[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23009]


[[Page Unknown]]

[Federal Register: September 30, 1994]


      
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Part IV





Department of the Treasury





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Fiscal Service



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31 CFR Part 210




Federal Government Participation in the Automated Clearing House; 
Proposed Rule
DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 210

RIN Number 1510-AA39

 
Federal Government Participation in the Automated Clearing House

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Proposed rule.

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SUMMARY: This document proposes to revise regulations which define the 
responsibilities and liabilities of the Federal Government 
(Government), Federal Reserve Banks, financial institutions, Receivers 
and Originators doing business with the Government through the 
Automated Clearing House (ACH) system. This revision proposes 
substantive changes to the existing regulations and supersedes the 
savings allotment provisions of Part 209 because savings allotment and 
recurring benefit payments formerly under the terms of Part 209 are 
made by the ACH method under the terms of Part 210.
    These revisions are intended to provide a regulatory basis for 
broader use of the ACH system to meet the future payment, collection, 
and information flow needs of the Government. These revisions also are 
intended to bring Government regulations more in line with financial 
industry rules so as to eliminate, as much as possible, the need for 
the financial industry to operate under two sets of rules for 
processing ACH transactions. In general, these revisions accept the 
private industry ACH Rules as promulgated by the National Automated 
Clearing House Association (NACHA), unless it is determined that, in 
its role of protecting the public trust, it is not in the best 
interests of the Government to do so. The exceptions to the ACH Rules 
are cited in these regulations. The Government already uses ACH Rules 
transaction formats and applies many ACH Rules to Government entries. 
These regulations will continue to provide provisions which protect the 
substantive rights of participants and enumerate their liabilities.
    The major reasons for the proposed changes are to provide a clearer 
and broader framework, and greater leeway for the Department of the 
Treasury, Financial Management Service (the Service), to make ongoing 
modifications to policies, Government operating instructions, and 
interpretations of this regulation. This will permit the Service to 
manage effectively the transition to fully electronic processing, 
respond more rapidly to changes in commercial rules and operating 
procedures, and utilize commercial ACH processes or rules, unless it is 
determined not to be in the best interest of the Government. It also 
will provide the Service a regulatory basis for working with the 
financial community to develop or enhance ACH products and services as 
they become available in the banking industry, if they are consistent 
with the terms of the regulation described in this part. This requires 
a complete rewording of Subpart A and Subpart B.

DATES: Comments must be received on or before November 29, 1994.

ADDRESSES: Comments may be mailed to the Cash Management Policy and 
Planning Division, Financial Management Service, U.S. Department of the 
Treasury, Room 511, Liberty Center, 401 14th Street SW., Washington, DC 
20227.

FOR FURTHER INFORMATION CONTACT: John Galligan (202) 874-6935 
(Director, Cash Management Policy and Planning Division); or Margaret 
Roy (Principal Attorney) (202) 874-6680.

SUPPLEMENTARY INFORMATION:

Background

    Part 210 of Title 31 of the Code of Federal Regulations sets forth 
the rights and liabilities of the Government, Federal Reserve Banks, 
financial institutions and recipients where recipients of Government 
payments authorize the payments to be made by the ACH method. The 
regulations in this part were promulgated in 1975 and revised in 1976, 
1984, 1987, 1989, and 1993.
    The Service is revising these regulations to provide the framework 
necessary to achieve its ACH development strategy which involves the 
following three objectives: (1) Broaden the use of the ACH network for 
payments and collections; (2) move closer to industry standards to 
easily expand Government services within existing networks; and, (3) 
pursue a paperless environment.
    The Service proposes to increase the use of the ACH network by 
adapting the regulatory framework of Part 210 to the emerging body of 
ACH products and services. This requires an expansion of the regulation 
to cover activities that are, or in the future may be, handled over the 
ACH network, including collections and the movement of information 
related to monetary transactions. In this way, the Service and Federal 
program agencies will be in a position to take full advantage of the 
ACH network to move as many of the Government's transactions as 
possible to ACH.
    Moving closer to industry standards, as set forth by NACHA through 
the ACH Rules, also will enable the Government to expand its use of the 
ACH network. This will give the Service the flexibility to adopt, when 
in the best interest of the Government and consistent with legal 
requirements, those ACH practices and procedures that are proven viable 
in the commercial sector, and to work within industry rulemaking 
practices to introduce new practices and procedures. This requires a 
complete reworking of Subpart A and Subpart B.
    The Service, in its pursuit toward a paperless environment, will be 
able to streamline and automate such diverse payment-related 
information processes as change requests, authorization activities, and 
reclamations. In the past, these have been expensive paper-based 
ancillary ACH activities. Advances in the ACH network have shown the 
efficiency of automating these processes.
    The following methods were used by the Service to determine which 
revisions to the rules were necessary to achieve its ACH development 
strategy. First, an ACH work group was established to identify the 
major differences between the Government and private industry. The work 
group wrote issue papers discussing the differences along with options 
for resolving them. Second, a rules impact assessment was developed to 
determine how the differences in rules affected financial institutions. 
The assessment involved asking representatives from financial 
institutions about the impact of the current Government ACH rules and 
procedures, and an analysis of their responses. Third, the Service 
conducted a series of Federal agency forums to discuss options to 
resolve the differences. These efforts provided the basis for making 
the proposed revisions.
    The Service is proposing:
    (1) Clarification of the authorization and revocation processes to 
offer additional consumer protection and to facilitate automated or 
streamlined authorization procedures, including procedures to authorize 
debits.
    (2) Clarification of the liability of participants with regard to 
authorizations, revocations, prenotification entries, notification of 
change entries, and commercial-to-Government entries.
    (3) That liabilities be associated with failure to examine and act 
upon prenotifications that may be originated by the Government.
    (4) A regulatory framework for equitable adjustments when a 
financial institution either has been enriched, or harmed, as a result 
of erroneous ACH entries. The provision will allow Federal agencies to 
abide by industry rules if they have independent authority and choose 
to do so.
    (5) That after due consideration of commercial practices, the 
Service may publish procedures under which it may authorize reversing 
entries to correct duplications or errors.
    (6) Improvements to the reclamation of post-death benefits portion 
of the regulation, and a framework for paperless processing of the 
information and money associated with these transactions.
    (7) To substitute certain terms used in the ACH Rules for terms 
which the Government uses in the same way as those defined in the ACH 
Rules, and to include those terms the Government uses differently from 
the ACH Rules or which are not contained in the ACH Rules. For example, 
current Part 210 uses the term ``payment date,'' while the ACH Rules 
use the term ``settlement date.'' Since both of these terms are used in 
the same way, the Service will use the term ``settlement date.''
    The Service will accept or reject amendments to the NACHA Operating 
Rules and NACHA Operating Guidelines which may affect Government ACH 
transactions. Therefore, Section 210.2(a)(4) proposes that ``The 
Service will indicate its acceptance or rejection of amendments to 
NACHA Operating Rules and NACHA Operating Guidelines in effect on 
September 27, 1994, by publishing a notice in the Federal Register 
prior to the effective date of the amendments.''

Rulemaking Analysis

    Treasury has determined that this regulation is not a significant 
regulatory action as defined in Executive Order 12866. Accordingly, a 
regulatory assessment is not required. It is hereby certified that this 
revision will not have a significant economic impact on a substantial 
number of small entities. Accordingly, a regulatory flexibility 
analysis is not required. The included changes are expected to result 
in improvements to the ACH process with advantages to institutions and 
recipients.

List of Subjects in 31 CFR Part 210

    Automated Clearing House, banks, banking, electronic funds 
transfer, Federal Reserve Banks, financial institution, Government 
employees, wages.

    Accordingly, Part 210 of Title 31 of the code of Federal 
regulations is proposed to be revised, as follows:

PART 210--FEDERAL GOVERNMENT PARTICIPATION IN THE AUTOMATED 
CLEARING HOUSE

Subpart--A General

Sec.
210.1  Scope of regulations.
210.2  General.
210.3  Authorizations and revocations of authorizations.
210.4  The Government.
210.5  Federal Reserve Banks.
210.6  Financial institutions.
210.7  Fraud.

Subpart B--Reclamations

210.8  General terms of reclamations.
210.9  Knowledge of death or legal incapacity of Receiver or death 
of entitled beneficiary.
210.10  Liabilities/limitations.
210.11  Notice to Account Holders.
210.12  Erroneous death information, restitution and over 
recoveries.

Subpart C--Discretionary Salary Allotments

210.13  General.

Subpart D--Savings Allotments

210.14  General.

Subpart E--Definitions

210.15  Definitions.

    Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31 U.S.C. 321, 3301, 
3302, 3321, 3335 and other provisions of law.

Subpart A--General


Sec. 210.1   Scope of regulations.

    This part governs the way the Federal Government (Government) uses 
the Automated Clearing House (ACH) network to effect electronic credits 
and debits, and non-value transactions. This part supersedes the 
savings allotment provisions of Part 209 of this title by including 
provisions for savings allotments (available hereunder only to Federal 
civilian employees). These transactions are made by the ACH payment 
method under the terms of this part. Regulations requiring the 
collection and disbursement of all ACH Federal funds via Electronic 
Funds Transfer (EFT), when cost effective, practicable, and consistent 
with existing statutes, can be found at Part 206 of this title. 
Regulations promulgated by the Bureau of the Public Debt governing 
payments made by the ACH method for principal and interest on 
Government securities can be found at Part 370 of this title.


Sec. 210.2  General.

    (a) Governing law. Federal payments and collections made through 
the ACH method are governed by the terms of this part, the instructions 
issued under this part, Federal statutes and Regulation E. Federal 
payments and collections also are governed by the operating rules and 
guidelines promulgated by the National Automated Clearing House 
Association (NACHA), in effect on September 27, 1994, only to the 
extent they do not conflict with this part, the instructions issued 
under this part, Federal statutes and Regulation E.
    (1) This part furthers the Government's obligation to protect the 
public trust, limits the financial liability of the Government, and 
ensures clarity in the application of the ACH Rules to Government 
participants.
    (2) The Department of the Treasury, Financial Management Service 
(the Service), is responsible for publishing operating policies, 
procedures and guidelines for Government payment and collection 
transactions using the ACH method. These instructions will be published 
by the Service in its Treasury Financial Manual (TFM) and/or other 
operating guidelines.
    (3) The NACHA operating guidelines may be found in the ACH Rules 
book, published by NACHA and distributed through regional ACH 
associations.
    (4) The Service will indicate its acceptance or rejection of 
amendments to NACHA Operating Rules and NACHA Operating Guidelines in 
effect on September 27, 1994, by publishing a notice in the Federal 
Register prior to the effective date of the amendments. Failure to 
accept or reject prior to the effective date of the amendments will be 
deemed a rejection of such amendments.
    (b) Breach of warranty, compensation for breach of warranty or 
errors. Each participant named under this part warrants to all other 
parties that it has handled entries in accordance with the requirements 
stated in this part. This warranty shall be limited to the amount of 
the payment, with one exception: Agencies may use the compensation 
rules found in Appendix VIII of the ACH Rules. Use of the compensation 
rules shall be preceded by a written agreement. Funding, authority, and 
agreements for any such payments will be the responsibility of the 
agency, not the Department of the Treasury or the Service.
    (c) Arbitration rules in cases of dispute. Agencies may use 
arbitration requirements found in Appendix IX of the ACH Rules. Use of 
the arbitration provisions shall be preceded by a written agreement for 
their use. Funding for any expenses incurred in following the 
arbitration requirements will be the responsibility of the agency, not 
the Department of the Treasury or the Service.


Sec. 210.3  Authorizations and revocations of authorizations.

    (a) Requirements for authorization. The requirements for 
authorization to originate and receive credit and debit transactions 
are as follows:
    (1) Every Government Originator shall obtain prior authorization 
from the Receiver for ACH transactions originated by the Government. 
The Government Originator shall exercise due diligence in verifying the 
identity of any Receiver who presents an authorization to the 
Government.
    (2) All Originators sending ACH credits with a value greater than 
zero to the Government shall enter into an agreement with the 
Government entity to which the credit is directed prior to transmitting 
the first credit. Specifications for the agreement can be found in the 
TFM.
    (3) A Receiving Depository Financial Institution (RDFI) shall 
verify the identity of any Receiver who initiates or executes an 
authorization through the RDFI to receive credits or debits originated 
by the Government. The RDFI shall exercise due diligence in such 
identification, at a minimum applying the standards used for 
negotiation of financial instruments.
    (4) The title of the account designated to receive a payment shall 
include the name of the Receiver, except as provided as follows:
    (i) In the case of discretionary allotments, the allotter may 
authorize a credit to any other Receiver. The Receiver's agreement is 
not required for the authorization or revocation;
    (ii) In the case of a master account/sub-account structure, the 
accounts need not include the name of the Receiver. However, a clearly 
traceable audit trail to the payment shall exist in the sub-account, 
and the Receiver must retain control over the funds.
    (5) Government benefit payments shall be deposited only into a 
consumer account except under conditions stated in 
Sec. 210.3(a)(4)(ii). The definition of consumer account includes non-
participating depository financial institutions that receive Government 
payments.
    (6) Unless expressly authorized in writing, Originators and 
Originating Depository Financial Institutions (ODFIs) shall not 
initiate, under any circumstances, debit entries to the Government. 
ODFIs shall be subject to the liabilities in Sec. 210.6(e)(2) for any 
unauthorized debits.
    (b) Terms of Receiver authorizations. By executing an authorization 
for a Government ACH participant to initiate credits or debits, a 
Receiver agrees:
    (1) To the provisions of this part;
    (2) To provide accurate information;
    (3) To verify their identity to the satisfaction of the RDFI or 
Government Originator, whichever has accepted the authorization;
    (4) That any new authorization pertaining to a credit or debit 
supersedes any previous authorization pertaining to the same credit or 
debit;
    (5) That the Government reserves the right to use reversal entries 
in the event that it originates duplicate files or makes entries in 
error; and,
    (6) That Government benefits shall be sent to a designated RDFI and 
that the full amount of the Government benefit shall be credited to 
either a checking or a savings account, but not both.
    (c) Termination and revocation of authorizations. An ACH 
authorization shall remain valid until it is terminated or revoked by--
    (1) Receipt by the Government Originator of a written request from 
the Receiver, unless a later effective date is requested by the 
Receiver;
    (2) A change in the title of an account which removes or adds the 
name of a Receiver, or otherwise alters the interest of the Receiver of 
Government credits, except as provided in Sec. 210.3(a)(4)(i) & (ii) of 
this part;
    (3) The death of a Receiver or the death of a beneficiary on whose 
behalf the Receiver is accepting credits;
    (4) Closing of the Receiver's account at the RDFI by the Receiver 
or by the RDFI. If the RDFI is closing the account, it shall provide 30 
days written notice to the Receiver before it takes any action;
    (5) Inability of the RDFI to process the item correctly or properly 
because of incorrect transaction instructions;
    (6) Failure to meet any of the conditions specified in the terms of 
the authorization;
    (7) A determination by the Government Originator that the 
conditions of authorization have changed and accordingly, the 
authorization is void as of the time of the changed condition;
    (8) Return by the RDFI of one or more debit entries originated by 
the Government for reasons of insufficient funds, stop payment orders, 
or other similar reasons; or,
    (9) The RDFI's insolvency, closure by any State or Federal 
regulatory authority or by corporate action, or appointment of a 
receiver, conservator, liquidator or other officer. In each event, the 
authorization shall remain valid if a successor is named. At the 
Service's discretion, the Government may temporarily transfer 
authorizations to another RDFI. The transfer is valid until either a 
new authorization is executed by the Receiver, or 120 days have elapsed 
since the insolvency, closure or appointment, whichever occurs first.
    (d) Assignment of benefit payments prohibited. Except as authorized 
by law, an ACH authorization shall not be used to assign benefits to a 
party other than the beneficiary, or someone designated by the 
Government Originator to act on behalf of the beneficiary.


Sec. 210.4  The Government.

    (a) Timeliness of entries. Government ACH participants shall 
forward all ACH transactions they prepare to an ACH Operator site 
designated by the Federal Reserve Bank. Government ACH participants 
shall conform with the timing requirements of the Federal Reserve Bank.
    (b) Authorization to receive ACH entries. Government participants 
may receive ACH credit entries with a value greater than zero. Prior 
written authorization from the Service is required, and the Service 
will direct the Federal Reserve Bank to take appropriate actions. 
Government participants shall require ODFIs to initiate such credits to 
the General Account of the Department of the Treasury at a Federal 
Reserve Bank designated by the Government Participant in the 
authorization agreement.
    (c) Requirement to post or return ACH entries. Government 
participants shall review all ACH credit entries with a value greater 
than zero, that they receive. If the entries do not balance, are 
incomplete, are clearly incorrect, or, are incapable of being 
processed, the Government participants shall advise the Federal Reserve 
Bank to take appropriate action. Timing of the advice shall be 
according to Federal Reserve Bank deadlines and instructions. In the 
event of an unauthorized debit to the Government, the Government 
participant shall transmit a Return entry to the designated Federal 
Reserve Bank, in time to effect same-day settlement.
    (d) Timing of settlement by the Government. Government participants 
shall make their authorized ACH transactions effective on the 
designated settlement date.
    (e) Prenotifications. Government participants may originate ACH 
Prenotification entries prior to origination of the first ACH credit to 
a Receiver. Government participants shall originate a Prenotification 
prior to origination of the first debit to a Receiver. A Government 
participant that is a Receiver of Prenotifications will verify and 
respond to Prenotifications according to the ACH Rules.
    (f) Notification of Change. Government participants shall originate 
and receive Notification of Change entries and Refused Notification of 
Change entries, except where the Government does not recognize a 
particular change code. A list of acceptable change codes can be found 
in the TFM.
    (g) Limited liability of the Government. The Government will be 
liable to a Receiver or Originator only for a failure to effect the 
appropriate credit or debit entries to the Receiver's account. The 
Government's total liability is limited to the amount of the payment 
entry, unless the exception in Sec. 210.2(b) applies. The Government 
will not be liable to any ACH association.
    (h) Losses sustained by financial institutions. The Government will 
be liable to financial institutions for losses sustained in processing 
ACH credit and debit entries originated by a Government participant. 
The Government's total liability is limited to the amount of the 
payment entry, unless the exception in Sec. 210.2(b) applies. Financial 
institutions shall have exercised due diligence, using standard 
commercial practices, in following the transaction instructions 
associated with the entry. The provisions of this subsection do not 
apply to credits and debits received by the RDFI after the death or 
legal incapacity of the beneficiary. Such credits and debits shall be 
governed by Sec. 210.10 of this part.
    (i) Acquittance. The appropriate crediting of the amount of an 
entry to a Receiver's account shall constitute full acquittance of the 
Government for the amount of the entry. The crediting of the amount of 
an entry received by the Federal Reserve Bank and posted to Treasury's 
General Account shall constitute full acquittance of the ODFI for the 
amount of the entry. Full acquittance of the ODFI shall not occur if 
the entries do not balance, are incomplete, are clearly incorrect, or, 
are incapable of being processed.


Sec. 210.5  Federal Reserve Banks.

    (a) Fiscal Agent role. Each Federal Reserve Bank serves as a Fiscal 
Agent of the Government and is authorized to act as the Government's 
ACH Operator.
    (b) Routing and Transit Numbers. All routing and transit numbers 
issued to Government participants require the prior approval of the 
Service.
    (c) Delivery and funds availability. The Federal Reserve Banks 
shall make the Government's ACH entry information available to a 
financial institution or its agent no later than the opening of 
business for the financial institution on the settlement date. The 
Federal Reserve Banks shall make funds available to the financial 
institution for credit entries at the opening of business for the 
Federal Reserve Banks on the settlement date as prescribed by the Board 
of Governors of the Federal Reserve System. The Federal Reserve Banks 
shall prescribe the medium which will be used.
    (d) Authorization of Federal Reserve Banks to debit or credit 
financial institutions. A financial institution that utilizes an 
account at a Federal Reserve Bank and that transmits ACH transactions 
to or from a Government participant, shall be deemed to authorize the 
Federal Reserve Bank to use the account for settlement purposes.
    (e) Federal Reserve Bank liability. Each Federal Reserve Bank shall 
be responsible only to the Treasury and shall not be liable to any 
other party for any loss resulting from the Federal Reserve Bank's 
action under this part.


Sec. 210.6  Financial institutions.

    (a) Acceptance of the terms of this part. Financial institution 
acceptance or transmittal of ACH entries to or from participating 
Government participants constitutes the financial institution's 
agreement to the terms of this part, regardless of whether it has 
executed an authorization.
    (b) Funds availability. RDFIs shall make Government consumer credit 
entries available to the Receiver for withdrawal not later than the 
opening of business (the later of 9:00 a.m. local time or the time the 
teller facilities, including automatic teller machines, are available 
for customer account withdrawals).
    (c) RDFI action in response to Government-originated 
Prenotifications.  Government Originators may send Prenotification 
transactions to the RDFIs prior to the start of authorized credit or 
debit entries.
    (1) In addition to the responsibilities outlined in the ACH Rules, 
the RDFI shall verify the entry by examining the Receiver's account 
number and at least one other identifying data element. An example of 
an identifying data element is the authorizing Receiver's name.
    (2) RDFIs that fail to act upon proper and timely Government 
Prenotifications, and RDFIs that fail to fully verify the identity of 
the Receiver, shall be held liable to the Government. This liability 
shall be the lesser of the Government's loss or the amount of the 
credit or debit transaction(s) in question.
    (d) Financial institution is not designated a Government 
depositary.  RDFIs to which a Government ACH entry is sent do not 
become, by such action, a Government depositary and shall not advertise 
themselves as Government depositaries.
    (e) Financial institution liabilities. Financial institution 
liabilities are as follows:
    (1) A financial institution shall be liable to the Government for 
losses sustained by the Government if the Government has correctly 
handled the entry(ies). This liability is limited to the amount of the 
entry(ies).
    (2) ODFIs shall be liable for all unauthorized debits to the 
Treasury General Account regardless of timeliness of the return entry. 
As a remedy, the Service may instruct the Federal Reserve Bank to debit 
the account utilized by the financial institution.
    (3) Financial institutions will be held harmless for the 
Government's losses if the financial institution notifies the 
Government Originator of erroneous entries originated by the 
Government. Such notification shall be by Notification of Change entry. 
This relief from liability only applies to credits and debits received 
by the financial institution 10 or more business days after a 
Notification of Change is provided to the Government Originator.


Sec. 210.7  Fraud.

    Identification of Receivers. An RDFI that executes an authorization 
in which the Receiver's signature is forged or in which other 
information is falsified, shall be liable to the Government for all 
payments or collections made in reliance on the authorization. The 
provisions of Sec. 210.3(a) also apply.

Subpart B--Reclamations


Sec. 210.8  General terms of reclamations.

    (a) General. Credits originated by Government participants 
subsequently may be determined to be erroneous because of the death or 
legal incapacity of the Receiver or death of the beneficiary. The 
Government reserves the right to recover these credits and hold the 
RDFI liable for these funds. The terms ``reclamation'' and ``reclaim'' 
refer to the Government's action to recover these benefit payments. 
Reclamation actions are strictly limited to circumstances that meet the 
following criteria:
    (1) The credit being reclaimed was a benefit payment to a Receiver 
or beneficiary; and,
    (2) The Receiver was deceased or legally incapacitated, or the 
beneficiary was deceased, on or before the last day of the entitlement 
period to which the credit applies; and,
    (3) The Government participant that originated the entry has 
requested reclamation; and,
    (4) The credit has not been previously remitted to the Government 
by any source.
    (b) Reclamation by non-Government Originators. The Government will 
not accept or be liable for reclamation entries received from non-
Government Originators.


Sec. 210.9  Knowledge of death or legal incapacity of Receiver or death 
of beneficiary.

    (a) Knowledge of death or legal incapacity by an RDFI. When an RDFI 
first learns of the death or incapacity of a customer who is a Receiver 
of Government ACH benefit payments or the death of a customer who is a 
beneficiary, it shall take the actions required under this part. 
Knowledge of the death or incapacity may occur by, but is not limited 
to, any communication with an executor of the deceased Receiver's or 
beneficiary's estate, family member, or other third party; or any form 
of notification from the Government. RDFIs are not obligated to 
undertake extraordinary efforts that fall outside normal business 
practices to learn of a death or legal incapacity. Extraordinary 
measures include, but are not limited to, reviewing newspaper obituary 
notices.
    (b) Actions required when RDFIs are notified of a death or legal 
incapacity. When notified of the death or legal incapacity of a 
Receiver, or the death of a beneficiary, a RDFI shall either return or 
refuse any ACH entries subsequently received from Government 
Originators. If an RDFI returns either full or partial payments by 
check, the Service may assess an administrative fee to cover the 
expense of processing. Failure to return credits in accordance with 
these rules shall result in forfeiture of the RDFI's right to limit its 
liability under the provisions of this part.
    (c) Recovery involving multiple credits that are subject to 
reclamation. If the Government erroneously originates a number of 
credits after the death or legal incapacity of a Receiver or the death 
of a beneficiary, the sequence of effective recovery of credits does 
not affect the RDFI's liability.


Sec. 210.10   Liabilities/limitations.

    (a) Rules pertaining to type of account. There is no exemption from 
liability for recovery of payments issued erroneously after the 
Receiver's death or legal incapacity or the beneficiary's death based 
on the type of account to which the Government credits are made.
    (b) RDFI liability and right to limit liability. An RDFI shall be 
liable to the Government for the total amount of each credit received 
after the death or legal incapacity of the Receiver or the death of the 
beneficiary, except as provided in paragraphs (e) and (f) of this 
section. An RDFI may limit its liability if:
    (1) The RDFI did not have knowledge of the death or legal 
incapacity on the effective settlement date of the entry in question, 
or at the time of withdrawal of credits made after the death or legal 
incapacity; and
    (2) The RDFI fulfills the requirements of this subpart and any 
relevant procedures published by the Service.
    (c) Determination of the amount of an RDFI's liability. Except as 
provided in paragraph (f) of this section, if limitation of liability 
is available to an RDFI, the amount of its liability for erroneous 
Government credits received shall be as follows:
    (1) The RDFI is liable for the amount of any Federal Government 
entries settled within 45 days of the Receiver's death or legal 
incapacity, or the beneficiary's death, minus any amount recovered by 
the Government Originator;
    (2) In addition, the RDFI's liability extends to Federal Government 
entries settled more than 45 days after the death or legal incapacity 
of the Receiver or the death of the beneficiary. This additional 
liability is the lesser of:
    (i) An amount equal to the amount of the entries which settled more 
than 45 days after the death or legal incapacity of the Receiver or the 
death of the beneficiary;
    (ii) An amount equal to the amount in the Receiver's or 
beneficiary's account as defined in Sec. 210.10(i)(2)(ii).
    (d) Reclamation actions are not directed toward Receiver's account. 
This part does not authorize or direct an RDFI to debit the account of 
a Receiver or any other customer, living or deceased, for the RDFI's 
liability to the Government under Secs. 210.8 through 210.12. The 
amount in the Receiver's account is only a measure of the RDFI's 
liability. Nothing in this part shall be construed to affect any right 
an RDFI may have under State law or the RDFI's contract with a customer 
to recover amounts equal to those returned to the Government in 
compliance with this part. A withdrawer may deposit funds to an account 
and authorize the RDFI to return such monies to the Government.
    (e) Exception to liability rule--person entitled to Government 
benefits is deceased at the time of authorization. An RDFI shall not be 
liable for ACH credit entries sent to a Receiver acting as a fiduciary 
on behalf of a beneficiary, if the beneficiary was deceased at the time 
the authorization was executed and the RDFI had no knowledge of the 
death. The verification and liability provisions of Secs. 210.3(a)(3) 
and 210.7 shall apply.
    (f) Requirement that Government Originators act on notice of death. 
An RDFI return of credits to the Government by ACH because of the death 
of the Receiver or beneficiary will constitute effective notice of 
death to the Government Originator. The RDFI shall not be liable for 
any future ACH transaction for that individual from the same Government 
Originator if the settlement date is more than 10 business days after 
the settlement date of the return entry.
    (g) Time limit to initiate reclamation actions. The Government may 
initiate reclamation actions to recover erroneous credits within 12 
months after the date that the Originator receives notice that the 
Receiver died or became legally incapacitated, or that the beneficiary 
died. The amount Government Originators can reclaim is the total of all 
payments made during the 6 years following the date of death or legal 
incapacity of the Receiver or death of the beneficiary.
    (h) Actions to recover funds from withdrawers. The RDFI's liability 
under this part is not affected by any unsuccessful action taken by the 
Government to recover funds from any party.
    (i) Payment to the Government for reclaimed amounts. The payments 
subject to reclamation are:
    (1) If the RDFI had knowledge on the settlement date of the death 
or legal incapacity of the Receiver or the death of the beneficiary and 
did not timely and properly return the payment(s) by ACH return entry 
to the Government, the RDFI shall be liable for that entry(ies) and 
shall return an equal amount to the Government.
    (2) If the RDFI had no knowledge on the settlement date of the 
death or legal incapacity of the Receiver or the death of beneficiary, 
the RDFI shall be liable for the lesser of:
    (i) An amount equal to the amount of the payment(s); or
    (ii) An amount equal to the amount in the deceased or legally 
incapacitated Receiver's account, or the deceased beneficiary's 
account, up to the amount of the payment. The amount in the account is 
defined as the account balance when the RDFI received notice of the 
death or legal incapacity and had reasonable time to take action on it, 
plus any other additions to the account balance made before the RDFI 
returns the payment(s). For purposes of this paragraph, action is taken 
within a reasonable time if it is taken not later than the close of the 
business day following the receipt of the reclamation entry(ies). When 
determining the amount in the account, the RDFI's liability shall not 
be reduced for debit card withdrawals, automated withdrawals, pre-
authorized debits, non-Government reclamations, and forged checks or 
other comparable instruments, made after the RDFI had knowledge of the 
death or legal incapacity.
    (j) List of withdrawers. If the amount paid by the RDFI is less 
than the full amount of the reclamation, the RDFI shall provide the 
Government:
    (1) A list of withdrawers of any post-death payments and their most 
recent addresses;
    (2) Certification that the RDFI has returned an amount equal to the 
amount in the account as defined in Sec. 210.10(i)(2)(ii); and,
    (3) Certification that the RDFI had no knowledge of the Receiver's 
death or legal incapacity, or the beneficiary's death, prior to 
receiving the credit entry(ies) in question.


Sec. 210.11  Notice to account holders.

    (a) Requirement to notify account holder(s). When the RDFI receives 
a reclamation, it shall send written notification to the account 
holder(s) stating that a collection action may be or has been 
initiated. This notice should be sent no later than the date the RDFI 
recovers funds from the account.
    (b) Forfeiture of right to limit liability for failure to notify 
account holder(s). Failure to provide notice to account holders, as 
prescribed in Sec. 210.11 shall result in the forfeiture by the RDFI of 
its ability to limit its liability under this part. The Government may 
require the RDFI to provide proof that written notice was mailed to 
joint account holders. Proof may include, but is not limited to, a file 
copy of the notice, a certified mail receipt, or documentation 
pertaining to the standard operating procedure of the RDFI that such a 
notice is routinely sent. If an RDFI is not able to furnish proof of 
notice in response to a request by the Government, it shall forfeit any 
right it may have to limit its liability for that payment(s) and the 
Government may request the Federal Reserve Bank to debit the account of 
the RDFI for any otherwise unrecovered amount.


Sec. 210.12  Erroneous death information, restitution and over 
recoveries.

    (a) Reporting corrections or errors to the Government. If the RDFI 
learns that the Receiver or beneficiary is not deceased or legally 
incapacitated, or that the date of death is incorrect, the RDFI shall 
inform the Government of the error immediately. Until the RDFI is 
notified otherwise, however, it remains liable for Government credits 
as specified in Sec. 210.10 of this part.
    (b) Relief from or reduction in liability--error in fact or error 
in date of death. The Government Originator will determine whether the 
report of an error in the fact of a Receiver's death or legal 
incapacity, or the date of death, is correct. After its review, the 
Government Originator will certify its determination in writing to the 
RDFI and inform the RDFI of relief from or change to its liability. If 
the Government Originator agrees that the original notice of death or 
legal incapacity was incorrect, or the date of death is materially 
different from the original notice, it shall stop further reclamation 
activity that it determines to be inappropriate.
    (c) Restitution by the Government of RDFI funds improperly 
reclaimed. When appropriate, the Government Originator will remit to 
the RDFI any funds incorrectly returned or otherwise received from the 
RDFI.
    (d) Over/under recoveries. In the event of an over recovery by the 
Government for an erroneous credit, the Government Originator will 
return immediately the excess amount, by appropriate means, to the 
party suffering the loss. In the event of either an over or under 
recovery, the Service may instruct the Federal Reserve Bank to credit 
or debit the reserve account of a financial institution.

Subpart C--Discretionary Salary Allotments


Sec. 210.13  General.

    (a) Scope. This subpart applies only to Government discretionary 
allotments. This part does not supersede, and shall not be used to 
circumvent, the requirements of particular statutes, Executive Orders 
or other executive branch regulations; for example, the Office of 
Personnel Management regulations at 5 CFR Part 550, Subpart C, 
implementing 5 U.S.C. 5525.
    (b) Required use of the Automated Clearing House method. 
Discretionary allotments shall be made by ACH entry, except when the 
Service determines that other means are more appropriate. 
``Discretionary allotment'' as used herein means an amount the 
employing agency permits a Government employee to request be deducted 
from his/her net salary amount and paid to a Receiver. The aggregate 
amount of discretionary allotments may not exceed the net pay due the 
employee for each pay period after all deductions required by law are 
subtracted.
    (c) Head of Government originating agency determines discretionary 
allotment policy. Discretionary allotments may be made for any purpose 
determined appropriate by the head of a Government participant and 
which are consistent with Title 5, Chapter 55, subchapter III, United 
States Code, and Title 5, Chapter 1, Part 550, subpart C, Code of 
Federal Regulations.
    (d) Timing of discretionary allotments. Discretionary allotment 
payments shall be made in accordance with the schedule established by 
the Government Originator, provided such allotment credits are not 
effected until the related earnings have accrued.
    (e) Payment of discretionary allotments. Discretionary allotments 
shall be made following the policy and procedures outlined in Subpart A 
for non-benefit payments, and in conformance with other requirements 
published by the Service.

Subpart D--Savings Allotments


Sec. 210.14  General.

    (a) Scope. This subpart applies only to savings allotments. 
Provisions for certain other types of allotments, for example, dues to 
labor organizations, can be found in 5 CFR part 550, subpart C. The 
regulations in this part do not supersede, and shall not be used to 
circumvent, the requirements of particular statutes, Executive Orders 
or other executive branch regulations.
    (b) Required use of the Automated Clearing House method. Savings 
allotments shall be made by ACH entry, when cost effective, 
practicable, and consistent with current statutory authority.
    (c) Policy for savings allotments for Government employees. Any 
employee whose place of employment is within the boundaries of the 
United States or its territories may authorize an allotment of pay for 
a savings account under the regulations in this part. ``Savings 
account'' as used herein means an account (single or joint) for the 
purchase of shares (other than shares of stock) or for the deposit of 
savings in any RDFI. The title of the account shall include the name of 
the authorizing employee. The head of the employing Government 
participant shall honor requests for allotment of pay for savings 
accounts if:
    (1) The Government employee provides the Government participant 
with an authorization; and,
    (2) The authorization has not been canceled by the employee, in 
writing, or otherwise terminated or revoked; and,
    (3) Not more than two such allotments for any employee are in 
effect at any time; and,
    (4) The amount of salary or wages becoming due an employee for any 
pay period thereafter is sufficient to cover the allotment(s). In 
making any determination under this paragraph, all payroll deductions 
otherwise required shall have precedence over those authorized by this 
section; and,
    (5) The purpose of the allotment is not to circumvent statutes, 
Executive Orders, and other executive branch regulations, regardless of 
the manner in which the allotment for savings will be disposed of by 
the employee (which is at the employee's discretion).

Subpart E--Definitions


Sec. 210.15  Definitions.

    As used in this part, unless the context otherwise requires:
    Allotment means a recurring specified deduction from pay of a 
Government employee for a legal purpose authorized by the employee.
    Allotter means the employee from whose pay an allotment is made.
    Automated Clearing House or ACH means a funds transfer system which 
provides for the interbank clearing of electronic entries for 
participants.
    Beneficiary means a natural person who is entitled to receive a 
benefit payment, or portion thereof, from the Government.
    Benefit Payment is a credit of funds for any Federal entitlement 
program or annuity, originated by a Government participant. Benefit 
payments may be either one-time disbursements or recurring payments. A 
list of benefit payments is published by the Service in operating 
guidelines. Only benefit payments are subject to the reclamation 
provisions of this part.
    Erroneous Payment means a benefit payment made after the death or 
legal incapacity of a Receiver or the death of a beneficiary. Erroneous 
payment is an operational term used by Government participants to refer 
to the payments described in the preceding sentence. Erroneous payments 
are subject to the 45-day liability rule of Sec. 210.10 and the 
reclamation provisions of Secs. 210.8 through 210.12.
    Government means any department, independent establishment, board, 
office, commission, or other establishment in the executive, 
legislative (except the Senate and House of Representatives), or 
judicial branch of the Federal Government, including any wholly-owned 
or controlled Federal Government corporation, responsible for 
authorizing and initiating an ACH entry.
    Government Participant means any Government agency or entity that 
sends ACH transactions to an ACH operator or receives ACH transactions 
from an ACH operator.
    National Automated Clearing House Association or NACHA means the 
national association of regional member ACH associations, ACH Operators 
and participating financial institutions located in the United States. 
NACHA is a rulemaking body for commercial ACH transactions. The rules 
promulgated by NACHA can be found in the ACH Rules published by NACHA 
and distributed through regional ACH associations. For further 
information on the ACH Rules, call (703) 742-9190 or write to NACHA, 
607 Herndon Parkway, Suite 200, Herndon, VA 22070.
    Receiver means a natural person, corporation, or other public or 
private entity which is authorized by the Government Originator to 
receive ACH credit or debit entries from the Government.
    Treasury Financial Manual (TFM) means the manual issued by the 
Service containing procedures to be observed by all Government agencies 
in relation to central accounting, financial reporting, and other 
Government-wide fiscal responsibilities of the Department of the 
Treasury. Copies of the TFM are available free to Government agencies. 
Others who are interested in ordering a copy may call (202) 208-1819 or 
write the Directives Management Branch, Financial Management Service, 
Department of the Treasury, Liberty Center (UPC-741), Washington, DC 
20227 for further information.

    Dated: July 28, 1994.
Russell D. Morris,
Commissioner.
[FR Doc. 94-23009 Filed 9-29-94; 8:45 am]
BILLING CODE 4810-35-P