In the Green Sheet Inc.'s annual U.S. Check Study, we provide our readers with a great deal of information about checks, including many predictions about the direction of certain industry initiatives. If you have been a reader, you will remember that we predicted the government would not meet its January 1999 deadline to get out of the check-writing business, and that has proven to be the case. We also predicted that the government would find a way for the un-banked to get low cost checking accounts. Well, we were right again. But I really didn't expect that the taxpayers would be footing the bill.
Benefits recipients are no longer required to receive their money via direct deposit. How will the government know who is to receive a check and who should receive a direct deposit? "We're going to assume if they do not sign up for direct deposit that they don't want it," said Doreen Dziepak Benson, a spokeswoman for the Social Security Administration in Pontiac, MI.
The problem, as we've discussed many times before, is "the great un-banked." Bank accounts are cost prohibitive for this market segment, so they don't get them. Instead they use check cashers and get charged an arm and a leg. The government is trying to offer a cheaper alternative by placing a maximum of $3 on the charges that banks can assess for a low-use account. This account would be only for receipt of federal benefits and the account holders would be limited to four withdrawals each month.
In response, the Electronic Funds Transfer Association (EFTA) asked the Treasury Department to be more flexible in the design of its Electronic Transaction Accounts (ETAs) for recipients of federal benefits. The Treasury and EFTA share the goal of using existing electronic payments networks to provide a low-cost, electronic option for individuals who receive federal benefits, but lack a bank account. H. Kurt Helwig, executive director of EFTA, says, "Our members believe that by being more flexible, the Treasury can increase participation by financial institutions and come closer to its goal of making most paper payments electronically."
Some banks are less than enthusiastic about offering the accounts, due to the $3 service fee cap. In other words, it is not a money making opportunity for them. Helwig wrote a letter to the Treasury offering suggestions on how to interest financial institutions in offering the ETA product, while also providing low-cost service.
"Treasury is proposing a $3 per month cap on service fees, and a minimum of four transactions on the account each month," Helwig explains," but our member research indicates that there is not enough incentive in the Treasury proposal to interest a sufficient number of financial institutions to offer the accounts in numbers that will allow Treasury to meet its goal of converting most check payments to electronic funds transfer." Therefore, EFTA has recommended that the Treasury take a regional approach and tie the financial compensation for offering the account to the cost of doing business in a geographic area. "This may be higher, or it may be lower," says Helwig, "but it will be more accurate." EFTA is also suggesting that the Treasury allow for annual re-evaluation of account fees, or for negotiations between the government and financial institutions on equitable fee arrangements in areas where the need for participating financial institutions is most critical.
Even with the recommendations, Helwig recognizes that the cost may still be too high for some banks. Helwig says, ". . . there will be some regions where the cost of doing business exceeds what Treasury is willing to pay."
The Electronic Funds Transfer Association's 900 members include financial institutions such as Citicorp, Chase Manhattan, and Wells Fargo; payment processors such as Deluxe Electronic Payment Systems, and SPS Payment Systems; and ATM systems, including STAR system, and HONOR. (For more information access http://www.efta.org.)
Now, why would a bank settle for just $3 per account? Out of the kindness of their hearts? No, our Treasury will be forking over a majority of the billó$12.60 per account to the banks. Doesn't sound like much? Well, it adds up to more than $120 millionóall to save money the government spends writing checks. (Do you remember $300 wrenches and $1,000 toilet seats? Same logic!)
But even if people do take advantage of the $3 accounts, and the Fed foots the $12.60 remaining bill, there is still the hurdle of acceptance. Recipients may still be hesitant to get a bank account. Some prefer the anonymity of being accountless, and others may prefer using a check casher or grocery store.
Only time will tell if the $120 million will be enough to help the government save money on check preparation.
