Dear Michael
I found it interesting that the US is moving to electronic transfer of
benefits in 1999 as the Australian Government has been doing this since
the 1980s.
I worked for the Australian Department of Social Security for more than
10 years and was employed there assessing unemployment claims during the
time that the Labor government introduced the necessity for all welfare
recipients to receive their payment by electronic transfer. The transfer
was a staged approach with different types of payments made available
through electronic transfer over a couple of years.
Transfer to electronic transfer payments were compulsory except for:
People too old and frail,
People with disabilities that found using banking facilities difficult,
People with language or cultural difficulties
People living in remote areas without banking facilities.
When the change occurred there was noticeable resistance to electronic
transfer of welfare payments from a number of people, particularly those
you outline in you notice. Many were older/middle age people, typically
on a pensions, who were resentful of "Big Brother" somehow having access
to their account.
Others, on the other hand, particularly younger people and those on
unemployment benefit, were eager to start using electronic transfer of
funds because, they thought, it would speed delivery of their money (it
took two days the same as the post in reality except for one bank). The
government also felt that there would be great savings in the electronic
transfer by saving in staff time and cost associated with cheque
production, postage etc.
The results were:
1 People did not increase their savings any more than they would have
done; people on welfare need all the cash they can get so withdraw it
all. Some found it better to manage their money by withdrawing only what
they needed immediately, but I think that these people could manage
money anyway.
2 Banks found it useful to withhold money without the consent of the
person involved, where their clients had overdrawn or had defaulted on
loans. This caused very real hardship and extra work for Social
Security staff trying to sought out the problem for the person involved.
The Government finally came to an agreement with the Banking sector on
an agreed protocol for dealing with this.
NB: Money sent by the federal government in the form of welfare payments
is in alienable in Australian law, ie it cannot be used by others for
any other purpose other than what it was paid for without the person's
concern, but the banks often did not recognise this and argued that
they could.
3 Banks introduced accounting fees around about this time. This
particularly affected people on welfare as they had small or no amounts
left in their accounts at the end of each fortnight. Again the federal
government tried to negotiate with banks but the issue was never
resolved. The government , in the end, said to welfare recipients to
shop around for banks that didn't charge. I don't think there is one
Bank now in Australia that doesn't charge.
4 The government hoped to save money from a reduction in fraud that
resulted from people claiming duplicate payments by cheque from
different Social Security Offices or claiming their cheque was stolen or
lost in the postal system when they had cashed it. Electronic transfers
did reduce this problem.
5 Banks, however, had to suddenly deal with lots of people on welfare.
This was particularly acute on pension pay days (in Australia this is
every second Thursday) and with lots of unemployed people particularly
on Mondays and Fridays. The difficulties for the banks customer
service, and I suppose for the people themselves, was when there had
been a delay in payment either because of work load issues or computer
problems or clerical errors in Social Security. Many people went form
pillar to post (and I suspect they still do) in trying to get their
payment if a problem in processing arose. It was particularly
problematic because of the time delays in transferring funds between the
Reserve Bank and financial institutions. Often Social Security had made
the payment (all be it delayed) and no longer had the funds but they had
not arrived at the bank. People were in limbo for one or two days until
the funds arrived at the bank or ( if some sort of coding error) were
sent back to Social Security to reissue. The net result from this is
that while it looked like there were savings for the government, people
were left in limbo for a few days or hassled the banks/Social Security.
Initially the banks would call Social Security, and if Social Security
could confirm the payment was on its way, they would issue an advance. A
problem came about in that when the payment finally arrived in the
person's account some would whip it out before the bank had time to
extract the funds and end up at point 2. In the end the banks stopped
doing this.
6 With all the problems that the Banks claim they have with the costs
maintaining accounts with low deposits why did they agree to having
welfare payments transferred to them?
In Australia unemployment payments are paid fortnightly but processed
daily depending on the date the person claimed their payments so
payments are transferred daily to the banks and realised one to tow days
thereafter. However, pensions (which are paid fortnightly) and family
allowance (paid monthly) are paid a week in advance to the Banks so that
there is a smooth transition on pension or family allowance pay day.
The banks profit from this as they have a vast amount of money for a
week to use on the short-term money market before it is deposited into
people's accounts - then they charge them accounting fees!
David Mackey
Environment Protection Authority
NSW.
>-----Original Message-----
>From: Michael Gurstein [SMTP:[EMAIL PROTECTED]]
>Sent: Friday, 6 February 1998 10:03
>To: ; [EMAIL PROTECTED]; Canadian futures
>Subject: unbanked US households (fwd)
>
>
>---------- Forwarded message ----------
>Date: Tue, 3 Beb 98 16:23:25 EDT
>From: "Robert.Green" <[EMAIL PROTECTED]>
>To: [EMAIL PROTECTED]
>Cc: [EMAIL PROTECTED]
>Subject: unbanked US households
>
>Just read "Financial Access in the 21st Century," the proceedings of a forum
>on Feb. 11, 1997. Copies $15, Comptroller of the Currency, P.O. Box 70004,
>Chicago, IL 60673-0004. Info. www.occ.treas.gov/pubs1.htm.
>
>The forum focused on access for unbanked households in the U.S. Most talk
>concerned deposits and payment services such as deposits, check cashing, and
>the electronic transfer of govt. benefits.
>
>6-22% of U.S. households are unbanked. These households tend to be poor, not
>well educated, young, and minority. Some general reasons put forth for their
>lack of permanent relationship with an insured depository institution by:
>1. No financial savings at the end of each month;
>2. Dislike fees, especially account fees:
> a. Deposit and checking balances are too low to avoid fees;
> b. Tend to bounce checks;
>3. Want to keep finances private to avoid:
> a. Attempts to enforce child support payments
> b. Avoid debt collectors
> c. Avoid immigration officials
> d. Avoid taxes
>4. Feel uncomfortable with banks:
> a. Fear judgement by teller;
> b. Cannot speak the language of the teller
>5. Do not like that banks often will not give cash for a check immediately
>unless the deposit account has a balance high enough to cover the amount of
>the check;
>6. May have bad credit records or other past bad experiences with banks;
>7. Dislike inconvenient banking hours;
>8. Fear for personal security upon exit from ATM or bank;
>9. Cost to get transport to a bank branch;
>10. Culture and govt. assistance programs that do not promote savings;
>11. Demands by friends and family for excess cash;
>12. May be illiterate:
> a. Have trouble to fill out forms
> b. Have a hard time managing a checking account;
>13. Do not have:
> a. Permanent residence/mailing address
> b. Identification.
>
>Disincentives for banks to reach this segment include:
>1. Need to brand high-cost/high-price products aimed at low-income
>households so as not to seem unfair;
>2. Lack of concern due to small size of the market segment;
>3. Lack of staff trained to help customers:
> a. Must help fill out forms
> b. Must reassure that the deposit or bill payment is recorded
>4. Losses.
>
>Examples of financial institutions that reach these households are
>check-cashing outlets and wire transfer services, and grocery stores and
>drugstores that cash checks, make money orders, and provide bill-payment
>services.
>
>A lot of talk focused on the fact that U.S. government benefits must be
>transferred electronically through accounts in financial institutions
>beginning in 1999. Many of the recipients do not yet have an account, and
>this creates both a regulation-based and profit-based incentive to devise a
>way to get accounts to these households. The mandate forces someone to bear
>the cost of reaching these households. It will be interesting to see whether
>the mandate will force households to use banks and bear the costs that seem
>to block access now with existing technology, or whether someone will come
>up with a technology that will attract these households due its providing
>them access at a lower cost. Also interesting will be the effects on
>savings, whether households will just withdraw the entire transfer as cash
>or whether they will leave part on deposit.
>
>Mark Schreiner <[EMAIL PROTECTED]>
>
>
>
