CUNA Comment Letter

CUNA Comments on Proposed Features of Electronic Transfer Accounts

January 7, 1999

Ms. Cynthia L. Johnson, Director
Cash Management Policy
and Planning Division
Financial Management Service
U.S. Department of the Treasury
Room 420
401 14th Street, SW
Washington, DC, 20227

RE: Request for Comments on Proposed Features of Electronic Transfer Accounts

Filed via e-mail at

Dear Ms. Johnson:

The Credit Union National Association, CUNA, appreciates the opportunity to comment on the Treasury Department's Request for Comments on the proposed attributes of the electronic transfer accounts, which appeared in the Federal Register November 23, 1998. By way of background, CUNA represents approximately 95% of the nation's more than 11,000 state and federal credit unions. More than 76 million American consumers belong to a credit union.

We believe the Treasury Department has been quite responsive to concerns raised by financial institutions and consumer groups in the development of the agency's regulations under the Debt Collection Improvement Act. Under the Act, Treasury is responsible for implementing the requirement that federal benefit payments be provided to recipients electronically. The success of Treasury's efforts to effect electronic benefit payments -- both for recipients and financial institutions -- will depend in large measure on how the electronic transfer account (ETA) is structured. We believe the proposal issued by Treasury in November goes a long way toward shaping an account that is attractive to consumers and financial institutions alike. We commend the agency for its outreach to consumer advocates and financial representatives, such as CUNA, throughout the development of the regulations to implement the Act.

One of the most important aspects of the Treasury's proposal is that it seeks to broaden the possibilities for participation, rather than limit them. Throughout the development of the Treasury's regulations, we have advocated widespread eligibility for credit unions and we are very supportive of the more flexible approach to institutions' participation that is reflected in this proposal.

We believe the proposal is positive, including the subsidy Treasury will provide to institutions for opening accounts. However, we believe there are areas for further improvements which we address below and urge Treasury to incorporate into the final regulation. Our comments discuss the nine required ETA features and the three additional attributes on which Treasury seeks input and are presented in the order they are addressed in the request for comments.

Individually Owned Account at a Federally-Insured Financial Institution

We have several concerns about these features, as they are described in the supplementary information accompanying the proposal. According to the supplementary information, only a federally insured financial institution would be able to offer ETAs. By limiting ETA delivery to federally insured financial institution, the Treasury is seeking to protect consumers from unregulated entities that might not be able to provide the same level of safety that a federally insured financial institution could offer. We support the Treasury's efforts to protect consumers from businesses that might take advantage of recipients and escape regulatory oversight. However, there are approximately 230 state chartered credit unions that have private, rather than federal insurance. These institutions, like their federally insured counterparts, are regulated for safety and soundness and compliance with consumer protection laws, as applicable. We believe these credit unions, which are chartered and supervised by their states, should if they chose be able to offer ETAs to federal benefit recipients on the same conditions, including consumer protections, that apply to ETA accounts at federally insured financial institutions.

The supplementary information states that a participating institution would not be able to deny an ETA to an eligible recipient, although it would be allowed to close an ETA in some situations, as determined by Treasury. We urge Treasury to provide more information to financial institutions regarding the circumstances under which an account could be closed. For example, we believe that an institution, at its discretion, should be able to close an account if an individual has caused the institution to suffer a loss. Many credit unions have such a policy. That is because when one member causes a loss, all the other members, as the owners of the institution, are disadvantaged. We believe allowing credit unions to continue this policy for ETA account holders would encourage credit union participation, without unfairly burdening recipients.

There is a concern that some federal recipients currently without a financial institution account may have a poor financial record and that institutions should not be required to offer ETAs to such individuals. Credit unions have a remarkable history of providing financial services to individuals denied such service elsewhere. Nonetheless, credit unions must minimize losses to protect their member/owners. We believe this concern is best addressed by allowing credit unions and other institutions to close an ETA if and only if the recipient has caused a loss to the institution.

Permitting Other Deposits to ETAs

The Treasury would limit ETA deposits to benefit wage, salary and retirement payments only. The purpose of this limitation is to segregate these funds, which are generally not subject to attachment, from other funds or deposits that may be attached. We certainly support Treasury's objective to protect recipients from wrongful attachments, particularly since the burden rests with the recipient to show the attachment is unwarranted. However, we believe that allowing only certain federal payments to be deposited into an ETA may be burdensome for both consumers and financial institutions. For the consumer, the Treasury's proposal would mean a second account, that would not have limits on costs imposed on the ETA, would have to be opened if the individual wanted to use the institution to deposit other funds. An institution may have to choose between refusing to open another account for the individual, which credit unions would not like to do, or opening a second account that may have very little activity. We believe that at the opening of the account, recipients should be able to decide whether they want to have other funds deposited into the account and institutions should be able to allow such deposits.

We believe it is essential that recipients understand their rights and responsibilities regarding the ETA, as well as the avenues of recourse for others, including the institution. We urge the Treasury to develop understandable, user-friendly disclosures that would be made available to institutions offering ETAs. Such disclosures should fully explain all the terms of the ETA. This would include disclosing the consequences of allowing other funds to be placed in the account (if Treasury allows such action.)

Cost to Recipients

Treasury is proposing to allow an institution to charge up to $3.00 per month to recipients with an ETA. We do not have problems with this amount, although we urge Treasury to revisit this issue within a year after the ETA takes effect. The supplementary information indicates Treasury will be evaluating its pricing and make adjustments. However, we believe a date certain as to when the first review will occur are important to participating institutions, particularly if the $3.00 limit is too low based on institutions' cost experiences.

Access to Funds and Balance Information

We support Treasury's proposal to allow institutions to provide access to funds and balance information through ATMs or other electronic means, in person, or a combination of these methods. This approach will allow credit unions that do not provide ATM access an opportunity to participate in the ETA program.

However, Treasury is proposing that if access is provided electronically, it must be on-line. A number of credit unions offer electronic access, but it may not be on-line. We recommend the Board consider allowing financial institutions to offer off-line electronic access, as long as in-person access would also be provided by such institutions. We believe on-line access could be phased in as institutions increasingly move to on-line systems.

Consumer Protection

We agree that ETAs should be subject to all the consumer protections that apply to other deposit accounts at federally insured financial institutions.

Minimum Balance

The proposal prohibits minimum balance requirements, except where a minimum balance is required by state or federal law, such as the requirement that a credit union member purchase one share. We support this approach and appreciate Treasury's willingness to accommodate credit unions' operational differences regarding the ownership of a share.

Monthly Statement

The proposal would require a monthly statement to be sent to ETA holders. We believe Treasury should follow the approach of Regulation E and not require such a statement if the recipient has access to the account through other means.

Additional Features

Treasury seeks comments on whether institutions should be allowed to pay interest on account balances, whether additional electronic deposits should be allowed to the accounts, and whether third-party ACH payments should be allowed. We agree that at an institution's option, all of these options should be permissible. Institutions offering such additional services should be reimbursed for each added feature provided.

Credit Union Outreach to the Underserved

As we have stated in the past, it is CUNA's position that credit unions should be permitted to serve recipients outside their fields of membership for purposes of implementing the ETA program. The National Credit Union Administration Board last month adopted a new Chartering and Field of Membership Manual for Federal Credit Unions that allows federal credit unions to offer membership to individuals who meet the agency's definition of "underserved," even if such individuals are not within the credit union's field of membership. We believe these provisions will facilitate the ability of federal credit unions to include federal benefit recipients who are outside their fields of membership. We want to maintain our dialogue with Treasury and the National Credit Union Administration on this point to ensure credit unions that choose to offer ETA accounts have every opportunity to do so.

ETA Financial Agency Agreement

In order for an institution to participate in the ETA program, it must agree to act as Treasury's agent as stipulated in the Financial Agency Agreement. As we understand it, important elements of the relationship between an ETA holder and the institutions, and between Treasury and the institution will be detailed in the agreement. We urge Treasury to allow institutions the opportunity to comment on the agreement before the ETA program is put into effect.

Consumer Education

CUNA strongly believes the success of the ETA program can be greatly enhanced through consumer education. Treasury has already undertaken a number of activities to increase awareness regarding ETAs with recipients and financial institutions. However, we believe much more work in this area needs to be done. We recommend Treasury consider offering economic incentives to institutions providing financial counseling to their ETA holders. We believe this approach could be very useful in helping ETA holders to understand their accounts and broader issues associated with the use of financial institutions.

At the direction of CUNA Chair Nancy Pierce, our association has established a top priority of bringing a host of credit union groups together to develop and provide a comprehensive financial education program for consumers. We want to work with Treasury as we develop this program to incorporate important information about ETAs and Treasury's Direct Deposit program.

In closing, we commend Treasury for its efforts to develop an ETA that balances the needs of consumers with the business realties for financial institutions. We want to working with Treasury as it develops the final regulation on these important accounts.


Mary Mitchell Dunn
Associate General Counsel