Lifeline Bank Accounts

For years consumer and community groups have teamed up with progressive members of Congress to push for the establishment of “lifeline” banking accounts that would provide low-income families with basic banking services on affordable terms. Invariably, the pro-bank majorities have been able to sidetrack the proposals.

Last year Congress passed legislation requiring that all government payments — except tax refunds — be made by electronic means to the bank accounts of the recipients. But there was one big problem: an estimated 10 million recipients of government payments don’t have bank accounts.

To take care of this problem, Congress instructed the Treasury Department to take steps to ensure that all recipients did have accounts when the mandatory requirement for electronic transfers took effect by the end of next year. Not only that, but the Congress said the accounts were to be at a “reasonable cost with consumer protections.”

That language sounded a lot like the proposals that consumer groups and Congressional liberals had been pushing under the rubric of “lifeline” banking.

The language suggested that Treasury — and the federal bank regulators — would have to pierce the secrecy and accounting mumble jumble that has enabled the banking industry to hide from the public just how outlandish, arbitrary and unfair its fee structure has become for all bank consumers — middle income as well as low income. Not only would this provide protections for persons being forced into the banking system for the first time, but it would give current bank customers great ammunition with which to combat the existing and clearly excessive fees.

Sounds like a giant step forward for consumers in their effort to battle high fees? Wrong. The preliminary regulations published earlier this month in the Federal Register make it clear that Treasury will do its very best to dodge the volatile fee issue.

Not only did Treasury express its opposition to “widespread regulation of the prices of deposit services,” but indicated the Department just as soon not know too much about the problem of fees. Here’s the way the Treasury’s wordsmiths put in the preliminary regulations:

“Gathering information about prices charged for accounts by financial institutions throughout the United States and evaluating those prices to determine their reasonableness would impose a heavy administrative burden both on the industry and on Treasury.”

Translated: Treasury knows it would make a lot of powerful bankers very unhappy if it threw a spotlight on practices and prices that the industry can’t justify.

Customers who hold accounts at the bigger banks are paying an average of more than $218 annually. If Treasury sets a different and reasonable fee structure for recipients of government payments it will, in effect, be declaring the banking industry’s existing structure “unreasonable.” That would undoubtedly be considered a serious breach of the polite protocol that seems to exist between big banks and the Clinton Treasury Department.

So, how does Treasury get around the Congress’ call for accounts at “reasonable cost?”

Reading between the lines of the preliminary regulations, it appears the Treasury plan has two steps by which it can avoid an outright confrontation with the banking industry over fees and at the same time meet a “reasonable cost” test.

First, the Treasury plans to conduct an “educational campaign” in conjunction with the banking industry and various federal agencies — a campaign to cajole non-banked citizens to open bank accounts before EFT takes effect. These citizens, so cajoled, will enter the banking system subject to all the existing fees and terms — without any of the “reasonable cost” protections that Congress placed in the EFT law.

Second, for those citizens who don’t voluntarily sign up with a bank, the Treasury will contract with various banks which will provide the unbanked with plastic debit cards that will enable them to access their government payments at ATMs. These accounts, it appears, will be the barest of bare bones, far removed the commonly accepted definition of a true “bank account.”

These accounts probably won’t provide for the writing of checks to pay monthly bills, additional deposits, record keeping, access to tellers (human or electronic) or other services. The simple process of accessing the account via a debit card will undoubtedly carry a fee for each transaction, but these charges will be declared within the meaning of “reasonable cost.” These consumers, of course, will be forced to pay for money orders to pay bills or, in the alternative, be left with the prospect of walking around with cash.

Treasury likely will allow these bare bones plastic accounts to be expanded by the recipients, but only if the recipient is willing and able to pay the freight for whatever bank fees exist for the additional services, reasonable or not. Treasury will likely say “we provided you with an account (i.e. a plastic card), the rest is up to you.” This approach would toss the “reasonable cost” protection in the trash can for anyone who wants a regular checking account.

The Treasury regulations are preliminary and they are out for comment for 90 days. There is plenty of time for Treasury to summon up the courage to give the unbanked true accounts and to face up to the banking industry by tackling the hard job of determining what is really a “reasonable” fee structure. Hopefully, groups that have embraced the Treasury’s EFT program will file comments demanding that Treasury live up to the Congressional mandate for bank accounts with reasonable costs and consumer protections.

Comments on the Treasury proposal should be sent by December 16,. 1997 to Cynthia Johnson, Director, Cash Management Policy and Planning Division, Financial Management Service, U.S. Department of Treasury, Room 420, 401 14th Street, Washington, D.C., 20227.

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