Fed Delays Protections for Benefits Recipients

By Cummins, Claudia | American Banker, February 17, 1994 | Go to article overview

Fed Delays Protections for Benefits Recipients


Cummins, Claudia, American Banker


WASHINGTON -- The Federal Reserve Board voted reluctantly Wednesday to delay for three years a plan to bring government agencies that deliver benefits electronically under the same consumer protection and liability rules as banks.

Those provisions will take effect in 1997, giving individuals who receive welfare and other benefits through automated teller machines or other terminals the same anti-fraud protections as bank customers.

In allowing the delay, the Fed bowed to demands from the Clinton administration and other advocates of the delivery systems known as electronic benefits transfer, or EBT.

Expense Feared

Federal and state welfare and food stamp officials argued that without at least temporary regulatory relief, EBT systems would be too expensive to get off the ground. The Fed said the need for equal treatment, outweighed cost considerations.

"Under both the law and our concept of fairness, we could not afford different, and arguably lesser, rights to the poor, disabled and aged that were provided to the rest of the population," said Fed governor Lawrence B. Lindsey, who led the Fed's efforts on the plan.

He added, "We felt that it was wrong for government to impose one set of rules on the private sector and not live up to the same set of rules."

Despite holding firm on to its principles, the Fed did agree to an unusually long implementation period of three years. When the rules, incorporated in Federal Reserve Regulation E, originally took effect, banks had only 90 days to comply.

The controversy, which came to a head last year, created strange bedfellows. The Fed won support from consumer advocates and was battling state and federal government officials who complained that the regulations would be too costly.

Appeal by Gore

In November, Vice President Gore made a last-minute appeal to Fed Chairman Alan Greenspan to hold off a final vote on the plan until his office could consider it further. As part of his reinventing government initiative, the vice president strongly supported a nationwide system of developing government benefits electronically.

A series of meetings with the administration led to the delay approved Wednesday. …

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