Inexpensive bank accounts for delivering government benefits electronically were unveiled Wednesday in New York by Vice President Al Gore and Treasury Secretary Robert E. Rubin.
Banks offering the long-awaited electronic transfer accounts cannot charge more than $3 a month for them or require minimum balances, and must provide four free withdrawals a month. The government will, as expected, reimburse banks $12.60 for opening each account.
Banks may accept additional deposits and pay interest. Additional fees also may be charged for extra services, such as additional withdrawals or ATM card replacements.
Seven banks, including Bank of America Corp., Chase Manhattan Corp., and Wells Fargo & Co., signed on to start offering the accounts.
The Treasury expects the program to start late this summer, but Bank of America and Chase said they would not be ready until next year. Bankers involved said the accounts may help them reach the estimated eight million recipients of federal benefits who are not bank customers.
"Is anybody going to rich on this? No," said Kenneth R. Murray, Wells Fargo's group executive vice president of diversified financial services. "You get a chance to educate them into the mainstream of financial services."
"This is a cost-effective way of serving people," said Mark Willis, senior vice president and head of Chase's community development group.
Banks that offer the low-cost direct-deposit accounts will get credit toward their Community Reinvestment Act ratings, but some industry sources asked whether the accounts are good business.
"I still question the underlying business case for a financial institution to get involved, despite the $12.60 start-up fee reimbursement" said Kurt Helwig, executive director of Electronic Funds Transfer Association in Herndon, Va.
The program "seemed to fall victim to political expediency. There's got to be a business case. I don't see it here," Mr. Helwig added.
But Vice President Gore praised the accounts, and described the banks that have agreed to offer them as "pioneers."
"This is going to save a lot of money for families that don't have a lot of money to spare," he said.
As proposed in November, only federally insured banks, thrifts, and credit unions may participate, and they may not make arrangements to link up with check-cashing outlets.
In 1996 Congress passed a law requiring the government to deliver all checks-except tax refunds-electronically by Jan. 1. The law was supposed to cut costs by $500 million over five years.
But opposition forced the Treasury to let people choose between electronic transfer and paper checks. A gradual adoption of electronic payment is anticipated.
Another bank in the program, Banco Popular de Puerto Rico, already has a version of ETA account called Access 24, which is used by many Social Security beneficiaries. "We have a large electronic infrastructure," said Banco Popular chairman and chief executive Richard Carrion, "so the marginal cost to us is very low."
Getting CRA consideration and being allowed to accept other deposits is attractive, but Bank of America said it will offer the low-cost accounts because it "is the right thing to do."
"We're not ready to run through the math" to determine whether the accounts will be profitable, a Bank of America spokesman said, but "we're committed to making it work."