Banking by computer should be allowed to grow with a minimum of government regulation, the National Commission on Electronic Fund Transfers yesterday told the White House and Congress in its final report.

But the commission cautioned that consumer safeguards are needed as a signal to financial institutions that foulups will not be tolerated.

The commission, chaired by former New Jersey Rep. William B. Widnall, was set up three years ago to study the nascent field of electronic funds transfers (EFT).

Since then pay-by-phone accounts, 24-hour teller machines, direct deposits of wages and Social Security payments, instant verification of credit accounts and point-of-sale purchases have become a part of American life.

But that growth has been outside the law - there are no federal laws governing EFT.

The commission spent 21 months and $2 million wrestling with questions such as whether EFT would, in the words of Ralph Nader, lead to "the McDonaldization of the banking industry," or whether allowing customers to reverse their computer made purchases after sale would endanger the guaranteed acceptance by retailers of this form of payment.

In the end it chose to compromise between the interests of federal and state bankers and those of merchants and consumers.

The two most controversial issues were branching and reversibility. A year ago the Supreme Court refused to consider whether computer terminals, capable of ordering the performance of many banking functions, are legally the same as bricks and mortar branch offices. State laws are divided. Five of the 32 states that have enacted EFT legislation do consider the location of a computer terminal as a branch: 17 do not; the rest are silent.

The commission has asked Congress to pass a law declaring that terminals are not branches. Under the McFadden Act, the spread of national bank branches is subject to and restricted by state laws. Terminals would not subject to such restrictions.

The commission feels that state, and federally chartered commercial and savings banks should have the power to offer all services - except taking deposits - at terminals anywhere in the country. Stores would be allowed to do so, too. Customers would gain the convenience of dealing with his own bank or merchant wherever the terminals are located.

Deposits were excepted because of fears expressed by small banks and consumer advocates that the nation's biggest banks would collect money in terminals across the nation, taking business away from little banks that cannot afford many terminals.

To avoid this problem, the commission took a two stage approach. State and federal legislation would be passed to enable deposit-taking terminals to be set up across state lines in natural markets areas, e.g., the District and Montgomery County.

To thwart the natural disinclination of states to allow large federal banks to accept deposits there, the commission has recommended that a date beset by Congress after which the states would have to let the feds in. Although no proposed date is given in the report, the commissioners informally suggested a period of three to five years.

Consumer interest in EFT has been only minimal, according to Sen. Don Riegle (D-Mich.), not only because the system is unfamiliar but because it has serious potential drawbacks. Among the major problems he cite the inevitability of errors like unrecorded deposits, incorrect deductions, missed payments, and the vulnerabilitic to crime by a thieves with expertise in computer programming.

Consumers, he said, fear that their freedom of choice to pay by check and the advantages of the "float," or the time between receipt of payment by the creditor and the deduction of funds from their account, will be eliminated. Finally, he said, there is the potential for "massive invasions of personal privacy," the threat of an outsider learning about a person's lifestyle through examination of EFT transactions.

The commission has recommended, and Sen. Riegle has introduced, legislation to protect the consumer against these drawbacks.

The bill provides that errors reported by an EFT account holder of the incident, be corrected or explained by the bank within 60 days. Banks would have to rectify it within 45 days or the bank becomes liable for a penalty.

Unlike the credit card holder who must assume a $50 loss, the EFT account holder would have little or no liability for unathorized use unless the bank could prove the owner was negligent in handling his card or secret identification number. (The commission calls for no liability; Riegle's bill calls for the first $25).

No one would be compelled by any bank or store to use EFT against his wishes. No information about an account could be given to an unauthorized third party, such as a bill collector, unless the holder's prior consent was received. And he would be notified in advance of any subpoena of his records by the government and allowed to challenge it in court. This is a key change from present banking laws which do not require banks to notify account holders when their records are investigated by federal, state ot local government agencies. The bill provides that the customer should have access to his own records, permitting him to challenge and correct errors in them.

Where the commission and the Senate bill differ philosophically is on the issue of reversibility, or the right of a consumer to change his mind about a purchase.

Riegle would grant the consumer the right to stop payment, as one stop a check, by notifying his bank within three business days. The commission limited the right to pre-authorized debits, like a monthly car payment, that the bank automatically makes on its client's behalf.

The commission decided that the reversibility requirement would eliminate the advantage of the point-of-sale debit, that is, total acceptability of EFT by merchants as the equivalent of cash. Retailers could continue to make refunds, even under the EFT system, if they so wished. They would not be obliged to do so legally.