Electronic Transfers
Use by Federal Payment Recipients Has Increased but Obstacles to Greater Participation Remain Gao ID: GAO-02-913 September 12, 2002In 2001, the Department of the Treasury made 764 million payments valued at $549 billion to beneficiaries of federal programs, primarily programs administered by the Social Security Administration. Of these payments, 76 percent were made using electronic funds transfers (EFTs), potentially saving the government millions of dollars in costs associated with disbursing paper checks. In 1996, Congress passed legislation which required that federal payments except tax refunds be made electronically as of January 1999. The act also required that each person affected by this mandate have access to an account at a financial institution at a reasonable cost and with certain consumer protections. To meet this requirement, Treasury developed the Electronic Transfer Account (ETA). Most recipients of federal benefits have their payments deposited electronically. The number of recipients using EFT climbed steadily throughout the 1990s, rising from around half to more than three-quarters of all beneficiaries. Treasury and the Social Security Administration (SSA) have undertaken activities to increase the use of direct deposit, including developing marketing material and directly notifying check recipients of the advantages of using EFT, particularly safety and convenience. Although information describing the characteristics of these EFT users is limited, GAO determined that participation rates are highest for those 65 and older. The primary obstacle to using EFT was that many federal check recipients did not have a bank account. GAO's analysis of the Survey of Income and Program Participation's 1998 data indicated that 11 million benefit recipients, over half of all federal benefit check recipients in 1998, were unbanked. The ETA has not been widely accepted by banks or unbanked beneficiaries despite Treasury's efforts to promote it. Since initiation of the program in 1999, 36,000 ETAs have been opened, representing fewer than 1 percent of unbanked beneficiaries. Based on discussions with representatives from Treasury, SSA, financial institutions, and consumer groups, GAO identified several approaches that Treasury could consider to increase the use of electronic transfers. These approaches include increasing cooperation between banks and local SSA offices to more effectively enroll beneficiaries for ETAs; exploring other electronic payment options besides the ETA to deliver benefits; partnering with banks to provide information on the general availability of low cost banking products, especially in areas with low ETA coverage; and conducting further research to determine why certain states have low direct deposit participation rates.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-02-913, Electronic Transfers: Use by Federal Payment Recipients Has Increased but Obstacles to Greater Participation Remain
This is the accessible text file for GAO report number GAO-02-913
entitled 'Electronic Transfers: Use by Federal Payment Recipients Has
Increased but Obstacles to Greater Participation Remain' which was
released on September 12, 2002.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States General Accounting Office:
GAO:
Report to the Subcommittee on Oversight and Investigations, Committee
on Financial Services, House of Representatives:
September 2002:
Electronic Transfers:
Use by Federal Payment Recipients Has Increased but Obstacles to
Greater Participation Remain:
GAO-02-913:
Contents:
Letter:
Results in Brief:
Background:
Governmental and Private Efforts Have Increased EFT Usage:
Lack of a Bank Account, Cost, and Personal Concerns Keep Some
Beneficiaries from Using EFT:
The ETA Has Had Limited Success:
Opportunities May Exist to Increase EFT Participation:
Conclusions:
Recommendations:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Example of Check Insert Used to Promote ETAs:
Appendix III: Direct Deposit Use by State, 2002:
Appendix IV: Characteristics of Unbanked Federal Beneficiaries and the
Unbanked Population at Large:
Appendix V: Location of the Unbanked by Region:
Appendix VI: Comments from the Department of the Treasury:
Tables:
Table 1: Number of Monthly Treasury Payments to Benefit Recipients in
2001 (in millions):
Table 2: States with the Highest and Lowest Direct Deposit
Participation Rates:
Figures:
Figure 1: Increase in Electronic Transfer Use, 1990–2001:
Figure 2: Example of Check Inserts Used to Promote Direct Deposit:
Figure 3: Direct Deposit Use by SSA Program:
Figure 4: Direct Deposit Use by Age of Beneficiary:
Figure 5: Direct Deposit Sign-Up Rates by SSA Program, 1995–2001:
Figure 6: Direct Deposit Use by Representative Payee:
Figure 7: The ETA‘s Required Features:
Figure 8: ETA Branches by State, as of June 7, 2002:
Figure 9: Number of Unbanked Adults and Federal Beneficiaries, 1999:
Figure 10: Proportion of Unbanked U.S. Adults and Federal
Beneficiaries, 1999:
Figure 11: Unbanked Recipients and Income Level:
Figure 12: Unbanked Recipients and Educational Level:
Figure 13: Unbanked Recipients and Ethnic Group:
Figure 14: Unbanked and Banked Beneficiaries Grouped by Marital Status:
Figure 15: Unbanked Recipients and Age Group:
Figure 16: Unbanked Recipients and Gender:
Figure 17: Regions of the United States:
Figure 18: Unbanked Recipients and Regional Location:
Abbreviations:
AARP: American Association of Retired Persons:
ACH: Automated Clearing House:
ATM: automated teller machine:
CRA: Community Reinvestment Act:
DI: Disability Insurance:
DOL: Department of Labor:
EBT: Electronic Benefit Transfer:
EFT: electronic funds transfer:
ETA: Electronic Transfer Account:
FRB: Dallas Federal Reserve Bank of Dallas:
NCRC: National Community Reinvestment Coalition:
OASDI: Old-Age, Survivors, and Disability Insurance:
OASI: Old-Age and Survivors Insurance:
OCC: Office of the Comptroller of the Currency:
OPM: Office of Personnel Management:
RRB: Railroad Retirement Board:
SCF: Survey of Consumer Finances:
SIPP: Survey of Income and Program Participation:
SSA: Social Security Administration:
SSI: Supplemental Security Income:
U.S. PIRG: U.S. Public Interest Research Group:
VA: Department of Veterans Affairs:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
September 12, 2002:
The Honorable Sue W. Kelly:
Chairwoman:
The Honorable Luis V. Gutierrez:
Ranking Minority Member:
Subcommittee on Oversight and Investigations:
Committee on Financial Services:
House of Representatives:
In 2001, the Department of the Treasury made approximately 764 million
payments valued at $549 billion to beneficiaries of federal programs,
primarily programs administered by the Social Security Administration
(SSA). Of these payments, about 76 percent were made using electronic
funds transfers (EFTs), potentially saving the government millions of
dollars in costs associated with disbursing paper checks. In 1996,
Congress passed the Debt Collection Improvement Act, [Footnote 1] which
required that federal payments except tax refunds be made
electronically as of January 1999. The act also required that each
person affected by this mandate have access to an account at a
financial institution at a reasonable cost and with certain consumer
protections. To meet this requirement, Treasury developed the
Electronic Transfer Account (ETA). The ETA, designed specifically for
federal beneficiaries who do not have bank accounts, allows account
holders to receive federal benefits electronically and to make
withdrawals but not to write checks. Based on congressional concerns
about a more stringent wavier provision, Treasury‘s final regulations
provided that a recipient may continue to receive checks by mail if
payment by EFT would impose a hardship and allowed individuals to
determine for themselves if payment by EFT would impose a hardship.
[Footnote 2] In 2001, Treasury was still disbursing about 24 percent of
all its federal benefit payments by check.
Concerned about the possibility that the government is not capturing all
the potential cost savings from EFT, you asked us to examine the status
of EFT usage and the ETA program. As agreed with your offices, this
report (1) provides information on the extent of EFT usage, the steps
taken by federal agencies and others to promote EFT, and
characteristics of EFT users; (2) identifies obstacles to greater use
of EFT and characteristics of recipients who do not have bank accounts
(the unbanked); (3) provides information on the current status of the
ETA program, including steps taken by the government to promote it; and
(4) identifies approaches that Treasury could consider to increase the
use of EFT.
To provide information on the extent of EFT usage and the steps taken to
promote it, we obtained and analyzed Treasury data on the number of
payments made by EFT and check and reviewed available information
from Treasury and SSA, financial institutions, and consumer groups on
the implementation of the EFT program. Because Treasury issues about 90
percent of its benefit payments for SSA programs, our review focused on
these payments. We obtained and analyzed SSA data on individuals who
receive payments under SSA programs in order to identify the
characteristics of EFT users. To identify obstacles to EFT use, we
analyzed the most recent available data from the 1998 and 1999 Survey of
Income and Program Participation (SIPP) conducted by the Bureau of the
Census. Data from SIPP, which was designed to obtain information
enabling evaluation of initiatives affecting programs like Social
Security, allowed us to estimate the number of unbanked federal
recipients and identify some of their characteristics. To identify why
federal recipients may be reluctant to open a bank account, we reviewed
studies of the unbanked in the general population and analyzed EFT
usage data supplied by SSA. To describe the status of the ETA program
and the government‘s efforts to promote it, we obtained and analyzed
data from Treasury and interviewed representatives of Treasury, other
federal agencies, financial institutions, and nonprofit consumer
groups. To identify alternative approaches for promoting the use of
EFT”including expanding the ETA program”we interviewed program experts
and reviewed available data provided by financial institutions, federal
agencies, and nonprofit consumer groups. Appendix I provides additional
details on our scope and methodology.
Results in Brief:
Most recipients of federal benefits have their payments deposited
electronically. The number of recipients using EFT climbed steadily
throughout the 1990s, rising from around half to more than three-
quarters of all beneficiaries. This high participation rate can be
attributed to the combined promotional efforts of Treasury, SSA, the
banking industry, and consumer groups. Treasury and the SSA have
undertaken activities to increase the use of direct deposit, including
developing marketing material and directly notifying check recipients
of the advantages of using EFT, particularly safety and convenience. We
found that the proportion of recipients in each SSA program who used
EFT varied widely, ranging from 68 percent for the disabled to 82
percent for retirees. While information describing the characteristics
of these EFT users is limited, we determined that participation rates
are highest for those 65 and older. EFT usage for all SSA program
benefit recipients is uniformly lowest in the southeastern states.
We found that the primary obstacle to using EFT was that many federal
check recipients did not have a bank account. In determining how many
recipients were unbanked, we used two sources of data: SIPP, because it
was designed specifically to assess benefit program participants, and
Treasury‘s own estimates of unbanked beneficiaries. Our analysis of
SIPP‘s 1998 data indicated that about 11 million benefit recipients,
over half of all federal benefit check recipients in 1998, were
unbanked. This estimate is substantially higher than Treasury‘s 1997
estimate, which showed that 24 percent of federal beneficiaries
(5.2–6.5 million) lacked bank accounts. This difference in estimates
could have profound implications because it is more difficult to
persuade beneficiaries without bank accounts to use EFT than to
persuade those who already have a bank account to do so. While no
estimates of the number of unbanked beneficiaries are available for
2001, our analysis of the SIPP raises significant concerns about
Treasury‘s most recent estimate of 3.3 million. Our analysis of the
SIPP data also indicated that unbanked recipients had lower incomes and
less education than banked recipients and were more likely to be
single. Other research indicates that individuals often chose not to
have a checking or savings account for a number of reasons”for example,
some preferred another method of cashing checks and saw banks as too
expensive. For check recipients who were banked but chose not to use
direct deposit, the obstacles were less obvious. Some of these
recipients strongly preferred to receive a check in hand because they
had always operated that way, while others, given the choice of using
or not using EFT, elected not to use it.
The ETA has not been widely accepted by banks or unbanked beneficiaries
despite Treasury‘s efforts to promote it. Since initiation of the
program in 1999, 36,000 ETAs have been opened, representing fewer than
1 percent of unbanked beneficiaries whether using estimates based on
our analysis of the SIPP or Treasury‘s research. Treasury‘s efforts have
included taking steps to convince banks to offer ETAs, establishing a
database of ETA providers (including their locations) to assist in
enrolling beneficiaries in an ETA, and nationwide marketing of the ETA
directed at benefit recipients. For example, Treasury periodically
mails information on EFT and ETA to federal check recipients when
distributing benefit checks. While some of the largest banks in the
country offer ETAs, most banks do not, and ETAs are largely unavailable
in some areas of the country. Officials from banks that offer ETAs
often emphasized that they viewed the account as a community service.
Many banks, especially larger ones, viewed the ETA as unprofitable and
tended to limit their marketing efforts. In contrast, smaller banks and
those that focused on a specific community or ethnic group were more
likely to make special efforts to promote the ETA, including
coordinating enrollment with local Social Security offices. Several
factors influenced federal beneficiaries who were unwilling to open an
ETA, including satisfaction with current check cashing methods and a
preference for an account that allowed check writing. Because less than
1 percent of potential unbanked federal beneficiaries have opened ETAs,
it is uncertain whether the ETA will generate savings sufficient to
offset the costs of maintaining and promoting the program.
Based on our discussions with representatives from Treasury, SSA,
financial institutions, and consumer groups, we identified several
approaches that Treasury could consider to increase the use of
electronic transfers. These approaches include increasing cooperation
between banks and local SSA offices to more effectively enroll
beneficiaries for ETAs; exploring other electronic payment options
besides the ETA to deliver benefits; partnering with banks to provide
information on the general availability of low-cost banking products,
especially in areas with low ETA coverage; and conducting further
research to determine why certain states have low direct deposit
participation rates. We recognize that these approaches could be
difficult to implement without further exploration because those who
would be responsible for implementing them sometimes have conflicting
interests. For example, Treasury is concerned with saving money and
preventing fraud, banks are concerned with capturing any profits on
products they offer, and recipients are interested in convenience and
costs. However, because the ETA is unlikely to prove successful as the
sole means of persuading unbanked beneficiaries to use electronic
transfers, these approaches warrant further consideration.
This report contains two recommendations. First, we recommend that
Treasury revisit its estimate of the number of unbanked federal check
recipients. In doing so, we further recommend that Treasury explore use
of Census SIPP data as a means to obtain a better estimate of the
extent of federal beneficiaries who are unbanked and to better
understand the characteristics of the unbanked population. Second, we
recommend that Treasury use the information on the extent and
characteristics of unbanked federal check recipients to consider
alternative approaches, including those discussed in this report, to
develop a strategy that offers a greater likelihood of attracting that
portion of the unbanked population that chooses not to open an ETA.
We obtained written comments on a draft of this report from Richard L.
Gregg, Commissioner of Treasury‘s Financial Management Service, that
are presented in appendix VI. SSA did not provide comments. Treasury
generally agreed with our recommendations, outlined how it would
respond to each of them, and made three clarifying points. We modified
the text as appropriate.
Background:
As part of the Debt Collection Improvement Act of 1996 (1996 Act),
Congress decided to take advantage of the benefits that could result
from the greater use of EFT payments and required that EFT be used to
make all federal payments, except tax refund payments. [Footnote 3] EFT
was defined as any transfer of funds, other than transactions
originated by cash or checks that authorized a financial institution to
debit or credit an account. EFT payments include payments made through
the Automated Clearing House [Footnote 4] (ACH) network for the direct
deposit [Footnote 5] of payroll or Social Security benefits. The 1996
Act also instructed Treasury to ensure that individuals have access to
an account at a federally insured financial institution, that such an
account have the same consumer protections provided to other account
holders, and that it be provided at a reasonable cost. But the 1996 Act
permitted Treasury to waive the EFT requirement under certain
conditions, for example, when compliance would pose a hardship to a
federal check recipient, for certain types of checks, or in other
circumstances.
The 1996 Act mandated that Treasury implement the EFT requirement in
phases. During the first phase, recipients who became eligible to
receive federal payments on or after July 26, 1996, would receive their
payments by EFT unless they certified in writing that they did not have
an account with a financial institution or an authorized payment agent.
Treasury implemented an interim rule on July 26, 1996, for these
requirements. The interim regulation remained in effect until January
1, 1999, at which time all federal payments were to be made by EFT
unless Treasury granted a waiver. Treasury‘s final regulation (issued
on September 25, 1998) was intended to bring Americans who did not use
the financial system to receive funds or make payments into the
financial mainstream. In July 1999, Treasury issued a notice that
established the required features of the ETA, a low-cost account
Treasury designed for unbanked federal beneficiaries. [Footnote 6]
Prior to implementing these final regulations, Treasury sponsored
research and obtained the viewpoints of interested parties, including
financial institutions, consumer groups, and others, during field
hearings and as part of the regulatory comment process. The positions
these group very different. For example, from the beginning consumer
groups were concerned that some benefit recipients would be negatively
affected if the 1996 Act‘s waiver policy was strictly enforced.
Treasury responded by establishing a flexible waiver policy that
permitted individuals to determine for themselves whether direct
deposit would cause them a hardship. However, establishment of this
policy caused some representatives of financial institutions to
anticipate that few unbanked beneficiaries would voluntarily enroll for
ETAs. These officials asked Treasury for the flexibility to set their
own monthly account fees, a request opposed by consumer groups wanting
to ensure that the accounts would remain low cost. In designing the
ETA, Treasury also commissioned studies to determine why people chose
not to use direct deposit (including why they remained unbanked) and to
identify an electronic account that could be offered to the unbanked at
a reasonable cost. [Footnote 7]
On July 16, 1999, Treasury published a notice in the Federal Register
that established the required features of the ETA, such as the amount
of the maximum monthly fee ($3.00) that an ETA provider could charge a
customer and the minimum number of free withdrawals the account was
required to include. The notice also set the amount of money Treasury
would reimburse each ETA provider ($12.60) for opening an ETA.
Treasury makes payments on behalf of several agencies; the largest
percentage (90 percent) of benefit payments is for SSA. The majority of
SSA‘s payments fall under the Old-Age and Survivors Insurance (OASI)
and the Disability Insurance (DI) programs. These programs combined are
commonly referred to as Social Security, or the Old-Age, Survivors, and
Disability Insurance (OASDI) program. In addition, SSA administers the
Supplemental Security Income (SSI) program. Descriptions of these
programs follow.
* OASI provides payments to retired workers or the survivors of workers
who have paid into the Social Security trust fund. The trust fund is
financed through payroll taxes paid by workers, their employers, and the
self-employed. To qualify for OASI benefits, workers must have paid
Social Security taxes for at least 10 years or an equivalent.
* DI provides payments to disabled workers who have paid a minimum
amount into the Social Security trust fund. To qualify for DI, workers
must have a medically determinable physical or mental impairment that
prevents them from engaging in substantial gainful activity. These
benefits provide an income base for eligible workers who have qualifying
disabilities and for eligible members of their families.
* SSI is a means-tested program that provides qualified recipients with
monthly cash payments sufficient to raise their income to a
predetermined level guaranteed by the federal SSI program. The program
is financed from general tax revenues and provides aid to aged, blind,
and disabled children and adults who have limited income and resources.
SSI benefit recipients may also qualify for other benefits, such as
food stamps and social services.
Besides administering payments for SSA, Treasury makes retirement and
compensation payments on behalf of the Department of Labor (DOL) for
victims of black lung disease, the Office of Personnel Management (OPM)
for retirement benefits for federal employees, the Railroad Retirement
Board (RRB) for retired railroad workers, and the Department of Veterans
Affairs (VA) for benefits paid to veterans or their survivors. Table 1
identifies the number of payments by type (EFT or check) Treasury made
for each federal agency in 2001.
Table 1: Number of Monthly Treasury Payments to Benefit Recipients in
2001 (in millions):
Authorizing agency: [Empty];
Benefit type: OASDI;
Number of payments, EFT: 39.1;
Number of payments, Check: 10.8;
Number of payments, Total:49.8.
Authorizing agency: [Empty];
Benefit type: SSI;
Number of payments, EFT: 3.6;
Number of payments, Check: 3.7;
Number of payments, Total: 7.3.
Authorizing agency: VA/OPM/RRB/DOL;
Benefit type: Compensation and Pensions;
Number of payments, EFT: 5.5;
Number of payments, Check: 1.0;
Number of payments, Total: 6.5.
Authorizing agency: Total;
Number of payments, EFT: 48.2;
Number of payments, Check: 15.5;
Number of payments, Total: 63.7.
Source: Treasury, Financial Management Service Web site.
[End of table]
When determining the number of check recipients likely to enroll for an
ETA, an important question to consider is how many of them do not have a
bank account. [Footnote 8] One of the best sources for this estimate is
the Bureau of the Census‘ national SIPP. [Footnote 9] The SIPP provides
information on the demographic and economic situation of individuals
and households in the United States. This survey includes specific
questions that ask whether individuals receive income from government
programs and if they have checking or other types of accounts. Other
well-known surveys, such as the Survey of Consumer Finances (SCF),
sponsored by the Federal Reserve, can be used to produce estimates of
the unbanked population but not estimates of individual unbanked
federal benefit recipients. [Footnote 10]
Governmental and Private Efforts Have Increased EFT Usage:
In 2001, most federal beneficiaries who received payments directly from
Treasury received their payments electronically. Use of electronic
transfers increased steadily throughout the 1990s, especially between
1996 and 2001. This increase can be attributed to a combination of
efforts undertaken by the public and private sector to promote direct
deposit. In particular, Treasury and SSA initiated and continue
activities to advise check recipients of the safety and convenience of
receiving their benefits by electronic transfer and to facilitate
switching check recipients to direct deposit. We found that direct
deposit participation varies widely among recipients in each SSA
program. Today, the OASI program has the highest EFT participation rate
at 82 percent. Information on the characteristics of benefit recipients
who use direct deposit is limited, but our analysis of studies and SSA
data suggest that EFT users tend to be older and that participation
rates are generally lower in the southeastern states.
EFT Use Has Increased in Response to Public and Private Efforts:
Over the past decade, EFT usage has increased significantly. As shown in
figure 1, in 2001, Treasury made 578 million (76 percent) of all federal
benefit payments to beneficiaries through EFT compared to 315 million
(47 percent) of the benefit payments it made in 1990. In 2001, Treasury
made about 186 million check payments to about 14 million benefit
recipients. This increase in EFT use was markedly greater after
enactment of the 1996 Debt Collection Improvement Act. Specifically,
between 1991 and 1996, EFT usage by federal benefit recipients
increased by 8 percentage points (from 48 percent to 56 percent) and,
between 1996 and 2001, by 20 percentage points (from 56 percent to 76
percent). Also, after declining steadily since 1990, the reduction in
payments Treasury made by check mostly leveled off since 1999 and,
since then Treasury continued to pay, on average, over 180 million
check payments per year to federal recipients.
Figure 1: Increase in Electronic Transfer Use, 1990–2001:
[See PDF for image]
This figure is a line graph depicting the following data:
Fiscal year: 1990;
EFT payment: 315 million;
Check payment: 352 million.
Fiscal year: 1991:
EFT payment: 301 million;
Check payment: 323 million.
Fiscal year: 1992;
EFT payment: 317 million;
Check payment: 322 million.
Fiscal year: 1993;
EFT payment: 332 million;
Check payment: 322 million.
Fiscal year: 1994;
EFT payment: 348 million;
Check payment: 318 million.
Fiscal year: 1995;
EFT payment: 366 million;
Check payment: 312 million;
Fiscal year: 1996;
EFT payment: 384 million;
Check payment: 302 million.
Fiscal year: 1997;
EFT payment: 428 million;
Check payment: 262 million.
Fiscal year: 1998;
EFT payment: 471 million;
Check payment: 222 million.
Fiscal year: 1999;
EFT payment: 511 million;
Check payment: 189 million.
Fiscal year: 2000;
EFT payment: 529 million;
Check payment: 176 million.
Fiscal year: 2001;
EFT payment: 578 million;
Check payment: 186 million.
Source: Treasury, Financial Management Services.
[End of figure]
To promote direct deposit, Treasury and SSA have jointly developed
marketing campaigns and distributed promotional materials to financial
institutions, SSA field offices, and nonprofit organizations. These
materials include public service announcements for radio, television,
and printed publications; posters for distribution to financial
institutions and SSA field offices; and check inserts to accompany
benefit checks. These promotions emphasize that direct deposit is
’safe, quick, and convenient,“ and materials are often available in
both English and Spanish. Treasury considers these check inserts, such
as those shown in figure 2, to be one of its most important methods of
promoting direct deposit, because these inserts reach beneficiaries
directly.
Figure 2: Example of Check Inserts Used to Promote Direct Deposit:
[See PDF for image]
This figure is an illustration of the front and back of the check
insert.
Insert front:
Why wait for your check? (includes pencil drawings of nine people):
Insert back:
With Direct Deposit your payment is automatically deposited into your
account.
It's easy to sign up for Direct Deposit. Just contact your financial
institution or Social Security.
Please be sure to have your bank statement or personal check handy, as
well as your Social Security number. Your bank or Social Security
representative will need information from there documents to start you
on Direct Deposit.
Today, Direct Deposit is the way Social Security makes payments to
people with bank accounts. The Government's goal is to make most
payments by Direct Deposit or other electronic methods.
Sign up today: Direct Deposit.
Source: SSA.
[End of figure]
SSA also undertakes its own activities, some of which were initiated
before the Debt Collection Improvement Act was signed into law. For
instance, in the early 1990s, SSA streamlined the direct deposit
enrollment process by introducing a toll-free enrollment number for
benefit recipients and establishing a program to allow benefit
recipients to enroll in direct deposit at a financial institution more
easily. As a result of the 1996 Act, SSA further strengthened its
direct deposit enrollment procedures by instructing staff to use a line
of questioning that presumed a recipient would use direct deposit.
During 1997 and 1998, before Treasury established a flexible waiver
policy, SSA also told individuals with bank accounts that they were
required to sign up for direct deposit.
Other organizations and financial institutions have also promoted direct
deposit, providing additional publicity to encourage federal
beneficiaries to use it. Nonprofits such as the American Association of
Retired Persons (AARP) and the National Community Reinvestment
Coalition (NCRC) promote the use of direct deposit as part of their
financial literacy programs because of the benefits (such as safety and
convenience) it could yield to their constituencies. For example, AARP
officials told us that they conducted a three-year educational campaign
starting in about 1997 that involved cooperating with banks and
community groups to promote direct deposit and using mass mailings to
reach their constituency. In addition, these organizations have
cooperated with federal agencies such as Treasury, banking
associations, and other consumer groups to compile a training guide
that provides financial education to people with minimal knowledge of
the banking system. [Footnote 11] This guide includes fact sheets on
the advantages of direct deposit and a description of how individuals
can receive benefits electronically (for example, with an ETA).
Financial institutions complement these efforts by sponsoring direct
deposit campaigns, and some banks provide free checking accounts in
exchange for using direct deposit. Banks are highly motivated to promote
direct deposit because checks are more costly to process than electronic
transfers. For example, major banks we spoke with reported that it cost
them about .05 cents to process an ACH transaction and more than a
dollar (one major bank reported $1.19) when a customer comes to a teller
window to cash a check.
Despite these ongoing efforts by Treasury and others, the annual
increase in EFT usage by benefit recipients has slowed down over the
last few years. For example, between 1999 and 2000, EFT use increased
by only two percentage points, from 73 percent to 75 percent, and
between 2000 and 2001, EFT use increased by only one percentage point,
from 75 percent to 76 percent. In contrast, between 1996 and 1999, EFT
use had been increasing by about six percentage points annually.
Federal Beneficiaries Who Use Direct Deposit Share Certain
Characteristics:
Although SSA has limited data on the characteristics of direct deposit
users, we used available SSA data to identify program participation
rates, the age of direct deposit benefit recipients, and participation
in direct deposit by state. [Footnote 12]
OASI recipients were more likely to use direct deposit than were DI or
SSI recipients. These benefit recipients had the highest participation
rate”82 percent. In contrast, 68 percent of DI recipients and 51
percent of SSI recipients used direct deposit. However, because the
OASI program has a larger number of participants, it also has a higher
number of check recipients than the other two programs. (Figure 3
provides additional information on direct deposit usage for each
program.) SSA officials said that they do not tailor their marketing by
program type and could not identify factors contributing to the lower
use of direct deposit among DI and SSI recipients. They noted that SSA
was in the process of conducting a survey of beneficiaries to better
understand why people are not using direct deposit. However, the
officials said that the survey results were unlikely to distinguish
reasons for nonparticipation among benefit recipients.
Figure 3: Direct Deposit Use by SSA Program:
[See PDF for image]
This figure is a bar graph depicting the following data:
OASI:
EFT users: 32.0 million;
Check recipients: 7.1 million.
DI:
EFT users: 4.7 million;
Check recipients: 2.2 million.
SSI:
EFT users: 3.3 million;
Check recipients: 3.2 million.
Source: SSA, OASI and DI data for April 2002 and SSI data for March
2002.
[End of figure]
As shown in figure 4, SSA data suggest that age is not an obstacle to
direct deposit. Benefit recipients 65 and older have high direct deposit
participation rates. For example, among OASI recipients, 83 percent of
those 65 and older used direct deposit compared with 79 percent of those
18–64 and 65 percent of those under 18. However, most OASI check
recipients (5.6 of 7 million total check recipients) are 65 and older.
Since other factors, such as a disability or use of a representative
payee by those under age 18, might contribute to lower electronic
transfer use by younger recipients, any comparison of usage by age
should be done with caution.
Figure 4: Direct Deposit Use by Age of Beneficiary:
[See PDF for image]
This figure is a vertical bar graph, depicting the following data:L
OASI:
Age 0-17: 65%;
Age 18-64: 79;
Age 65+: 83.
DI:
Age 0-17: 59%;
Age 18-64: 71%.
SSI:
Age 0-17: 40%;
Age 18-64: 49%;
Age 65+: 59%.
Note 1: It would be misleading to show direct deposit participation
rates for DI recipients who are 65 and older because most DI recipients
transition to OASI when they become 65. As a result, we do not show
their participation rates.
Source: SSA, OASI and DI data for February 2002 and SSI data for March
2002.
[End of figure]
While higher direct deposit use is not associated with any one region of
the United States, direct deposit use is generally lowest in the
southeastern states, including Alabama, Kentucky, Louisiana, North
Carolina, and West Virginia. [Footnote 13] These states have OASI
direct deposit participation rates of 68 to 77 percent, compared with
states such as Arizona, Oregon, and Washington, where participation
rates range from 90 to 91 percent. We asked Treasury and SSA officials
if they could identify any factors that could explain why direct
deposit use was lower in the southeastern states, but they could not.
As indicated in table 2, of the three programs SSI shows the widest
variance in direct deposit participation rates across states from a
high of 67 percent in California to a low of 31 percent in West
Virginia. Appendix III identifies direct participation usage by state
for each SSA program.
Table 2: States with the Highest and Lowest Direct Deposit
Participation Rates:
Program: OASI;
State with highest participation rate: Washington;
Direct deposit participation: 91%;
State with lowest participation rate: West Virginia;
Direct deposit participation: 68%.
Program: DI;
State with highest participation rate: North Dakota;
Direct deposit participation: 80%;
State with lowest participation rate: West Virginia;
Direct deposit participation: 53%.
Program: SSI;
State with highest participation rate: California;
Direct deposit participation: 67%;
State with lowest participation rate: West Virginia;
Direct deposit participation: 31%.
Source: SSA, OASI and DI data for February 2002 and SSI data for May
2002.
[End of table]
Lack of a Bank Account, Cost, and Personal Concerns Keep Some
Beneficiaries from Using EFT:
We found that the major obstacle to using direct deposit was being
unbanked”that is, not having a bank account. Importantly, we also found
that the number of unbanked federal beneficiaries may be higher than
earlier estimates suggest. Our analysis of the Census Bureau‘s SIPP
showed, for example, that the number of unbanked beneficiaries may be
twice as high as Treasury‘s estimate. Our analyses also indicated that
unbanked federal beneficiaries are more likely to have lower income and
educational levels than banked beneficiaries and are more likely to be
unmarried. We used studies of both unbanked federal beneficiaries and
the unbanked population at large to determine why some federal check
recipients remain unbanked and to identify obstacles to bringing them
into the banking system. Our analysis of relevant studies conducted by
federal agencies and other researchers showed that unbanked federal
beneficiaries and unbanked individuals at large have practical reasons”
including cost and convenience”for not opening a bank account. But lack
of a bank account is not the only reason beneficiaries choose not to use
EFT. Some federal beneficiaries who have bank accounts do not use direct
deposit, in part because of the availability of the opt-out provision
and in part because of concerns about receiving payments, accessing
money, and resolving problems, among other things.
Lack of a Bank Account Is the Major Obstacle to Using EFT:
Determining the exact number of unbanked federal beneficiaries is
difficult because federal agencies do not document whether or not their
recipients have bank accounts. [Footnote 14] However, determining the
correct percentage of federal check recipients who are unbanked is an
important ingredient in developing a strategy on how best to attract
federal check recipients to EFT. An underestimate of the percentage of
federal check recipients who are unbanked could have profound
implications on the success of any program to attract federal check
recipients because it is much more difficult to persuade beneficiaries
without bank accounts than those who already have a bank account to use
EFT.
In 1997, to prepare for the ETA program, Treasury sponsored its own
research that estimated that about 5.2 to 6.5 million federal
beneficiaries”approximately 24 percent of check recipients”were
unbanked. [Footnote 15] Treasury still uses this percentage in
determining the number of unbanked check recipients and, in early 2002,
placed that figure at 3.3 million. However, we analyzed data from the
Census Bureau‘s SIPP [Footnote 16] from 1998 to determine the number of
adult federal recipients without bank accounts and found that for 1997
Treasury may have underestimated the number of the unbanked who
received federal benefit checks. Specifically, we estimated that about
11 million federal beneficiaries, or over half of all federal check
recipients in 1998, did not have a bank account (see appendix I for
details of our analysis). Of this number, almost all received benefits
from SSA or a combination of benefits from SSA and other agencies. In
addition, our analysis of more recent SIPP data indicated that, in
1999, the number of unbanked federal beneficiaries was closer to about
11.5 million, including about 8.7 million OASDI recipients and from 3.0
to 3.9 million SSI recipients. [Footnote 17] This same analysis
indicated that about 37 percent of unbanked SSI recipients also
received OASDI. While no estimates of the unbanked are available for
2001, our analyses of the SIPP data raise significant concerns about
Treasury‘s most recent estimate of 3.3 million.
Our analysis of the SIPP data indicates that Treasury officials may be
planning their EFT marketing based on an estimate of the unbanked that
is too low. When we discussed our estimates with Treasury officials,
they told us that they were unaware of the availability and benefits of
using the SIPP data to estimate the size of the unbanked population.
They acknowledged that if the unbanked recipient population was
significantly larger than their estimate, the goal of enabling this
group to receive funds electronically would be more challenging than
had originally been thought and therefore might call for developing new
strategies to attract the unbanked.
While the SIPP does not contain information on why individuals have
decided to be unbanked, our analysis of the SIPP data allowed us to
identify certain characteristics of unbanked federal benefit recipients.
Identifying such characteristics could contribute to developing
strategies to increase ETA and EFT use. Using survey data from the 1999
SIPP, we were able to identify the following characteristics:
* Low-income recipients were less likely to have a bank account than
high-income recipients. For example, 35 percent of OASDI recipients with
family incomes of less than $15,000 were unbanked, compared with 16
percent of those with incomes of $30,000–$45,000. About three-quarters
of unbanked OASDI and SSI recipients had family incomes of $30,000 or
less.
* Recipients with less schooling were less likely to be banked. For
example, 36 percent of OASDI recipients who did not complete high
school were unbanked, compared with 20 percent who had at least a high
school diploma and 16 percent with at least some college experience.
Most unbanked OASDI and SSI recipients had no more than a high school
diploma.
* Ethnic minorities, including African Americans and Hispanics, were
more likely to be unbanked than white recipients. For example, 52
percent of African-American OASDI recipients were unbanked compared with
18 percent of white recipients. However, because most OASDI recipients
are white, they accounted for 66 percent of all unbanked OASDI
recipients.
* Single OASDI and SSI beneficiaries were more likely to be unbanked
than married recipients. For example, 30 percent of unmarried OASDI
recipients were unbanked compared with 16 percent of married recipients.
For both programs, the majority of all unbanked beneficiaries were
unmarried. Eighty percent of unbanked SSI recipients and 62 percent of
unbanked OASDI recipients were unmarried.
* For both OASDI and SSI, younger benefit recipients were less likely
to be banked than older ones. For example, 63 percent of OASDI
recipients 18–35 were unbanked compared with 19 percent between the
ages of 65 and older. However, because most OASDI recipients are 65 and
older, they still represented the majority (66 percent) of unbanked
OASDI recipients.
* Federal beneficiaries in the southeastern and southwestern states were
more likely to be unbanked than those in other parts of the country.
Around 35 percent of recipients in the southeast and 36 percent in the
southwest did not have a bank account, compared with 22–25 percent in
other parts of the country. [Footnote 18]
Appendix IV provides figures showing more detailed information about the
characteristics of unbanked OASDI and SSI recipients. While additional
research could provide other insights into why some federal recipients
are unbanked, this type of information is still useful because the more
Treasury and other program officials know about unbanked benefit
recipients, the more equipped they will be to develop a workable
strategy for increasing the use of EFT. Appendix IV provides figures
showing the same detailed information about the characteristics of the
unbanked population at large to provide a broader context within which
to understand the characteristics of unbanked federal benefit
recipients.
Concerns about Cost and Convenience Prevent Some Unbanked Beneficiaries
from Using EFT:
To identify some of the obstacles to bringing unbanked federal
beneficiaries into the financial mainstream, we relied largely on
existing studies of the unbanked population. [Footnote 19] While
research on the unbanked is fairly limited and often restricted to a
specific geographic location, these studies still provide useful
insights. Collectively they indicate that the unbanked have a number of
practical reasons for preferring their current check-cashing and
payment arrangements. For example, because these recipients frequently
have low incomes, the minimum balances required by banks and the
potential for incurring overdraft fees may deter the unbanked from
opening bank accounts.
Treasury-sponsored research completed in 1997 indicated that federal
check recipients were unbanked largely because they believed that they
did not have enough money to establish an account, felt that they did
not need an account, and believed that bank fees were too high.
[Footnote 20] The researchers noted that fees were a problem because
low-income recipients could have trouble maintaining a minimum balance
and thus could incur service or overdraft charges. More than half of
unbanked recipients reported that they cashed their checks at financial
institutions or grocery stores. Responses to the 1998 Federal Reserve
Board‘s SCF, which queried a sample of the population at large, also
indicated that the unbanked have practical reasons for not having
checking accounts. The respondents said that they would not write
enough checks, did not have enough money to establish an account, and
thought that service charges and minimum balance requirements were
excessive. [Footnote 21]
Other studies evaluating the unbanked population at large indicate that
the unbanked make decisions that take into consideration their limited
income and the cost of financial services. These researchers evaluated
both the costs of maintaining a bank account and the cost of paying
bills. For example, based on a survey sponsored by the Office of the
Comptroller of the Currency (OCC), a researcher estimated that the
unbanked used both check-cashing outlets (71 percent) and banks (23
percent) to cash checks, and noted that those using a bank were able to
do so at little or no cost. [Footnote 22] However, to make payments
(for example, by purchasing money orders) almost all the unbanked
surveyed preferred using places other than financial institutions, such
as check-cashing outlets and post offices, to arrange for payments. The
researcher noted that many unbanked might operate outside the banking
system in order to save money, but the survey results indicated that
minimum balances required to open an account may pose a significant
problem for many of the unbanked. Another researcher, using research
sponsored by the Federal Reserve, also noted that a checking account
could be expensive for low-income individuals, because they would be
likely to maintain a very low balance and could therefore incur
overdraft fees. [Footnote 23] This same study forecasted that ETAs
would not be widely adopted because the unbanked”except in urban areas
where check-cashing outlets are costly”would prefer their current
arrangements, which allow them to cash their checks and pay bills at
the same time. Another researcher concluded as well that unbanked
households may favor financial service providers such as check-cashing
outlets because the unbanked cannot meet the high minimum balances
required to open a deposit account and are averse to paying the monthly
maintenance fees generally imposed on accounts with small balances. In
addition, this researcher also noted that check-cashing outlets selling
money orders and cashing checks for the general public may be more
effectively tailoring their services to the needs of the unbanked.
[Footnote 24]
While researchers recognize that the unbanked may have practical reasons
for not having a bank account, they also recognize the important
connection between owning a bank account and saving money. For example,
researchers have identified a variety of benefits attributable to
savings, including the ability to save money over the short term for
emergencies and over the long term for home ownership and to avoid the
sometimes high cost of using check-cashing outlets. [Footnote 25]
However, in discussions with us, officials from nonprofit organizations
and community banks indicated that the unbanked population needs
financial education and ’hand-holding“ in order to understand the
benefits of owning a bank account and to learn how to manage one
without incurring fees. Some studies have also suggested that what may
be required is changing the way financial institutions have
traditionally provided services to low-income families. [Footnote 26]
One author noted that these customers may value the ability to cash
checks, purchase money orders and stamps, and pay utility bills at one
location. [Footnote 27] While check-cashing outlets offer these
services, banks do not.
Although many individuals do not have traditional bank accounts, some
federal beneficiaries have been receiving payments through debit cards.
In January 2002, GAO reported that Electronic Benefit Transfer (EBT)
cards were used to deliver food stamp benefits to 80 percent of
recipients, or about 14 million individuals. [Footnote 28] The EBT is a
plastic card resembling a bank-issued debit card that recipients use to
pay for their food at authorized retail stores. An increasing number of
states have also decided to use this card to provide cash welfare
benefits. [Footnote 29] The money for these cash welfare benefit
transactions is held in a pooled bank account by a state agency, and
individuals are authorized to withdraw a certain benefit amount. These
cash benefits can be withdrawn at an automated teller machine (ATM) or
spent at a retail outlet with a point-of-sale terminal. [Footnote 30]
Many private sector initiatives are also under way that involve using
debit cards to transfer wages to unbanked workers. Financial
institutions we interviewed indicated that firms with high numbers of
unbanked workers,
such as fast food and home improvement chains, were likely to consider
this option.
Concerns about Convenience Prevent Some Banked Beneficiaries from Using
EFT:
Treasury research and our interviews with organizations familiar with
the check recipient population identified several factors that kept some
recipients with bank accounts from using direct deposit. The concerns
most frequently cited in Treasury‘s 1997 survey research included
uncertainty about when the payment would arrive, fear of being unable to
access disputed money (for instance, during a divorce), and resolving
problems. [Footnote 31] However, this study concluded that lack of
awareness of or perceived difficulty in signing up for direct deposit
were not major obstacles. An SSA survey of check recipients in 1993
reported that some people simply preferred to receive checks. [Footnote
32] Representatives from AARP commented that some level of distrust
would always exist about electronic payments, especially among low-
income recipients.
SSA data also indicated that another obstacle to increasing direct
deposit use may have been permitting recipients with bank accounts to
opt out of using direct deposit. As shown in figure 5, these data show
that sign-up rates for direct deposit among new applicants for benefits
peaked between 1997 and 1998 but decreased thereafter. For example,
enrollment rates for new OASI recipients peaked at 86 percent in 1997
but decreased to 76 percent in 2001. [Footnote 33] SSA officials said
that the 1997 increase was most likely the result of strengthened
enrollment procedures in anticipation of a mandatory direct deposit
requirement and noted that some field office staff advised new benefit
applicants that participation was mandatory. However, once Treasury
regulations specified that enrollment was optional, it became easier
for new applicants to opt out of signing up for EFT.
Figure 5: Direct Deposit Sign-Up Rates by SSA Program, 1995–2001:
[See PDF for image]
This figure is a line graph depicting the following data:
Year: 1995;
Program: OASI;
Percent Enrolling for direct deposit: 49;
Program: DI;
Percent Enrolling for direct deposit: 13;
Program: SSI;
Percent Enrolling for direct deposit: 57.
Year: 1996;
Program: OASI;
Percent Enrolling for direct deposit: 65;
Program: DI;
Percent Enrolling for direct deposit: 23;
Program: SSI;
Percent Enrolling for direct deposit: 59.
Year: 1997;
Program: OASI;
Percent Enrolling for direct deposit: 86;
Program: DI;
Percent Enrolling for direct deposit: 50;
Program: SSI;
Percent Enrolling for direct deposit: 59.
Year: 1998;
Program: OASI;
Percent Enrolling for direct deposit: 85;
Program: DI;
Percent Enrolling for direct deposit: 55;
Program: SSI;
Percent Enrolling for direct deposit: 56.
Year: 1999;
Program: OASI;
Percent Enrolling for direct deposit: 79;
Program: DI;
Percent Enrolling for direct deposit: 52;
Program: SSI;
Percent Enrolling for direct deposit: 48.
Year: 2000;
Program: OASI;
Percent Enrolling for direct deposit: 77;
Program: DI;
Percent Enrolling for direct deposit: 49;
Program: SSI;
Percent Enrolling for direct deposit: 44.
Year: 2001;
Program: OASI;
Percent Enrolling for direct deposit: 76;
Program: DI;
Percent Enrolling for direct deposit: 47;
Program: SSI;
Percent Enrolling for direct deposit: 38.
Source: SSA.
[End of figure]
SSA data also indicated that benefit recipients with representative
payees [Footnote 34]”both individuals and institutions such as nursing
homes”were less likely to use direct deposit than those without (see
fig. 6). We asked SSA officials why representative payees would be less
likely to use direct deposit, but the officials could offer no
explanation. Treasury officials, however, suggested one possible
explanation. They told us that the way in which SSA makes electronic
payments to institutional representative payees could make it difficult
for those organizations to identify an individual payment. Financial
institutions are not required to pass along to the organization
information contained in a separate record that accompanies these types
of electronic payments. Thus, for instance, if the name of the intended
recipient is truncated on the payment record, the institutional
representative payee may not be able to identify the person for whom
the payment is intended. The institutions, therefore, find it easier to
receive a check for each individual for whom they are the
representative payee.
Figure 6: Direct Deposit Use by Representative Payee:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Program: OASI;
Percent using direct deposit, without payee: 84;
Percent using direct deposit, with payee: 61.
Program: DI;
Percent using direct deposit, without payee: 73;
Percent using direct deposit, with payee: 58.
Program: SSI;
Percent using direct deposit, without payee: 56;
Percent using direct deposit, with payee: 41.
Source: SSA, OASI and DI data for February 2002 and SSI data for March
2002.
[End of figure]
The ETA Has Had Limited Success:
Despite Treasury‘s efforts to market the ETA program, since the program
was initiated in July 1999, about 36,000, or fewer than 1 percent, of
unbanked federal beneficiaries had opened ETAs by June 2002. Most
financial institutions do not offer them. Because some of the nation‘s
biggest banks, which typically have the greatest number of branches,
have enrolled in the ETA program, opportunities to reach ETA prospects
have increased. But these banks often market the ETA only on a limited
basis, as they do not see the account as profitable. Smaller banks that
focus on specific community or ethnic groups often do make special
efforts to market the ETA but open fewer accounts. Further, potential
ETA users may choose not to participate in the program because they
prefer other means of cashing their checks or feel that the ETA does
not offer enough features”for example, a payment mechanism. Given the
current number of ETA holders, it is unclear whether the ETA can
generate savings sufficient to offset the costs of maintaining and
promoting the program.
Treasury Promotes the ETA to Banks and Federal Check Recipients:
Treasury considers the ETA important because it is the preferred method
of fulfilling the 1996 Debt Collection Improvement Act‘s intention that
unbanked benefit recipients use EFT to receive their payments. However,
providing low-cost electronic services that are attractive to both the
unbanked recipient population and financial institutions presented
Treasury with a major challenge, especially when EFT became optional. In
response to congressional concerns and concerns expressed by consumer
and community-based organizations, federal agencies, and recipients,
Treasury established a broad waiver policy emphasizing consumer choice,
essentially allowing beneficiaries to decide for themselves whether they
wanted to open an ETA.
The ETA is not a checking product and therefore has fewer features than
a traditional checking account (see figure 7 for a listing of ETA
features). For example, while an ETA has a maximum monthly fee of $3.00
and requires no minimum balance, it does not provide a bill-payment
mechanism, such as check writing. Treasury made a deliberate decision
not to include check writing, in part, because of concerns raised by
both financial industry and consumer advocacy groups about the
potential for account misuse, including overdrafts. As ETA providers,
financial institutions are required to offer the account as described
by federal regulation [Footnote 35] and to make it available to anyone
receiving federal benefits, even applicants with a history of check
misuse or fraud. [Footnote 36] To help defray the costs of opening an
ETA, Treasury reimburses financial institutions $12.60 for each account
opened.
Figure 7: The ETA‘s Required Features:
[See PDF for image]
This figure list the following data:
The July 1999 Federal Register Notice establishing the ETA specified
that the account must have the following features:
* It must be an individually owned account at a federally insured
financial institution.
* Anyone receiving federal benefits must be allowed to open an account,
regardless of the recipient's banking history, except when the
individual was previously the owner of an ETA that was closed because
of fraud or had an ETA closed at the same institution because of
misuse.
* Consumers must have the same protections that are available to other
account holders at the financial institution.
* A financial institution may impose fees at its customary rates for
additional withdrawals or lost cards, but overdraft fees may not exceed
$10.
* The account must not allow check writing.
* The account must offer on-line point-of-sale access if such access is
offered to other account holders at the participating financial
institution.
* The maximum monthly fee cannot be more than $3,00 and must include
four free cash withdrawals and four balance inquires per month through
any combination of the bank's automated teller machines and over-the-
counter transactions.
* The financial institution may not require a minimum balance, except
as mandated by state or federal law.
* The financial institution must provide a monthly statement.
Source: Notice of Electronic Transfer Account features, 64 Fed. Reg.
38,510 (July 16, 1999).
[End of figure]
Since the notice establishing the required ETA features was published in
July 1999, Treasury has undertaken a number of promotional activities.
Treasury‘s first step was to enroll or certify financial institutions
to offer the account. According to Treasury officials, recruitment
efforts included making personal contacts with major banks, attending
conferences to generate interest in offering ETAs, and advertising the
ETA in trade publications. However, both Treasury and bank officials
told us that banks were slow to offer the ETA for several reasons,
including having to prepare their computer systems for the year 2000
problem before developing a new product and wanting to ’field test“ the
account before offering it nationwide. Some banks delayed enrolling
because they were merging with other banks.
After some financial institutions began offering ETAs, Treasury began a
nationwide marketing campaign to educate check recipients about the
benefits of the ETA. This campaign, which is still under way, includes
promotional inserts that are included with benefit checks (see app.
II). In addition, Treasury developed materials, such as an educator‘s
guide and video that could be used by community based organizations to
educate check recipients about the ETA. Treasury‘s other efforts include
developing ETA promotional materials such as brochures, posters, and
pens with the ETA logo for distribution to financial institutions and
community organizations promoting the ETA, as well as public service
advertising for newspapers, radio, and television. In addition, Treasury
sponsors what it calls ’Strategic Alliance Meetings“ about a dozen
times a year at different locations around the country. At these
meetings, Treasury educates representatives of community-based
organizations, ETA providers, financial institutions, local federal
program offices (for example, SSA and VA), and local government
officials about the benefits of the ETA and promotes collaborative
efforts locally.
In addition, Treasury contracted with the Federal Reserve Bank of Dallas
(FRB Dallas) to maintain a database of ETA providers that ETA prospects
can access on the Web. FRB Dallas also maintains a toll-free telephone
number that provides the names of local ETA providers to ETA prospects
and in some instances transfers callers directly to the financial
institutions that offer telephone enrollment. FRB Dallas and Treasury
have reported that they are seeking to simplify enrollment because
estimates show that only a small number of those who inquire about the
ETA actually sign up for it. FRB Dallas reported that, in between June
2001 and May 2002, it has received approximately 148,000 inquiries, but
only 19,400 beneficiaries had actually enrolled for ETAs.
We could not determine whether these promotional activities were
effective in reaching the unbanked recipient population because such an
assessment would have required us to interview large numbers of ETA
prospects. However, Treasury provided us with information showing that
mass mailings of promotional brochures, along with checks, coincided
with an increased number of ETA inquiries on the toll-free number,
suggesting that this method is an effective tool for reaching potential
ETA users.
Relatively Few Financial Institutions Offer ETAs Despite Treasury‘s
Promotional Efforts:
As of July 2002, Treasury had entered into agreements with approximately
597 financial institutions with 17,977 branch locations to offer ETAs.
[Footnote 37] Although this number includes 6 of the country‘s 10
largest banks, it represents only about 3 percent of all financial
institutions and 23 percent of all bank branches in the country. In
addition, some states have fewer providers, especially states such as
Mississippi and Alabama, which have an exceptionally low number of ETA
providers. Treasury officials indicated that the number of banks
enrolling in the ETA program has leveled off, and they believe that not
many more banks are likely to enroll. Figure 8 shows the number of
financial institution branch locations available in each state as of
June 7, 2002.
Figure 8: ETA Branches by State, as of June 7, 2002:
[See PDF for image]
This figure is a map of the United States indicating the number of ETA
Branches by State, as of June 7, 2002. The following data is depicted:
Alabama: 9;
Alaska: 29;
Arizona: 643;
Arkansas: 240;
California: 1541;
Colorado: 316;
Connecticut: 240;
Delaware: 3;
Florida: 930;
Georgia: 289;
Hawaii: 16;
Idaho: 219;
Illinois: 799;
Indiana: 625;
Iowa: 315;
Kansas: 210;
Kentucky: 462;
Louisiana: 280;
Maine: 73;
Maryland: 323;
Massachusetts: 456;
Michigan: 648;
Minnesota: 339;
Mississippi: 14;
Missouri: 526;
Montana: 66;
Nebraska: 167;
Nevada: 235;
New Hampshire: 57;
New Jersey: 734;
New Mexico: 218;
New York: 1016;
North Carolina: 327;
North Dakota: 76;
Ohio: 1313;
Oklahoma: 152;
Oregon: 421;
Pennsylvania: 263;
Rhode Island: 53;
South Carolina: 260;
South Dakota: 101;
Tennessee: 195;
Texas: 1598;
Utah: 217;
Vermont: 1;
Virginia: 252;
Washington: 565;
West Virginia: 50;
Wisconsin: 362;
Wyoming: 28.
Source: Federal Reserve Bank of Dallas.
[End of figure]
In addition, data compiled by the Federal Reserve Bank of Dallas show
that the number of ETA providers varies in the 100 counties with the
highest number of check recipients (as measured by checks authorized by
SSA). Looking at coverage in areas such as counties or cities is more
useful than looking at coverage by state because the measurements for
smaller units are more specific. We found that in Dallas, Texas, and
Maricopa County, Arizona, for instance, the proportion of bank branches
offering ETAs was 55 percent and 76 percent, respectively. In contrast,
only 5 percent of bank branches in Philadelphia, Pennsylvania, and 13
percent of those in Dade County, Florida, offered ETAs. [Footnote 38]
While many financial institutions told us that the ETA was a good
product for the targeted market”unbanked individuals, often with a poor
credit history”they added that they were initially reluctant to offer
the account because they did not see the product as profitable, given
its limited market volume and account restrictions (for example, the $3
maximum monthly fee). Several banks pointed out that the ETA was not
providing them with any interest earnings because ETA holders tended to
withdraw their money quickly and thus had low balances. Bank officials
we spoke with reported average balances ranging from $50 to $500. Some
banks also indicated that ETAs did not provide them with cross-selling
opportunities, because customers using these accounts tended to have
limited incomes. Other banks said that they were hesitant to offer the
ETA because of concerns about account misuse and fraud, although most
banks reported that relatively little of this activity materialized, if
only because of the account‘s design and their preventive efforts.
[Footnote 39] Most large financial institutions we interviewed reported
that the $12.60 fee that Treasury reimbursed did not cover their costs
for opening an ETA, although some smaller institutions reported that
the fee was definitely an incentive and was enough to maintain the
account.
Large financial institutions we interviewed that chose to offer the ETA
despite its perceived lack of profitability were more likely to cite
their intention to serve the low-income community or to receive
Community Reinvestment Act (CRA) credit as a factor in their decision.
[Footnote 40] Financial institutions can receive CRA credit for
offering the ETA, but institutions that did not offer the ETA were
satisfied that they served the community by other means and were
meeting their CRA obligation. One major trade group indicated to us
that many banks lost interest in the program once Treasury decided that
participation would be optional, because banks had thought they would
make profits based on volume. Banks also cited other concerns about
offering the ETA, including the cost of reconfiguring their computer
systems, in part to prevent account misuse. In fact, many of the
large financial institutions we interviewed considered this
reconfiguration as a sizeable investment, given that they were unlikely
to earn profits on this account.
Banks‘ Marketing of ETAs Is Often Limited:
Most large financial institutions we interviewed limited their
marketing of the ETA for the same reasons they were reluctant to offer
the ETA in the first place. Institutions said that they lacked
financial incentives to justify extensive marketing because the
accounts were not profitable, given their limited market potential and
account restrictions. Banks said they viewed the ETA as a product
intended primarily for those with poor credit histories, adding that
the ETA‘s $3.00 maximum monthly fee was too low and that they did not
see the potential to earn profits in overdraft and transaction fees.
Some banks noted that other products they offered”such as free checking
and other low-cost accounts”were potentially more profitable and would
be offered to qualified ETA prospects. One bank said that it did not
make sense to promote a product that had such a narrow focus”federal
beneficiaries”and added that demand for ETAs had not met original
projections. As a result, many large financial institutions limited
their marketing efforts to special ETA brochures, which they considered
important because they wanted the ETA to fit in with their brand image
and be associated with their bank logo.
Other marketing efforts included promoting ETAs to those who meet the
ETA ’profile“ and offering financial incentives to tellers. [Footnote
41] Some large banks reported that they sought to increase ETA
enrollment by helping applicants complete the ETA application or
enrolling them for direct deposit at the same time they opened an ETA.
[Footnote 42] In addition, a few large banks had established telephone
enrollment systems that allowed FRB Dallas‘s ETA call center to route
the call directly to the bank‘s enrollment line. In some cases,
customers still had to go to the bank branch to present identification
and complete the paperwork. Despite their limited marketing efforts,
large financial institutions have been able to open more ETAs than
smaller financial institutions, partly because they have more extensive
nationwide branch coverage. Over 75 percent of all ETAs have been
opened by 9 large financial institutions that are ranked among the
top 50 in the country in terms of asset size.
Like the large financial institutions, smaller financial institutions
such as credit unions or savings institutions limited their marketing
of the ETA primarily because they believed they had better products
that were more marketable to ETA prospects. However, many smaller
institutions, some located in low-income neighborhoods with little
branch coverage, tended to market the ETA in a more personal way.
[Footnote 43] These small financial institutions emphasized the need to
’hand-hold“ and the importance of providing financial education to ETA
prospects. For example, one small community development credit union in
Pennsylvania [Footnote 44] told us that the president of the credit
union went door to door handing out flyers that described the ETA‘s
benefits. Another small bank in Louisiana said that the bank held an
’ETA week“ during which the bank distributed ETA promotional materials
at the branch office and offered refreshments to better facilitate
communications with customers. These small institutions were also more
likely to report that they opened ETAs through community outreach
programs that involved visiting churches or senior centers. In
addition, some financial institutions”including a few large ones”
reported offering financial incentives to ETA prospects to open an ETA.
These incentives included waiving the $3.00 monthly service fee for
several months or allowing unlimited ATM withdrawals or teller access at
no additional cost. Small institutions had more ETAs per branch than
large banks but fewer ETAs overall, because small banks have fewer
branches.
While financial institutions generally indicated that they limited their
efforts to market the ETA, they nevertheless used a broad range of
methods to attract ETA prospects. Among the ETA providers we
interviewed, banks primarily targeting the Hispanic community often did
the most extensive outreach, perhaps helping to explain why one-third of
all ETAs have been opened in Puerto Rico. Both large and small financial
institutions have undertaken other marketing efforts, such as the
following:
* One large bank that targets the Hispanic community and has locations
in both Puerto Rico and the United States emphasized that it marketed
the ETA and other products specifically for Hispanics. For example, in
Puerto Rico it sent mobile banks to reach less-populated communities.
In a major metropolitan area like New York, it concentrated on
providing a comfortable environment that included bilingual services
for prospective clients. Smaller banks that serve the Hispanic
community in the United States likewise said that they tried to build
relationships with the local community by participating in local
parades, health fairs, and community gatherings at venues such as
churches.
* Several small financial institutions reported that they coordinated
with local Social Security offices to meet ETA prospects in person.
These banks indicated that they went to local SSA offices equipped with
ETA brochures and, in some cases, were able to open accounts on the
spot. Two large banks said that such collaboration could help promote
the ETA, because a one-step enrollment process would make it easier for
ETA customers to open an account.
* One large bank emphasized the importance of personal contact to
persuade people to open accounts. This bank was one of the few that we
interviewed that cashed government checks for free. Further, this bank
trained its tellers to promote the ETA and had at one point used
coordinators to direct and encourage those standing in line to cash
checks to open the ETA (staff reductions have eliminated this
position). Bank officials told us that they found this strategy to be
highly effective and reported opening a large number of ETAs during the
months when ’coordinators“ were in use.
Several Factors May Keep Potential Customers from Opening an ETA:
As of June 2002, about 36,000 ETAs had been opened, a figure
representing fewer than 1 percent of unbanked federal beneficiaries.
[Footnote 45] We found this figure to hold true regardless of which
estimate we used for the number of unbanked beneficiaries. Treasury
officials indicated to us that it was too soon to evaluate the success
of the ETA because the program was less than 3 years old. But the low
enrollment we found is consistent with feedback we received from some
banks, including community-oriented banks, that told us the ETA had
limited appeal. Treasury‘s own market research indicated that only
276,000 to 818,000 federal beneficiaries would voluntarily enroll in an
ETA, given the account‘s current attributes. [Footnote 46] Current ETA
enrollment thus represents only 4–12 percent of Treasury‘s original
demand projection for the 3 years the ETA has been in operation.
Because information about the characteristics of ETA holders”as well as
of non-ETA holders”is limited, it is difficult to describe all the
factors that affect individual decisions to open an ETA and to
determine which of Treasury‘s promotional activities have proved
effective in persuading people to open an ETA. [Footnote 47] However,
using information from research studies, financial institutions, and
consumer groups, we identified the following factors that may influence
the decision to open an ETA:
* Personal preference: As previously noted, many unbanked people decide
not to open a bank account because they prefer the way they are already
cashing their checks. A 1999 Treasury study found that most unbanked
federal beneficiaries either did not pay to cash their checks or were
satisfied with the way they cashed their checks. [Footnote 48]
* Lack of a payment mechanism: Both financial institutions and consumer
groups suggested that ETA‘s lack of a check-writing feature could affect
the decision to open an ETA because beneficiaries would still have to go
elsewhere to obtain a money order or pay bills.
* Limited availability of banks offering ETAs: As previously noted,
Treasury‘s ETA promotional efforts have resulted in relatively few
financial institutions choosing to offer ETAs. In addition, the number
of bank branches offering ETA varies widely by state. For example, in
states with relatively few bank branches, the number of ETAs is low.
* Lack of consumer awareness: Although Treasury and Social Security
offices have been mailing check inserts and letters about the ETA to
beneficiaries, some consumer groups suggested that many recipients still
lacked information about the ETA.
* Lack of a convenient enrollment procedure: Currently, ETA applicants
must complete several steps to open an ETA. First, they must locate an
ETA provider in their neighborhood, most likely with assistance from the
ETA call center operated by FRB Dallas. Second, many banks require that
applicants complete at least some of the paperwork in person. And
finally, while some banks will enroll the person for direct deposit,
others require that ETA holders contact SSA themselves. As previously
noted, FRB Dallas and Treasury officials told us that they were seeking
to simplify enrollment because such cumbersome enrollment procedures
may be contributing to the low sign-up rate.
Determining Cost Savings, If Any, Is Difficult:
One of the objectives of the 1996 Act was to save the government money
through increased EFT use. However, it is uncertain whether the ETA
program”Treasury‘s preferred method of linking the unbanked to EFT”
will generate savings sufficient to offset the cost of maintaining and
promoting the program. Further, some of the costs of transitioning
benefit recipients to EFT, whether to ETAs or other accounts, have been
shifted to the banks and the benefit recipients themselves.
According to Treasury‘s 1997 estimate, each EFT saves the government
$0.41 per payment. [Footnote 49] Thus, the current enrollment of
approximately 36,000 could save Treasury roughly $177,120 annually,
assuming that each beneficiary receives 12 EFT payments each year. In
comparison, based on information Treasury provided to us, the cost of
promoting the ETA program is roughly between $1 and $2 million a year,
including $722,000 paid to FRB Dallas for managing financial
institutions‘ enrollment and maintaining the ETA database and call
center. [Footnote 50] In addition, Treasury reimburses financial
institutions $12.60 for opening each ETA account. Assuming that 12,000
accounts are opened each year, reimbursement costs would be about
$151,000.
Treasury officials indicated that the value of the ETA program should
not be based simply on the number of ETAs opened. Some benefits are
difficult to quantify, such as the long-term benefits of bringing an
unbanked person into the financial mainstream and reductions in costs
associated with lost checks or fraud associated with checks. Other
government agencies, bank officials, and consumer groups have also
acknowledged that the ETA could provide such long-term benefits.
According to Treasury, the number of ETAs opened also may not
represent the total number of new account holders using direct deposit
because some unbanked recipients may have elected to open other bank
account products. Treasury officials also asserted that, since
Treasury‘s overall goal is to increase electronic payments, it did not
matter whether the recipients opened ETAs or other bank products, so
long as they were using direct deposit or other forms of transferring
funds electronically.
Opportunities May Exist to Increase EFT Participation:
Based on our discussions with representatives from the federal
government, financial institutions, and consumer groups, we identified
approaches that the Treasury could consider to further promote the use
of EFT, especially by unbanked benefit recipients. [Footnote 51] These
approaches, described below, include increasing cooperation between
banks and local SSA offices to enroll beneficiaries for ETAs; exploring
other electronic payment options besides the ETA to deliver benefits;
partnering with banks to provide information on the general
availability of low-cost banking products; and conducting further
research to determine why certain states have unusually low direct
deposit participation rates. Each approach has potential strengths and
weaknesses that vary based on the perspectives of different
stakeholders, such as government agencies and banks. Therefore,
reaching a consensus on the merits of each approach would require
careful consideration.
Increase Cooperation between Banks and Local SSA Offices to Enroll
Beneficiaries for ETAs:
Financial institutions frequently cited cooperation with local SSA
offices as the most productive way to promote ETAs. Some bank officials
told us that, at some SSA offices, banks were able to distribute
information about their products or enroll people on the spot. This
arrangement worked because it provided a way for financial institutions
to market the ETA directly to unbanked benefit recipients who otherwise
might not visit a financial institution. For the beneficiaries, it
provided the opportunity to enroll for both an ETA and direct deposit
at one location. However, SSA and Treasury officials were concerned
about this option because they believed that the presence of a bank in
an SSA office could be misconstrued as an endorsement of that
particular institution. One bank suggested that SSA could invite banks
to market the ETA on a rotating basis one day a month to avoid any
appearance of favoritism.
Option 1: Increase Cooperation between Banks and Local SSA Offices:
Pros:
* Provides one-stop shopping;
* Allows for the personal contact that many experts have said is
important in attracting the unbanked to the financial system;
* Has been proved effective by some banks;
* Entails minimal additional costs.
Cons:
* Creates the possibility that beneficiaries would see SSA as endorsing
banks;
* Requires banks to provide staff;
* Would not reach current recipients or new enrollees who do not have
to visit SSA offices (most recipients).
Explore Other Electronic Payment Options, Such As an Electronic Debit
Card:
SSA officials said that Treasury should consider sponsoring other
electronic payment options, such as a debit card. Financial
institutions we interviewed offered such cards and said that
anticipated user volumes and fees could provide the necessary financial
incentives to deliver this service, which they already provide to
unbanked employees in the private sector. Modeled on the EBT card used
by some states to deliver ’food stamps“ or other cash benefits, the
card could be programmed to work on most ATM networks and would allow
withdrawals and point-of-sale transactions but not deposits or check
writing. [Footnote 52] While the cost to beneficiaries could be higher
than the cost of the ETA, Treasury‘s own research shows that some ETA
prospects, although sensitive to increases in price, may be willing to
pay a higher monthly fee for a product with more features. [Footnote
53] Costs to the benefit recipients or to Treasury could be higher or
lower than the ETA, depending on the number of free ATM withdrawals
allowed per month before recipients and/or Treasury incurs additional
charges. Such arrangements would depend on Treasury‘s contract with the
electronic payment service provider.
Treasury officials objected to this option, noting that it was similar
to the Benefit Security Card that has been used to provide federal and
state payments on the same card and that was piloted in some southern
states. Treasury officials terminated the pilot, even though the vendor
did not charge them to distribute the card, because they did not think
it was successful in all states, and it could be difficult to
administer in the future due to renegotiating and monitoring contracts.
In addition, this product would compete with the ETA without providing
bank accounts. However, SSA officials thought that a product similar to
the Benefit Security Card would be worth reconsidering because it would
not require that individuals open their own bank account and
beneficiaries could obtain the debit card when they first enroll. For
example, in states where use of the Benefit Security Card was highest,
beneficiaries could enroll and receive a card at the same visit. SSA
officials added that they had also considered making the Benefit
Security Card available through a toll-free number, making enrollment
easier for those already receiving benefits.
Option 2: Explore Other Electronic Payment Options:
Pros:
* Would not require opening a personal bank account and would be easy
to obtain;
* Provides recipients with the safety and convenience of direct
deposit;
* For account holders, reduces risks of overdrafts.
Cons:
* Could result in high costs in ATM surcharge fees;
* Requires a government agency to manage contracts with service
providers;
* Could be more expensive to the Treasury and/or the recipient than the
ETA.
Partner with Banks to Promote Other Banking Products, Such as Low-Cost
or Free Checking Accounts, in Addition to the ETA:
As indicated by financial institutions and a recent study by the U.S.
Public Interest Research Group (PIRG), more banks are offering free
checking and no-frill checking products. [Footnote 54] Although
institutions could charge inexperienced customers excessive overdraft
and other fees on these products, PIRG and other nonprofit
organizations said that such products could be more attractive to an
unbanked person than the ETA. Further, these free or low-cost products
could be available in areas where ETAs are not. While Treasury cannot
endorse particular bank products, it could cooperate with financial
institutions to promote low-cost products in general in much the same
way that it promotes direct deposit without mentioning specific banks.
One bank suggested that Treasury broaden the language in the ETA
promotional check inserts to include a general statement about the
availability of free checking accounts and the features customers
should look for when considering these accounts.
Option 3: Partner with Banks to Promote Other Banking Products:
Pros:
* Offers recipients a broader choice in a low-cost checking account
option;
* Offers a banking alternative for recipients in areas where ETAs are
largely unavailable.
Cons:
* Could cost recipients money in the form of overdraft charges and
other fees;
* Could require Treasury to conduct market research on the availability
of free checking accounts.
Determine Why Southeastern States Have the Lowest EFT Participation
Rates:
Data clearly indicate that fewer recipients use EFT in many of the
southeastern states and that the percentage of unbanked beneficiaries in
this region is also high. Thus, additional research focused on these
states could help generate information that could assist in developing
strategies to increase the use of EFT in these states. Treasury agreed
that it might be worthwhile to have a study done specific to the
southeastern geographic area to determine why EFT participation was so
low. Consumer groups and academicians noted that the reasons for being
unbanked might differ widely throughout these states.
Option 4: Determine Why Southeastern States Have the Lowest Direct
Deposit Participation Rates:
Pros:
* Generates information needed to develop effective strategies for
increasing the use of EFT.
Cons:
* Requires time and financial resources.
Achieving Agreement on Alternative Approaches Requires Careful
Consideration:
While opportunities exist to increase EFT use, each identified approach
has potential strengths and weaknesses. Reaching consensus among the
stakeholders is unlikely to be easy because they make decisions based on
their sometimes complementary and sometimes contradictory objectives.
On the one hand, Treasury and the financial institutions promote
electronic payments not only to save money, but also to speed up
transactions and reduce fraud. On the other hand, financial institutions
(other than credit unions) are in business to earn profits and thus
want to offer products other than the ETA that allow them to collect
more fee income through higher monthly fees and overdraft charges.
Finally, check recipients consider their own interests when deciding
whether to open an ETA or other bank account. These stakeholders, who
do not benefit from the savings realized by Treasury and financial
institutions, may not want an ETA or a bank account and may seek
alternative methods of cashing checks and making payments.
The major government stakeholders in the effort to promote EFT,
Treasury and SSA, offered differing views on how best to attract check
recipients to EFT. Treasury officials told us they continued to believe
that the ETA was the best vehicle to offer the unbanked check
recipients. They had explored other options through pilot programs such
as electronic payment cards and said that they determined these options
would be more difficult to administer. They did, however, acknowledge
that they may need to reconsider their strategy based solely on the ETA
if the numbers of unbanked check recipients is higher than they have
estimated, as we suggest.
SSA officials stated that a variety of vehicles for receiving benefits
electronically should be available and not just the ETA. Some type of
electronic transfer of benefits provides the consumer and SSA advantages
not attainable when checks are mailed. These include the safety,
security, and the efficiencies gained by avoiding lost or stolen
checks. Given these differing viewpoints, achieving agreement on the
merits of alternative approaches would likely require careful
consideration.
Conclusions:
The number of recipients of federal benefits using EFT climbed steadily
throughout the 1990s, rising from around one-half to more than three
quarters of all beneficiaries. Correspondingly, during this period the
number of payments made by paper check has also substantially declined.
However, since 1999 the drop in the number of federal check payments
has generally subsided and during this three-year period Treasury
continued to make, on average, over 180 million check payments per
year. In 2001, these checks went to about 14 million federal
beneficiaries. This stabilization in the number of check recipients may
signal that the remaining population of federal check recipients may be
harder to convert to EFT.
The biggest obstacle to Treasury‘s goal of increasing direct deposit is
that a high number of beneficiaries are without bank accounts. Our
analysis of 1998–1999 data from the Bureau of Census‘ Survey of Income
and Program Participation suggests that over 11 million federal
beneficiaries, substantially more than Treasury originally estimated,
were unbanked. This difference in estimates could have profound
implications, as it is much more difficult to attract unbanked federal
benefit recipients to EFT than it is to attract recipients who already
have a bank account. Using the same Census data, we were able to
identify a number of characteristics common to unbanked federal
beneficiaries that could be useful in developing appropriate strategies
to increase EFT use.
Because the ETA has not been widely accepted by banks or unbanked
beneficiaries, it is unlikely to prove successful as the only means to
persuade unbanked federal check recipients to use EFT. Treasury
cautioned that it may be too soon to evaluate the success of the ETA
because the program is less than 3 years old. However, using information
from a variety of sources we identified a number of factors (such as
lack of a payment mechanism) that contribute to the limited appeal of
the ETA and are important to consider when evaluating the usefulness of
the ETA in attracting the unbanked. Further, because research indicates
that other factors affect an individual‘s decision, or ability, to open
a bank account, reaching this market may be difficult without knowing
more about them.
The alternative approaches outlined in this study have potential
strengths and weaknesses but warrant further exploration for two
reasons. First, experience to date has shown that it is unlikely that
Treasury‘s current strategies will convince a majority of federal check
recipients to switch to electronic transfers. Second, given the limited
appeal of the ETA, we question whether the program will generate
savings sufficient to offset Treasury‘s cost of maintaining and
promoting the program. The alternative approaches for further promoting
EFT involve a variety of steps that could be taken ranging from ideas
to improving the efficiency of the ETA‘s enrollment process to
understanding why certain sectors of the country have lower direct
deposit use. Further, we recognize that the private sector has an
important role to play in developing alternative products to attract
check recipients to electronic transfers.
Recommendations:
To assist Treasury in pursuing its goal of convincing unbanked
beneficiaries to use EFT, we make the following recommendations to the
Secretary of the Treasury:
* Revisit the estimate of the number of unbanked federal check
recipients. In doing so, we further recommend that Treasury explore use
of Census SIPP data as a means to both obtain a better estimate of the
extent of federal check beneficiaries who are unbanked and to better
understand the characteristics of the unbanked population.
* Use the information on the extent and characteristics of unbanked
federal check recipients to consider alternative approaches, including
those discussed in this report, to develop a strategy that offers a
greater likelihood of attracting that portion of the unbanked
population that chooses not to open an ETA.
Agency Comments and Our Evaluation:
We requested comments on a draft of this report from the heads, or their
designees, of Treasury and SSA. We obtained written comments on a draft
of this report from Richard L. Gregg, Commissioner of Treasury's
Financial Management Service, that are presented in appendix VI. SSA did
not provide comments. Treasury generally agreed with our
recommendations, outlined how it would respond to each of them, and
made three clarifying points. First, Treasury requested that we
emphasize the role of the Congress in developing the EFT waiver policy
and how Treasury would have needed congressional support in order to
set a more stringent waiver policy. Second, Treasury requested that in
describing how it developed the ETA, we note that Treasury made a
deliberate decision not to include a checking feature because of
concerns raised by the financial industry and consumer advocacy groups
about potential account misuse. We added clarifying remarks in the
report that addressed these points. Third, Treasury committed to
reviewing the data from the SIPP as it relates to the number of
unbanked federal recipients to better understand the characteristics of
that population. However, Treasury expressed concerns about over
reliance on the SIPP data and stated that it would pursue a strategy
that would use SIPP data and other credible data sources in conjunction
with its own empirical data collection efforts to better understand why
check recipients are unbanked. We agree with the actions suggested by
Treasury and believe that such actions are consistent with our
recommendation that Treasury consider alternative approaches offering a
greater likelihood of attracting the portion of the unbanked population
that chooses not to open an ETA. Treasury also provided technical
comments on the draft report that we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the Chairman and Ranking Minority Member of the Senate Committee on
Banking Housing and Urban Affairs, the Chairman and Ranking Minority
Member of the House Committee on Financial Services, and other
congressional committees. We will also send copies to the Secretary of
the Treasury, the Commissioner of the Social Security Administration,
and also will make copies available to others upon request. In
addition, the report will be available at no charge on the GAO Web site
at [hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-8678, hillmanr@gao.gov, or M. Kay Harris at
(202) 512-8415, harrism@gao.gov. Key contributors to this report include
Sonja Bensen, Emily Chalmers, Kyong H. Lee, Grant Mallie, Mark Ramage,
and Carl Ramirez.
Signed by:
Richard J. Hillman:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
An overall objective of this report is to describe how Treasury complied
with the 1996 Debt Collection Improvement Act‘s mandate to promote the
use of electronic funds transfer (EFT) payments to federal beneficiaries
and to identify obstacles to increasing the use of direct deposit. To
meet this objective we (1) provided information on the extent of EFT
usage and the steps federal agencies and others have taken to promote
it; (2) identified obstacles to greater use of the EFT program and
identified characteristics of recipients who do not have bank accounts;
(3) provided information on the current status of the electronic
transfer account (ETA) program, including steps the government has
taken to promote it; and (4) identified options for Treasury to
consider to further promote electronic transfers.
To determine the extent of EFT usage and describe factors contributing
to the increase in direct deposits, we obtained statistical data from
Treasury and the Social Security Administration (SSA) showing the
number of payments made by EFT and check since 1990. In addition, we
discussed the agencies‘ promotional efforts and obtained documentation
of their activities. To identify the characteristics of direct deposit
users, we reviewed studies and obtained the most recent statistical
data from SSA. To describe how nongovernmental entities such as
financial institutions and nonprofit organizations promoted direct
deposit, we interviewed banks of all sizes and several nonprofit
groups, including the Association for the Advancement of Retired
Persons (AARP), the National Community Reinvestment Coalition, and U.S.
Public Interest Research Group (PIRG).
To determine the number of unbanked beneficiaries, we analyzed data
from the Census Bureau‘s Survey of Income and Program Participation
(SIPP). [Footnote 55] The survey population for SIPP consists of
individuals (age 15 and older) residing in the United States but does
not include those in the military and living in institutions such as
nursing homes. [Footnote 56] By design, SIPP allows estimates to be
made at the household, family, or individual level. The SIPP has a
number of strengths that make it a good choice for this analysis. This
survey is intended by the Census Bureau to be a major source of primary
information on income and benefit program participation. It was
specifically designed to assist in formulating and evaluating
initiatives related to federal programs (such as improvements to
entitlement programs such as Social Security) and to produce reliable,
national-level estimates of selected characteristics of all individuals
and families in the United States. In addition, the SIPP oversamples
low-income households, and while the contribution of these respondents
to overall estimates are weighted (statistically adjusted) to be
representative of the entire population, the oversampling has the
advantage of improving the reliability of estimates of characteristics
of lower-income people, such as being unbanked. Finally, the SIPP is
the only national survey that we identified, with the exception of
Treasury‘s 1997 research, that allows us to identify the
characteristics of individual Treasury benefit recipients. [Footnote
57]
SIPP is a panel survey, which means that the same sampled households
are reinterviewed to track changes in their characteristics over time.
SIPP panels last about 4 years, and participating households are
interviewed 12 times (once every 4 months). Each interview, conducted
by telephone and in-person (once a year), is referred to as a ’wave.“
The information collected in SIPP falls into two categories: core and
topical. The core content includes questions on subjects related to
demographic characteristics, labor force participation and program
participation. Core questions are asked during every wave. Other
questions collect in-depth information on specific subjects (such as
detailed asset ownership) and are asked less frequently. Those topical
questions are often found in topical modules that occur in specific
waves.
The focus of our analysis was on identifying whether individuals
receiving benefits had bank accounts. Therefore, we selected the ninth
wave (conducted between December 1998 and March 1999) of the 1996 panel
and the twelfth wave (conducted between December 1999 and March
2000) because they were the most recently available data sets that
contained the ’asset, liabilities, and eligibility“ topical module that
was needed to establish bank account ownership. In particular, the
ninth and twelfth waves contained the most recently available
information on the number of respondents with noninterest-bearing
checking accounts as well as other types of accounts (for example,
savings accounts). We used these survey responses to produce estimates
of the unbanked and their characteristics (e.g., family income,
education level, etc.) as of November 1998 for wave 9 and as of
November 1999 for wave 12. Estimates were produced for both the U.S.
population at large and for federal benefit recipients. For wave 9, the
SIPP included about 28,900 households, or 54,500 individuals, in its
sample. [Footnote 58] Of these, the unweighted number of households
receiving federal benefits in our dataset was 9,677 and the number of
unweighted individuals was 12,824. For wave 12, the SIPP included about
28,100 households, or 53,300 individuals, in its sample. Of these, the
unweighted number of households receiving federal benefits in our
dataset was 9,565 and the number of unweighted individuals was 12,652.
Because the SIPP is based on a probability sample, the specific sample
selected is only one of a large number of possible samples that might
have been drawn. Each of those possible samples could produce slightly
different estimates. The confidence in estimates from a sample is
expressed as a 95 percent confidence interval. This is the interval that
would contain the actual population value for 95 percent of the samples
we could have drawn. Unless otherwise noted, all percentage estimates in
this report have confidence intervals of +/- 3 percentage points or
less. All numerical estimates other than percentages have confidence
intervals of +/- 6 percent or less of the value of those numerical
estimates, unless otherwise noted. [Footnote 59] We also performed
tests of association between variables for which we produced cross-
tabulations. As a result we only report on relationships that were
found to be significant at the .05 level or better.
We recognize that our estimate of the unbanked population at large may
be compared to the results of the Federal Reserve Board‘s Survey of
Consumer Finances (SCF). For 1998, using data from the SCF, analysts
determined that about 9.5 percent of households did not have any type of
transaction account. [Footnote 60] However, these estimates are not
directly comparable because the SIPP collects information, such as
whether a person has a bank account, from each member of a household
but the SCF does not. The SCF collects information from the household‘s
’primary economic unit,“ the person considered to be the economically
dominant single individual or couple in the sampled dwelling. This
survey does not collect data for individuals who are financially
independent of the primary economic unit in the sampled dwelling. Thus,
this survey could exclude subpopulations that would be included in the
SIPP sample, such as roommates, grown children, and grandparents with
their own retirement income. To the extent that these differences do
not account for varying estimates of the unbanked, certain
characteristics of the SIPP make it a more reliable source of such
estimates. For instance, the ninth wave of the 1996 SIPP included
28,900 households, whereas the 1998 SCF included only 4,300 selected
’households.“
Because the SIPP survey data did not include questions asking why
recipients chose to remain unbanked, we analyzed the findings of studies
that had surveyed segments of the unbanked population. These studies
included Treasury research that focused on unbanked federal check
recipients, as well as research on broader cross-sections of the
unbanked population. While the research methodologies varied and the
analyses were limited to specific geographic areas, these studies
provided valuable insights into the characteristics of this population,
which is unusually difficult to survey. To supplement these analyses,
we interviewed a broad range of people with expertise on the unbanked,
including researchers at the Federal Reserve and Office of the
Comptroller of the Currency, academicians (for example, at Swarthmore
College and the University of North Carolina), and consumer groups.
To describe the status of the ETA program and government efforts to
promote it, we interviewed officials from Treasury and SSA and obtained
documentation that described how these agencies have promoted the ETA
program. We also observed a promotional event in Atlanta, Georgia,
sponsored by Treasury. In addition, we analyzed data provided by
Treasury and the Federal Reserve Bank of Dallas on the number of banks
and participants enrolled in the ETA program. In addition, we
interviewed a cross-section of 21 financial institutions that included
16 ETA providers and 5 nonproviders. In selecting financial
institutions, we considered factors such as the type and size of
institution, geographic diversity, and any special projects that
institution had undertaken to promote either the ETA or direct deposit
in general. We asked each institution why it did or did not offer the
ETA, what low-cost products it offered and, if applicable, how it
marketed the ETA. We also obtained the views of several bank trade
associations, including the American Bankers Association and the
Community Bankers Association, on the reasons banks did or did not
agree to offer the ETA. In addition, we interviewed consumer groups such
as the AARP, U.S. PIRG, and Consumers Union to obtain their perspective
on how the ETA benefits consumers. We also analyzed various studies that
Treasury conducted when developing the ETA.
To identify options for Treasury to consider to further promote EFT, we
identified those most frequently mentioned by financial institutions
based on their experiences with promoting the ETA. We also interviewed
directors of the Electronic Benefit Transfer program who had experience
with implementing the Benefit Security Card in Florida, Georgia, and
Missouri and spoke with vendors”Citicorp Electronic Financial Services
and EFunds”that supported distribution of that card. To identify the
pros and cons associated with each option, we obtained comments from
Treasury, SSA, the Federal Reserve Board, the Office of the Comptroller
of the Currency, and several nonprofit organizations.
We conducted our interviews of banks in various locations in the Midwest
and the Northeast and did field work in Atlanta, Georgia. We conducted
our work between August 2001 and July 2002 in accordance with generally
accepted government auditing standards.
[End of section]
Appendix II: Example of Check Insert Used to Promote ETAs:
English Side:
A message from the U.S. Department of the Treasury:
If you receive a Federal benefit, wage, salary, or retirement payments,
you can open an Electronic Transfer Account, or ETA. Even if you have
been unable to qualify for a checking or savings account in the past.
You don't need a mailbox to get your Federal payments.
Basic ETA Features:
* $3 a month or less (for basic services):
* Automatic deposit into your account;
* At least four free monthly withdrawals;
* At least four free balance inquiries;
* No minimum balance needed (unless required by law).
Call 1-888-382-3311 to learn where you can open an ETA. Or visit our
Web site at: [hyperlink, http://www.eta-find.gov].
Contact your Federal paying agency if you have any questions about your
Federal payment.
Spanish Side:
The same information is provided in Spanish.
Source: Treasury.
[End of section]
Appendix III: Direct Deposit Use by State, 2002:
Benefit Type: OASI;
West Virginia: 67.9%;
Louisiana: 70.9%;
Kentucky: 75.1%;
Alabama: 77.1%;
North Carolina: 77.3%;
Arkansas: 77.9%;
Tennessee: 78.1%;
Ohio: 78.3%;
South Carolina: 78.3%;
District of Columbia: 78.4%;
Georgia: 78.5%;
Texas: 79.0%;
Virginia: 79.6%;
Mississippi: 79.7%;
Pennsylvania: 80.0%;
Maine: 80.3%;
New York: 80.5%;
Maryland: 80.6%;
Indiana: 80.8%;
Connecticut: 80.9%;
Oklahoma: 81.4%;
Massachusetts: 81.6%;
New Jersey: 81.6%;
Rhode Island: 81.8%;
Missouri: 81.8%;
North Dakota: 81.9%;
Alaska: 82.0%;
Illinois: 82.2%;
New Mexico: 83.1%;
Michigan: 83.9%;
New Hampshire: 84.3%;
South Dakota: 84.6%;
Vermont: 84.7%;
Wisconsin: 84.9%;
Kansas: 85.1%;
Minnesota: 85.7%;
Colorado: 86.0%;
Montana: 86.6%;
Nebraska: 86.8%;
Nevada: 86.8%;
California: 87.0%;
Iowa: 87.3%;
Delaware: 87.7%;
Hawaii: 88.0%;
Utah: 88.1%;
Idaho: 88.1%;
Wyoming: 88.6%;
Arizona: 90.1%;
Oregon: 90.5%;
Florida: 90.5%;
Washington: 91.0%.
Benefit Type: DI;
West Virginia: 52.7%;
Louisiana: 55.0%;
Kentucky: 58.7%;
District of Columbia: 61.6%;
Alabama: 62.4%;
South Carolina: 62.5%;
Ohio; 63.5%;
Virginia: 63.8%;
Texas: 64.2%;
Tennessee: 64.4%;
North Carolina: 64.4%;
Arkansas: 64.6%;
Georgia: 65.1%;
Mississippi: 65.4%;
Maine: 65.5%;
New Hampshire: 66.4%;
Connecticut: 66.8%;
Colorado: 67.5%;
Massachusetts: 68.0%;
Indiana: 68.2%;
Illinois: 68.7%;
Maryland: 69.1%;
Rhode Island: 69.1%;
New York: 69.6%;
Michigan: 69.7%;
New Jersey: 70.2%;
Missouri: 70.5%;
Oklahoma: 70.7%;
Vermont: 71.4%;
Pennsylvania: 71.5%;
Kansas: 71.5%;
Wyoming: 72.4%;
New Mexico: 72.5%;
Delaware: 72.8%;
Utah: 73.0%;
Minnesota: 73.6%;
Montana: 74.3%;
Nevada: 74.4%;
Washington: 74.5%;
California: 74.7%;
Wisconsin: 74.9%;
Iowa: 75.5%:
Arizona: 75.5%;
Florida: 75.6%;
Idaho: 75.9%;
Oregon: 77.1%;
Nebraska: 78.0%;
Hawaii: 78.2%;
South Dakota: 78.6%;
Alaska: 79.4%;
North Dakota: 79.8%.
Benefit Type: SSI;
West Virginia 31.3%;
Louisiana: 35.1%;
Kentucky: 36.4%;
South Carolina: 36.7%;
North Carolina: 38.6%;
Alabama: 40.5%;
Georgia: 41.7%;
Ohio: 41.7%;
Texas: 41.7%;
Virginia: 41.8%;
Oklahoma: 42.6%;
Tennessee: 42.7%;
New Mexico: 44.2%;
Arkansas: 44.4%;
Connecticut: 45.4%;
Colorado: 46.0%;
Indiana: 46.2%;
Missouri: 47.3%;
Maine: 47.4%;
Minnesota: 48.1%;
Kansas: 48.9%;
Mississippi: 48.9%;
District of Columbia: 49.1%;
Utah: 49.2%;
Arizona: 49.5%;
Nevada: 49.5%;
Michigan: 49.9%;
Illinois: 50.3%;
Maryland: 50.6%;
New Hampshire: 51.8%;
New Jersey: 51.8%;
Montana: 51.9%;
Nebraska: 52.3%;
Rhode Island: 52.9%;
Iowa: 53.0%;
Alaska: 53.4%;
Delaware: 53.5%;
Wyoming: 53.7%;
Wisconsin: 54.2%;
Florida: 55.0%;
Washington: 55.3%;
Idaho: 55.6%;
Vermont: 56.1%;
Pennsylvania: 56.7%;
New York: 56.9%;
Hawaii: 57.1%;
South Dakota: 57.3%;
North Dakota: 57.5%;
Oregon: 57.7%;
Massachusetts: 60.7%;
California: 66.7%.
Source: SSA, OASI and DI data for February 2002 and SSI data for May
2002.
[End of section]
Appendix IV: Characteristics of Unbanked Federal Beneficiaries and the
Unbanked Population at Large:
We used the Census Bureau‘s Survey of Income and Program Participation
(SIPP) to estimate the number of unbanked federal beneficiaries and
determine some of their characteristics (for example, income and
educational level). Because most unbanked beneficiaries receive a
benefit from the Social Security Administration, we provide these
estimates specifically for individuals receiving Old-Age, Survivors,
and Disability Insurance (OASDI) and Supplemental Security Income (SSI)
program benefits. In addition, we analyzed the SIPP to obtain similar
estimates for the unbanked population at large, which includes OASDI
and SSI recipients, and the portion of the U.S. population that does
not receive OASDI benefits. The figures in this appendix show estimates
for all of these groups.
The source for all of these estimates is from the twelfth wave of the
1996 SIPP panel, representative of November 1999. Unless otherwise
noted, the 95 percent confidence intervals for all the estimates
presented are +/- 3 percent or less.
Figure 9: Number of Unbanked Adults and Federal Beneficiaries, 1999:
[See PDF for image]
This figure is a vertical bar graph, depicting the following
information:
All U.S. Adults:
Individuals: 55.9 million;
Households: 22.2 million.
Treasury check recipients:
Individuals: 11.5 million;
Households: 7.5 million.
OSADI recipients:
Individuals: 8.7 million;
Households: 5.9 million.
SSI recipients:
Individuals: 3.9 million;
Households: 2.8 million.
Note: The 95 percent confidence intervals for Treasury, OASDI, and SSI
estimates are +/- 6 percentage points or less.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
Figure 10: Proportion of Unbanked U.S. Adults and Federal
Beneficiaries, 1999:
[See PDF for image]
This figure is a vertical bar graph, depicting the following
information:
All U.S. Adults:
Individuals: 28%;
Households: 20%.
Treasury check recipients:
Individuals: 26%;
Households: 22%.
OSADI recipients:
Individuals: 23%;
Households: 20%.
SSI recipients:
Individuals: 67%;
Households: 53%.
Note: This figure shows that 67 percent of individual adult SSI
recipients were unbanked in November 1999. However, FMS data shows that
for fiscal year 2000, 51 percent of SSI payments were made by check.
See appendix I, footnote 59 for additional information on this
difference.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
Figure 11: Unbanked Recipients and Income Level:
[See PDF for image}
This figure contains a series of pie-charts and vertical bar graphs,
depicting the following data:
Unbanked federal beneficiaries by income group (percent):
Unbanked all U.S. adults:
Less than $15,000: 27%;
$15,000-$29,999: 28%;
$30,000-$44,999: 17%;
$45,000 or more: 27%.
Unbanked non-OASDI recipients:
Less than $15,000: 25%;
$15,000-$29,999: 28%;
$30,000-$44,999: 18%;
$45,000 or more: 30%.
Unbanked OASDI recipients:
Less than $15,000: 43%;
$15,000-$29,999: 32%;
$30,000-$44,999: 13%;
$45,000 or more: 13%.
Unbanked SSI recipients:
Less than $15,000: 59%;
$15,000-$29,999: 22%;
$30,000-$44,999: 8%;
$45,000 or more: 11%.
Note: Income refers to family income. The 95 percent confidence
intervals for SSI percentage estimates are within +/- 4 percentage
points.
Unbanked and banked beneficiaries within each income group (percent):
All U.S. adults:
Less than $15,000: Unbanked, 51%; Banked, 49%;
$15,000-$29,999: Unbanked, 36%; Banked, 64%;
$30,000-$44,999: Unbanked, 25%; Banked, 75%;
$45,000 or more: Unbanked, 17%; Banked, 83%;
Non-OASDI recipients:
Less than $15,000: Unbanked, 60%; Banked, 40%;
$15,000-$29,999: Unbanked, 42%; Banked, 58%;
$30,000-$44,999: Unbanked, 27%; Banked, 73%;
$45,000 or more: Unbanked, 17%; Banked, 83%;
OASDI recipients:
Less than $15,000: Unbanked, 35%; Banked, 65%;
$15,000-$29,999: Unbanked, 22%; Banked, 78%;
$30,000-$44,999: Unbanked, 16%; Banked, 84%;
$45,000 or more: Unbanked, 15%; Banked, 85%;
SSI recipients:
Less than $15,000: Unbanked, 67%; Banked, 33%;
$15,000-$29,999: Unbanked, 72%; Banked, 28%;
$30,000-$44,999: Unbanked, 63%; Banked, 37%;
$45,000 or more: Unbanked, 59%; Banked, 41%.
Note: The 95 percent confidence intervals for SSI percentage estimates
are within +/- 9 percentage points.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
Figure 12: Unbanked Recipients and Educational Level:
[See PDF for image}
This figure contains a series of pie-charts and vertical bar graphs,
depicting the following data:
Unbanked federal beneficiaries, by education level (percent):
Unbanked all U.S. adults:
Less than high school: 32%;
High school: 37%;
Some college: 18%;
Certification: 12%;
Graduate school: 2%.
Unbanked non-OASDI recipients:
Less than high school: 28%;
High school: 38%;
Some college: 19%;
Certification: 13%;
Graduate school: 2%.
Unbanked OASDI recipients:
Less than high school: 51%;
High school: 31%;
Some college: 9%;
Certification: 7%;
Graduate school: [Empty].
Unbanked SSI recipients:
Less than high school: 61%;
High school: 28%;
Some college: 5%;
Certification: 5%;
Graduate school: [Empty].
Note: The 95 percent confidence intervals for SSI percentage estimates
are within +/-4 percentage points. We are not reporting the percentage
of graduate school participants for OASDI and SSI recipients because
the sample was too small to produce reliable estimates.
Unbanked and banked beneficiaries grouped within each income level
(percent):
All U.S. adults:
Less than high school: Unbanked, 53%; banked, 47%;
High school: Unbanked, 32%; banked, 68%;
Some college: Unbanked, 26%; banked, 74%;
Certification: Unbanked, 13%; banked, 87%;
Graduate school: Unbanked, 8%; banked, 92%;
Non-OASDI recipients:
Less than high school: Unbanked, 62%; banked, 38%;
High school: Unbanked, 35%; banked, 65%;
Some college: Unbanked, 27%; banked, 73%;
Certification: Unbanked, 14%; banked, 86%;
Graduate school: Unbanked, 8%; banked, 92%;
OASDI recipients:
Less than high school: Unbanked, 36%; banked, 64%;
High school: Unbanked, 20%; banked, 80%;
Some college: Unbanked, 16%; banked, 84%;
Certification: Unbanked, 11%; banked, 89%.
SSI recipients:
Less than high school: Unbanked, 72%; banked, 28%;
High school: Unbanked, 63%; banked, 37%;
Some college: Unbanked, 51%; banked, 49%;
Certification: Unbanked, 56%; banked, 44.
Note: The 95 percent confidence intervals for SSI percentage estimates
are within +/-12 percentage points. We are not reporting the percentage
of graduate school participants for OASDI and SSI recipients because
the sample was too small to produce reliable estimates.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
Figure 13: Unbanked Recipients and Ethnic Group:
[See PDF for image}
This figure contains a series of pie-charts and vertical bar graphs,
depicting the following data:
Unbanked federal beneficiaries, by ethnic group (percent):
Unbanked all U.S. adults:
White: 55%;
Black: 21%;
Hispanic: 18%;
Other: 5%.
Unbanked non-OASDI recipients:
White: 53%;
Black: 21%;
Hispanic: 20%;
Other: 6%.
Unbanked OASDI recipients:
White: 66%;
Black: 21%;
Hispanic: 10%;
Other: 3%.
Unbanked SSI recipients:
White: 42%;
Black: 33%;
Hispanic: 16%;
Other: 9%.
Note: The 95 percent confidence intervals for SSI percentage estimates
are within +/-4 percentage points.
Unbanked and banked beneficiaries within each ethnic group (percent):
All U.S. adults:
White: Unbanked 21%; Banked, 79%;
Black: Unbanked 52%; Banked, 48%;
Hispanic: Unbanked 50%; Banked, 50%;
Other: Unbanked 34%; Banked, 66%.
Unbanked non-OASDI recipients:
White: Unbanked 22%; Banked, 78%;
Black: Unbanked 52%; Banked, 48%;
Hispanic: Unbanked 50%; Banked, 50%;
Other: Unbanked 34%; Banked, 66%.
Unbanked OASDI recipients:
White: Unbanked 18%; Banked, 82%;
Black: Unbanked 52%; Banked, 48%;
Hispanic: Unbanked 43%; Banked, 57%;
Other: Unbanked 37%; Banked, 63%.
Unbanked SSI recipients:
White: Unbanked 58%; Banked, 42%;
Black: Unbanked 81%; Banked, 19%;
Hispanic: Unbanked 70%; Banked, 30%;
Other: Unbanked 64%; Banked, 36%.
Note: The 95 percent confidence intervals for U.S. adults and non-OASDI
percentage estimates are within +/-4 percentage points, and for SSI
percentage estimates are within +/-9 percentage points.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
Figure 14: Unbanked and Banked Beneficiaries Grouped by Marital Status:
[See PDF for image}
This figure contains a series of pie-charts and vertical bar graphs,
depicting the following data:
Unbanked federal beneficiaries, by marital status (percent):
Unbanked all U.S. adults:
Married: 37%;
Unmarried: 63%.
Unbanked non-OASDI recipients:
Married: 37%;
Unmarried: 63%.
Unbanked OASDI recipients:
Married: 38%;
Unmarried: 62%.
Unbanked SSI recipients:
Married: 20%;
Unmarried: 80%.
Unbanked and banked beneficiaries within each marital status (percent):
All U.S. adults:
Married: Unbanked, 18%; Banked, 82%;
Unmarried: Unbanked, 41%; Banked, 59%;
Unbanked non-OASDI recipients:
Married: Unbanked, 19%; Banked, 81%;
Unmarried: Unbanked, 43%; Banked, 57%;
Unbanked OASDI recipients:
Married: Unbanked, 16%; Banked, 84%;
Unmarried: Unbanked, 30%; Banked, 70%;
Unbanked SSI recipients:
Married: Unbanked, 52%; Banked, 48%;
Unmarried: Unbanked, 71%; Banked, 29%;
Note: The 95 percent confidence intervals for SSI percentage estimates
are within +/-6 percentage points.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
Figure 15: Unbanked Recipients and Age Group:
[See PDF for image}
This figure contains a series of pie-charts and vertical bar graphs,
depicting the following data:
Unbanked federal beneficiaries, by age group (percent):
Unbanked all U.S. adults:
18-35: 47%;
36-64: 41%;
65+: 12%.
Unbanked non-OASDI recipients:
18-35: 55%;
36-64: 43%;
65+: 2%.
Unbanked OASDI recipients:
18-35: 28%;
36-64: 66%;
65+: 6%.
Unbanked SSI recipients:
18-35: 24%;
36-64: 47%;
65+: 29%.
Unbanked and banked beneficiaries within each age group (percent):
All U.S. adults:
18-35: Unbanked, 39%; Banked, 61%;
36-64: Unbanked, 23%; Banked, 77%;
65+: Unbanked, 21%; Banked, 79%;
Unbanked non-OASDI recipients:
18-35: Unbanked, 38%; Banked, 62%;
36-64: Unbanked, 22%; Banked, 78%;
65+: Unbanked, 36%; Banked, 64%;
Unbanked OASDI recipients:
18-35: Unbanked, 63%; Banked, 37%;
36-64: Unbanked, 33%; Banked, 67%;
65+: Unbanked, 19%; Banked, 81%;
Unbanked SSI recipients:
18-35: Unbanked, 76%; Banked, 24%;
36-64: Unbanked, 67%; Banked, 33%;
65+: Unbanked, 60%; Banked, 40%;
Note: The 95 percent confidence intervals for non-OASDI percentage
estimates are within +/- 4 percentage points for the 65+ category; for
OASDI percentage estimates are within +/- 9 percentage points for the
18-35 category; and for SSI percentage estimates are within +/- 6
percentage points.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
Figure 16: Unbanked Recipients and Gender:
[See PDF for image}
This figure contains a series of pie-charts and vertical bar graphs,
depicting the following data:
Unbanked federal beneficiaries, by gender (percent):
Unbanked all U.S. adults:
Male: 49%;
Female: 51%.
Unbanked non-OASDI recipients:
Male: 50%;
Female: 50%.
Unbanked OASDI recipients:
Male: 45%;
Female: 55%.
Unbanked SSI recipients:
Male: 43%;
Female: 57%.
Unbanked and banked beneficiaries within each gender (percent):
All U.S. adults:
Male: Unbanked, 29%; Banked, 71%;
Female: Unbanked, 27%; Banked, 73%.
Unbanked non-OASDI recipients:
Male: Unbanked, 30%; Banked, 70%;
Female: Unbanked, 28%; Banked, 72%.
Unbanked OASDI recipients:
Male: Unbanked, 24%; Banked, 76%;
Female: Unbanked, 22%; Banked, 78%.
Unbanked SSI recipients:
Male: Unbanked, 69%; Banked, 31%;
Female: Unbanked, 65%; Banked, 35%.
Note: The 95 percent confidence intervals for SSI percentage estimates
are within +/- 4 percentage points.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
[End of section]
Appendix V: Location of the Unbanked by Region:
Figure 17: Regions of the United States:
[See PDF for image]
This figure is a map of the United States, depicting the following
regions:
Northeast;
Southeast;
Central;
Southwest;
Midwest;
West.
Note: The purpose of these analyses is to provide a rough sense of how
the percentage of unbanked individuals varies across the United States
because the SIPP does not allow us to make estimates on a state-by-
state basis. Each state would have too few surveyed respondents to
produce reliable results. Thus, we divided the United States into six
clusters of states prior to performing our analyses, largely based on
how one federal agency has divided its regional offices. While we
planned to estimate the percent of unbanked individuals for the West
and Midwest separately, the way in which SIPP grouped states with too
few survey respondents did not permit us to do so. Thus, we are
reporting the percent of unbanked individuals in the west and Midwest
as one region.
[End of figure]
Figure 18: Unbanked Recipients and Regional Location:
[See PDF for image]
This figure contains a series of pie-charts and vertical bar graphs,
depicting the following data:
Unbanked federal beneficiaries, by region location (percent):
Unbanked all U.S. adults:
West/Midwest: 27%;
Southeast: 25%;
Northeast: 18%;
Central: 16%;
Southwest: 14%.
Unbanked OASDI and SSI recipients:
West/Midwest: 22%;
Southeast: 30%;
Northeast: 19%;
Central: 17%;
Southwest: 12%.
Note: The confidence intervals for the Southeast for OASDI and SSI
recipients are within +/- 4 percentage points.
Unbanked federal beneficiaries within each region location (percent):
Unbanked all U.S. adults:
West/Midwest: Unbanked, 26%; Banked, 73%.
Southeast: Unbanked, 34%; Banked, 66%.
Northeast: Unbanked, 23%; Banked, 77%.
Central: Unbanked, 25%; Banked, 75%.
Southwest: Unbanked, 36%; Banked, 64%.
Unbanked OASDI and SSI recipients:
West/Midwest: Unbanked, 22%; Banked, 78%.
Southeast: Unbanked, 35%; Banked, 65%.
Northeast: Unbanked, 23%; Banked, 77%.
Central: Unbanked, 25%; Banked, 75%.
Southwest: Unbanked, 36%; Banked, 64%.
Note: The confidence intervals for the Southwest are within +/- 4
percentage points.
Source: GAO analysis of November 1999 SIPP data.
[End of figure]
[End of section]
Appendix VI: Comments from the Department of the Treasury:
Commissioner:
Department Of The Treasury:
Financial Management Service:
Washington, D.C. 20227:
September 3, 2002:
Mr. Richard J. Hillman:
Director:
Financial Markets and Community Investment:
United States General Accounting Office:
Washington, DC 20548:
Dear Mr. Hillman:
This letter gives our comments on the draft report entitled, Electronic
Transfers: Use By Federal Payment Recipients Has Increased But
Obstacles Remain To Greater Participation (GAO-02-913). We have
enclosed our plan in response to your recommendations. Also enclosed is
a copy of the editorial comments we provided during our informal
meeting with you and members of your staff on August 26, 2002. The
following comments recap concerns discussed at that meeting.
Waivers. Treasury received guidance from Congress regarding waivers to
the EFT provisions of the Debt Collection Improvement Act (DCIA) of
1996. Congress made it clear that Treasury's implementation of the DCIA
must include generous waiver provisions. Copies of two bills that were
introduced in Congress to amend the DCIA to provide for broad waivers,
as well as Congressional testimony regarding the need for Treasury to
make available broad or automatic waivers, have been enclosed.
Treasury's final regulation provided that a federal payment recipient
may continue to receive checks by mail if payment by electronic funds
transfer would impose a hardship due to a physical or mental
disability, a geographic, language, or literacy barrier, or would
impose a financial hardship. To include more stringent waiver
provisions in our regulation, Treasury would need Congressional
support. Therefore, in addition to the editorial change to page 1,
sentence 7, provided on August 26, please revise page 1, paragraph 1,
to reflect Congress' role in developing the EFT waiver policy.
Account features. The DCIA required that each person affected by the
mandate has access to a low cost account at a financial institution at
a reasonable cost and with certain consumer protections. When
developing the ETA in response to that mandate, Treasury made a
deliberate decision not to include a cheek-writing feature. To
emphasize this point, please revise page 29, paragraph 2, sentence 3 to
read as follows: "Treasury made a deliberate decision not to include
check writing, in part because of concerns raised by both financial
industry and consumer advocacy groups about the potential for account
misuse, including overdrafts."
Data. Treasury will review the data from the Bureau of the Census
Survey of Income and Program Participation (SIPP) as it relates to the
number of unbanked federal recipients to better understand the
characteristics of that population. However, Treasury has concerns that
the SIPP data may not provide an accurate estimate of the number of
recipients who are unbanked. Further, Treasury believes that while it
is important to have reliable information on the number of unbanked
recipients, it is more important, for purposes of management decision
making, to understand why these recipients are unbanked.
We intend to pursue a strategy involving targeted pilots, such as
developing customized programs for particular cities or states. In
doing so, we hope to collect more thorough empirical data on unbanked
populations. Collection of this richer empirical data, along with data
from the Bureau of the Census Survey of Income Program Participation,
Federal Reserve data, and other credible sources, will help develop
alternative strategies for converting the unbanked to electronic
payments.
We appreciate the opportunity to respond to this draft report. If you
wish to discuss our response, you may contact Bettsy Lane, Assistant
Commissioner, Federal Finance, on (202) 874-6720.
Sincerely,
Signed by:
Richard L. Gregg:
Enclosures:
cc: Donald Hammond:
Enclosure:
GAO-02-913 Implementation Plan:
Recommendation 1. We recommend that Treasury revisit its estimate of
the number of unbanked federal check recipients. In doing so, we
further recommend that Treasury explore the use of Census SIPP data as
a means to both obtain a better estimate of the extent of federal check
beneficiaries who are unbanked and to better understand the
characteristics of the unbanked population.
Response:
We will review and analyze the data from the Bureau of the Census
Survey of Income and Program Participation (SIPP).
Completion Date: June 15, 2003.
Recommendation 2. We recommend that Treasury use the information on the
extent and characteristics of unbanked federal check recipients to
consider alternative approaches, including those discussed in this
report, to develop a strategy that offers a greater likelihood of
attracting that portion of the unbanked population that chooses not to
open an ETA.
Response:
We agree to use the information on the extent and characteristics of
unbanked federal check recipients to consider alternative approaches to
develop a strategy that offers a greater likelihood of increasing the
use of electronic funds transfer.
Completion Date: September 15, 2003.
[End of enclosure]
[End of section]
Footnotes:
[1] Pub. L. No. 104-134, Title III, §31001(x) (1996).
[2] The statute provides Treasury with the authority to waive
application of the EFT requirement for those individuals with a
hardship. Treasury‘s final regulations define hardship to be a physical
or mental disability; a geographic, language, or literacy barrier; or a
financial hardship. Treasury‘s final regulations do not require that
this determination of hardship be made in writing.
[3] While this report focuses on the delivery of payments to federal
beneficiaries, the law specifies that all of the following payments
must be made by electronic fund transfer: (1) federal wage, salary, and
retirement payments; (2) vendor and expense reimbursement payments; and
(3) benefit payments.
[4] The ACH network is a funds transfer system governed by a specific
set of rules that provides for the interbank clearing of electronic
entries for participating institutions. Both the Federal Reserve System
and the private sector provide ACH services. A 1997 GAO report on the
U. S. payment system provides additional information on the ACH network
(Payments, Clearance, and Settlement: A Guide to the Systems, Risks,
and Issues, GAO/GGD-97-73, June 20, 1997).
[5] In this report, we often refer to electronic funds transfers (EFT)
as ’direct deposit“”the term Treasury and SSA use in their marketing
materials. However, Treasury‘s final regulation on EFT, issued
September 25, 1998, differentiates between direct deposit and what are
called electronic benefit transfers (EBTs). EBTs include federal
payments made through (1) an electronic transfer account and (2) a
debit card such as a benefit security card. Direct deposits are made
into accounts for which Treasury assumes no responsibility. But under
the EBT system, Treasury authorizes financial institutions to act as
its agent in overseeing accounts that receive transfers.
[6] Treasury published a final rule implementing the use of direct
deposit (Management of Federal Agency Disbursements, 31 C.F.R. 208,
September 25, 1998). This rule became effective on January 2, 1999. In
addition, on July 16, 1999 Treasury published a notice describing the
required features of the ETA that went into effect immediately.
[7] Treasury asked BoozAllen & Hamilton, Shugoll Research, and Dove
Associates to conduct these studies, which were in part based on
research that surveyed the check recipient population. According to
Treasury officials, these studies did not survey benefit recipients
under the age of 18.
[8] In this report, by bank account, we mean a checking, a savings, or
a transaction account like the ETA.
[9] We used the SIPP to make these estimates for a previous report.
U.S. General Accounting Office, Banking: Government Check-Cashing
Issues, GAO/GGD-89-12 (Washington, D.C.: Oct. 7, 1988).
[10] More information about this survey can be found in appendix I.
[11] ’Helping People in Your Community Understand Basic Financial
Services,“ developed by the Financial Services Education Coalition.
[12] We also analyzed participation by gender but did not find
meaningful differences.
[13] States with the highest OASI participation include Arizona,
Florida, Idaho, Oregon, Washington, and Wyoming. States with the
highest DI participation include Alaska, Hawaii, Nebraska, North
Dakota, Oregon, and South Dakota. States with the highest SSI
participation include California, Hawaii, Massachusetts, New York,
North Dakota, Oregon, Pennsylvania, and South Dakota.
[14] SSA officials reported that applicants for SSI are required to
identify their financial assets. However, these officials said that SSA
does not centralize this information in a way that allows it to be used
to determine the number of SSI recipients without bank accounts.
[15] These estimates were derived by Dove Associates (ETA Initiative
Final Report, June 15, 1998) based on research conducted by BoozAllen &
Hamilton, Shugoll Research (Mandatory EFT Demographic Study, April 22,
1997). Treasury contracted for this three-phase research, and
additional research based on this work by Dove Associates, as part of
its preparations for implementing the EFT program. While the Shugoll
study provided useful information about the characteristics of unbanked
federal beneficiaries, it had a number of limitations with regard to
estimating the number of unbanked beneficiaries. For instance, it was
conducted only in English and relied in part on telephone surveys that
could have excluded low-income households without telephone service.
Treasury officials told us that the mail portion of the survey
indicated that 27 percent of the check recipients did not have bank
accounts.
[16] SIPP was designed specifically to assist in creating and
evaluating programs like those administered by SSA. It provides
information on the demographic and economic situation of the civilian,
noninstitutionalized adult population of the United States. For the
purpose of assessing the accuracy of Treasury‘s 1997 estimates, we
analyzed SIPP data from 1998. In addition, to identify whether changes
may have taken place since 1998, we analyzed 1999 survey data from the
SIPP. The 1999 survey data are the most recently available from the
Census that allowed us to define a bank account to include noninterest-
bearing checking accounts as well as other accounts such as savings and
interest-bearing checking. A summary of these data can be found in
appendix IV.
[17] See appendix I for an explanation of how we arrived at our
estimates and what factors may affect those estimates. Confidence
intervals for estimates for based on the 1998 SIPP are +/- 6 percent or
less. Confidence intervals for the estimates based on the 1999 SIPP data
can be found in appendix IV and appendix V.
[18] We classified the southeastern states as Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina, Tennessee,
Virginia, and West Virginia. The southwestern states include Arkansas,
Louisiana, Oklahoma, and Texas. For the purpose of statistical
analyses, we limited the number of regions into which we divided the
United States. See appendix V for information on how we classified
other parts of the country.
[19] These studies include Treasury-sponsored research that focuses
specifically on federal beneficiaries and studies sponsored by federal
agencies and academic institutions that examine the unbanked population
at large. All used some mechanism, such as focus groups, to obtain the
views of unbanked individuals.
[20] BoozAllen & Hamilton, Shugoll Research.
[21] Arthur B. Kennickell, Martha Starr-McCluer, and Brian J. Surette,
’Recent Changes in U.S. Family Finances: Results from the 1998 Survey
of Consumer Finances,“ Federal Reserve Bulletin (January 2000). This
research was based on a triennial survey of income and other
demographic characteristics of U.S. families sponsored by the Federal
Reserve.
[22] Constance R. Dunham, ’The Role of Banks and Nonbanks in Serving
Low-and Moderate-Income Communities“ (paper presented at ’Changing
Financial Markets & Community Development“ held in Washington D.C.,
Federal Reserve System, April 5-6, 2001) pp. 31-59. This research is
based on a survey sponsored by OCC in 1998–2000. It included about 2,000
randomly selected individuals living in low- and moderate-income
neighborhoods in Los Angeles County and New York City, areas with some
of the highest numbers of federal check recipients in the United
States.
[23] Edward S. Prescott and Daniel D. Tatar, ’Means of Payment, the
Unbanked, and EFT …99,“ Federal Reserve Bank of Richmond Economic
Quarterly, Volume 85/4 (Fall 1999). The basis for this study was a
review of existing literature and focus group interviews conducted in
Richmond, Virginia.
[24] John Caskey, Lower Income Americans, Higher Cost Financial
Services (Madison, Wisconsin: Filine Research Institute, 1997). This
study summarizes the findings of a telephone survey of 900 low-income
households in 3 different states.
[25] Jeanne M. Hogarth and Kevin H. O‘Donell, ’Banking Relationships of
Lower-Income Families and the Governmental Trend Toward Electronic
Payment,“ Federal Reserve Bulletin vol. 85, no. 7 (July 1999): 459-473;
Constance R. Dunham, ’Savings Instruments and Savings Goals in Poor
Urban Communities,“ in draft (Oct. 2002); Michael Barr, ’Access to
Financial Services in the 21st Century: Five Opportunities for the Bush
Administration and the 107th Congress,“ Capital Exchange (June 2001).
[26] Barbara Good, ’Bringing the Unbanked Onboard,“ Economic
Commentary, Federal Reserve Bank of Cleveland of Cleveland vol. 100,
no. 1 (Jan. 15, 1999); John P. Caskey, ’Bringing Unbanked Households
Into the Banking System,“ Capital Xchange (January 2002).
[27] Good, ’Bringing the Unbanked Onboard.“
[28] U.S. General Accounting Office, Food Stamp Program: Implementation
of Electronic Benefit Systems, GAO-02-332 (Washington, D.C.: Jan.16,
2002). The Personal Responsibility and Work Opportunity Reconciliation
Act of 1996 (P. L. 104-193) required each state to implement a
statewide EBT system by October 2002.
[29] In Texas, the state government requires welfare recipients to use
EBT cards. In California, over half the counties have chosen to use an
EBT card to deliver cash welfare benefits.
[30] Federal Reserve System, Retail Payments Research Project, (2002).
[31] BoozAllen & Hamilton, Shugoll Research.
[32] Fiscal Year 1994 Customer Satisfaction Survey of Initial Awardees,
sponsored by SSA.
[33] In 2001, about 1.9 million (5 percent) of all OASI recipients were
new enrollees, along with about 776,000 (11 percent) of all DI
recipients and 403,000 (6.2 percent) of all SSI recipients.
[34] A representative payee is an individual or institution that
receives a benefit check on behalf of the actual beneficiary. In 2002,
about 7 percent (2.9 million) of OASI recipients, 33 percent (2.3
million) of DI recipients, and 35 percent (2.3 million) of SSI
recipients had representative payees.
[35] Financial institutions that decide to offer the ETA are designated
as Treasury‘s financial agents and enter into agreements to provide the
ETA.
[36] Banks typically use the ChexSystems database to screen applicants
for history of check fraud or other types of account abuse. Maintained
by the check-printing company, Deluxe Corporation, the ChexSystems
database tracks the records of customers whose checking accounts have
been closed due to fraudulent activity or overdrafts. Banks that enter
into contractual arrangements with ChexSystems report the names of
customers whose checking accounts are closed. In return, these banks
have access to the ChexSystems database. According to a report by the
National Community Reinvestment Coalition, about 80 percent of the
country‘s depository institutions currently use ChexSystems.
[37] Of 597 financial institutions currently offering the ETA,
approximately 83 percent are commercial banks, 11 percent are credit
unions, and 7 percent are savings institutions.
[38] These data were provided by FRB Dallas. It compared ETA providers
with the total number of branches in these counties. The locations
cited in this paragraph number among the 15 counties with the largest
number of check recipients. The total number of branches in each county
is measured using National Information Center data, which allow the
Federal Reserve to track the number of banks and other financial
institutions by county.
[39] According to Treasury data, of approximately 5,170 ETAs that had
been closed as of May 2002, about 309 or 6 percent”of ETAs were closed
owing to account misuse or fraud.
[40] The Community Reinvestment Act (CRA), passed by Congress in 1997,
encourages financial institutions to help meet their communities‘ needs
through safe and sound lending practices and the provision of retail
banking and community development services. Currently, a bank‘s overall
CRA rating is determined on the basis of three weighted criteria. Fifty
percent of the rating depends on lending, while service and investment
each account for 25 percent. Offering ETAs can help a bank meet its
service test, which examines areas such as the accessibility of
delivery systems, changes in branch locations, and community
development services.
[41] Most large banks that we interviewed indicated that they ’profile“
or ’screen“ customers by questioning them when they enter banks to cash
checks or inquire about bank services to determine which products are
appropriate for them.
[42] Most financial institutions we interviewed said they automatically
enrolled ETA applicants for the account and direct deposit at the same
time, eliminating the need for the applicants to visit the local Social
Security offices to sign up for direct deposit. However, a few large
financial institutions did not provide this service. In fact, one large
institution chose not to provide the service and closed a large number
of its ETAs because direct deposit never materialized.
[43] Many of these small financial institutions”often with fewer than
10 branches”ranked among the top 30 ETA providers and have more ETAs
per branch than large banks. As of June 2002, the top 30 ETA providers
accounted for 94 percent of all ETAs opened.
[44] Most credit unions are organized to serve people in a particular
community, a group or groups of employees, or members of an
organization or association. Community development credit unions are a
unique form of credit union that serve primarily low-income members in
distressed and financially underserved areas.
[45] In addition, as of June 2002, about 6,000 (17 percent) of ETAs had
been closed. This figure may include ETAs that were closed by account
holders in order to open other bank products. Neither Treasury nor any
of the financial institutions we interviewed had any data on such
conversions.
[46] Treasury‘s demand projection was based on a study conducted by
Dove Associates that sought to estimate the demand for various low-cost
account configurations for unbanked federal beneficiaries. This study
predicted that at a given monthly service fee, demand would increase
with more options and decrease with fewer. (ETA Conjoint Research, OMB
#1510-0071, ’Final Report and Market Model, Unbanked Federal Check
Recipients“, Dove Associates, Inc., May 26, 1999).
[47] In addition, to minimize the reporting requirement, Treasury did
not require financial institutions to report the location of ETAs
opened. However, based on limited information we collected from
financial institutions, we found that a higher percentage of ETAs in the
United States have been opened in Arizona, California, Ohio, and Texas
than in other parts of the country. These states also had a higher
number of ETA providers.
[48] This study reported that 51 percent of unbanked federal
beneficiaries went to financial institutions to cash their checks, and
that 81 percent of those who went to financial institutions did not pay
a fee to cash their checks. (ETA Conjoint Research, OMB #1510-0071,
’Final Report and Market Model, Unbanked Federal Check Recipients,“ Dove
Associates, Inc., May 26, 1999). However, only a few financial
institutions we interviewed cashed checks for noncustomers, either at
no charge or for a fee.
[49] We did not verify this estimate provided by Treasury.
[50] We can only provide a rough estimate of Treasury‘s annual ETA
promotion costs because Treasury does not calculate the costs of ETA
separately from those of promoting EFT. Treasury officials told us that
many ETA marketing activities have overlapped with general promotion of
EFT.
[51] Some banking officials and bank-related trade group officials
suggested exploration of another alternative: making EFT mandatory.
However, Treasury and SSA officials did not believe this alternative
was viable since it was previously rejected when Congress gave Treasury
the authority to grant waivers to EFT. In addition, government
officials and consumer representatives generally criticized any
mandatory requirement because it would leave consumers no freedom of
choice in how to receive their government benefit in a manner that best
suited their personal needs or preferences.
[52] Legislation enacted in 1996 required the Treasury to continue to
carry out an electronic benefit transfer pilot to disburse benefit
payments electronically to recipients who do not have an account at a
financial institution. In this program, payments were disbursed to
recipients by a financial institution acting as Treasury‘s financial
agent.
[53] Dove Associates, Conjoint Study: Final Report and Market Model
Unbanked Federal Check Recipients (May 26, 1999).
[54] U.S. PIRG, Big Banks, Bigger Fees 2001, PIRG National Bank Fee
Survey (November 2001).
[55] For more information on SIPP, see SIPP Quality Profile, 1998, SIPP
Working Paper Number 230, 3rd Edition, U.S. Department of Commerce,
Bureau of the Census.
[56] For the purposes of our analysis we produced estimates only for
individuals 18 and older.
[57] We included the following programs as part of our analysis: Old
Age and Survivor‘s Insurance (OASDI), Supplemental Security Income
(SSI), compensation and pensions by the Veteran‘s Administration,
retirement benefits provided by the Railroad Retirement Board and the
Office of Personal Management, and Black Lung benefits.
[58] The sample size of the original 1996 panel was about 36,700
households.
[59] Based on our comparison of SIPP SSI estimates of the unbanked and
the number of SSI check recipients, we believe that the SIPP estimates
may be inflated because: (1) some recipients may have inaccurately
reported that they received SSI when they did not and may also have
reported that they were unbanked and (2) it is possible that some SSI
recipients, who received this mean-tested benefit, were reluctant to
report the existence of this asset. As a result, although SIPP data
suggest that about 3.7 million SSI recipients in 1998 and 3.9 million
recipients in1999 were unbanked, we believe that a more accurate number
could be closer to 3.0 million.
[60] The SCF‘s transaction category included checking, savings, and
money market deposit accounts, money market mutual funds, and call
accounts at brokerages.
[End of section]
GAO‘s Mission:
The General Accounting Office, the investigative arm of Congress,
exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO‘s commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO‘s Web site [hyperlink,
http://www.gao.gov] contains abstracts and fulltext files of current
reports and testimony and an expanding archive of older products. The
Web site features a search engine to help you locate documents using
key words and phrases. You can print these documents in their entirety,
including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as ’Today‘s Reports,“ on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
[hyperlink, http://www.gao.gov] and select ’Subscribe to daily E-mail
alert for newly released products“ under the GAO Reports heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. General Accounting Office:
441 G Street NW, Room LM:
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director, NelliganJ@gao.gov:
(202) 512-4800:
U.S. General Accounting Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
