A Treasury Department proposal for low-cost accounts for recipients of federal electronic payments has drawn a mixed response.
Financial institutions and trade groups that generally support the special accounts-known as electronic transaction accounts-are concerned that participants will not be able to make a profit.
Public comments were due last week on the proposal, unveiled in November as part of the Treasury's plan to reach the estimated 10 million recipients who do not have bank accounts.
At issue are some of the proposed account's specifics, such as a $3 cap on monthly fees, a minimum of four withdrawals a month at no charge, and a $12.60 reimbursement by the Treasury for each account an institution opens.
Among other questions, the Treasury sought comment on whether financial institutions should pay interest on these accounts. Industry officials said additional costs would cause institutions to shy away from the program.
"If you require them to pay interest on the accounts, and offer all of these other related kinds of services, you ultimately make the account an expense to the institution," said Douglas F. Duerr, president and chief executive officer of the National Association of State Credit Union Supervisors. "By adding all of these additional features, you really make it impossible for financial institutions to offer them."
"There needs to be some difference between" ETAs and other bank accounts, said William M. Phillips, director of policy development at the American Bankers Association. "The ETA is aimed at being a very basic account."
Trade groups have also raised concerns over the $3 monthly fee cap. Kurt Helwig, executive director of the Electronic Funds Transfer Association, called for more flexibility over the fee, allowing it to vary depending on geography.
"We are asked to price these accounts without any regard to the population we are reaching," Mr. Helwig said. "There has to be some flexibility here."
In a letter to the Treasury, the EFTA said it is concerned the $3 fee and four-transaction minimum "will not provide adequate incentive to those financial institutions willing to offer an account, and will, in all probability, significantly reduce the number of financial institutions willing to offer such an account."
The association recommended that Treasury conduct an annual review of the amount that financial institutions may charge.
However, Frank Torres 3d, legislative counsel for Consumers Union, said fees discourage users from opening accounts.
"The cost of the account is a vital attribute that recipients will consider when choosing to obtain an ETA," Mr. Torres wrote in his comment letter. "Based upon the research cited by Treasury, this amount appears to be reasonably related to the cost to the institution providing the ETA."
Viveca Ware, director of payments systems at the Independent Bankers Association of America, took the middle ground.
"We believe that the proposed attributes are reasonable, with the exception of the $3 fee," she said. "We think banks should have more flexibility in establishing the monthly fee."
Donald V. Hammond, the Treasury's assistant fiscal secretary, characterized the nearly 200 letters as "generally supportive," and he said he had not encountered significant opposition that would require the Treasury Department to "rethink the general direction of the proposal."
To save money, Congress in 1996 ordered the government to stop issuing checks and start delivering benefits by direct deposit. The original deadline was Jan. 1, 1999, but under pressure from lawmakers and consumer groups, the initiative has been diluted and delayed. Last fall, Treasury made the electronic delivery voluntary for all recipients.
Treasury officials said the account's details should be finalized this spring and become available during the third quarter.
Though the final rule may ban banks from partnerships with third parties such as liquor stores and check cashers, the market has already made a preemptive strike.
Last week, the National Check Cashers Association and Citigroup announced a new debit card that will be available for check casher customers nationwide. (See article on page 18.) Those accounts will charge customers a fee from $3 to $6 for monthly maintenance and fees from $1 to $2 for automated teller machine withdrawals and point of sale purchases.
"The check cashing community obviously has had a relationship with that segment of the market for years," said Robert A. Bucceri, president of Chaddsford Planning Associates, West Chester, Pa. "They are the ones that are marketing to these 10 million people that Treasury wants to reach."
Mr. Duerr objected to the requirement that ETAs be provided by federally insured financial institutions.
"We would very well be excluding those financial institutions that Treasury really wants to encourage," said Mr. Duerr, who cited Puerto Rico as an example where only 20 of the 200 credit unions are insured by the federal government. "If your goal is to deliver federal payments to recipients, you have to tap the credit unions."
However, Ms. Ware said Treasury has broadened the scope of the program, which at one point would have awarded the right to offer ETAs to one institution on a regional basis.
"We are very pleased with Treasury's effort to create a regulatory framework where banks of all different sizes can participate," she said.