CONGRESSIONAL HEARING ON THE PAYROLL DEDUCTION FACILITATION ACT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86B00338R000400490015-1
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 38
• Document Creation Date: December 21, 2016
• Document Release Date: September 8, 2008
• Sequence Number: 15
• Publication Date: October 4, 1983
• Content Type: MEMO

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OLL 83-2455
4 October 1983
SUBJECT:. Congressional Hearing on "The Payroll Deduction
Facilitation Act"
1. The House Committee on Post Office and Civil Servic~7e,
Subcommittee on Compensation and Employee Benefits, conducted
the subject hearing on 4 October 1983. Chairwoman Mary Rosa
Oakar (D., OH) was the only Subcommittee member in attendar.ce.
Attached for your information is the Witness List and prepared
statements of each. Actual testimony did not vary from the
prepared statements. Also attached for your information i,s a
copy of H.R. 3879 and an associated Bill Summary.
2. Since. the Administration supports passage of this
Bill, it should not encounter any substantive difficulty in9
either House of the Congress. There is no companion bill tcS7
H.R. 3879 in the Senate. The likelihood of this Bill succeed-
ing to enactment is high. The only question is how long wial
it take to cycle through the legislative process in the-twca4
Houses. Optimistically, it could be enacted by mid-year 19.IB4.
3. The Office of Legislative Liaison will continue to
follow this Bill and report its progress as appropriate..
STAT
Liaison Division
Office of Legislative Liaison
Attachments
As stated
Distribution;
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STAT
w/atts STAT
STAT
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98Tx CONGRESS Fl: ~ ? 1ST SESSIOK
3879
To amend title 31, United States Code, to eliminat.e the fee imposed on financial
organizations which receive payroll deductions from-Federal employees, and
for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 13, 1983
Nis. OAfiAR introduced the following bill: which was referred jointly to the Com-
mittees on Post. Office and Civil Service and Banking, Finance and Urban
Affairs
A BILL
To amend title 31, United States Code, to eliminate the fee
imposed on financial organizations which receive payroll
deductions from Federal employees, and for other purposes.
.1 Be it enacted by the Senate and House of Representa.-
2 lives of the United States of America in Congress assembled,
3 SHORT TITLE
4 SECTION 1. This Act may be cited as the "Payroll De-
5 duction Facilitation Act".
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ELIMINATION OF PAYROLL DEDUCTION FEES ON
FINANCIAL ORGANIZATIONS
SEC. 2. Section 3332(b) of title 31, United States Code,
amended by inserting "without charge" after "shall be
sent".
SEC. 3. Section 3332 of title. 31, .United States Code, is
amended by striking out subsection (c) and redesignating sub-
sections (d), (e), (f), and (g) as subsections (c), (d), (e), and (f),
respectively.
PROPER. ADMINISTRATION OF DISBURSING FUNCTIONS
SEC. 4. Section 1113 of the Right to Financial Privacy
Act of 1978 (12 U.S.C. 3413) is amended by adding at the
end thereof the following:
"(1)(1) In any case in which a Government. authority
which has a disbursing function needs to know, for the sole
purpose of properly administering such disbursing function-
"(A) the name and address of any individual cus-
tomer with access to an account which was credited,
or which should have been credited, with any deposit
disbursed by such Government authority; or
"(B) the amount credited to such account of funds
disbursed by such Government authority,
nothing in this title shall apply to the disclosure by a financial
institution to such Government authority of the information
specified in subparagraph (A) or (B) so long as the request. for
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1 disclosure by the Government authority is specific as to, the
2 individual customers, account numbers, or amounts credsts?e .
3 .9 "(2) Information which is specified under subparagraph
4 (A) or (B) of paragraph (1) and which is received under- para-
5 graph (1) by a: Government authority which has a disbursing
6 function may be transferred by such Government authority to
7 another Government authority concerned with the pavement
8 of the funds involved, only if such transfer is made for, and
9 such information will be used for, the sole purpose of properly
10 administering the law which authorizes the payment of., ithe
11 funds involved.".
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BILL SUMMARY OF H.R. 3879:
"The Payroll Deduction Facilitati~o-n Act"
PURPOSE AND TITLE: To amend title 31,.LLinited States Code,
to eliminate the fee imposed on financial orgamizations which
receive payroll deductions from Federal employees, and for other
purposes.
SOURCE: Introduced by Congresswoman.Masry Rose Oakar, Chair
of the Subcommittee on Compensation and Employee Benefits of the
House Committee on the Post Office and Civil Service, on September 13,
1983. Jointly referred to the Committees on Poist Office and Civil
Service and Banking, Finance and Urban Affairs:-
BACKGROUND: Under current law (31.U.S-..C. 3332), the Govern-
ment imposes service charges on financial.insa-tutions and organiza-
tions which receive payroll deductions from fe.c.eral employees.
The law requires that federal agencies; reimbursed by the
recipient financial institutions for the admirtzstrative costs in-
curred in processing these payroll allotments,.. The number of'de-
ductions an employee can make is limited to.th e?e, and the Federal
Government absorbs the administrative cost of s nding the first
check to an employee's designated financial. ore anization. However,
if other deductions are made, the appropriate federal agency must
be reimbursed by the designated financial orgar.tization for the admin-
istrative costs involved in processing these d'e.euctions. Current
law also provides that these fees only apply tw payroll deductions
of federal civilian employees. Active and. re:t~?n^ed military personnel
and Department of Defense personnel living. overzseas may authorize
payroll deductions at no cost to them or their-zrecipient financial
organizations.
In 1981, the Department of the Treasury=-proposed regulations
to double the service charge for payroll allotments. In response,
Congresswoman Oakar introduced H.R. 4703 (97th4 (Congress) on October 6,
1981, to totally eliminate these fees. A hearing was held on
February 4, 1982, and the bill passed the House:: on April 27, 1982.
However, following the House action and while, the bill was still
pending in the Senate, the Treasury Department., on June 7, 1982,
postponed indefinitely the proposed fee increase.
Since the beginning of the 98th Congress, the staff of
Congresswoman Oakar's Subcommittee has been worfking with staff from
the Banking Committee and the Department of: the Treasury. This bill
,is the product of that effort, and it has the: support of the Treasury
Department, the major credit union associations.; and other financial
organizations.
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SECTION-BY-SECTION ANALYSIS
Short Title
Section 1. This section provides that the Act may be cited
as the "Payroll Deduction Facilitation Act." .
Elimination of Payroll Deduction Fees
on Financial Institutions
Section 2. This section amends section 3332(b) of title 31,
United States Code, by inserting the clarifying language, "without
charge", following the words, "shall be sent", in the first sentence
of that section. This amendment merely clarifies that the payroll
deductions authorized by this section shall be at no charge to the
employee or recipient financial organization.
Section 3. This section repeals section 3332(c) of title 31,
United States Code, to eliminate the statutory provision for the
fees imposed on financial organizations which receive payroll de-
ductions from federal employees.- This amendment also redesignates
the subsections of section 3332.
Proper Administration of Disbursing Functions
Section 4. This section amends section 1113 of the Right to
Financial Privacy Act of 1978 (12 U.S.C. 3413) by adding a new sub-
section.
This. new subsection provides for another exception to the
Act by authorizing a financial institution to release certain informa-
tion on individual customers and accounts to a Government authority.
That Government authority, however, must have a disbursing function
and a need to know the requested information for the sole purpose
of properly administering its disbursing function. In addition, the
Government's request for disclosure must be specific as to individual
customers, account numbers, or amounts credited.
This new subsection further limits the information which a
financial institution is authorized to release to the following:
(a) the name and address of any individual customer with access to
an account which was credited, or which should have been credited,
with any deposit disbursed by the Government authority; or (b). the
amount credited to such account of funds disbursed by. the Government
authority.
Finally, this new subsection permits the transfer of this
information by the receiving Government authority to another Govern-
ment authority concerned with the payment of the funds involved,
only if the transfer is made for, and the information is used for,
the sole purpose of properly administering the law which authorizes
the payment of the funds involved.
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September 13, 1983 CON?ESSIONAL RECORD - Extensions Remarks E 4243
Mr. Johnson. attempted to suggest that
there was something sinister concerning the
payment of rental for Bureau of Land Man-
agement land as opposed to a single pay-
ment to private landowners. This simply is
caused by the inability by law for the BLM
to convey easemens or interest, whereas
private landowners are- not so restricted. A
lump sum settlement versus periodic rentals
are equated when the amounts are deter-
mined. A private owner can put his payment
in the bank and draw it out as an annuity if
he. wishes, which equates to the BLM peri-
odic payment scheme. . .
Another item raised was the assignment
of the BLM right-of-way grant. Normally,
before an interest in this land can be as-
signed, the right too. originally convey that
interest must exist. Since the BLM cannot
convey an interest in the land, ETSI does
not receive an interest in the land and
therefore cannot assign something they
have not acquired. Generally speaking, the
permit to cross BLM' lands can be trans-
ferred as a routine matter. As for the BLM
having no liability. I would submit that this
is a rather broad brush statement and
rather misleading. Our legal counsel advises
that there are many instances in which the
BLM could be held liable for tortious acts
committed by them or their agents.
Mr. Johnson also states that the BLM is
reimbursed for all costs, incurred by them in
preparation of the right-of-way permit.
ETSI offered to reimburse the SOS land-
owners individually for. reasonable attorney
fees upon the execution of an agreement
satisfactory to both parties,.as has been our
policy with other landowners.. Perhaps Mr.
Johnson's. testimony' should be viewed as
being supportive of federal. eminent domain
legislation for coal slurry pipelines in that
he. expressed a: concern about discrepancies
occurring. Without the right of eminent
domain these discrepancies -can and do
occur, however, eminent domain would
allow the entity acquiring right-of-way the
opportunity to maintain a consistent pricing
structure.
Mr. Bruch's testimony is basically without
substance and is primarily used as a means
of attacking the ETSI. Pipeline Project.
However, he does make one comment to
which we will respond. -
He states that, "... it is far easier to gain
wealth by manipulating government to
obtain special privileges , .." Perhaps Mr.
Bruch- was attempting to acquire that very
position with his appearance before the sub-
committee. It would certainly- enhance a
landowner's. negotiating posture .11 eminent
domain was not. available,. and in fact, is just
the opposite of the true intent of eminent
domain which is that the welfare of the gen-
eral public carries a greater weight than
that of any one individual.
As further evidence of our willingness to
,negotiate in "good faith", we. ETSI, in our
efforts to acquire the needed right-of-way in
South Dakota. have worked with a number
of landowner groups and have satisfactorily
addressed. their concerns except for one
group-that being' the "Save Our Soils"
group. Initially, the -SOS organization was
formed, to. protect the landowners rights and
was recognized as such. However, shortly
after formation, the actual control and di-
rection was lusurped by persons with the
sole intent of defeating the ETSI project,
not the protection of the landowner mem-
bership. This direction was now in the
hands of Messrs. Johnson, Bruch and-Crow-
ley. It was- at this' time that the group re-
placed their attorney who was diligently
trying to resolve the issues. The group then
retained a. "cause" lawyer who, over the-
period of several months, was instrumental
in blocking every attempt by ETSI to con-
elude negotiated agreements. To show how
ridiculous the situation was, the group
asked that ETSI pay this attorney for her
services as an adversary. No one agreed that
ETSI would pay her fees, to do so would be
questionable ethically and would be down-
right foolish from a business standpoint.
However, in keeping- with our policy that no
landowner should suffer an economic loss
due to our request for an?easement, we did
agree to reimburse the individual landown-
ers for reasonable attorney fees incurred
upon the execution of a right-of-way agree-
ment. It was after this offer that we were
informed by the new attorney that we
should pursue eminent domain proceedings.
Perhaps the appearance of these South
Dakota landowners is in itself a testimony
for.the need of federal eminent domain au-
thority for coal pipelines. It is, in our opin-
ion, representative of the fact that a very
vocal and persistent minority can and will, if
given the opportunity, delay or prevent coal
pipelines and other energy related proj-
ects-projects that are vital to the Nation's
efforts to develop its resources and thus de-
crease our dependency on foreign energy
sources.
I. hope this letter will be helpful to you in
understanding the charges made against
ETSI at the subcommittee hearing. Should
you have additional questions, please do not
hesitate to call.
Sincerely,
PAUL G. DORAN,
President..
TRIBUTE TO AN EAGLE SCOUT
HON. JOHN R. ,McKERNAN, JR.
OF MAINE
IN THE HOUSE OF REPRESENTATIVES
Tuesday, September 13, 1983
? Mr, McKERNAN. Mr. Speaker, I
rise and ask my colleagues to join me
in praising the achievements of one of
my constituents, David Caron, 16, of
Portland, Maine. David will become an
Eagle Scout on September 27.
I do not need to remind my col-
leagues of the tremendous effort and
test of 'character involved in attaining
the rank of Eagle Scout. So many fig-
ures of national renown have this
prestigious award among their laurels
that we may well conclude that the
young men ' who earn this title today
have unusual promise for tomorrow.
It is a privilege to be able to repre-
sent David Caron, who is the first
Scout in troop 5 of St. Patrick's
Church in Portland to attain the level
of Eagle Scout. David is a junior at
Deering. School, where he, is both a
good student and athlete. In his spare
time, David has a part-time job and at-
tends a data processing course at a
local vocational school. He is interest-
ed in it career in computer science.
David single-handedly undertook a
fund drive for the cancer fund as part
of his Eagle Scout requirements. He
set up a "tag day" at several local
stores, and, working with other Scouts
and their parents, was able to provide
a significant contribution to the fight
against cancer. The bearer of 21 sepa-
rate merit badges, and an attentive
student of the Boy Scout creed, David
Caron is truly worthy of the Scout's
highest award.
I join David's parents, teachers,
friends, and Scouts everywhere, in
congratulating him on ? his achieve-
ment, and in wishing him many future
successes.?
PAYROLL DEDUCTION
FACILITATION ACT
HON. MARY ROSE OAKAR
OF OHIO
IN THE HOUSE OF REPRESENTATIVES
Tuesday, September 13, 1983
? Ms. OAKAR. Mr, Speaker, I am in-
troducing legislation today which, will
benefit Federal employees, save the
taxpayers money, and allow the Gov-
ernment to utilize modern banking
practices.
This-bill, the "Payroll Deduction Fa-
cilitation Act," accomplishes two basic
purposes. It provides for no-cost' pay-
roll deductions for Federal employees,
and it amends the Right to Financial
Privacy Act of 1978 (12' U.S.C. 3413) to
assist the Government in making' re-
curring payments through the use of
direct-deposit electronic fund transfers
(EFT's).
Over the years, payroll deductions
have proven to be an effective and, efr-
ficient means 'of encouraging savings
for all Americans. We know that sav-
ings are a sure method by which every
citizen .can contribute to improvement
in our economy, help stall inflation,
and play a positive role in bringing
down interest rates. Congress, there=
fore, should do all It possibly can to
encourage thrift and savings, and this
is one of the purposes of the bill I am
offering today. .
Under the current law, service
charges for processing payroll deduc-
tion checks are imposed only on sav
ings allotments made under 31 U.S.C.
3332. This statute requires that Feder-
al agencies be reimbursed for the addi
tional administrative costs' incurred in
processing savings allotments for Fed-
eral civilian employees by their recipi-
ent financial institutions. The Federal
Government will absorb the adminis-
trative cost of sending one check to an
employee's designated financial orga-
nization. However, the appropriate
Federal agency must be reimbursed by
the designated financial organization
for any administrative costs incurred
in processing additional savings' allot-
ment checks, which are statutorily
limited to two. Current law also pro-
vides that only active and retired mili-
tary personnel and Department of De-?.,
fense civilians working overseas are.
authorized to make more than one al'
lotment to financial institutions at no
cost to them or to their recipient insti-
tutions.
The bill I ' am introducing would
delete the requirement that adminis-
trative costs be reimbursed by the fi-?
nancial organization. It would require
the Federal Government to absorb all
administrative costs, incurred in the
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E 4244
savings allotment program. In my
opinion, the.benefits to our economy
provided by. this legislation far
outweigh any additional minimal costs
to the Government. Moreover, as with
military and overseas DOD personnel,
it is. already common practice in the
private sector to provide such services
for employees at no cost to the em-
ployees or to their financial institu-
tions.
By way of background, payroll allot-
ments for civilian employees of the
Federal Government were established
in 1961 (5 U.S.C. 5525). These cost-free
allotments were limited to labor dues.
charitable contributions, and taxes.
The program was expanded in 1965 to
permit Federal employees to send a]-
lotments to financial institutions, but
there was not requirement that the
Government impose fees for these Government money. I ask
services. it was not until 1>)68 that/ leagues to support it.?
charges for sending allotments to fi-
nancial institutions were set by the
Department of the Treasury. Under 31
U.S.C. 3332(c), as amended by Public
Law 90-365, the Treasury Department
was given the authority to establish
fees for the two additional allotments
sent to financial institutions. An allot.
ment for an employee's regular pay-
check has been and continues to be
sent at no cost to the employee or the
financial institution, since it is consid-
ered to be an entitlement to the em-
ployee. Incidentally, charges were im-
posed on the two extra allotments be-
cause it was feared that additional al-
lotments might constitute and exces-
sive expense for the Government.
However, -during the 96th Congress,
the Office of Personnel Management
concluded otherwise and proposed a
rule which would substantially liberal-
ize the use of payroll allotment pro-
grams. .
During the last Congress, the De-
partment of the Treasury published a
Notice of Proposed Rulemaking to in-
crease the service charge for payroll
allotments of Federal civilian employ-
ees. In response, I introduced H.R.
4703 (97th Congress) to negate the
Treasury Department's proposed regu-
lation and to require the Government
to provide payroll deductions free-of-
charge to all its employees. My Sub-
committee on Compensation and Em.
ployee Benefits held a hearing on Feb-
ruary 4, 1982, and the bill passed the
House on April 27, 1982. Following
this House action. and while the bill
was still pending in the Senate, the
Department of the Treasury, on June
7, 1982, postponed indefinitely the
scheduled fee increase.
Since ' the beginning of this Con-
gress. my subcommittee staff has been
working.with staff from the Banking
Committee and the Department of the
Treasury. The bill I am introducing
today is the result of that effort; and I
am pleased to report that this bill has
the support of the Department of the
Treasury, the major credit union asso-
ciations, and other financial organiza-
CONGRRIONAL RECORD - Extensions
tions interested in thrift and savings
for all Americans.
While this bill benefits the Federal
employee, it also provides significant
benefits for the American taxpayer
and the Government as well. It is a
major step forward in assisting the
Treasury Department reach its goal
over the next decade of having.,virtual-
ly all Federal recurring payments
made by direct-deposit electronic fund
transfer (EFT). More importantly, by
converting the estimated 75 million
Federal civilian savings allotments per
year to direct-deposit EFT, -the De-
partment off the Treasury projects an
annual $4.4 million savings to the Gov-
ernment.
The Payroll Deduction Facilitation
Act provides a important benefit to
the Federal employee, and it saves the
my col?
Santa
er Lo
today. He is esteemed by mil
aplo,n
lessened our anxiety. Time
greatly admj
But I s
like Bob
Hope screaming about i
to reach perfe
ine a sullen,
Hope. ? ,
IN THE HOUSE OF REPRE TATIVES
Tuesday, September 1;, 1983
BOYS' CLUB NOR BOB HOPE
HON. 646S J. MOORHEAD
said about Bob Hope
Nation
skill, his energy, and his
pain and
ter time,
e most because we simply
ample, Bob
e small
ofRea,ks
yellow ribb
I would
the boys'
There is no higher calling.
this moment to bring to
resentatives the p
Clubs of
Hondo, a
~a tip and training,
ns' achievements are
and the e of Alabama. Among his
many firsts: a was the top ROTC
graduate of all dets from through-
Army Ranger School; was the hono,
graduate of the U.S. y Air Assault
School; received th V George C. Mar-
University; received the 1982 Goy''
ernor's Award as the foremost cadet in
Lieutenant ons held the posi-
tion of cadet bat a commander,
the highest ROTC leadersh position
at the university. His leade hip and
esteem among his classmat s of all
services also gained him t presiden-
cy of all three military . nor societies
at Auburn.
lubs for their unceasing
ed to improving
e to take
attention
LIEUTE T GIBBONS TOP
ARMY RO GRADUATE
September 13, 1983
it was my prj
tary John
gon, hono
graduate id
Edward G.
trict, which by every standar
demic institutions.
Lieutenant Gibbons' aca
tary, and leadership ae
having bee
received a fully funded Ar
lege to participate in a
Jr. Lieutenant
of meas-
est aca-
mic, mili-
excellence his last eight
was elected to numerous
including Phi Kappa
and Mortar .
. He also
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DOUGLAS K BOSCO. CALIF. WILLIAM E. DANNEMEYEFL CALIF.
MICKEY LELAND. TD L CONNIE MACK. FLA.
ROOM GAAG? KY. 2H.I5. Rouse of 'Represtntatiuez
COMMITTEE ON POST OFFICE AND CIVIL SERVICE
SUBCOMMITTEE ON COMPENSATION AND EMPLOYEE BENEFITS
406 CANNON HOUSE OFFICE BUILDING
Rias ington, M.C. 20515
HEARING OF THE
SUBCOMMITTEE ON COMPENSATION AND EMPLOYEE BENEFITS
ON H.R. 3879
"THE PAYROLL DEDUCTION FACILITATION ACT"
TUESDAY, OCTOBER 4, 1983
Mr. Russell D. Morris
Assistant Commissioner, Banking and Cash Management
Bureau of Government Financial Operations
U. S. Department of the. Treasury
Panel: Colonel George E. Myers (USA-Ret)
Chairman, Coalition Committee of Financial Institution
Trade Associations, and
Executive Director, Defense Credit Union Council
Admiral Vincent A. Lascara (USN-Ret)
Member of the Board, and
Chairman, Legislative Committee
National Association of Federal Credit Unions
Mr. Angel Lopez
President, Defense Credit Union Council, and
Representative, Credit Union National Association
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49 ?
OPENING STATEMENT OF CONGRESSWOMAN MARY ROSE OAKAR
CHAIR, SUBCOMMITTEE ON COMPENSATION AND EMPLOYEE BENEFITS
HEARING ON H.R. 3879
"THE PAYROLL DEDUCTION FACILITATION ACT"
TUESDAY, OCTOBER 4, 1983
The purpose of the Subcommittee's hearing this morning is to
receive testimony on a bill I have introduced, H.R. 3879, the
"Payroll Deduction Facilitation Act."
Under current law (31 U.S.C. 3332), the Government imposes
service charges on financial institutions and organizations which
receive payroll deductions from federal employees. The law is
discriminatory in that these fees only apply to payroll deductions
of federal civilian employees. Active and retired military personnel
and Department of Defense personnel working overseas may authorize
payroll deductions at no cost to them or their recipient financial
organizations.
The law requires that federal agencies be reimbursed by the
recipient financial institutions for the administrative costs incurred
in processing these payroll allotments. The number of deductions
an employee can make is limited to three, and the Federal Govern-
ment absorbs the administrative cost of sending the first check to
an employee's designated financial organization. However, if other
deductions are made, the law requires that the appropriate federal
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? ?
agency be reimbursed by the financial organization for the adminis-
trative costs involved in processing these deductions.
In 1981, the Department of the Treasury proposed regulations
to increase the service charge for payroll allotments. In response,
I introduced legislation to totally eliminate these fees. A hearing
was held and the bill passed the House on April 27, 1982.. EIowever,
following the House action, the Treasury Department postpcaed
indefinitely the proposed fee increase, and the legislation.Raas never
acted upon in the Senate.
The bill before us today, H.R. 3879, consists of two basic parts.
The first part, Sections 2 and 3, would eliminate these payoll
deduction fees assessed against financial organizations.. The second
part, Section 4, would amend the Right to Financial Privacy .ct of
1978 (12 U.S.C. 3414) by adding a new exception in order to assist
the Government in making recurring payments through greater- Mse of
direct-deposit electronic fund transfers (EFT's).
I welcome everyone to our hearing, and I thank our: witnesses
for attending. We look forward to your testimony.
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DRAFT TESTIMONY
OF
RUSSELL D. MORRIS
ASSISTANT COMMISSIONER,
BANKING AND CASH MANAGEMENT,
BUREAU OF GOVERNMENT FINANCIAL OPERATIONS,
DEPARTMENT OF THE TREASURY,
HEA*~ ING
before the
SUBCOMMITTEE ON
COMPENSATION AND EMPLOYEE BENEFITS
of the
COMMITTEE ON
POST OFFICE AND CIVIL SERVICE
HOUSE OF REPRESENTATIVES
Ninety-Eighth Congress
First Session
on
H.R. 3879
"The Payroll Deduction Facilitation Act"
October 4, 1983
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Thank you Madam Chairwoman.
My name is Russell Morris. I represent the Department of
the Treasury as the Assistant Commissioner, Banking and Cash
Management, of the Bureau of Government Financial Operations.
I appreciate the opportunity to appear before your
Committee on behalf of the Treasury Department to support the
"PAYROLL DEDUCTION FACILITATION ACT".
The Bureau of Government Financial Operations is proud of
its mission, "to promote the financial integrity of the United
States Government through sound money management on behalf of the
public." Through the management of the collection of over $60 0
billion in taxes and other government receipts, the oversight of
sound cash management practices for all Federal funds, the
disbursement and reconciliation of approximately 7n0 million
Government payments annually, and the central accounting for the
government, we provide a wide range of vital services which
affect the financial life of a majority of American citizens.
The Bureau is firmly committed to working toward its mission
efficiently and effectively.
To aid in strategic planning, our Bureau has recently
completed, with the assistance of expert practitioners, a
forecast of payment and collection techniques over the coming
decade. The message we received is clear. Throughout the
economy the movement to electronics for making payments and
collecting money is growing at an accelerating rate. We have
found, for example, that electronic payments offer an appropriate
means for controlling the timing of payments to meet the require-
ments that Congress mandated in the Prompt Payment Act of 1982.
The "PAYROLL DEDUCTION FACILITATION ACT" is designed to
improve Government efficiency and aid Treasury in making full use
of the advanced technology of Electronic Funds Transfer, to
provide uniformity for all Government allotment programs and is
consistent with the Administration's goal of standardizing
Government financial procedures.
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Under the current law, which was designed at a tiisne when
payments were made almost exclusively by check, the Goverrr.~ment is
required to collect a fee for each employee allotment. to cover
the Government's costs. These fees are not appropriarte when
payments are made electronically. They are also incovnsistent
with the procedures used for other Government payments a,rad cause
conf.usion within the financial community. Elimination c?)-f these
charges would also remove the inconsistency that now exists with
respect to allotments for military personnel, civilians working
overseas and other allotments authorized by the. Ofif:ice of
Personnel Management where no fee is charged.
Eliminating these allotment fees will permit savings
allotments to be fully integrated into the electronic funds
transfer system so the Government can take full advantage=. of the
innovations now going on in the nation's payment system.... The fee
requirements have effectively prevented inclusion of savings
allotments in the electronic funds transfer program because of
the substantial administrative burden that would be.necessitated
by a combination of electronic payments coupled with fees?...
The Bill would also amend the Right to Financial Privracy Act
to eliminate restrictions on the disclosure by financial :Lrnstitu-
tions of valuable information about the disbursment, of' EFT pay-
ments. With this change a financial organizaton could'.bei called
to confirm that it has properly posted an electronic: paynnent to
the correct account on behalf of the recipient. It. wouild also
assist the financial community and Treasury in resolvina3 those
relatively rare situations when an electronic payment g.oe?s awry.
This amendment will allow financial institutions: to.. send to
Treasury information similar to the information Treasuzr y gets
from a cancelled check. This will help us quickly assure that
the payment is made available to the person to whom i.t :is due,
and prevent the hardships associated with payments tha..t. do not
arrive on time. This enhances ,our ability to accompl'ishi one of
our major goals in using EFT -- that is to eliminate the problems
associated with lost or stolen checks.
We are experiencing a rapid expansion in the use of elec-
tronic payments. In FY 1982, a total of 200 million payments
were made by electronic means, and by the end.of the FY' 11983, 25
million more payments will be added to the rolls. This,rmakes it
even, more critical that every payment reach. its intended recip-
lent on the day it is due. The Bill provides the nece:ss'airy means
for the Government to ensure that every payment is fulls' trace-
able, and that problems affecting the public can be resolved in
the most expeditious manner.
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The Bill will also aid agencies of the Government in
maintaining contact with individuals paid through the Direct
Deposit program. This Bill, because it would allow agencies to
request the address from the financial institution where the
payment is being sent, will help the Government in two ways:
First, we will be better able to stay in contact with individuals
and. keep them informed of program changes that may affect them,
and second, it will assist us in learning when someone has died,
and prevent erroneous payments.
In summary, Madam Chairwoman, the Department of the Treasury
fully subscribes to the statements you made in introducing the
Payroll Deduction Facilitation Act on September 13. That is, we
agree that this Bill, if enacted, would encourage thrift, con-
tribute to the improvement of our economy, enable the government
to operate more efficiently, eliminate an inequitable and con-
fusing inconsistency and help pave the way for the Government to
participate in the electronic revolution that is sweeping the
financial industry.
Madam Chairwoman, this concludes my formal remarks. I
appreciate the opportunity to lend Treasury's support to this
legislation and I welcome the chance to respond to questions from
you and your Committee.
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STATEMENT OF
COLONEL GEORGE E. MYERS, USA-REQ.,
CHAIRMAN
COALITION COMMITTEE OF FINANCIAL INSTITUTION T'Rr ADE ASSOCIATIONS
AND EXECUTIVE DIRECTOR`,
DEFENSE CREDIT UNION COUNC'LL
ON
FEDERAL CIVILIAN EMPLOYEE ALLOTMENT FEES
BEFORE THE
COMMITTEE ON POST OFFICE AND CIVIL. SEIRV I CE
SUBCOMMITTEE ON COMPENSATION AND EMPLOYEE BENEFITS
U.S, HOUSE OF REPRESENTATIVES
WASHINGTON, D,C,
OCTOBER 4, 1983
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STATEMENT OF
COLONEL GEORGE E. MYERS, USA-RET.
MADAM CHAIR AND MEMBERS OF THE SUBCOMMITTEE, I
APPRECIATE THE OPPORTUNITY TO TESTIFY ON H.R. 3879, THE
PAYROLL DEDUCTION FACILITATION ACT, THIS BILL CORRESPONDS TO
SIMILAR LEGISLATION INTRODUCED BY THE CHAIR DURING THE LAST
SESSION, H.R. 4703, IN ABOLISHING THE FEE FOR FEDERAL
CIVILIAN EMPLOYEE ALLOTMENTS, YOUR LEGISLATION WILL BE
PLACING THOSE EMPLOYEES ON THE SAME FOOTING WITH OTHER
GOVERNMENT EMPLOYEES AND MOST OF THE PRIVATE SECTOR.
I AM APPEARING TODAY ON BEHALF OF THE COALITION
COMMITTEE OF FINANCIAL INSTITUTIONS, THIS LEGISLATION HAS
THE STRONG SUPPORT OF BANKS, SAVINGS AND LOANS AND CREDIT
UNIONS. YOUR LEADERSHIP ON THIS LEGISLATION IS GREATLY
APPRECIATED.
ALTHOUGH LAST YEARS LEGISLATION DIED IN THE SENATE, IT
WAS INSTRUMENTAL IN SECURING AGREEMENT FROM THE DEPARTMENT OF
TREASURY, TO POSTPONE INDEFINITELY A PROPOSED DOUBLING OF THE
FEE THAT MUST BE PAID TO THE GOVERNMENT FOR THESE VERY
ALLOTMENTS,
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THE COALITION OF FINANCIAL TRADE ORGANIZATIONS HAS
BANDED TOGETHER TO END THIS DISCRIMINATION AGAINST FEDERAL
CIVILIAN EMPLOYEES. THE COALITION WAS FORMED IN 1978 TO
PARTICIPATE IN A COMPTROLLER GENERAL'S STUDY OF THE PAYROLL
ALLOTMENT PROGRAM. THAT STUDY MADE AS ONE OF ITS
RECOMMENDATIONS THE SUGGESTION THAT CONGRESS STUDY
"ABOLISHING THE EXISTING CHARGES FOR CIVILIAN ALLOTMENTS."
I WAS ASSOCIATED WITH THE 1968 EFFORTS TO OBTAIN
LEGISLATION AUTHORIZING FEDERAL CIVILIAN EMPLOYEES TO MAKE
ALLOTMENTS FOR SAVINGS. AT THAT TIME THE TREASURY DEPARTMENT
OPPOSED THE LEGISLATION BECAUSE, AMONG OTHER REASONS, IT
ANTICIPATED COMPETITION FOR ITS SAVINGS BOND PROGRAM. ANY
CHANGE, HOWEVER, IN THE POPULARITY OF THE SAVINGS BOND
PROGRAM CANNOT BE ATTRIBUTED, IN MY OPINION, TO THE ALLOTMENT
PROGRAM.
AS RECENTLY AS LAST YEAR, THE TREASURY DEPARTMENT
CONTINUED TO EXPRESS OPPOSITION TO ELIMINATION OF THE FEE FOR
PAYROLL ALLOTMENTS. THEY ARGUED AT THAT TIME THAT A "USER
FEE" WAS JUSTIFIED AND THAT ELIMINATION OF THE RESTRICTION ON
THE NUMBER OF ALLOTMENTS WOULD TAX THE GOVERNMENT PAYROLL
SYSTEMS UNNECESSARILY,
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As CHAIRMAN OF THE COALITION I AM EXTREMELY PLEASED THAT
THE TREASURY DEPARTMENT HAS RECONSIDERED ITS POSITION AND IS
PREPARED AT THIS TIME TO ENDORSE THE LEGISLATION BEFORE. 7fHIS
COMMITTEE. .IT IS THE STRONGEST RECOGNITION OF THE BENEFICIAL
ROLE THAT ALLOTMENTS PLAY IN CREATING A NATIONAL POOL. OF
SAVINGS AND PROVIDING FOR INDIVIDUAL FEDERAL EMPLOYEE
SECURITY AND FINANCIAL WELL-BEING.
MADAM CHAIR AND MEMBERS OF THE SUBCOMMITTEE, I AM NOWT
GOING TO CLAIM THAT PASSAGE OF THIS BILL WILL RESULT IN
ADDITIONAL ALLOTMENTS AND INCREASED SAVINGS; THAT IS SIMMEL`(
TOO HARD TO PREDICT. I, AND OTHER.MEMBERS OF THE COALITL N,
BELIEVE, HOWEVER, THAT IT WILL STRENGTHEN THE ALLOTMENT
PROGRAM.
FIRST, THE LEGISLATION STANDARDIZES THE GOVERNMENTS.
ALLOTMENT POLICY. CONSIDER, FROM A PRACTICAL STANDPOTNT,> WHY
THE GOVERNMENT REQUIRES FEDERAL EMPLOYEES IN THIS COUNTRY' TO
PAY A FEE FOR ALLOTMENTS WHILE ALLOWING THOSE OVERSEAS TO3
ALLOCATE THEIR PAY WITHOUT CHARGE. IT SIMPLY DOES NOT AR-iSWER
THE QUESTION TO SUGGEST THAT THE RECIPIENT FINANCIAL. INSTI-
TUTIONS SOMEHOW RECEIVE BENEFITS THEY SHOULD BE WILLING Tm
PAY FOR. WHICH BRINGS UP THE SECOND POINT. FINANCIAL
INSTITUTIONS CURRENTLY PAY 6~ FOR EACH ALLOTMENT THEY RECEIVE
AND OVER 2O FOR THE COMPOSITE ALLOTMENT CHECK. THUS, LNi
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ORDER FOR A FEDERAL EMPLOYEE TO ALLOCATE HIS PAY TO SAVINGS,
THE RECEIVING FINANCIAL INSTITUTION HAS TO PAY TO RECEIVE THE
MONEY AND THAT PAYMENT MUST COME FROM THE FUNDS OTHERWISE
AVAILABLE FOR INTEREST AND DIVIDENDS, THOSE SUBTLE COSTS
INEVITABLY DISCOURAGE SOME FINANCIAL-INSTITUTIONS AND MANY
INDIVIDUALS FROM MAKING ALLOTMENTS, THIS DIRECTLY AND
INDIRECTLY AFFECTS THE NATIONAL POLICY OF ENCOURAGING SAVINGS
THROUGH ALLOMENTS, AND, TO SOME DEGREE, EVEN THE DIRECT
DEPOSIT PROGRAM.
.MADAM CHAIR, AND THE MEMBERS OF THE SUBCOMMITTEE, THE
SUPPORT FOR THIS BILL IS BROAD BASED. THE REASONS FOR THAT
SUPPORT WILL BE DISCUSSED IN GREATER DETAIL BY THE OTHER
WITNESSES ON THE PANEL. ALL ARE MEMBERS OF THE COALITION
COMMITTE SUPPORTING THIS MEASURE. AND I WOULD LIKE TO TAKE
THIS OPPORTUNITY TO INTRODUCE THEM, MR. ANGEL LOPEZ IS THE
PRESIDENT OF DEFENSE CREDIT UNION COUNCIL, HE IS SPEAKING
TODAY ON BEHALF OF BOTH THE DEFENSE COUNCIL AND THE CREDIT
UNION NATIONAL ASSOCIATION, AND ADMIRAL VINCE LASCARA,
PRESIDENT, NAVY FEDERAL CREDIT UNION IS REPRESENTING THE
NATIONAL ASSOCIATION OF.FEDERAL CREDIT UNIONS. WHILE THESE
WITNESSES ALL HAPPEN TO REPRESENT CREDIT UNION ORGANIZATIONS,
I WISH TO EMPHASIZE AGAIN THAT THIS BILL IS THE RESULT OF THE
ORGANIZED AND UNITED EFFORTS OF THE COALITION COMMITTEE
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COMPOSED OF BANKS, MUTUAL SAVINGS BANKS, SAVINGS AND LOAN
ASSOCIATIONS AS WELL AS CREDIT UNIONS.
ON BEHALF OF THE ENTIRE COALITION COMMI.TTf:EE, I URGE YOU
TO ELIMINATE THE PRESENT INEQUITY IN- THE ALLO5WMENT PROGRAM
AND TO SUPPORT THE GOVERNMENTS SAVINGS EFFORTS BY PROVIDING A
UNIFORM, CONSISTENT ALLOTMENT SERVICE TO OUR FEDERAL CIVILIAN
EMPLOYEES BY REPORTING THIS BILL, H,R, 38791, FAVORABLY.
THANK YOU,
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National Association of P.O. Box 3769
Federal Credit Unions Washington, DC.20007 703/522-4770
Statement of Vincent A*. Lascarw
On behalf of the
National Association of Federal Credi:t~-unions
Before the
Subcommittee on Compensation and Employee.. Menefits
Of the
Committee on Post Office and Civil Sew-ice
United States House of Representat-itmeas
Regarding
H.R. 3879
The Payroll Deduction Facilitation- Act.oo 1983
October 4, 1983
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Representative Oakar and Members of the sumcommittee, I am Vincent A.
Lascara,.a member of the board of the National Association of Federal
Credit Unions (NAFCU) and chairman of NAFCU's Legislative Committee. I
also serve as President of Navy Federal Credit Union. The National
Association of Federal Credit Unions (NAFCU) is the only national organi-
zation exclusively representing the interests of credit unions chartered
by the federal government. There are 11,412 Federal credit unions through-
out the country whose 26 million members hold more than 41.3 billion
dollars in savings. As of December 31, 1982, 788 Federal credit unions
served fields of membership composed principally of "federal government"
employees -- 567 Federal credit unions serving civilian federal employees,
and 221 Federal credit unions serving members of the military forces.
These credit unions, collectively, held over 12.3 billion dollars in
assets.
I appreciate the opportunity to appear before your subcommittee today
and to speak in support of H.R. 3879. This bill would require the federal
government to provide payroll deduction allotments under the savings allot-
ment program at no cost to the federal employee or the recipient financial
institution. At the outset, let me say that NAFCU strongly encourages
positive action on this bill. In fact, more than 200 Federal credit union
members and officials meeting in Washington last year unanimously endorsed
the principles that underlie this legislation.
Madam Chair and Members of the subcommittee, the issue being dis-
cussed today is of crucial importance to credit unions whose memberships
include approximately 8.1 million federal civilian employees. Every credit
union chartered by the federal government has a statutory mandate to pro-
mote thrift. (12 USC 1752(1)). From their very beginnings, credit unions
have carried out this Congressional mandate by encouraging their members
to build.a strong savings program through systematic deductions from their
pay. This philosophy, truly the backbone of the credit union industry,
has helped instill in millions of individuals the importance of saving.
Since the Federal Credit Union Act was adopted in 1934, Federal credit
unions have provided their members with a convenient and easy method to
build consumer savings. The legislation under consideration today would
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ensure that there are no unnecessary impediments placed in the way of
continuing to provide this valuable service to credit union members. We
are here today to encourage this subcommittee to endorse H.R. 3879 as a
statement of support for personal savings.
EXISTING FEES
Currently, Title 31 of the United States Code, Section 492(b), calls
for financial institutions to reimburse agency costs for the sending of
allotment checks to savings accounts at financial institutions. Only the
allotments of federal civilian employees located in the United States are
affected by this regulation. As you know, the federal government will
absorb the administrative cost of sending one allotment per pay period to
an employee's designated financial institution, but the appropriate fed-
eral agency must be reimbursed by the recipient financial institution for
any administrative cost incurred in processing additional-savings allot-
ments.
The Department of the Treasury was given the authority to establish
and collect these service charges in 1968. At that time the charges were
set at six cents for each individual payroll deduction and twelve cents
for each check sent to a financial institution. This cost is presently
incurred by many financial institutions -- including 84% of our nation's
credit unions -- even though in some cases it would be easier and less
burdensome not to receive the deposit in this manner.
REASON FOR FEES
Payroll deductions for saving grew out of a desire to help employees
establish a stable savings program. In 1961, the first allotments for
federal civilian employees were permitted at no charge to the employee for
the specific purposes of labor dues, taxes, and charitable contributions.
Congressional wisdom expanded this program in 1965 to allow allotments for
other purposes, again without charge. In 1968, however, the Treasury De-
.partment was given the authority to charge a fee for any allotments beyond
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the first one. Employees are permitted to designate up to three allot-
ments with,charges incurred on the second and third. The rationale for
imposing these fees grew out of a fear that these additional allotments
would constitute an excessive burden on the federal government.
CREDIT UNIONS AND PAYROLL DEDUCTIONS
Credit unions have long been in the forefront of encouraging, sawing
through payroll deductions. Most employers in the private sector: prmavide
this service at no cost to their employees or to the recipient financial
institution. The federal government conspicuously stands out as one: mf
the few employers which charge a fee for allotments. In addition, broth
active duty and retired military personnel, as well as civilians working
overseas, are currently exempted from any charges for allotments. F'e3eral
civilian employees located in the United States are the single group mf
employees chosen to bear this burden either directly or indirectly.. :In
the case of cooperative institutions, such as credit unions, these emr-
ployees must bear the cost alone or share it with other members of..tii-be_
credit union. If the government employee is personally charged that:
employee may be discouraged from saving. If, on the other hand,, the. credit
union absorbs the cost of allotment fees, then every member of the credit
union may be subjected to higher loan rates or lower dividends to off-set
this expense. The federal government should follow the lead of the pari-
vate sector and do everything possible to actively encourage convenient
methods of saving.
ADMINISTRATION POLICY
Since assuming office, this Administration has constantly elaborated
upon the goal of increasing savings in order to curb inflation. Much has
been said of reversing the trend from subsidizing the borrower to rewarding
the saver. The Economic Recovery Tax Act of 1981 contained numerous; pro-
visions aimed solely at encouraging increased saving. Boosting: the savings
rate, it has been said, will lead to a. reduction of inflation and! a 18mwer-
ing of interest rates.
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During the last Congress legislation was adopted to provide an ef-
fective method of generating new savings by the liberalizing of rules
governing eligibility for and contributions to Individual Retirement Ac-
counts. Yet one of the keys to the success of expanded IRA programs is
the attractiveness of establishing, through routine payroll deductions, a
responsible habit of saving for retirement. The present allotment fee
structure may be viewed as an impediment to loyal federal employees who
wish to establish responsible savings habits. With positive Congressional
action on H.R. 3879 these impediments can be overcome and employers, em-
ployees and financial institutions, working in concert, will have the
tools necessary to create a clear opportunity to create new savings
through the use of payroll allotments.
INEQUITABLE TREATMENT
Private business treats payroll deductions as an ordinary cost of
doing business. Individuals directly employed by the federal government
should be accorded the same treatment. The federal government should not
ignore its responsibility to its own employees.
The federal government, as the employer, should assume the full cost
and responsibility involved in the distribution of pay to its employees.
The federal government, rather than discouraging savings, should be doing
all in its power to encourage personal savings -- which we believe is the
government's policy.
Last year, when the Department of the Treasury proposed doubling the
cost for each deduction from six cents to twelve cents and raising the
remittance fee to twenty-seven cents a cry of protest was heard through-
out the country. Many credit unions wrote to the Secretary of the Treas-
ury opposing the proposed allotment charge increase. A majority pointed
out that the credit union, in fairness to other members, would no longer
be able to absorb the increased allotment fee cost. As a result, indivi-
dual members would have been forced to bear the cost -- and this could
have discouraged many from establishing any systematic savings program.
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One credit union, VAH Northport Federal Credit Unison, wrote: "We
receive payroll allotments from New York Telephone Company, Rockefeller
Plaza, Singer Company, Sperry Rand, and the State, of New York, all on a
free basis." McGuire Public Employees Federal Credit. Ulnion responded to
the proposal: "...no other institution except the TY.ea'sury Department
charges financial institutions for receiving money froim -their customers/
members."
Northeast Federal :Credit Union responded: the.- `lew:el of savings is
a national disgrace... and. you are doing your utmost-to:'t?hwart increased
savings...the federal government shouldn't have i.ts:payrasmll costs sub-
sidized by the financial community any more than an industrial employer
gets his processing costs reimbursed by outside recipienxts."
Actions Taken in the 97th Congress:
Representative Oakar, you are to be commended.fbr,:ypur valiant and
successful efforts to defer any increase in allotment-fs last year.
Such an increase would, I am certain, have been counter-productive.
NAFCU was pleased to testify before this subcommittee on February 4
of last year, and before a House Banking subcommittee.a ifew weeks later,
in support of legislation you introduced repealing-alL allotment fees.
That bill, H.R. 4703, was approved on April 27, 1982 by? ~.he full House,
amended to limit the number of free allotments per- pay., period to three.
Although H.R. 4703 was never acted upon by the Senate, it did get
the attention of key policy-makers in the Senate as wel't?l as at the
Treasury Department.
The Senate Report (S.Rpt. 97-402) to accompany l-as_ year's urgent
supplemental appropriations bill (H.R. 5922), dated? May :18, 1982, con-
tained the following admonition to Treasury:
On May 22, 1981, the Treasury Department publ7iished a notice of
proposed rulemaking to increase the service charges for allotments
of pay to savings accounts of Federal civilian employees. Under
the proposal, service charges would increase from?6 to 12 cents for
each individual payroll allotment and from 12 2727 cents for each
check sent to a financial institution. The propos d implementation
date of the new rule increasing the payroll allotmrent fees is May
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 Apparently, the private sector charges less than the current
fee schedule for similar services. Therefore, the Committee strong-
urges the Department to postpone the increased charge and to
l
y
find ways in which it can provide these services on a more effi-
cient basis.
The, following day Senators Jake Garn (R-UT), John Chafee (R-RI) and
Ted Stevens R-AK) wrote to-Treasury Secretary Regan, noting that:
such allotment programs can be administered by the private
sector for less than the current fee schedule. Thus support for
the fee increase must be viewed as support for subsidizing govern-
ment inefficiency...
Responding to these expressions of Congressional concern, the Treas-
ury Department announced on may 28, 1982 that it was postponing indefi-
nitely any increase in allotment fees.
NAFCU endorses H.R. 3879 and the elimination of any charges
payroll allotments. Technical advancements have
since allotment fees were first imposed in 1968.
zation of more sophisticated electronic delivery
strative costs associated with the federal employee allotment
should have now been substantially reduced. We believe that a con-
vincing case has been made for the total elimination of such fees.
Therefore, we urge prompt and favorable action on H.R. 3879, the
"Payroll Deduction Facilitation Act of 1983".
The National Association of Federal Credit Unions is supportive of
any responsible effort that can be made to reduce unnecessary costs of
government operations. The private sector has traditionally offered
payroll allotment service to its employees without charge. Active duty
.and retired military personnel as well as civilian federal government
employees overseas also receive this service at no cost. Only federal
civilian employees located in the United States are required to pay for
payroll allotments.
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NAFCU Supports Eliminating Allotment Fees
for
reduced agency costs
utili-
Through the
admini-
systems, the
program
Summar
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0 W
No employee, and least of all.a public servant, should be compelled
to pay a fee in order to save. The National Association of Federal
Credit Unions, therefore, endorses prompt action by this subcommittee
and the Congress to abolish the fee on payroll deduction allotments.
The vehicle necessary to achieve this important goal is before the sub-
committee today in the form of H.R. 3879 the "Payroll Deduction Facili-
tation Act of 1983". I. urge each member of this subcommittee to dem-
onstrate a clear commitment to a healthy economy and an increased
savings rate by actively. supporting this measure. I, and the more than
9.2 million individual credit union members represented by the National
Association of Federal Credit Unions would like to extend our appreci-
ation to Representative Oakar for all that she has done to pursue this
beneficial goal.
I thank the subcommittee for the opportunity to appear before you
today, and will be pleased to respond to any questions you might have at
this time.
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STATEMENT OF
ANGEL LOPEZ
PRESIDENT, DEFENSE CREDIT UNION 000NICIL
ON. BEHALF OF
DEFENSE CREDIT UNION COUNCIL
AND
CREDIT UNION NATIONAL ASSOCI'ATIQiN
ON
ALLOTMENT FEES FOR FEDERAL CIVILIAN EK LOYEES
BEFORE THE
SUBCOMMITTEE ON COMPENSATION AND EMPLOYEE BENEFITS
COMMITTEE ON POST OFFICE AND CIVIL. SERVICE
U,S, HOUSE OF REPRESENTATIVES
WASHINGTON, D,C.
OCTOBER 4, 1983
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STATEMENT OF ANGEL LOPEZ
PRESIDENT, DEFENSE CREDIT UNION COUNCIL
GOOD DAY, I AM ANGEL LOPEZ, PRESIDENT OF THE DEFENSE
CREDIT UNION COUNCIL (DCUC) AND MANAGER OF THE CREDIT UNION
I, CHANUTE AIR FORCE BASE, RANTOUL, ILLINOIS. THE DEFENSE
COUNCIL IS THE NATIONAL TRADE ASSOCIATION REPRESENTING 384
CREDIT UNIONS WHOSE MEMBERSHIP CONSISTS WHOLLY OR IN PART OF
PERSONNEL OF THE DEPARTMENT OF-DEFENSE, BOTH MILITARY AND
CIVILIAN, DEFENSE CREDIT UNIONS ARE.LOCATED IN 49 OF THE 50
UNITED STATES AND SERVE MILITARY AND CIVILIAN EMPLOYEES OF
THE FEDERAL GOVERNMENT THROUGHOUT THE WORLD WHEREVER THEY ARE
LOCATED. I ALSO APPEAR TODAY ON BEHALF OF THE CREDIT UNION
NATIONAL ASSOCIATION (CUNA),. THE NATIONAL TRADE ASSOCIATION
SERVING MORE THAN 19,000 STATE AND FEDERALLY CHARTERED CREDIT
UNIONS THROUGHOUT THE UNITED STATES THROUGH 52 MEMBER CREDIT
UNION LEAGUES.
THE DEFENSE COUNCIL AND CUNA HAVE WORKED CLOSELY WITH
THE COALITION TO OBTAIN CONGRESSIONAL RECONSIDERATION OF THE
POLICY OF CHARGING FEES FOR FEDERAL CIVILIAN ALLOTMENTS, WE
STRONGLY SUPPORTED YOUR BILL LAST YEAR AND LOOK FORWARD TO
WORKING WITH YOU AND THE MEMBERS OF THIS SUBCOMMITTEE TO
ENSURE PASSAGE OF THE PAYROLL DEDUCTIONS FACILITATION ACT
(H.R. 3879).
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THIS BILL ACCOMPLISHES TWO THINGS. FIRST, IT PROHIBITS
CHARGES FOR ALLOTMENTS. WE ARE PLEASED THAT THE PROHIBTION
IS EXPLICIT AS IT WILL END ANY QUESTION ABOUT CHARGES FOR
ALLOTMENTS.- SECOND, THE PRIVACY ACT AMENDMENT LIMITS THE
TRANSFERS OF INFORMATION. PERMITTED UNDER THE ACT TO THOSE
CLEARLY NECESSARY "TO CARRY OUT THE DISBURSING FUNCTION,"
THUS, THE SAFEGUARDS OF THE PRIVACY ACT REMAIN INTACT.
THESE CHANGES WOULD BRING THE PAYROLL PRACTICES OF THE
FEDERAL GOVERNMENT TOWARD ITS CIVILIAN EMPLOYEES IN LINE WITH
THE PRIVATE SECTOR AND ALSO IN LINE WITH PRACTICES TOWARD
OTHER FEDERAL EMPLOYEES. ALTHOUGH IT IS DIFFICULT TO
ESTIMATE THE IMPACT ON SAVINGS THAT THIS BILL MAY HAVE, IT IS
CERTAIN THAT THE COST OF THESE ALLOTMENTS TO CREDIT UNIONS
CAN NOW BE RETURNED TO OUR MEMBERS IN THE FORM OF INCREASED
DIVIDENDS AND LOWER LOAN RATES.
CREDIT UNIONS HAVE PROVIDED THE FULL RANGE OF FINANCIAL
SERVICES TO THEIR MEMBERS FOR YEARS.. ALLOTMENTS FOR MILITARY
PERSONNEL WERE FIRST AUTHORIZED BY CONGRESS IN 1899.
CONGRESS HAS NEVER LEVIED A CHARGE FOR THIS SERVICE.
ALLOTMENTS FOR CIVILIAN EMPLOYEES OF THE FEDERAL GOVERNMENT
WERE NOT AUTHORIZED UNTIL 1961. A CHARGE WAS NOT REQUIRED
UNTIL 1968.
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ALLOTMENTS ARE THE LIFE BLOOD OF THE SAVINGS PROGRAMS: OF MOST
MILITARY PERSONNEL AND CIVILIAN EMPLOYEES OF THE FEDERAL
GOVERNMENT, IN OUR TESTIMONY LAST YEAR ON H.R. 4703 WE
SUBMITTED THE RESULTS OF CUNA's SURVEY ON PARTICIPATION I.I
ALLOTMENT PROGRAMS. 97% OF THE MORE-THAN 1,100 CREDIT UNIONS
SERVING MEMBERS OF THE MILITARY AND FEDERAL CIVILIAN
EMPLOYEES REPORTED'RECEIVING ALLOTMENTS. ALLOTMENTS ARE
"EAR-MARKED" BY EMPLOYEES FOR SPECIAL PURPOSES SUCH AS~
SAVINGS. THE DIRECT DEPOSIT PROGRAM, FOR WHICH THERE: ARE-_ NO
CHARGES, BY CONTRAST, FOCUSES ON THE DEPOSIT OF THE ENTIRE
CHECK.
WE SUPPORT THE PAYROLL DEDUCTION FACILITATION ACT BECAUSE: IT
ADDRESSES AN INEQUITY IN THE CURRENT SYSTEM. No OTHER
BENEFIT, SALARY OR ENTITLEMENT PAYMENT BY THE GOVERNMENT :IS
SUBJECT TO A CHARGE TO EITHER THE EMPLOYEE, RECIPIENT OR,
RECEIVING THIRD PARTY. A 1978 GAO ALLOTMENT STUDY, LOOKE1 AT
THE VARIOUS PROGRAMS AND DETERMINED THAT THE "BENEFITS (o:F
ALLOTMENTS) ARE BASICALLY THE SAME." IT FOUND THAT THERE. WAS
AN IDENTIFIABLE VALUE TO "THE FEDERAL GOVERNMENT AS AN
EMPLOYER, THE EMPLOYEE, AND THE FINANCIAL ORGANIZATIONS.,"IN
INTRODUCING AND CONSIDERING THIS LEGISLATION THE CHAIR ANA
THIS SUBCOMMITTEE IMPLEMENTS THE GAO STUDY'S RECOMMENDATFUN
THAT CONGRESS REVIEW THE APPROPRIATENESS OF CHARGES FOR
ALLOTMENTS.
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THE PRESENT POLICY OF CHARGING FOR ALLOTMENTS TO FEDERAL
CIVILIAN EMPLOYEES IS MOST OBVIOUSLY INCONSISTENT IN THE
DEFENSE CREDIT UNION -- WHERE TWO CREDIT UNION MEMBERS -- ONE
ON ACTIVE DUTY, THE OTHER A CIVILIAN -- MAY WORK
SIDE-BY-SIDE, DOING IDENTICAL JOBS WITH SIMILAR ALLOTMENTS,
ONE OF WHICH THEIR CREDIT UNION MUST PAY TO RECEIVE,
WE ARE CONFIDENT THAT CONGRESS IS GENERALLY PLEASED WITH THE
ACCEPTANCE OF ALLOTMENTS BY FEDERAL EMPLOYEES AND MEMBERS OF
THE MILITARY, IN RETAINING THE PRESENT LIMITATION ON THE
NUMBER OF ALLOTMENTS, THE PAYROLL DEDUCTIONS FACILITATION ACT
ADDRESSES ONE OF THE MAJOR CONCERNS EXPRESSED BY THE
DEPARTMENT OF THE TREASURY LAST YEAR. ALTHOUGH WE DO NOT
FEEL IT LIKELY THAT EMPLOYEES WOULD BURDEN THE FEDERAL
PAYROLL SYSTEM BY ESTABLISHING A LARGE NUMBER OF ALLOTMENTS,
WE FEEL THAT THE CONTINUING LIMITATION ON THE NUMBER OF
ALLOTMENTS WILL NOT IMPOSE AN UNDUE HARDSHIP ON FEDERAL
EMPLOYEES,
OUR.SURVEY OF ALLOTMENTS SHOWED THAT THE PRIVATE SECTOR
GENERALLY CONSIDERS ALLOTMENTS AN EMPLOYEE FRINGE BENEFIT.
THE BENEFITS TO EMPLOYEES ARE OBVIOUS, ALLOTMENTS CREATE A
MORE FINANCIALLY STABLE WORK FORCE WITH A BETTER MORALE,
BETTER WORK HABITS, BETTER SAFETY RECORDS AND IMPROVED
EFFICIENCY, STRONG CREDIT UNION SAVINGS PROGRAMS
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COUNSELING THROUGH THE CREDIT UNION ARE THE MST EFFECTIVE
WAY TO COMBAT THE FINANCIAL STRESS FELT BY FEI:DERAL EMPLOYEES,
STRONG EMPLOYEE SAVINGS PROGRAMS ARE ENCOURAGE-D THROUGH
ALLOTMENTS. THESE SAVINGS PROGRAMS ALLOW EMP"UJ.OYEES TO BE
ABLE TO BETTER MEET PERSONAL FINANCIAL EMERGENLCIES. IN
ADDITION, PERMANENT FINANCIAL SECURITY THROUGH INDIVIDUAL
RETIREMENT ACCOUNTS IS NOW MORE POSSIBLE. DUE. TI LL RECENT
CHANGES IN TAX LAWS. CREDIT UNION IRA ACCOURTTI ARE GENERALLY
FUNDED BY ALLOTMENTS. IN THE PAST YEAR MILLEQ1`NS OF SUCH
ACCOUNTS WERE CREATED AT'THE NATION'S 1,100 COEDIT UNIONS
SERVING FEDERAL CIVILIAN EMPLOYEES AND MEMBERS OF THE
MILITARY.
WE, THE NATION'S NEARLY 400 DEFENSE CREDIT UN YMNS, AND CREDIT
UNIONS SERVING THE OTHER FEDERAL CIVILIAN EMP SDYEES TAKE
GREAT PRIDE IN OUR RECORD OF HELPING MILITARY ;AND CIVILIAN
EMPLOYEES AT THE DEPARTMENT OF DEFENSE AND OTHER GOVERNMENT
AGENCIES MEET THE FINANCIAL STRAINS EACH FACESr. WE ARE KEENLY
AWARE OF OUR COOPERATIVE NATURE AND RESPONSLVE: TO DEMANDS
CREATED BY OUR MUTUAL OWNERSHIP. WE HAVE.:E.STREBLISHED
PROGRAMS THROUGHOUT OUR CREDIT UNION SYSTEM TO) PROVIDE CREDIT
COUNSELING AND OTHER 'ASSISTANCE TO HELP MEET TfHIS OBLIGATION
TO OUR MEMBERS. WHERE, DESPITE THIS ASSI'STANCIE, A MEMBER
TAKES THE EASY WAY OUT THROUGH PERSONAL BANKR"NPTCY, WE ARE
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CONFIDENT, THE RESULT COULD HAVE BEEN AVOIDED IN MOST CASES
WITH A STRONG ALLOTMENT FUNDED SAVINGS PROGRAM,
IT IS IMPORTANT TO REMEMBER THAT THE NATIONAL ECONOMY
BENEFITS FROM STRONG SAVINGS PROGRAMS. WHILE IT IS DIFFICULT
TO DETERMINE THE PRECISE INCREASE IN SAVINGS THAT WILL OCCUR
IF THIS BILL IS ENACTED, I AM CONFIDENT THAT THE ADDITIONAL
CREDIT UNION INCOME WILL BE RETURNED TO OUR MEMBERS IN THE
FORM OF INCREASED DIVIDENDS AND LOWER INTEREST RATES ON
LOANS. ALLOTMENTS MATERIALLY CONTRIBUTE TO THE WORKING
PUBLIC'S ABILITY AND WILLINGNESS TO SAVE, THIS BILL WILL
MAKE THE ALLOTMENT PROGRAM MORE ATTRACTIVE TO OUR CREDIT
UNIONS AND TO THEIR MEMBERS.
I WISH TO THANK YOU MADAM CHAIR, FOR INTRODUCING THIS
LEGISLATION AND PROMPTLY CONVENING THESE HEARINGS. WE URGE
THE MEMBERS OF THE SUBCOMMITTEE TO SUPPORT THIS LEGISLATION
AND REPORT IT FAVORABLY, THIS IS A BILL THAT BENEFITS THE
FEDERAL EMPLOYEE, THE FEDERAL GOVERNMENT AS AN EMPLOYER IN
THE NATION'S ECONOMY AS WELL.
I WOULD BE PLEASED TO RESPOND TO YOUR QUESTIONS,
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News Release
~` - FOR IMMEDIATE RELEASE
October 4, 1983
Credit Union National
Association, Inc.
Public Relations
1730 Rhode Island Avenue, N.W.
Suite 810
Washington, DC 20036
202/828-4500
Contact: Brooke Shearer
Washington, D.C. -- Credit unions strongly support a bill eliminating fees
charged financial institutions that receive payroll deductions from federal
employees.
This message was delivered to a House subcommittee by Angel Lopez,
President of the Defense Credit Union Council.
Speaking on behalf of his organization and the Credit Union National
Association, the credit union industry's leading trade group, Lopez said the
"Payroll Deductions Facilitation Act" would make the allotment program more
attractive to credit unions and their members.
"Eliminating the charges on allotments will mean that "additional income
will be returned to our members in the form of increased dividends (savings) and
lower interest rates on loans," said Lopez.
Currently, a federal employee may have a portion of his paycheck "alloted"
to one financial institution without charge. However, if he directs that his
earnings be sent to more than one institution, those additional institutions are
charged processing fees.
The new bill, sponsored by Rep. Mary Rose Oakar (D-OH), would eliminate
those fees. These fees were imposed in 1968 on federal employees only.
Military employees have never been charged for this service. This proposed bill
(H.R. 3879) would redress this inequity, Lopez said.
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The Credit Union National Association is the credit union industry's
leading trade group. It represents more than 90 percent of the nation's 20,000
state and federally chartered credit unions. Collectively they serve more than
47 million members.
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