Electronic Funds Transfer and Rural America

Technology is being used to expedite and lower the cost of a variety of payment transfers, including federal benefits payments. Millions of recipients of these payments have switched from receiving checks by mail to having funds deposited electronically into their bank accounts. As the prevalence of such electronic funds transfers (EFTs) grows, agencies that rely on them are overcoming implementation challenges in rural America.

The EFT provision of the Debt Collection Improvement Act of 1996 required that federal payments (other than tax refunds) be made electronically as of January 1999. This system, which is intended to replace paper checks for social security and other transfer payments that are mailed to the recipient’s residence or post office box, is designed to increase convenience, reduce costs and increase security of delivering payments. It is estimated that EFT will save the government as much as $100 million annually. As of September 2000, 75 percent of benefits disbursed by the Treasury Department were by EFT.

A major obstacle to achieving 100 percent EFT coverage is the fact that about 25 percent of federal benefit check recipients (many in rural areas) do not have a bank account and/or easy access to an automated teller machine (ATM) or bank. To solve this, government agencies that make federal benefit, wage, salary or retirement payments offer recipients three options. Recipients can:

1) set up a direct deposit account at an insured financial institution;

2) opt for an electronic transfer account (ETA);

3) use the Benefit Security Card (available in eight southeastern states); or

4) decide to continue receiving paper checks if direct deposit or an ETA poses a hardship, such as a difficulty in getting to the bank to withdraw the payment.

ETAs are a new product designed by the Treasury Department for people who do not have bank accounts (or were unable to qualify for one in the past) but want to take advantage of electronic funds transfer. Electronic transfer accounts, administered by federally insured banks, have a monthly fee of about $3, do not have a minimum balance requirement, and give users the opportunity to withdraw money from the account at least four times a month. As of March 2001, over 600 financial institutions with 13,000 branches offer ETAs.

One strategy that addresses the needs of people unable to get to a bank is the Benefit Security Card. Developed by the federal government, Southern Alliance of States, and Citibank, the program gives users access to electronic funds transfer deposits made in accounts established in their names. Cards are used to make point-of-sale purchases, as well as to access funds from automated teller machines. A monthly maintenance fee of $1.92 is automatically withdrawn from the account.

A partnership between the Treasury Department and US Postal Service is also increasing financial services access in areas underserved by financial institutions. Automated teller machines have been installed at three rural locations outside Tallahassee, Florida and three urban locations in Baltimore, Maryland for a one-year pilot project. One of the goals of the project is to determine the viability of making electronic funds transfer payments available through the ATMs before expanding the program nationally.

By William Amt, NADO Research Foundation Program Manager

For more information about EFT and related issues, visit the Treasury Department’s EFT website at www.fms.treas.gov/eft or call the EFT education and marketing office at (202) 874-7321. For a listing of ETA providers, visit www.eta-find.gov or call (888) 382-3311. For information about the Benefit Security Card, visit www.fms.treas.gov/ebt.

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