WASHINGTON — The story of the federal government’s effort to deliver Social Security and other payments to millions of recipients who lack bank accounts is Washington political theater at its best — and worst.

And nearly six years after the plan was conceived, it has hardly advanced past Act One.

About 5,000 people have opened an Electronic Transfer Account, or ETA, which is a low-cost, government-designed account available at banks that take direct deposits from Uncle Sam. That figure is a drop in the bucket compared with the five million to seven million consumers that policymakers are trying to reach.

Slightly more than 600 banks, thrifts, and credit unions, with 9,491 branches, have contracted with the Treasury Department to offer the voluntary accounts. However, most ETA customers are concentrated at one institution, Banco Popular de Puerto Rico.

Industry officials blame high costs, low returns, lack of a marketing budget, and no evident demand.

“For whatever reason, there is no interest on the part of the public,” said L. Anthony Tebeau, president of Washington State Bank, which is based in Federal Way and has $50 million of assets. “No one will recover their costs and make a profit on this.”

Yet Treasury officials said they remain optimistic that financial institutions will bring more of those who lack bank accounts into the financial mainstream. The institutions began testing the accounts in September 1999, and the program will gain momentum as Bank of America Corp. and other large companies start offering them next year, the officials said.

“We actually think we’re off to a very good start,” said Donald V. Hammond, a fiscal assistant secretary at the Treasury Department who for several years has had the unenviable task of leading adoption of the ETAs in the face of steady criticism from lawmakers, bankers, and consumer activists.

Like many controversial government initiatives, the accounts began as part of a little-noticed provision in a giant law enacted in 1996 known as the Debt Collection Improvement Act. The law included a mandate that all government payments, except tax refunds, be made electronically by Jan. 1, 1999.

The switch from paper checks was expected to save the federal government $500 million over five years and provide a safer payment method for elderly and low-income recipients.

In response to concerns about how those without accounts would cope, Treasury proposed the ETAs.

But many of the same lawmakers who passed the initial law blasted regulators for devising a system that would have forced senior citizens, veterans, and the poor to open accounts at banks that would charge them high fees for withdrawing their benefits. The Treasury used exemptions in the law to make electronic delivery voluntary.

Treasury officials designed the accounts with input from activists who wanted to protect accountholders from unfair fees and from bankers who said they would lose money on the accounts.

Banks receive $12.60 per account to cover start-up costs and may receive Community Reinvestment Act credit, but customers may not be charged more than $3 per month or be required to have a minimum balance, and they are permitted four free withdrawals per month.

Vice President Gore unveiled the accounts at an event in New York in June 1999 and said that seven major banking companies had agreed to offer them.

But introducing the accounts at large banks is more difficult than at smaller institutions, because “the larger the financial institution, the more complicated the system changes to bring it on as well as the amount of time it takes to phase it in,” Mr. Hammond said. Many of the larger institutions also put ETA development on a back burner as they modified their computer systems for the year 2000 computer glitch, he said.

The number of accounts are said to be low because many of the large banking companies with urban branches — such as Bank of America, Bank One Corp., FleetBoston Financial Corp., Firstar Corp., and Wells Fargo & Co. — just started offering the program or will offer it soon.

Promoting the accounts is problematic with so few banks offering the products. “Until you have a critical mass of locations available, you cannot do a concentrated marketing strategy,” Mr. Hammond said. “You really only get one or two chances at a target population.”

For those banks offering the accounts, the Treasury Department offers free promotional materials but does not provide advertising funds. However, financial institutions do not have to raid their marketing budgets to promote the accounts, he said. “The most effective way to market this account is through trusted third parties, such as community based organizations and faith-based organizations.”

Margot F. Saunders, managing attorney for the National Consumer Law Center, said she thinks that more banks are not participating because of the limit on fees and because the Treasury does not let banks lend money to ETA customers and then take money out of the account if the person does not repay.

While possibly paying banks more per account they sign up might increase participation, “It is pretty amazing that they are paying anything,” she said.

Though financial institutions receive CRA credit for offering the accounts, many banks are already engaged in other activities to meet that requirement, Ms. Saunders said.

Viveca Y. Ware, director of payment systems for the Independent Community Bankers of America, said financial institutions offering the accounts are doing so to offer a community service, not make a profit. “The cross-marketing opportunity was the primary driver, not profit.”

Mr. Tebeau said Washington State Bank has opened 15 accounts and closed three. One of the accounts was closed because the person did not like it, and another was closed because the customer was trying to take out more in cash than they had funds, he said.

When the bank kicked off the program last year, it made public service announcements on local media and informed community service organizations that the accounts were available, but it did not run any paid advertisements. “The potential to open more accounts is always there,” but “we cannot afford to market it,” Mr. Tebeau said.

Mr. Tebeau said he is not finding ETA account holders profitable either. As far as cross-selling other bank products and services, ETA customers are unlikely to rent safe deposit boxes and usually are not prospects for loans, he said.

Despite the consumers’ poor response to the accounts, “we have no regrets for getting into the program,” Mr. Tebeau said. “You cannot always take. You have got to give back.”

Banco Popular is having the greatest success. As of Oct. 31, a year after the $18.4 billion-asset subsidiary of Popular Inc. launched the program, it had opened 3,067 accounts.

Marieangelie Berlingeri, retail deposit manager, said an aggressive advertising campaign, teller promotions, and similarity to another electronic account the bank offers contributed to the rollout’s success. “We try to educate them that instead of getting the check through the mail and getting robbed, it is better to get direct deposit.”

To encourage tellers to sign up unbanked consumers, Banco Popular paid employees $5 for every account they opened in February, May, and August. This month the bank is offering employees $10 per account, she said.

Banco Popular’s success with the program also is a result of the account’s similarity to an electronic account the bank started five years ago for other unbanked customers, because bank employees were familiar with how the product works. The two accounts are essentially the same, and the bank funnels the federal beneficiaries into the new program.

To make its two account programs more similar, the bank cut the monthly fee it charges ETA account customers by $1, to $2, the same fee as its other program.

Yet even Ms. Berlingeri said that the bank does not expect to turn a profit on these customers.

Grace Geraghty, Bank of America’s national product manager for the accounts, said the company plans to launch a pilot ETA program Jan. 15 in its Northern California, North Carolina, and South Carolina branches. Federal benefit check recipients would be able to get account applications while they wait in line to cash their checks, and would be able to apply for the accounts over the phone.

Those three areas were chosen to kick off the program because of the high concentration of people living in those locations who get federal benefit checks, Ms. Geraghty said. Bank of America plans to slowly start rolling out the program to the rest of the 21 states and the District of Columbia that it serves. The accounts are expected to be available in all of the company’s markets by September.

Company officials said they are optimistic that they will recoup the accounts’ costs. “Clearly, we are looking at this to break even and, in the best case, make a little bit of money,” Ms. Geraghty said. Offering the account should reduce the number of people bringing checks into its branches, she said.

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