and other government payments do not use financial institutions, he said.

Banks "will be getting a windfall; $7 billion, $8 billion a month will be deposited," he said at a press conference before the hearing, noting that banks would earn money on float yet pay no interest on these accounts.

Mr. Hawke said the Treasury plans to keep costs down by letting federally insured institutions bid early next year for exclusive regional contracts to offer these accounts.

Institutions probably will be more forthcoming with ideas for electronic accounts after the Treasury gives them more specifics for the bidding, Mr. Phillips said.

The ABA asked the Treasury and Federal Reserve Board in August to lift regulatory barriers that make all-electronic accounts impractical, he added.

Meanwhile, witnesses for money services firms contended that they, too, should be allowed to offer electronic accounts to recipients.

They argued that they already serve the poor and are well-regulated by most state governments.

Last year Congress said all government payments except tax refunds must be delivered electronically by Jan. 1, 1999. The Treasury was handed responsibility for figuring out how to accomplish this.

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