Historical context and authority
Scope of the federal rule
However, a common element that these payment service providers share is that they are not subject to comprehensive federal regulation, 7 and are generally subject only to limited regulation, if any, at the state level. Source
The participating financial institution would establish a federally insured account subject to Regulation E 8 to receive each enrollee's federal EFT payment. Source
Should all payment service providers be subject to regulation, or only a particular subset, and if only a subset, what is the basis for such distinction? Source
Treasury offset procedures
It also mandates that the Secretary of the Treasury (``Treasury'') ensure that individuals required by the Act to receive their payments electronically have an account at a financial institution, with access to such an account at a reasonable cost and with the same consumer protections with respect to the account as other account holders at the same institution. Source
Treasury has issued a rule implementing the Act. Source
Treasury is also designing an electronic transfer account (``ETA SM '') for which any individual who receives a federal benefit, wage, salary, or retirement payment shall be eligible, and that may be offered by any federally-insured financial institution that enters into an ETA SM Financial Agency Agreement with Treasury; Treasury has asked for public comment on the proposed ETA SM . Source
Treasury is seeking comment on whether it should propose regulations regarding these arrangements, and if so, what the content of such regulations should be. Source
Department of the Treasury, Room 2112, 1500 Pennsylvania Avenue, N.W., Washington, D.C. Source
Comments received on this ANPRM will be available for public inspection and copying at the Department of the Treasury Library, Room 5030, 1500 Pennsylvania Avenue, N.W., Washington, D.C. Source
Federal Register, Volume 64 Issue 5 (Friday, January 8, 1999) [Federal Register Volume 64, Number 5 (Friday, January 8, 1999)] [Proposed Rules] [Pages 1149-1152] From the Federal Register Online via the Government Publishing Office [ www.gpo.gov ] [FR Doc No: 99-354] ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Fiscal Service 31 CFR Chapter II RIN 1505-AA74 Possible Regulation Regarding Access to Accounts at Financial Institutions Through Payment Service Providers AGENCY: Fiscal Service, Treasury. Source
The Act further mandates that Treasury ensure that all individuals required by the Act to receive their payments electronically have an account at a financial institution, with access to such an account at a reasonable cost and with the same consumer protections with respect to the account as other account holders at the same institution. Source
Treasury's final rule implementing this mandate, 31 CFR Part 208 (``Part 208''), provides that any individual who receives a federal benefit, wage, salary, or retirement payment shall be eligible to open an ETA SM , and that the ETA SM may be offered by any federally-insured financial institution that enters into an ETA SM Financial Agency Agreement with Treasury. Source
Treasury is designing the ETA SM primarily to afford these recipients a safe, reliable, and economical means of accessing their federal electronic payments in compliance with the requirements of the Act. Source
Financial institutions will be prohibited by Treasury's Financial Agency Agreement from entering into arrangements with nondepository payment service providers to provide access to ETAs SM . Source
The following are descriptions of some arrangements between payment service providers and financial institutions, either in existence or under development, of which Treasury is aware: In one arrangement, the federal payments of recipients who enroll in the program are initially deposited into a federally insured account of the recipient at the participating financial institution. Source
Moreover, Treasury continues to explore ways to facilitate access to federal EFT payments in areas underserved by financial institutions; these include working with other public entities to expand ATM access in these areas. Source
Treasury did not regulate these arrangements when it adopted Part 208, but noted in its adopting release that it would monitor their development. Source
In considering these questions, Treasury is endeavoring to ensure that federal payment recipients have access to their funds at a reasonable cost and with the same consumer protections as other account holders at the same financial institution, to increase use of EFT for federal payments in order to reduce cost to the federal government, and to increase participation by federal payment recipients in the country's financial system. Source
Issues for Comment Treasury is seeking comment on the following questions: Should Treasury regulate or prohibit arrangements between financial institutions and payment service providers in which electronic federal payments are deposited into a recipient's non- ETA SM account at a financial institution but made available to the recipient through a payment service provider? Source
Treasury is also seeking comment with regard to the nature of any regulation that may be appropriate for payment service provider arrangements. Source
As noted above, a range of suggestions have been made as options for Treasury to consider; these generally fall into two broad categories. Source
Under one category, Treasury would generally prohibit arrangements between financial institutions and payment service providers whereby electronic federal payments received at such institution are accessed by the recipient through a payment service provider. Source
For example, some have urged that Treasury could require all financial institutions that receive federal Direct Deposit payments for account holders to become Treasury Financial Agents and prohibit these kinds of arrangements with payment service providers in their Financial Agency Agreements. Source
Alternatively, it has been suggested that, under certain circumstances, Treasury could adopt regulations that would prohibit financial institutions that receive Direct Deposit from entering into these kinds of arrangements with payment service providers. Source
Under the second broad category noted above, Treasury could promulgate rules to delineate further the requirements relating to financial institution accounts required by the Act for receipt of federal electronic payments. Source
Treasury might approach this by establishing minimum requirements for the receipt of electronic federal payments by defining in a regulation terms such as ``account,'' ``access,'' ``reasonable cost,'' and ``consumer protection,'' in the context of the Act. Source
For example, Treasury might determine that, for purposes of the Act, an ``account'' must have certain core attributes, which could include the ability of the account holder, at the account holder's option, to maintain the account and to retain a federal payment in the account, notwithstanding any arrangement with any third party, and to withdraw less than the entire amount of a federal payment made to the account. Source
Notice and collection administration
abstract":"The Debt Collection Improvement Act of 1996 (the ``Act'') requires that, subject to waiver, all federal payments (other than tax payments) made after January 1, 1999 shall be made by electronic funds transfer (``EFT''). Source
----------------------------------------------------------------------- SUMMARY: The Debt Collection Improvement Act of 1996 (the ``Act'') requires that, subject to waiver, all federal payments (other than tax payments) made after January 1, 1999 shall be made by electronic funds transfer (``EFT''). Source
Background Section 31001(x) of the Act requires that all federal payments 1 made after January 1, 1999 be made by EFT, unless Treasury grants a waiver. Source
Treasury recently published a notice and request for comment regarding the proposed ETA SM (``ETA SM Notice''). Source
As Treasury announced in the ETA SM Notice, 9 a financial institution that offers the ETA SM may not enter into arrangements whereby a recipient of an electronic federal payment may access an ETA SM through a payment service provider. Source
Interest, penalties, and charges
The ETA SM Notice also requests comment on three other features that are not currently part of the proposed ETA SM , to determine whether any or all should be added to the ETA SM at the option of the financial institution and at additional cost, if any, to the account holder: payment of interest on balances, allowing deposits of other electronic funds, and allowing ACH debit capability. Source
Typically the recipient is charged an enrollment fee and a monthly fee for the service, and, if applicable, a check cashing fee. Source
Although these arrangements vary considerably with respect to access to payments, fees charged, applicability of federal deposit insurance, and disclosures, customers of these services usually must access their payments through the payment service provider rather than directly through the depository institution that receives the Direct Deposit, must withdraw the entire amount of the federal payment rather than a portion thereof, and often must pay significant fees. Source
After the financial institution receives a federal payment and credits it to the recipient's account, the amount is immediately transferred to a pooled account at an unaffiliated financial institution in the name of the payment service provider, in which each recipient's interest is not federally insured. Source
The charges for the program include a $4.00 enrollment fee, a $5.50 monthly maintenance fee, and a $1.00 fee for each withdrawal or balance inquiry. Source
In addition, Treasury has urged the federal bank regulatory agencies to take steps to ensure that the institutions they regulate take responsibility for full and fair disclosure of all fees charged by the parties involved in arrangements whereby recipients access federal EFT payments deposited in non-ETA SM accounts through payment service providers, as well as the legal relationships involved and the applicability of federal deposit insurance. Source
Commenters are asked to cite specific evidence supporting their position, e.g., data showing that the fees charged recipients by payment service provider arrangements (either generally or with reference to specific types of payment service providers or specific recipients) are or are not reasonable; that specific consumer protections, such as federal deposit insurance or Regulation E coverage, are given or denied to such persons; or the extent to which the recipient may or may not have either an account at a financial institution, or access to such account, under such arrangements. Source
Government obligations and implementation
Separately, certain financial institutions have entered into arrangements with nondepository payment service providers, such as check cashers, currency dealers and exchangers, and money transmitters, whereby recipients of electronic federal payments deposited into a non- ETA SM account at the financial institution may gain access to these payments through payment service providers. Source
These service providers are not themselves eligible to maintain deposit accounts or to receive electronic deposits directly from the government. Source
DATES: Written comments are encouraged and must be received on or before April 8, 1999. Source
ADDRESSES: Comments should be mailed to the Office of the Fiscal Assistant Secretary, U.S. Source
To make an appointment to inspect comments, please call (202) 622-0990. Source
FOR FURTHER INFORMATION CONTACT: Roger Bezdek, Senior Advisor for Fiscal Management, Office of the Fiscal Assistant Secretary, at (202) 622-1807; or Gary Sutton, Senior Counsel, Office of the General Counsel, at (202) 622-0480. Source
Payment Service Providers The vast majority of financial institutions already offer Direct Deposit directly to federal payment recipients. Source
Moreover, it is anticipated that many financial institutions will offer ETAs SM to recipients. Source
In addition, however, in anticipation of the Act's EFT requirement, a number of financial institutions are offering or planning to offer Direct Deposit services that involve prearranged linkages with nondepository providers of financial services such as check cashers, currency dealers and exchangers, and money transmitters (``payment service providers''). Source
Many of these businesses offer check cashing in conjunction with other financial products, such as ``payday loans.'' 6 Moreover, many such businesses may offer other nonfinancial products and services to the same customers (e.g., as a convenience or grocery store or liquor store). Source
These types of entities are therefore not considered ``payment service providers'' in the context of this ANPRM. Source
The recipient then accesses the payment at an outlet of the payment service provider, where the recipient is given either cash or a check. Source
These payments are immediately transferred to a trust account at the financial institution that contains the federal payments of all recipients who enrolled at a particular check casher. Source
The recipient may then cash the check at the check casher or elsewhere. Source
An enrollee may obtain a monthly statement at the check casher or by mail, at his option. Source
The cost for the program is $1.60 per federal payment, plus a check cashing fee. Source
A second arrangement establishes a federally insured account at a financial institution affiliated with the service provider for each recipient enrolled in the program. Source
Recipients in the program may withdraw the amount of the federal payment (in full or in part) and check the available balance at any office of the payment service provider, as well as at any ATM included in a participating network. Source
In a program being developed, a recipient could enroll at any check casher that is a member of a national trade association. Source
The recipient could withdraw the amount of the federal payment (in full or in part) from his account at any participating check casher through a point-of-sale device, or at any ATM of the financial institution or of any participating network, but not at the financial institution's offices. Source
Some have pointed out that many payment service providers offer other products, such as short term, high rate advances known as ``payday loans,'' to their customers, that may subject them to substantial payments, fees, or other risks. Source
Some have argued that, if the amount of the federal payment is immediately transferred out of the recipient's financial institution account into a payment service provider account, and the recipient cannot withdraw less than the entire amount of the federal payment from the account or maintain the account separately from the relationship with the service provider, then the recipient in fact may not have an ``account'' at a financial institution in any meaningful sense. Source
Others have argued that, if the recipient cannot access his federal payment directly at the financial institution but may do so only at an outlet of the payment service provider, the recipient may not have ``access'' to an account at a financial institution. Source
In addition, the arrangements in which the payment service provider prints its own check for the recipient are contrary to the goal of replacing paper checks with electronic payments. Source
However, others have noted that payment service provider arrangements provide access to funds for recipients residing in areas underserved by banks and other financial institutions, including low and moderate income and rural areas. Source
Do such arrangements deny the recipient either: (a) an account at a financial institution, (b) access to such account, (c) access at a reasonable cost, or (d) the same consumer protections with respect to the account as other account holders at the same institution? Source
Definitions and regulatory provisions
A recipient's only means of accessing his funds is by obtaining a check at the check casher where the recipient enrolled, in the full amount of the federal payment. Source