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U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to notice, at 10:00 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.

    Present: Chairwoman Roukema; Representatives Campbell, Weldon, Fossella, Vento, LaFalce, C. Maloney of New York, Watt, Roybal-Allard, Ackerman, Kilpatrick, Kanjorski, Sherman, Sandlin, and Meeks.

    Chairwoman ROUKEMA. Good morning, ladies and gentlemen, colleagues. I don't expect a procedural vote on the floor, so I think we can get started close to being on time. I do thank everyone for being here, and certainly thank our first panelists. We will have opening statements, and then welcome our panelists.

    We are, as you know, focusing on the impact of Electronic Funds Benefit Transfer 1999, EFT '99 as it's known in short. We will have in January 1999 recipients of Social Security and veterans' benefits in the program, supposedly fully implemented. These individuals are likely to be the most affected by the move to electronic delivery of benefits, because of all kinds of physical as well as economic limitations, unfamiliarity with electronic banking, and limited income that will make it difficult for them to absorb any new costs which are associated with electronic delivery of benefits. Close attention and review must be given, in my opinion, to the Department of the Treasury's implementation of EFT '99. In other words, we're going to be looking today at the whole world problem of it, but most specifically, the problem of the unbanked.
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    It's not the first time that we're dealing with this issue. We had a hearing in September of 1997, and that hearing focused on the Department of the Treasury's proposed regulations. At that time, Treasury did not have a clearly defined proposal for implementation and they were still seeking public comment on some of the unanswered questions regarding implementation of the program. Since that hearing in September, Treasury has received over 200 comment letters from community organizations, Government agencies, financial institutions, trade associations, and so forth, including congressional offices I'm sure.

    I am hopeful that as a result of the September hearing there has been progress made. But my colleague and Ranking Member, Mr. Vento, along with other colleagues of mine, and particularly my colleague from New Jersey, have requested an updated hearing, and I think it quite appropriate that we have it at this time. We are getting closer to January 1, 1999, and as Treasury is aware of, these continue to be the problems. I am hopeful that today the Treasury and the other participants in this hearing will spell out with more specificity some of the major EFT '99 issues we are faced with today.

    We have not only Social Security recipients, but also veterans' benefits recipients who are being asked to make decisions at this point in time without the critical information that they need. These people need more information on whether it's possible to have low cost, or bare-bones, lifeline banking such as we already have in New Jersey, and perhaps many other States for their Social Security and veterans' benefits. Maybe that is an outline of a proposal for us in the future.

    I will not go into the details of this proposal, except to say that we know that there are waivers available for beneficiaries. We will discuss the waiver question, whether or not that's adequate, as we go through the hearing; the ETA accounts, as to who is eligible, monthly charges and so forth. Not all of the ETA information is fully understood or fully discerned by the public. I would also like to hear specifics about the education and outreach programs that have been designed by Treasury, to let beneficiaries know about these important issues.
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    EFT '99 is part of the Debt Collection Improvement Act of 1996. It has already started to be implemented. We have Federal payments to new eligible recipients, many of them are already registered. But starting January 1, 1999, all Federal payments other than tax refunds must be made by EFT. I think we understand that that deadline is coming up. The Department of the Treasury is directed, under the law, in the interim to ensure that all recipients who were required to receive payments electronically will, for that purpose, have access to an account at a financial institution at reasonable cost, and with some consumer protections. However, we haven't had that spelled out as precisely how that would be implemented. The Secretary of the Treasury, as we understand it, is authorized to grant waivers based on recipient hardships, but, again, we want to question how that is to be implemented.

    As part of an overview, according to the Treasury's Financial Management Service, FMS, the Federal Government makes approximately one billion payments a year, of which 85 percent are processed by FMS for civilian agencies, primarily Social Security and the Department of Veterans Affairs. The Defense Department issues the remaining 15 percent. I think we understand how expensive it is to issue paper checks. We are looking for, in this legislation, a cost-effective means of paying out the benefits under Social Security and veterans' benefits, while at the same time protecting the people who deserve our help.

    Financial Management Services has reported that in 1996, only 53 percent of the 850 million payments it made that year were made by EFT. This is a little behind the schedule that we had anticipated. Among the reasons for limited participation in EFT is the fact that some 10 million individuals are ''unbanked.''

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    EFT '99 will provide significant benefits to both the Federal Government and the recipients of Social Security and veterans benefits. It is estimated that the Federal Government will save over $100 million by switching to this type of payment system.

    EFT '99 will also provide, we hope and anticipate, significant benefits to the recipients. They will receive their money more quickly, there will be less inconvenience, fewer trips to the bank or mailing in the check for deposit, less opportunities for fraud. The Treasury estimates that it will significantly lower the amount of fraud associated with stolen and forged Social Security and veterans benefits checks. Consumer groups, senior citizens groups, as well as veterans groups, have been focusing on the problems with EFT '99, along with many of our colleagues here today. They have focused on problems, but we must also understand that there are great benefits to the program as well.

    I believe that I have sufficiently set the scene here for the hearing and my colleague, Mr. Vento. I would hope that we can get on with the first panel shortly. We must understand, however, that there are vulnerable and sensitive population groups out there—such as Social Security and veterans' benefit recipients. For that reason I do thank you for originally recommending this hearing, and now leave it to you for an opening statement.

    [The prepared statement of Hon. Marge Roukema can be found on page 50 in the appendix.]

    Mr. VENTO. Well, thank you, Madam Chairwoman, and for holding the hearing and responding to Congressman Franks and my concern. And it's evident by the presence of Senator Faircloth and my friend and colleague, Congressman Kanjorski, of the importance of this particular matter. And I think really what it comes down to is that if we had a voluntary system of implementation, we probably wouldn't have the angst and the problems with it. But it is involuntary, and that by necessity because of pushing and, you know, something being superimposed from Washington, there are some concerns and some fears that do arise with that.
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    This, of course the issue with the comments and regulations—you've mentioned 200. I've commented about the hardship waivers and some of the other concerns. It think that the major issue here is, while this EFT '99 presents the opportunity that many have been seeking for years to bring the currently unbanked into the banking system, of providing access to financial services, and eliminating the sort of a two-tier system for those who cannot afford a bank account, well that's a great opportunity.

    We will hear today positive comments about the upcoming changes, some not so positive comments about the effects on recipients. Some have raised concerns that panicky recipients are being pressed into costly accounts that are not in their interest. Because this EFT '99 regulation impacts so very heavily on the low- and moderate-income communities, especially our seniors and vets, as you've observed, there is a great potential for vulnerability, and thus, a great deal of concern from advocates and Members of Congress about what consequences may occur, and what is really happening.

    Members, of course, are hearing from recipients who have concerns about utilizing the new system. Unfortunately, those millions who have happily switched apparently have not written to share their appreciation that electronic funds transfer is safer, more accessible, and less subject to fraud. Minnesotans have raised their concerns to me in correspondence to my office. I'm sure most of you have heard the same. Many are concerned because they currently choose not to have a bank account, because they have limited funds, can't afford the fees or the minimum balances. Others actually seem to dislike or mistrust banks more than they do the Federal Government. That's a twist.

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    Of course, some Members of Congress, in fact, have heard from constituents that fear the Federal Government is going to take over the Social Security system.


    Madam Chairwoman, we are obviously on the brink of a new century that will present many opportunities and many challenges for new systems to better serve the American people. Electronic deposits, ATM and point-of-sale transactions represent cost-effective solutions; there's no doubt about that. But they can present economic hardships for those who do not have easy access to a bank and could be forced to pay foreign ATM fees. They do pose serious problems for those with mental or physical disability, for persons with literacy problems, and for those with language barriers. In fact, I've observed personally, and I'm sure some of you have observed, problems readily at the point-of-sale transactions where such an electronic funds benefit is being used in my State of Minnesota. And our Federal law and regulation must remain sensitive.

    We need simple, affordable, useful rules. We've got, you know, really three groups of persons: those with an account that have already accustomed themselves to this and accepted; those with accounts that don't want to and have resisted these sort of electronic funds transfer programs; and those without accounts. It's the latter two groups, and obviously physical and mental disabilities and other language barriers which can provide a waiver. But it's the two groups in between that we're concerned about, in terms of where they're going, how we're going to accommodate it, and to make certain—I mean, I think that this legislation could be a win-win situation for the Government, in terms of saving the dollars, providing the safety, and furthermore, though, a win for the consumer in terms of ensuring that the unbanked do have accounts and that we do that in such a way as to use the dollars, perhaps, for saving here, at least some of them, and provide that service to the constituents we represent to get them into the system and to make certain that they have the type of training and education programs.
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    Thank you, Madam Chairwoman.

    [The prepared statement of Hon. Bruce Vento can be found on page 68 in the appendix.]

    Chairwoman ROUKEMA. I thank my colleague. Are there any other opening statements on my side here? Yes.

    Mrs. MALONEY. OK, first of all, and very briefly——

    Chairwoman ROUKEMA. I should introduce Congresswoman Maloney.

    Mrs. MALONEY. Thank you, Madam Chairwoman, and I thank Bruce Vento for calling for this hearing and for you having this hearing, Madam Chairwoman. But as one who was born in North Carolina, I'd like to extend a welcome to Senator Faircloth, and also to my two colleagues from Congress, and I'd like to really yield my time to my colleague from the great State of North Carolina, who'd also like to welcome Senator Faircloth.

    Mr. WATT. Thank you, Mrs. Maloney, I appreciate you giving me this opportunity, particularly on the sense I have to, I'm in the middle of a mark-up in the Judiciary Committee, and I did want to be here to welcome Senator Faircloth to our side of the Capitol and hope that I will be able to stay until I have the opportunity to hear what he has to say. But if he sees me run out, it won't be because he's offended me.

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    It will be because we have some votes pending in the Judiciary Committee, and we have an ongoing mark-up of several bills in that committee, and whenever they need me they're going to come and snatch me away. So I look forward to reading your testimony if I don't get to hear it. I hope I get to hear it. And we welcome you and the other witnesses to the Banking Committee. Thank you.

    Mrs. MALONEY. Thank you. I would really, in the interest of time, just request that my opening statement be put in the record as read. I would just like to state that I'm very glad that you are having this hearing, because I am the principal Democratic author of the Debt Collection Improvement Act of 1996, and I'm very pleased that part of that legislation, this part, will certainly make the Government more efficient and effective. I'm glad it's being implemented. It's been estimated that it will save our Government $100 million. That's a lot of money we could use for other needed efforts to help people.

    But, by emphasizing electronic funds transfer, the Government should save money and people should get the money they deserve faster and more safely, but I hope this hearing will focus on not only moving forward in an efficient way, but also in a sympathetic way to a vulnerable population, and making sure that the currently unbanked people, that their money not be eaten up by fees, bank fees, processing fees, or withdrawal fees. We cannot justify the Federal Government saving money while those who need their money must pay the price. So I hope that there's a balance, while we move to efficiency, to also focus on a sympathetic understanding of people's needs.

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    I thank the Chairlady for having this hearing, and I request that my opening statement be put in the record. Thank you.

    [The prepared statement of Hon. Carolyn B. Maloney can be found on page 64 in the appendix.]

    Chairwoman ROUKEMA. So moved, and by unanimous consent, any other opening statements by Members will be included in the record.

    I now recognize Mr. LaFalce, who is not a Member of the subcommittee, but a prominent and senior Member of the full committee of Banking.

    Mr. LAFALCE. Ex officio Member, now.

    Chairwoman ROUKEMA. Ex officio.

    Mr. LAFALCE. Thank you very much, Madam Chairwoman. I want to commend you and Mr. Vento for deciding to have this hearing. I think it's one of the most important you could have. People talk about the year 2000 problem, but we also have the year 1999 problem, and it can be gargantuan, especially for those millions and millions of Americans who have no account in any financial institution right now. And we're talking about the poor, minority, the elderly, the disabled, and so forth. And we could wreak havoc with them.

    I commend Treasury for attempting to come up with regulations that could deal with these concerns. They've made a very good-faith effort. I'm not sure that they're there yet. I'm not sure that they're adequate. We have some excellent testimony before us. I single out two in particular: Mr. Kanjorski has made some excellent recommendations with which I identify, calling for automatic blanket waivers. I think that's going to be necessary, and the earlier the better.
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    And I also want to identify with the testimony of Ms. Margot Saunders on behalf of consumer interests. She will say, in her own words, that unless Treasury changes the final regs, low-income recipients of Social Security, SSI, and veterans benefits will be harmed. And there are at least four crucial points that will be made, specifically that the goal of bringing the unbanked into the financial mainstream will not be achieved by the regs. I would like Treasury to address that. That the proposed regs fail to provide waivers for persons with mental disabilities, literacy problems, and language barriers. I would like Treasury to address that. That critical services of cost and real access to banking services are still undetermined in the design of the ETA. I would like Treasury to address that. And that there are no protections against attachment, garnishment, and set-off. And I would like Treasury to address that.

    These are extremely important issues. Again, I commend the Chairwoman and the Ranking Member for providing the forum for discussion of them. Thank you.

    [The prepared statement of Hon. John J. LaFalce can be found on page 62 in the appendix.]

    Chairwoman ROUKEMA. I thank you, Mr. LaFalce.

    Dr. Weldon, do you have an opening statement?

    Dr. WELDON. I do not have an opening statement. Thank you, Madam Chairwoman.

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    Chairwoman ROUKEMA. All right, thank you.

    I'd like to welcome our new Member, Congressman Max Sandlin of Texas. Welcome to the committee. Do you have an opening statement? No. All right.

    I recognize Ms. Kilpatrick.

    Ms. KILPATRICK. Thank you, Madam Chairwoman, and let me too add my voice to those who have said thank you for this hearing. I'll be very brief. Over the last few weeks we were in our districts, and we did discuss this issue of EFT with many of our seniors, particularly retirees and veterans, who are very concerned about it. With no guidelines and no apparatus in place at this time, and implementation just a few months away, many are concerned as to how effective it will be, and if in fact January, 1999 is possible. So I am hopeful as we hear discussion this morning that we will consider that date, and that no structure has really been set up. Many of my seniors, retirees and veterans are very concerned and who, in some cases are unbanked and unbankable. What will happen to their account? How will it be handled? What fees will be assessed them? How will they get to it, physically, if there is no transportation and other things available? So thank you, Mrs. Chairwoman, for holding this hearing. I look forward to the testimony.

    Chairwoman ROUKEMA. All right. I thank my colleagues and, as I previously stated, by unanimous consent all opening statements will be included in the record.

    I thank my colleagues, Senator Faircloth and our two Congressional colleagues for being patient, and we look forward to your testimony. We will first hear from Senator Faircloth. I certainly want to thank you for coming here. You have a noted national reputation for your interest in this legislation, and obviously you have a great depth of insight. I believe you have legislation already introduced that would make EFT '99 optional, but perhaps we'll leave it to you, Senator, to explain to us your observations, experience, and in-depth insights as to why you believe that corrective legislation, if you will, is necessary. Senator Faircloth.
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    Senator FAIRCLOTH. Thank you, Chairwoman Roukema. I want to thank you and Ranking Member Vento for inviting me here today.

    Madam Chairwoman, on June 12, 1997, I joined Senator D'Amato and Senator Shelby and introduced legislation, Senate Bill 874, that would modify the mandatory electronic benefits legislation that was passed in 1996. My bill would simply make it an option—not mandatory—the electronic deposit requirement for persons who receive Social Security and veterans benefits. In effect, for those two major categories of beneficiaries, the 1996 law would be made voluntary.

    Under my bill, any citizen could still sign up for direct deposit by notifying the appropriate Government agency.

    Let me state that I am not adamantly opposed to people using electronic funds transfer as a method for Federal benefits. It has some advantages. But I do not think we should impose this on current retirees. In fact, through my travels through North Carolina, I've found that many senior citizens are completely unaware that this is about to happen. And this is a requirement that's nine months away.

    According to the American Association of Retired Persons, 20 million Social Security recipients are still receiving their benefits by a paper check, 20 million. Of this number, and I heard the Chairwoman use 10 million, but somewhere between 6.5 to 10 million are estimated not to have bank accounts. North Carolina is one of the States that has a large population of retirees still receiving checks in the mail. Forty percent of veterans benefits are still sent by mail. It has taken us twenty years to get 67 percent of Social Security recipients to sign up for electronic funds transfer. I don't see any way that we can get the remaining 33 percent to sign up in nine months. If so, it would be one of the few things the Federal Government did quickly and efficiently.
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    I think if the Treasury Department were smart, it would recommend that we delay this requirement well into the 21st Century. I would suggest that it be made voluntary in perpetuity.

    Under the rules they have suggested, anyone with a bank account will have this imposed on them. This means that over 13 million people will have electronic deposit, even if they don't want it that way.

    They have suggested that senior citizens can get a waiver by filling out a form. Now, I have to ask, how many people get a form in the mail and return it promptly and accurately? I think it's pure folly to think that this is going to work. I don't think we should put the burden on the senior citizens to change. It should be up to the Government to sign them up.

    Additionally, this will work a hardship on many people. The North Carolina Long Term Care Facilities Association wrote me and stated that it will be a serious imposition and hardship, and a difficult situation for 21,000 seniors living in their facilities.

    And remember, all of this is supposed to be accomplished by January 1 of next year.

    Finally, Madam Chairwoman, this brings me to the most important point. The year 2000 problem is going to be a big problem. I know we are worried about the banks' ability to cope with it, but I also worry about the Government's ability.
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    The FAA might not make it. I worry about the Social Security Administration's ability to make it. They are out front, I'm told, but it will be the first time.

    I think that rather than browbeating seniors to sign up for direct deposit, the Congress and the Administration should be more concerned that people simply get their benefits after the year 2000, and not about how they get them.

    A quick way to impose term limits on all of us is to interfere with senior citizens getting their Social Security checks. I would remind the subcommittee that one in three people who receive Social Security use that check to meet all of their living expenses. One in three people that receive a Social Security check, statistically, meet all of their living expenses and they have no other income. I know that it's hard to believe in Washington, but from North Carolina I see it a lot.

    We need to get our priorities straight and make sure the year 2000 problem is solved before we embark on another venture of mandatory direct deposit.

    I thank you, Madam Chairwoman, and I look forward to answering any questions. Thank you.

    [The prepared statement of Senator Lauch Faircloth can be found on page 52 in the appendix.]

    Chairwoman ROUKEMA. I thank the Senator.
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    Now we have a problem. I don't know whether you're going to duke it out or what, but Congressman Franks immediately came to me and told me of his time constraint. I now learn that Congressman Kanjorski has one. Do we agree that Congressman Kanjorski will be next? Fine.

    Congressman Kanjorski, we do welcome you here today. You've been a longstanding and valued Member of the Banking Committee, and we know of your contributions in this area. You have a special interest in this area and have introduced legislation. So we welcome you here today to explain that and give us your insights, both as a Member of the committee as well as a person who has had longstanding interest in Social Security. We welcome you.


    Mr. KANJORSKI. Thank you very much, Madam Chairwoman. Madam Chairwoman, it's an honor to be back on the subcommittee again. It's been a hiatus of several Congresses since I've had that opportunity, so I look forward to it.

    I really want to extend my thanks to the agencies, Social Security and Veterans Administration in particular, that have taken on this chore that the Congress imposed upon them under the budget act. Many of us in Congress were overly optimistic as to what we're capable of accomplishing, or even worse than that, of what we're capable of forcing the administrations, various agencies, to accomplish.

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    What I'm here for today is to call to the attention of the American people and the Congress that we're courting a disaster of major proportions unless we either delay the effective date of the requirement, issue a blanket waiver, or significantly increase our efforts to create an Electronic Transfer Account that is fair and easy for citizens to use.

    I think the good Senator from North Carolina pointed it out. The proportions we're at today indicate that what's going to happen come January 1, 1999 is that congressional offices and Federal agencies across this country will be deluged by frantic phone calls from senior citizens wondering where their checks are, and why they have to pay fees to receive benefits that they have earned.

    And when you look at the proportions that were using EFT in 1996, up to 58 percent, in 1997, up to 62 percent, and today it's estimated at 65 or 67 percent, we have to be terribly optimistic to assume that we can move 33 percent in nine months. In reality, in 1997, 10 million Americans received paper checks from the United States Government amounting to payments of $291 billion. Even if we achieved the most optimistic compliance possible and had 99 percent compliance, it would still mean that we will have 100,000 Americans receiving $7.6 billion in benefits that will not have met the electronic funds transfer requirement, and those individuals' problems will have to be dealt with within a nine-month span when it goes into effect.

    Last September in our full committee hearing I called this problem to the attention of Under Secretary Hawke. In January, I called it to the attention of Secretary Rubin. In the meantime, I have sent letters to both of them and pointed the problem out, and it has not yet been resolved. I think that we have to take action now, so that we don't further complicate the year 2000 problem, and a delay of one year would put it smack dead in the middle of January 1, 2000, which doesn't make sense either. So, realistically, we should look at carrying it over into the first year or two of the 21st Century, so that we don't compound the problem of the year 2000 and the electronic transfer requirements of the Federal Government.
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    The easiest way to do that would be to grant an automatic waiver to all of the 10 million who currently are unbanked, and then make a rededicated effort to work toward creating new EFT accounts for them. And there are things that we can do. But we should take the pressure off people, the agencies, and keep them focused on getting to the problem and solving the problem, rather than some panicked attempt to get to higher compliance percentages, when we know full well we can't really make compliance 100 percent and we are courting disaster.

    I do not believe that the agencies of the Treasury have really looked at all the needs that are incumbent upon this problem, and how they can be solved. For instance, what banks, and what institutions are going to be able to offer these accounts? In light of the Supreme Court decision of the other day, as you well know, 70 million Americans who have accounts in credit unions will have their options limited, and 15 million credit union accounts may disappear. Senior citizens who don't have accounts will not qualify as common bond members in credit unions. So are we talking about a limited number of banks? Are we excluding some banks that won't be in it? Will all institutions have to provide this mechanism? Or will people in the rural and suburban areas have to travel great distances to access their funds?

    We haven't even put our hand around the ATM surcharge problems in this country, and to a large extent, people who have electronic transfer accounts will have to get their withdrawals from ATMs, and every time they take a withdrawal, pay a huge, disproportionate percentage of their benefits just to use that electronic transfer account.

    Having all those considerations out there, I cannot see possibly how this Congress could act in any other way than to require a blanket waiver and an extension of this problem until we have real outreach.
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    Now, there are several things I think we should do and can do, and I wonder whether or not the appropriate agencies have really gone out and looked at this from a user-friendly position of the recipient and the beneficiary, as opposed to the standpoint of administering the act? Have we had focus groups? Do we know what the problems of electronic transfer will be for senior citizens and veterans, and how we could make it more user-friendly? Have we worked with organizations on a local level—VFWs, American Legion organizations, AARP, senior citizen organizations? Have we even surveyed how many HUD senior citizen projects have all their residents signed up for electronic transfer? I don't know. But certainly we have tremendous capacity to reach out if we think about it from the standpoint of being user-friendly to the recipient, as opposed to being efficient for the Government, and profit-making for the larger entities.

    We haven't given nearly enough time to analyze and recognize that there are profits to be made in this business. There are decisions as to whether it should be organized at a governmental level or in the private sector. If it is, and I would be one that would favor the private sector, because I think the efficiencies are there, and the updated mechanisms of the Internet and other payment systems are out there. But, have we made a level playing field? We don't have the specifications yet of who's going to bid on this EFT account. Are there only going to be two or three major banks in America that cover the entire country, and then subcontract this out? Are we going to do it on a statewide basis? Are we going to do it on a regional basis? Are we going to allow all financial institutions?

    And I would suggest to you that this is not a problem to be solved only by major banks. This is a problem that could be best solved by small entities in this country, both credit unions and community banks who could really join together to solve the problem. Where they best give the service to the average small town recipient, and small account holder, these are the two institutions that we should call to the forefront, to be active participants in how these ten million non-banked individuals are properly given adequate exposure to the banking institutions to save money, have a user-friendly facility established for them, and not to unreasonably pay.
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    Have we taken the consideration of saying, we know what's good for Wall Street. We're going to save the banking institutions in this country almost one dollar per check transfer. Now, have we made a decision what's good for Main Street? Have we thought about using that dollar saving in the banking system to try and underwrite the cost of electronic transfer accounts that will be imposed involuntarily on these recipients? I think, until we solve and answer those questions, and in a friendly way, not a castigating way, we will not have done our duty. I think everybody I know that knows of this problem is doing everything they can. It's just time the Congress recognizes that we can't do it in nine months, that there are a lot of things we haven't focused on, there are ways of reaching out and finding out the problem from the people that are going to suffer from the problem, and in an organized, time-sensitive basis, over a period of two or three years, we can probably accomplish a much higher, user-friendly effective rate, but we're never going to get to 100 percent, and know how we can deal with that.

    And in that regard, rather than allowing this to move through and in nine months have our telephones deluged by, ''Where is my money? How do I access my money? Do I know if I got paid? How do I know I got paid?'' Why don't we just back up and say, organize a moratorium, blanket waiver, sit down and work between the agencies and the departments of the Executive Branch and the Congress and be realistic? And finally, to answer the Senator's question, prove the Government can do something right.

    Thank you, Madam Chairwoman.

    [The prepared statement of Hon. Paul E. Kanjorski can be found on page 57 in the appendix.]
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    Chairwoman ROUKEMA. Thank you. You have certainly outlined the relevant questions that we will be directing to our panelists as we continue this morning. Certainly there are answers that we must have before the implementation of this program. Thank you, Mr. Kanjorski, and we understand your time commitments.

    Congressman Franks, it is my pleasure to welcome you as a colleague from New Jersey. You and I have discussed these issues early-on this year and last year, and you have correctly focused on one of the issues that is probably most sensitive at the grass roots level—the personal, individual level. You have two pieces of legislation, but I understand that you want to focus mostly on the ATM question today. We are very anxious to hear from you, and I know that you've studied this issue a long time and your testimony will be most instructive. Thank you.


    Mr. FRANKS. Madam Chairwoman, thank you very much for convening this hearing. Moreover, I'd like to congratulate Senator Faircloth and Congressman Kanjorski for focusing in on some global issues surrounding EFT '99 that I believe this subcommittee is going to be looking at very, very carefully.

    As has been made clear by previous witnesses, EFT '99, under the provisions of that law, Social Security recipients as well as those receiving veterans benefits will be forced to receive their Government benefits by electronic transfer and will no longer have the option to receive a paper check by mail.
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    This electronic transfer is intended to save the Government approximately $100 million per year, but the fact is that unless we take action, this mandate will wind up costing senior citizens and military veterans a portion of their benefits.

    I believe it's the duty of this Congress to protect those seniors and military veteran beneficiaries, many of whom are on fixed incomes, from being forced to surrender a portion of their benefits to ATM bank fees.

    Last session, I introduced two bills to address this issue. The essential purpose of these bills is clear. If Social Security recipients, or veterans, choose to access their benefits electronically through automated teller machines, they should not be penalized. My legislation would prohibit any financial institution that accepts the direct deposit of Social Security or veterans benefits from imposing a charge for electronically accessing those benefits.

    These bills also prohibit the financial institution from imposing any other fee on the accounts of direct deposit Government beneficiaries, unless they impose it on the accounts of those who do not receive cash benefits from the Federal Government. This provision protects Social Security recipients and veterans from any efforts by banks to levy special user fees on Government direct deposit accounts as a means to replace revenue that could be lost due to a ban on increased ATM fees.

    ATM charges are one of the fastest growing bank charges in America today. Banks are continually reducing their business hours and staff, while increasing the charges they levy on their electronic terminals. Not only has the expense of ATM charges increased, but so has the number of transactions subject to fees.
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    Many financial institutions in my home State now charge customers to own an ATM card, hold an ATM account, use a foreign ATM, or even access their own account with an ATM card.

    A June, 1997 report by the Federal Reserve Board found that 95 percent of financial institutions in my own district imposed a fee on their own customers, averaging 85 cents per transaction, for using a foreign bank's ATM.

    The same study showed that now fully 10 percent of these financial institutions charge their own customers for using their own ATM. Current trends would indicate that ATM fees are likely to proliferate in the years to come.

    Some people say that these charges are the price we pay for convenience, and that it simply represents the costs of living in an automated age. But Congress must realize that under the EFT '99 mandate, the beneficiary who once received paper checks is no longer going to have any choice in the matter. The Government is telling these seniors and veteran beneficiaries that their money will be delivered into financial institutions by electronic means, and electronic means alone. It would be naive to think that banks will not seek to invest these funds and profit from these changes being made in the law. Given these changes, it would be wrong for Congress to leave America's seniors and veterans unprotected.

    Many of America's seniors and military veterans are, as Senator Faircloth and Congressman Kanjorski noted, on fixed incomes. They live month-to-month on these benefits. There is no such thing as a small access fee for these individuals. This legislation provides an important level of protection to citizens who depend on Government benefits. It will enable the Federal Government to move forward with a more efficient, safer, and cost-effective means of distributing benefits, while ensuring that beneficiaries are not held up at the bank.
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    Madam Chairwoman, thank you very much.

    [The prepared statement of Hon. Bob Franks can be found on page 54 in the appendix.]

    Chairwoman ROUKEMA. I thank my colleague from New Jersey, and appreciate your patience and understanding, and understand that you have a mark-up in your other committee. Thank you very much.

    Now, if our first panel will come forward, please. All right. I welcome the panel here, and we'll begin with Under Secretary of the Treasury, John D. Hawke. I welcome him with my colleagues, because he is our good friend. We call him Jerry, for those who don't know. We've worked closely with Under Secretary Hawke on a good number of issues, and his background and experience are without question, and suffice it to say that the Administration is very fortunate to have someone of his talent and experience in such an important position. We look forward to your testimony today, Secretary Hawke, and, again, we're pleased to have the benefit of your insights and understanding.

    Under Secretary Hawke, why don't you testify, and then I'll introduce the others as they speak. Welcome here today.

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    Mr. HAWKE. Thank you, Madam Chairwoman, and thank you for those very kind remarks. It's a pleasure and an honor for me to be here today before this subcommittee, and I commend the subcommittee for holding this hearing.

    I want to say at the outset that the concerns that Members of the subcommittee have expressed, and concerns that the first panel of witnesses expressed, are exactly the concerns that we've been grappling with for the last two years, since Congress assigned to us the responsibility of implementing EFT '99. These are serious concerns. We take them very seriously. They're difficult issues, and we think they need to be addressed on the merits. And the purpose of my testimony is to bring you up to date on exactly where we stand on these issues.

    I think we've made significant progress in our implementation efforts. Our efforts have been characterized by outreach. We've spent an enormous amount of time in the rulemaking process, consulting with all interested groups and with other agencies of Government. The major issues that have emerged in the rulemaking concern the waiver provisions that a number of comments have been addressed to, and the structure and availability of the Electronic Transfer Account, or the ETA, which is the means by which we propose to fulfill our mandate from the Congress to assure the availability of a reasonable cost account.

    At the outset, I want to state as emphatically as I can that any recipient of Federal payments who believes that they will suffer any hardship or disruption from the transfer from checks to Electronic Fund Transfer will be able to get the benefit of a waiver and will be able to continue getting their check. No payments will be withheld from any beneficiary or any recipient in the process of this conversion.
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    I want to go into some of our background thinking on this waiver policy because I think it's important that we share a common view of this. In our proposed rule, we indicated that waivers from the requirements of mandatory EFT would be available, among other reasons, for individuals who certify in writing that EFT would impose a hardship because of a physical disability or geographic barrier, or, in the case of an individual who does not have a bank account, that EFT would impose a financial hardship.

    Many of those providing comments urged us to extend waivers as well to individuals with mental disabilities and literacy or language barriers. And questions were raised as to the appropriateness of drawing a distinction between existing recipients and new recipients with respect to the availability of waivers, as our proposed regulation did.

    We've given the most careful consideration to all of these comments and I think I can assure the subcommittee that we will not only expand the scope of waivers, but that we're going to work to simplify the procedures for invoking waivers.

    Let me elaborate on our thinking in this regard. There's an obvious tension between realizing the long-range objectives of EFT '99—that is maximizing both the cost savings for the Government and the benefits of increased security and convenience for recipients for the move to electronic payments—while avoiding disruption, hardship, inconvenience, and apprehension on the part of payments recipients.

    We are very purposely attempting to resolve this tension by giving primacy to the interests of recipients, while laying the groundwork for full implementation of EFT over the long-term. We have a strong conviction that even with a liberal waiver policy, the transition to EFT will come about quite effectively in the fullness of time as more and more citizens become familiar and comfortable with the new electronic payments technology and recognize the benefits of EFT, and for this reason our approach to waiver policy is characterized by extreme liberality. I want to say again, emphatically, that any recipient who believes that they will suffer any hardship or disruption or inconvenience from being transferred from check payments to EFT is going to have a waiver available and that waiver will be available with a very simple procedure, and I'll come back to that.
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    Let me turn now to the Electronic Transfer Account. At present electronic payments may only be deposited to accounts at financial institutions, and the most complex problem facing us today is how to meet the needs of those approximately ten million Federal recipients who don't have accounts at financial institutions. While we are still in the process of formulating the ETA, there are several considerations that are guiding our thinking about how we do this.

    First, we intend to create an Electronic Transfer Account that will be offered by federally-insured financial institutions selected, initially at least, through a process of competitive bidding in defined regions of the country. We will prescribe a uniform design for the account, and we're presently exploring a process by which smaller institutions such as community banks and credit unions, which may not have the capacity to offer the ETA throughout one of the defined regions, could elect to become providers of ETAs within the communities they serve under substantially the same terms as those fixed in the competitive bidding process. No institution will be required to offer ETAs however.

    It is our hope that eventually every institution in the country would be able to offer the ETA. We will also provide that in States where there are electronic benefit transfer programs up and running, unbanked recipients may at their option, elect to receive payments through such a program. Today, 30 states have EBT systems operating, 16 of those are statewide.

    The ETA will be designed principally to provide a low cost means of receiving and accessing Federal payments. The account will be offered to recipients at a base monthly service charge that will be determined in the competitive bidding. But, I stress that recipients who may find even this charge to be a hardship or a burden will be entitled to a waiver that will allow them to continue to receive checks. While the ETA is being designed principally for recipients who don't have their own bank accounts, we're also exploring ways to avoid disadvantaging those Federal payments recipients who were previously unbanked and who may have signed up for accounts being offered in anticipation of EFT '99 taking effect even before the ETA became available.
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    In this connection, we are keenly sensitive to the need to strike a proper balance between offering a useful account to those who need it, and avoiding the creation of disincentives to the private sector to provide competitive, innovative, alternative electronic banking products. We believe that it is of great importance that financial institutions develop their own approaches to serving the needs of payment recipients in an electronic environment.

    A major question for us is what features we should design into the ETA beyond the basic ability to receive and access Federal payments. Our primary objective, of course, is to keep the cost of the account as low as possible, while making it attractive to unbanked payment recipients. In this regard, we recognize that if we were to add additional features, the basic cost of the account could be increased for all recipients, including those who have no need for or interest in the additional features.

    This could raise issues of cross-subsidization among ETA holders, which would be of great concern to us. It may be, however, that there are some features that can be added at only a modest incremental cost, perhaps on a pay-per-use basis, that would help to encourage unbanked recipients into the financial services mainstream and we're giving careful thought to these. Our current thinking is that at least the following features will be included in the basic monthly charge for the ETA: Unlimited receipt of Federal electronic payments; debit card access, with some specified number of free ATM withdrawals; unlimited point-of-sale purchases, including cash back; no minimum balance requirement; on-line balance inquiry; one free replacement card per year; and, toll-free access to customer service 24-hours-a-day, 7-days-a-week.

    Let me turn finally to the question of the implementation timeframe, particularly the question about whether there's a need for legislation delaying the effective date of this legislation.
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    Let me assure the subcommittee that we've been working hard to realize the objective of a January 1, 1999 effective date, and we presently see no reason to legislate a change in that date. For many millions of payments recipients who have bank accounts, the transition to EFT should not present problems. And for those banked recipients who may face some hardship in the transition, our regulations setting forth the availability of waivers will be in place well before the effective date. To delay the effective date generally would, we believe, needlessly delay realization of much of the benefits of EFT '99.

    As we signaled in our Notice of Proposed Rulemaking, however, there is a substantial likelihood that the ETA will not be available by January 1, 1999, and thus unbanked recipients may not, by that date, have available a facility for receiving electronic payments. It was for this reason that we originally proposed to grant a waiver until the earlier of January 1, 2000, or the time that the ETA becomes available, to those recipients who certified that they do not have a bank account.

    In our subsequent deliberations, particularly with our colleagues at the Social Security Administration, we've become concerned about the logistical burdens that could result from a requirement for such written certification of any recipient who wants to invoke any of the various waivers available.

    As a result of our continuing discussions with Social Security and other agencies, we believe we've jointly developed possible approaches to these problems that would effectively address these concerns. For example, we could consider granting an automatic waiver requiring no written certification for those who want to wait for the ETA until the earlier of January 1, 2000 or the time the ETA is available nationwide.
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    In addition, we could provide the agencies flexibility with respect to the process for invoking waivers in order to avoid the need to deal with an avalanche of paper—for example, by establishing a presumption that waivers have been invoked by recipients from whom no response is received after the agency has informed them of the options available to them under the regulation.

    We firmly believe that for EFT '99 to succeed, a significant public education effort is necessary. My written statement goes into more detail on public education and we're happy to provide the subcommittee with any further information on that subject. Payment recipients not only have to be informed of the requirements of the new law in a timely fashion, but they must be fully and fairly informed of their options. Above all they have to be educated on the benefits of EFT in general, the attributes of the ETA, the process for bringing about the conversion, and the availability of waivers.

    We need to get across emphatically the message that no one's payments will be interrupted or withheld because of the transition, and that waivers will be generously available for anyone who believes that they will suffer disruption or hardship from the conversion to EFT, and we must give those recipients who have apprehension the comfort of knowing that we're not going to interfere with their customary way of getting payments.

    In short, we recognize that effective communication is a key to success for any new program and we're putting a great deal of time and energy into conveying the appropriate message in this respect.

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    Madam Chairwoman, that completes my oral statement and I'd be happy to respond to any questions you may have.

    [The prepared statement of Hon. John. D. Hawke Jr. can be found on page 70 in the appendix.]

    Chairwoman ROUKEMA. Thank you, Under Secretary Hawke. We appreciate that. We'll get back to you I'm sure with questions.

    Now, I welcome Robert Gardner, the Chief Financial Officer of the Veterans Benefits Administration. Is that correct, Mr. Gardner? We're certainly fortunate to have you here today. You've heard concerns expressed by our colleagues on previous panels about EFT '99's implications for our veterans and I'm sure that you will be able to give us your insights with your long history of public service.

    And I believe it was my understanding you've had three tours of duty with the Department of Veterans Affairs. So, you must come with some understanding of basic experience as well as positions held at the Small Business Administration. So, I would hope that you would give us some understanding from your practical experience on how this translates into the real world. Welcome, Mr. Gardner.


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    Mr. GARDNER. Thank you, very much. Madam Chairwoman, Members of the subcommittee, it is my pleasure to testify on behalf of the Department of Veterans Affairs concerning the department's views on electronic funds transfer. As you know, EFT becomes mandatory January 1, 1999, as required by the Debt Collection Improvement Act of 1996. This legislation added additional impetus to encourage our beneficiaries to utilize EFT.

    The Department of Veterans Affairs Veterans Benefits Administration, my organization, has been involved in an aggressive EFT enrollment campaign for the past three years. We have increased the number of compensation and pension beneficiaries enrolled in EFT from 50 percent to 67 percent. We use direct mailers and check inserts as the primary tools to solicit EFT enrollment and to disseminate information pertaining to EFT. These mailers and inserts notify recipients of the January 1, 1999 mandatory date. Our campaign encompasses all our benefit check recipients.

    We feel that it is particularly important for Treasury to issue the final rule concerning waivers and to resolve the unbanked recipient issue. ''Unbanked recipients'' are beneficiaries who do not have a checking or savings account. We would like to notify and assist our veteran beneficiaries concerning EFT and electronic transfer accounts. We issued a news release in September of 1997 concerning EFT '99 which included general information about waivers and ETA. We have advised beneficiaries, since April 1997, that it is mandatory that Federal payments be made by EFT. When we receive inquiries concerning options available under the law, we do advise the beneficiaries that waivers may be available for those with barriers preventing them from participating in EFT.

    VA is making every effort to meet the January 1, 1999 deadline.
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    Treasury requested agencies to submit a schedule of implementation. In our submission of December 1996, some of our programs were identified as needing system modifications that could cause delay beyond the deadline. The system changes are currently being addressed. We also believe it will take approximately twelve months after receiving waiver criteria from Treasury to complete enrollment processing, including waivers on our unbanked recipients.

    As stated before, we totally support EFT and the electronic commerce initiative and we're making strides to comply with the January 1, 1999 mandatory date. However, because of the uncertainties such as waivers and ETA issues, it would be in our recipients' best interests to resolve them prior to making the program mandatory. We, therefore, support Treasury's plans to include in its final regulations provisions granting automatic waiver for those who want to wait for ETA and allowing agencies a reasonable time to enroll those recipients once ETA becomes available.

    Madam Chairwoman, the challenges before us are significant but they do not exceed our dedication and commitment to ensuring the most efficient, safest, and timely delivery of benefits. We owe veterans and their families the best service that we can provide in the most sensitive, caring way possible to ensure that they receive our benefits in a manner befitting their service to our Nation. I look forward to working with you and the Members of this subcommittee to meet these challenges. This completes my prepared statement and I will be pleased to answer any questions that the subcommittee might have.

    [The prepared statement of Robert Gardner can be found on page 78 in the appendix.]
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    Chairwoman ROUKEMA. Thank you, Mr. Gardner.

    John Dyer is the Acting Principal Deputy Commissioner for the Social Security Administration and certainly we welcome you as a panelist today. I note from your biography that you were not only the Chief Operating Officer of the Social Security Administration, but you are also the Chief Information Officer. That is quite a combination of responsibilities here. I certainly look forward to your detailed testimony. As we all know, the Social Security benefit recipients are central to the concerns about EFT '99 and we look forward to your testimony based on your extensive experience. Thank you, Mr. Dyer.


    Mr. DYER. Madam Chairwoman and Members of the subcommittee, the Social Security Administration really appreciates this opportunity to present what we've learned to date, to endorse Treasury's generous waiver approach and to talk to you about how we see approaching the implementation of this Act over the next couple of years.

    Social Security has offered the safety, convenience and reliability of EFT, also known as direct deposit, for those receiving Social Security retirement payments, survivors, and others and Supplemental Security Income benefits for more than twenty years. Today, more than 33 million of the 50 million payments generated by SSA each month are delivered electronically. Beneficiaries who use direct deposit have an overwhelmingly positive view of this service.
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    SSA, in terms of implementing the first phase required by the Act, has had very good experience to date. We've had virtually no problems. At present, 85 percent of all new Social Security applicants have been enrolled in direct deposit automatically from the outset of their entitlement, while 35 percent of the SSI beneficiaries have been enrolled this way.

    Anyone who had established entitlement to Social Security or SSI benefits prior to August 1, 1996 is not required to use direct deposit at this time.

    As Under Secretary Hawke mentioned, he has been moving forward to implement regulations that would address the waiver conditions in the development of an electronic payment service for individuals who do not have a relationship with a financial institution.

    SSA faces the challenge of encouraging its remaining check receivers to convert to direct deposit or some form of EFT. In fact, Social Security is the largest and most visible program affected by this legislation.

    There are two significant issues to be addressed in the regulations on the EFT mandate. First is to identify all the exception conditions under which current and future beneficiaries with special circumstances will be exempt from having to be paid electronically. The second issue is to develop a program to meet the electronic payment needs of individuals without bank accounts and to develop the service at the lowest possible cost. Unbanked individuals often have limited resources. They also may be unfamiliar with how to go about maintaining an account at a financial institution.

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    SSA and Treasury have undertaken several pilots designed to test the feasibility of establishing special types of electronic payment accounts for unbanked beneficiaries. Programs have operated in the States of Maryland, Texas, and elsewhere throughout the country, that deposit benefits in special accounts established for the participants. Funds are made available to these individuals by means of ATM or point-of-service terminals. Beneficiaries participating in these special programs seem to like them. They enjoy the convenience and safety of having their monthly benefits delivered to them electronically. They also enjoy becoming part of the great majority of our society who participate in mainstream financial services. The monthly account fees associated with the pilot have not been an issue because they appear to be comparable to or less than similar fees encountered by participants previously when cashing benefit checks.

    SSA endorses the Department of the Treasury's efforts to develop electronic payment alternatives at a reasonable cost for the unbanked. We will continue to work closely with Treasury to ensure this alternative is made available nationally as quickly as possible. Based on our experience with these programs to date, we do not anticipate our unbanked population will have any significant problems with the proposed Federal programs. SSA will do all it can, working with Treasury, to monitor this area to ensure that the program operates as intended.

    The SSA supports the Department of the Treasury's proposed implementation plan for EFT '99 because it provides a well-constructed framework for ''humane enforcement'' of the expanded use of electronic funds transfer to receive Federal payments. It articulates a sound new public policy to encourage Federal benefit recipients to use electronic funds transfer technology, while recognizing that many current check receivers may have valid concerns or issues which require the Government to continue their payments by check.
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    As stated in Under Secretary Hawke's testimony, Treasury is effectively addressing the two areas that were of concern to SSA. Treasury plans to expand the waiver categories to include additional conditions that were cited in recent public hearings. In addition to geographic remoteness and physical limitations, Treasury may add literacy, English proficiency and mental impairments as additional waiver categories. SSA supports these additional waiver categories in Treasury's final regulations.

    Treasury is also addressing our other concern by scheduling the implementation of the final phase of the EFT mandate to coincide with the availability of Treasury's ETA program for unbanked Federal recipients and for those recipients who prefer to use the ETA program. We believe this change is the most feasible approach, because it imposes the least burden on both the public and SSA.

    SSA will work closely with Treasury to carry out this implementation strategy, including: continuing to apply Phase I conditions that require Social Security and SSI beneficiaries with bank accounts to be paid by direct deposit, which has proven quite successful; working with the Treasury to undertake a very robust public education campaign designed to convince current check receivers of the distinct advantages of EFT; and facilitating direct deposit enrollments.

    Once Treasury's ETA program for the unbanked is available, we plan to notify all remaining check receivers of the EFT mandate requirements. Beneficiaries who have relationships with financial institutions will be encouraged to sign up for direct deposit through their financial institution; inform all unbanked recipients about the ETA program including instructions on how to enroll in the program if they are unable to establish a traditional direct deposit arrangement; and provide all check recipients with information on Secretary Hawke's generous waiver conditions, including how to apply for the waiver and whatever else we decide to do.
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    SSA believes electronic payments are distinctly superior because they provide Social Security and SSI recipients who use them with a service that is safer, more reliable and more convenient than other payment methods, including checks.

    The agency is well on its way to meeting the objective of EFT '99. The Department of the Treasury has been very receptive to our comments and concerns, and we will continue to work closely with the Department of the Treasury and other departments.

    Thank you for this opportunity. I would be glad to answer your questions.

    [The prepared statement of John Dyer can be found on page 83 in the appendix.]

    Chairwoman ROUKEMA. Thank you, Mr. Dyer. This has been quite instructive, although I'm not quite sure that I understand exactly what your understandings are between Treasury and the SSA.

    And I'm particularly pleased Under Secretary Hawke with your statements regarding the waivers. Do I understand that you're going to have essentially an automatic extension with the presumption of a waiver? Is that what I understand?

    Mr. HAWKE. Well, we still want to hold to the January 1, 1999 date with respect to those people who have bank accounts. We will inform them about the liberal availability of waivers, and even those people who have bank accounts who believe that they would suffer some hardship from transferring to EFT will have availability of a waiver. But that will all be out on the street well before January 1, 1999, so, we don't see any reason to delay the January 1 date for those people who have bank accounts.
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    People who don't have bank accounts, or those who do and want to wait for the ETA to become available, will essentially get an automatic waiver until the ETA is ready. There will be follow-up communications to them. Now, with respect to the process for invoking waivers, this may differ from agency to agency. We don't want an avalanche of paper waiver forms. Other agencies may find other ways of doing it to meet their needs.

    Chairwoman ROUKEMA. Mr. Dyer, was that your understanding, or can you explain your position on the unbanked?

    Mr. DYER. Madam Chairwoman, we like the public education approach, because if we go out now and start to ask people to certify waivers, we will lose even before we have the ETA in place. So, our thinking has been to proceed with an education campaign and pretty much work through Treasury for those people who don't sign up for some kind of blanket waiver or broad approach like that.

    Chairwoman ROUKEMA. But, you do believe that in the future, at some point, everyone should be enrolled?

    Mr. DYER. Yes.

    Chairwoman ROUKEMA. That was the clarification that I needed and I assume, Mr. Gardner, that you also agree. Under Secretary Hawke, I do want to know a little bit more about who will be qualified to maintain these accounts. You heard our colleagues' concern about credit unions and community banks, and you made a reference, your explanation of competitive bidding. I don't know—I haven't read in-depth your testimony, and I'm sure there's more detail, but can you explain exactly how universal this will be and how we can be sure that the actual bidding process will be fair to everyone concerned. There has been some concern expressed about other than actual banks—pawn shops, or other kinds of money stores being eligible. I don't necessarily understand the concern, but the issue has been expressed by consumer groups as well as colleagues.
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    Mr. HAWKE. On that last point, I can say definitively that only federally-insured depository institutions are going to be able to offer the ETA.

    Chairwoman ROUKEMA. There's no ambiguity about it?

    Mr. HAWKE. No ambiguity about that at all. On your first point, in our original concept, we were faced with how to comply with the Federal mandate to ensure that recipients would have access to a financial institution at a reasonable cost.

    Ideally, if every institution in the country offered a cheap electronic account, that mandate would have been immediately resolved. But we did not see that happening in the marketplace, so we concluded that, on the model of the electronic benefits transfer programs, we would have to take the responsibility for making sure an account is available. We proposed initially to divide the country into regions, and to hold competitive bids to offer the ETA, as we have defined it, at a price to be determined through competitive bidding.

    Now, I recognize that that process would almost necessarily exclude smaller institutions from participating, because unless credit unions or smaller community banks were able to partner together through some sort of consortium, they probably would not be able to participate in that kind of process. We are exploring now an alternative approach—and we have not worked out the details of this or the economics of it—ideally, every insured depository institution in the country: commercial bank; credit union; thrift institution, might be able to opt voluntarily to become a provider of the ETA under the design we describe.

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    As I say, we're still in the analytic stage on this, but we think it would be ideal if every institution in the country were a provider of the ETA, and we think that would go a long way toward addressing the very valid concerns about ATM surcharges. If every institution were able to offer an ETA, then individual recipients would have the ability to choose the institution that was most convenient to them as their provider, and they would not, therefore, be subject to third-party ATM surcharges, which is a concern of ours.

    Chairwoman ROUKEMA. My time is up, but this very quickly. With respect to both the waivers and the alternative bidding process that you've just referenced, do you believe that there would be any modification to existing law that we should have to consider in the Congress to give you these extensions or this discretion? The extension on the one hand and the discretion on the other?

    Mr. HAWKE. We don't think that there's a need to legislate an extension, because we've already, in effect, created an extension by reason of the waiver until the ETA is available.

    With respect to the other part of your question about legislation to facilitate our selection of institutions, we have broad authority under existing law to select financial agents for the Treasury Department to disburse Government monies, and that was supplemented last year by Congress in respect of electronic benefit transfer programs, so that we think we have the authority that we would need in that regard.

    Chairwoman ROUKEMA. All right, we'll stay in touch on that subject. Thank you.
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    Mr. Vento.

    Mr. VENTO. Thank you, Madam Chairwoman.

    Secretary Hawke, when you talked about the banked and the unbanked, basically, with regard to this, it's really going to be an opt-in system up to a point here, isn't it, beyond 2000, beyond 1999? If they haven't provided you their account number, either the Social Security Administration or the VA——

    Mr. HAWKE. That's true. We have no place to send the payment.

    Mr. VENTO. That's right. They're unbanked, and get a waiver, and get their check in the mail; is that right?

    Mr. HAWKE. We are not going to withhold any payments. I want to again make that emphatically clear.

    Mr. VENTO. I'm just trying to—because you're saying, if they're banked, well, then we're going to—but, I mean, I think the issue is, in your eyes and the eyes of the VA or the eyes of the Social Security Administration, they're going to be unbanked. And so I think it's really important—I understand the concern. I mean, I think we have a very aggressive campaign of education which is hopefully very effective, but it looks like, even in the best of circumstances, where we're starting out with new recipients. I just noticed the VA testimony, which I think I read more carefully than the Social Security, but they're saying that only about 85 percent of the new recipients after the 1996 date are, in fact, opting-in to an automatic payment. Is that right, Mr. Gardner? Did I read it incorrectly?
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    Mr. GARDNER. That was Social Security.

    Mr. VENTO. That's Social Security.

    Mr. HAWKE. Mr. Vento, when you say ''only 85 percent,'' we think that's an exceedingly high, very successful penetration of that population.

    Mr. VENTO. Well——

    Mr. HAWKE. Eighty-five percent of all new recipients are finding no problem at all with electronic deposit of their funds, and the other 15 percent are going to get checks.

    Mr. VENTO. Well, I mean, I'm just suggesting that there's a large number anyway; 15 percent still represents a significant number of beneficiaries, much less those that obviously have not been induced previously. Before 1996, we obviously had this service available, but it was on a voluntary basis. Now, of course, it's being pursued more aggressively, with the idea that there's a deadline in effect. Obviously, it is not completely voluntary. I mean, there's an element here of requirement that is pending out there, and obviously, you want, I guess, to keep that type of inducement, shall I say, in place, rather than other words which I'm sure will be used.

    I noticed in Mr. Gardner's testimony, he's making every effort, but on page 2, he says that, ''We believe it will take approximately twelve months after receiving waiver criteria from Treasury to complete enrolling, processing, waivers on our unbanked recipients.'' So that since those are not yet out, that means you cannot proceed. So by just the fact that you haven't the regulations out for the unbanked waivers makes it almost impossible to meet the date.
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    Mr. HAWKE. No, we recognized that it was very likely that the ETA would not be available for unbanked recipients before January 1, 1999. That's why we proposed that blanket waiver.

    Mr. VENTO. But it's not just ETA. It's just the waiver criteria generally from Treasury to complete enrolling, processing, including waivers on unbanked. So it may be waivers for other reasons, too; is that correct?

    Mr. HAWKE. Well, our waivers for other reasons will be in place very shortly.

    Mr. VENTO. But his suggestion, Mr. Gardner's suggestion is this is going to take twelve months after receiving them to complete enrolling, processing, and so forth, those particular waivers.

    Mr. Gardner.

    Mr. GARDNER. That was our estimation of the lead time we would need to notify everyone. We'd try to do that as fast as we can.

    Mr. VENTO. You're obviously—I mean, I think I had it right, and I think that, obviously, he's saying we're not just talking about ETA—I understand the ETA delay. But I'm suggesting that obviously your opt-in method here, at least at this particular point, is essential, based on what they say they can do. Now if we can do something different, maybe I'm sure that with additional dollars and capacity, and so forth.
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    But, Mr. Dyer, do you have a similar problem as Mr. Gardner has with regard to the waiver requirements, not just for ETA, but with regard to the paperwork problem that will be required? You implied that you had.

    Mr. DYER. Sure, yes.

    Mr. VENTO. I didn't read your testimony as carefully.

    Yes, Mr. Dyer.

    Mr. DYER. Yes, Congressman, it would take us at least nine months after ETA before we could really get out there and get everybody enrolled.

    Mr. VENTO. Is there going to be some sort of communication to the recipients, as much as that might have an adverse impact in terms of electronic transfer or electronic——

    Mr. HAWKE. Oh, by all means. Our public education campaign has already started. There will be mailings. There will be advertisements. There will be seminars, meetings with community groups. We've got an extensive campaign planned to get the message across.

    But, again, Mr. Vento, I want to stress that, with respect to those people who have bank accounts and who don't choose to invoke one of the waivers, that we want to keep them on track for January 1, 1999.
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    Mr. VENTO. I agree. I understand your goal. My question is, at some particular point, you've got to fish or cut bait with regard to informing people that, if they don't, if they haven't signed up, that their check isn't going to stop. I mean, I understand that you want to keep the force and the purpose and the education, but there also has to be an education element here in which they understand that if they haven't signed up at that particular—otherwise, they're going to be looking for the waivers; there's going to be a lot of anxiety. Members of Congress are going to be asked questions, and then they're going to get trigger-happy with regard to legislation. At one point, you have to say, you know, we obviously are providing a basis to accommodate the fact that there are waivers all out, but we haven't got the ETA out, rather than have a method in which we have uncertainty with regard to the benefits checks and this requirement of law, which is essentially not going to be—we're doing a good job. I think, obviously, Congress was overly optimistic about this in some respects, but, I mean, at some point we have to educate to that particular point.

    Mr. HAWKE. We completely agree with that. I could see a process going forward that would involve an agency like Social Security going out sometime during this year, mid-year sometime, with a communication to their recipients saying: ''Here's what your alternatives are. If you want to wait for the ETA or if you want to invoke one of the waivers, you don't have to do anything, and we will continue to send you your check. If you have a bank account and you're ready to sign up for direct deposit, here's what you do.''

    Mr. VENTO. Well, I think the thing is that that message hasn't gone out yet, has it, Mr. Gardner? Mr. Dyer, has that message gone out with regard to the type of——
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    Mr. DYER. We've been waiting for the final regulations.

    Mr. VENTO. Uh-huh, my point. Thank you.


    Chairwoman ROUKEMA. Thank you, Mr. Vento.

    Ms. Kilpatrick.

    Ms. KILPATRICK. Thank you, Madam Chairwoman.

    I want to pick up where Bruce left off. I am delighted that the Veterans Administration and Treasury and Social Security are working real hard and have come together in promulgating rules. You have an education program planned, but the fact of the matter is it is not in our districts. The people are anxious. They don't have anything yet.

    I want to offer that one of the first town hall meetings be held in Michigan's 15th District, where I represent, where Treasury, VA and Social Security will come. What I am telling you is, yes, Veterans, I want to commend you for putting notification in the envelope, but the people do not know what, how, when, any of the particulars. So when we talk about, good that the agencies are working together—we're nine months away from it, and Mr. Hawke, I'm happy to hear you say that no one will lose their check; it will be there. I think you also said that, as it relates to the waiver, if they do nothing, the check comes, is that right? Or will there have to be a form filled out?
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    Mr. HAWKE. No, that's correct.

    Ms. KILPATRICK. If they do nothing, the check will continue to come?

    Mr. HAWKE. That's right.

    Ms. KILPATRICK. That's a good thing.

    This savings, I understand, will be $100 million, thereabouts, as it's projected to be; is that right?

    Mr. HAWKE. That's our estimate, yes.

    Ms. KILPATRICK. OK, then, I want to use a quarter of that, or some portion of that, as incentive to local communities—credit unions, banks, or someone—to handle my veterans' and seniors' and SSI recipients' accounts, because nine months to us may seem like a long time, but for them it is not. I'm going to take that back, Mr. Hawke, what you said today: ''If they do nothing, their check's going to come.'' And I can take that check to the credit union, right?

    Mr. HAWKE. You certainly can. You could bank that.

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    Ms. KILPATRICK. OK, that's good to hear. And I am very serious about the town hall meetings. It's one thing to put them in the mail. It's one thing to put ads on TV, but seniors, veterans, the disabled and SSI recipients, need face-to-face contact. They need a body in front of them to explain to them exactly what's happening, as we are mandating; it's not like they have choice; we're mandating that this be electronically transferred.

    So I am hopeful that you use us—and I want to offer myself, first of all. Mr. Hawke, I'll let you respond to that, and then I have another question.

    Mr. HAWKE. We would be delighted to do that, and we've already done some of that work with some Members, and we're delighted to provide the resources to have that kind of meeting. We think it would be very valuable.

    Ms. KILPATRICK. OK, and it's very important. Even if you put a notice, ten notices, in every check, it's not enough. Notices on the major networks and cable is not enough. They're going to have face-to-face contact with us as Congresspeople, as well as the agencies.

    Let me move quickly to the Veterans' Administration representative, Mr. Gardner. You mentioned in your testimony that 91 percent of all your beneficiaries have checking accounts, but do they all use, or a large portion of them use, the EFT? Ninety-one percent have a checking account; that's on the one hand.

    Mr. GARDNER. No, it's 67 percent.
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    Ms. KILPATRICK. Sixty-seven percent of the 91 percent?

    Mr. GARDNER. Right.

    Ms. KILPATRICK. So the other 33 percent, we still have work to do?

    Mr. GARDNER. Right.

    Ms. KILPATRICK. In addition to the 340,000 that you mentioned in your testimony, who are part of the 9 percent, who don't even have an account?

    Mr. GARDNER. Right.

    Ms. KILPATRICK. And what means are you using? What has been done to date?

    Mr. GARDNER. Again, we send out check inserts and special mailers repeatedly, explaining the advantages of the program and inviting them to sign up, and we can prove every time we send one of those out, we get at least 20,000, and sometimes 40,000, sign-ups, and we've been doing that on a regular basis.

    Ms. KILPATRICK. And 20,000–40,000, out of how many million, do you send out?
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    Mr. GARDNER. I don't have—it depends on each—I can get that for you too.

    Ms. KILPATRICK. No, but you just used 20,000 to 40,000, which is a good number, but it's in terms of millions. So what percentage is that, or whatever?

    Mr. GARDNER. Well, we moved from 50 percent three years ago to 67 percent now, and it's still rising.

    Ms. KILPATRICK. OK, and that's good. Three years ago, and you're at 67 percent now——

    Mr. GARDNER. It was 50.

    Ms. KILPATRICK. It was 50 and now it's 67?

    Mr. GARDNER. We went from 1-out-of-2 to 2-out-of-3, roughly, now.

    Ms. KILPATRICK. In three years?

    Mr. GARDNER. Right.

    Ms. KILPATRICK. But we have nine months to go.
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    Mr. GARDNER. We still have a gap to close, right.

    Ms. KILPATRICK. Right. I think one of the most significant things said this morning from Mr. Hawke was that their checks won't be cut off. That's number one. And, number two, if they do nothing, the checks will continue to come. So then if they use EFT, that takes an action on their part, right?

    Mr. GARDNER. That's correct.

    Ms. KILPATRICK. OK. Then my final thing on the waiver—and thank you, Mr. Hawke and the rest of you, for that. The waiver—at the town hall meeting I am assuming that if there is no action required, that's a good thing; if they have to do something in writing, they will have whatever paperwork that is necessary. I think we can be used, in addition to your agencies, to get the word out. Our seniors, as you know, are the most solid voting bloc. The House of Representatives is in an election year. Some people think though that when we pull our groups together, we're doing it mainly because we're running. In fact this is a real bread-and-butter issue for all seniors.

    So, I guess the waiver has to be clear. Mr. Hawke, you are very strong on not wanting to change the implementation date, because you think the Electronic Transfer Account in its year delay will help and that people who want that can automatically be waived. Then I heard Bruce ask, and you said as well, it takes nine months or more to get everyone into ETA streamlined.

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    Mr. HAWKE. Well, that's the Electronic Transfer Account, but we really just don't see any need to delay the effective date, because we think that the combination of the liberal waiver policy with respect to bank recipients, plus the automatic waiver that we're giving to anybody who wants to wait for the ETA, will really solve that problem.

    Ms. KILPATRICK. OK. And my last point, Madam Chairwoman—I know my time's up: The Senator mentioned ''voluntary'', and I know the 1996 bill said ''mandatory''. Mr. Hawke, you don't want to see any legislation initiated. You want the course to work. What is the possibility, and will there ever be any support for voluntary rather than mandatory?

    Mr. HAWKE. Well, I'm not sure it's prudent for me to characterize it this way publicly, but we're moving pretty close to a voluntary system with the liberality of the waivers that we're talking about. Our principal objective is to make sure that no American citizen who receives Federal payments is inconvenienced or suffers any hardship or financial pain from the transfer from paper checks to electronic payments, and that's our objective; that's our guideline throughout this program.

    Chairwoman ROUKEMA. Thank you.

    Ms. Roybal-Allard, please.

    Ms. ROYBAL-ALLARD. Thank you, Madam Chairwoman.

    I anticipate, as Ms. Kilpatrick does, that there are going to be many individuals in our districts and throughout the country who are going to want to take the option of the waiver, and I was happy to hear that you said that the checks were going to continue to come, if an individual did nothing, particularly because I think you're going to need to continue to do that, based on this brochure that I saw that apparently is being sent out, which is extremely inadequate. I find it extremely alarming that this is what's going to be sent out to people, because it really does not tell a person what this is for. I mean, what is ''Federal Government payment''? If someone were to receive this in the mail, I would venture to guess that they would pay no attention to it.
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    And my question is, who helped you to put this together? Were consumers, were seniors involved in putting this together? Because in order to attract the attention of those who are going to be impacted, I would think that it would say, ''What you need to know to keep your Social Security checks coming'', your ''veterans' payments coming'', but ''Federal Government payment,'' I think is meaningless.

    So, as I said, the question is, who helped you to develop this? Were consumers consulted? And then—well, let me ask, because I may run out of time. So I want to make it a two-part question, and the other question is directed actually to Mr. Dyer.

    Because you also have this 800 number, and I had my staff call the 800 number, and the first representative was very friendly. We asked about the waiver, and they said they didn't know anything about the options of the waivers. We made a second call, and we got a different representative, and in this case the person said that getting the check electronically was mandatory, and—and this is a quote: ''I've heard you can appeal, but it's going to be really hard to get a paper check next year.''

    So we have this number, and whoever is answering the phone, providing information, doesn't have the information, and is certainly raising the concerns of those who may want to, or have to, use a waiver. So I think you're in trouble before you even really got started, and I'm hoping that things are going to be changed, so that, first of all, information is getting to people in a way that is user-friendly, so it's clear and they understand what's it about, and that the people you have answering the phones to provide information are also aware of what the rules are and are able to give accurate information to the public.
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    Mr. HAWKE. It reminds me of the ''Pogo'' cartoon: ''We have met the enemy and they is us.''

    We will certainly address the adequacy of communications. I think there is probably some uncertainty right now because we haven't got the final rule out, but when that's done, I think it will settle a lot of these issues. I don't know.

    Ms. ROYBAL-ALLARD. But I guess that you shouldn't have people answering the phones who don't know the answers.

    Mr. HAWKE. That's absolutely right. I don't know, but I'll find out who exactly participated in the preparation of this document.

    But let me say that we have had extensive interaction with community groups, with consumer groups, with representatives of all of the interest groups involved in this, with respect to the public education campaign. We had an initial meeting here in Washington several months ago at which all these groups were represented. They are participating actively with us in the design of the public education campaign. We had another meeting out on the West Coast with the same kinds of groups and we are seeking as much input as we can from groups representing different elements of the recipient population and we very much want their participation.

    Ms. ROYBAL-ALLARD. And did they sign off on this? I mean, did these same groups——
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    Mr. HAWKE. I don't know who——

    Ms. ROYBAL-ALLARD. I doubt that they did.

    Mr. HAWKE. I don't know who participated in this. I'll find out.

    Ms. ROYBAL-ALLARD. I'd be very surprised if they did and I suggest that maybe you take another look at this before you print even more than what you already have.

    Chairwoman ROUKEMA. As a follow-up to my colleague from California's comments, Under Secretary, did you state when the rulemaking would be final? I think we had something like March 15, or sometime in March. It was rather unclear. Are we getting close to a final rule?

    Mr. HAWKE. We're getting close to the——

    Chairwoman ROUKEMA. Can we look forward to an early March date for this?

    Mr. HAWKE. Well, it's early March right now.

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    Chairwoman ROUKEMA. That's right, that's why I'm asking.

    No, you can see I think it's unfortunate if we have this continuing public relations problem that heats up. As you said, ''We have met the enemy and the enemy is us,'' versus the policy question. I think if the policy questions were defined as you've outlined them today, there would be a great deal of satisfaction and understanding by all involved. So we want to preempt any public relations debacle here.

    Mr. HAWKE. We agree completely and I think the points are very well taken. We need to get the rule in final form, we need to get the communications clarified, and we certainly need to look at what's being said in the documentation that's being sent out to recipients, and we will do those things.

    Chairwoman ROUKEMA. Thank you.

    I'll take this opportunity to introduce and welcome our new Member who is taking over Congressman Floyd Flake's position. Congressman Gregory Meeks from New York, we welcome you here today. Do you have questions for our panelists?

    Mr. MEEKS. Not at this time.

    Chairwoman ROUKEMA. All right, thank you and welcome. We look forward to working with you.

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    Congressman Ackerman, please, of New York.

    Mr. ACKERMAN. Thank you, Madam Chairwoman.

    I notice that our colleague Ms. Kilpatrick has gone off to spend her share of the $100 million savings. I would just like unanimous consent to provide a list later on of the needs that I would like to lay claim to.

    Her question, though, did bring up—or, her statement brought up an interesting thought. Has any consideration been given to the reinvestment of any of these savings and where they would go? Or is the anticipation that these would go back into the general treasury?

    Mr. HAWKE. I think, Mr. Ackerman, I'll let Mr. Dyer address this more specifically, but these are really savings to the program agencies, and the trust funds that are making the payments. I think the savings, for example, in Social Security would enure to the benefit of the Social Security Trust Fund.

    Mr. DYER. They would return to the trust funds and be used to pay the benefits of future retirees.

    Mr. ACKERMAN. And in the case of the Veterans Administration?

    Mr. GARDNER. What we have done, frankly, is self-fund the mailers with the savings in the postage. We've been doing that for the last few years. This is the only—or, let me put it differently. One of the, from a budget standpoint, you make an investment and you recover the savings of it in the same fiscal year.
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    And so we've been reinvesting. We spend the money on a mailing and then we get the savings in the postage and continue to invest. As we enroll more and begin to save those in the future years, then we would have the opportunity to use those savings for other purposes or to reduce our budget.

    Mr. ACKERMAN. Did you just say that all the savings are being spent on telling people that you're going to save money in the mailings?

    Mr. GARDNER. No, some of them.

    Mr. ACKERMAN. All right, there will at one point in time, you will derive a——

    Mr. GARDNER. Right.

    Mr. ACKERMAN.——And apportion a share of that $100 million in savings accruing to the Veterans Administration, and that'll just go, basically, to your operating budget. You're telling us you'll need less of an appropriation from Congress?

    Mr. GARDNER. No, we always——

    Mr. ACKERMAN. You're on dangerous ground here, I want you to know.

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    Mr. GARDNER. I know that.

    Mr. ACKERMAN. If you don't need it, we're going to spend it.

    Mr. GARDNER. You don't talk to appropriations, do you?


    We certainly have opportunities for savings that we identify and would use these for that.

    Mr. ACKERMAN. Just a comment on what Ms. Roybal-Allard said which I thought was very appropriate, just looking over at the document that was mailed out and, indeed, that would not have caught my attention, nor, would I think, the attention of most people.

    And while you all are teaching or, or I should say me, about electronic banking, because I could never figure out how you get all that money through that tiny wire, or get that ''12'' off of my VCR, or anything like that. But maybe we could suggest that one of the things that we use in our business is focus groups where you get a bunch of people who are your clients in a room around a table, hand them this thing and say, ''What would you do if you got that?'' And figure out if you can increase that 20,000-to-40,000-a-mailer kind of response using the people that are your clients.

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    Mr. HAWKE. Mr. Ackerman, we have done focus groups all over the country.

    Mr. ACKERMAN. Have you?

    Mr. HAWKE. We've had mail surveys, telephone surveys, and a lot of meetings with groups that represent different recipients.

    Mr. ACKERMAN. Thank you, Mr. Secretary. Let me just ask—much has been said about the good work your various agencies are doing to inform the public and make this transition. What role have the various industries played, the thrifts, the banks, the credit unions, in coming to a solution or informing people or trying to capitalize on getting new clients, new accounts, opened in this new era and can they do more?

    Mr. HAWKE. I think they clearly can do more. At the very outset of this program, not long after the legislation was passed, we convened a meeting of representatives of the financial industry as well as consumer groups, and urged them, and I do this every time I speak, urge the banking and other financial institutions, organizations to address the needs of payments recipients for a low-cost, efficient electronic account, particularly for the needs of the unbanked.

    And I think progress is being seen in that regard. We haven't been overwhelmed with the response, but there are now banks that are beginning to offer all-electronic accounts, either for nothing or very low cost, and I think that the whole concept of lifeline banking, which is so important, is getting a new focus as people conceive of lifeline banking as something that can be done through electronic banking rather than the very costly paper-based systems of the past.
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    Mr. ACKERMAN. Without giving anybody a competitive advantage in the private sector, has any thought been given to sharing with those industries that do electronic banking within a particular region, sharing with them on an overall basis, not just one or two or selected, but everybody who would be interested, making available the lists where you do not actually give them the lists, but allow them access where you do the mailing for a mailing that they would want to do to try to elicit a new client-base?

    That would relieve you the cost of doing the mailings, they would pay for the mailings and competitively compete. You could have banks or credit unions buying your list, that would be maintained in your control, relieve you of the cost burden of the mailing and the postage, and let them get their mail into the mailboxes of those people. That'll solve several problems for you and puts it out in the private sector.

    Mr. HAWKE. I think it's an interesting idea. We have not done that. I think there would be privacy concerns.

    Mr. ACKERMAN. But if you kept the lists in your mailing operation, and they just paid you as—we buy lists all the time because if we want to find the environmentalists or whatever, they don't give us the lists, but for X amount per thousands they'll do the mailing. We just show them the design.

    But you could do that, have your mailing folks do it the same as you're doing it for yourselves in-house right now, and have your costs absorbed, and have them compete and tell people why it's important from their point of view, on top of whatever you're doing.
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    Mr. DYER. Congressman, we've actually had experience that banks now are starting to do it on their own. They actually know who gets paper checks and they themselves are contacting their own recipients and suggesting they transfer to EFT.

    Mr. ACKERMAN. But they don't know everybody, they just have access to certain industries or certain veterans' groups or whatever, but you have the list that they want and they'd be willing to pay for it for sure.

    Chairwoman ROUKEMA. All right.

    Mr. ACKERMAN. Thank you.

    Chairwoman ROUKEMA. I think that would open up another controversial issue that we might have to have more hearings on, but in any case, I think we want to thank our panelists and release them as we'll be called over for a vote momentarily.

    I'm sorry, the Member from California, I don't have your name, I'm sorry. Another new Member.

    Mr. SHERMAN. Brad Sherman, from America's best-named city, Sherman Oaks, California.


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    Chairwoman ROUKEMA. Of course, Mr. Sherman. Yes, Brad Sherman from California. All right, I'm sorry. Do you want to ask a very brief question before we are recessed, so we can release this panel?

    Mr. SHERMAN. Yes. Hearing that vote, one concern I have is the temptation some families will have with regard to a deceased parent or grandparent. Right now, you get a Social Security check and that arrives for a month or two after a relative is deceased. You think for a moment, perhaps, of endorsing the relative's name on the back.


    You realize that constitutes obvious forgery, and there's every societal pressure and warning, and you return the check. In contrast, you're going to have everyone on electronic funds transfer. And you're asking people to take affirmative steps to return money to the Social Security Administration and other Government agencies. Has there been any testing to see first whether there is any greater likelihood that monies will be temporarily disbursed to deceased individuals and, second, what steps have you taken to wire your system into the death-reporting records to make sure that doesn't occur?

    Mr. DYER. Congressman, let me assure you, we've had twenty years experience with making electronic payments, and our experience to date has been that we've been able to resolve it equally, whether it's paper or electronic. We run death matches continuously to see what we can find out through banks and through auditing records we can get.

    Mr. VENTO. If the gentleman would just yield, this is an area where I have a lot of interest, because there are a lot of merchants and others that have had problems with handling paper checks and other accounts that are paid in and need to be paid back. We get into this particular problem all the time.
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    I found that the system you have, frankly, is one that is dependant upon States and is sometimes three or four months behind, and so, I didn't expect that question to come up, but I want to just alert you there is a lot of room for improvement and obviously that's big dollars involved.

    Everyone is going to have the opportunity to submit written questions, Madam Chairwoman.

    Chairwoman ROUKEMA. Yes. Under unanimous consent, we will have written questions presented to the panelists for your response, a written response.

    And I thank Congressman Sherman for coming. He's not a Member of the subcommittee, but one of the three new Members of the full committee. And we do thank him for being here.

    Mr. SHERMAN. Madam Chairwoman, I am a Member of this subcommittee.

    Chairwoman ROUKEMA. Well, just today, is that it? I thank you, I thank the panel, and I think there's good evidence here that we need to stay in close communication on this subject.

    Thank you very much.

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    We'll recess for 15 minutes.


    Chairwoman ROUKEMA. If the third panel will take their places at the table. We do appreciate your patience. Fortunately, we had only one vote. It frequently happens with these hearings that we're interrupted several times, but we've been somewhat fortunate.

    I do welcome our panel here. Certainly we have financial institutions and consumer groups represented on this third panel. I might point out, without diminishing in any way the value of the panelists that we have, I might note that there evidently was—whether it was an error in communication or timing, whatever the reason—we do not have veterans groups represented here, Congressman Vento, but we will of course, and I believe it has already been extended to them, the opening to submit testimony. It's unfortunate that they are not present. Again, I don't know whether it was the timing of the issue or of this hearing or whether there was a breakdown in communication. But, in any event, we are most appreciative of having the panel that is here today, and I will introduce them in the order they will be speaking.

    Mr. Brian Kibble-Smith is Vice President of Citicorp Services and Director of Government Relations, and we welcome him here today. Mr. Kibble-Smith is in charge of market development for debit card products which, I believe include Federal benefit cards and State EBT cards. He has testified before Congress on this issue before. Citicorp, as we know, and their Citicorp Services is a leader in the field of EFT and EBT technology. And we certainly look forward to having the benefit of your testimony.
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    Let me also, while I'm at it, introduce the next two members in the order they'll be speaking. Ms. Margot Saunders, who is speaking on behalf of the National Consumer Law Center. Ms. Saunders is currently a member of the Federal Reserve Board's Consumer Advisory Council, and she has testified several times before House committees on these issues, EFT issues, in the last two years.

    I would also like to welcome Mr. Gene Barrett. Mr. Barrett is representing AARP, the American Association of Retired Persons, which really needs no introduction. We, as Members of Congress, are well aware of the grass-roots organization, the constituents of ours that you are representing here today. Mr. Barrett, himself, has over thirty years experience in business writing and reporting and has written extensively on financial subjects, and we certainly welcome you here today.

    And with that as introduction, Mr. Kibble-Smith. Thank you.


    Mr. KIBBLE-SMITH. Thank you. Good afternoon.

    The Citicorp organization is currently managing systems that distribute multiple types of Federal payments through debit cards that are used at ATMs and point-of-sale, or POS, devices.

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    For example, in the State of Texas, we currently distribute Federal benefits including Social Security annuities and Veteran's Administration payments to 20,000 recipients. And this is an example of the card that they use to access those benefits.

    Our Texas cardholders were originally participants in a voluntary pilot program that we conducted for the Financial Management Service. The project concluded last year, but virtually all of the recipients elected to keep their cards and remain Citicorp customers.

    We are also implementing the distribution of Federal benefits as part of one of our regional electronic benefits transfer, or EBT, projects for welfare payments in eight southern States, and this is an example of the card we use in that project.

    By describing our services in Texas, I believe that I can answer many of the questions that the subcommittee raised in the invitation letter that we received.

    For a fee of $3 per month, recipients receive one free ATM transaction per month and unlimited POS access to their funds. The service includes unlimited toll-free access to our customer help-line, where account balances, transaction histories and other information can be obtained in English or Spanish. Additional ATM transactions cost $.95 each, and a written monthly statement can be sent to the recipient for $1.

    Recipients enroll in the program by calling an operator at our toll-free number. We issue cards by mail, usually arriving at the recipient's address within 7 days of enrollment. A training brochure accompanies the cards. The card itself is activated by a call to our 800 number. For each card, we assign a personal identification number, or PIN. That number is sent in a separate mailer and it arrives shortly after the card. The recipient may change PINs by calling our automated system.
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    We believe the approach we used in Texas is an effective model for the national ETA. Our research clearly indicates that recipients prefer a minimum service for a minimum fee, with additional optional services for incremental fees. Our early research also indicated a high level of acceptance among senior citizens for debit card services in lieu of checks, due to reasons such as safety and convenience.

    We also want to address two issues that we believe are crucial to the success of EFT '99. First, we want to propose an implementation strategy, the use of existing EBT programs. Unfortunately, financial institutions are constrained by a governmental administrative policy limiting the participation of Federal recipients in EBT programs to those who receive both State welfare and Federal payments. These ''crossover'' beneficiaries represent only a fraction of the population.

    Leveraging existing EBT projects to achieve EFT '99 goals is a strategy that can be implemented immediately upon revision of this administrative policy.

    A second issue we want to bring to your attention is reclamation. Reclamation is the practice of the Federal Government ''reclaiming'' benefits sent in the form of checks issued to deceased recipients, something we just talked about before the recess. If these checks are falsely endorsed and cashed, the Government has the right to reclaim the funds paid. The point where the check was first erroneously accepted and cashed is ultimately liable.

    In an EFT system, however, Citicorp has no way of knowing whether a debit card was used to access benefits of a deceased individual until we are notified. We believe that an automated cross-agency notice mechanism that also includes the ETA service provider can remedy this situation. We have the ability to instantly deactivate our debit cards, given the proper notice. This would ease the bureaucratic burden on survivors, protect the Government, and keep ETAs cost-effective. However, we cannot offer low-priced ETAs if reclamation, as it stands, becomes a part of the EFT system.
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    That concludes our testimony and I will be happy to answer any questions that I can. Thank you.

    [The prepared statement of Brian Kibble-Smith can be found on page 113 in the appendix.]

    Chairwoman ROUKEMA. Thank you.

    Ms. Saunders.


    Ms. SAUNDERS. Thank you, Madam Chairwoman. We very much appreciate the invitation to be here today on behalf of our low income clients. I'm testifying not only on behalf of the clients of the National Consumer Law Center, but also on behalf of the Consumer Federation of America, the Organization for New Equality, and the National Community Reinvestment Coalition.

    I am not going to read from my prepared statement, instead I'd like to respond to some of the questions that have come up in today's hearing. One of the single most crucial points that were raised by almost every single consumer and community group commenter on Treasury regulation was Treasury's failure to regulate what we're calling the ''voluntary accounts.''
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    We have had all this good discussion about the structure of the ETA account, and we do very much appreciate much of the assurances that Treasury has provided on what the ETA account will look like. But what's going on is that Treasury, as well as the Social Security Administration and the Veterans Administration, are telling the recipients of Federal benefits, ''You are going to have to get your money electronically in almost all situations.''

    At the same time, some elements of the private sector, such as check cashers, finance companies, and banks, are encouraging recipients to sign up for bank accounts through them. There is no prohibition in the regulations, and Treasury has indicated that there will continue to be no prohibition in the final regulations, from a check casher establishing an account for a recipient that can only be accessed through the check casher. What treasury has said in the regulations is that they will only deposit Federal money in a financial institution, but they do not require that the financial institution provide access to that money through the financial institution. Instead, the proposed regulations invite alternative financial providers, non-mainstream banks, check cashers, and finance companies, to partner with banks and provide access to the money in the bank through the check casher.

    And it's that situation that we are very concerned about. We know this is going on, we have seen advertisements. Mr. Vento, in your hometown, that check cashers would provide this—not in your hometown—that check cashers would provide this access only through a check casher.

    Now our fear with this system is that there is no limit on what the check casher can charge and there are no protections provided. Consumer protections only would apply so long as the money is in the Federal financial institution. Once the individual goes into the check casher month after month to access their money, they will be subject, very likely, to all the other services that the check casher provides.
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    One of the most popular services that check cashers provide all around the country are what's known as ''payday loans.'' Only a few States, a very small minority of States, for example, regulate payday loans. Even in those States where payday loans are regulated, the standard charge allowed for a payday loan is $20 per $100 of loan for a 2-week period. In other words, the lender, the check casher, can charge $20 for an extension of $100 worth of credit for 2 weeks. That's a lot of money.

    Now, imagine that a Federal recipient believes, rightly or wrongly, that the only way to access their money conveniently is though the check casher in their neighborhood, because there may not be any bank. So they sign up for this check casher's product, then they go in, month after month to receive their federal benefits, and one day they get a payday loan. They are not able to afford to repay the payday loan, but they're forced to because there would be nothing in Federal law that would prohibit the check casher from forcing it.

    Mr. Hawke was very reassuring regarding Treasury's response to the concerns the consumer and community groups have raised regarding the waivers, and we're very pleased at those reassurances. We're also very pleased about the reassurances that he's verbally provided on the structure of the ETA account and who will be eligible for the ETA account. We remain concerned at the failure of Treasury to regulate the voluntary accounts, though.

    Thank you, and I will, of course, be available for questions.

    [The prepared statement of Margot Saunders can be found on page 116 in the appendix.]
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    Chairwoman ROUKEMA. Thank you.

    Mr. Barrett for AARP.


    Mr. BARRETT. Thank you, Madam Chairwoman, and good afternoon, and to Members of the subcommittee and other guests. My name is Gene Barrett and I'm the AARP VOTE Regional Coordinator for New York City. AARP appreciates this opportunity to present its views regarding EFT '99 implementation.

    EFT '99 is of major importance to AARP's membership, because older persons make up the majority of those affected by it. All together, some 20 million Social Security and SSI recipients receive their benefits by paper check. Approximately 6.5 million of these recipients do not have bank accounts.

    AARP recognizes that EFT can aid in preventing fraud and enhancing banking safety and convenience. The Association did not favor mandating EFT because it could impose undue hardships on many. However, the Association reluctantly supported the legislation after hardship waivers and other consumer safeguards were included.

    We believe it is critical that the Secretary uses the broad authority granted under the Act to: One, protect payment recipients from unnecessary or excessive charges to access their benefits; Two, assure the availability of hardship waivers that effectively meet individual needs; And three, create opportunities for those currently without accounts to obtain essential financial services and participate more fully in the Nation's financial system.
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    My comments this afternoon are based on those objectives.

    AARP supports expansion of the hardship waiver. We are pleased with the inclusion of self-certifying waivers for physical disability, geographic barriers, and financial hardship contained in the proposed rule. However, AARP believes that the eligibility criteria for a financial hardship waiver are too narrow.

    The potential adverse effect of changes in an individual's financial circumstances and the impact of rising bank fees should also be considered. In addition, waivers based on mental disability, literacy and language barriers should be included in any final rule.

    Regarding the design of the electronic transfer account, or ETA, much is unclear. The proposed rule provides that access to an ETA be provided for unbanked recipients at a Federally-insured financial institution. AARP recommends that any recipient have the option of using an EFT if financial hardship is certified. Access to an ETA would allow the recipient to benefit from the safety of electronic transfer and would save processing costs.

    AARP believes that recipient funds should be held in a Federally-insured financial institution as defined in the proposed rule. The provision of Federal deposit insurance is an essential safeguard for recipient benefits. However, it would not be necessary for the Treasury financial agent to be a financial institution provided that: One, all ETAs are covered by Federal deposit insurance; Two, recipients have multiple options for accessing their funds; And, three, Treasury's contract with the financial agent requires a full range of consumer safeguards, including controls on fees and Regulation E coverage.
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    The service features of the ETA should encourage recipient participation. Unless ETAs offer attractive financial services and convenience options, waivers will remain a preferred choice for many.

    This Committee also asked about the phased implementation of EFT '99 and its impact on public preparedness. The Association supports provisions that defer implementation of EFT '99 for recipients without bank accounts until ETAs are developed. Doing so provides an opportunity for public comment on ETA features. In the meantime, the SSA and other Federal agencies should provide information regarding EFT '99 to all recipients.

    Some inconvenience is inevitable for agencies pressed to meet recipient information needs before ETAs are available. However, Treasury could address this problem by: One, providing discretion for Federal agencies to issue temporary or permanent administrative waivers to broad classes of recipients; Two, coordinating Federal agency staff procedures for processing new recipient applications under the EFT mandate that has been in place since 1996; And, three, providing assurances that anyone choosing an account prior to the availability of the ETA can elect that option once it becomes available.

    Finally, AARP continues to urge that each Federal payment recipient be notified repeatedly—well before the proposed deadline—that future payments will be made by electronic funds transfer. The notice must explain basic information in simple, plain, easy-to-understand language, including translations in languages other than English.

    In conclusion, although electronic funds transfer offers significant benefits for many Federal benefits recipients, consumer protections and outreach activities must be in place well in advance of implementation. This is particularly important for those recipients who currently do not have an account at a financial institution. Federal payments are often the primary or sole source of income for many older Americans. These individuals must be protected from unfair, deceptive or abusive practices.
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    AARP appreciates this opportunity to share its concerns regarding EFT '99. Thank you.

    [The prepared statement of Gene Barrett can be found on page 134 in the appendix.]

    Chairwoman ROUKEMA. Thank you. Thank you all, and I would just observe that I think the work that the groups that Ms. Saunders is representing today and the AARP, represented by Mr. Barrett, have been very influential, I believe, in terms of getting Treasury to rethink this waiver question. Based on what I heard today, they are trying to move quickly—as I said, early March, but we'll see—with printed regulations and the outreach program that several Members have now outlined is necessary to the Treasury people. I think that if those initiatives are implemented then we have benefits here for the vast numbers of consumers out there, although we'll have to look at some of the loopholes that Ms. Saunders has mentioned.

    And I think, Mr. Barrett, the assurances we have—we'll wait until we see the printed regulations, but certainly the verbal assurances we have today regarding the waiver question sound adequate to address the problems that AARP correctly identified, the hardship waivers, and so forth.

    There are vast benefits to EFT '99, but we do want to deal with any loopholes that may be in the law. In particular, the question about access that you noted, Ms. Saunders, the access and the check cashers question.

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    I'd like to ask Mr. Kibble-Smith, you've had vast experience here. Do you feel that we have enough safeguards here to prevent that kind of abuse that was outlined with check cashers and that it goes far beyond the question of access? I don't know if that is a loophole or if it's just a concern that the consumer groups have laid out. In your experience, do you believe that Treasury has adequately addressed that question by requiring that the financial institutions be Federally-insured?

    Mr. KIBBLE-SMITH. Of course I have to answer from the perspective of how we do this business.

    Chairwoman ROUKEMA. Yes, in your vast experience, that's exactly what I'd like you to draw upon.

    Mr. KIBBLE-SMITH. Yes, and we believe it's very appropriate that the accounts be Federally-insured and the accounts we manage right now in our Federal benefits programs are also subject to Regulation E coverage.

    Now, as we stated in our original response to Treasury's regulations, should other types of companies and service vendors participate in this business enterprise, we think there should be disclosure requirements, and they should be adequate disclosure requirements——

    Chairwoman ROUKEMA. To whom? Disclosure——

    Mr. KIBBLE-SMITH. To consumers.
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    Chairwoman ROUKEMA. Disclosure to the consumers?

    Mr. KIBBLE-SMITH. Correct.

    Chairwoman ROUKEMA. As well as to Federal regulators, yes?

    Mr. KIBBLE-SMITH. I would think so, yes.

    Chairwoman ROUKEMA. I don't want to put words in your mouth.

    Mr. KIBBLE-SMITH. We—being Federal regulated ourselves, we're already accustomed to that.

    Chairwoman ROUKEMA. Yes. Well that's exactly why I want you to give us, give Treasury the best advice possible here, to meet these consumer concerns because you've had experience in the field already.

    Mr. KIBBLE-SMITH. Well, we can certainly respond to any other particular questions that Treasury has. The way we design our systems, though, we have a very open system approach. We make full use of the commercial ATM and POS debit networks so access and restrictions and other similar issues just really aren't a problem for us. So I'm not sure how I can respond to that on behalf of another industry.

    Chairwoman ROUKEMA. Well, I think you've essentially answered the next question I had in mind, but let's go over it for any clarification that's necessary.
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    Treasury testified that their current thinking is that at least the following features should be included for the basic monthly charges for ETA. I think you've gone over that: unlimited receipts for electronic benefits, Federal electronic payments; debit card access; withdrawals and unlimited point-of-sale purchases including cash back. These are all things that you provide and you believe would be essential under this system. Is that right? No minimum balance, is that feasible?

    Mr. KIBBLE-SMITH. This is what we offer today.

    Chairwoman ROUKEMA. Good. Excellent. So there's no real problem in the private sector with complying with those safeguards for consumers?

    Mr. KIBBLE-SMITH. No, no, we think we meet every requirement.

    Chairwoman ROUKEMA. But I want to know from you whether or not you think every other provider or financial institution should be required to meet those same minimum standards. Should this present a problem for them? The other banks that might be included in the bidding process.

    Mr. KIBBLE-SMITH. Well, if we're just talking about banks, certainly I speak with a bit more intelligence about the financial services community, but we don't see any justification for not applying those protections.

    Chairwoman ROUKEMA. So, in the competitive bidding process, these minimum standards should be complied with, there should not be an exception?
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    Mr. KIBBLE-SMITH. I don't think so. I think there should be a floor level of service that allows people to get their money with the least amount of expense possible, provided we have the capability to deliver that with our systems.

    Chairwoman ROUKEMA. All right, thank you very much.

    Anything that you want to add Ms. Saunders or Mr. Barrett?

    Ms. SAUNDERS. Madam Chairwoman, yes, I would. The problem we have, I think as Under Secretary Hawke noted, that there is some slip between the message going out from Washington and the message that's being delivered to recipients.

    We've heard complaints from legal services lawyers in Maryland, California, Illinois, and other States, that recipients are coming into our legal services offices somewhat hysterical, saying: ''I understand in order to receive Social Security or SSI, I have to have a bank account, but I don't qualify for a bank account because of my credit, what should I do? My friends have gone down to the local check casher, do I have to do that?''

    And it's that a misunderstanding that is all around the country that is creating not only a lot of fear in many people, but also, I think, a business opportunity for the non-regulated financial institutions to take advantage of people who don't perceive they have a choice, who don't yet know about the waivers, who don't yet know about the ETA account availability because Treasury hasn't designed them and hasn't publicized them.

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    Chairwoman ROUKEMA. Well, hopefully, Under Secretary Hawke understood that. That was a specific issue that I and other Members presented. We noted that with the deadline coming up for the regulations, they should address themselves to that concern as soon as possible, if not immediately. Thank you.

    Mr. Vento.

    Mr. VENTO. Well, I mean, I think that this opt-in policy that they were describing, I mean, it's a great policy, but they're not telling anyone about it.


    That's the problem right now and so it portends the opportunity for misunderstandings.

    Ms. Saunders, you pointed out specifically I think in my area there had been a link-up between the check cashers and the financial institutions in an effort to try and facilitate service. Actually, I think the impression that is being given by virtue of these groups working together is that this is an outrage on the part of the financial institutions to bring into the bank people that are not unbanked, that they're not banked. They are going to check cashers and they're trying to recruit the check cashers into the banking lobby, so to speak, to cash or to deal with it so that they then can acquire these individuals that are receiving Federal benefits as customers of the bank. But this is an outrage on their part, so in fact, they're bringing into them and providing them some of the cover of the Federal insurance and the other payment systems to which they are today denied.
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    I'll let you respond, but that's, in fact, that's what their scheme, their plan is to, in fact, do that. Most of them, I mean, there obviously isn't a big money winner, but it's a way of doing some community service, is their view.

    Ms. SAUNDERS. Well, we may be speaking about different plans. I saw some advertisements in the Minneapolis TV Guide that were from a check casher, from a number of check cashers, offering a program through BancOne, which, I understand, may no longer actually be offered, but when it was offered several months——

    Mr. VENTO. I think you mean First Bank, I think it might be which has now changed its name. BancOne is in Columbus, Ohio.

    Ms. SAUNDERS. But this program, sir, was through BancOne, because they advertised in the check casher's magazines. And what this program was, was that the individual signed up to have their electronic, their Federal payment deposited in BancOne which they would then have to go into the check casher to obtain. It would not provide——

    Mr. VENTO. Well, I mean, what were they—the check cashers role would be as a rep-payee or what?

    Ms. SAUNDERS. No, the check casher would be the agent of the bank which under the proposed regulations is legal to provide. And what the check cashers proposed to do was provide a paper check to the individual and then the individual, for a charge of, I think it was $12 a year, or I don't exactly remember the exact charges, I have it in my testimony, but then the individual would get this paper check issued by BancOne that they could only obtain at the check cashers. They then turn around and cash it at the check cashers or somewhere else for the standard check casher's fee.
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    Mr. VENTO. Well, it's a long way around, I guess. I think that we need to, I mean, obviously none of us think that they basically are controlling the account and issuing the checks which can only be cashed at the check casher. Seems to me to be, you know, an interesting scheme that I would think that we would try to avoid.

    I can't imagine any circumstance where a financial institution would in essence—I don't know what their benefits would be in terms of that relationship.

    Ms. SAUNDERS. If I might respond.

    Mr. VENTO. Yes.

    Ms. SAUNDERS. They make the money on, number one, they make a fee each month on the deposit; number two, they make money on the float to the extent that——

    Mr. VENTO. Well, now that——

    Ms. SAUNDERS. Ferris Bank, I think is the main—Chorus Bank in Chicago has also established this relationship with check cashers in Chicago. And you can only access your money through the check casher, you cannot access it——

    Mr. VENTO. Well, I guess we're going to get to a point that you have a hard time trying to—I think, by regulation we ought to try not to be complacent with that, that is the Federal, the Treasury and others out to try to avoid that. I don't know what the services are.
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    Mr. Kibble-Smith, could you help me in terms of what the services would be? You know, wouldn't this be really frustrating the entire system that we set up?

    Mr. KIBBLE-SMITH. Well, before I answer that, I'd like to say a little something about ''float,'' too, because we have direct experience with that. We operated the direct payment card in Texas for FMS for 66 months, I think it was, and we're continuing on our own. And we've identified about 19 cents per month per account in ''float'' in that program. So, for us, this is not a float business at all, it's based on fees.

    Mr. VENTO. It might be bigger bucks here though, because you're dealing with, obviously, means-tested type of benefits. Other than the SSI benefit here, most of the Social Security and Veterans benefits are not means-tested.

    Mr. KIBBLE-SMITH. I can clarify that also. I'm talking about the Federal benefits. There is a misconception on how float——

    Mr. VENTO. So, in other words, you're talking about these actual voluntary accounts that exist.

    Mr. KIBBLE-SMITH. Right, I'm talking about the Federal benefits that we began to pay. On the EBT side, State welfare benefits, there is zero float because we settle those transactions in arrears. The Federal moneys are deposited in advance and it's exactly these accounts that are at issue today that produce the 19 cents per month.

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    Mr. VENTO. So my point is, though, then that you would—obviously there's disagreement about the amount of float here but your point is with regards to this—my question is that what would be the interest in the financial institution pursuing this type of relationship with a check casher which would limit the availability of funds to a consumer?

    Would you have any guidance from Treasury that would limit that type of relationship with check cashers that would basically, which basically puts the recipient into a situation where they can only get access through a check casher to the money?

    Mr. KIBBLE-SMITH. We have always advocated an open system approach, and our system is designed to work through debit cards that can be used at literally thousands, hundreds of thousands of ATM and POS devices throughout the country. In fact, if somebody comes up to Chicago to visit me from Texas and uses their card, they're going to be able to get money from the grocery store in my neighborhood.

    Mr. VENTO. My concern here, of course, is that the Federal Government need not be complacent in terms of, you know, through a rep-payee if there's a basis to have a rep-payee or to have some other means, in other words, in terms of some custodial role that someone has, that's a concern that we have here because it doesn't seem to me that the regulations that—in fact, once you opt—I don't know how you reverse that and get back into a rep-payee situation because I don't see that.

    I was told to ask that question of the last panel, but I know that Margot raised the same question here today.
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    But, you know, the point is that there is no reason that Treasury should be complicit in terms of this particular role.

    Now, if there's some legitimate role, I mean, check cashers in some communities play a legitimate role because the unbanked haven't got access to banks, some financial institutions.

    I mean, we have electronic benefits transfer in the district I represent. In fact, Minnesota, at least in some areas, had been among the leaders in establishing that and the reason for it was banks or financial institutions at the day that the welfare check or other checks were distributed, they had their lobbies full of individuals trying to cash the Federal checks, and so out of this grew a system in terms of trying to convert it into debit accounts and give the individuals this access, and so they grew this system. Obviously now it's being—there are other areas. On a Federal level we facilitated that with some changes in law and it's been mandated that through benefits that we would in fact deal with it on that basis.

    And so, I mean, it isn't as though—but there's a necessity so banks, really, there is a problem here with these sorts of accounts which are costly. It does cost as indicated here by Treasury about a buck-and-a-half to cash some of these checks by the financial institution as opposed to the 50 cents or so it costs to issue them.

    Well, I think we've got lots of questions that are going to come down in terms of this issue. I think you've raised a lot of good questions.

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    One thing I note that we didn't talk about is the applicability of Regulation E which is applicable to Federal dollars, not applicable to States, but there are certain consumer protections that have to track what happens with these accounts that aren't necessarily applicable in terms of public assistance benefits that are paid by the States. Incidentally, of course, which Minnesota had established its own protection, consumer protection, education programs in this area. Frankly, the financial institutions themselves, I think, are going to be important to play a role in terms of the education process as I'm sure Mr. Kibble-Smith, you've been involved with.

    Mr. KIBBLE-SMITH. Yes, in fact, I'm quite certain we worked with AARP in our Texas program in having some outreach groups and focus studies, and I think that was very successful.

    Mr. VENTO. Well, I think all these focus studies and so forth are great to tell you—to give you some advice in what way to steer, but, that still—the rubber still isn't meeting the ground there in terms of dealing with the 10 or 20 million people that, or checks that go out that are not, do not have accounts. So I think that this issue is a fairly important one in terms of getting up.

    You know, we talk about mailbox problems, I mean, most of us are receiving things in the mailbox that look like they come from the Federal Government but lo-and-behold they come from some loan company that wants to all of a sudden loan me a lot of money at 29 percent interest a year, you know, on whatever. I didn't know I was worth it. If they knew me, they probably wouldn't be so anxious to do it.

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    Mr. KIBBLE-SMITH. I'm sure Citibank hasn't sent you anything.

    Mr. VENTO. No, I'm certain they only sent responsible and appropriate paper.


    But, I mean, I think the problem with this is that we've got a communication issue because if you're sending something out—I mean, Madam Chairwoman, we ought to get the copies of what they have sent, what they are sending and what they intend to send, and some analysis of what their view is, what the impact is.

    I think that this relying wholly on just a mailing out of something simply because of the mailbox clutter and those that are trying to mirror, to look like they come from the Federal Government, present special handicaps, special problems for us as we go down this road.

    I intend to as a number of questions about the death notification and that of course gets into what the States do and I'm sure you'd all be happy to try to put some more responsibility on the States, but I think that we can only do this if we give them the notice and the importance of this particular issue. It's pretty sad when you run into a proprietor of a small retail facility that six months after he's been cashing on the faith of a widow that had been signing the spouse's name to something and all of a sudden they get hammered for thousands of dollars in false checks that have been——
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    Chairwoman ROUKEMA. Excuse me.

    Mr. VENTO. I'd be happy to yield.

    Chairwoman ROUKEMA. Perhaps Mr. Kibble-Smith would like to respond, but my understanding was that your feeling was that you have extensive experience with the reclamation process. You mentioned that in your statement. As I understand it, you instantly deactivate the system. You've had some experience with this issue, and I guess we have to expect that Treasury can benefit from that experience.

    Mr. KIBBLE-SMITH. Yes, in fact, I'd like to point out that we recently completed and submitted to Treasury what we consider to be the final report on our 66-month contract with them and it has a good deal of information on all of these topics. And when Treasury approves that as final, I'd encourage you to take a look at it. It also contains samples of the materials, the educational materials that we sent to the people in Texas.

    Mr. VENTO. Well, I think, you know, it's an important—there are many issues, though, such as the bankruptcy question that's been raised by Margot and the garnishing guarantee and the attachment-type provisions which are not now in place which may or may not—if we have a liberal waiver procedure, it's one thing. But I think, let's face it, most of this coming down as a requirement, as a mandate, as it's being presented to the people we represent, they don't look at it as an option, and the waivers which nobody can explain what they are today, obviously with ten months left in the year, less than ten months left, is not very, is not obviously very encouraging.
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    In fact, that even with the existing new recipients being put under a more intense explanation of what's going on, only then—they said 85 percent, Margot, you said less than that in your testimony—are actually signing up.

    Mr. Barrett, what's going—and the question of this is, if we have an ETA account, is the ETA account benefit going to be retroactive in being transferred to those that have opted up and cooperated. Perhaps were more easily convinced of the merit of doing this because they believe what the Federal Government said was true, that they were going to mandate this in 1999. So should they also, shouldn't they have an option to back to an ETA account at that particular point?

    Mr. Kibble-Smith, do you agree with that?

    Mr. KIBBLE-SMITH. Well, we look at the ETA and the ETA customers as people that we're going to have to serve and keep happy if they're going to keep using our cards. So we certainly do see the ETA as being an account that people can transition in and out of.

    Mr. VENTO. But if in fact the account doesn't exist today, with whatever protection and safeguards, should individuals have the right to opt-in and have—or should those protections automatically be extended to them simply because they cooperated in the first instance and those that dragged their feet and had not cooperated now are going to get greater benefits?

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    Mr. Barrett, what do you think about the——

    Mr. BARRETT. Definitely. If someone who can't really afford a bank account, but decides, ''Well, I've got to go along with this. I'm going to open a bank account, even though I can't really afford it.'' If they opt-in to the system and then later on an ETA comes out, they should be able to drop the bank account and open an ETA.

    Mr. VENTO. They should automatically get the benefits——

    Mr. BARRETT. Well, I mean, if they go into EFT because they believe they have to——

    Mr. VENTO. Well, they're told that's the law.

    Mr. BARRETT. ——And they open a bank account even though they can't afford the fees and the fees are too much for them, when an ETA does become available, they ought to be able to go open an ETA rather than a regular bank account.

    Mr. VENTO. Well, they should be mandated to have at least the option or automatically get the benefits transferred to them under that.

    Mr. BARRETT. Right, that's what I mean.

    I think my concern right now, the ETAs are not available now, we don't know what form they're going to take and they will be available at some point in the future.
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    But I think of more concern right now is not the 6.5 million people that don't have bank accounts, it's the 13.5 million that do, and are very, very confused. They don't know what's going on. They know that somewhere up in the sky is this EFT '99, but they don't know what their choices are, they don't know what they have to do to make those choices if there are any. They don't know what the waivers are. They don't know anything about it and it worries me; it concerns me.

    We have a March 15 deadline, or somewhere around there, is it going to be met? When are the education campaigns going to begin?

    Chairwoman ROUKEMA. I think, Mr. Barrett, after what Treasury has heard today, I believe that they will be complying readily. And your membership has to understand that it's really greatly to their benefit if they do this sooner rather than later.

    Mr. BARRETT. Definitely, it's to their benefit that they have to do it sooner. Absolutely.

    Chairwoman ROUKEMA. Yes, so we all have the obligation. But I think——

    Mr. VENTO. But it may not be in the instance that there are not a—each bank, each financial institution may not have the type of low-cost account that Mr. Kibble-Smith talked about as an example. That there are numerous ones—in fact, they may be opting-in to a system that's much more expensive than if they had the ETA and so it seems to me that the option—the ETA account doesn't exist yet.
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    Chairwoman ROUKEMA. No, isn't that why we're having competitive bids put out on this? I think that maybe that's something we should look into with Treasury.

    Mr. VENTO. A person should need to be aware that they have an option, I mean, because if you're just going to have the residuals of those that didn't make the choice, then you've got another problem that is presented, and it isn't necessarily based on who can afford it.

    Chairwoman ROUKEMA. OK. All right.

    Mr. VENTO. Anyway, I thank you for your courtesy.

    Chairwoman ROUKEMA. I hate to even mention that—yes, right, and we're going to conclude this—but I must make a reference and if you want to have a brief comment now and then put something in writing later, all three of you, but particularly Mr. Kibble-Smith, I feel compelled to note that my colleague from New Jersey has legislation in that would prevent any ATM fees to be charged, that would ban any ATM fees for withdrawing Social Security and Federal benefits, and I don't know if you would like to comment on the record, real briefly, or just submit in writing something for the record.

    Mr. KIBBLE-SMITH. Well, I'd like to say right now that ATMs throughout our organization impose, at the moment, no surcharges on any customers, but if we have a lengthier comment I'm sure we'll make that after the fact.
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    Chairwoman ROUKEMA. All right, please do. I appreciate it.

    Thank you, and I thank my colleague, Mr. Vento, and I thank all the witnesses. If you have anything further which you want to submit, please contact me personally and we'll see to it that it's on the record, and I'd like to review it personally.

    Thank you very much.

    Ms. SAUNDERS. Thank you.

    [Whereupon, at 1:07 p.m., the hearing adjourned, subject to the call of the Chair.]

    [insert offset folios 49 to 152 here]