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45–434 CC 1998

OVERSIGHT OF THE IMPLEMENTATION OF THE

ELECTRONIC FUNDS TRANSFER PROVISIONS OF

THE DEBT COLLECTION IMPROVEMENT ACT

OF 1996

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, 

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON 

GOVERNMENT REFORM 

AND OVERSIGHT 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

JUNE 18, 1997

Serial No. 105–63

Printed for the use of the Committee on Government Reform and Oversight

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT 

DAN BURTON, Indiana, Chairman 

BENJAMIN A. GILMAN, New York 

J. DENNIS HASTERT, Illinois 

CONSTANCE A. MORELLA, Maryland 

CHRISTOPHER SHAYS, Connecticut 

STEVEN SCHIFF, New Mexico 

CHRISTOPHER COX, California 

ILEANA ROS-LEHTINEN, Florida 

JOHN M. MCHUGH, New York 

STEPHEN HORN, California 

JOHN L. MICA, Florida 

THOMAS M. DAVIS, Virginia 

DAVID M. MCINTOSH, Indiana 

MARK E. SOUDER, Indiana 

JOE SCARBOROUGH, Florida 

JOHN B. SHADEGG, Arizona 

STEVEN C. LATOURETTE, Ohio 

MARSHALL ‘‘MARK’’ SANFORD, South 

Carolina 

JOHN E. SUNUNU, New Hampshire 

PETE SESSIONS, Texas 

MICHAEL PAPPAS, New Jersey 

VINCE SNOWBARGER, Kansas 

BOB BARR, Georgia 

ROB PORTMAN, Ohio 

HENRY A. WAXMAN, California 

TOM LANTOS, California 

ROBERT E. WISE, JR., West Virginia 

MAJOR R. OWENS, New York 

EDOLPHUS TOWNS, New York 

PAUL E. KANJORSKI, Pennsylvania 

GARY A. CONDIT, California 

CAROLYN B. MALONEY, New York 

THOMAS M. BARRETT, Wisconsin 

ELEANOR HOLMES NORTON, Washington, 

DC 

CHAKA FATTAH, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland 

DENNIS J. KUCINICH, Ohio 

ROD R. BLAGOJEVICH, Illinois 

DANNY K. DAVIS, Illinois 

JOHN F. TIERNEY, Massachusetts 

JIM TURNER, Texas 

THOMAS H. ALLEN, Maine 

HAROLD E. FORD, JR., Tennessee 

———

BERNARD SANDERS, Vermont 

(Independent) 

KEVIN BINGER, Staff Director 

DANIEL R. MOLL, Deputy Staff Director 

WILLIAM MOSCHELLA, Deputy Counsel and Parliamentarian 

JUDITH MCCOY, Chief Clerk 

PHIL SCHILIRO, Minority Staff Director 

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman 

PETE SESSIONS, Texas 

THOMAS M. DAVIS, Virginia 

JOE SCARBOROUGH, Florida 

MARSHALL ‘‘MARK’’ SANFORD, South 

Carolina 

JOHN E. SUNUNU, New Hampshire 

ROB PORTMAN, Ohio 

CAROLYN B. MALONEY, New York 

PAUL E. KANJORSKI, Pennsylvania 

MAJOR R. OWENS, New York 

ROD R. BLAGOJEVICH, Illinois 

DANNY K. DAVIS, Illinois 

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California 

J. RUSSELL GEORGE, Staff Director and Chief Counsel 

MARK BRASHER, Professional Staff Member 

JOHN L. HYNES, Professional Staff Member 

ANDREA MILLER, Clerk 

DAVID MCMILLEN, Minority Professional Staff Member 

(III)

C O N T E N T S 

Page 

Hearing held on June 18, 1997 ............................................................................... 1

Statement of: 

Creque, Marcelyn, volunteer director, American Association of Retired 

Persons ........................................................................................................... 158

Hawke, John D., Under Secretary for Domestic Finance, Department 

of the Treasury; and Mark D. Catlett, Chief Financial Officer, Department of Veterans’ Affairs ............................................................................. 16

McEntee, Elliott, president and chief executive officer, National Automated Clearing House Association; Dina Nichelson, president, American League of Financial Institutions; and Margot Saunders, managing 

attorney, National Consumer Law Center .................................................. 176

Wagner, G. Martin, Associate Administrator, General Services Administration ............................................................................................................ 5

Letters, statements, etc., submitted for the record by: 

Catlett, Mark D., Chief Financial Officer, Department of Veterans’ Affairs: 

Information concerning visitors to the AFC ............................................ 156

Prepared statement of ............................................................................... 101

VA OIG evaluation of electronic data interchange implementation ..... 109

VA strategic plan ....................................................................................... 30

Creque, Marcelyn, volunteer director, American Association of Retired 

Persons, prepared statement of ................................................................... 161

Hawke, John D., Under Secretary for Domestic Finance, Department 

of the Treasury, prepared statement of ...................................................... 21

Horn, Hon. Stephen, a Representative in Congress from the State of 

California, prepared statement of ................................................................ 3

McEntee, Elliott, president and chief executive officer, National Automated Clearing House Association, prepared statement of ...................... 178

National Check Cashers Association, Inc., prepared statement of ............... 232

Nichelson, Dina, president, American League of Financial Institutions, 

prepared statement of ................................................................................... 196

Saunders, Margot, managing attorney, National Consumer Law Center, 

prepared statement of ................................................................................... 205

Wagner, G. Martin, Associate Administrator, General Services Administration, prepared statement of ..................................................................... 7

(1)

OVERSIGHT OF THE IMPLEMENTATION OF 

THE ELECTRONIC FUNDS TRANSFER PROVISIONS OF THE DEBT COLLECTION IMPROVEMENT ACT OF 1996 

WEDNESDAY, JUNE 18, 1997 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, 

INFORMATION, AND TECHNOLOGY, 

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 9:35 a.m., in room 

2247, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding. 

Present: Representatives Horn and Maloney. 

Staff present: J. Russell George, staff director and chief counsel; 

Mark Brasher and John L. Hynes, professional staff members; Andrea Miller, clerk; David McMillen, minority professional staff 

member; and Ellen Rayner, minority chief clerk. 

Mr. HORN. The Subcommittee on Government Management, Information, and Technology will come to order. 

The Debt Collection Improvement Act of 1996, passed by Congress last April, included a provision to move the Federal Government toward direct deposit and electronic payments. This will reduce dramatically the problems of lost, stolen, counterfeit, and 

forged checks. It will also provide an opportunity for Federal agencies to reengineer their functions by taking advantage of electronic 

technology. 

The new law requires Federal payments to be made electronically by 1999, unless the beneficiary falls under an exemption 

available for hardships. Congress gave the Department of the 

Treasury flexibility in implementing a sensible payment system. 

We look forward with great interest to the release of the Department’s proposed rule on implementation. 

I’m somewhat concerned, however, that this rule is not yet available for public comment. The rule will affect millions of people. It 

will require complex changes by citizens, the financial sector, and 

the Government. For these reasons I’m concerned that the delays 

may endanger public support and acceptance. I urge the Secretary 

of the Treasury to publish the proposed rule without delay. It 

needs to be done right, but part of doing it right is doing it quickly. 

The Department of the Treasury and other Federal agencies will 

need to conduct an aggressive public education campaign throughout 1998. They will need to provide information on how recipients 

2

can receive payments electronically. Without a rule, agencies cannot undertake this education campaign, answer the public’s questions, and take the necessary steps to ensure that the transition to 

electronic payments is complete on January 1, 1999. 

Thorny questions remain, especially regarding individuals without bank accounts. The Secretary of the Treasury has broad discretion in resolving such questions. We are fortunate today to have 

the Honorable Jerry Hawke, Under Secretary of the Treasury, be 

the point man on the electronic funds transfer for the Secretary. 

The proposed rule is not the only major project in electronic payments. The General Services Administration recently issued a draft 

solicitation and request for comments for the next generation of 

fleet, travel, and purchase card programs. These programs will be 

merged into one single card. This may be the best vehicle the Federal Government has to promote wider use of so-called smart cards, 

where data are stored on the card itself rather than in a central 

computer that must be accessed. 

Electronic payments are just one aspect of electronic commerce. 

In the finance office of the future, we will need to coordinate the 

Government’s technological improvements with private sector 

standards to ensure compatibility and interoperability. 

Recently the Department of Agriculture showed what can be accomplished. It found that processing the paper transaction for an 

average order worth $185 cost $85 in administrative expenses. By 

contrast, processing the same order with the purchase card cost 

only $32. The purchase card also provided opportunities to reduce 

processing costs further to $17. 

In the private sector, General Electric has been able to re-engineer its procurement systems by putting them on the Internet, 

thus ensuring wider vendor participation. Costs have gone down, 

and the procurement process has been compressed. General Electric has found that small businesses benefit the most. We would 

like to see Federal agencies obtain similar success in flattening organizational hierarchies, reducing costs, and engendering greater 

competition in the future. 

This scale of change will be difficult. We’re fortunate to have a 

well-regarded expert here with us to discuss this issue of electronic 

commerce, Marty Wagner of the General Services Administration. 

Mark Catlett of the Department of Veterans’ Affairs has been a 

leader of pushing that agency toward electronic payments. His position in the Chief Financial Officers’ Council can be very helpful 

in sharing experiences with other Chief Financial Officers who 

have been less successful with their agency payment system. 

We are also fortunate to have with us today representatives of 

business organizations for our second panel, and representatives of 

consumer organizations for our third panel. These witnesses can 

discuss intelligently the issues surrounding the new electronic 

funds transfer law. We welcome all these witnesses, and we look 

forward to their testimony. 

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. HORN. We will now begin with the first panel, the Honorable 

John D. Hawke, Under Secretary for Domestic Finance. Is he here 

yet? He’ll be here at 10. 

So, Mr. Wagner, Associate Administrator, General Services Administration, will begin. Welcome, Mr. Wagner. And as you know 

the routine, raise your right hands. 

[Witness sworn.] 

Mr. HORN. Thank you very much. The gentleman has affirmed 

the oath and may begin. 

STATEMENT OF G. MARTIN WAGNER, ASSOCIATE 

ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION 

Mr. WAGNER. Mr. Chairman, we do appreciate your interest because we think making electronic commerce work in the Federal 

Government is going to depend in part on both the support and 

guidance of the legislative branch. I was particularly impressed by 

your remarks at the beginning, because it showed that you understood how important business process re-engineering and not simply using it as a new way of using, you know, with electrons to replace with atoms. 

I did make a prepared statement. Rather than read it, if I can 

submit it to the record? 

Mr. HORN. Right. It automatically with all witnesses goes in 

when I introduce you and then summarize any way you would like. 

Mr. WAGNER. OK. If I might summarize very quickly. We see 

electronic commerce is the technology of electronic commerce as a 

great enabler. It facilitates change, but should not be used for its 

own sake. That would be one of our first premises. Our second is 

that in order to be successful, we have to ride commercial systems. 

The Government, big as it is, is a small tail on a fairly large dog, 

and we need to recognize that following the lead of the commercial 

sector is, in fact, the way to go. The third premise is that we’re trying to follow a unitary vision, a single face to industry, at the same 

time recognizing that individual agencies and individual firms have 

unique requirements that they need to do themselves. So there is, 

in fact, a balancing between the single face goal and then recognizing the diversity across the economy. 

Now, we have made some progress, but I have to say there is a 

great deal still to do. We have had a great deal of success so far 

in the use of commercial cards using magnetic stripes, but we’re 

only beginning to use the smart cards. In the new RFP that the 

Federal Supply Service of GSA has out as a draft for comment that 

you alluded to earlier, we are consciously embracing this unitary 

integrated vision. It’s not simply viewed as a device to do business 

as usual. 

The second area that I think we’ve been fairly successful in is the 

use of the Internet and the WorldWide Web. For example, the catalogs, like GSA Advantage! and many other catalogs fielded by government agencies, seem to be a pretty effective tool for connecting 

government customers. At least for small purchases where you 

need a warehouse and to see what you need in the overall system. 

Finally, electronic benefits transfer, where we’re moving from a 

paper-based world to card delivery systems, which may—and I’m 

6

sure the Treasury Department will be dealing with these issues—

may also deal with concerns of the unbanked. 

On the electronic benefits transfer, if I could point out, this is not 

a normal role for GSA, but we are working with the actual agencies, which is the Agriculture Department, and Health and Human 

Services. They, in fact, make the policies. We are a coordination 

function, a single point of contact. 

And I have to confess, we do have in our own area certain things 

we view as mightily important. For example, we do not want the 

EBT card vision to actually take us backward from where we have 

been in paper. Right now a food stamp, for example, is good anywhere in the United States. We’ve embraced a unitary vision with 

EBT, with commercial systems. There’s something called the Quest 

Mark, which follows commercial operating rules. To the extent we 

all—all States and the Federal Government-use this commercial 

system. We will then build something that is national in scope 

rather than creating new stovepipes. 

If I could make one question, we have, I believe, in section 30 

in the DOD authorization bill on the Senate side, a recommendation for repeal of what was called FACNET provisions passed a few 

years ago before the Congress. It, in fact, illustrates how quickly 

this technology moves. It was a good idea for the time. GAO has 

now recommended, as are we, that it be—it be repealed because it 

is pushing the Government toward what is a good solution, but not 

‘‘the’’ good solution. So we would urge you to consider whether you 

might embrace that approach. 

And with that quick summary of my testimony, I would be happy 

to answer any questions you might have. 

[The prepared statement of Mr. Wagner follows:]

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Mr. HORN. Well. It’s an excellent summary, and we appreciate all 

you’re doing in this area. 

In terms of FACNET, have you and the administrator sent a letter to the various Members of the committee? 

Mr. WAGNER. I do not know the exact process. There has been 

certainly some process between the Office of Federal Procurement 

Policy and the Congress. If I could submit that for the record later 

on, the process. 

Mr. HORN. Yes, we would like to. And we’ll be glad to followup 

on that. I assume it has the clearance of OMB that’s in accord with 

the program of the President. 

Mr. WAGNER. Yes, sir, it does. 

Mr. HORN. OK. Let me just ask a few questions here. There are 

going to be some questions we also ask Under Secretary Hawke. 

Your testimony asks for our support for new legislation that you 

say will provide more flexibility for electronic commerce. How will 

it do so? 

Mr. WAGNER. Well, primarily this is the FACNET point I just 

mentioned. By pushing agencies toward a specific solution that basically is an electronic data interchange hub-based system, that 

tends to take energy away from the more recently developed Internet web-based approaches. So it gives us more flexibility to pursue 

where the technology is going rather than where the technology 

looked like it was going 3 years ago. 

Mr. HORN. Your testimony identified the potential of smart 

cards. What are the barriers in implementing smart cards all 

across Federal agencies? 

Mr. WAGNER. The barriers to smart cards, I think there are really two. There is the one I think that all agencies are aware of: It’s 

new and it’s hard to do. There are issues of you can’t just decide 

you’re going to get smart cards. You have to worry about readers. 

So you have to find a cluster of a need for smart cards and deploy 

both the infrastructure and the cards themselves. That’s the issue 

that all agencies are currently working on. 

Where we become concerned, it’s back to my earlier point of a 

single face to industry. We’re really quite worried that if we just 

do smart cards wherever they make sense, and that’s a good idea, 

we run the risk of creating whole new stovepipes and separate domains. And you alluded in your remarks to the need to reengineer. 

So we’re worried that the way smart cards might be done in an 

EPA where I once worked or a Treasury Department where that 

I once worked, if they’re too different, we’re going to end up having 

compatibility problems later on. We’re, in fact, working with the 

agencies on some degree of commonality and how smart cards 

would work. 

Mr. HORN. How much infrastructure is already in place on the 

smart cards? 

Mr. WAGNER. I do not have any good figures, but it’s scattered 

and spotty in there. It’s starting to appear to be there’s a lot more 

than we might have realized. The Department of Defense has done 

a fair amount of work. It’s—but I would—if I could submit to you 

a more—what I would do off the top of my head would be anecdotal. 

14

Mr. HORN. Well, I don’t want to cause you a lot of trouble. I just 

want to see the job done, but I was curious if you had a sense of 

that and the places where we’re really lagging? 

Mr. WAGNER. Where we’re really lagging? I think we’re all feeling our way forward. And there is, in fact, some dance when you’re 

going through a new technology where what is new is always proprietary and unique to specific companies and specific requirements. As we move through those, we want those new services and 

features, but we don’t want to lock ourselves in. So that’s the process we’re going through. There’s a danger of crystallizing too soon 

on the wrong technology. 

Mr. HORN. Your testimony described a vision for the future 

where smart card systems are used as an integral part of the Government’s internal business process. Can you describe how distant 

this future vision really is, and what is your timeframe for achieving that vision? 

Mr. WAGNER. OK. My timeframe is basically to achieve a lot 

within the next 2 years, with a time horizon of about 5 years, and 

part of a time horizon of 5 years with a technology that moves as 

quickly as this, it’s quite dangerous to speculate too far in the future. 

In the very near term we have the FSS card RFP, which will be 

hopefully awarded in the early part of the next calendar year. That 

would be a good vehicle for implementing smart card technologies 

and integrated solutions. We’re also working with piloting, the 

planning model. Pure planning doesn’t work, you have to do experiments. There is, for example, work with the Treasury Department 

on intragovernmental transfers where we’re moving money within 

the Federal Government, but currently using cards to do it is more 

costly than it should be. We’re working with—there’s a Treasury 

pilot, a GSA pilot, and then we’ll be trying to have a framework 

for learning through them. 

But the basic time horizon is within 2 years to see substantial 

penetration of smart cards. By that I mean you can see them, you 

can count them, you know what they’re doing, to be using them to 

some degree in a standard way. Recognizing that what the world 

looks like in 2 years is going to be different from what we think 

it is. We’ll have to reset for our next 2 years and then 5 years. 

Mr. HORN. In the last Congress, the House introduced smart 

identification cards. Employees were told that locked doors would 

open when important staff approached, and all sorts of new capabilities would be added on to this smart card. The new Congress 

brings new ID cards. Now they’re of the cheap plastic variety 

again, and those new features were never implemented. Does GSA 

risk getting ahead of the private sector and bringing out a smart 

card when this contract is awarded or of procuring a card that we 

do not need? 

Mr. WAGNER. I do not think we’re actually running the risk. In 

the original draft that went out for industry comment, we, in fact, 

had a requirement for hybrid cards, which is another term for 

smart cards. It has the chip on it. We removed that as a mandatory 

requirement, but have that as value added. The approach we take 

embraces the current mag stripe infrastructure, but looks for migration paths as you move into a smart card future. We think it 

15

is very important to do experiments to pilot and learn from those 

pilots and then adjust accordingly. 

The, if we get—in fact, there’s a good, perhaps a standard, 

phrase. We like to be on the ‘‘leading edge, but not the bleeding 

edge.’’ We plan to be sitting there just behind the innovative commercial leaders, not so far behind as to be left behind, but not so 

close up as to get our own blood on those edges. Sorry for that. 

Mr. HORN. I sympathize with that observation from long experience. 

Your testimony describes some of the accomplishments in implementing electronic benefit transfer systems. What goals are you 

trying to achieve for the electronic benefits transfer program, and 

what is GSA’s role in the mission? 

Mr. WAGNER. Well, our main role is to coordinate and facilitate 

the move toward this unitary vision. We are working actively with 

the involved agencies as well as the States to facilitate that move 

to that common vision. I think that what we see as the most important thing that GSA does, as distinguished from major policy calls 

by other agencies, is that, when you use that EBT card, that it may 

be different contracts and different States, but it’s in accordance 

with the uniform infrastructure using the Quest Mark and the 

standard operating rules; that it’s as nationwide and is more effective than the current, for example, paper food stamp-based program. 

Mr. HORN. Let me ask you the question, as I mentioned earlier, 

that I will also be asking Under Secretary Hawke. 

We will swear in our other two witnesses, and you are right on 

time, gentlemen. Thank you very much. 

But, Mr. Wagner, let me ask you, in April, the Subcommittee on 

Government Management, Information, and Technology held a 

hearing on the Debt Collection Improvement Act of 1996. I asked 

Jerry Murphy to examine with the General Services Administration whether an administrative offset feature could be incorporated 

into Federal credit card systems to offset Federal payments to 

deadbeat vendors who are delinquent on Federal debts. These 

cards will be accepted by millions of vendors, some of whom will 

owe money to the Federal Government. These payments will represent $30 billion in disbursements over 5 years. Is there any 

progress on that front? 

Mr. WAGNER. Yes, there is some progress. I should emphasize 

you’ve hit on a very key issue in how to implement the act. In current RFP, the act applies to the prime contract vendors, and we 

have that covered, and any payments to them will go through the 

offset process. 

The question you allude to is agency action, purchases of 50 or 

100 or some small item from vendor A, and it goes into the credit 

card system, and it’s settled according to the operating rules followed by millions of businesses. 

We do not yet have a good answer on that question. What we 

have done is we have solicited input from the industry on how best 

to address this concern. We’re working with the Treasury Department on how to do that. But when I mentioned—it’s important to 

keep in mind, as you yourself have pointed out, that when you are 

in the commercial system, you have to recognize they’re following 

16

commercial rules. Working through that process with the Treasury 

Department is likely to take some time, but we want to begin now 

because this contract is a multiple award contract, likely to last for 

many, many years. And the fact that we may not be able to do 

something today, according to the banking system rules, doesn’t 

mean that over the life of the contract that it will not be possible 

later on. We’ll be working toward coming up with a solution. We’d 

also appreciate any guidance you may have to give us on this issue. 

Mr. HORN. Well, Mr. Wagner, you’ve done an outstanding job. 

Can you stay with us a little bit——

Mr. WAGNER. Yes. 

Mr. HORN [continuing]. In case questions come up when the 

Under Secretary testifies and Mr. Catlett? 

Gentleman, if the two latecomers are here—or early arrivals, I 

should say. 

[Witnesses sworn.] 

Mr. HORN. Thank you, gentlemen. 

Both witnesses have affirmed. 

Let’s start with Under Secretary Hawke. I know you’re in a tight 

schedule this morning. You’ve already delivered one major address 

to change Federal policy. This is your next appearance. So, thank 

you for coming. 

STATEMENTS OF JOHN D. HAWKE, UNDER SECRETARY FOR 

DOMESTIC FINANCE, DEPARTMENT OF THE TREASURY; AND 

MARK D. CATLETT, CHIEF FINANCIAL OFFICER, DEPARTMENT OF VETERANS’ AFFAIRS 

Mr. HAWKE. Mr. Chairman, this is my most important appearance today, and I appreciate the opportunity to be here. We’re 

shooting for the 10 o’clock schedule that we understood was the 

timing. 

Mr. HORN. You’re right. You’re ahead of time. So please proceed 

with your testimony any way you would like to give it. As you 

know, it’s automatically included and if you would please like to 

summarize. 

Mr. HAWKE. Thank you. I will truncate my prepared statement, 

Mr. Chairman, and we appreciate the opportunity to appear before 

you today to discuss the implementation of the new EFT 1999 mandate. This law, which as you know, excludes only tax refunds, is 

going to have far-reaching implications for millions of Americans. 

The electronic transfer initiative includes four distinct elements. 

After July 26, 1996, all Federal payments, except tax refunds, to 

newly eligible recipients who have bank accounts must be made by 

EFT. And that is proceeding well, Mr. Chairman. We understand 

that 85 percent or more of new recipients are coming onstream 

with electronic payments. 

Starting January 1, 1999, all Federal payments, with the exception of tax refunds, must be made by EFT. Treasury is mandated 

to ensure that all recipients who are required to receive payments 

electronically have access to an account at a financial institution at 

a reasonable cost and with the same protections as other account 

holders at that financial institution. And finally, the Secretary is 

authorized to grant waivers based on recipient hardship, for classes 

of checks, or where otherwise necessary. 

17

Our goal, Mr. Chairman, is to issue payments by a method that 

will provide the best service to recipients at the lowest possible cost 

to taxpayers and with the greatest degree of transaction security. 

Attached to my written statement is a chart that shows the benefits of EFT. As the chart shows, EFT will save taxpayers money. 

The Government’s cost for an EFT payment is only 2 cents—this 

is right at the back of my statement—while check payments cost 

the Government 43 cents each. We estimate that full implementation of EFT 1999 will save taxpayers approximately $500 million 

over 5 years in postage and check production costs alone. 

This chart also shows a drastic decrease in payment inquiries 

and claims under EFT as compared to the paper check environment. The chart further shows that EFT increases transaction security and significantly reduces opportunities for crime. 

Mr. Chairman, I would like to share with you now the principles 

that Treasury has formulated to guide it in the implementation of 

EFT 1999. First, the transition from a paper-based system to an 

electronics system should be accomplished with the interests of recipients ranking of paramount importance. We should maximize 

private sector competition for the business of handling Federal payments so recipients not only have a broad range of choice of payment services and service providers, but also that they receive their 

payments at a reasonable cost with substantial consumer protections and with the greatest possible convenience, efficiency, and security. All recipients, and especially those having special needs like 

the elderly individuals with physical, mental, or language barriers 

and those living in remote or rural communities, should not be disadvantaged by the transition to electronic payments. 

Finally, the EFT 1999 program should, to the maximum extent 

possible, seek to bring into the mainstream of our financial system 

those millions of Americans for whom the system is as a practical 

matter not presently available. And I should say, Mr. Chairman, 

that overarching these principals is the major objective of reducing 

the costs to the government and taxpayers of the whole payments 

process. 

Since the passage of the Debt Collection Improvement Act in 

April of last year, we’ve made significant progress in our implementation efforts. In July of last year, we released an interim rule implementing the first phase of the conversion from check to EFT. 

That is the phase relating to new recipients who come onstream 

and who have bank accounts. 

In addition to reviewing the comments received in response to 

the interim rule, Treasury has undertaken extensive outreach efforts. These include meetings with various interest groups, including consumer groups, vendors, financial trade associations, and financial services providers, including bank and nonbank entities. 

Our outreach efforts to consumer organizations began in earnest 

with a meeting that I convened last November. Treasury representatives have met with 11 different consumer groups over the 9 

months since July 1966. We also held an EFT 1999 consumer briefing session in April that was attended by over 30 consumer groups. 

Our representatives have met with 17 financial services providers since the publication of the interim rule. These providers include financial institutions as well as nonbank entities, such as 

18

check cashers, automatic bill payers, and other financial services 

providers. 

In addition, we held an EFT 1999 briefing session that was attended by a number of financial trade associations. In partnership 

with the Federal Reserve Banks and the American Bankers Associations, we’ve reached over 1,000 financial institutions in nationwide seminars held since October 1996, and these seminars will 

continue through this fall. 

Part of our objective here, Mr. Chairman, has been to raise the 

level of awareness of the financial services industry to what’s coming down the pike in respect to EFT 1999. In April of this year, 

we met with a group of Government vendors to discuss their concerns regarding EFT 1999. And since the passage of the legislation, 

we’ve worked closely with Federal agencies, the Federal Reserve, 

and financial institutions. 

We’ve seen tremendous momentum in converting benefit check 

payments to EFT. The Social Security Administration, for example, 

has seen its direct deposit enrollment rate nearly triple since its 

legislation went into effect July 26th of last year. This results from 

the laws requiring that all newly entitled recipients with bank accounts receive payments by EFT. From fiscal year 1996 year-end 

to mid-fiscal 1997, the percentage of all Treasury-disbursed EFT 

payments has increased 4 percentage points, from 53 to 57 percent 

of total Treasury disbursements. 

The immediate challenge that we’re facing is publishing a proposed rule to implement the second phase of EFT 1999. Our goal 

in this rulemaking process is to develop policies that are simple, 

clear, and most importantly, effective in dealing with the difficult 

issues associated with mandatory EFT. We anticipate a mid-July 

1997 release date for the proposed regulation, with a 90-day comment period, after which we’ll put out a rule in final form. 

By far the most complex and controversial policy issue confronting us in our efforts to implement EFT 1999 is how to meet 

the needs of recipients without bank accounts. Under the existing 

Federal payment system, electronic payments may only be deposited into accounts at financial institutions that are members of 

automated clearinghouses. As a result, the population of Federal 

payment recipients without bank accounts is currently precluded 

from receiving the benefits of direct deposit. 

Secretary Rubin has made it one of his high priorities to encourage people without bank accounts to move into the financial services mainstream. And financial services providers offer many services that are critically important, if not essential, to virtually all 

American families. These may include access to federally insured 

deposits, the opportunity to earn interest on deposits, the availability of personal credit, and access to home mortgages. Some 40 

million American households with incomes under $25,000 need 

these services. 

Many payments recipients without bank accounts have told us 

that the lack of reasonably priced financial services currently prevents them from moving into the financial mainstream. As a result, 

Treasury has devoted significant efforts to increasing the availability of low-cost banking services. Our Direct Deposit Too program encourages banks to offer a reasonably priced direct deposit 

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account. Direct Deposit Too is based on a model account, based on 

debit card access with no minimum account requirement. And 

we’ve suggested this to banks as a low-cost alternative to traditional checking accounts. For recipients who are unable to obtain 

low-cost financial services through the private sector, Treasury is 

also developing a nationwide electronic benefits transfer system. 

We recognize that some recipients of checks will be unable to receive payments electronically because of their personal circumstances. In the proposed regulation, Treasury will solicit comments on the circumstances under which a recipient should be 

granted a waiver from receiving payment electronically. We will 

take into account not only geographic, physical, financial, and mental barriers, but other compelling circumstances. 

A major issue associated with implementing the mandatory EFT 

requirement is how we convert vendor payments to electronic funds 

transfer. Although vendor payments comprise only 2 percent of 

total Federal payments, they represent a much larger percentage 

of nonbenefit agency payments, between 10 and 30 percent depending on the agency. 

Vendor EFT enrollment has increased approximately 60 percent 

from fiscal year 1996 year-end to mid-fiscal 1997. However, the 

total percentage of vendor participation is still only 26 percent. 

Historically, vendors have been slow to enroll voluntarily in the 

EFT program, partly because of obstacles associated with disbursing electronic payments to vendors. One major challenge is 

that many vendors are not able to access the remittance information that’s transmitted along with electronic payments. As a result, 

when payments are credited to their accounts, it may be difficult 

for them to reconcile their accounts receivable. This problem occurs 

because many small to medium-sized banks do not have the special 

software that’s needed to translate to readable form the information that’s transmitted with electronic payments. 

It’s estimated that there are approximately 11,000 banks capable 

of accepting an electronic payment. Fewer than 1,000 can translate 

the remittance data into a readable form for their customers. We’re 

presently working with other Federal agencies, financial institutions, and vendors to address these problems and develop low-cost 

solutions. 

I would like to discuss briefly one of the most significant aspects 

of our plan to implement EFT 1999. Aside from our other implementation efforts, we plan to conduct a comprehensive public education campaign to ensure that there’s sufficient information available to stakeholder groups and the public about the requirements 

of the mandatory EFT legislation and about the benefits of electronic transfers. 

In fiscal 1997, we’ll provide informational services to financial institutions to ensure they’re operationally prepared for handling the 

increased demand for EFT services. In addition, we will continue 

our interaction with consumer groups, government vendors, financial trade associations, and other government agencies to ensure 

they’re aware of the implications of the EFT legislation. We’ll also 

roll out a nationwide public awareness campaign that will encourage check recipients to convert voluntarily to electronic fund transfer in advance of the January 1, 1999 deadline. 

20

In summary, the objectives of this campaign will be to partner 

with the private sector and other Federal agencies, to educate consumers to make good choices, and to minimize disruption to recipients while adding value to the way they conduct their finances. 

In conclusion, Mr. Chairman, the Treasury Department believes 

that this legislative mandate provides an important opportunity for 

us to provide the high quality of service that our customers want 

and need and at the same time to lower the cost to taxpayers. Benefit recipients have told us that they want to be able to receive 

their payments at points that are easily accessible and increase 

their safety and security if this can be done at a reasonable cost. 

Our proposed regulations will attempt to address these needs. We 

welcome, encourage, and look forward to the public comments that 

we will receive on our forthcoming proposal, and we look forward 

to working with the committee as we move forward on this initiative. Thank you, Mr. Chairman. 

Mr. HORN. Well, we thank for you that very full statement. 

[The prepared statement of Mr. Hawke follows:]

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Mr. HORN. Now we welcome Mr. Catlett. Mark Catlett is the 

Chief Financial Officer of the Department of Veterans’ Affairs, and 

we’re glad to see you here again. 

Mr. CATLETT. Thank you, Mr. Chairman. 

Mr. HORN. And the statement, you don’t have to read it. It is in 

the record. If you would like to summarize it. 

Mr. CATLETT. Yes, sir, I would. 

Mr. HORN. And we can get to questions. 

Mr. CATLETT. Mr. Chairman, it is my pleasure to be here today 

on behalf of the VA to testify on the Debt Collection Improvement 

Act of 1996. I’m here today to provide you some insight into our 

electronic commerce activities with the thousands of vendors that 

we do business with daily that are vital to accomplishing our VA 

mission. 

The VA realized some time ago that EFT, electronic data interchange [EDI], and electronic commerce [EC] were the business solution to streamlining procurement and payment processes. As 

early as 1995, VA developed an electronic commerce strategic plan. 

I have a copy here. I will be happy to submit it to you for your information. 

Mr. HORN. Right. Without objection it will be in the record at 

this point. 

[The information referred to follows:]

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Mr. CATLETT. In this strategic plan we identified a series of activities and improvements we sought to implement in order to 

bring about EDI and electronic commerce. With the completion of 

these improvements, the VA has met its goals as outlined in this 

plan. The VA now provides a number of alternative solutions for 

EC and EDI processing, including the use of the IMPAC card for 

micropurchases, and a prime vendor payment system for purchases 

of pharmaceutical and hospital supplies. In combination, EDI and 

EC alternative solutions have led VA to be one of the leading agencies in promoting EC solutions for acquisition, finance, and payment-related processes. 

Currently, VA processes 30 percent of its invoices, 99.6 percent 

of its receiving reports, and 49 percent of its vendor payments electronically. Through development of EFT payment capabilities and 

enthusiastic promotional efforts, VA has been highly successful in 

significantly increasing the number of payees receiving salary, 

travel, and benefit payments. 

Through the EC and EDI processes, programs currently in place, 

and the significant enhancements scheduled for the immediate future, VA offers a comprehensive EC/EDI/EPT program. All of these 

electronic commerce activities have resulted in a reduction of close 

to 10 million paper transactions annually for the VA. In 1990, we 

were transactioning paper mostly at our finance center in Austin 

and at our medical centers primarily over 11 million pieces of 

paper. We hope by the end of 1997 to be at about 1.3 million pieces 

of paper. 

This has obviously benefited the VA. We believe it has also benefited our trading partners and the various payment recipients. We 

are in a position to implement, essentially meet the mandatory requirements of the act of all electronic payments by January 1999. 

I will just add a few other updates and highlights of our activities to give you some sense of the activities that we have underway. In EDI, the VA utilizes a full EDI cycle for the procurement 

and payment process. At the end of April 1997, VA had 485 trading 

partner relationships, primarily our largest trading partners, established with vendors wishing to receive electronic requests for proposals to submit their offers. During fiscal year 1996, the VA received 180,060 EDI invoices, not including our credit card activity. 

Our Austin Finance Center staff worked closely with Treasury’s 

Austin Regional Finance staff to implement the first application of 

the American National Standard Institutes X–12 820 payment instruction and remittance advice. By the end of fiscal year 1996, 

over 40 percent of VA payments were issued as EDI payments. To 

promote and enhance EFT participation in May 1997, the VA 

mailed letters to over 50,060 of our 200,060 vendors currently receiving paper checks. To date, we have had positive responses from 

almost 11,060 of those vendors. In June 1997, this month, VA will 

contact a second group of 50,060 vendors. The process will continue 

until all vendors have been contacted and enrolled. 

The IMPAC Visa purchase card is used almost exclusively now 

in the Department for micropurchases, those purchases under 

$2,500. We have had great expansion in this past year. At the beginning of fiscal year 1996, less than 1 percent of our micropurchases were done on purchase cards. As of April 1997, we’re over 

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90 percent. This is due largely to VA’s internally developed credit 

card system which has made it convenient for our employees as 

well as for the vendors. This system electronically processes all 

VA’s Visa transactions. In the month of April, 140,060. The transactions are posted to our accounting system automatically, and, of 

course, electronically remits payments to the bank card contractor. 

VA has received $2.7 million in rebates, and has been recognized 

for this credit card system, with the Hammer Award by Vice President Gore. 

Further, Mr. Chairman, we intend and have begun to expand 

this activity to our Prime Vendor Alternative Payment Program, 

which will streamline VA’s multibillion-dollar prime vendor payment process. Using a payment system based on the credit card 

system I have just mentioned, VA can now accept an electronic 

transfer file for prime vendor transactions, post those transactions 

to our accounting system, and, again remit the electronic payment 

to the contract bank. 

Thank you for this opportunity to share our views and innovative 

initiatives on electronic commerce as it relates to the Debt Collection Act. 

Mr. HORN. Well thank you very much Mr. Catlett. 

[The prepared statement of Mr. Catlett follows:]

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Mr. HORN. Could you tell us, is there any experience we have in 

terms of auditing where electronic data interchanges are more difficult to audit than paper ones? What do we know about that when 

it gets—have you had any chance to even look at possible fraud, 

that kind of thing? 

Mr. CATLETT. Mr. Chairman, I’ll get that for the record. In general, I know our Inspector General has begun to look at this issue 

as we have expanded greatly, particularly in the credit card area. 

The general information that I have for you today is that there is 

less fraud and less chance for abuse in that program. I don’t believe we have an official report from the IG, but they have done 

some preliminary investigative work, and I’ll be glad to provide 

that for the record. 

[The information referred to follows:]

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Mr. HORN. Good, I’ll appreciate it. I would be glad to receive for 

the record what I thought you would answer, and you did. I also 

need to know if there are problems and what we need to do in that 

area to solve them. 

Now, let me get back to the questions with Mr. Hawke, and then 

we’ll pursue questions with all of you. This question relates, Mr. 

Secretary, to the unbanked. Most ATMs have a $300-per-transaction cash limit, while Social Security checks average about $700. 

How does the Department of the Treasury propose to ensure that 

the beneficiaries will not have to go three times to the ATM to 

withdraw their money if they need it immediately with all the hassle, the delays, and the costs that that entails? 

Mr. HAWKE. Well, that is a problem, Mr. Chairman, that we’re 

very concerned about. We would never create a mandatory account 

that would prevent a recipient from getting all the cash they need. 

There is of course, a security feature to those limitations on ATM 

disbursements as well as a kind of a logistical reason for them. But 

that’s one of the questions we are going to be addressing as we try 

to formulate the specifications for the account that we will provide. 

I think it’s important to remember here that many recipients will 

be choosing accounts at a financial institution of their choice. And 

we’re trying to encourage as much competition among the financial 

sector as possible to offer consumers voluntary choices of accounts 

that they can opt into the way they do today. So the forces of competition will play a role here. 

What we’re most challenged by right now is how we fulfill our 

mandate to assure that everybody has access to an account. And 

that’s the option where we will probably be going out and procuring 

account services. We will write the specifications for that account, 

and this is one of the issues that we’ll have in mind very much 

when we do that. 

Mr. HORN. One often reads about fraudulent activities that occur 

are really—people that prey on senior citizens at the time the 

check is coming. Now, I don’t know if the ATM helps deter some 

of that, since I guess they can stand there and file it several times 

to get all the cash out of the account. But sometimes tellers, when 

they see people in the bank, can spot that type of thing and sort 

of alert people that one is withdrawing under pressure what’s in 

the account. Has much thought been given to that? 

Mr. HAWKE. Not to that specific issue, Mr. Chairman. But we believe that, generally speaking, an electronic account is going to be 

more secure and provide more protections for recipients than the 

present paper check. Today the recipient of a check is forced to convert that into cash all at once. And they take the risk not only of 

theft of the cash, but loss of the check and forgery and alteration. 

In the electronic environment, we would hope that we can structure an account, and that the private sector institutions will offer 

accounts that will encourage thrift; that is, will encourage individuals to leave their funds in the account so that they’re not forced 

to take them all out on the first day. And that not only provides 

a security feature for the individual, but also is one of those factors 

that’s important in trying to get the unbanked people into the 

banking system, make them accustomed to using bank accounts 

and comfortable with that. 

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Mr. HORN. Well, I think you’re absolutely right. I think a lot of 

theft goes on when those checks arrive, right out of mailboxes. And 

this way you would at least know the money is automatically deposited in your bank account. And I must say my bias is I can’t 

believe someone wouldn’t want it deposited in their account and 

not waste their time as we used to to have to go to the bank, put 

the check in, and all the rest of it. So if we want to protect senior 

citizens, I would think this is the way to protect them. 

Later witnesses will argue that only federally regulated and insured institutions be permitted to be the conduits of electronic Federal payments. This would have the effect of excluding certain businesses, such as check cashing firms. These firms have the infrastructure in place in many poor neighborhoods with no banks, but 

many assert these firms engage in predatory practices. What’s your 

reaction to this? 

Mr. HAWKE. Mr. Chairman, I think we need to determine who 

can be the conduit; that is, who can have the relationship with the 

recipient, and what kind of institutions we can deliver payment to. 

Right now we can only deliver payment to institutions that are 

members of automated clearinghouses. That essentially means depository financial institutions. 

Just as with paper checks, there’s a limit to what we can do to 

restrict the arrangements that an individual makes once the funds 

come into the possession of the individual. An individual who receives a check today, can take that check and cash it at any place 

they want or do whatever they choose with it. So, by analogy, there 

are limitations to what we can do with respect to an individual’s 

ability to engage in other relationships once the payment goes into 

an account. 

Now, we do feel rather strongly that as far as the account that 

we’re concerned about what we’ve come to call the default option, 

that is the option that we provide for recipients who don’t have a 

bank account and haven’t chosen one of their own, that those 

should be in federally insured and regulated financial institutions 

to provide the maximum safety for those individuals for whom we 

are providing the account. As I say, the arrangements that individuals make with other parties with respect to the treatment of that 

account once the funds are in there in the individual’s names is 

something that we probably have very little ability to affect. 

Mr. HORN. This question concerns the proposed benefits security 

card, Vice President Gore’s proposal, as we know, to have all Federal benefits on a single card. Have you considered whether some 

seniors or veterans would not want their payments associated with 

the concept that might imply public assistance payment or welfare 

benefit, and might that damage acceptability of the card? What’s 

your thinking at this point? 

Mr. HAWKE. Yes. That is a concern that we are aware of and sensitive to and we haven’t decided exactly what the interaction will 

be between the EBT programs and the EFT program. There are 

lots of reasons why we might not require a Federal recipient to use 

the benefit security card. For example, the benefit security card is 

a medium for transmitting, in many cases, family benefits like food 

stamps, where they’re available to a number of members of the 

family. But in electronic funds transfer, the transfer has to be 

153

made to an individual who is the designated recipient of that payment. There may be different features in the default option account 

that we provide that would lead us to want to make that available 

rather than forcing people onto a benefit security card. But that’s 

an issue that we have very much in mind. 

Mr. HORN. Mr. Catlett, has the VA given any consideration to 

this idea of the proposed benefits security card? Since you have a 

number of benefits to render, I just wonder how you feel about it 

at this point? 

Mr. CATLETT. Sir, we estimate about 9 percent of our beneficiaries are unbanked at this point. We have not looked at those 

specific issues in detail that we have addressed here. In general as 

an option, I endorse the idea that the safety and convenience is 

something that we ought to promote with our veterans. We have 

some issues there in terms of thinking that all 130 percent of our 

veterans will be able to be electronically receiving payments by 

January 1999, but we are making great progress in expanding the 

number who are participating in the EFT program. 

Mr. HORN. Has the Chief Financial Officers’ Council looked into 

the benefit security card in any way? Is there a subgroup or task 

force? 

Mr. CATLETT. There have been discussions, and I know Marty 

has been to the council speaking to us about that. 

Mr. HORN. Do you want to add anything, Mr. Wagner, just to the 

benefit security card, the degree to which it’s being considered in 

the executive branch? 

Mr. WAGNER. The specific issue of stigma, I’m going to have to 

do some thinking about it. My top-of-my-head reaction is you’re 

looking for a delivery platform that’s a single face delivery platform 

to deliver multiple services, whatever they may be. And it sounds 

to me like there’s a real risk. But the way to deal with it is you 

address it as a broad-based solution rather than just an extension 

of a welfare or a food stamps program. 

But I think I have to go back and discuss that potential issue. 

That could be—the way it’s perceived. It’s also an empirical question, what they really feel rather than what people say they feel. 

We’ll look into it. 

Mr. HORN. Thank you. 

Mr. Secretary, the issue of cost has emerged as a key issue concerning the implementation of the EFT law. How will cost be apportioned between the Treasury, vendors who provide EFT services 

via contractor relationships, and recipients of Federal benefit program payments? 

Mr. HAWKE. Well, Mr. Chairman, with respect to what I call the 

default option, that is the account that we will procure and make 

available to those unbanked recipients that don’t otherwise choose 

their own account, we don’t view that as a subsidized account. That 

is an account where we will set the specifications of the account in 

the invitation for bids. And we’ll get competitive bidding from companies that will offer this with the expectation of getting a substantial volume of payments. 

Our mandate under the statute is to make sure that that’s a reasonable cost. But there is no mandate for us to subsidize an account. And we’re concerned about what the effect of that would be. 

154

Ideally, the private sector would respond to this new initiative with 

a wide variety of account configurations that would be of appeal to 

people who are receiving electronic payments. And first off, we 

would like to see the processes of competition work. If we come out 

with a subsidized account, it may undermine that process. So we 

have to be very careful in that regard. 

Mr. HORN. Your testimony briefly mentioned the disincentives in 

the Prompt Payment Act to use EFT for vendors. Could you describe some of those disincentives? 

Mr. HAWKE. Well, the principal problem with respect to vendors 

is the problem of transmitting payments information along with 

the payment. Particularly larger vendors, who are recipients of a 

lot of payments, are going to have difficulty identifying a particular 

payment to a particular invoice. And that’s the major problem that 

that’s inhibiting us from moving ahead on the vendor side. When 

electronic data interchange becomes more readily usable, we think 

that problem will tend to disappear. 

Mr. HORN. Mrs. Creque, who represents the American Association of Retired Persons, AARP, and who will be a witness after this 

panel, notes the possibility of nursing homes or other institutions 

with the financial interest in payees being designated as an authorized payment agent. Have you looked into this possibility? 

Mr. HAWKE. We’ve been considering that possibility. And there 

are presently arrangements that the Social Security Administration sanctions with respect to the designation of third parties to receive payments on behalf of individuals who are incapacitated or 

the like. We don’t propose to change those or really expand those 

relationships at all. Again, we believe that our mandate is to transmit funds to an account in the name of the individual recipient. 

And in cases of particular hardship, we would grant waivers, where 

appropriate, to allow an individual to continue to receive a check. 

Mr. HORN. Now, I’ll ask you the question that I asked Mr. Wagner. In April, the Subcommittee on Government Management, Information, and Technology held a hearing on the Debt Collection 

Improvement Act of 1996. At that time, I asked Jerry Murphy to 

examine with GSA whether an administrative offset feature could 

be incorporated into Federal credit card systems to offset Federal 

payments to deadbeat vendors who are delinquent on Federal 

debts. These cards will be accepted by millions of vendors, some of 

whom will owe money to the Federal Government. These payments 

will represent $30 billion in disbursements over 5 years. Is there 

any progress on that front? 

Mr. HAWKE. I think Mr. Wagner said about what I would have 

said on that question. We’ve asked GSA to build into the new card 

the capacity for offset, and we’re working with them to try to see 

how that could best be done. 

Mr. HORN. Well, we thank you. 

And we move now to Mr. Catlett for a few questions. And your 

testimony noted that 49 percent of the vendor payments are processed electronically. That compares with a mere 12 percent governmentwide. This was accomplished in an organization where each 

hospital director jealously protects his or her turf. Do you have any 

feeling why other agencies haven’t been as successful as the VA? 

Or does modesty keep you from answering that question? 

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Mr. CATLETT. Mr. Chairman, I would like to answer that question from our perspective. 

Mr. HORN. Yes. 

Mr. CATLETT. Which is, I believe, one reason, as you recognize, 

we do have activities across the country. But some time ago, before 

we even reached electronic payments, had centralized the process 

in our financial transactions. So that clearly has given us a capability. All this information, as I noted, nearly 130 percent comes 

electronically from the facilities now to our center in Texas. And 

that’s been the focus of our activity, to develop these relationships 

with our trading partners and with the vendors. 

As I mentioned, there were 485 where we have full process. 

We’ve gone after the largest ones first. Despite having hundreds of 

facilities, there are several hundred companies that probably do 80 

percent. It’s the 80/20 rule here; 80 percent of our business, probably, with the top 20—clearly with the top 20 percent of our 

200,060 vendors, and I’m sure it’s higher than that. So we’ve been 

able, through having a centralized activity, to address the industry 

in that way. 

Mr. HORN. As the VA have shown, if management makes the 

electronic payments a priority, it can dramatically increase the volume of electronic payments. What leadership has the CFO Council 

provided in the area of electronic payments? 

Mr. CATLETT. The CFO Council you’re speaking about? 

Mr. HORN. Yeah. 

Mr. CATLETT. The—we have a—1 of the 12 subcommittees that 

work on issues regularly and routinely in the—for the Council has 

identified this as an issue. Actually, the—my Deputy, the Deputy 

CFO for the VA, has been the chair of that group and has led that 

activity. So we are—there are regular activities or monthly reports 

to the CFO Council on this. We designate this. And I can’t say exactly. We’ve had our annual retreats over the last 4 years now. And 

2 or 3 years ago this was identified as one of the areas that needed 

attention. And so once I’ve identified that and we establish a subcommittee, the work of that subcommittee has proceeded and has 

been regularly reported to the Council. So it’s been designated as 

a high priority in the CFO Council. 

Mr. HORN. OK. I understand you’re the legislative chairman in 

the Council? 

Mr. CATLETT. Yes, sir. 

Mr. HORN. Any pitches you want to make while you’re on the 

record. 

Mr. CATLETT. No, sir, not at this moment. 

Mr. HORN. OMB can’t do anything to you since I asked you the 

question. 

Mr. CATLETT. Thanks for the offer, but I’ll pass for the time 

being. 

Mr. HORN. Your testimony also mentioned that your 10 million 

paper transactions have been eliminated. I think we’ll all give a 

cheer to that. That’s a lot of paper, a lot of trees saved. The Sierra 

Club ought to be giving you an award, I think, or Secretary Brown, 

as he leaves. Has this allowed you to downsize and re-engineer the 

accounting department? 

156

Mr. CATLETT. Yes, sir. I was thinking about coming up when the 

National Performance Review identified the 252,060 reduction in 

staff was identified, I was skeptical at that time. They were identifying 50 percent for personnel, finance, procurement, having 

worked in this job for 4 years and realized what we have been able 

to do, I think that is a realistic goal. We have not reached the 50 

percent goal yet, but we will be able to do so. There are more activities for us to centralize in terms of processing our financial and 

procurement activities. So it is very possible that we are well on 

our way to meeting that goal. 

Mr. HORN. Well, that’s a very impressive record. And I guess I’d 

ask you how active you’ve been on making these vendor payments 

electronically? And do people in other agencies come to you since 

you have a success story here and say, OK, how did you get it 

done? 

Mr. CATLETT. Yes, sir. In the past 6 months GSA and DOD have 

been to our Austin Finance Center to look at our financial management processes. I think, even DOD’s CFO, Mr. Hummer, has been 

there as well. And I can provide for the record those others who 

have been there. I’ll make a little plug here other than legislative. 

Obviously we have two interests here. In that consolidation going 

on, we are a franchise activity, hoping to sell those services, crossservice other agencies with that. But we, of course, as well are introducing them and sharing with them our technology and our 

practices and processes down there that they may want to emulate. 

[The information referred to follows:]

Visitors to the AFC 

Veterans Canteen Service—Art Austerman 

VHA MCCR—Barbara Mayerick 

VHA HAC—Director and IRM staff member

Social Security Administration—John Moellar 

Treasury Financial Management—Central Office 

Federal Communications Commission, Washington, DC

VA Foreign Services Officer—Diane Fuller. 

VAMC San Antonio, TX—Chief of Subsistence, Chief of Supply Services, Fiscal 

Officer, and Chief of Accounting. 

Department of Defense—Dr. John Hamre, Under Secretary of Defense, Comptroller and CFO; Col. Derald Emory, Military Assistant to Dr. Hamre; Bruce 

Carnes, Deputy Director for Resource Management, DFAS; Ron Good, Office of the 

Deputy CFO. 

Department of Agriculture (USDA)/National Finance Center (NFC)—18 visitors. 

Department of the Army, Ft. Sam Houston, TX—Lt. Col. Gloria Kitsopoulos, 

Denise Johnson, Joe Demariano. 

Immigration and Naturalization Service (INS), Dallas, TX—3 visitors (Assistant 

Director for Finance was one). 

USMC (Retired), Okinawa, Japan—Colonel Roberts.

Mr. HORN. As I understand it, now, of the 39 million benefit payments, slightly more than half were made electronically. And that 

mirrors the rate, as I understand it, governmentwide. Is that your 

approximation? 

Mr. CATLETT. We’re now over 60 percent. In the past year we 

have made some increases. We’ve been canvassing. 

Mr. HORN. Why has the VA’s success with converting vendors not 

been equaled with similar success on the beneficiary side? 

Mr. CATLETT. Right. And, well—for our employees we are at 94 

percent, which I think is comparable. We have recently gone to—

157

the 50 percent number that you are speaking to was a number I 

was familiar with. Frankly, until I was preparing for this hearing, 

and in the last year, we have increased it at another 10 percent. 

We have been doing outreach. We have been stuffing checks to our 

veterans and making our pitches to the convenience and safety of 

the program. And there’s been a response and an increase here in 

the past year. 

Mr. HORN. Let me speculate. Is it because you as CFO have the 

authority over vendor payments, but the VA Benefit Administration is less helpful with respect to beneficiaries? 

Mr. CATLETT. No, sir, that is not the case. 

Mr. HORN. You’re going to defend them. 

Mr. CATLETT. No, it’s more than a defense. They have been very 

active in this. It’s their cost that they save. They, like all the rest 

of us, want to reduce their costs as well as providing excellent service to veterans. There is safety and convenience for veterans that 

they believe in, and they are promoting and assisting us. They 

have staff very active in making outreach efforts to veterans. But 

as I have said, it is their mail costs that we are saving as each recipient agrees to receive an electronic payment. 

Mr. HORN. So you think there is cooperation and there will be 

progress in this area? 

Mr. CATLETT. Yes, sir. I mean, again, this is a cohort of the population that I think that are—you know, the older Americans that 

are—as we at least intuitively say—will be those that are most difficult to convert, particularly as you get to the final numbers. 

Mr. HORN. The last question is for Mr. Hawke. You note that 

only 1,060 out of the 10,060 financial institutions are capable of 

using financial EDI or electronic data interchange. That seems low, 

especially when we’re asking citizens to increase the use of technology. What’s Treasury planning to do to get the banks up to 

speed in this area? 

Mr. HAWKE. Well, we have been working with the banking trade 

associations on this problem. And in part, it’s a question of getting 

the proper software installed and getting the right systems installed. I think progress is going to have to be made toward this. 

This is the wave of the future. And banking institutions that want 

to really provide the services that their customers are demanding, 

are going to have to come along with this. However, in smaller 

banks where they don’t have the software and systems capacity 

right now, progress is a little slower than we would like. 

Mr. HORN. I would think they would leap at the opportunity of 

having a check deposited and sitting there for days before somebody might use it. And we all know what they can do in gaining 

a little interest over the weekend. So I’m sort of amazed if they 

aren’t jumping at it. 

What’s your reaction? Do you think——

Mr. HAWKE. Oh, I agree. Just as a general principle, we would 

like to see float eliminated from the payment system; but, in effect, 

float is going to be the mechanism for absorbing a lot of the costs 

that might otherwise be passed on to customers here. 

Mr. HORN. Well, I thank you all for coming. Mrs. Maloney, who 

made our quorum, told me she has no questions for you. She’s 

158

going between four or five meetings this morning, as we all are, 

and the full committee will be meeting shortly. 

So we thank you. 

Mr. CATLETT. Thank you. 

Mr. HORN. And you all did a good job, and we appreciate having 

the latest information on this since we think this is a tremendously 

important opportunity. 

Mr. HAWKE. Thank you, Mr. Chairman. 

Mr. HORN. We’re going to call one witness out of order, because 

she has a plane to catch, and we are never sure between bells ringing on the floor or in committee when we’re going to have to leave. 

So if Marcelyn Creque, the volunteer director of the American Association of Retired Persons, will come forward out of order. Ms. 

Creque, if you would just stand, we’ll give you the oath. All witnesses here are under oath. 

[Witness sworn.] 

Mr. HORN. OK the witness does affirm. 

We’re glad to accommodate you. Where are you going back to 

today? 

Ms. CREQUE. Chicago, just for tonight. Then I’ll be off for North 

Dakota tomorrow. 

Mr. HORN. Well, I hope things are coming along out there. That’s 

a sad situation. 

Ms. CREQUE. Yes. We have been actively involved in helping people try to restructure their lives. 

STATEMENT OF MARCELYN CREQUE, VOLUNTEER DIRECTOR, 

AMERICAN ASSOCIATION OF RETIRED PERSONS 

Ms. CREQUE. Mr. Chairman and members of the committee, 

AARP appreciates this opportunity to present our views regarding 

the impending implementation of mandatory electronic funds 

transfer or EFT. My name is Marcy Creque, and I am the regional 

volunteer director for AARP’s Midwest region. On behalf of the association, thank you for drawing attention to this important issue. 

Mr. Chairman, AARP has been active in the debate regarding 

mandatory conversion to EFT prior to the enactment of the law, 

and we were pleased to work with you on this issue. 

While we recognize that direct deposit was a desirable option for 

many, the association did not favor mandating EFT for all recipients of Federal payments. We believed and still believe that this 

would impose undue hardship on many recipients. Congress made 

a decision to go ahead with EFT, however. Since it did, we were 

pleased that a hardship exemption and other provisions were included in the act in response to concerns raised by AARP and others. 

We want to work with this committee and the administration to 

ensure that the transition to this paperless system is as smooth 

and painless as possible. But this system must be designed to work 

for Federal payment recipients, not for the convenience or profit of 

financial institutions. 

Today, I want to talk about who is affected by mandatory electronic funds transfer and summarize a few of the major points that 

are discussed in our full statement. We have elaborated on these 

points in comments submitted to the Department of the Treasury. 

159

First, who will EFT affect? The Treasury Department estimates 

that over 10 million recipients of Federal payments are unbanked; 

that is, they do not have bank accounts. Some 80 percent of these 

persons are recipients of Social Security, veterans’ benefits, or 

other Federal retirement pensions or payments. According to the 

latest survey of consumer finances, some 9 percent of families 

headed by persons over age 60, about 2.5 million families, have neither a checking or savings account. 

What do we know about these families? The survey tells us that 

the incidence of older families age 60 and older without checking 

accounts is heavily concentrated among those with incomes below 

$10,060 and those headed by older women and minorities. 

The survey also notes that families without bank accounts tend 

to have lower educational levels. Another source found that households with deposit accounts average 121⁄2 years of education, compared to only 10 years for households without deposit accounts. Literacy and familiarity with banking technology will become critical 

factors as large numbers of persons are required to use ATMs and 

point-of-sale [POS] terminals for the first time to access their benefits. 

Among those age 65 to 74 without checking accounts, difficulties 

in managing and balancing accounts are one of the chief reasons 

for not having one. 

About 33 percent of Social Security recipients and 68 percent of 

Supplemental Security Income recipients do not receive benefits via 

direct deposit. The State of California, Mr. Chairman, is one of several where Social Security recipients who receive their benefits by 

checks are heavily clustered. Given the vulnerability of so many of 

the unbanked, AARP has encouraged the Treasury Department to 

take the following actions. 

First, define ‘‘authorized payment agent,’’ preferably through a 

separate rulemaking. The definition should provide for accountability and assure the safety of recipient funds. Recipients in areas 

lacking banks are often forced to use alternative check-cashing outlets or other options that may charge up to 25 percent or more of 

the check’s face value. Personal safety can also be a concern with 

such operations. Businesses that lack adequate consumer protections and promote predatory lending practices should not qualify to 

participate in EFT. 

Second, limit the use of transaction and account fees related to 

EFT. Banks and businesses cite as a major concern the cost of EFT 

systems implementation. While AARP recognizes that some investment will be necessary to adapt services to the unbanked population, we are concerned that these costs not be simply passed on 

to new customers who will be forced to use EFT under the Treasury regulation. Many of these persons cannot manage any additional charges. 

According to the Treasury, Federal payments must be made by 

electronic transfer by January 1, 1999. That will amount to more 

than $240 billion annually. Given the advantage of the float and 

paperless deposits, financial institutions must not be allowed to impose unreasonable fees for receiving Federal EFTs. 

Third, requires financial institutions to offer minimal banking accounts with specific consumer protections. Such accounts should 

160

address the needs of persons currently without bank accounts. Further, these accounts should not label or stigmatize the account or 

account holder as a less desirable part of the mainstream banking 

system, which AARP believes may be the effect of Treasury’s recent 

proposed rulemaking regarding EBT. 

Many seniors, veterans and Federal retirees correctly equate 

EBT with State-administered public assistance, which the Congress 

expressly excluded from the Regulation E banking protections. 

Mandatory EFT accounts, however, will have Regulation E coverage. Given that Congress has spoken on EBT, it is incumbent on 

Treasury to ask Congress for authority to reclassify mandatory 

EFT accounts as EBT and prevent any undue recipient and regulatory confusion. 

Fourth, ensure hardship waivers especially where current service 

needs are not met. Waivers should not be reserved only for the 

most extreme cases, but should apply to anyone who truly will suffer a hardship according to their individual situation and condition. 

Finally, provide adequate public education and notice about the 

impending change. Each Federal payment recipient must be notified repeatedly well before January 1, 1999, in mailings containing 

benefit payments and other forms of communication that future 

payments will be made by electronic funds transfer. The notice 

must explain in plain, simple-to-understand language, including a 

Spanish translation, what electronic funds transfer and related terminology means, since many recipients will be unfamiliar with 

these terms. 

In conclusion, AARP believes it is critical that basic consumer 

protections be in place well before January 1, 1999. This is particularly important for those recipients of Federal payments who do not 

currently have bank accounts. Federal payments may be the primary or sole source of income for these unbanked consumers. 

Therefore, Congress and relevant Federal agencies must ensure 

that these individuals are protected from unfair, deceptive, or abusive practices as well as from a reasonable hardship. 

AARP stands ready to work with you in this critical endeavor. 

Mr. HORN. We thank you for that very detailed and thorough 

statement. 

[The prepared statement of Ms. Creque follows:]

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Mr. HORN. Since our family is a member of AARP, I should say 

that on the record this next statement does not represent that 

membership. It’s just a thank you, because your staff worked very 

closely with our committee staff in developing the consumer protection report language that we had. And we look forward to working 

with you and other senior citizen groups, there’s a number of them, 

in terms of protecting all our citizens from unreasonable fees. So 

we share that concern. 

I think electronic transfer will save thousands of senior citizens 

from being robbed every month of their benefit payments. And 

they—this is the way you protect them. And——

Ms. CREQUE. Except——

Mr. HORN. We don’t want unintended consequences to go, but I 

think, frankly, hundreds of millions of dollars will go to senior citizens, not crooks, after this is done. 

Ms. CREQUE. Agreed. But we do have some concerns currently 

about the locations of ATMs. Some are in isolated lobbies. Many 

are right out on the sidewalk. Finally, we have to also take into 

consideration some of the problems that we have as we grow older; 

our eyesight, arthritic fingers. So we do have some concerns about 

safety. 

Mr. HORN. As a senior citizen, I understand that. 

Are you concerned that the banks will have a monopoly on the 

10 million new clients represented by those individuals without 

bank accounts? What’s your feeling on that? Have you looked at 

that as to how many people actually have bank accounts that are 

in your membership? 

Ms. CREQUE. We did look at the number of people in our membership that had direct deposit and what their experience had been 

with direct deposit. And some of their experiences involved errors 

in transmission and a long period of time it took to resolve those 

errors. When your income is based solely on that payment, you cannot afford a lengthy period of time to resolve those errors. So that 

is one area that we have looked at. 

Mr. HORN. This was an error in the amount of deposit that had 

come through electronically? 

Ms. CREQUE. The amount of deposit that either came through or 

the account to which it was deposited, because, you know, transposition of one number can create quite an error. 

And the other thing that occurs with seniors is trying to resolve 

that type situation. They encounter another piece of electronic 

equipment called voice mail, which they literally——

Mr. HORN. It frustrates me every day, and I didn’t have to hit 

66 to be frustrated. I was frustrated by that years ago. 

Ms. CREQUE. That’s another point of frustration in trying to resolve the errors, because sometimes they get caught in a catch–22. 

The bank says, our records show this. You go back to the originator. So there is some difficulty. 

But one of our concerns pertaining to the banking industry, if 

people are mandated to accept EFT transfers. We don’t want them 

to be stigmatized; and that can be done in many ways. It can be 

subtle. For example, people could be assigned to use a specific ATM 

machine, or they could use different colors of ATM cards, and we 

173

do not want to subject any of our senior citizens or any citizen to 

that type of indignity. 

Mr. HORN. Well, I think you’re right. And I think, frankly, a 

bank that is aggressive and wants to serve its clientele will do 

what you’re talking about and make sure there’s security there and 

20 cameras focusing on various angles of that ATM, so if anybody 

does make mischief, there’s a fairly good record of them. And I 

think that would assure a lot of senior citizens about the security. 

I think, let’s face it, senior citizens, correctly in many cities, are 

worried about going out at night. 

Ms. CREQUE. That is true. 

Mr. HORN. And it isn’t just senior citizens; 25-year-old people are 

worried about going out at night in an ATM, as you suggested, in 

a dark area. And this is where people have to call—that’s a good 

thing local AARP people can do, because a lot of them are looking 

for things to do. They can go sit down with the bank president, say, 

look, this doesn’t make any sense. What can we do to get this thing 

in a place where you serve people and they don’t have to fear for 

their life? 

Ms. CREQUE. We agree. And that could be done under what we 

call our connections project. Under Connections, we know that seniors want to remain independent, so we provide services like the 

banking service, writing checks to help them remain independent. 

Mr. HORN. What are your organization’s plans to conduct an education campaign regarding direct deposit? What are you planning 

to do on that? 

Ms. CREQUE. First, we would work with the committee to set up 

the instruction campaign. Then we have various outlets available. 

We currently have a couple of programs addressing financing and 

telling people how to write checks and how to manage their finances. It would be undertaken like any other program that AARP 

would undertake. We would train people to go out and speak before 

senior centers. We would have meetings. And through our many 

publications, we would alert seniors to what is coming up. And 

then we have the one-on-one volunteer services that would be 

available. 

Mr. HORN. Yes. I would think Modern Maturity has about 33 

million people, or is it more than that now that it goes to? 

Ms. CREQUE. The membership of the association is about 32 million. 

Mr. HORN. Thirty-two. They all get a copy of Modern Maturity, 

right? 

Ms. CREQUE. Right. Plus the bulletin. 

Mr. HORN. Yes. A couple of full pages there on direct deposit, 

maybe the cover, direct deposit. You can’t miss it. You at least look 

at the front cover or the back cover. And I think that would be a 

great service to everybody in terms of educating them. At least it’s 

a start. 

Would you like to respond to any of the issues that you heard 

from the three Government witnesses? 

Ms. CREQUE. I was interested in the Treasury Department—in 

negotiating these accounts with the bank, and our concern about 

the possibility that you could have ATMs in nursing homes and assisted living facilities. Our concerns are from the standpoint there 

174

is no protection for the consumer. An employee could abscond with 

the money, or a concern go bankrupt. So we are concerned that 

these agencies be both federally regulated and federally insured. 

Because if your total income is coming from the Government, you 

cannot afford to become a party to a bankruptcy action, for example, and wait for your money. 

Mr. HORN. Regarding your advice concerning check-cashing firms 

and their role as a possible payment agent, would that be true if 

those check-cashing firms offered a more reasonable or cheaper and 

more convenient service to its customers? 

Ms. CREQUE. Again, we would be concerned about protection of 

the consumer and the transmittal of the money to the check-cashing agencies. By the way, with this EFT–99 service as it’s proposed, 

with the debit card of the ATM, seniors would incur not only ATM 

expense after the first debit card withdrawal, but in taking care of 

their living expenses. They cannot pay in cash in some instances. 

So they’re going to have to go somewhere, whether it’s back into 

the bank or to a check-cashing agency, to get money orders or 

checks, because their account as it’s currently set up does not give 

them check-writing privileges. 

Mr. HORN. In our looking at the welfare problems around the 

country, we found billions of dollars that were being misspent, and 

some of it was related to checks, being able to go to a bar, for example, and the bartender cash the check, and obviously the person 

bought quite a bit of alcohol before leaving the bar, so they didn’t 

have much left on the rest of the monthly benefit payment. 

And so you raise legitimate questions here on some of the circumstances of these firms and where they’re located and why that 

might be disturbing to a senior citizen or anybody that doesn’t 

want to get into a lot of trouble just by going through that door, 

because that’s the only place you can cash a check. So how do you 

suggest we deal with that problem? 

Ms. CREQUE. Again, we’re looking for institutions that will be 

regulated. And there has to be some criteria set up and really a 

good look at all of the participating institutions. There will be a lot 

of people, like when welfare reform occurred, that want to hop on 

the bandwagon because they see an opportunity to make some 

money for their businesses. 

Mr. HORN. Yes. 

Ms. CREQUE. But our No. 1 concern, is that for many people, 90 

percent of their household income is a Federal payment, like Social 

Security. They’re living from hand to mouth. They cannot afford a 

loss of their money. 

And the other thing, Mr. Chairman, to be realistic, there are 

group of senior citizens and some younger people that will never 

accept electronic funds transfer. You have some seniors who are a 

carryover from the Depression when banks failed, and they don’t 

trust banks. You also have the language barrier problem. Somehow, people want the money in their hand; they want to count it. 

Another aspect is we still have a group of people that go and pay 

bills in person. They need to see that transaction. They need to 

have that piece of paper in the hand that says this has been done. 

So I think we need to be mindful of that. 

175

Mr. HORN. Well, I grew up in a household that had exactly those 

views, and I’m well aware that you’re right when you talk about 

people who have lived through the Depression and had mortgage 

foreclosures and everything else. They’re not going to take any 

chances. But I think also when the chips are down, electronic deposit is a safer way to make sure their money is deposited than the 

way it is now for the average system. 

Ms. CREQUE. Agreed. 

Mr. HORN. And that’s how we want to educate them. 

Ms. CREQUE. With some training, as you know, because many 

seniors do not readily accept something just because it’s new. 

Mr. HORN. Yes. 

Ms. CREQUE. You have to prove to them what the benefits are 

when accepting it. 

Mr. HORN. And that’s where the AARP can be most helpful. 

Well, we thank you for your testimony. It has been very helpful, 

and we wish you well on the trip. 

Now the full Committee on Government Reform and Oversight 

has scheduled a meeting this morning, and under the rules of the 

House, the subcommittee cannot conduct its hearing once the full 

committee has come together. So we’re going to recess until 2:30 

p.m., here in this room, I believe. Hopefully the full committee will 

have quit by that time. 

And so the three other witnesses we have, Elliott McEntee, the 

chief executive officer for the National Automated Clearinghouse 

Association; Dina Nichelson, president of the American League of 

Financial Institutions; and Margot Saunders, managing attorney, 

National Consumer Law Center, we will start precisely at 2:30. 

And we’re sorry we can’t finish everything in the morning, which 

I think we might have, but the rules of the House are the rules 

of the House. So we’re in recess until 2:30. 

[Whereupon, at 11 a.m., the subcommittee recessed to be reconvened at 2:30 p.m. the same day.] 

Mr. HORN. May I ask our witnesses to rise and raise your right 

hands. 

[Witnesses sworn.] 

Mr. HORN. All right. Recess is over. It is approximately 2:49, and 

the Subcommittee on Government Management, Information, and 

Technology will come to order. 

We are delighted to have here the witnesses in both panels two 

and three, and one is Ms. Nichelson, the president of the American 

League of Financial Institutions, and another is Elliott McEntee, 

chief executive officer, National Automated Clearing House Association and Margot Saunders, the managing attorney for the National Consumer Law Center. 

Why don’t we just go down the line in alphabetical order, Mr. 

McEntee. Welcome. Please give us your testimony. 

176

STATEMENTS OF ELLIOTT McENTEE, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, NATIONAL AUTOMATED CLEARING 

HOUSE ASSOCIATION; DINA NICHELSON, PRESIDENT, AMERICAN LEAGUE OF FINANCIAL INSTITUTIONS; AND MARGOT 

SAUNDERS, MANAGING ATTORNEY, NATIONAL CONSUMER 

LAW CENTER 

Mr. MCENTEE. Thank you, Mr. Chairman, and it is a pleasure 

for me to be here testifying on behalf of the National Automated 

Clearing House Association on the Federal Government’s EFT 

mandate. 

Last year, the Congress approved legislation that would achieve 

three major objectives: Significantly improve services that the Government provides to its citizens; substantially reduce the cost of 

sending payments to individuals and businesses; and set the stage 

for improving the competitiveness of the United States in the world 

marketplace. During the next 5 minutes, I will explain why the 

EFT mandate will achieve these objectives. 

Requiring the Federal Government to send payments to individuals by direct deposit will result in substantial benefits to consumers. Direct deposit is the safest and most convenient way to receive funds. With direct deposit, payments are not lost or stolen. 

In the 20 years the Social Security Administration has offered this 

service, not a single direct deposit payment has ever been lost or 

stolen. In contrast, thousands of payments made by check are lost, 

stolen, and forged every month. 

With direct deposit, consumers have access to their funds at the 

opening of business on the payment date, and interest begins to accrue immediately, if the money goes into an interest bearing account. Because of these benefits, over 80 percent of all new Social 

Security recipients are voluntarily signing up for direct deposit. 

How will consumers that do not have a bank account react to receiving Government payments electronically? To answer this question let’s look at the recipients of food stamps and welfare payments in those States that provide those benefits by electronic 

funds transfer. Several surveys have shown that over 80 percent of 

the consumers participating in EFT programs prefer this method 

of payment compared to receiving paper coupons and paper checks. 

Up to 500,060 companies that sell goods and services to the Federal Government will be required to receive their payments electronically. In addition to the benefits I just described for consumers, companies will be able to receive the remittance information that is needed to reconcile a payment in electronic form. This 

will enable companies to substantially reduce the cost of reconciling 

the payment. 

The Federal Government will also benefit from the EFT mandate. The cost to send payments will decrease by over 90 percent, 

according to the Treasury Department. The expense of researching 

lost and stolen payments will be eliminated. For every dollar that 

the Federal Government saves in this manner, we move one step 

closer to balancing the Federal budget, without reducing services 

to the public. 

The United States is a recognized world leader in using electronic technology for thousands of applications. Unfortunately, 

sending and receiving payments is not one of those applications. 

177

Almost 80 percent of the noncash payments made in this country 

are made by check. In contrast, in many of the countries that we 

compete with, electronic payments are used far more frequently 

than checks. If electronic payments usage in the United States was 

the same as in those countries, we could save up to $50 billion a 

year. If the Federal Government takes the lead in phasing out 

checks, then you can be assured that the private sector will follow 

that lead and those potential cost savings would start to materialize. 

Because of the benefits I just discussed, the National Automated 

Clearing House Association urges the Congress not to modify the 

law that created the EFT mandate. We would like to bring a related matter to the attention of the subcommittee. The Treasury 

Department has announced that it would not proceed with implementing the next group of businesses required to deposit Federal 

employment taxes through EFTPS, thus reducing the ultimate 

number of depositors by over 4 million taxpayers. The Treasury 

plans to take this action because of concerns expressed by the 

small business community. Rather than exempting small businesses from paying taxes electronically, we would urge the Treasury Department and the Congress to deal head on with the real 

concern businesses have with paying Federal taxes electronically. 

Under current law, if the payment is late, the IRS can impose 

penalties, up to 10 percent of the taxes due. This law should be 

changed. The IRS should be permitted to charge only for the interest income lost because the payment was late. Under this proposal, 

the IRS could only impose higher penalties to chronic late payers 

or when fraud is involved. By making this change, the Treasury 

would not have to exempt the 4 million businesses from paying 

taxes electronically, thus, saving both businesses and the Federal 

Government a substantial amount of money. Attached to the written testimony, we provided some details on that proposal. 

That concludes my remarks and I will be glad to try and answer 

any questions you may have. 

Mr. HORN. That is an excellent statement you have submitted 

and I appreciate your precise summary. We are going to go down 

with the other two witnesses and perhaps we can have a dialog between the three of you and the committee. 

[The prepared statement of Mr. McEntee follows:]

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Mr. HORN. Ms. Nichelson. 

Ms. NICHELSON. Good afternoon, Mr. Chairman. It is my pleasure to testify before you this afternoon and offer the views of the 

American League of Financial Institutions, also known as ALFI. 

ALFI is a national trade association chartered in 1948 to represent the legislative interests of minorities on savings banks and 

savings and loan associations. ALFI was first formed by a group of 

seven, then building and loan executives. They determined that 

they needed a voice to express their concerns among banking regulators and Members of Congress in Washington. They formed what 

was then known as the American Savings and Loan League, and 

at the time there were seven building and loan institutions and 

that grew to 72 savings and loan associations in 1978. They kept 

unique office hours because many of the depositors were domestic 

laborers who only had Thursday off. As a result, they were only 

open on Thursday evenings. 

In 1989, the American Savings and Loan League amended its bylaws and renamed the organization the American League of Financial Institutions. There are currently 41 minority savings banks 

and savings and loan associations, representing $5 billion in assets, 

with 109 branches and approximately 1,200 employees. They are 

located throughout the United States in urban and emerging communities, and they rank in asset sizes from our largest minorityowned institution, which happens to be the largest minority-owned 

institution in the country, Carver Federal Savings Bank in New 

York, with assets totaling $360 million, to the smallest, Ideal Federal Savings Bank in Baltimore, which has assets of $7 million. 

We are delighted to have this opportunity to share our views 

with you and the subcommittee regarding the electronic benefits 

transfer funds program. We understand the need to streamline the 

process of disbursing Government benefits to those deserving 

Americans. Many recipients of these benefits are located in the 

same urban communities as our member institutions. Minority savings institutions are all unique in their business strategies for 

growth and are all unique in their individual goals toward more 

products and services to their customers. Electronic banking can 

only enhance their ability to reach a broader market and increase 

their competitive advantages within their communities. 

We feel it is important that Treasury encourage recipients of 

Government payments to voluntarily agree to transfer those payments to financial institutions under the current electronic direct 

deposit program and that Treasury encourage banks to create electronic-only accounts, known as Direct Deposit Two. Inasmuch as 

the electronic benefits transfer, EBT, option is not available 

through most depository institutions, we urge that be the option of 

last resort on Treasury’s plans to convert paper payments to electronic funds transfers. 

Mr. Chairman, I would like to share a few strategies of some of 

the members of ALFI with you which represent a variety of the approaches to the future of electronic banking. For instance, a members’ institution in your home State of California recently announced a unique alliance. Broadway Federal Bank, located in Los 

Angeles has assets totaling $114 million. Broadway has three 

branches, one appraisal center, plans to open another branch in 

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July, and has 51 employees. Although subject to OTS approval, 

Broadway Federal and the Nix Check Cashing Facility in south 

central Los Angeles have formed a proposed alliance. This pilot relationship is the result of what Broadway saw as an opportunity 

to expand its banking services to whom some call the unbanked. 

Because this proposed legislation will mean the end to what traditionally recipients have known as a physical check in the mail, 

Broadway would be one of many minority financial institutions 

well-suited to disburse these funds. 

It further represents the opportunity for recipients of electronic 

funds transfer to begin the process of assimilating into basic cultural management their financial life-styles to the extent that 

these recipients would now be positioned to establish checking accounts, credit cards, and use ATM cards. 

Another ALFI member, Carver Federal Savings Bank in New 

York is exploring the possibility of opening its own check cashing 

company under its holding company. Carver’s plan will include providing other products and services such as money orders and bill 

payment services. Carver is also exploring the possibility of offering 

check cashing services to noncustomers through a software vendor. 

Although these plans are in their infancy, they further validate 

Carver’s commitment to reach all consumers in their communities. 

We think it is important that certain protections for the consumer be included in this proposed legislation as well. The fees associated with managing these electronic benefits should be regulated by Treasury so that the consumers are not unfairly charged 

by a single vendor. It is our recommendation that Treasury be authorized to promulgate regulations that protect EBT fund recipients and require all financial institutions to report the EBT funds 

by volume, by community, and that the fees they receive in connection with the transfers be reported on a quarterly basis. 

There should be significant training requirements for all 

custodians of EBTs, which includes sensitivity training and the requirement to work with churches and community groups. Education will play a vital role in Treasury’s EBT program. Why? Because as a local retailer likes to say, an informed consumer is our 

best customer. 

Consumers who have managed their entire lives on a cash basis 

will need to learn how to live electronically. Treasury should look 

to minority savings institutions to help in this process by jointly 

sponsoring educational seminars in local community centers, 

churches, and in some instances the minority institutions themselves. 

Many minority institutions have bilingual tellers, brochures in 

several languages, and regularly attend community events where 

English is a second language. It should be noted that all minority 

savings institutions have many services in place, such as direct deposit, Social Security, and retirement direct deposit. Many of these 

institutions also have automatic teller machines, located in 

branches and in shopping centers in their communities; therefore, 

minority institutions have already established an infrastructure 

that could facilitate the electronic transfer of funds to the appropriate recipient. 

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The new generation of consumers, as a result of welfare reform, 

will understand the value of their benefits and the need to ultimately move beyond Government assistance. It is important to the 

membership of ALFI that this new generation understand they can 

have the same availability of financial services as traditional banking customers. 

In conclusion, Mr. Chairman, we believe that the electronic funds 

transfer program has value. We want Treasury to remember the 

importance of encouraging recipients of the funds to voluntarily 

agree to transfer their benefits to a financial institution. Further, 

it is our hope that Treasury will encourage financial institutions to 

create electronic-only accounts through this program. These programs represent a great opportunity for consumers who were previously unbanked to become traditional bank customers, thereby 

availing themselves of an array of banking services. These programs ultimately provide a new customer base for financial institutions. 

I thank you for this opportunity to comment and I await your 

questions. 

Mr. HORN. Well, thank you very much. We appreciate that statement. 

[The prepared statement of Ms. Nichelson follows:]

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Mr. HORN. Ms. Saunders. 

Ms. SAUNDERS. Thank you, Mr. Chairman. We very much appreciate the opportunity to testify today as EFT–99 holds the potential 

for great benefit and also for great trouble to our low-income clients 

and their communities. I offer my testimony today not only on behalf of the low-income clients of the National Consumer Law Center, but also on behalf of the Consumer Federation of America, the 

National Community Reinvestment Coalition, and the Organization 

for New Equality, three other organizations that represent low-income people and consumers. 

There are numerous issues which will affect the unbanked recipients of Federal benefits. One is the extent to which Treasury forces 

the unbanked to use accounts which cost them too much. Another 

extremely important issue is which kind of institution, regulated 

and insured, or unregulated, Treasury authorizes to be the providers of the Federal payments to payees. This issue is important, 

not only because of the fees which could be charged, but also because of the other services that these alternative providers would 

try to force upon the Federal payees. 

A third issue, which I won’t address further in my testimony 

today, but one which is also very important, is the extent of hardship exemptions that are allowed under the statute—excuse me, 

under the regulations that are promulgated. Treasury is saying 

that they need to allow check cashers and finance companies to 

partner with banks in order for the delivery of Federal payments 

to be made. And they are proposing that this could be done in one 

of two ways. One, individuals could choose alternative providers as 

authorized agents—there is no way, Mr. Chairman, I will be able 

to read all my testimony, so I will be paraphrasing—one is as authorized agents, and, two, if they fail to make a choice and the 

bank becomes a default bank, the bank would offer to provide the 

services through the alternative providers, such as check cashers or 

finance companies. This is what we are particularly concerned 

about, either one of these choices. 

We believe the statute used the words ‘‘alternative authorized 

agent’’ as a synonym for only those words like guardian, alternative 

payee, or other words which are used in current benefit statutes, 

such as Social Security and veteran’s benefits, all of which have a 

fiduciary duty to the individual. We are very concerned that Treasury would allow check cashers or finance companies to advertise to 

the low-income population, allow us to be your conduit for the Federal payments, come pick up your payments every month. 

Well, that might work for month after month, until one day the 

individual goes to the finance company and says, well, I think I do 

need some money to pay my utility bill and gets a 36 percent or 

40 percent interest rate loan because the loans from the financial 

providers are very often unregulated and even where they are regulated, the interests and the terms are very, very high. If they fail 

to make those payments or they have problems making the payments, they still have to go back, month after month, unless they 

change their authorized payment agent, and that is the scary part 

to us. There is no prohibition in the Social Security law against set 

off; there would be nothing that would stop that finance company 

from taking the entire Social Security payment to be put toward 

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the payment of a finance—of a high cost loan. And that shouldn’t 

be the way Treasury delivers its Federal payments. 

On the other hand, other than the banks that Miss Nichelson 

represents, most banks are saying, not all of them, but many banks 

are saying, we are not sure that we can find that it is financially 

feasible, despite the float that will be available, to provide services. 

So Treasury’s response is, well, we may need to allow banks to 

partner with check cashers and finance companies to provide the 

services in low-income communities where there are no other 

banks, where there are no financial institutions. And that, to us, 

is also a tremendous concern. 

I represent low-income people all over the country who have been 

the victims of abusive practices of check cashers, pawnbrokers, and 

finance companies. I have in my testimony in the appendix, just a 

few stories of the abusive practices that low-income people are subject to. 

We don’t think anybody but federally regulated and federally insured providers should be the conduits of Federal payments, one 

way or the other. The use of check cashers as one method to access 

the funds is fine. We don’t want to prohibit a bank from, say, establishing a default account for a number of individuals and providing access at the bank, at the grocery stores, and at check 

cashers. That would be fine. It is the exclusive use of the check 

casher, of the alternative provider, that scares us so much. I have, 

today, a letter that was signed, that was sent out, just today, to 

Secretary Rubin——

Mr. HORN. Excuse me. I am going to have to recess. We have a 

vote downstairs and I have to respond to it. You will be able to finish as soon as I vote. 

[Brief Recess.] 

Mr. HORN. This hearing will resume. We will have a few of these 

in and outs. I apologize to you. It happens frequently here, and it 

is hard on the witnesses, and so I sympathize with you. Let me 

start—you were going to finish your final remarks there. Go ahead. 

Ms. SAUNDERS. I was just going to tell you that we have a letter 

that was sent just today to Secretary Rubin of the Treasury, signed 

by 15 organizations, representing low-income people, disabled people, low-income communities, unions, asking the Treasury to clearly draw the line at regulated and insured depository institutions as 

being the conduits, and I would be glad to provide a copy of that 

letter. 

Mr. HORN. Please, without objection it will be added to the record 

at this point. 

Ms. SAUNDERS. Thank you. I would be happy to answer any 

questions. 

[The prepared statement of Ms. Saunders follows:]

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Mr. HORN. I have some questions for all of you and some for two 

of you. Let’s start with Ms. Nichelson, and I am sure you heard 

Margot Saunders’ testimony advocating excluding from the definition of ‘‘authorized agent,’’ the category or term she calls ‘‘alternative financial providers,’’ such as check cashing firms. 

Do you have any comments on that suggestion? 

Ms. NICHELSON. Well, I do believe since check cashing facilities 

are not regulated, that they shouldn’t be involved in the process of 

being the recipients of these funds. I think financial institutions, 

especially those located in those urban areas, are best suited to 

help disburse those funds. And so in that respect I do agree with 

her comments. I do have concerns about facilities such as check 

cashing companies. 

Mr. HORN. Anything else you want to add to that, Ms. Saunders? 

Ms. SAUNDERS. Yes, I want to clarify, we don’t have a problem 

with a bank, as Ms. Nichelson is proposing, a bank setting up an 

office in the check cashers outlet and using their brick and mortar 

as a method of getting banking services to low-income people; we 

think that is a terrific idea. I know there were some concerns that 

we would disagree, but I think the more we talk, the more we find 

we are agreeing. We want to see the unbanked get into banks, and 

whether it is through check cashers or not, it is fine. It is the exclusive use of check cashers or the alternative providers that concerns 

us. 

Mr. HORN. I am delighted to hear you say that, Ms. Saunders. 

If I took you downstairs with me, there is a room where they have 

been talking all day and they aren’t agreeing yet; namely, the full 

committee. 

Mr. McEntee, any thoughts on this question? 

Mr. MCENTEE. Just one brief thought on this question. We believe that the Treasury Department only has the legal authority to 

place the funds in a financial institution. I think the basic question 

that surrounds the relationship between the consumer, the third 

party, and the financial institution, is should the consumer be permitted to set up an account, which would not be an insured account, but should they be permitted to set up an account at a third 

party. I think there is an area of debate surrounding that issue, 

and I think financial institutions, check cashers, and consumer 

groups will be sorting that issue out for the next few months. I am 

not so sure we have a clear-cut answer right now as to how that 

is going to play out, other than we firmly believe the Treasury 

needs to get the funds initially into the financial institution and 

the arrangement between the third parties, the financial institutions, and consumers would have to be determined and, again, I 

don’t have a specific answer as to how that should work right now. 

Mr. HORN. Ms. Nichelson, are you engaged in any sort of education campaign with your membership to inform them about the 

new law? 

Ms. NICHELSON. Yes, sir, we are. We hold an annual conference 

in October and November. However, we have already begun the 

process of sending information to the member institutions on the 

various proposals before Treasury, and this issue in particular has 

really sparked a great amount of interest. 

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My oral testimony didn’t expand into the numerous comments 

that I have received from the 40-member institutions who have 

real concerns about some of the provisions. They do prefer educating the consumer before this process takes place in 1999. They 

do understand the fact that there will be persons who would like 

to remain unbanked, who don’t want a relationship with the bank, 

but they do believe that because of the new welfare reform and the 

new generation of people who are currently receiving public assistance, and those peoples’ ultimate goal to become more of a contributing entity to society and not so reliant on Government, that those 

will be the people who ultimately will establish a working relationship with the bank. And the banks further have begun the process 

of going to communities, going to churches, and offering free seminars on credit counseling and on just educating the consumer to 

how it can work. Banking can be very intimidating if you don’t understand it, but if you can streamline the process and let people 

know that you don’t sign your life away because you apply for a 

checking account, or even with ATM cards, it is just another way 

of you beginning the process of managing your financial life-style. 

Mr. HORN. That is very helpful. 

Mr. McEntee, what sort of educational campaign or conferences 

does your organization schedule for banks and other financial institutions? 

Mr. MCENTEE. We have been focusing on delivering educational 

message to financial institutions, businesses, and consumers that 

are going to be affected by this legislation. We have worked very 

closely with the Treasury Department and have mailed out—actually, the Treasury Department mailed out 50,060 letters to financial institutions all around the country informing them of the requirements of the mandate. We have gotten responses back from 

about 3,500 of those financial institutions. 

We have regional associations around the country. They have 

been putting on seminars and conferences on the EFT mandate. 

The American Bankers Association has been doing the same thing. 

We have been working very closely with several trade associations 

that represent the interest of the business community and they 

have been putting on educational programs as well. 

We are also working with the Treasury Department to develop 

public service announcements and video news releases, and some 

of those would be released at the end of this year and early next 

year. The purpose of those messages is to communicate directly to 

consumers, so we are working very closely with the financial institutions, the business community, and the Treasury Department, to 

get the word out on the EFT mandate requirements. 

Mr. HORN. Well, that is helpful. 

Ms. Saunders, do you want to add anything to the discussion on 

education and how to go about it? 

Ms. SAUNDERS. No, sir. 

Mr. HORN. OK. 

Mr. McEntee, your testimony noted that the biggest challenge in 

vendor payment comes from attaching payment information with 

payments, so-called financial electronic data interchange or financial EDI. How many banks are currently able to take advantage of 

financial EDI? 

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Mr. MCENTEE. In our estimate, there is about 9,060 commercial 

banks that provide services to vendors, that provide services to the 

Treasury Department and other government agencies. There are a 

little less than 2,060 financial institutions or commercial banks 

today that have that capability. There have been a lot of developments in the marketplace over the past year to develop inexpensive 

software packages where small banks can install these software 

packages on PCs that process information electronically and pass 

that information electronically or through the mail or through a fax 

system to the vendor depending on what the vendor is looking for. 

I would like to say we are in place today, that the banking industry is ready today, but I cannot do that. We are fairly optimistic 

that sometime before January 1, 1999 the vast majority of commercial banks will be in the position to provide that remittance service 

information to the business community. 

Mr. HORN. Can you give us an idea of the cost of the software 

and how does it vary? Does it vary by the number of transactions 

or do you just get a basic system, whether it is a small bank, medium sized bank or a large bank? 

Mr. MCENTEE. Software companies have been producing services 

for the large banks for several years now so the problem is not with 

the larger financial institutions, it is basically with the small community banks. 

We have worked very closely with a couple vendors to develop a 

service called Rapid EDI and Rapid EDI can be purchased for as 

low as $10 a month, where the financial institution basically signs 

up for the subscription service and the third party that we have 

under contract basically goes into the personal computer that the 

financial institution has, extracts the remittance information, and 

then transmits the remittance information directly to the business 

customer. If the financial institution is interested in doing more of 

the processing on their own, they could lease the software package 

for $50 a month and that way they can provide a number of different options to the business customer, delivering the remittance 

information by mail, by fax, or electronically. So the software packages that have been developed for small financial institutions are 

relatively inexpensive. 

The problem right now is that a lot of those institutions are not 

interested in purchasing or leasing the software packages because 

there is no demand for that service. The demand will be there, 

however, when this EFT mandate goes into place. 

Mr. HORN. Any other thoughts on software and need for any of 

the people you relate to? 

Ms. NICHELSON. I would just suggest, Mr. Chairman, that although you are talking software within the banks, I hope that once 

a lot of this written information is sent to the consumer that you 

consider that a lot of people use English as a second language and 

you should consider some bilingual brochures and bilingual options 

when you are attempting to really reach these people in hopes that 

they will become part of the process prior to 1999. 

Mr. HORN. One of the problems is the urban area I come from, 

and I suspect you come from, there are 70 languages spoken in the 

schools. There is no way you can communicate in 70 languages. 

229

Ms. NICHELSON. I agree with you, Mr. Chairman. However, I 

suggest if you start with Spanish and with some of the Chinese 

speaking languages, you would reach a large segment of those people. 

Mr. HORN. You wouldn’t in my community. You better start in 

Khmer. It is the largest community of Cambodians outside of Cambodia. 

Ms. NICHELSON. I think it is interesting, Broadway Federal Bank 

in south central Los Angeles, they have now over half their staff 

is bilingual. They speak Spanish and they speak some Chinese and 

some other dialects, and Paul Hudson, the president of the bank, 

would probably share with you that that has really helped him to 

broaden his outreach to the people directly within his community. 

Mr. MCENTEE. Mr. Chairman, let me try to respond to that question. We have produced some of the public service announcements 

in Spanish, geared directly to a lot of the urban communities, so 

we are sensitive to the need to try to communicate in more than 

English, but I agree with you it would be impossible to produce this 

information in 70 different languages. 

Mr. HORN. Mr. McEntee, the Federal Government will save, pre- sumably, their estimate was $130 million per year under this new 

law. Beneficiaries are expected to save $1.6 billion per year and 

you note that $1 will be saved by banks per electronic transaction 

in reduced teller cost. How much does that result in reduced cost 

to the banking industry each year as a result of this law? Has anybody ever worked the numbers on that? 

Mr. MCENTEE. As you were talking, I was trying to work out the 

numbers, but my mind is not working fast enough. If I recall, I 

think there is about 300 million transactions that the Government 

will be making to consumers by direct deposit, assuming all government recipients get paid by direct deposit on January 1, 1999, 

so that would work out to precisely $300 million a year in cost savings. There still should be some cost savings for vendor payments 

as well, so I think you are talking about a cost savings of roughly 

$325 to $350 million a year. 

Mr. HORN. So if we add that to the Government’s $500 million 

over 5 years, and this is $300 million a year, you are saying, basically, annually. You would be doing pretty well, almost get us up 

to $1 billion at that rate. 

Let me ask Ms. Saunders, you used the term ‘‘alternative financial providers’’ in your testimony. I assume this refers to check 

cashing outlets among other institutions, and Ms. Nichelson described a partnering arrangement between a bank and check cashing outlet. As I understand it, you don’t mind a bank going into 

any place if it is going to render service to the community. 

Ms. SAUNDERS. That is right. 

Mr. HORN. And sort of an outreach approach, which I think is 

an intriguing idea. 

Do you have any other thoughts on banks and where they ought 

to go and spend some of their time with the customers? 

Ms. SAUNDERS. The consumers and community advocates feel 

strongly—we are very much hopeful that EFT–99 will be the—finally be a true opportunity to get the unbanked people and banks 

together. We think that if Treasury takes the initiative and holds 

230

the line and, in fact, uses this opportunity, the unbanked will have 

the use of banks for several new ways. One, they will be able to 

develop savings accounts, and we have already seen—there is a 

trial, EFT trial in Texas that Treasury has been going through for 

several years. And even though the people in that trial have been 

traditionally unbanked and living month to month, they have seen 

the development of many savings accounts little bits saved month 

to month, whereas before there were no savings accounts, so the 

development of savings accounts is a very important opportunity. 

Second, the possibility the individuals will begin to see the banks 

as their financial institution, so they turn to the banks, rather than 

the alternative providers, for other services, is very important. 

And, third, by using the banks, they will be able to use the electronic payment system more readily. We are just at the beginning 

of the electronic payment system. Some of us now use modems to 

pay our bills. But low-income people pay cash or by money orders. 

If they use banks to—if they see banks as their financial provider, 

they may also begin to participate in the electronic banking process. 

Mr. HORN. Let me quote, Ms. Saunders, from your prepared 

statement. ‘‘If alternative providers of financial services are permitted to be conduits of Federal payments, that would constitute 

the Federal Government’s blessing of grossly abusive practices 

against low-income people.’’

Let me lay out a scenario for you, an alternative financial service 

provider charges the same or less than a bank for an ATM card 

and is more convenient to the customer’s house. Do you have any 

reaction to that? 

Ms. SAUNDERS. The question is to whom—with whom does the 

individual have the account. If the individual has the account at 

the bank and chooses to use the ATM, the bank’s ATM, or the network’s ATM machine at the check casher, that is just fine, but it 

is not only the fees charged for the access to the Federal money, 

it is all of these other issues as well. So, yes, my and the other 

group’s answer is unequivocally, we still would go with the bank’s 

and only the bank’s. 

Mr. HORN. Ms. Saunders, your concerns seem to be focused on 

individuals also without bank accounts, and is that a fair characterization? Do you have any comments on those with bank accounts 

who do not use direct deposit currently? 

Ms. SAUNDERS. I think that those people who have bank accounts 

and do not use direct deposit will find that their Social Security 

check or their other Federal payment will be automatically deposited in their bank account. I cannot imagine that Treasury would 

force them to use a default system that does not use their already 

existing bank account. 

Mr. HORN. Mr. McEntee, I note you are part of a public education partnership with Treasury’s Financial Management Service, 

which has high praise from us, the Social Security Administration, 

a well-organized group, and the Department of Veteran’s Affairs. 

Can you describe that effort, what is happening with it? 

Mr. MCENTEE. Yes, we have a multifaceted effort under way to 

provide education to financial institutions and their customers and 

the unbanked as well. As I mentioned before, the focus is to get 

231

banks educated through conferences, seminars, and we are actually 

running a major nationwide seminar here in Washington, DC, in 

September where all the major trade associations representing the 

banking industry are cosponsoring that effort, and there are several Federal Government agencies that will be speaking at that 

conference. 

As I mentioned before as well, we think the key to communicating to consumers will be partially met through public service 

announcements and video news releases, and we are working with 

those Government agencies to produce those right now. 

Mr. HORN. Very good. 

Do any of you have questions of each other, after listening to the 

testimony, anything you want to add? Anything I should have 

asked if I knew what I was talking about? 

Ms. SAUNDERS. You clearly know what you are talking about. 

Ms. NICHELSON. Clearly. 

Mr. MCENTEE. I think you are asking all the right questions. 

Mr. HORN. Without objection, I guess, I have got here the American Bankers Association, the National Association of Check 

Cashers have sent statements into the subcommittee for inclusion 

into the record. I am sorry our witnesses haven’t had a chance to 

see them, but without objection, we will put them in the record at 

this point. 

[The information referred to follows:]

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Mr. HORN. So if there are no other questions, what I would like 

to have is the staff list of who has helped on this hearing. J Russell 

George, the staff director and chief counsel in back of me here; Mr. 

Mark Brasher, professional staff member that prepared for this 

hearing; Andrea Miller, the faithful clerk to our majority staff; And 

Grant Newman, the intern. We have to have an intern category, 

folks, this is summer almost. So Mr. Newman, we appreciate your 

help, and if the teacher doesn’t think so, tell him to read the hearing record. OK; David McMillen, professional staff member for the 

minority, he is downstairs, Jean Gosa, clerk for the minority, and 

our three court reporters that have been in and out today, Katrina 

Wright, Vicky Stallsworth, and Tracy Petty. 

I thank the three of you again for the excellent statements you 

submitted and the summary of your testimony and your response 

to our questions. Thank you very much for coming. 

With that, we are adjourned. 

[Whereupon, at 3:50 p.m., the subcommittee was adjourned.] 

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