EFT and social stratification in the USA

EfT and social stratification in the USA More inequality?

Starr Roxanne Hiltz and Murray Turoff

Current EFT

financial

are

services

resulting

in

Disadvantaged

groups

further

handicapped

which

develops

computer them.

and

EFT

of

fails

to

access

to

the authors

could

universalize

be

implements but

knowledge However,

could

by technology

systems

provide that

society.

American

within

using

inequalities

be

stress

designed

access

to

to

financial

services. Dr Hiltz is Chairperson Professor,

and Anthropology, Turoff

and Associate

Department is

College.

of

Computer

Science,

and

Computerized

Conferencing

Communications

Center,

Institute

Dr

Professor,

Associate

Department Information

of Sociology

Upsala

and Director, and

New Jersey

ofTechnology.

Purchase of data and computer time for analyses reported in this paper were partially financed by an NSF COSIP grant to Upsala College. Professor Hiltz’s work on this paper was made possible by an NSF Faculty Fellowship in Science. We would like to thank David Caplovitz and Martin Albaum for their COmmentS.

’ Sometimes this is fairly satisfactory; the automobile licence can be seen as simply an extension of the brand on the horse, with centralized registration to keep them all straight. The myriad of regulations which now try to control excessive speed, pollution, unsafe features, compensation continued on page 23

22

A common fallacy in thinking about potentially revolutionary new technologies such as EFT and related computer communications systems is to plan only in terms of using them as a more efficient (faster and/or cheaper) way of accomplishing existing tasks. Thus, EFT is often seen simply as replacing the present financial functions of checking and credit cards. However, to use some analogies, the automobile was not simply a more efficient horse; the space shuttle is not simply a faster blimp. By a potentially ‘revolutionary’ technology, is meant one which will probably lead to new human activities taking trips inconceivable with old technologies (such as a daily 50100 mile commutation, not to mention trips to the Moon or Mars); engaging in communications unthinkable with previous technologies. The fallacy becomes most acute when the governmental bodies responsible for policy and regulations to prevent deleterious effects think only in terms of slight modifications to existing laws, extending to new technologies the kinds of regulations which served to control the old one.’ The purpose of a technology assessment is to explore the full range of the potential outcomes of a new technology, and to present policy options which might prevent some of the potentially undesirable effects and/or enhance some potentially desirable effects. The aim of this paper is to present a partial assessment of one possible set of effects of EFT; ie on the stratification system, which refers to the amount of equality or inequality among individual citizens and organized interests in American society.2 We assume that ‘more equality’, especially of opportunity, is a positive good in a democratic society, and that an increase in inequality, resulting in a few who ‘have’ and a mass who ‘have not’, would be undesirable.3 The dimensions of equality with which we are concerned include: income or material welfare; power, both political and economic; prestige; and well-being, which includes such intangibles as privacy, freedom, choice, and feelings of security. Within this definitional context social mobility, or the opportunities available to households to change their relative positions in society with respect to the above dimensions, is of particular concern.

TELECOMMUNICATIONS

POLICY

March 1978

EFT

and social

stratification

in the USA

Four such issues are first explored, and there follows a more detailed examination of one central concern: the extent to which this new mechanism for providing financial services may perpetuate existing inequalities of access and use of financial services; or, alternatively, may be used to increase the financial service opportunities and options for the poor, blacks, the less educated, and other groups currently in a disadvantaged position in relation to existing financial institutions and services.

EFT: part of an all-pervasive system?

continued from page 22 of accident victims through insurance, etc. evolved only as a reaction to abuses. *See I.J. Mitroff and M. Turoff, ‘A case study of assessment applied to the cashless society concept’, Technological Forecasting and Social Change, Vol 7. 1975, pp 317-325. for a much broader view of ways of approaching a technology assessment of EFT. Among the important issues which will not be included within the limited focus of this paper are the important consumer privacy and security issues raised by EFT. 3 Previous work on the consumer financial system and computer communications, as well as data from a number of national surveys, are drawn on to suggest the possible impacts in this area, and the alternative policies in regard to EFT that may shape the amount and direction of such impacts. ’ For a more extensive discussion of possible applications of computer communications, see S.R. Hiltz and M. Turoff, The network nation: applications and impacts of human communications via computers, Addison Wesley, Reading, Mass, forthcoming. ’ For example, if the ‘Bell Bill (officially called the- Consumer Communications Reform Act of 1977’1 currentlv before Congress were passed, it would make many EFT specific regulatory debates superfluous, because AT & T would probably become the only entity which would be able to operate an economical nationwide EFT system.

TELECOMMUNICATIONS

EFT is not simply a discrete piece of hardware nor, at this time, a well defined or predetermined set of institutional arrangements. We are assuming a model that is based on a large-scale, interconnected, and inclusive system which represents a blending of computer power, communications services (including information services), and financial transaction services. Current attempts to demarcate and differentiate what is a computer system, a communication system, and an EFT system fall apart when one considers that by the mid 198Os, the cost of computer terminals will probably be as low as the cost of TV today, so that it is possible that they will be located in most homes. A number of banks already allow corporations to access their bank accounts through ordinary computer terminals - why not individuals? The regulatory issue of what is a ‘branch bank’ then becomes somewhat absurd. The computer terminal in the home raises the possibility that those services which will be most competitive or desired by consumers will be those which make it easiest to carry out at least four kinds of functions in an integrated or compatible manner:4 Finding - the retrieval of information about what is available or wanted in terms of goods or services. Negotiating - the user-to-user communication about the terms of a transfer or transaction. Processing - the actual carrying out of the transaction and the generation of a record to interested parties. Analysing - the summary of transactions by categories of interest to various users of the system. An attempt to fit the problems that computers and information systems pose into existing regulatory mechanisms established to deal with either banking or communications does not cope with the fact that EFT is essentially a new kind of phenomenon, and might prematurely foreclose many options.s The deeper issue is that the ability of a citizen to function in society with the kinds of opportunities and choices taken for granted in a ‘free enterprise’ economy may become increasingly dependent on his or her ability to access, utilize, and be protected from evolving computer and information technology. It is time for the government to look at this area as a whole instead of dealing with it as the need arises. To try to fit the ‘round peg’ of computer and information technology into the ‘square hole’ of existing regulatory mechanisms for banking and common communications carriers is bound to lead to undesirable outcomes and to shut off prematurely the possibility of implementing new kinds of computer-based systems and services.

POLICY

March 1978

23

EFT and social stratljication in the USA

The ‘independent middle class’ the economic level, it is obvious that EFT, if not properly regulated, could be used by large financial institutions to create an oligopoly and squeeze out small institutions. On the level of social stratification, a parallel concern is the possibility that rates and access rules could operate to squeeze out the small businessman and small, independent professionals, forcing them to become white-collar employees of large corporations or to drop into the working class. Consider the possibility of the independent accountant, who might receive a letter like the following, sometime in the mid 1980s: On

Dear John, We realize that you have been our accountant for a good many years, and we appreciate the fine job you have done for us. However, you must realize that now that our EFT vendor offers a complete tax and accounting service, it has become prohibitively expensive to utilize your service. This is due largely to the added charges that the EFT vendor assesses for the privilege of interfacing your own computer to the EFT net in order to monitor automatically the accounts of your clients. Though we would like to continue to have you serve as our accountant, we can no longer justify the added cost that this entails. Sincerely and regretfully, Katherine Taylor Armstrong President, Armstrong Associates

6 For

they could determine instance. whether an independent accountant or tax service has to tie separately into n different banks with n different computer protocols to service all clients, or merely interconnect to one EFT system.

24

What we are trying to illustrate in this scenario is the impact of EFT on third party financial and transactional services. The ability of small business people, independent accountants, lawyers, etc, to function competitively will become dependent on the access and cost policies of EFT vendors in regard to providing interconnects to the system so that they may capture data on their clients. Small businesses will find it difficult to compete if economies of scale are translated into different charges and rates for different volumes of use; and if legal regulatory procedures produce unnecessary complexity and paperwork (which may actually be electronic rather than paper-based, of course) as a condition of use. The issue of interconnects (who and what other services may be interconnected with EFT) involves considerations of costs, technical standards, and regulatory policy. Our consideration of questions such as this is implicitly coloured by the use of value-laden terms. For example, the word ‘switch’ implies a passive communication device, a mere technicality. However, when one looks ahead ten or twenty years to what switches in EFT systems may be used to accomplish, the EFT ‘switch’ becomes a very active device capable of providing a host of analytic services on the transactions taking place which are now performed by small firms and professionals, not to mention the FBI and the IRS. Issues that appear rather simple and technical on the surface, such as whether the ‘switch’ is in front or behind the EFTbanking institutions could have a tremendous impact.6 By manipulating standards for interconnects and costs, and by lobbying for advantageous legislation and regulation, the vendors of EFT can obtain such an advantage in providing services related to the data flowing through their system that they can freeze out competitors. The issue for society is whether it will allow further concentration of economic power in a small number of institutions and the destruction of the economic basis for much of what is left of

TELECOMMUNICATIONS

POLICY

March 1978

EFT and social stratijication in the USA

the independent middle class.’

middle class, thus further inhibiting mobility into the

Float or swim? ‘Float’ is the free credit that a person or organization receives by using goods or services or money for a period of time before actually paying for them. It is float that keeps many a small business alive, with bills for merchandise not paid until retail sales can cover them. It is also float which keeps many a household from having to request a formal loan or forego consumption: charge account bills do not come due until a month or so after purchase; and a potentially bouncing cheque is covered by a subsequent deposit in the bank which clears before the cheque does. The US National EFT Commission’s position is that float is simply a by-product of the current ineficient payments mechanism, not a right; and that EFT can simply reduce float to zero by making all transactions instantaneous.s But is this really desirable? Doesn’t it cut down on a valuable budgeting and management device depended upon by many? The amount or existence of ‘float’ could be considered as a variable, to be manipulated as a new instrument of economic control or of social equity. For instance. perhaps households would adjust to EFT much more easily if all transfers were not actually made until the end of the month (or whatever day their pay is usually deposited in their account) with a running account provided of what their projected balance would be at the end of that budgeting period. In addition, we suggest that each EFT user should have a right to postdate any transaction s/he desires without added costs or other artificial means to inhibit the use of this payments control mechanism. Certainly, these are policy decisions which should not be foreclosed. A reasonable place to begin would be with modelling the process to determine who benefits from float at present, and how various policies for handling ‘float’ in EFT would harm or benefit these interested stakeholders. There has not been sufficient analysis to warrant any conclusions on the float issue at this stage. ‘To the extent that small service and retail establishments are faced with additional forms to fill, or expensive equipment to purchase, or service rates that are tied to volume of transactions, then it becomes harder for small businesses to be established and to compete, and one of the main channels of social mobility in the society is further constricted. BEFT and rhe Public Interest, National Commission on Electronic Fund Transfers, Washington, DC, 1973 p xiv. For an edited version of the report, see Telecommunications Policy, Vol 1, No 3, 1977. pp 258-260. 9 It could very well be, for instance, that government regulation of artificial float for various categories of transactions would prove to be a more desirable mechanism than interest rates for controlling excessive inflation or recession. D. Caplowitr, The lo See, for instance, Poor Pay More, The Free Press, New York, 1967, p 157.

TELECOMMUNICATIONS

Automated alimony and guaranteed garnishees? There are many regular, periodic financial transactions in American society whose problematical nature and inconvenience cause unnecessary hardship and expense. With EFT, a court order or a consumer agreement would be issued once, and the payments could be transferred regularly thereafter. Certainly, the insurance companies were quick to see this: they were studying how EFT might be used to collect premium payments automatically at least seven years ago. One such application that currently causes considerable hardship is the garnishment of wages for employees who owe instalment or other debt. Rather than be bothered with the annoyance and paperwork of making a weekly payment to a creditor, some employers simply fire their employees when served with a garnishment.*O Ignoring for the moment any injustices that might be associated with an instalment contract to begin with, EFT could accomplish the automatic deductions from salary or wages ordered by a court without the involvement or even knowledge of an employer.

POLICY March 1978

25

EFT and social stratiJication in the USA

Alimony is more a myth than a reality. It is very seldom awarded and even more seldom paid. *I Child support payments are much more common, and most Americans would agree that it is only equitable that a father help financially to support his minor children after a divorce. However, most fathers do not support their children as ordered by the courts. I2 Legal action is seldom taken, because a father need only leave the state to avoid effectively any forced payment of child support. This is one of the reasons why households headed by women make up a large and growing proportion of all households under the poverty line. With EFT a court-ordered monthly child support payment could be effectively enforced, should the father not make the payments voluntarily.

Inequality of access to financial services

” For example, the proportion of divorces accompanied by awards of permanent alimony was only 4% in Los Angeles and 6% in San Fransisco in 1972. (See L.J. Weitzman and R.B. Dixon, ‘Alimony: a quest for justice in changing times’, paper read at annual meeting of American Sociological Association, New York, August 1976.) comprehensive ‘*The most study available followed a sample of 163 men ordered to pay child support over a tenyear period. Forty two per cent never made a single payment. By the tenth year. only 2 1% were fully meeting child support payments. (See Eckhardt. ‘Deviance, visibility and the duty to support’, Social Problems. Vol 15, 1968, pp 473-74.) ‘3Certainly. the cumulative and selfperpetuatrng nature of structured social inequality has been recognized at least since biblical times. ‘4 National Commission, op cit. Ref 8. p 14. are based on r5 These conclusions extensive statistical analysis of the data acquired from national surveys conducted between 1962 and 1970. Each of the findings reported here was replicated several times. For further data and discussion related to these findings, see S.R. Hiltz. Involvement in the consumer mechanism of financial system: a inequality fPhD dissertation. Columbia University. Unrversity Microfilms, 1969; ‘Black and white in the S.R. Hiltz, consumer financial system’, American Journal of Sociology, Vol 76. No 6. 197 1, pp 987-998; and S.R. Hiltz, ‘Why black families own less life insurance’. The Journal of Risk and Insurance. Vol XXXVIII. No2. 1971. ~~225-235.

26

From a policy point of view, one must look at inequality of ‘social stratification’ in a society in terms not only of present patterns of difference in well-being, but also in terms of those processes which systematically perpetuate and increase inequality, by giving those who are better off more access to the resources and opportunities needed to earn income and acquire power and prestige.i3 The ‘consumer financial system’ is the mass-marketed complex of financial services offered to individual households by financial institutions. Most American households participate in the use of these services, and the amount, growth and security of the financial resources of households is largely a function of their ability to gain access to such services and to use them wisely. Practically all the existing services would be affected by the implementation of an EFTS, There would be direct replacement of such services as checking (current) accounts and credit cards. There would be indirect effects on loans, insurance, and savings, since premiums, interest, and other such transactions could be automatically authorized and carried out on a periodic basis. The consumer financial system now operates to increase inequalities in US society. The dynamics of the current system are not based solely on income; in fact, it is probably more nearly correct to say that, in US society, income is a dependent variable (effect, rather than cause), determined by such factors as the social class of one’s parents, race, level of education, and pattern of use of financial services. This is not at all recognized by the EFT Commission, which treats the current system only in terms of income as a determinant of use. It is true, as the Commission states, that ‘low income people pay more for financial services and receive fewer benefits from them.‘i4 However, even when income is held constant we find the following to be true of disadvantaged households (those headed by blacks rather than whites, the less educated, and blue-collar as compared to whitecollar employees): 0 0 0 0

They use fewer kinds of services. They use less desirable types of services. They have smaller amounts of financial resources. These inequities are the joint effect of practices that are discriminatory in their effect and of differences in attitudes and knowledge.

Selected

aspects

of the situation

can be explored

TELECOMMUNICATIONS

in some detail.i5

POLICY

March 1978

EFT and social stratification Table 1. Percentaga of households without

in the USA

services taken for granted by middle class.

Service

% without

Date and source of estimate

Checking accounts

35

1965 Prudential Attitude Study 1970 Survey of Finances 1970 Survey of Finances 1970 Survey of Finances 1970 Survey of Finances

25 Individual

life insurance

33

Credrt cards

50

lnstalment

51

debt

Public Consumer Consumer Consumer Consumer

Although the last large-scale national survey was the 1970 Survey of Consumer Finances, and the indications are that while the proportion of households using various services has increased slightly since then, the nature of the described relationships to such use have not. The disadvantaged use fewer kinds of consumerfinancial services. Included in the services that have been examined are checking accounts. savings accounts, stocks, mutual funds, bonds. mortgages, instalment loans, personal loans, bank credit cards, other credit cards, life insurance. and health insurance. Although the white, middle-class consumer might think that ‘everyone’ has checking accounts and savings accounts and life insurance, this is not true. For example, Table 1 shows the proportion of households without the financial services that the middle class takes for granted. Checking accounts are the closest single equivalent of an EFT system. A study conducted by the Prudential Insurance Company in 1965 is a good data source for exploring the influence of various social class variables on the use of checking accounts, since the sample was both large (n answering the question on a checking account was 3458) and stratified so as to include a disproportionately large proportion of blacks (in all calculations, ‘weighted n’s’ are used to correct for this oversampling). The analysis shown in Figure I is based on a programme called AID (The Automatic Interaction Detector). which is designed to determine what is the single best predictive ‘split’ in the population that can be made at any point in

Figure using

1.

Proportion

a checking

Note: Coefficients total variance subdivisron. Source: Prudential 1965. n = 3458.

of

account,

households 1965.

show proportion of explained by each

Public Attitude

TELECOMMUNICATIONS

Study.

POLICY

March 1978

27

EFT

and social stratl$cation in the USA Table 2. Mean amount head.

of total financial

resources by family

Occupation Family income (1967) Under $5000 $5OOO-$7499 $75OO-$9999 $10 000-$14 999 $15 000 & over All income groups Proportion of sample Proportion of resources

income and occupation

of

of head

Other white collar

Skilled manual

Semi-

sionals

skilled

Unskilled

$25 $19 $10 $15 $44 $26

$ 3 034 S 6471 $ 8 889 $12 142 $34 125 $14 617

s

1914 S 3 940 S 7 655 $11 452 $18 313 $ 9091

$ 2 202 $ 3 864 S 6591 S 9 322 $14 421 $ 5890

S 1214 S 4 440 $ 6 456 $ 7 960 $12 705 S 3 569

41%

20%

19%

14%

16%

10%

4%

Profes-

6% 15%

725 729 779 849 533 521

55%

Source: Calculations based on the 1968 Survey of Consumer Finances data, n = 2677. Note: In conceptualizing this measure of total financial resources available, assets and loans are considered as complementary functional alternatives, both of which can supply money to the household without depleting current income: thus, they are added together, not subtracted from one another. The figures were constructed for each household by adding together: total amount of money in savings accounts of all types banks, savings and loan associations, credit unions, and certificates of deposit: total value of corporate stocks owned either directly or through shares of a mutual fund or

investment club; total amount of government or corporate bonds: total balance in all accounts; amount of life insurance premiums paid in 1967 (which generally would provide for insurance in force at the time of the survey); total amount of mortgages outstanding on dwelling: total amount of instalment loans outstanding: automobile loans, loans used to purchase other consumer durables, home improvement loans, and other instalment loans: amount of life insurance policy loans. The most serious shortcomings of this measure of total financial resources are that the median would have been preferable to the mean: insurance is very inadequately included: and authorized but unused ‘lines of credit’ are not included at all.

terms of decreasing variance. I6 In this case, the dependent variable is use of a checking account; independent variables include family income, wife’s income, home ownership, occupation of head of household, race, age, and education. What the analysis shows is that the very best predictor is education of the head of the household. Occupation, race and home ownership are all stronger predictors than income per se. One way to trace the cumulative effects of disadvantaged statuses through the diagram is to point out that if a household was headed by a person with a good education and a white-collar occupation, was white, and had $10 000 a year or more income, then 98% reported using checking accounts. If it was headed by a person who was poorly educated and renting, then less than one in five had a checking account; among poorly educated home owners, unskilled manual workers and blacks were unlikely to have a checking account.

” John Sonauist. Multivariate model building and ;he validation of a search strategy, Institute for Social Research, Ann Arbor, Michigan, 197 1.

The disadvantaged have smaller amounts of the kinds offinancial resources and services that increase and protect accumulated resources over the family l$e cycle. This is found at each income level. Table 2 gives a rough idea of the nature of the disparities involved, looked at in terms of the joint effects of income and occupation. The disadvantaged use the less desirable types offinancial services. They receive lower interest on their savings, pay higher premiums for

TELECOMMUNICATIONS

POLICY March 1978

EFT and social stratification in the USA Table 3. Percentage of Persons who ever heard of ‘Truth and education

Education

Source: Cross tabulation based on data from the 1970 Survey of Consumer Finances, n = 2337. Question: ‘Have you heard of the new Truth in Lending Law that provides for disclosure of interest rates paid on money borrowed?’

in Lending’,

by family

income

of heed. of heed

Family income

8 years or less

S-11 years

Highschool graduate

Some college

Under $3000 $3000-65000

15 20

27

26

46

$5000-$7499 $7500-$9999 $10 000-$14 999 $15 000 and over All incomes

their insurance,

25

47 39

35 52

39 49

50 24

66 40

47 33 57 61 75 55

75 82 57 68 95 68

College graduate

All

50

26

81 82

44 51 61 82 51

67 71 95

79

37

and pay the highest interest rates on their loans.”

Reasons for inequities. These differences are partially due to advertising and sales practices by financial institutions which are discriminatory in their effect if not in their intention. Perhaps the most blatant example of this is the ‘red lining’ of urban black by which banks and insurance companies neighbourhoods, categorically exclude all the residents as ‘bad risks’ for mortgages or property and casualty insurance. It is also partially due to lower levels of knowledge about financial services, and to differences in life style and values. Table 3 illustrates the distribution of financial knowledge in the population. The Truth in Lending Law was given extensive publicity and was especially designed to try to protect the main victims of credit abuses, the low-education, low-income and minority consumer. The question itself is phrased in such a way that many people probably claimed to have heard of it, rather than admit ignorance. Nevertheless, the only group which claimed the near-universal familiarity hoped for by the framers of the law are the highly educated and high-income households. This points to the need for consumer education at the high school and mass media levels. The consequence of the low levels of use of financial services by the poor, the blacks. the undereducated, and other disadvantaged groups in the society is to increase the probability of victimization and perpetual poverty. It was the households without accounts which lost their rent when a New York State money order company went bankrupt recently. It is they who have no insurance to cover the loss when illness, fire, or theft wipe out accumulated savings. It is they who have their welfare cheques stolen, the cash they must carry in lieu of credit cards stolen, their shoddy instalment-plan appliances repossessed. their jobs threatened when their salaries are garnisheed.is

Government v private enterprise I7For

example, the 1965 Prudential data shows that the average black owner of personal life insurance received only $36.00 worth of coverage for each premium dollar paid compared to $64.00 worth for white insurance consumers. ‘*See Caplovitz, op cit. Ref 10 for descriptions of these latter phenomena.

TELECOMMUNICATIONS

One ‘obvious’ alternative to the present consumer financial system is the socialistic solution of government takeover of private financial institutions or direct competition with them. However, on closer examination, such a solution might not reduce inequalities at all. Th ere are a few financial services or programmes which are presently administered by government organizations, rather than private corporations. These include US savings bonds, state and municipal

POLICY March 1978

29

EFT and social stratification in the USA Table 4. Percentage of households owning

US savings bonds, by income and occupation. Family

Occupation of head

income

Under

$5000-

$7500-

$5000

$7499

$9999

$10 000 and over

Total

executives Managers, technicians and

58

53

69

58

58

clerical and sales Skilled and

27

32

33

51

38

semi-skilled Unskilled manual Total

21 5 20

28 32 30

37 25 37

41 36 49

28 12

Professionals and

Source: Study.

Prudential

1965

Public Attitude

bonds, and the social security system. It might be assumed that these government-run programmes would serve rich and poor, black and white. and professionals and workers equally. The available evidence, however, suggests that this is not the case. The most complete evidence which could be obtained is for the distribution of ownership of government bonds. Presumably, any household can afford to buy savings bonds, which are sold for as little as $18- 75. Yet, Table 4 shows one example of the data indicating that ownership of government bonds is unequally distributed throughout the population in the same sort of pattern as the privately sponsored financial services. Obviously it is not enough to assume that government operation of a programme, per se, let alone government regulation, will be carried out in such a way as to ensure equal access to a financial service by all citizens. Such true equality of access would require ‘affirmative action’ to inform and educate consumers.

EFT policy alternatives The viewpoint of the EFT Commission

is stated as follows:

The commission would like to see the benefits of EFT extended to households in the population alternatives financial

that today . . . EFT

are dependent

on cash and money

offers an opportunity

orders

to provide cheaper.

as payment

more convenient

services for this group of people. But for this to happen. they must have

accounts in depository

institutions of one kind or another. Banks have more than

70 million demand deposit accounts with average balances under $1.000 average balance in such accounts is $300. transfer

and the

They may not desire to extend money

services to depositors whose accounts would be even smaller. Incentives

such as public subsidy might be necessary.”

I9National 14.

30

Commission,

op cit. Ref 8. p

This sort of policy, translated into legislation, might very well be called the Bank Profits Preservation Act. It is obvious that there are many more policy alternatives than simply a government subsidy to banks to make it pay them to accept low-balance EFT equivalents of checking and savings accounts. First of all, it would be in the direct interest of the government, in terms of both social equity and efficiency, if all welfare, social security. veteran’s disability, unemployment compensation, and other income transfer programmes were operated directly through an EFT type facility, so that regular monthly credits were transferred into an account of the recipient. Such an automated procedure ought ideally to be combined with an information and application procedure in

TELECOMMUNICATIONS

POLICY

March 1978

EFT and social strattjkation in the USA

*‘This has been the policy with respect to regulation of the telephone system at the state and federal levels.

TELECOMMUNICATIONS

which any potential applicant would feed in some data on their situation, would be given a set of questions to answer over a terminal, and would be given a print-out of all government income transfer programmes for which they might be eligible, along with information on where and how to apply officially for each. This might be the first step towards a comprehensive, integrated ‘guaranteed minimum income’ programme for the USA. If private financial institutions did not wish to handle accounts for income-transfer recipients, then the government might serve as a kind of ‘banking institution of last resort’, maintaining EFT accounts for its programme recipients. Another alternative is to require any offerer of EFT services to make them available to anyone who wishes them, without any minimal deposit and without any discriminatory rate charges based on volume of transactions. This would mean that the larger customers of an EFT service would in effect be subsidizing the smaller customers.20 Formal access alone will not guarantee actual equality of access, if financial institutions are given no guidelines or aid by government in advertising and educational campaigns. Individual sales efforts and media advertising for advantageous financial services are now aimed at the ‘prime’ markets, where the largest profits are to be made. Most customers are incredibly ignorant about the workings of current financial services. Something as ‘new’ and complex-sounding as EFT (which in addition includes an integral role for that scapegoat of modern bureaucracies, the computer) is likely to be viewed with a mixture of apathy and suspicion, unless a strong consumer education campaign is launched. which includes such things as public service announcements on television and posters on subways. It is not clear that those currently disadvantaged will be the only ones who could possibly suffer under EFT. The past few decades have seen a shift in values of middle-class Americans from thrift to credit. As a result of the lending policies of financial institutions and of a desire for the ‘good things in life’. the amount of consumer debt per individual in this country has steadily grown. While creditors may view this as healthy for their business, it is not clear what debt levels are healthy for the society as a whole or for the individual family. One view is that our educational systems, governmental or private, have failed to teach individuals how to use credit wisely. There is little doubt that EFT systems as now envisioned will further raise debt levels in this country. With the likelihood of various shortages and economic disruptions becoming commonplace in decades ahead, it is not clear that high family debt levels are healthy for households, society. or the financial institutions themselves. The responsibilities of educational and governmental institutions in this area need a complete re-examination. Another important policy consideration, besides steps to provide access to EFT and knowledge about how to use it, is to provide adequate recourse to users who have problems or questions about their accounts. We recommend that any EFT service be required to provide an ‘ombudsperson’ available at any time by telephone, letter, or computer message, to handle complaints and questions from consumers in trouble. This humanizing component of the system should be considered as necessary a part of overheads as the computers themselves and the buildings which house them. These are just initial suggestions of the possible forms which

POLICY March 1978

31

EFT and social stratz$cation in the USA

2’ Another example of the opportunities for increasing equality of opportunity is that there is no reason why part-time jobs related to data and information transfers on EFT systems could not be done by the physically handicapped or other mobilitylimited persons, working from terminals located in their homes.

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alternative policies could take. *I Overall, our point is that rather than automatically perpetuating and perhaps even increasing the inequities which result from the current consumer financial system, EFT represents an opportunity to shape use of a new technology for social objectives as well as for corporate profit. EFT could facilitate basic changes in the nature and distribution of consumer financial services, and extend the benefits of such services to segments of society which currently are at a disadvantage in dealing with existing financial institutions. At the very least, policy makers should take care that this new type of financial institution does not promote more inequality.

TELECOMMUNICATIONS

POLICY

March 1978