Is it permissible to have a checking account that only allows debit card feature and no check writing features as long as the Reg E and Reg DD disclosures reflect such?

The local city government has a utility subsidy program and we would like to have a checking account program where those funds woudl be directly deposited into the customer's account but the customer would be limited to using the funds by a debit card.

Is this permissible?

I would say as long as the terms/limitations of the account are defined by the deposit contract and your Truth-in-Savings disclosures, you should be fine.

After all, our own government has the ETA accounts which must have direct deposit of SSI, VA, or SS benefits and can only be accessed by ATM card.

Certainly I would also recommend that you have your bank's attorney's/compliance dept. review the account agreement prior to offering the account to your customers

There is no mandate that checks must be ordered on a checking account, but also not sure that you can prohibit it either.

Have you considered having them order checks if they wish on their own (from your bank preferably) and then ding them a check clearing fee as a deterrent to writing checks?

If you aren't going to allow customers to write checks on the account, try coming up with a better label than "checking account."

I believe that totally electronic accounts will be what we have in the future - apparently the FRB is seeing the same thing - hence the consolidation of their check processing centers into 1 location. We had a free checking account where the only access was a debit card. It worked out just fine for those folks savvy enough to fully utilize on-line bill pay, ACH, or other electronic payment systems. New marketing folks supplanted it with a standard free checking across the board, but are coming up with a different product. There are no laws against it - just make sure you disclose it in your TISA disclosures under other terms and conditions.