New Checking for the Unbanked?
The Government mandate to eliminate check writing at the federal level by the beginning of 1999 will increase the number of U.S. checking accounts, right? Well, that remains to be seen, and here's why.
Of the
unbanked U.S. population who receive government payments, 3.2 million
receive Supplemental Security Income (a program for the low income,
elderly, and disabled), 4.5 million receive Social Security payments,
and most of the rest receive veteran's and railroad retirement
benefits.
Some bankers are concerned by provisions in the mandatory EFT law requiring that recipients have access to a bank account "at a reasonable cost and are given the same consumer protections with respect to the account as other account holders at the same financial institution," since they do not yet know how expensive it will be to service the checking needs of the previously unbanked portion of the population.
While more details of what the government means by "reasonable cost" are expected this spring when the Treasury issues draft regulations, some test programs have attempted to solve the problem (and take advantage of the opportunity) another way. To test out a low-cost approach (this also translates as limited consumer features), First Union Corp. launched a pilot last fall in Orlando, Florida, of an account called ebank. Ebank allows a customer who agrees to direct deposit of payroll or benefits checks unlimited funds access through ATMs and POS terminals, but no check writing privileges.
This program, however, has been no panacea for the bank. Early results suggest that there are substantial costs associated with serving consumers not accustomed to using debit cards. "We're having to train customers how to use an ATM, what is a PIN (personal identification number), and why it's important not to write it on the card. There are a lot of customer service issues," says Anne M. Brown, Vice President, Corporate Marketing, for Union Corp.
Another potentially significant cost is Regulation E, which limits consumer liability to $50 if a lost or stolen card is reported within two days. While Brown says there has been little fraud in the test, Reg E puts the burden of proof on the bank when a customer claims, for instance, that he or she did not make a withdrawal. "If someone claims they didn't do it, we have to prove they did, and that's a pretty expensive process to go through," says Brown.
A 1993 Citibank study estimated the cost of investigating a Reg E complaint from a benefits recipient at $37.50. Finally, many banks are finding out that the unbanked portion of our population are unbanked for a reason-they don't trust banks, that don't like electronics, they don't trust direct deposit, and they want a piece of paper. That piece of paper is called a check.
