[Federal Register Volume 60, Number 20 (Tuesday, January 31, 1995)]
[Proposed Rules]
[Pages 5964-5995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2130]



      

[[Page 5963]]

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Part II





Postal Service





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39 CFR Parts 111 and 501



Manufacture, Distribution, and Use of Postage Meters; Proposed Rule

  Federal Register / Vol. 60, No. 20 / Tuesday, January 31, 1995 / 
Proposed Rules   
[[Page 5964]] 

POSTAL SERVICE

39 CFR Parts 111 and 501


Manufacture, Distribution, and Use of Postage Meters

AGENCY: Postal Service.

ACTION: Proposed rule.

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SUMMARY: This proposal would revise existing Domestic Mail Manual (DMM) 
and Domestic Mail Manual Transition Book (DMMT) standards regarding the 
manufacture, distribution, and use of postage meters and would 
introduce new regulations in title 39, Code of Federal Regulations 
(CFR), to clarify postal standards concerning the manufacture and 
distribution of postage meters.
    Currently all meter standards pertaining to the manufacturer and 
distribution of meters and postal internal instructions regarding 
meters are contained in the DMMT, an interim handbook for postal 
standards. Postal standards regarding meter manufacturers are being 
revised and published in 39 CFR part 501. The proposed rules would 
allow the Postal Service to tighten controls over the manufacture, 
distribution, and use of meters with the goal of better protecting 
postal revenues. These changes are designed to increase the amount of 
information available to the Postal Service to facilitate effective 
management and control of the meter program. In addition, security 
controls are being supplemented to ensure that proper postage is being 
paid and that the risk of postage meter misuse is minimized.

DATES: Comments must be received on or before March 17, 1995.
ADDRESSES: Written comments should be mailed or delivered to the 
Manager, Mailing Systems Development, Room 8406, 475 L'Enfant Plaza 
SW., Washington, DC 20260-6807. Copies of all written comments will be 
available for inspection and photocopying between 9 a.m. and 4 p.m., 
Monday through Friday, in Room 8430, at the above address.

FOR FURTHER INFORMATION CONTACT: Nicholas S. Stankosky, (202) 268-5311.

SUPPLEMENTARY INFORMATION: Postage meters represent a widely accepted 
means for payment of postage. There are approximately 1.4 million 
postage meters in use, which accounted for approximately $18 billion of 
Postal Service revenues in FY 1994. The widespread use of meters can be 
attributed to the flexibility and convenience they convey to postal 
customers, including:
     Printing variable amounts of postage on virtually any 
class of mail to allow use of exact postage.
     Facilitating automated mail preparation operations for 
customers.
     Providing flexibility to comply with postage rate changes 
by affixing correct postage with a simple resetting procedure.
     Allowing licensees to purchase larger amounts of postage 
at a single resetting to reduce trips to the local post office.
     Providing a secure means for licensees to keep more 
accurate accounting records of postage utilized.
     Reducing the cost of applying postage for licensees.
     Providing remote ``telephonic'' resetting for licensee 
convenience.
    Postage meters are available to Postal Service licensees only by 
lease from authorized manufacturers. The Postal Service holds 
manufacturers responsible for the control, operation, maintenance, and 
replacement (when necessary) of their meters. Traditionally, record-
keeping of meters and meter licenses has been handled in a 
decentralized manner, primarily by local postmasters.
    In 1991, the Postal Service identified opportunities for improving 
the efficiency and effectiveness of the Postal Service postage meter 
program. Three specific recommendations for improving the management of 
the meter program were identified:
    1. Establishment of a central management group and development of 
meter control systems to manage the meter program.
    2. Development of increased security mechanisms.
    3. Introduction of new technology to improve the tracking and 
control of meters and the financial transactions associated with their 
use.
    Further study by the Postal Service supported these initial 
recommendations, and independent investigations by the Postal 
Inspection Service also uncovered instances of postage meter fraud and 
identified a substantial risk of loss of postal revenues. In the past 2 
years, the United States Postal Service (USPS) Inspection Service has 
uncovered 16 cases in which mailers have used varying techniques to 
duplicate or force the application of postage meter impressions without 
payment of postage. Although the nature of meter fraud is such that its 
extent is unknowable, in these cases alone, it is estimated that the 
Postal Service sustained losses in excess of $16 million. This estimate 
is expected to grow following resolution of current cases. The USPS 
Inspection Service has been aggressively pursuing these cases through 
arrests, indictments, and administrative and civil remedies. The 
problem was so critical that it drew the attention of Congress and 
resulted in a General Accounting Office investigation and report that 
supported earlier Postal Service findings. The results of these 
investigations have mandated the Postal Service to enhance the 
financial controls associated with the meter program.
    After three joint meetings with authorized meter manufacturers to 
discuss proposed regulatory changes, the Postal Service has considered 
all and adopted many of the oral and written comments that were 
provided in connection with these sessions. In conjunction with an 
independent research firm, the Postal Service convened six groups of 
meter licensees representing small-, medium-, and large-volume meter 
licensees to solicit their comments. Revisions have been incorporated 
in the proposed regulations to reflect many of the meter licensees' 
suggestions. The Postal Service also gave notice of its intention to 
publish this notice of proposed rulemaking and invited interested 
parties to attend a public meeting held on December 13, 1994. 59 FR 
61302 (November 30, 1994). The Postal Service presented a summary of 
proposed regulations at the public meeting and solicited comments and 
suggestions from attendees. The Postal Service responded to inquiries 
made during the meeting and advised participants to provide additional 
comments in writing. The Postal Service reviewed all inputs from 
attendees and included suggestions in the final proposed regulations as 
warranted. Transcripts of the public meeting and subsequent written 
comments are available for review and photocopying at USPS 
Headquarters, 475 L'Enfant Plaza, Room 8430, Washington DC 20260-6807.
    The Postal Service has drafted proposed regulations and program 
changes to tighten security and fiscal control of postage meters. The 
following proposed regulations are designed to:
     Reduce fraud associated with the misuse of postage meters.
     Permit licensees to gain a better understanding of meter 
use and Postal Service licensee requirements.
     Develop an efficient system to capture and track meter 
population data on a national basis to facilitate centralized 
management decisions and to provide a means for dissemination of 
information for decentralized program administration.
     Provide a transition from a paper-based management system 
to efficient [[Page 5965]] automated processes for management of the 
meter program.
     Provide the necessary mechanisms to recover lost and 
stolen meters and therefore reduce the potential for meter misuse and 
fraud.
    The proposed regulations fall into four general categories: Meter 
security, administrative controls, other issues, and Computerized Meter 
Resetting System (CMRS). Each is discussed in turn.

I. Meter Security

A. Integrity Weakness and Design Deficiencies

    The Postal Service has followed a practice of absorbing postage 
revenue losses even if such losses occur after a meter manufacturer 
knows or should have known of any defect that compromises meter 
security and/or revenue protection and fails to notify the Postal 
Service accordingly. Proper reporting of these instances would minimize 
revenue losses both by establishing a dialogue leading to the early 
identification of potential security weaknesses and by facilitating 
development and implementation of corrective technical or 
administrative actions.
    Prompt notification of all potential security weaknesses identified 
in a particular meter or class of meters is necessary to protect postal 
revenues. The Postal Service depends on manufacturers to identify and 
notify the Postal Service of any potential security weaknesses. Postal 
Service notification of security concerns serves the following 
objectives:
     Problem Quantification--to determine whether similar 
problems exist in other meters made by that manufacturer.
     Commonality--to determine whether similar problems are 
inherent to meters distributed by other manufacturers because there are 
similarities in security features.
     Meter Authorization--to facilitate development of a 
database of known security issues to ensure systemic review of new 
meters presented for evaluation to avoid similar weaknesses.
    Historically, the Postal Service has relied on voluntary reporting 
by the meter manufacturers to identify integrity weaknesses and design 
deficiencies in their meters. Experience has shown that voluntary 
reporting of this information has not been satisfactory. Recent 
information received from outside sources has identified security 
weaknesses and instances of abuse that, if known, would have alerted 
the Postal Service to security weaknesses of meters used earlier in the 
United States. This knowledge, regardless of whether the meter is 
approved for use in the United States, would allow the Postal Service 
to preserve the security and use of the postage meter payment process 
and thereby protect Postal Service revenues. This measure would also 
protect meter licensees. If the Postal Service is kept apprised of 
security weaknesses in meters, it will be less likely to approve meters 
that might be withdrawn later. Meter licensees will thus be less likely 
to purchase mailing systems that are compatible with a single meter 
that is withdrawn at a later date as a result of emergent security 
issues.
    The Postal Service proposes that 39 CFR 501.13, Reporting, specify 
manufacturers' responsibilities in notifying the Postal Service of 
security weaknesses of meters distributed in the United States and/or 
foreign markets. Manufacturers must submit a preliminary report to the 
manager of Mailing Systems Development (MSD), USPS Headquarters, within 
21 calendar days of the date an authorized dealer, agent or employee of 
such, or any employee of the manufacturer identifies a potential meter 
security weakness. Potential security weaknesses that must be reported 
include known or suspected equipment defects, suspected abuse by a 
meter licensee or manufacturer employee, suspected security breaches of 
Computerized Meter Resetting System (CMRS) information systems, 
occurrences outside normal performance, or any repeatable deviation 
from normal meter performance (within the same model family and/or by 
the same licensee). Preliminary reports regarding meter security 
weaknesses may be communicated by telephone; however, the 
manufacturer's corporate headquarters must submit a formal written 
report of each potential security weakness to USPS Headquarters within 
45 days of the preliminary notification. Formal written notification 
must include the circumstances, proposed investigative procedure, and 
the expected completion date of the investigation. Periodic status 
reports are to be submitted during the subsequent investigation, and a 
summary of the findings is to be prepared and submitted on completion.
    The Postal Service proposes to impose administrative sanctions 
against manufacturers that do not comply with these reporting 
requirements. Manufacturers are responsible for providing a timely and 
efficient channel for internal reporting, and they are required to 
provide the Postal Service with a copy of their internal policy and 
instructions associated with these reporting procedures. Sanctions for 
noncompliance with these reporting time frames include liability for 
the costs of investigation and documented revenue losses that can be 
traced to any meter for which the manufacturer failed to file a report 
in accordance with prescribed procedures, net of any amount collected 
from the meter users. Losses will be measured from the date that an 
authorized dealer, agent or employee of such, or any employee of the 
manufacturer knew or should have known of a potential meter security 
weakness.

39 CFR Part 501 References:

Sec. 501.13, Reporting.
Sec. 501.14, Administrative sanction on reporting.

B. Meter Manufacturers' Inspections

    The Postal Service recognizes the importance of periodic 
inspections by manufacturer representatives. Such inspections provide 
the following advantages:
     Prevention--Because the meter licensee understands that 
meters are subject to periodic unannounced on-site inspections by the 
meter manufacturer (which include recording of interim register 
readings and seal numbers, and visual inspection for signs of 
tampering), meter users are deterred from misusing meters to avoid the 
payment of postage.
     Detection--Inspections provide a mechanism for uncovering 
attempts to misuse meters. Inspections by meter-knowledgeable personnel 
can uncover situations in which mailers are defrauding or misusing 
meters to avoid payment of postage.
     Uncovering Missing Meters--Periodic manufacturer on-site 
meter inspections serve to minimize the number of meters that are 
reported missing as a result of licensees relocating without notifying 
the Postal Service or manufacturers. Periodic on-site visits ensure 
that the location and identity of meters and meter users are updated 
periodically, and any meters that cannot be located will be reported 
promptly as lost or stolen.
     Additional Meter Accountability--Visual inspections of 
meters by manufacturer personnel provide the Postal Service with 
verification of register readings (control totals), locking mechanisms, 
and seal identification numbers, and these inspections also provide 
assurance that the meter is being maintained in an appropriate manner 
by the licensee. Because postage meters remain the property of the 
meter [[Page 5966]] manufacturers, they benefit by inspecting their 
``inventory'' to ensure its continued viability.
     Identification of Malfunctioning Meters--Periodic 
manufacturer inspections facilitate identification of malfunctioning 
meters (e.g., not indicating or recording correct register readings, 
worn or deteriorated plate imprints) and ensure that the tracking, 
control, and operational mechanisms are functioning properly between 
meter settings.
     Complete Meter Inspection--On-site meter inspections are 
the only means to inspect postage meters in a fully operational or 
``live'' environment. When meters are examined by Postal Service 
employees, they are unable to operate the meters (e.g., printing .00 
indicia) because certain meters are not operational when unattached to 
a meter base. Manufacturer inspections provide a mechanism for ensuring 
that meters are functioning and printing indicia correctly.
     Enhancement of Postal Service Examination Procedures and 
Controls--Periodic manufacturer inspections supplement ordinary setting 
and periodic Postal Service examinations in the joint manufacturer-
Postal Service effort to ensure that postage meters are accounted for 
and functioning properly.
     Increase in Manufacturers' Visibility--Periodic meter 
inspections ensure that meter manufacturers maintain communication 
channels with meter licensees and provide an opportunity to determine 
licensees' meter requirements and disseminate meter changes to meter 
users.
     Assurance for Lessor of Compliance With Postal 
Regulations--Periodic inspection of licensee equipment assures meter 
users that their meters are properly maintained and that they are in 
compliance with postal regulations. This serves to protect the 
licensees from situations in which mail might be refused as a result of 
deteriorated equipment.
    Postal regulations require that manufacturers have all meters in 
service inspected twice annually at approximately 6-month intervals. 
Some manufacturers have not been able to comply with this requirement. 
Over the past several years, meter manufacturers have asked the Postal 
Service to consider alternatives to the semiannual inspection 
requirements.
    By definition, each postage meter must have an ascending counting 
device (which registers the total amount of postage imprinted) and a 
descending counting device (which registers the balance of unused 
postage). Electronic meters have either nonvolatile registers or solid-
state memories to store the postage data. System meters contain the 
printing die and registers for a mailing machine, but they are 
detachable for setting and examination. Stand-alone meters are used 
independently of any other mailing equipment. Experience and security 
evaluations have shown that different models of meters and different 
types of users of meters are subject to varying levels of risk; 
therefore, all meters do not need to be inspected at the same 
frequency.
    As a consequence of the Postal Service's assessment of varying 
levels of risk of fraud, the Postal Service proposes to revise 
inspection schedules in 39 CFR 501.25, Inspection of Meters in Use. The 
new schedules will be based on meter and licensee characteristics. The 
inspection schedule better relates to the demonstrated security risks 
associated with mechanical and electronic meters, system meters, and 
the use of Computerized Meter Resetting System (CMRS). The Postal 
Service will develop a central tracking system to monitor the 
inspection of meters by manufacturers.
    The Postal Service proposes to require less frequent inspections of 
electronic meters and stand-alone meters, but more frequent inspections 
of mechanical and system meters. Electronic, stand-alone, and CMRS 
meters provide the Postal Service with a higher degree of security. 
These meters generally possess additional security features (such as 
redundant register memories). Stand-alone meters also have low volume 
capacity. Therefore, inspection frequencies for these meters will be 
decreased under the new inspection standards.
    With respect to the meter licensee, inspection frequencies would 
generally vary with the licensee's mailing volume level. Proposed 
standard inspection intervals are shown in the table below; however, 
the Postal Service may require more frequent inspections in special 
circumstances. The revised inspection frequencies will concentrate on 
the higher risk meters and users but will, in total, result in fewer 
required inspections than were mandated by prior meter standards 
published in the DMMT.

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      Meter type              Monthly               Quarterly             Semiannually            Annually      
----------------------------------------------------------------------------------------------------------------
Mechanical...........  Special Circumstances  High-Volume Licensees  Other Licensees Using  Stand-Alone Meters. 
                                               Using System Meters.   System Meters.                            
Electronic...........  Special Circumstances  .....................  High-Volume Licensees  All CMRS and Other  
                                                                      Using Non-CMRS         Electronic Meters. 
                                                                      System Meters.                            
----------------------------------------------------------------------------------------------------------------

    The Postal Service also proposes to impose sanctions in 39 CFR 
501.23, Administrative sanction, against manufacturers who do not 
perform 100 percent of the required inspections. The proposed sanctions 
would permit the Postal Service to recover costs and revenue losses 
(net of any amount collected from the meter users) that result from the 
manufacturer's failure to conduct all required inspections. Imposition 
of sanctions for noncompliance with Postal Service meter inspection 
schedules does not affect the requirement that the manufacturer conduct 
meter inspections that have not been completed. Additionally, the 
Postal Service may suspend further distribution of meters by a 
manufacturer that fails to comply with relevant inspection 
requirements.

39 CFR Part 501 References

Sec. 501.5, Suspension and revocation of authorization.
Sec. 501.23, Administrative sanction.
Domestic Mail Manual Transition Book (DMMT) 144.962, redrafted as 
Sec. 501.25, Inspection of meters in use.

C. Custody of Suspect Meters

    Currently DMM P030.2.4, Licensee Responsibilities, provides that 
meters in the licensee's custody and the records of meter transactions 
or the latest Postal Service (PS) Form 3603, Receipt for Postage Meter 
Setting, must be available for examination or audit on request by the 
Postal Service or meter manufacturer. This section authorizes the 
Postal Service to examine meters and meter records on-site, at the 
licensee's place of business. However, there is no provision to allow 
postal inspectors to withdraw from service meters suspected of being 
manipulated for forensic examination. Inspectors must either obtain a 
federal search warrant or request the meter [[Page 5967]] manufacturer 
to withdraw the meter from service. In most instances, there is only 
reasonable suspicion that a meter has been tampered with or has failed 
to lock out, thus falling short of the probable cause necessary to 
obtain a warrant. Requesting the meter manufacturer to take custody of 
suspect meters might create problems in any resulting litigation.
    The Postal Service proposes to amend DMM P030.2.4 and add section 
P030.2.5, Custody of Suspect Meters, to authorize postal inspectors to 
conduct unannounced on-site examinations of meters suspected of being 
manipulated or failing to lock out. Postal inspectors will also be 
authorized to withdraw a suspect meter from service without a warrant 
for physical and/or laboratory examination, thus enhancing an 
inspector's ability to uncover postage meter fraud and protect postal 
revenues.

39 CFR Part 111 References:

Domestic Mail Manual (DMM) P030.1.3, Possession
DMM P030.2.2, Licensee Agreement
DMM P030.2.4, Licensee Responsibilities
DMM P030.2.5, Custody of Suspect Meters

D. Missing Meters

    Current standards mandate that manufacturers must provide the 
designated Information Systems Service Center (ISSC) with a compatible 
computer tape of lost and stolen meters quarterly. Lost and Stolen 
Meter Activity Reports are used by post offices and the Inspection 
Service in locating/recovering missing meters. Meters that are actually 
lost or stolen could be tampered with without detection because they 
are not inspected by the Postal Service or the manufacturer. The Postal 
Service is concerned that manufacturers do not always apply reasonable 
efforts to ensure the accuracy of lost and stolen meter reports. The 
Postal Service has found that, in some circumstances, the exercise of 
reasonable effort would have permitted the manufacturer to locate a 
significant portion of meters that were incorrectly reported as lost or 
stolen. Additionally, the Postal Service has found that, in a number of 
cases where meters were reported as lost or stolen and later located, 
the manufacturer failed to notify the Postal Service. As a result, the 
Postal Inspection Service has unnecessarily expended resources 
investigating the disappearance of some meters reported to be lost or 
stolen but in fact recovered by the manufacturer. Current recovery 
procedures and reporting formats differ significantly among 
manufacturers. As a result, the reliability and accuracy of lost and 
stolen meter reports can vary with the level of each meter 
manufacturer's effort and standard operating procedure.
    Currently, meter manufacturers must notify designated postal 
inspectors of missing and recovered meters through established 
irregularity reporting procedures. Meter manufacturers are also 
responsible for updating a national computerized quarterly lost and 
stolen meter report that is distributed by the Minneapolis ISSC. The 
Postal Service proposes implementation of a new standardized meter 
incident reporting process that will provide the consistent and uniform 
data and procedures necessary to improve the overall effectiveness of 
the recovery process.
    Standardized meter incident reports (shown in Exhibit A) will 
supplement this notification process and will facilitate compilation of 
monthly input for the manufacturers' national lost and stolen meter 
reporting. Manufacturers will be required to complete lost and stolen 
meter incident reports that will detail circumstances relating to the 
loss, theft, or recovery of postage meters. The report must be filed 
within 30 days after a meter is determined to be lost, stolen, or 
subsequently recovered. The manufacturer will be required to follow 
detailed instructions in attempting to locate a meter before that meter 
may be reported as lost or stolen. The manufacturer's representative 
must certify compliance. Distribution of the incident report will be 
made to the licensing post office and the Inspection Service.
    The Postal Service also proposes to impose an administrative 
sanction against any manufacturer that without just cause fails to 
comply with these standardized reporting procedures or that without 
just cause fails to report a meter that is known to be lost or stolen. 
This administrative sanction is also proposed against any manufacturer 
that without just cause fails to report the recovery of a lost or 
stolen meter. These administrative sanctions are designed to permit the 
Postal Service to recover investigative and administrative costs for 
lost and stolen meters and any documented revenue losses (net of any 
amount collected from the meter users) that occur as a result of a 
manufacturer's failure to follow standardized lost and stolen meter 
incident reporting procedures. Proposed reporting procedures include 
the monthly update of the national computerized lost and stolen meter 
report.

39 CFR Part 111 References

DMM P030.2.8, Missing Meters

39 CFR Part 501 References

Sec. 501.22, Distribution controls.
DMMT 144.952(f), redrafted as Sec. 501.22(i), Distribution controls.
Sec. 501.22(j), Distribution controls.
Sec. 501.23, Administrative sanction.
DMMT 144.963, redrafted as Sec. 501.26, Meters not located.

E. Shipment of Meters

    The loss or theft of postage meters represents a substantial risk 
to postal revenues regardless of whether it is a live meter (with 
postage set) or a meter that has not yet been checked into service. 
Registered mail is one of the safest means of shipping postage meters, 
and the Postal Service requires that all meters be shipped by 
registered mail. Shipment of meters by private carrier does not 
necessarily provide adequate security and control mechanisms and can 
result in the loss or mishandling of postage meters. This, in turn, may 
lead to meter misuse and significant revenue loss to the Postal 
Service.
    The Postal Service proposes to mandate that all meters be shipped 
via registered mail. The Postal Service will, however, consider 
requests by the manufacturers to ship meters via private carrier on a 
case-by-case basis. Manufacturers that fail to comply with standards 
for meter shipment will be subject to an administrative sanction. 
Licensees that fail to comply with these standards will be subject to 
license revocation.

39 CFR Part 111 References

DMM P030.2.9, Returning Meters

39 CFR Part 501 References

Sec. 501.22(q), Distribution controls.
Sec. 501.23, Administrative sanction.

F. Security Seals

    Whenever a postage meter is checked into service or additional 
postage is set into a non-CMRS meter, a postal employee must seal the 
meter to prevent unauthorized personnel from tampering with the meter. 
Currently, this task is accomplished using lead seals that are crimped 
into place with pliers. These lead seals and sealing pliers are 
supplied by authorized meter manufacturers.
    Traditional lead seals are not adequately secure. The Postal 
Service has been testing new security seals that offer greater 
security. These new security seals have unique serial identification 
numbers that can be recorded when the meter is sealed. Additionally, 
these new meter seals are recyclable and are more environmentally 
acceptable than the traditional lead composition. [[Page 5968]] 
    The Postal Service proposes to replace current meter seals with new 
security seals. When meters are checked into service, or additional 
postage is set on a non-CMRS meter, the serial identification numbers 
on the new security seals will be appropriately documented to 
facilitate subsequent verification that the meter has not been opened 
or tampered with. It is the responsibility of the licensee to ensure 
that the security seals and serial identification numbers remain intact 
between meter settings and/or examinations.
    Meter seals will now be requisitioned directly from Postal 
Service's area supply centers rather than from the meter manufacturer's 
headquarters. The proposed rule clarifies that the manufacture and 
procurement process for the new seals will be under the control of the 
Postal Service. The costs associated with these new seals will continue 
to be the responsibility of the manufacturers. The Postal Service 
recognizes that some meters do not use seals and that some meters will 
require seals less frequently than others (such as CMRS meters, which 
are sealed at check-in and resealed only after Postal Service 
examinations). Seal costs will be computed based on the average seal 
usage per meter type. All costs will be apportioned by the 
manufacturer's installed base of meters. Manufacturers will be billed 
for the seals semiannually. Seal costs are estimated to be $0.10 per 
seal.

39 CFR Part 501 References

DMMT 144.341(d), redrafted as Sec. 501.22(e), Distribution controls.
DMMT 144.946, redrafted as Sec. 501.20, Keys and setting equipment.

G. Meter Labeling

    The Postal Service proposes to require meter manufacturers to apply 
two standardized information labels to each postage meter leased prior 
to having a meter checked into service as outlined in 39 CFR 501.22(r).
    A cautionary label must be applied that provides the meter user 
with basic reminders on leasing, meter movement, and misuse. A second 
label must be applied that contains a barcoded representation of the 
meter serial number. Meters without the required labels will not be 
placed into service if they are presented at a post office with the 
labels missing. Manufacturers that fail to comply with labeling 
requirements will be subject to administrative sanctions under 
Sec. 501.23.
    Cautionary labels will serve to deter fraud by advising licensees 
of the penalties associated with using meters in a fraudulent manner. 
The serial number barcode will increase the efficiency and accuracy of 
examination, setting, and audits by postal employees.
    Labeling of meters in this fashion provides clear and unequivocal 
notice to the meter user that tampering or misuse of a postage meter is 
a federal offense and disseminates the telephone number for providing 
information concerning known or suspected abuses.
    Exceptions to the formatting of required labeling will be 
determined on a case-by-case basis. Any deviations from standardized 
meter labeling requirements must be approved in writing by the manager 
of Mailing Systems Development.

39 CFR Part 111 References

DMM P030.2.4g, Licensee Responsibilities

39 CFR Part 501 References

Sec. 501.22(r), Distribution controls.
Sec. 501.23, Administrative sanction.

H. Postage Meter Testing

    In order for a postage meter to be approved by the Postal Service 
it must be tested for reliability, durability, and security. With the 
introduction of advanced technology, a greater emphasis is being placed 
on testing by the manufacturers, or by certified laboratories on their 
behalf, and in the manufacturer's submission of test plans and 
supporting documentation. The Postal Service has arranged for 
independent experts to assist in the evaluation of the security 
features associated with these products. In order to ensure revenue 
protection, a meter model may be examined for security by the Postal 
Service anytime before or after approval. Suspension and revocation of 
meter approval for security weaknesses is discussed in part II.E, 
Suspension and Revocation, of this proposed rule. If requested by the 
Postal Service, manufacturers are required to provide service manuals, 
setting instructions, meter specifications, and additional 
documentation. This documentation is necessary for the Postal Service 
to conduct robust meter testing.

39 CFR Part 501 References

Sec. 501.7, Test plans.
Sec. 501.8, Submission of each model.
Sec. 501.9, Security testing.
Sec. 501.10, Meter approval.
Sec. 501.11, Conditions for approval.
Sec. 501.12, Suspension and revocation of approval.
Sec. 501.13, Reporting.
Sec. 501.14, Administrative sanction on reporting.
Sec. 501.16, Breakdown and endurance testing.

II. Administrative Controls

A. Postage Meter Refunds

    The introduction of electronic meters brought new technology to the 
market place, as well as new problems. Older mechanical meters used a 
series of geared wheels with numbers on them (registers) to record the 
ascending and descending cash values within the meter. Newer postage 
meters have replaced the mechanical wheels with electronic registers. 
(The term electronic register is a carryover from the mechanical geared 
wheels, but it is more correctly referred to as electronic memory.) 
When connected to digital displays, memory chips provide the same 
functionality, without moving parts. The information retained in these 
memories is generally powered by a small battery located within the 
meter case. There are usually more than one of these electronic 
registers within each meter to provide a redundant fail-safe mechanism.
    If the values in the meter's memories become unreadable from either 
a failure of the displays or a catastrophic failure of one or more of 
the electronic registers, the meter is returned to the manufacturer's 
plant for analysis and recommendation of the amount to be refunded to 
the licensee. The manufacturer provides the Postal Service with 
appropriate redundant electronic register documentation (e.g., a 
register readout) that identifies which register values were 
extractable from the meter. Experience has demonstrated that such 
redundant electronic registers are a reliable source of information to 
determine the amount of unused postage remaining in a meter.
    There are some cases, however, where appropriate redundant 
electronic register documentation will not reveal any information about 
the descending register or the amount of funds remaining on the meter 
before the failure. In these cases, the meter manufacturer provides a 
recommendation regarding the amount to be refunded based on an analysis 
of prior meter settings and daily meter usage from the licensee's PS 
Form 3602-A, Record of Meter Register Readings, or electronic 
equivalent. The meter manufacturer then submits its recommendation on 
the amount to be refunded to the postmaster of the licensing post 
office. Typically, the refund is issued by the post office for the 
recommended amount with no further investigation. The Postal Service 
proposes to strengthen and streamline controls over the refund process 
by limiting the number of sites authorized to make refunds. In those 
instances [[Page 5969]] where appropriate redundant electronic register 
memory documentation cannot be retrieved, the Postal Service will 
analyze historical information (e.g., mailing statements, PS Form 3602-
A or electronic equivalent, and PS Form 3610, Record of Postage Meter 
Settings) to determine the amount to be refunded.
    The Postal Service proposes to establish new procedures to enhance 
control over electronic meter register refunds and expedite the refund 
process as follows:
    1. If an electronic meter register fails, the licensee must provide 
the meter manufacturer's representative with the meter and a copy of 
the completed PS Form 3602-A to have the meter checked out of service. 
If the registers do not adequately document the correct postage 
adjustment, the manufacturer's representative must return the meter to 
the manufacturer's control facility for further analysis.
    2. If appropriate redundant electronic register memory 
documentation can be retrieved by the manufacturer's control facility, 
the manufacturer will provide a refund recommendation and supporting 
documentation to the licensing post office to initiate the appropriate 
refund to the meter licensee.
    3. If appropriate redundant electronic register memory 
documentation cannot be retrieved, the manufacturer will send all 
documents, including the refund request, to MSD, USPS Headquarters, 
with a complete analysis of the licensee's recent mailing history 
supported by the original PS Form 3602-A (or electronic equivalent) and 
a copy of PS Form 3610. MSD will review the supporting documentation 
and forward the package to the postmaster of the licensing post office 
for determination of the correct postage adjustment, if any.
    4. Licensees may appeal meter refunds to the manager of MSD, USPS 
Headquarters.

39 CFR Part 111 References

DMM P030.3.8, Postage Adjustments, Misregistering Meters

39 CFR Part 501 References

Sec. 501.22(g), Distribution controls.
DMMT 144.364, redrafted as Sec. 501.22(h), Distribution controls.

B. Use of PS Form 3602-A

    The Postal Service proposes to require meter users to maintain a PS 
Form 3602-A or electronic equivalent for each meter in use. This form 
documents helpful information to determine the appropriate postage 
adjustment in the event of register failures. The licensee will be 
required to enter the readings of the ascending and descending 
registers each day of meter operation on PS Form 3602-A or maintain at 
least 12 months' equivalent information electronically generated by the 
meter. The licensee will be required to present PS Form 3602-A to the 
post office when the meter is reset or examined.
    PS Form 3602-A has been used as a primary document for supporting 
the calculation of the descending register when there is a total loss 
of register memory within the meter. However, because its use is 
currently optional, in some instances manufacturers have had to 
estimate average daily usage to recommend postage adjustments. If a 
meter's registering mechanisms fail, and the PS Form 3602-A or 
electronic equivalent is not available, the Postal Service will not 
grant a postage adjustment without other valid supporting 
documentation.

39 CFR Part 111 References

DMMT 144.212, redrafted as DMM P030.2.1, Procedures
DMM P030.2.4, Licensee Responsibilities
DMM P030.3.7, Transferring and Refunding Postage
DMM P030.3.8, Postage Adjustments, Misregistering Meters

39 CFR Part 501 References

DMMT 144.364, redrafted as Sec. 501.22(g), Distribution controls.
DMMT 144.383, redrafted as Sec. 501.22(h), Distribution controls.

C. Meter Licensing Procedures

    Existing postage meter licensing procedures do not provide 
sufficient information on the applicant and the applicant's business 
for adequate administration of the meter program. The current 
application process allows a mailer to obtain a meter prior to 
obtaining a license, and without any verification by the Postal Service 
of information provided about that licensee. Improved licensing 
procedures will provide the following advantages:
     Applicant Identification--Provides more detailed 
information about the applicant prior to issuance of a meter license to 
enable the Postal Service to identify licensees and maintain 
centralized records of approved licenses.
     Market Analysis--Facilitates the compilation of marketing 
information to aid in the identification and assessment of licensees' 
needs and requirements.
     Automated Tracking--Promotes data capture and population 
of an automated nationwide meter activity to support a tracking 
database.
     Continuous Update--Allows implementation of mechanisms to 
update meter/licensee information.
    The Postal Service proposes to change meter licensing procedures to 
require that more comprehensive information be provided on the meter 
application. This information will be verified concurrently with the 
processing of the license by the Postal Service. The Postal Service 
goal is to achieve a 24-hour turnaround for applications electronically 
transmitted by a meter manufacturer. Receiving applications 
electronically will minimize the time required to process a license 
application and will permit the Postal Service to verify the 
correctness of the address information contained therein.
    The Postal Service is working with all the meter manufacturers to 
develop a system to facilitate the electronic collection of licensee 
application information to promote efficiency and minimize application 
processing time. Applicants will still have the option to submit an 
application directly to the post office where they intend to deposit 
metered mail, but the processing will be completed at a Postal Service 
designated central processing center. Applicants may appeal a decision 
denying a license in accordance with DMM P030.1.9.
    The license application (shown in Exhibit B) will request business 
and mailing profile information to determine estimated volume and type 
of mail that will be metered by the licensee. To ensure that the 
manufacturers can maintain control of meters leased to licensees and 
that Postal Service records reflect the correct location of these 
meters, licensees will periodically be sent a preprinted document 
reflecting the license and meter information currently on file with the 
Postal Service. Licensees will be responsible for verifying, updating, 
and returning this information to the Postal Service.

39 CFR Part 111 References

DMM P030.1.9, Appeals
DMM P030.2.1, Procedures
DMM P030.2.2, Licensee Agreement
DMM P030.2.3, Refusing to Issue a Meter License
DMM P030.2.4, Licensee Responsibilities

39 CFR Part 501 References

DMMT 144.21, redrafted as Sec. 501.22(b), Distribution controls.
DMMT 144.355(a), redrafted as Sec. 501.22(e), Distribution controls.

D. Performance Regulations

    The Postal Service is aware of instances of noncompliance with 
current control regulations by manufacturers. For example:
     Meters have been shipped or leased to customers who do not 
hold a valid license.
     Meters have been supplied to licensees without having been 
checked into service. [[Page 5970]] 
     Meters and accountable supplies have been found stored by 
manufacturer branches or dealers in unsecured areas.
     Manufacturers have failed to maintain a complete rental 
history for meters, and they have failed to cancel leases or remove 
meters when instructed to do so by the Postal Service.
    The Postal Service proposes that any manufacturer that without just 
cause fails to conduct or adequately implement the performance controls 
detailed in 39 CFR 501.22 be subject to an administrative sanction. 
Specific sanctions will be determined on a case-by-case basis and will 
permit the Postal Service to collect administrative and investigative 
costs, as well as documented revenue losses from the licensee or user. 
These sanctions will be strictly remedial in nature to collect costs 
and/or revenue losses (net of any amount collected from the meter 
users) resulting from manufacturer noncompliance.

39 CFR Part 501 References

Sec. 501.5, Suspension and revocation of authorization.
DMMT 144.952, redrafted as Sec. 501.22, Distribution controls.
Sec. 501.23, Administrative sanction.

E. Suspension and Revocation

1. Policy and Procedure
    Meter manufacturers must be authorized by the Postal Service to 
manufacture and distribute postage meters. Violation of Postal Service 
meter standards by a manufacturer can result in the suspension or 
revocation of the manufacturer's authority to manufacture and 
distribute meters. Additionally, if a certain meter model or meter 
class is determined to possess a security weakness, the Postal Service 
may suspend or revoke authorization for the manufacture or distribution 
of that meter or class of meter, pending analysis of potential security 
flaws.
    The Postal Service proposes to clarify procedures pertaining to the 
suspension and/or revocation of a manufacturer's authorization to 
manufacture and distribute postage meters, a specific meter, or class 
of meter.
    Suspension of the authority to distribute any or all of a 
manufacturer's postage meters will remain in effect for up to 90 days, 
pending analysis of the potential security flaws, or, in the case of 
suspension of a manufacturer's authorization to manufacture and 
distribute meters, investigation of the specific circumstances and 
violations, to determine whether authorization should be revoked. At 
the end of the 90-day period, the manager of MSD may:
     Extend the suspension in order to allow more time for 
investigation or to allow the manufacturer to correct the problem.
     Make a determination to revoke authorization to 
manufacture and/or distribute a manufacturer's meters in part or in 
whole or approval of a meter or class of meters.
     Withdraw the suspension based on implementation of a 
satisfactory solution to the problem.
2. Manufacturer's Authorization
    The Postal Service, represented by the manager of MSD, retains the 
right to suspend or revoke production and/or distribution of any or all 
of a manufacturer's meters if the manufacturer engages in any unlawful 
scheme or enterprise, or fails to comply with Postal Service meter 
standards. In deciding to suspend or revoke the manufacturer's 
authorization to manufacture and distribute meters, the manager will 
take into account the nature and circumstances of the violation, 
whether the violation was willful, whether the manufacturer voluntarily 
admitted to the violation, whether the manufacturer cooperated with the 
Postal Service, whether the manufacturer implemented successful 
remedial measures, and the manufacturer's performance history.
    The manufacturer will be issued a written notice setting forth the 
facts of and reasons for the suspension or revocation, and will be 
advised of the effective date of the suspension or revocation if a 
written defense is not presented within 30 calendar days of the notice 
(unless a shorter time frame is deemed necessary). Except in cases of 
willful violation, the manufacturer will be given an opportunity to 
correct deficiencies and achieve compliance with all requirements 
within a reasonable time limit, as determined by the manager of MSD. 
The manufacturer can appeal a decision suspending or revoking an 
authorization to manufacture and distribute postage meters to the 
manager of Customer Service Support, USPS Headquarters.
3. Specific Meters or Classes of Meters
    The manager of MSD may also order suspension or revocation of 
production and/or distribution of a manufacturer's specific model or 
class of meter if such model or class poses an unreasonable risk to 
postal revenues. The manufacturer will be issued a written notice 
setting forth the facts of and reasons for the decision to suspend or 
revoke authorization to manufacture and/or distribute a specific meter 
or class of meter, and will be advised of the effective date if a 
written defense is not presented within 30 calendar days of the notice 
(unless a shorter time frame is deemed necessary). The manufacturer 
will be given an opportunity to correct deficiencies and achieve 
compliance with all requirements within a reasonable time limit, as 
determined by the manager of MSD. The manufacturer can appeal the 
decision to the manager of Customer Service Support.

39 CFR Part 501 References

Sec. 501.5, Suspension and revocation of authorization.
Sec. 501.12, Suspension and revocation of approval.
DMMT 144.933, redrafted as Sec. 501.9, Security testing.

F. Installations and Withdrawals

    Meters being installed into service must be checked in and meters 
being withdrawn from service must be checked out by a Postal Service 
representative. Currently there are no standardized documentation 
procedures to record the entry and exit of meters from service. The 
introduction of a standardized reporting process will allow for greater 
control of the entry and exit of meters and will provide an audit trail 
for determining the assignment of specific postage meters.
    The Postal Service has developed a standardized format for 
recording the installation and withdrawal of postage meters from 
service. PS Form 3601-C, Postage Meter Installation, Withdrawal, or 
Replacement (shown in Exhibit C), will be used to record pertinent 
information regarding meters that are introduced or withdrawn from 
service. To install or withdraw a meter, the manufacturer will be 
required to present to the licensing post office (or the Postal Service 
representative at the manufacturer's direct distribution center) the 
postage meter, a completed PS Form 3601-C, the mailer's license (PS 
Form 3601-B), and a copy of the licensee's PS Form 3602-A (if the meter 
is being checked out of service).

39 CFR Part 111 References

DMM P030.1.3, Possession
DMM P030.3.1, Initial Setting
DMM P030.3.2, Licensee Relocation
DMM P030.3.9, Computerized Meter Resetting System

39 CFR Part 501 References

DMMT 144.343, redrafted as Sec. 501.22(g), Distribution controls.
DMMT 144.355(a), redrafted as Sec. 501.22(e), Distribution controls.
DMMT 144.36, redrafted as Secs. 501.22(g) and 501.22(h), 
Distribution controls. [[Page 5971]] 

III. Other Issues

A. Taking a Meter Outside the United States

    Licensees have attempted to take postage meters outside the United 
States for purposes of preparing mail at a foreign location and 
entering the mail into the United States. This presents a security 
problem because the Postal Inspection Service does not have immediate 
access to the meter when it is taken outside the United States, its 
territories, or its possessions. The Postal Service has advised 
licensees individually of its long-standing policy that meters may not 
be taken outside the United States, its territories, or its 
possessions. The Postal Service proposes to clarify its regulations 
accordingly. Failure to comply with this standard is grounds for 
revocation of the licensee's meter license.

39 CFR Part 111 References

DMM P030.2.7, Revocation of License

B. Licensee Reporting of Faulty or Defective Meters

    Licensees are responsible for reporting misregistering or otherwise 
defective meters to the meter manufacturer. If a meter's printing or 
recording mechanism is faulty, or a meter fails to lock out properly 
when all set postage has been metered, and the sum of the two register 
values (control total) does not equal the control total on the PS Form 
3602-A at the time of the last setting, the licensee must ensure that 
the meter is not used. The licensee is required to contact the meter 
manufacturer's representative in order to have the defective meter 
presented at the licensing post office within 3 business days to have 
the meter checked out of service.

39 CFR Part 111 References

DMM P030.2.5, redrafted as DMM P030.2.6, Defective Meters

39 CFR Part 501 References

DMMT 144.225, redrafted as Sec. 501.22(h), Distribution controls.
DMMT 144.361, redrafted as Sec. 501.22(h), Distribution controls.

C. Quarterly Meter Reports

    Currently, authorized meter manufacturers are required to provide 
the Postal Service with a computer magnetic tape listing of all 
licensee meters in service, at the close of each reporting period, in a 
Postal Service designated format. The Postal Service proposes to expand 
reporting requirements so that each record must include the meter 
serial number and model number, the user's name and address, and the 
ZIP Code and finance number of the licensing post office. Manufacturers 
are also responsible for reconciling differences with the Postal 
Service, which result from meters that are not on Postal Service or 
manufacturer's records. Manufacturers are required, under special 
circumstances, to provide this data on a more frequent basis on request 
by the Postal Service.

39 CFR Part 501 References

DMMT 144.952(g), redrafted as Sec. 501.22(j), Distribution controls.

D. Postal Service Examination of Meters

    Current meter standards require non-CMRS meters not reset within a 
6-month period to be brought to the setting or licensing post office 
for an examination. Similarly, CMRS meters must be examined 
semiannually. The Postal Service proposes to change the examination 
requirements as described in the following two paragraphs.
    A non-CMRS meter not reset within a 3-month period must be 
presented for examination by the postal facility where it is regularly 
set or examined. CMRS meters will need to be presented for examination 
only annually if reset at least once every 3-month period. Less 
frequent examinations of CMRS meters are made possible by the added 
security features of the CMRS resetting process whereby the meter 
resetting company (MRC) verifies the meter serial number, licensee's 
account number, and the meter's ascending and descending register 
readings at the time of each setting. In effect, this verification 
checks the operational integrity of the meter. Manufacturers must 
report all CMRS meters that have not been reset during the prior 
quarter to the licensing post office, and they must contact licensees 
to instruct them to present their meters for examination within 15 days 
of being notified by the manufacturer. Failure to comply with this 
standard is grounds for revocation of the licensee's meter license.
    Information collected by the Postal Service during meter licensee 
focus groups with small, medium, and large meter users suggests that 
most meters are set on a quarterly or more frequent basis. Therefore, 
although examination requirements under this new rule are more 
stringent for licensees that do not have their meters set regularly, 
the impact on licensees should be minimal. Meters that are not set or 
examined on a frequent basis are more susceptible to meter tampering 
without detection because the Postal Service cannot verify that the 
meters are operating correctly and have not been tampered with to avoid 
the payment of postage.

39 CFR Part 111 References

DMM P030.2.4, Licensee Responsibilities
DMM P030.3.11, Periodic Examination of CMRS Meters

39 CFR Part 501 References

DMMT 144.383, redrafted as Sec. 501.22(f), Distribution controls.

E. Training Media

    Postal Service training publications and security guidelines have 
not kept up with the introduction of new meter models, changes in 
direct distribution plans, and turnover of Postal Service retail 
clerks. Manufacturers have more specialized knowledge and expertise in 
working with their meters than Postal Service employees. Therefore, the 
Postal Service is clarifying existing manufacturer requirements for 
providing documentation relating to training materials and operating 
instructions for their meters.
    The Postal Service proposes that, as a condition of approval, 
manufacturers are responsible for providing licensing post offices with 
resetting and inspection media for their meters prior to distribution. 
The contents of this media must include an explanation of how the meter 
is reset and an explanation of any special or unique features of the 
meter. The manufacturer must also provide a training video for new 
metering products that includes an explanation of how the device is 
reset as well as recommended methods for detecting evidence of 
tampering. Manufacturers are also responsible for ensuring that these 
media are updated as necessary and for providing the Postal Service 
with additional meter documentation on request.

39 CFR Part 501 References

Sec. 501.11(b), Conditions for approval.
Sec. 501.11(c), Conditions for approval.

IV. Computerized Remote Postage Meter Resetting System

    The Computerized Meter Resetting System (CMRS) currently involves 
four entities: the authorized meter manufacturer that offers CMRS 
service (meter resetting company or MRC), a commercial bank providing a 
lockbox service, a trustee bank, and the Postal Service. Licensee 
payments are mailed to the commercial bank lockbox account and are then 
wire-transferred to the trustee bank. Each business day, the trustee 
bank wire-transfers the value of the previous day's meter settings to 
the Postal Service fund at the New York Federal Reserve Bank. Under the 
current financial arrangement, the Postal Service has no control over 
the investment of licensee deposits by the [[Page 5972]] trustee bank 
or the movement of those funds.
    The Postal Service proposes changes to the current financial 
arrangement to allow the Postal Service to have more direct control of 
licensee payments and balances within CMRS. With developments in 
banking technology, there is no valid reason for retaining licensee 
funds in commercial bank trust accounts prior to transfer to the U.S. 
Treasury account of the Postal Service. The practice of holding funds 
in a commercial account exposes customer funds to an unnecessary risk. 
The Postal Service has concluded that the commercial bank trust account 
is not necessary to maintain the customer service provided by CMRS. 
Proposed system changes will involve the following adjustments:
     The commercial trustee bank account will be eliminated.
     All advance meter resetting balances will be wired to the 
Postal Service fund.
     All future licensee trust fund balances will be maintained 
in the Postal Service fund.
     The commercial lockbox bank account will become a Postal 
Service account.
    The changes are likely to reduce substantially expenditures for 
banking service of the MRC, especially because payment for the fees of 
the lockbox bank would be absorbed by the Postal Service. In addition, 
advances are costly and time consuming; these changes would benefit the 
MRC because the number of advances is likely to decline owing to the 
decline in mail float. Moreover, the current requirement for the 
posting of a bond by the MRC is eliminated. The requirement that 
manufacturers have on deposit 1 day's average resettings would be 
amended to the manufacturer's advantage. If the MRC chooses to offer 
advancement of funds to licensees, it is required to maintain a deposit 
with the Postal Service equal to at least 1 day's average funds 
advanced. The total amount of funds advanced to licensees on any given 
day shall not exceed the amount the manufacturer has on deposit with 
the Postal Service.
    The Postal Service further believes that the cash management 
improvements included in the revised procedures will improve service 
for CMRS licensees. Upgrading the cash management arrangements to 
reflect current banking technology will reduce significantly the amount 
of time licensees must have their funds remaining idle in trust 
accounts. The requirement for at least three strategically located 
lockbox bank collection, processing, and clearing locations will reduce 
mail-float time and the length of time before meters can be reset. 
Electronic automated clearinghouse (ACH) debits/credits and electronic 
funds transfer (or wire transfer) are to be offered at no cost to all 
CMRS licensees. The combination of reduced mail-float time and the 
addition of electronic payment options should reduce the need for 
licensee fund advances from the MRC. These changes should reduce fund 
advance fees paid by the licensee to the MRC. Customer service is 
expected to improve because the amount of the total advance deposits 
maintained for licensees will decline under the new arrangements. 
Moreover, because the total cost of CMRS to licensees, including 
interest forgone on their funds, will be reduced, the Postal Service 
believes that more licensees will take advantage of the service.
    These improvements also lessen the risk to funds on deposit for 
postage. Because there is no longer a commercial bank trustee holding 
those deposits, they could be on deposit in the Postal Service fund. 
The funds in the Postal Service fund would be backed in full faith and 
credit by U.S. Treasury securities, whereas that is not always the case 
with investments by a commercial bank trustee.

39 CFR Part 111 References

DMM P030.3.12, Resetting CMRS Meters

39 CFR Part 501 References

DMMT 144.38, redrafted as Sec. 501.28, Computerized remote postage 
meter resetting.
DMMT 144.97, redrafted as Sec. 501.28, Computerized remote postage 
meter resetting.

    In addition to the substantive changes concerning manufacture, 
distribution, and use of meters discussed above, the Postal Service 
also intends to reorganize and renumber standards pertaining to the 
use, manufacture, and distribution of meters. Currently, standards 
generally pertaining to the manufacture and distribution of meters are 
set forth in the Domestic Mail Manual Transition Book (see 58 FR 34887 
(June 30, 1993) and 59 FR 31655 (June 20, 1994)), while standards 
generally pertaining to the use of meters are published in the Domestic 
Mail Manual. The Postal Service proposes to renumber and publish the 
former as amended as 39 CFR part 501. Part 144 of the Domestic Mail 
Manual Transition Book would accordingly be rescinded with the 
exception of Secs. 144.312, 144.313, 144.341, 144.342, 144.344, 
144.345, 144.346, 144.347, 144.348, 144.349, 144.35, 144.363, 144.37, 
144.382(b), 144.383(b), 144.383(c), 144.383(d), 144.384, 144.53, 
144.54, 144.61, 144.62, 144.63, 144.64, 144.65, and 144.7. These 
sections generally contain internal instructions for postal employees 
and are to be amended and published in an internal handbook following 
publication of final rules in connection with this rulemaking. Domestic 
Mail Manual standards generally governing the use of meters would be 
published as revised below. Editorial changes to the proposed standards 
are not intended to create any substantive change. The following charts 
show the proposed changes to 39 CFR parts 111 and 501 and cross-
references previous regulations.

                                                 BILLING CODE 7710-12-P
[[Page 5973]]

[GRAPHIC][TIFF OMITTED]TP31JA95.000


[[Page 5974]]

[GRAPHIC][TIFF OMITTED]TP31JA95.001


[[Page 5975]]

[GRAPHIC][TIFF OMITTED]TP31JA95.002


[[Page 5976]]

[GRAPHIC][TIFF OMITTED]TP31JA95.003



BILLING CODE 7710-12-C
[[Page 5977]]

List of Subjects in 39 CFR Part 111

    Administrative practice and procedure, Postal Service.
    Accordingly, although exempt from the notice and comment 
requirements of the Administrative Procedure Act (5 U.S.C. 553(b), (c)) 
regarding proposed rulemaking by 39 U.S.C. 410(a), the Postal Service 
invites public comment on the following proposed amendments to the 
Domestic Mail Manual (DMM), incorporated by reference in the Code of 
Federal Regulations. See 39 CFR 111.

PART 111--[AMENDED]

    1. The authority citation for 39 CFR part 111 continues to read as 
follows:

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 3001-
3011, 3201-3219, 3403-3406, 3621, 3626, 5001.

    2. Revise the following sections of the DMM as noted below:

P030  Postage Meters and Meter Stamps

1.0  BASIC INFORMATION

1.1  Description of Meters
    Postage meters print one or more denominations of postage. Their 
mechanisms print postage and display the amount of postage used and 
remaining. The meter locks when no postage or minimal postage remains, 
and it generally must be brought to the licensing post office to be 
reset by payment for additional postage. Avoiding the payment of 
postage by misusing a meter is punishable by law.
1.2  Meter Manufacturers
    Postage meters are available only by lease from authorized 
manufacturers. The USPS holds manufacturers responsible for the 
control, operation, maintenance, and replacement, when necessary, of 
their meters. The following manufacturers are authorized to lease 
meters:

ASCOM HASLER MAILING SYSTEMS INC
19 FOREST PKY
SHELTON CT 06484-0903

FRANCOTYP-POSTALIA INC
1980 UNIVERSITY LN
LISLE IL 60532-2152

FRIDEN NEOPOST
30955 HUNTWOOD
HAYWARD CA 94544-7005

PITNEY BOWES INC
1 ELMCROFT RD
STAMFORD CT 06926-0700
1.3  Possession
    No one other than an authorized manufacturer may possess a postage 
meter without a valid USPS postage meter license and a rental agreement 
with the meter manufacturer and until the USPS sets, seals (if 
applicable), and checks it into service. Other parties in possession of 
a postage meter must immediately surrender it to the manufacturer or 
USPS.
* * * * *
1.8  Meter Documentation, Markings, and Endorsements
    Unless excepted by standard, a mailing bearing meter stamp postage 
must be accompanied by documentation meeting the basic standards in 
P012 if the mailing contains nonidentical-weight pieces or pieces 
without the full correct postage at the applicable rate. Each mailpiece 
bearing meter postage must show the markings and endorsements required 
for the rate claimed or special services requested.
1.9  Appeals
    Applicants who have been refused a meter license, or licensees who 
have had a license revoked, may file a written appeal with the manager 
of Mailing Systems Development within 10 calendar days of receipt of 
the decision. Licensees who are appealing decisions on postage 
adjustments may file their appeals with the same official, and must do 
so within 60 days of the date that the postage recommendation was 
submitted to the USPS by the manufacturer.

2.0  METER LICENSE

2.1  Procedures
    An applicant wanting to be licensed to lease and use a postage 
meter must provide an original signed Form 3601-A to the post office 
where the applicant intends to deposit metered mail, or a meter 
manufacturer may, on behalf of the applicant, electronically transmit 
the information requested on the Form 3601-A to the designated USPS 
license application central processing center in a USPS-specified 
format. A single license covers all meters licensed to the same party 
by the same post office, but a separate application must be submitted 
for each post office where the applicant wants to deposit metered mail. 
There is no fee for this application and license. After approving an 
application, the USPS issues a license (Form 3601-B) and one Form 3602-
A for each meter checked into service. In those instances where a meter 
manufacturer transmitted the application on behalf of the applicant, 
the manufacturer is notified by the USPS when a license is issued.
2.2  Licensee Agreement
    By submitting an application, the licensee agrees that the license 
may be revoked immediately and the meter removed by the manufacturer or 
the USPS if the meter is used in any fraudulent or unlawful scheme or 
enterprise, if the meter is not used during any 12 consecutive months, 
if the licensee fails to exercise sufficient control of the meter or 
fails to comply with the standards for meter care or use, or if a meter 
is taken outside the United States, or its territories, or its 
possessions (without specific written permission by the manager of 
Mailing Systems Development, USPS Headquarters).
2.3  Refusing to Issue a Meter License
    The USPS may refuse to issue a meter license if the applicant 
submitted false or fictitious information on the license application; 
if, within 5 years preceding submission of the application, the 
applicant violated any standard for the care or use of a meter that 
resulted in the revocation of that applicant's meter license; or if 
there is sufficient reason to believe that the meter is to be used in 
violation of the applicable standards. When an application for a 
license to lease and use postage meters is refused, the USPS notifies 
the licensee of the reason in writing. If the license application was 
electronically transmitted to the USPS by a manufacturer on behalf of 
the applicant, the applicable manufacturer is notified of the refusal 
by the USPS. An applicant who is refused a meter license may appeal the 
decision according to the procedures in 1.9.
2.4  Licensee Responsibilities
    The meter licensee's responsibilities include:
    a. After delivery to a licensee, a meter must be kept in the 
licensee's custody until it is returned to the authorized manufacturer 
or the licensing post office.
    b. Each day of operation, the licensee must record the readings of 
the ascending and descending registers on Form 3602-A (except that 
licensees using metering systems that record these readings 
electronically may use system-generated printed records of the 
preceding 12 months of meter activity as a substitute for manual entry 
of daily readings on Form 3602-A). These records must be available for 
inspection to the USPS on request. The licensee must bring Form 3602-A 
to the post office when the meter is reset or examined.
    c. Meters in the licensee's custody and records on meter 
transactions must [[Page 5978]] be immediately available for review and 
audit on request by the USPS or the meter manufacturer.
    d. Meters not reset within a 3-month period must be presented with 
Form 3602-A for examination at the licensing post office. Remote-set 
meters that are reset at least once every 3 months need be presented 
for examination only annually. Failure to present a meter for 
examination on a timely basis following notification may result in 
revocation of the licensee's authorization to lease and use postage 
meters.
    e. A licensee must immediately notify the licensing post office and 
manufacturer's representative of any changes in the licensee's name, 
address, or telephone number, or the location of the meter(s), or any 
other information contained on the original Form 3601-A. The USPS 
thereafter issues a modified meter license reflecting the updated 
information. Licensees must verify and update their license information 
on a periodic basis as well as following any event that would indicate 
the need to update this information immediately (e.g., billings 
returned to a meter manufacturer or failure of the manufacturer to 
locate the meter for inspection).
    f. The licensee must report a misregistering or otherwise defective 
meter to the manufacturer according to 2.9 and must ensure that the 
meter is not used.
    g. Licensees must ensure that the cautionary and barcode labels 
placed on each meter prior to its being placed into service are not 
removed while the meter is in the licensee's possession. The cautionary 
label provides the meter user with basic reminders on leasing, meter 
movement, and misuse. The barcode label contains a barcoded 
representation of the meter serial number. Meters without the required 
labels may not be checked into service.
2.5  Custody of Suspect Meters
    Postal inspectors are authorized to conduct unannounced on-site 
examinations of meters reasonably suspected of being manipulated or 
otherwise defective. An inspector may also immediately withdraw a 
suspect meter from service for physical and/or laboratory examination. 
The inspector issues a receipt for the meter to the licensee and 
forwards a copy to the manufacturer and may assist in obtaining a 
replacement meter from the meter manufacturer. Advance notice to the 
manufacturer that a meter is to be inspected may be provided by the 
Inspection Service where possible. Except where there is reason to 
believe that the meter has been fraudulently set with postage, existing 
postage in the meter to be examined is transferred to the replacement 
meter.
2.6  Defective Meters
    The manufacturer must pick up a defective meter and present it to 
the licensing post office to be checked out of service within 3 
business days of being notified by the licensee under 2.9. A faulty 
meter must not be used under any circumstances, and it must be removed 
from service when presented to the licensing post office. The 
manufacturer will provide a replacement meter.
2.7  Revocation of License
    The USPS notifies the licensee in writing if the meter license is 
to be revoked, providing the reasons. In addition, the USPS notifies 
the licensee's meter manufacturer of the revocation so that the 
manufacturer can cancel the lease agreement and remove the meter from 
service. Revocation is effective 10 days thereafter unless, within that 
time, the licensee appeals the decision according to the procedures in 
1.9. A license is subject to revocation for any of these reasons:
    a. A meter is used for any illegal scheme or enterprise.
    b. The license or licensee's meters are not used for 12 consecutive 
months.
    c. Any failure to exercise sufficient control of a meter or failure 
to comply with the standards for its care or use.
    d. The meter is kept or used outside the boundaries of the United 
States or those U.S. territories and possessions where the USPS 
operates (except as specified in 2.2).
    e. Mail is deposited at other than the licensing post office 
(except as permitted by 5.0 or D072).
2.8  Missing Meters
    The licensee must immediately report to the licensing postmaster 
and the manufacturer the loss or theft of any meter or the recovery of 
any missing meter. Reports must include the meter model and serial 
number; the date, location, and details of the loss, theft, or 
recovery; and a copy of the police report, when applicable.
2.9  Returning Meters
    After a meter is delivered to a licensee, the meter must be kept in 
the licensee's custody until returned to the authorized manufacturer or 
licensing post office. Licensees with a faulty misregistering meter, or 
licensees no longer wanting to retain a meter, must notify the meter 
manufacturer's representative of any meters that are to be returned to 
the licensing post office to be checked out of service. Meters must be 
shipped by registered mail unless specific written permission is given 
to ship meters otherwise by the manager of MSD, USPS Headquarters.

3.0  SETTING METERS

3.1  Initial Setting
    Before delivery to the licensee, the manufacturer must take a meter 
to be set, sealed (if applicable), and checked into service by the post 
office where it is to be regularly set or examined, unless the meter is 
serviced through the on-site meter-setting program described in 3.5. 
The meter manufacturer must present the postal representative with the 
meter and a completed Form 3601-C when checking a meter into service.
3.2  Licensee Relocation
    If a licensee changes the post office where metered mail is to be 
deposited, the meter must be checked out of service by the licensing 
post office. That meter or another meter must be licensed at the new 
post office before it is reset or initial settings are made. For this 
standard, a post office includes all subordinate branches and stations 
of the licensing post office.
3.3   Location of Setting
    Except as provided under 3.4 or 3.5, meter settings must be 
performed at the licensing post office. Meters may not be set at 
contract stations and branches.
    Remote-set postage meters are subject to 3.10 through 3.13 and 
related standards.
3.4  Alternative Meter Setting Location
    The postmaster serving a licensee's location may set a meter used 
to pay postage on mail presented at another post office, subject to 
these conditions:
    a. The licensee must obtain a meter license from the post office 
where the mailing is to be deposited, and must present it to the 
licensee's local post office with the meter and Form 3602-A (or 
electronic equivalent) for setting.
    b. The postmark die must show the name of the post office of 
mailing (licensing post office).
    c. A separate meter must be used for mailings made at each post 
office.
    d. Mail matter sent to another post office for mailing must be 
shipped on private transportation, to be deposited at the time and 
place designated by the postmaster. It may not be consigned to the USPS 
in bulk by freight, express, or other carrier. The USPS has no 
responsibility for the metered matter before it is accepted in the 
mail.
    e. When a meter is no longer used, the licensee must return the 
meter to the manufacturer's representative or [[Page 5979]] licensing 
post office to have it checked out of service.
3.5  On-Site Meter-Setting Program
    The on-site meter-setting program allows USPS employees to set or 
examine postage meters at a licensee's place of business within the 
area served by the licensing post office. Only meters of licensees 
participating in the program are set or examined at that location. The 
program also provides for checking meters into or out of service at the 
meter manufacturer's branch offices, including meters set for use at 
another post office. A fee is charged for each meter set, examined, or 
checked into or out of service at a licensee's place of business or at 
a manufacturer's offices, unless a USPS employee (qualified to set 
postage meters) is regularly assigned to that licensee's location for 
postal administrative duties. Licensees must pay on-site setting or 
examination fees and postage by check or advance deposit account at the 
time of the setting or examination. For fees, see R900.
3.6  Payment for Postage
    Payment must be made for postage when the meter is set. Payment may 
be in cash or by check, money order, or withdrawal from an advance 
deposit account established with the post office. Advance deposit 
accounts may be established when the licensee's monthly metered postage 
is $500 or more. Payment by check or advance deposit account is subject 
to USPS standards and procedures.
3.7  Transferring and Refunding Postage
    Upon verification by the USPS, unused postage in a meter being 
checked out of service may be transferred to another of the licensee's 
meters licensed at the same post office, or the licensee may request a 
refund, which may include a refund for unused meter stamps according to 
applicable standards. The meter and the Form 3602-A or system-generated 
register documentation must be examined by the USPS before a refund or 
credit is initiated for unused postage or additional postage is 
collected, based on what is found.
3.8  Postage Adjustments, Misregistering Meters
    To request a postage adjustment for a faulty misregistering meter, 
the licensee must present the meter and the licensee's Form 3602-A to 
the manufacturer. After examining a meter checked out of service for 
apparent faulty operation affecting registration, the manufacturer must 
furnish a report explaining the malfunction to the licensing post 
office. That report must include all applicable meter documentation 
(including a copy of the licensee's Form 3602-A and the licensee's Form 
3610 provided by the USPS), and a recommendation about the appropriate 
postage adjustment. If the electronic redundant memory data, as 
examined by the manufacturer, is inconclusive about the appropriate 
postage adjustment, the manufacturer must include an analysis of the 
licensee's recent mailing history supporting the recommended postage 
adjustment. In the absence of a completed Form 3602-A, the licensee 
must submit some other reliable evidence showing that a postage 
adjustment is warranted. A licensee may appeal a postage adjustment 
according to the procedures in 1.9.
3.9  Computerized Meter Resetting System
    The Computerized Meter Resetting System (CMRS) allows certain 
postage meters to be reset electronically at the licensee's place of 
business. CMRS meters must be set at the licensee's place of business, 
except under 3.11. Before delivery to the licensee, the manufacturer 
must bring the meter and a completed Form 3601-C to the licensing post 
office to have it checked into service, unless the meter is initially 
checked into service at the manufacturer's office under 3.5.
3.10  Postage Transfer for CMRS Meters
    No postage is set by the licensing post office unless a CMRS meter 
is checked out of service and the unused postage in it is transferred 
to another CMRS meter leased by the same licensee for use at the same 
post office.
3.11  Periodic Examination of CMRS Meters
    CMRS meters must either be reset or examined every 3 months. CMRS 
meters set at least once every 3 months need be presented only annually 
for examination by a USPS employee. The licensee must bring a CMRS 
meter and applicable Form 3602-A to the licensing post office when 
notified by the manufacturer that an examination is required. Licensees 
who do not comply with examination requirements may not reset their 
meters via CMRS. Failure to have a meter examined on notification can 
result in revocation of the licensee's meter license.
3.12  Resetting CMRS Meters
    The following steps must be taken to reset a CMRS meter:
    a. The licensee's account must have sufficient funds to cover the 
desired postage increment or the manufacturer must agree to advance 
funds to the licensee.
    b. The licensee may deposit funds by check, electronic funds, or 
automated clearinghouse transfer.
    c. The licensee must provide the manufacturer or designated meter 
resetting company (MRC) with the meter serial number, licensee's 
account number, and the meter's ascending and descending registers.
    d. After a meter is reset, the manufacturer must provide the 
licensee with documentation of the transaction and the balance 
remaining in the licensee's account, unless the manufacturer provides a 
monthly statement documenting all transactions for the period and the 
balance after each transaction.
3.13  CMRS Refunds
    The USPS issues a refund to a licensee for any unused postage in a 
meter. Refunds of licensee balances maintained by the USPS in the USPS 
fund are made directly to the licensee by the USPS lockbox bank within 
48 hours after receipt of a licensee's request.

4.0  METER STAMPS

4.1  Designs
    Meter stamp designs (types, sizes, and styles) must be those 
specified when a meter is approved by the USPS for manufacture (see 
Exhibit 4.1).
* * * * *

6.0  METER MANUFACTURE AND DISTRIBUTION

    Title 39, Code of Federal Regulations, part 501, contains 
information about the authorization to manufacture and distribute 
postage meters; the suspension and revocation of such authorization; 
performance standards required in postage meters, test plans, testing, 
and approval of postage meters; required manufacturing security 
measures; and standards for the distribution and maintenance of postage 
meters. Further information may be obtained from Mailing Systems 
Development, USPS Headquarters.

List of Subjects in 39 CFR Part 501

    Administrative practice and procedure, Postal Service.

    Accordingly, although exempt from the notice and comment 
requirements of the Administrative Procedure Act (5 U.S.C. 553(b), (c)) 
regarding proposed rulemaking by 39 U.S.C. 410(a), the Postal Service 
invites public comment [[Page 5980]] on the following proposed 
amendments to the Code of Federal Regulations.
    3. For the reasons set out in this document, the Postal Service 
proposes to add 39 CFR 501 as follows:

PART 501--AUTHORIZATION TO MANUFACTURE AND DISTRIBUTE POSTAGE 
METERS

Sec.
501.1  Manufacturer authorization.
501.2  Manufacturer qualification.
501.3  Changes in ownership or control.
501.4  Burden of proof standard.
501.5  Suspension and revocation of authorization.
501.6  Specifications.
501.7  Test plans.
501.8  Submission of each model.
501.9  Security testing.
501.10  Meter approval.
501.11  Conditions for approval.
501.12  Suspension and revocation of approval.
501.13  Reporting.
501.14  Administrative sanction on reporting.
501.15  Materials and workmanship.
501.16  Breakdown and endurance testing.
501.17  Protection of printing dies and keys.
501.18  Destruction of meter stamps.
501.19  Inspection of new and rebuilt meters.
501.20  Keys and setting equipment.
501.21  Distribution facilities.
501.22  Distribution controls.
501.23  Administrative sanction.
501.24  Meter replacement.
501.25  Inspection of meters in use.
501.26  Meters not located.
501.27  Repair of internal mechanism.
501.28  Computerized remote postage meter resetting.
501.29  Notice of proposed changes in regulations.

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 410, 
2610, 2605; Inspector General Act of 1978, as amended (Pub. L. 95-
452, as amended), 5 U.S.C. App. 3.


Sec. 501.1   Manufacturer authorization.

    Any person or concern seeking authorization to manufacture and 
distribute postage meters must submit a request to the Postal Service 
in person or in writing. Upon qualification and approval, the applicant 
is authorized in writing to manufacture postage meters and to lease 
them to persons licensed accordingly by the Postal Service. The Postal 
Service may specify the functional area charged with processing the 
application and administering its meter program. [Currently, that area 
is Mailing Systems Development, USPS Headquarters.]


Sec. 501.2  Manufacturer qualification.

    Any concern wanting authorization to manufacture and/or lease 
postage meters for use by licensees under Domestic Mail Manual (DMM) 
P030.1.2 must:
    (a) Satisfy the Postal Service of its integrity and financial 
responsibility;
    (b) Obtain approval of at least one postage meter model 
incorporating all the features and safeguards specified in Sec. 501.6;
    (c) Have, or establish, and keep under its supervision and control 
adequate manufacturing facilities suitable to carry out the provisions 
of Secs. 501.15 through 501.20 to the satisfaction of the Postal 
Service (such facilities must be subject to unannounced inspection by 
representatives of the Postal Service); and
    (d) Have, or establish, and keep adequate facilities for the 
control, distribution, and maintenance of postage meters and their 
replacement when necessary.


Sec. 501.3   Changes in ownership or control.

    Any person or concern wanting to acquire ownership or control of an 
authorized meter manufacturer must provide the Postal Service with 
satisfactory evidence of that person's or concern's integrity and 
financial responsibility.


Sec. 501.4   Burden of proof standard.

    The burden of proof is on the Postal Service in adjudications 
concerning suspension and revocation under Secs. 501.5 and 501.12 and 
administrative sanctions under Secs. 501.14 and 501.23. Except as 
otherwise indicated in those sections, the standard of proof shall be 
the preponderance-of-evidence standard.


Sec. 501.5   Suspension and revocation of authorization.

    (a) The Postal Service may suspend and/or revoke authorization to 
manufacture and/or distribute any or all of a manufacturer's postage 
meters if the manufacturer engages in any unlawful scheme or 
enterprise, fails to comply with any provision in this part 501, or 
fails to implement instructions issued in accordance with any final 
decision issued by the Postal Service within its authority over the 
meter program.
    (b) The decision to suspend or revoke a manufacturer's 
authorization will be based on the nature and circumstances of the 
violation, whether the violation was willful, whether the manufacturer 
voluntarily admitted to the violation, whether the manufacturer 
cooperated with the Postal Service, whether the manufacturer 
implemented successful remedial measures, and the manufacturer's 
performance history. Prior to determining whether a manufacturer's 
authorization to manufacture and/or distribute postage meters should be 
revoked, the procedures in paragraph (c) of this section will be 
followed.
    (c) Suspension in all cases shall be as follows:
    (1) Upon determination by the Postal Service that a manufacturer is 
in violation of the provisions in this part 501, the Postal Service 
will issue a written notice of proposed suspension citing deficiencies 
for which suspension of authorization to manufacture and/or distribute 
a specific meter or class of meters may be imposed under paragraph 
(c)(2) of this section. Except in cases of willful violation, the 
manufacturer will be given an opportunity to correct deficiencies and 
achieve compliance with all requirements within a time limit 
corresponding to the potential risk to postal revenue.
    (2) In cases of willful violation, or if the Postal Service 
determines that the manufacturer has failed to correct cited 
deficiencies within the specified time limit, the Postal Service will 
issue a written notice setting forth the facts and reasons for the 
decision to suspend and the effective date if a written defense is not 
presented as provided in paragraph (d) of this section.
    (3) If upon consideration of the defense as provided in paragraph 
(e) of this section, the Postal Service deems that the suspension is 
warranted, the suspension will remain in effect for up to 90 days 
unless withdrawn by the Postal Service.
    (4) At the end of the 90-day suspension period, the Postal Service 
may:
    (i) Extend the suspension in order to allow more time for 
investigation or to allow the manufacturer to correct the problem;
    (ii) Make a determination to revoke authorization to manufacture 
and/or distribute the manufacturer's meters in part or in whole; or
    (iii) Withdraw the suspension based on identification and 
implementation of a satisfactory solution to the problem.
    (d) The manufacturer may present the Postal Service with a written 
defense to any suspension or revocation determination within 30 
calendar days of receiving the written notice (unless a shorter time 
frame is deemed necessary). The defense must include all supporting 
evidence and state with specificity the reasons for which the order 
should not be imposed.
    (e) After receipt and consideration of the defense, the Postal 
Service shall advise the manufacturer of the decision and the facts and 
reasons for it. The decision shall be effective on receipt unless it 
provides otherwise. The decision shall also advise the 
[[Page 5981]] manufacturer that it may appeal that determination within 
30 calendar days of receiving written notice (unless a shorter time 
frame is deemed necessary), as specified therein. The appeal must 
include all supporting evidence and state with specificity the reasons 
the manufacturer believes the decision is erroneous.
    (f) An order or final decision under this section does not preclude 
any other criminal or civil statutory, common law, or administrative 
remedy that is available by law to the Postal Service, the United 
States, or any other person.


Sec. 501.6  Specifications.

    Postage meters must incorporate all the following features and 
safeguards:
    (a) A postage meter is the postage printing die and postage 
registering mechanism of a mailing machine. It may be integral with the 
mailing machine or separable. In either case, the licensee must be able 
to bring the meter to the post office for setting or examination.
    (b) A postage meter may be capable of printing one denomination of 
postage and registering the number of such impressions made (single 
denomination), or it may be capable of printing varying denominations 
and registering either multiples of the smallest unit printed 
(multidenomination) or the currency value of the impressions made 
(omnidenomination). The printing die or dies, counters, and 
counteractuating mechanism must be inseparable from the meter, except 
by the manufacturer.
    (c) In each postage meter, there must be two accurate and 
dependable counting devices: one ascending and registering the total 
imprinted, the other descending and registering the unused postage 
balance. The descending register must actuate a locking mechanism, 
preventing further operation of the meter after the register has 
reduced to an amount less than the largest denomination printable in 
one operation or to zero. In electronic meters, the locking device must 
prevent printing if the amount that would be printed would reduce the 
descending register to less than zero. The descending register must be 
so constructed as to be easily set at the post office for any amount of 
postage or number of impressions within its capacity, prepaid by the 
licensee.
    (d) The entire meter must be encased in a substantial housing to 
which unauthorized access cannot be gained without creating obvious 
damage. The descending register must be accessible to the post office 
by a door equipped with a suitable lock and with provision for a post 
office seal. The requirement that accessibility to the descending 
register be restricted does not apply to Computerized Remote Postage 
Meter Resetting System electronic meters that have no access to the 
descending register of the meter. Descending registers on this type of 
meter are reset electronically by coded input only. The ascending 
register and all other components must be so shielded as not to be 
accessible even when the door is open. The readings of both registers 
must be easily obtainable at any time between operations, by visibility 
through closed windows, or by imprint on tape or card, or by a 
combination of the two methods. The housing must be of such 
construction that it is impossible to alter the readings of the 
ascending register except by normal operation or to gain access to the 
internal components, except for setting the descending register under 
Sec. 501.20(c), without mutilation.
    (e) The printing die must either conform in design to one already 
in use or be approved by the Postal Service. The die must include the 
serial number of the meter and identification of the manufacturer, and 
the die must be so constructed or shielded that it is not practically 
possible without proper registration in the ascending and descending 
register to obtain imprints fraudulently. The die must be attached to 
the meter in a manner (such as with breakoff screws) that it is not 
practicable to remove or replace the die fraudulently.
    (f) The meter die must include a postmark to print the name of the 
city and state from which mail is dispatched and the date of mailing, 
except as specified by the Postal Service. Information that must appear 
in the meter postmark and the location of that postmark must be as 
specified by the Postal Service.
    (g) A meter may be designed to print a ``meter slogan'' or ``ad 
plate'' to the left of, and next to, the postmark. The size and 
position of a slogan or meter ad must be such that it does not 
interfere with or obscure the meter stamp or postmark, and it must be 
possible to install the plate easily without exposing the meter stamp 
die. Plates must be made of suitable, durable material that does not 
soften or disintegrate while in use. Plates must be well fitted and so 
securely fastened to the printing mechanism that they do not become 
loose or detached or otherwise interfere with proper operation of a 
meter.
    (h) The entire meter must be of sufficiently solid, substantial, 
and dependable construction that protects the Postal Service amply 
against loss of revenue from fraud, manipulation, misoperation, or 
breakdown.
    (i) In addition to the features and safeguards above, electronic 
meters must:
    (1) Have either nonvolatile ascending and descending registers or a 
solid-state memory that stores the data for the ascending and 
descending registers. Solid-state memories that rely on applied voltage 
for memory retention must be powered by batteries with a minimum 
support life of 5 years from date of battery renewal with no external 
power applied and with sufficient redundancy to be self-checking.
    (2) Be able to display the amounts in both the ascending and the 
descending registers (not necessarily at the same time).
    (3) Be able to display, free from accidental changes, the next 
amount of postage to be printed.
    (4) Be resettable by Postal Service employees, preferably without 
customized equipment.
    (5) Contain a fault-detection device for computational security 
that automatically locks out the meter and prevents printing of 
additional postage in the event of malfunction.
    (6) Meet Postal Service test specifications in United States Postal 
Service Specification, Postage Meters, Electronic, USPS-M-942 (RCD). 
Persons wanting to manufacture electronic postage meters may obtain a 
copy of this Postal Service test specification from USPS Headquarters.
    (j) Auxiliary equipment required for the operation of the postage 
meters must be part of the final production models submitted for Postal 
Service approval. Failure of the auxiliary equipment, which could cause 
malfunction in postage meter operation, is considered the same as a 
postage meter failure.


Sec. 501.7  Test plans.

    To receive Postal Service approval, a postage meter must be tested. 
Manufacturers of electronic meters must submit a detailed test plan to 
the Postal Service for approval at least 60 days before the conduct of 
the tests.
    The test plan must include tests that, if passed by a meter, prove 
compliance by the meter with all postal requirements. The test plan 
must list the parameters to be tested, test equipment, procedures, test 
sample sizes, and test data formats. Also, the plan must include 
detailed descriptions, specifications, design drawings, schematic 
diagrams, and explanations of the purposes of all special test 
equipment and nonstandard or noncommercial instrumentation. 
[[Page 5982]] 


Sec. 501.8  Submission of each model.

    Each meter model proposed for manufacture must be approved by the 
Postal Service after testing at the manufacturer's expense. A 
preliminary working model that meets the specifications in Sec. 501.6 
may be submitted for tentative approval. No meters of any model may be 
distributed or used for postage payment until a complete unit made to 
production drawings and specifications is submitted, tested, and 
approved, except as may be authorized for preliminary field testing.


Sec. 501.9  Security testing.

    The Postal Service reserves the right at any time to require or 
conduct additional examination and testing, without cause, of any meter 
submitted to the Postal Service for approval or approved by the Postal 
Service for manufacture and distribution.


Sec. 501.10  Meter approval.

    As provided in Sec. 501.13, the manufacturer has a duty to report 
security weaknesses to the Postal Service to ensure that each meter 
model and every meter in service protects the Postal Service against 
loss of revenue at all times. A grant of approval of a model does not 
constitute an irrevocable determination that the Postal Service is 
satisfied with the revenue protection capabilities of the model. After 
approval is granted to manufacture and distribute a meter, no changes 
affecting the basic features or safeguards of a meter may be made 
except as authorized or ordered by the Postal Service in writing.


Sec. 501.11  Conditions for approval.

    (a) The Postal Service may require, and reserves future rights to 
require, that production models of approved meters be deposited with 
the Postal Service.
    (b) The manufacturer must provide copies of resetting and 
inspection media to each licensing post office prior to distribution. 
The contents of this media must include an explanation of how the meter 
is reset and an explanation of any special or unique features of the 
meter. The manufacturer must also provide a training video for any new 
metering product that includes an explanation of how the device is 
reset as well as recommended methods for detecting evidence of 
tampering.
    (c) As a condition of approval, the manufacturer has a continuing 
obligation to provide the Postal Service with copies of service manuals 
and updates to setting instructions. The manufacturer must also 
promptly provide Mailing Systems Development, USPS Headquarters, with 
any additional documentation on request.
    (d) Additional meters must be submitted to the Postal Service for 
testing, at the expense of the manufacturer, on request by the Postal 
Service.


Sec. 501.12  Suspension and revocation of approval.

    (a) The Postal Service may suspend approval under Sec. 501.10 if 
the Postal Service has probable cause to believe that a manufacturer's 
meter or class of meters poses an unreasonable risk to postal revenues. 
Suspension of approval to manufacture or distribute a meter or class of 
meters in whole or in part will be based on the potential risk to 
postal revenues. Prior to determining whether approval of a meter or 
class of meters should be revoked, the procedures in paragraph (b) of 
this section shall be followed.
    (b) Suspension in all cases shall be as follows:
    (1) Upon determination by the Postal Service that a meter poses an 
unreasonable risk to postal revenues, the Postal Service will issue a 
written notice of proposed suspension citing deficiencies for which 
suspension may be imposed under paragraph (b)(2) of this section. The 
manufacturer will be given an opportunity to correct deficiencies and 
achieve compliance with all requirements within a time limit 
corresponding to the potential risk to postal revenue.
    (2) If the Postal Service determines that the manufacturer has 
failed to correct cited deficiencies within the specified time limit, 
the Postal Service will issue a written notice setting forth the facts 
and reasons for the decision to suspend and the effective date if a 
written defense is not presented as provided in paragraph (c) of this 
section.
    (3) If upon consideration of the defense as provided in paragraph 
(d) of this section, the Postal Service deems that the suspension is 
warranted, the suspension will remain in effect for up to 90 days 
unless withdrawn by the Postal Service.
    (4) At the end of the 90-day suspension period, the Postal Service 
may:
    (i) Extend the suspension in order to allow more time for 
investigation or to allow the manufacturer to correct the problem;
    (ii) Make a determination to revoke the approval of the 
manufacturer's meter or class of meters; or
    (iii) Withdraw the suspension based on identification and 
implementation of a satisfactory solution to the problem.
    (c) The manufacturer may present the Postal Service with a written 
defense to any suspension or revocation determination within 30 
calendar days of receiving the written notice (unless a shorter time 
frame is deemed necessary). The defense must include all supporting 
evidence and state with specificity the reasons for which the order 
should not be imposed.
    (d) After receipt and consideration of the defense, the Postal 
Service shall advise the manufacturer of the decision and the facts and 
reasons for it. The decision shall be effective on receipt unless it 
provides otherwise. The decision shall also advise the manufacturer 
that it may appeal that determination within 30 calendar days of 
receiving written notice (unless a shorter time frame is deemed 
necessary), as specified therein. The appeal must include all 
supporting evidence and state with specificity the reasons the 
manufacturer believes the decision is erroneous.
    (e) An order or final decision under this section does not preclude 
any other criminal or civil statutory, common law, or administrative 
remedy that is available by law to the Postal Service, the United 
States, or any other person.


Sec. 501.13  Reporting.

    (a) For purposes of this section, ``manufacturer'' refers to the 
authorized postage meter manufacturer in Sec. 501.1 and its foreign 
affiliates, subsidiaries, assigns, dealers, independent dealers, 
employees, and parent corporations.
    (b) Each authorized postage meter manufacturer in Sec. 501.1 must 
submit a preliminary report to notify the Postal Service promptly (in 
no event more than 21 calendar days of discovery or 21 calendar days of 
the effective date of this regulation) of the following:
    (1) All findings or results of any testing known to the 
manufacturer concerning the security or revenue protection-related 
features, capabilities, or failings of any meters sold, leased, or 
distributed by the manufacturer that have been approved for sale, 
lease, or distribution by the Postal Service or any foreign postal 
administration; or have been submitted for approval by the manufacturer 
to the Postal Service or other foreign postal administration(s); and
    (2) All potential security weaknesses or methods of meter tampering 
of the meters the manufacturer distributes of which the manufacturer 
knows or should know, and the meter(s) or model(s) subject to each 
method. These potential security weaknesses include but are not limited 
to suspected equipment defects, suspected abuse by [[Page 5983]] a 
meter licensee or manufacturer employee, suspected security breaches of 
CMRS information systems, occurrences outside normal performance, or 
any repeatable deviation from normal meter performance (within the same 
model family and/or by the same licensee).
    (c) Within 45 days of the preliminary notification of the Postal 
Service under Sec. 501.13(b), the manufacturer must submit a written 
report to the Postal Service. The report must include the 
circumstances, proposed investigative procedure, and the anticipated 
completion date of the investigation. The manufacturer must also 
provide periodic status reports to the Postal Service during subsequent 
investigation and, on completion, must submit a summary of the 
investigative findings.
    (d) The manufacturer must establish and adhere to timely and 
efficient procedures for internal reporting of potential security 
weaknesses. The manufacturer is required to submit a copy of internal 
reporting procedures and instructions to the Postal Service for review.


Sec. 501.14  Administrative sanction on reporting.

    (a) Notwithstanding any act, admission, or omission by the Postal 
Service prior to the effective date of this section, an authorized 
postage meter manufacturer may be subject to an administrative sanction 
for failing to comply with Sec. 501.13.
    (b) The Postal Service shall determine all costs and revenue losses 
measured from the date that the manufacturer knew or should have known 
of a potential security weakness, including, but not limited to, 
administrative and investigative costs and documented revenue losses 
that result from any meter(s) for which the manufacturer failed to 
comply with any provision in Sec. 501.13. The Postal Service shall 
recover any and all such costs and losses (net of any amount collected 
by the Postal Service from the licensees or meter users) with interest 
by issuing a written notice to the manufacturer setting forth the facts 
and reasons on which the determination to impose the sanction is based. 
The notice shall advise the manufacturer of the date that the action 
will take effect if a written defense is not presented within 30 
calendar days of receipt of the notice.
    (c) The manufacturer may present the Postal Service with a written 
defense to the proposed action within 30 calendar days of receipt. The 
defense must include all supporting evidence and state with specificity 
the reasons for which the sanction should not be imposed.
    (d) After receipt and consideration of the defense, the Postal 
Service shall advise the manufacturer of the decision and the facts and 
reasons for it; the decision shall be effective on receipt unless it 
provides otherwise. The decision shall also advise the manufacturer 
that it may, within 30 calendar days of receiving written notice, 
appeal that determination as specified therein.
    (e) The manufacturer may submit a written appeal to the Postal 
Service within 30 calendar days of receipt of the decision. The appeal 
must include all supporting evidence and state with specificity the 
reasons that the manufacturer believes that the administrative sanction 
was erroneously imposed. The submission of an appeal stays the 
effectiveness of the sanction.
    (f) The imposition of an administrative sanction under this section 
does not preclude any other criminal or civil statutory, common law, or 
administrative remedy that is available by law to the Postal Service, 
the United States, or any other person.


Sec. 501.15  Materials and workmanship.

    All meters must adhere to the quality in materials and workmanship 
of the approved production model and must be manufactured with suitable 
jigs, dies, tools, etc., to ensure proper maintenance and 
interchangeability of parts.


Sec. 501.16  Breakdown and endurance testing.

    Each meter model proposed for manufacturing must pass without error 
or breakdown the following described printing cycle endurance test, 
which includes operation of the printing mechanism with proper 
registration of the selected postage value in both the ascending and 
descending registers. At reasonably frequent intervals, the 
manufacturer must take meters at random from production and subject 
them to breakdown tests to make certain that quality and performance 
standards are maintained.
    (a) For meters that operate at 100 or more printing cycles per 
minute--4 million cycles. For meters that operate at less than 100 
printing cycles per minute (and cannot be used interchangeably on 
power-base machines that operate at 100 or more printing cycles per 
minute)--2 million cycles.
    (b) For multidenomination and omnidenomination meters, postage 
value selection elements must be tested for one-half million 
operations. A complete operation includes selection of a value and 
return to zero.
    (c) Balance register lockout operation must be done at the start 
of, at intervals during, and after the printing cycle test.


Sec. 501.17  Protection of printing dies and keys.

    During the process of fabricating parts and assembling postage 
meters, the manufacturer must exercise due care to prevent loss or 
theft of keys or of serially numbered postage-printing dies or 
component parts (such as denomination-printing dies, or auxiliary power 
supply and meter-setting equipment for electronic meters) that might be 
used in some manner to defraud the Postal Service of revenue. All 
serially numbered printing dies produced should be accounted for by 
assembly into meters or by evidence of mutilation or destruction. 
Postage printing dies removed from meters and not suitable for 
reassembly must also be mutilated so that they cannot be used or they 
must be completely destroyed.


Sec. 501.18  Destruction of meter stamps.

    All meter stamps printed in the process of testing dies or meters 
must be collected and destroyed daily.


Sec. 501.19  Inspection of new and rebuilt meters.

    All new and rebuilt meters must be inspected carefully before 
leaving the manufacturer's meter service station.


Sec. 501.20  Keys and setting equipment.

    The meter manufacturer must furnish keys and other essential 
equipment for setting the meters to all post offices under whose 
jurisdiction its meters are licensed for use. These items must be 
protected and must not be furnished to persons not authorized by the 
Postal Service to possess them. The Postal Service will maintain 
control over the procurement, manufacture, and distribution of meter 
security seals. Manufacturers must reimburse the Postal Service 
promptly for the costs of the seals. All costs associated with meter 
security seals will be apportioned twice annually to the meter 
manufacturers by the installed base of each manufacturer.


Sec. 501.21  Distribution facilities.

    Authorized manufacturers must keep adequate facilities for and 
records concerning the distribution, control, and maintenance of 
postage meters. All such facilities and records are subject to 
inspection by Postal Service representatives. [[Page 5984]] 


Sec. 501.22  Distribution controls.

    Each authorized manufacturer must do the following:
    (a) Hold title permanently to all meters of its manufacture except 
those purchased by the Postal Service.
    (b) On behalf of applicants, transmit electronically copies of 
completed PS Forms 3601-A, Application for a License to Lease and Use 
Postage Meters, to the designated Postal Service central processing 
facility.
    (c) Lease meters only to parties that have valid licenses issued by 
the Postal Service.
    (d) Supply only those meter slogan or ad plates that meet the 
requirements of the Postal Service for suitable quality and content.
    (e) Have all meters set, sealed (if applicable), and checked into 
service by the appropriate Postal Service representative prior to 
delivering them to licensees. Meters must be checked into service at 
the licensing post office, unless the meter is serviced under the on-
site meter-setting program. The meter manufacturer must present the 
meter and a completed PS Form 3601-C, Postage Meter Installation, 
Withdrawal, or Replacement, to the appropriate Postal Service 
representative when checking a meter into service. A postage meter 
should show a zero in the descending register before being checked into 
service. If it does not, the initial payment must include the residual 
amount the locked-out meter could not imprint.
    (f) Notify CMRS licensees of the dates on which meter examinations 
are due, and notify the licensing post offices of CMRS meters that have 
not been reset during the previous 3 months and/or are due for an 
annual examination. Resetting transactions must not be completed by the 
manufacturer if the meters are not brought to the post office for 
examination by the due date. Licensees who do not bring in their meters 
after the initial manufacturer notification must be approached again 
within 15 days, preferably by personal contact. If no response is 
received within another 15 days, the Postal Service shall notify the 
licensee that the meter is to be removed from service and the meter 
license revoked, following the procedures for revocation specified by 
regulation. The Postal Service shall notify the manufacturer to remove 
the meter from the licensee's location and present it to the licensing 
post office to be checked out of service within 15 days.
    (g) Present meters to the licensing post office to be checked out 
of service if the licensee no longer wants the meter, or if the meter 
is to be removed from service for any other reason. Take the meter to 
the licensing post office for withdrawal, with a completed PS Form 
3601-C, Postage Meter Installation, Withdrawal, or Replacement, and 
copy of the applicable PS Form 3602-A, Record of Meter Register 
Readings.
    (h) Retrieve any misregistering, faulty, or defective meter and 
present it to the licensing post office to have the meter checked out 
of service within 3 business days of being notified by the licensee of 
the defect. After examining a meter withdrawn for apparent faulty 
operation affecting registration, the manufacturer must furnish a 
report explaining the malfunction to the licensing post office. That 
report must include all applicable meter documentation and a 
recommendation for the appropriate postage adjustment, if applicable, 
as follows:
    (1) Mechanical meters. The manufacturer's postage adjustment 
recommendation for a misregistering mechanical meter must be 
accompanied by a refund request; a copy of the licensee's PS Form 3610, 
Record of Postage Meter Settings, and PS Form 3602-A; and the 
manufacturer's analysis of the licensee's recent mailing history 
supporting the recommended postage adjustment.
    (2) Electronic meters. The manufacturer's postage adjustment 
recommendation for a misregistering electronic meter must be 
accompanied by a manufacturer-generated summary report of the 
appropriate redundant electronic register memory readouts for the 
meter, clearly indicating the register readings; a letter of 
instruction explaining the summary report; a copy of the licensee's PS 
Form 3610, PS Form 3602-A, and applicable system-generated register 
documentation (if the PS Form 3602-A is not maintained); and an 
explanation of the meter malfunction that resulted in inaccurate 
registration, if determined. If a summary report of the appropriate 
redundant electronic register memory readouts cannot be retrieved, the 
manufacturer's recommendation must be accompanied by a refund request; 
a copy of the licensee's PS Form 3610, PS Form 3602-A, and applicable 
system-generated register documentation (if the PS Form 3602-A is not 
maintained); and the manufacturer's analysis of the licensee's recent 
mailing history supporting the recommended postage adjustment.
    (i) Report the loss or theft of any meter or the recovery of any 
lost or stolen meter promptly. The manufacturer must complete a 
standardized lost and stolen meter incident report notifying the Postal 
Service of lost, stolen, or recovered meters within 30 calendar days of 
the manufacturer's determination of a meter loss, theft, or recovery. 
The manufacturer must complete all preliminary location activities 
specified in Sec. 501.26 prior to submission of a Lost and Stolen Meter 
Incident Report to the Postal Service.
    (j) Provide the designated ISSC with a compatible computer magnetic 
tape, computer diskette, or electronic transmission, listing all 
licensee meters in service, at the close of business each postal 
quarter. Include in each file record the meter serial number, model 
number, the user's name and address, the date that the meter was placed 
in service, and the ZIP Code or finance number of the licensing post 
office. Manufacturers are responsible for reconciling differences and 
keeping accurate records. This includes reconciliation of differences 
with licensing post offices by the manufacturer's branches or dealers, 
which results from meters that are not in Postal Service or 
manufacturer records.
    (k) Keep at manufacturer's headquarters a complete record by serial 
number of all meters manufactured, showing all movements of each from 
the time that the meter is produced until it is scrapped, and the 
reading of the ascending register each time the meter is checked into 
or out of service through a post office. These records must be 
available for inspection by officials of the Postal Service at any time 
during business hours. These records may be destroyed 3 years after the 
meter is scrapped.
    (l) Cancel a lease agreement with any lessee whose meter license is 
revoked by the Postal Service, remove the meter within 15 calendar 
days, and have the meter checked out of service.
    (m) Promptly remove from service any meter that the Postal Service 
indicates should be removed from service. When a meter license is 
canceled, all meters in use by the licensee must be removed from 
service.
    (n) Keep a permanent record by serial number of all meter keys 
issued to postmasters, as well as those sections of the manufacturer's 
establishment in which their use is essential, preferably in the form 
of signed receipt cards. The record must include the date, location, 
and details of any losses, thefts, or recoveries of such keys.
    (o) Examine each meter withdrawn from service for failure to record 
its operations correctly and accurately, and report to the Postal 
Service the mechanical condition or fault that caused the failure. 
[[Page 5985]] 
    (p) Provide the designated ISSC with a compatible computer tape of 
lost or stolen meters, monthly. The file is due on the first of each 
month (for the preceding month's activity).
    (q) Take reasonable precautions in the transportation and storage 
of meters to prevent their reaching the hands of unauthorized 
individuals. Manufacturers must ship all postage meters by Postal 
Service registered mail unless given specific written permission to use 
another carrier by the Postal Service. The manufacturer must 
demonstrate that the alternative delivery carrier employs security 
procedures equivalent to those for registered mail.
    (r) Affix to all postage meters a cautionary label providing the 
meter user with basic reminders on leasing, meter movement, and misuse 
and a barcoded label containing a barcoded representation of the meter 
serial number.
    (1) The cautionary meter label must be placed on all meters in a 
conspicuous and highly visible location. Words printed in capital 
letters should be highlighted, preferably in red. The minimum width of 
the label should be 3.25 inches, and the minimum height should be 1.75 
inches. The label should read as follows:
----------------------------------------------------------------------

RENTED POSTAGE METER--NOT FOR SALE

PROPERTY OF [NAME OF MANUFACTURER]

Use of this meter is permissible only under U.S. Postal Service 
license. Call [Name of Manufacturer] at (800) ###-#### to relocate/
return this meter.

WARNING! METER TAMPERING IS A FEDERAL OFFENSE

IF YOU SUSPECT METER TAMPERING,

CALL POSTAL INSPECTORS AT 1-800-654-8896 OR (202) 484-5480.
REWARD UP TO $50,000 for information leading to the conviction of 
any person who misuses postage meters resulting in the Postal 
Service not receiving correct postage payments.

----------------------------------------------------------------------

    (2) The barcode label must be placed near the stamped serial number 
and must meet the following specifications: Code 3 of 9, ten digits 
long, with the first two digits being the manufacturer code (01--Ascom 
Hasler, 02--Pitney Bowes, 03--Francotyp-Postalia, 04--Friden Neopost) 
and the next eight digits being the meter serial number, zero-filled 
right-justified. Additional barcode digits may be used for manufacturer 
purposes if the Postal Service is notified of the information to be 
encoded thereby.
    (3) Exceptions to the formatting of required labeling will be 
determined on a case-by-case basis. Any deviations from standardized 
meter labeling requirements must be approved in writing by the Postal 
Service.


Sec. 501.23  Administrative sanction.

    (a) ``Meter'' for purposes of this section means any meter 
manufactured by an authorized postage meter manufacturer under 
Sec. 501.1 that is not owned or leased by the Postal Service.
    (b) An authorized manufacturer that, without just cause, fails to 
conduct or perform adequately any of the controls in Sec. 501.22, fails 
to follow standardized lost and stolen meter incident reporting in 
Sec. 501.26, or fails to conduct any of the inspections required by 
Sec. 501.25 in a timely fashion may be subject to an administrative 
sanction based on the investigative and administrative costs and 
documented revenue losses (net of any amount collected by the Postal 
Service from the licensee or meter user) with interest per occurrence 
measured from the date on which the cost/loss occurred, as determined 
by the Postal Service. Sanctions will be based on the costs and revenue 
losses that result from the manufacturer's failure to comply with these 
requirements.
    (c) The Postal Service may impose an administrative sanction under 
this section by issuing a written notice to the manufacturer setting 
forth the facts and reasons on which the determination to impose the 
sanction is based. The Postal Service shall determine all costs and 
losses. The notice shall advise the manufacturer of the date the action 
will take effect if a written defense is not presented within 30 
calendar days of receipt of the notice.
    (d) The manufacturer may present a written defense to the proposed 
action within 30 calendar days of receipt of the notice to the Postal 
Service. The defense must include all supporting evidence and state 
with specificity the reasons for which the sanction should not be 
imposed.
    (e) After receipt and consideration of the defense, the Postal 
Service shall advise the manufacturer of the decision and the facts and 
reasons for it; the decision shall be effective on receipt unless it 
provides otherwise.
    (f) The manufacturer may submit a written appeal of the decision 
within 30 calendar days of receipt of the decision, addressed to the 
manager of Customer Service Support, USPS Headquarters. The appeal must 
include all supporting evidence and state with specificity the reasons 
that the manufacturer believes that the administrative sanction was 
erroneously imposed. The submission of an appeal stays the 
effectiveness of the sanction.
    (g) The imposition of an administrative sanction under this section 
does not preclude any other criminal or civil statutory, common law, or 
administrative remedy that is available by law to the Postal Service, 
the United States, or any other person.


Sec. 501.24  Meter replacement.

    The manufacturer must keep its meters in proper operating condition 
for licensees by replacing them when necessary or desirable to prevent 
mechanical breakdown.


Sec. 501.25  Inspection of meters in use.

    (a) The manufacturer must have all its meters in service with 
licensees inspected according to the following schedule:

----------------------------------------------------------------------------------------------------------------
      Meter type              Monthly               Quarterly             Semiannually            Annually      
----------------------------------------------------------------------------------------------------------------
Mechanical...........  Special Circumstances  High-Volume Licensees  Other Licensees Using  Stand-Alone Meters. 
                                               Using System Meters.   System Meters.                            
Electronic...........  Special Circumstances  .....................  High-Volume Licensees  All CMRS and Other  
                                                                      Using Non-CMRS         Electronic Meters. 
                                                                      System Meters.                            
----------------------------------------------------------------------------------------------------------------

    (b) Manufacturer inspections must be sufficiently thorough to 
determine that each meter is clean, in proper operating condition, and 
recording its operations correctly and accurately. The manufacturers 
must:
    (1) Compare the meter serial number on the meter with the serial 
number on the source document (manufacturer's records).
    (2) Record the ascending and descending register readings and 
calculate the total readings. Record the locking seal identification 
number.
    (3) Obtain the licensee's PS Form 3602-A and a copy of the most 
recent [[Page 5986]] PS Form 3603, Receipt for Postage Meter Setting, 
and verify the control total after the last setting with the control 
total calculated during the proof of register procedure.
    (4) Verify the accuracy of postage selection, denomination 
indicator wheels or electronic display, and denomination printing 
wheels following the proof of registers by printing a .00 meter stamp 
and comparing the register readings after printing with the recorded 
register readings.
    (5) Check to determine that the post office locking seal is in 
place and properly sealed and that the seal wire is properly wound and 
tightly gripped by the seal-locking mechanism, and tightly pulled up to 
the lock cover or post. Ensure that the locking seal identification 
number matches the seal number recorded at the time of the last meter 
resetting.
    (6) Check to determine that the lock cover properly protects the 
lock and has not been loosened, bent, or tampered with.
    (7) Complete the following, as applicable to the specific meter 
model:
    (i) Check to ensure that the meter fits properly on the meter base.
    (ii) Check all breakoff screws to determine that none is missing or 
loose or shows signs of removal.
    (iii) Operate the dater and meter ad selector dials to test the 
dater, postmark die, and meter ad plate.
    (iv) Check the alignment and condition of engraving on the 
denomination printing wheels, when visible.
    (v) Check the descending register door for damage, pry marks, or 
scarring. Make certain that the door cannot be opened without unlocking 
it.
    (vi) Examine the meter drum for damage, pry marks, or scarring.
    (vii) Examine the meter cover for pry marks or scarring near the 
post office lock or breakoff screws, any drilled holes, or any signs of 
attempted entry into the internal mechanism of the meter.
    (viii) Examine the postage meter stamp die for excessive wear, 
damage, breakage, or scars from prying, and the postage die retaining 
screws for signs of wear to ensure that none is missing or shows signs 
of removal.
    (ix) Check the register, counter, and display windows for breakage 
or cloudiness.
    (x) Obtain the signature of the licensee to show that a meter 
inspection has taken place.
    (8) Report immediately to the licensee's licensing postmaster any 
irregularities in the operation of the meter or signs of improper use, 
and take steps to replace or remove the meter.


Sec. 501.26  Meters not located.

    Upon learning that one or more of its meters in service cannot be 
located, the manufacturer must undertake reasonable efforts to locate 
the meter or meters by following a series of Postal Service-specified 
actions designed to locate the postage meter. If these efforts are 
unsuccessful and the meter is determined to be lost or stolen, the 
manufacturer must notify the Postal Service within 30 days through 
submission of a Lost and Stolen Meter Incident Report.
    (a) If a licensee cannot be located, the manufacturer must, at a 
minimum, complete the following actions:
    (1) Call the licensee's last known telephone number.
    (2) Call directory assistance for the licensee's new telephone 
number.
    (3) Contact the licensee's local post office for current change of 
address information.
    (4) Contact the local post office for a copy of the applicable PS 
Form 3610 and PS Form 3601-C. Verify the location of the meter or 
licensee currently maintained in those meter records.
    (5) Contact the rental agency responsible for the property where 
the licensee was located (if applicable).
    (6) Visit the licensee's last known address to see whether the 
building superintendent or a neighbor knows the meter licensee's new 
address.
    (7) Check the centralized meter inspection file for change of 
address notation.
    (8) Mail a certified letter to the licensee at the last known 
address with the notation ``Forwarding and Address Correction 
Requested'' with a return receipt requested.
    (9) If new address information is obtained during these steps, any 
scheduled meter inspections must be completed promptly.
    (b) If a meter is reported to be lost or stolen by the licensee, 
the manufacturer must, at a minimum, complete the actions listed below:
    (1) Ensure that the meter licensee has filed a police report and 
that copies have been provided to the appropriate Inspection Service 
Contraband Postage Identification Program (CPIP) specialist.
    (2) Withhold issuance of a replacement meter until the missing 
meter has been properly reported to the police and to the appropriate 
Inspection Service CPIP specialist.
    (3) If the manufacturer later learns that the meter has been 
located and/or recovered, the manufacturer must update lost and stolen 
meter activity records, inspect the meter promptly, initiate a postage 
adjustment or transfer if appropriate, and check the meter out of 
service if a replacement meter has been supplied to the meter licensee.
    (c) If a meter reported to the Postal Service as lost or stolen is 
later located, the manufacturer is responsible for submitting a new 
lost and stolen meter incident report that references the initial 
report and outlines the details of how the meter was recovered. This 
report must be submitted to the Postal Service within 30 days of 
recovery of the meter. The meter manufacturer is also responsible for 
removing located meters from the lost and stolen meter reports provided 
on a periodic basis to the Postal Service ISSC.
    (d) Any authorized manufacturer that fails to comply with 
standardized lost and stolen reporting procedures and instructions may 
be subject to an administrative sanction under Sec. 501.23, as 
determined by the Postal Service.


Sec. 501.27  Repair of internal mechanism.

    Repair or reconditioning of meters involving access to internal 
mechanisms must be done only within a factory or suitable meter repair 
department under the manufacturer's direct control and supervision. 
Meters must be checked out of service by the post office of setting 
before they are opened or any internal repairs are undertaken.


Sec. 501.28  Computerized remote postage meter resetting.

    (a) Description. The Computerized Meter Resetting System (CMRS) 
permits postal licensees using specially designed postage meters to 
reset their meters at their places of business via telephonic 
communications. Authorized meter manufacturers that offer CMRS services 
are known as meter resetting companies (MRCs). To reset a meter, the 
licensee telephones the MRC and provides identifying data. Prior to 
proceeding with the setting transaction, the MRC must verify the data 
and ascertain from its own files whether the licensee has sufficient 
funds available on deposit with the Postal Service. If the funds are 
available, or the manufacturer opts to provide a funds advance in 
accordance with paragraph (b)(4) of this section, the MRC may complete 
the setting transaction.
    (b) Deposits with the Postal Service.
    (1) A CMRS licensee is required to have funds available on deposit 
with the Postal Service prior to resetting a meter or the manufacturer 
may opt to provide a funds advance in accordance with paragraph (b)(4) 
of this section. The details of this deposit requirement are 
[[Page 5987]] covered within the Acknowledgment of Deposit Requirement 
document. By signing this document, the licensee agrees to transfer 
funds to the Postal Service through a lockbox bank, as specified by the 
MRC, for the purpose of prepayment of postage. The MRC representative 
must provide all new CMRS licensees with this document when a new 
account is established. The document must be completed and signed by 
the licensee and sent to the licensing post office by the MRC.
    (2) The MRC is required to incorporate the following language into 
its postage meter rental agreements:
----------------------------------------------------------------------

Acknowledgment of Deposit Requirement

By signing this meter rental agreement, you represent that you have 
read the Acknowledgment of Deposit Requirement and are familiar with 
its terms. You agree that, upon execution of this Agreement with 
[the MRC], you will also be bound by all terms and conditions of the 
Acknowledgment of Deposit Requirement, as it may be amended from 
time to time.
----------------------------------------------------------------------

    (3) The licensee is permitted to make deposits in one of three 
ways: check, electronic funds transfer (or wire transfer), or automated 
clearinghouse (ACH) transfer. These deposits are to be processed by the 
lockbox bank. The lockbox bank must wire all available balances to the 
Postal Service daily.
    (4) If the MRC chooses to offer advancement of funds to licensees, 
it is required to maintain a deposit with the Postal Service equal to 
at least 1 day's average funds advanced. The total amount of funds 
advanced to licensees on any given day may not exceed the amount the 
manufacturer has on deposit with the Postal Service. The MRC is not 
authorized to perform settings in excess of the licensee's balance in 
any other circumstances. The Postal Service shall not be liable for any 
payments made by the MRC on behalf of a licensee that are not 
reimbursed by the licensee because the MRC is solely responsible for 
the collection of advances.
    (c) Revenue protection. The Postal Service shall conduct periodic 
assessments of the revenue protection safeguards of each MRC system and 
shall reserve the right to revoke an MRC's authorization if the CMRS 
system does not meet all requirements set forth by the Postal Service. 
In addition, the Postal Service shall reserve the right to suspend the 
operation of the MRC for any serious operational deficiencies that are 
likely to result in the loss of funds to the Postal Service as provided 
in Sec. 501.12.
    (d) Equipment. The postage meters used in the computerized 
resetting system must conform to the specifications in Sec. 501.6. They 
must be tested under Sec. 501.7, and conform to the safeguards, 
distribution, and maintenance requirements of Secs. 501.15 through 
501.23 to protect the Postal Service against loss of revenue from 
fraud, manipulation, misoperation, or breakdown.
    (e) Financial operation.
    (1) Prior to the Postal Service's selection of a lockbox provider, 
the MRC must establish a lockbox account in the name of the Postal 
Service at a bank or banks approved by the Postal Service to handle the 
deposits of licensees. The MRC must make arrangements with such banks 
under which the banks are to inform the manufacturer of the amounts of 
licensee funds received each banking day.
    (2) The Postal Service lockbox bank(s) will process the CMRS 
deposits daily, consolidate the data, and perform a direct file 
transmission to each of the MRCs. The daily deposit processing cutoff 
times and the automated file transmission times will be coordinated 
independently with each of the MRCs. Manufacturers must ensure that 
their data center computer is programmed to reflect each licensee 
deposit and tracks all licensee activity.
    (3) The MRC must require each licensee requesting that its meter be 
reset to provide the meter serial number, the licensee account number, 
and the meter's ascending and descending register readings. The 
manufacturer must verify that the information provided to the licensee 
is consistent with its records. The MRC must also verify that there are 
enough funds in the licensee's account to cover the postage setting 
requested before proceeding with the setting transaction (unless the 
manufacturer opts to provide the licensee a funds advance). Immediately 
following each such resetting, the MRC must charge the licensee's 
account for the amount of the postage reset. After the completion of 
each transaction, the manufacturer must promptly provide the licensee 
with a statement documenting the transaction and the balance remaining 
in the licensee's account. As an alternative, the manufacturer may 
provide a statement monthly that documents all transactions for the 
period and that shows the balance in the licensee's account after each 
transaction.
    (4) Each banking day, the lockbox bank(s) are to transfer, by 10 
a.m. local lockbox bank time, amounts payable to the Postal Service 
from the transactions during the previous day to a designated Federal 
Reserve Bank. The MRC must maintain licensee service activity data to 
accept and respond to inquiries from licensees concerning the status of 
their payments. The lockbox bank must provide the MRCs with a 
nationwide, toll-free telephone number for licensee service. The Postal 
Service lockbox bank must assign a dedicated senior level licensee 
service representative to handle all inquiries and investigations.
    (5) The Postal Service requires that the MRCs publicize to all CMRS 
licensees the following payment options (listed in order of 
preference):
    (i) Automated clearinghouse (ACH) debits/credits.
    (ii) Electronic funds transfer (wire transfer).
    (iii) Checks.
    (6) Licensee check deposits must be mailed to a predetermined post 
office box address specified by the lockbox bank and accompanied by a 
pre-encoded deposit ticket. The Postal Service will provide the MRCs 
with the deposit ticket format. The MRC must ensure that the deposit 
tickets are distributed to licensees for inclusion with check payments. 
At the time a new account is opened, a licensee not possessing a pre-
encoded deposit slip must present the initial payment to the MRC 
representative who in turn assigns the licensee a new account number 
and manually prepares a deposit ticket to be mailed to the lockbox bank 
for processing.
    (7) If a licensee prefers to use a payment form other than a check, 
the licensee must contact the MRC representative for instructions, and 
the MRC must provide the licensee with the appropriate information 
regarding the use of automated clearinghouse debits/credits and 
electronic funds transfers (wire transfers).
    (8) Returned checks and ACH debits are the responsibility of the 
Postal Service. In the case of a returned check, the Postal Service 
lockbox bank, after an automatic second presentment, will advise the 
MRC of the account in question so that the MRC data file can be locked. 
The MRC must lock the licensee account immediately so that the licensee 
is unable to reset the meter until the Postal Service receives payment 
in full for the check returned. The lockbox bank will provide 
collection services for returned checks on behalf of the Postal 
Service. The Postal Service lockbox bank will notify the MRC once this 
item is paid. The MRC will then release the account for activity.
    (f) Refunds. The Postal Service will issue a refund to a licensee 
for any unused postage in a meter. Refunds of [[Page 5988]] licensee 
balances maintained by the Postal Service in the Postal Service fund 
are intended to be made directly to the licensee by the lockbox bank 
within 48 hours after receipt of a licensee's request.
    (g) Reports. The manufacturer must provide reports according to the 
following schedule:

------------------------------------------------------------------------
      Report                                                            
   description         Contents          Frequency           Media      
------------------------------------------------------------------------
MRC CMRS Daily     Summary of        Daily...........  Paper (facsimile)
 Activity Report.   Business                                            
                    Activity.                                           
Revenue            ZIP Code of       Postal            Electronic.      
 Allocation         Licensing Post    Accounting                        
 Report.            Office; Amount    Period.                           
                    of Resettings.                                      
Postage Refunds    Customer ID; ZIP  Daily (by         Paper.           
 Report.            Code; Amount of   request only).                    
                    Refund.                                             
Funds Advanced     Customer ID; ZIP  Daily (by         Paper.           
 Report.            Code; Amount of   request only).                    
                    Funds Advanced.                                     
------------------------------------------------------------------------

    (h) Inspection of records and facilities. The manufacturer must 
make its facilities handling the operation of the computerized 
resetting system and all records about the operation of the system 
available for inspection by representatives of the Postal Service at 
all reasonable times.


Sec. 501.29  Notice of proposed changes in regulations.

    Before changing the regulations in part 501, the Postal Service 
must give an advance notice of any proposed changes to enable persons 
who manufacture, or are interested in manufacturing, postage meters a 
chance to be heard and to adjust their operations to accord with the 
proposed changes if they are adopted.
    Appropriate amendments to 39 CFR parts 111 and 501 to reflect these 
changes will be published if the proposal is adopted.

Stanley F. Mires,
Chief Counsel, Legislative.

    Note: The following draft report and PS Forms are published for 
informational purposes only and will not be codified in the Code of 
Federal Regulations.

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[FR Doc. 95-2130 Filed 1-30-95; 8:45 am]
BILLING CODE 7710-12-C