NEW YORK -- After years of negotiation, legislation has finally been passed here forcing banks to offer low cost checking accounts. While "basic banking" is not likely to become a national issue soon, the state's law may become a model for others, especially those with large inner-city populations.

The legislation recently approved in Albany requires banks to open accounts with minimum balances of only $1 and to allow eight free withdrawals a month. Banks can't charge more than $25 for opening the accounts and they can't charge more than $3 in monthly service fees.

The idea is to give low-income customers greater access to banking services, particularly checking. Until now, many residents in poor urban neighborhoods, without checking accounts, have been forced to use costly storefront check-cashing services.

New York is one of eight states that has imposed such laws in recent years. Even though no federal legislation has been passed in this area, a standard for basic banking or "lifeline" services is clearly forming state by state. The toughest laws are in New Jersey and now New York, but all the laws follow a common pattern.

Bankers say they don't like legislation mandating lifeline accounts, even though many already offer such services. They argue that government has no place dictating what kinds of products banks should sell and at what price.

"You're dealing with an industry that has argued for years it has to be allowed to compete freely," says Michael Smith, executive vice president of the New York Bankers Association.

His organization and its memtry that trying to use a loophole in the law to get around its provisions. The New York legislation, which goes into effect Jan. 31, 1995, exempts banks from offering basic banking if they can prove they lose money on the $3a-month service.

Banks are already appealing to the State Banking Department, with data that they will take such losses, Mr. Smith said.

"The regulation will not take effect for another three months, so we will have to see if in that interim we can come up with something we can live with." Mr. Smith says. "I think we're in the initial stages of the process."

But the New York banks refuse to make any data about their checking account profits and losses available to the public, or to the community activists that started the groundsweB for basic banking.

Mr. Smith responds that going public with such information compromises the banks. "You're dealing with cost structures that are individual to each bank, and for competitive reasons they're not going to reveal their cost structures," Mr. Smith said.

But 22 banks in the Big Apple already offer services that are even cheaper than the new law requires, according to New York's Office of the Public Advocate. If that's the case, banks have already proven they can offer these services without losing money, activists say.

"Virtually all bankers in the state think that their fixed costs are going to be more than $3, How can they say that, and then say they already have basic banking?" asks Trayis Plunkett, legislative director for the New York Public Interest Research Group.

Chase Manhattan Corp. is one of the banks that already offers low-cost checking. It has offered an account for four years with a minimum balance of $1 that gives customers 10 free withdrawals. The bank does not charge an initial fee and monthly service charges are $4.

"We are supportive of the goals of basic banking services." says John Hanley, Chase's vice president for government relations. "The mere fact that we have had such an account is proof."

Competition has forced Chase to keep its product inexpensive, the bank says. This makes it seem as if a state lhw dictating prices is unnecessary.

Activists, however, say even Chase's product isn't attractive to the poor. Customers who go over the eight withdrawals a month are hit with a steep $9.50 charge, they point out.

Persuading the state banking department the $3-a-month fee is too low to be profitable is made more difficult by the fact that New Jersey has had similar legislation for a year. The New Jersey Bankers Association confirms that banks there aren't flooding the banking department with exemption requests.

The New Jersey law is the same as New York's, with two exceptions. Banks can charge only 25 cents for each withdrawal beyond the minimum eight free withdrawals and customers can make unlimited free withdrawals at automated teller machines.

In New York, banks can charge what they want for every transaction above the minimum and the customer's eight free withdrawals include both check and ATM transactions.

New York banks would have done well to study what happened with basic banking in Massachusetts. There, state law requires low-cost checking be offered to senior citizens and children, but not to everyone else.

Activists have been pressing to extend the law to all bank customers. To avoid a legislative mandate, Massachusetts banks this summer voluntarily agreed to allow customers checking and savings acccounts with minimum balances of $1. The maximum fee for opening such an account is $10, and monthly service charges don't exceed $3. Massachusetts banks also agreed to loosen identification requirements, so residents without drivers' licenses can open accounts.

New York banks can still refuse to open accounts for customers who don't have a driver's license.

The Massachusetts experience serves as a good lesson in how to avoid government regulation, observers say. "The community helped design it, which is the reason it worked. The issue leaves the table as a point of contention," says Richard Pollard, president of Boston-based BayBanks Inc.'s lead subsidiary.

The American Bankers Association doesn't think basic banking legislation will spread like wildfire across the country. "I don't think New Jersey, New York, and Massachusetts are the political center of gravity for the nation," says Phillip Corwin, director and counsel of operations and retail banking at the ABA.

But even Mr. Smith agrees that New York's law would make a good standard for states that have large cities. "I think that the banks in those areas with urban centers would want to look at the New York law as a model because it attempts to balance the interest of the banks with those of the consumer groups," says Mr. Smith.

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