The Federal Trade Commission on December 19, 1997, filed public comments in support of a Department of Treasury (“Treasury”) proposal to implement the Debt Collection Improvement Act of 1996 (“Act”), which will require that all federal payments, except tax refunds, be made by electronic fund transfer (“EFT”) by January 2, 1999. This program -- commonly known as EFT '99 -- seeks to make the process of transmitting federal payments more efficient and, at the same time, bring into the mainstream of the financial system those millions of Americans who receive Federal payments (such as Social Security benefits) and who currently do not use the financial system to receive funds, make payments, save, borrow, or invest.
The Commission’s comments support Treasury’s goals in implementing the Act -- including making certain that recipients have access to their funds at a reasonable cost and with appropriate consumer protection -- and notes that Treasury’s proposal goes far to ensure that these goals will be met.
The Commission also supports Treasury’s proposal to require that federal payments be made directly to financial institutions, but encourages Treasury in the future to consider increasing consumer choice and competition by permitting certain non-financial institutions to participate in this market.
The comments are based in part on the Commission’s extensive experience with credit- related consumer protection statutes, including the Electronic Fund Transfer Act and its implementing Regulation E, which provide certain consumer protections for electronic fund transfers, such as transactions at automated teller machines and debit card purchases. The Commission also participates in the interagency Consumer Electronic Payments Task Force created by Treasury Secretary Robert Rubin.
Definition of Authorized Payment Agent
The Act requires each recipient of Federal payments to designate one or more financial institutions or other authorized agents to which EFT payments may be made. Treasury’s proposed rule defines "financial institution" to mean a depository institution, such as a bank, credit union, or savings association. Non-financial institutions, such as check cashers and other money transmitters, will not be permitted to receive federal payments directly on behalf of consumers. The Commission’s letter points out that this limitation may inconvenience some consumers. On the other hand, the Commission notes that financial institutions provide consumers with the protections of deposit insurance and “safety and soundness” regulation, which are not available from non-financial institutions. Moreover, financial institutions now have the necessary infrastructure for receiving large volumes of electronic payments. Thus, on balance, the Commission supports Treasury’s proposal, but encourages Treasury to permit certain non-financial institutions to participate in this market in the future.
Treasury may waive the EFT requirement for individuals for whom compliance imposes a hardship. Treasury’s proposal would permit waivers in some circumstances. For example, an individual who has an account with a financial institution and who became eligible to receive payments before July 26, 1996, would not be required to receive payment by EFT where the use of EFT would impose a hardship due to either a physical disability or a geographic barrier. Also, an individual who does not have an account with a financial institution is not required to receive payment by EFT where the use of EFT would impose a hardship on the individual due to a physical disability or a geographic barrier, or where the use of EFT would impose a financial hardship on the individual.
In its comments, the Commission supports "bona fide" hardship waivers and encourages Treasury to make such waivers well-known to consumers through its educational efforts. In addition, it advocates that waiver certificates be clear, easy to complete, and accepted based solely on the individual’s certification.
Access to Account Provided by Treasury
Treasury must ensure that all individuals required to receive payments electronically will have access to an account at a financial institution at a reasonable cost and with consumer protections comparable to those afforded other account holders at such institutions. Treasury’s proposal provides that where an individual does not designate an account at a financial institution, and does not obtain a waiver, Treasury will provide the individual with access to an account at a federally-insured financial institution selected by Treasury. After the close of the comment period on its current proposal, Treasury plans to develop proposed terms, conditions and attributes of the account to be offered and to publish the proposal for a limited period of public comment.
Because federally-provided accounts will be given to certain recipients on an involuntary basis, the Commission’s comments urge Treasury to design the accounts to protect consumers’ interests. In addition to deposit insurance and the consumer protections afforded by the Electronic Fund Transfer Act and Regulation E, the Commission encourages Treasury to provide guidelines designed to lead to accounts being provided at a reasonable cost and to accounts that are accessible to consumers at convenient locations.
The Commission vote to approve the filing of these comments was 4-0, with Commissioner Orson Swindle not participating.
NOTE: The full text of the FTC’s comments are available on the FTC’s web site at: http://www.ftc.gov or from the FTC’s Consumer Response Center, Room 130, 6th and Pennsylvania Avenue, N.W., Washington, DC 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
Office of Consumer Affairs
Bureau of Consumer Protection