Capital Briefs: Fed: Don't Exempt State Benefits from Reg E

Government benefits should not be exempt from regulations limiting consumer liability for electronic funds transfers, a Federal Reserve Board official told lawmakers Wednesday.

Griffith L. Garwood, the Fed's director of consumer and community affairs, said states do not need protection from Regulation E to combat fraud. Existing rules work just fine, he said.

"The board rejected the idea of treating benefit recipients differently from other citizens by denying them the rights and protections of the Electronic Fund Transfer Act," he said at a hearing held by House Banking's financial institutions and consumer credit subcommittee.

The Fed's Reg E limits a consumer's liability to $50 for unauthorized funds transfers reported within two days. The rule is scheduled to apply to electronic benefits on March 1, 1997.

Mr. Garwood said states can make recipients liable for losses if ineligible people have been given access to benefit accounts. Furthermore, states can cut loss exposure by making biweekly, rather than monthly, disbursements. For recipients who repeatedly violate rules, states can restrict the sites at which they receive benefits or can designate another person to accept payments, he said.