Banking industry representatives have told the Treasury Department that banks should be allowed to deliver government payments through check cashing businesses without extensive regulations.

"Treasury should not prohibit such arrangements and generally should regulate them only in the event such arrangements unfairly impede consumer choice," wrote Brian Clare, vice president of Citicorp Services Inc., a subsidiary of Citigroup Inc., in an April 7 letter to the Treasury.

His comment was one of 77 responses received by the department after it sought feedback in January on whether to prohibit or severely restrict the way that check cashers and other uninsured financial institutions work with banks to deliver government payments to people who lack bank accounts.

The issue is related to EFT '99, a mandate to make all federal government payments electronic. The comments were due April 8.

Mr. Clare wrote that a rule would deny all financial institutions a cost-effective way to reach underserved communities. He added that many consumer protections exist in Regulation E, which governs electronic funds transfers.

Banking opinion was not monolithic, however. Wachovia Corp., for example, supported a ban on check cashers. "Such arrangements could result in higher costs for the recipient and less consumer protection," it said.

America's Community Bankers, the thrift trade group, said that in place of a regulation the Treasury should adopt a policy statement outlining practices it finds objectionable.

But community groups and two members of Congress weighed in strongly in favor of regulation, claiming that check cashers charge excessive fees and alienate low- and moderate-income people from the banking system.

"Check-cashing fees translate into a poverty surcharge," wrote Malcolm Bush, president of the Woodstock Institute.

"The Treasury Department should be employing every policy tool at its disposal to reverse the higher market presence of check cashing outlets," said John Taylor, president and chief executive officer of the National Community Reinvestment Coalition.

Rep. Janice D. Schakowsky, D-Ill., and Rep. Luis V. Gutierrez, D-Ill., asked the Treasury to ban check cashers from partnerships with banks.

Adopting such a rule could increase the market share of check cashers, which already outnumber banks by a ratio of 10 to 1 in African-American neighborhoods, Rep. Gutierrez wrote.

Also in January, the Treasury proposed a framework for banks to offer electronic transfer accounts, or ETAs, in which people who do not have bank accounts could receive their funds electronically.

The proposal would limit both the fees that banks may charge and the number of monthly withdrawals that consumers could make. Check cashers and similar businesses would be barred from directly offering ETAs.

A Treasury spokesman could not say if or when a formal regulation would be proposed.

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