Facing public confusion and a paperwork nightmare, the Social Security Administration has asked for a delay of the plan to make most federal government payments electronically by 1999.

Under a hotly contested Treasury Department proposal made in September, payments to federal benefits recipients with bank accounts would be switched to direct deposit in January 1999.

But recipients without banking relationships could continue to receive checks until as late as January 2000 because the Treasury needs extra time to work with financial institutions, to provide government-sponsored accounts to needy recipients.

Social Security Commissioner Kenneth S. Apfel recently asked the Treasury to wait instead, and begin electronic payments for everyone at the same time. "This would be the most feasible approach because it would impose a lesser burden on both the public" and Social Security, he wrote.

Otherwise, the agency would have to mail notices about the program to all Social Security check recipients this summer, and again to those without accounts next year when the Treasury has details ready on the government-sponsored accounts, he explained.

This is the second call in a month for the Treasury to delay its congressionally mandated plan to make all payments except tax refunds electronically by next Jan. 1. The agency in late December rejected a request by Senate Banking Committee Chairman Alfonse M. D'Amato, R-N.Y., to postpone the entire plan after the Treasury ousted a key official overseeing the program.

Social Security's concern was just one among many in more than 200 comment letters sent to the Treasury last month by financial institutions, consumer advocates, and lawmakers. The different sides battled over who gets to offer the accounts, how much they should be allowed to charge, and how much control the government should exert.

Community banks objected to the Treasury's plan to let insured financial institutions bid for exclusive regional contracts to serve benefits recipients who lack bank accounts. They fear losing the business to large institutions.

"The larger geographic area bidders are asked to serve, the more unlikely it is that smaller institutions will have the operational capacity to participate in the program," wrote Thomas J. Sheehan, president of Grafton State Bank in Wisconsin, on behalf of the Independent Bankers Association of America.

House Banking Committee members Maxine Waters, D-Calif.; Julia M. Carson, D-Ind.; and Lucille Roybal-Allard, D-Calif., agreed.

The Treasury has to make sure small institutions are not "shut out," they wrote. "Community banks have played an important role in serving low- income communities-often when other larger institutions would not."

"We recommend a voluntary program in which financial institutions interested in offering the account may participate," wrote Dina Nichelson, president of the American League of Financial Institutions, which represents small, minority-owned banks.

Rhetoric remains high on the question of whether the Treasury should cap pricing to prevent fee-gouging, and dictate account features to move those who do not use financial institutions into the economic mainstream.

Underscoring their concerns about costs, banks and banking trade groups urged the Treasury to give financial institutions as free a hand as possible in designing accounts and setting fees.

"We do not believe that any specific pricing or services should be mandated by the regulation," wrote Steven Alan Bennett, general counsel for Banc One Corp. "The marketplace should drive these decisions."

Accusing the Treasury of naivete, many consumer groups contended that the agency should set prices to protect elderly and poor benefits recipients from high charges, as required by law.

"The Treasury Department is abandoning its public responsibilities if it lets the banking industry define 'reasonable costs' for providing basic banking services," consumer advocate Ralph Nader wrote.

"The Treasury and the public already know the banks' definition-which is whatever they can get away with."

Kenneth J. Bonneville, senior counsel for Norwest Corp., recommended that charges "be deemed 'reasonable' if the fee is the same as fees charged for comparable services to other account holders at the same institution."

Banks and their trade groups generally balked at demands by consumer advocates that government-sponsored accounts provide as many as 10 free withdrawals as well as bill payment, check writing, savings, and other services.

"Adding features will increase the cost and complexity (of these accounts)," wrote L. Anthony Costantino, vice president of Chase Manhattan Bank.

Instead, banks said they favored inexpensive, basic accounts that charge a monthly fee, receive only federal payments, and can be accessed with a debit card. Recipients who want further services could pay more or get a regular bank account, they suggested.

The Treasury plans to propose specifications for the government- sponsored accounts in early February.

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