Magazine article American Banker

States Seek Protection from Fraud Liability on Electronic Benefits

Magazine article American Banker

States Seek Protection from Fraud Liability on Electronic Benefits

Article excerpt

The drive to deliver government benefits electronically will stall unless Congress exempts states from liability for fraud losses, state officials told the House Banking Committee Wednesday.

Rep. Jim Leach, R-Iowa, the committee chairman, said more than $110 billion of cash benefits and food aid may eventually be provided through electronic benefits transfer, or EBT.

While officials would prefer to deposit government benefits directly into bank accounts, many people receiving assistance do not have relationships with financial institutions.

For example, in Massachusetts, one-third of 750,000 recipients would have to get their benefits though an EBT program, said William Kilmartin, the state's comptroller. EBT reaches the unbanked by giving them cards that can draw funds from a central account.

Industry officials who testified Wednesday argued that banks should play a central role in the process.

"The EBT system should use insured, examined, regulated, and capitalized financial institutions," said William H. Phillips, the American Bankers Association's director of policy development.

The Clinton administration launched a campaign in 1993 to deliver most government benefits through automated teller machines and point of sale terminals by the end of the decade. A consortium of southeastern states is leading the way with Citicorp, First Union Corp., and Bank of Boston Corp. as prime contractors.

The momentum could be slowed by a February 1994 Federal Reserve Board ruling that applies Regulation E to electronic benefits transfers as of March 1, 1997. …

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