[Federal Register Volume 60, Number 111 (Friday, June 9, 1995)]
[Rules and Regulations]
[Pages 30714-30742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14137]




[[Page 30713]]

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Part V





Postal Service





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39 CFR Parts 111 and 501



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

  Federal Register / Vol. 60, No. 111 / Friday, June 9, 1995 / Rules 
and Regulations   
[[Page 30714]] 

POSTAL SERVICE

39 CFR Parts 111 and 501


Manufacture, Distribution, and Use of Postage Meters

AGENCY: Postal Service.

ACTION: Final rule.

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SUMMARY: This final rule clarifies and amends the standards in the 
Domestic Mail Manual (DMM) and the Domestic Mail Manual Transition Book 
(DMMT) regarding the manufacture, distribution, and use of postage 
meters.
    This final rule adopts most of the proposed changes to the 
standards governing the manufacture, distribution, and use of postage 
meters as published by the Postal Service in the Federal Register on 
January 31, 1995 (60 FR 5964-5995). The final rule also allows the 
Postal Service to tighten its controls over meters and to protect 
postal revenue more efficiently. The changes are designed to increase 
the information available to the Postal Service for effective 
management and control of the meter program. In addition, security 
controls are being supplemented to ensure that correct postage is paid 
and that postage meter misuse is minimized.

EFFECTIVE DATE: This rule is effective June 30, 1995, except for 
Secs. 501.22(b) and 501.22(e)(2), which are effective January 2, 1996.

    January 2, 1996, is the effective date for the electronic 
transmission of license applications and centralized application 
processing. (In this document, see DMM P030.2.1, Procedures and DMM 
P030.2.3, Refusal to Issue Meter License.
    January 2, 1996, is the effective date for the use of revised PS 
Form 3601-A, Application for a License to Lease and Use Postage Meters, 
and PS Form 3601-C, Postage Meter Installation, Withdrawal, or 
Replacement. (In this document, see Exhibit B, Exhibit C.
    June 30, 1995, is the effective date for the use of the new 
security seals; however, implementation will depend on the availability 
from the Postal Service's supplier.

(In this document, see 39 CFR 501.20 Keys and setting equipment and 39 
CFR 501.25(b)(5) Inspection of meters in use)

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

SUPPLEMENTARY INFORMATION: On January 31, 1995, the Postal Service 
published a notice of proposed rulemaking for public comment in the 
Federal Register (60 FR 5964-5995) to revise existing standards in the 
Domestic Mail Manual (DMM) and Domestic Mail Manual Transition Book 
(DMMT) regarding the manufacture, distribution, and use of postage 
meters. Moreover, this proposed rule would introduce new regulations in 
title 39, Code of Federal Regulations (CFR), to clarify postal 
standards for the manufacture and distribution of postage meters.
    The proposed rule detailed efforts undertaken by the Postal Service 
to adopt new standards for postage meters that satisfy and protect the 
interests of the users, manufacturers, and the Postal Service. These 
standards are designed to improve meter security through new rules on 
design deficiencies, manufacturers' inspections, refunds, meter 
licensing, missing meters, shipment of meters, security seals, meter 
labeling, and meter testing. The new rules also establish 
administrative controls and make adjustments to the Computerized Remote 
Postage Meter Resetting System (CMRS).
    The Postal Service requested that comments on the proposed rules be 
submitted by March 17, 1995. Twelve written comments were received from 
interested companies and individuals. Having given thorough 
consideration to these comments, the Postal Service now adopts its 
final rule.
    The Postal Service's evaluation of the comments follows. Because 
the regulations fall into four categories (meter security, 
administrative controls, other issues, and Computerized Remote Postage 
Meter Resetting System), the comments are organized into four sections 
in the comment section under these four categories. In addition, a 
fifth section in this comment section addresses general comments 
separately. The sixth section discusses specific revisions to the 
Domestic Mail Manual, Domestic Mail Manual Transition Book, and title 
39, Code of Federal Regulations, part 501, followed by tables 
summarizing the revisions.
    The revised regulations are published herein in their entirety. 
Applicable modifications to the proposed regulations, based on the 
comments received, are referenced in each section and summarized at the 
end of the comment section. Otherwise, the rules are adopted as 
proposed. The numbering scheme shown in the section titled Discussion 
of Comments reflects the scheme published in the Federal Register for 
the proposed rule (60 FR 5964-5995).

Discussion of Comments

I. Meter Security

    Meter security pertains to integrity weakness and design 
deficiencies; meter manufacturers inspections; custody of suspect 
meters; missing meters; security seals; and meter labeling. Prompt 
notification of all potential security weaknesses identified in a 
particular meter or class of meters is necessary to protect postal 
revenue. The Postal Service depends on manufacturers to identify and 
notify the Postal Service of any potential security weakness and to 
maintain proper distribution controls. The Postal Service therefore 
adopts with this final rule new requirements for reporting by 
manufacturers. The Postal Service will impose administrative sanctions 
against manufacturers that do not comply with these reporting and 
distribution requirements.
A. Integrity Weakness and Design Deficiencies

    One commenter expressed concern about the meter security 
regulations proposed in 39 CFR 501.13 and 501.14. The commenter stated 
that the Postal Service is placing undue emphasis on meter design for 
revenue security.
    The Postal Service notes that postage meters must protect against 
tampering and misuse. The Postal Service must emphasize the importance 
of meter security to reduce the threat of revenue losses to the 
greatest extent possible.
    This commenter also believed that the proposed regulations fail to 
address adequately the importance of mailer profile and Postal Service 
in-plant verification as critical components of a secure postal payment 
system.
    The commenter's point is well-taken. The new rules do take account 
of the importance of mailer profiles. For example, inspection 
frequencies in 39 CFR 501.25 are based on the characteristics of 
particular meters and on the mailer's profile. Additionally, in-plant 
verification of the makeup of metered mail is done during the 
acceptance process, and metered indicia are sampled at destinating post 
offices.
    The commenter also stated that the proposed regulations are more a 
predicate for imposing penalties on meter manufacturers than an 
efficient means to improve security and that the Meter Accounting and 
Tracking System (MATS) is being developed with no assurance of 
operational efficiency or cost-effectiveness.
    The Postal Service does not accept the commenter's view that the 
rules are a predicate for imposing penalties or that penalties are 
contemplated. Rather, these rules place more responsibility for 
security and revenue protection on those who manufacture and distribute 
postage meters. The new sanctions are remedial in nature, and, ideally, 
the Postal Service should never have to impose administrative 
sanctions. MATS [[Page 30715]] does not pertain to the proposed 
rulemaking in the Federal Register notice published on January 31, 
1995; therefore, it is not appropriate for the Postal Service to 
address MATS in this notice.
    One commenter stated that one postal official had previously 
expressed that proposed 39 CFR 501.13, which establishes the 
manufacturer's duty to report integrity weaknesses and design 
deficiencies, would apply only to security defects or weaknesses of 
design in a particular meter or model of postage meter. The commenter 
further suggested that the rule should not apply to information or 
knowledge received by a manufacturer relating to postage-meter 
tampering by a customer or to other potential security breaches 
unrelated to the design and operation of a postage meter.
    The requirements for reporting security weaknesses and methods of 
meter tampering are directly related to the manipulation of the meter 
made possible because of design deficiencies. The manipulation of a 
meter in and of itself is evidence of a security weakness of the 
manufacturer's product. It is the manufacturer's obligation to report 
those incidents in which misuse occurs because someone can take 
advantage of such deficiencies. Additionally, the collection of this 
information will increase manufacturer's awareness of a problem with 
meter performance. The number of reported instances will help in 
determining the extent or seriousness of the situation.
    One commenter noted that the standards in 39 CFR 501.13 do not 
provide sufficient clarity and due process regarding what needs to be 
reported.
    The standards in 39 CFR 501.13 define the information that must be 
provided in general terms. If there is any doubt about information that 
must be reported, the Postal Service invites interested parties to 
submit requests for advisory opinions on an ad hoc basis.
    The same commenter also stated that the standards in 39 CFR 501.14 
and 501.23 lack sufficient clarity and ascertainable standards for 
imposing administrative sanctions.
    The Postal Service sees no reason for including additional 
standards. The sanctions in these sections merely allocate the risk of 
loss entirely to the manufacturer only when the manufacturer fails to 
execute certain prescribed tasks. Once facts underlying the violation 
and costs and losses are proved, the manufacturer is held liable for 
costs and losses. Except as provided in these sections, no other 
factors are considered, and thus no additional standards need be 
prescribed.
    The same commenter also stated that 39 CFR 501.14 is arbitrary 
because it does not relate the sanction to losses actually caused by an 
alleged failure to report. The commenter suggested that the rule 
measure losses from the date when the defect should have been reported 
rather than the date of discovery.
    The Postal Service does not agree. Sanctions are measured from the 
date when the manufacturer knows or should know information giving rise 
to the duty to report; hence, the measurement of damages and of duty to 
report are rationally related.
    The commenter also stated that the proposed regulations would 
promote manufacturers' filing of numerous inconclusive reports to avoid 
liability. According to the commenter, such filings would place 
unnecessary strain on limited Postal Service resources and increase 
manufacturers' administrative costs. The commenter recommended that the 
Postal Service require manufacturers to report only those design 
deficiencies that, following testing, cause the manufacturer to 
conclude that a security threat exists.
    The proposed regulations clearly articulate the manufacturer 
requirements for ``preliminary'' and ``final'' reporting. These 
requirements cover a substantial list of situations and occurrences 
relating to possible meter misuse. To limit reporting as the commenter 
suggested would undermine the ability of the manufacturers and the 
Postal Service to maintain control of the program. Although there might 
be some additional cost incurred by both parties, the risk of revenue 
losses would increase if the suggestion were adopted.
    One commenter stated that the term ``employees'' should be deleted 
from the definition of manufacturer under 39 CFR 501.13(a). The 
definition of employee should be limited to the officers and those 
management employees of the manufacturer who have meter security 
responsibilities.
    The Postal Service expects that each individual employed by a meter 
manufacturer is already charged with the responsibility to report meter 
security problems to the manufacturer's headquarters unit. To limit the 
definition as suggested would reduce the possible number of available 
sources of pertinent information. Field employees are important sources 
of information because they see meters in a live environment.
    The commenter also suggested that the term ``findings'' should be 
deleted from 39 CFR 501.13(b)(1). Because findings must be based on 
test results, the commenter believed that the term ``findings'' is 
unnecessary and will result in the filing of superfluous reports and in 
contributing to confusion about when the meter manufacturer's 
obligation to report arises.
    The Postal Service does not accept the commenter's narrow reading 
of the term ``findings,'' which refers to the discovery, awareness, 
determination, or perception of information relating to all meter 
activities. The term is not limited to those situations surrounding 
meter-testing results. Findings in the field are just as important as 
testing results because they enable on-site evaluations of meter 
performance and mailer practices.
    One commenter believed that manufacturers should be required to 
file reports on security issues only when they concern common security 
design features present in meters approved for use in the United 
States. The commenter suggested that the scope of the rule be narrowed 
so that the manufacturer need only report information about meter 
security when a meter model in use in foreign jurisdictions is 
subsequently submitted to the Postal Service for approval.
    The Postal Service does not agree; it must be apprised of problems 
relating to all postage meters of the authorized manufacturers, 
regardless of where the meters have been approved for distribution. 
Because all meters share many of the same components, a problem 
discovered in a foreign location may provide useful information about a 
meter approved for use in the United States.

B. Meter Manufacturers' Inspections

    One commenter expressed concern about the meter security 
regulations proposed in 39 CFR 501.5 and 501.23. The commenter believed 
that high-volume and high-risk mailers are not clearly identified for 
increased meter inspections. The commenter recommended that the Postal 
Service identify these mailers by the Standard Industrial Codes for 
third-party mailers.
    A high-volume mailer is defined as one who has annual metered 
postage exceeding $12,000. Part B ``Business Profile'' of the license 
application (PS Form 3601-A) asks the applicant to report his or her 
annual estimated metered postage. The report is incremented to show 
usage exceeding $12,000. This information can be used initially to 
identify high-volume mailers. Manufacturers may use the Standard 
Industrial Codes for third-party mailers, other codes as appropriate, 
and their own mailer [[Page 30716]] records for the identification of 
high-volume and high-risk mailers.

C. Custody of Suspect Meters

    No comments were received.

D. Missing Meters

    No comments were received.

E. Shipment of Meters

    Four commenters expressed concern about the meter security 
regulations proposed in 39 CFR 501.22 and 501.23 and in DMM P030.2.9. 
One commenter believed that only meters destined for customers should 
be shipped by registered mail. Another commenter stated that the 
criteria for exceptions and implementation schedules for shipping 
meters by registered mail must be developed. This commenter was 
concerned with the lengthy process for tracing registered mail. A third 
commenter stated that there is no justification for the mandated use of 
registered mail, and another commenter stated that the requirement to 
use registered mail is costly and unjustified.
    All postage meters are capable of printing postage indicia for 
services to be rendered by the Postal Service. Meters must accordingly 
be kept out of the hands of unauthorized individuals who might misuse 
the meter. Therefore, the rule applies to all meter shipments 
regardless of destination to ensure security and safety. The regulation 
permits the manufacturers to use alternative delivery carriers that 
offer the same level of security as registered mail. However, the 
requirement for use of registered mail is retained in the final rule.

F. Security Seals

    Two commenters expressed concern about the meter security 
regulations proposed in 39 CFR 501.20. One of these commenters had no 
objection to the proposed use of the seals but expressed concern about 
the added cost to manufacturers. The other commenter believed that the 
new seal was incompatible with one of its meter products.
    Because the manufacturers lease meters and the Postal Service does 
not collect fees from the manufacturers or licensees, the cost of the 
new seals should be borne by the manufacturers as a cost of doing 
business. The new seals are being slightly modified in size to 
accommodate all postage meters.

G. Meter Labeling

    One commenter expressed concern about the meter security 
regulations proposed in 39 CFR 501.22(r) and 501.23 and in DMM 
P030.2.4(g). The commenter stated that the Postal Service has not 
allowed sufficient time to complete meter labeling.
    The manufacturers were originally notified of the labeling 
requirements in August 1993 and have been given a reasonable time in 
which to comply. Manufacturers are expected to have meter labeling 
completed by the effective date of these regulations.

H. Postage Meter Testing

    No comments were received.

II. Administrative Controls

    The administrative controls include postage meter refunds; use of 
PS Form 3602-A; meter licensing procedures; performance regulations; 
suspension and revocation; and installations and withdrawals. The 
Postal Service is establishing new procedures to enhance control over 
electronic meter register refunds and to expedite the refund process.

A. Postage Meter Refunds

    No comments were received.

B. Use of PS Form 3602-A

    Five commenters expressed concern about the standard proposed in 
DMM P030.2.4(b) requiring that meter users maintain a daily record of 
meter register readings (PS Form 3602-A). The commenters did not 
understand the need for this standard and believed that it would impose 
a hardship on small businesses. Another commenter believed that a 
reasonable transition period be allowed to supply the form to mailers 
and instruct them on its use.
    These comments have merit; however, the form is a valuable document 
in substantiating the amount of refunds to be issued. The use of PS 
Form 3602-A will continue to be voluntary. In the event that a meter 
malfunctions and a customer has not maintained the PS 3602-A or its 
equivalent, the customer may not be eligible for a refund of the amount 
claimed. Current regulations are modified to reflect the Postal Service 
recommendation that the form be maintained by meter users. DMM 
P030.2.4(b) is revised accordingly in the final rule.
C. Meter Licensing Procedures

    Three commenters expressed concern about the procedures proposed in 
39 CFR 501.22(b) and 501.22(e) and in DMM P030.1.9, P030.2.2, P030.2.3, 
and P030.2.4. One commenter stated that customer-requested information 
on meter applications should be limited because of mailer privacy and 
the placement of an undue administrative burden on the applicant and 
the Postal Service system.
    The mailer privacy issue is being addressed in proposed 
modifications to the Postal Service Administrative Support Manual and 
will be published in a separate Federal Register notice.
    The commenter also recommended that the Postal Service be required 
to issue a decision on an appeal within 10 days after the appeal is 
filed with the Postal Service.
    In some cases, time is needed to conduct additional research. 
Consistent with this objective, the commenter's recommendation to limit 
the decision process for appeals to 10 days is not reasonable. It is 
the intention of the Postal Service to act as quickly as possible on 
appeals without sacrificing the fact-finding effort required to render 
a fair decision.
    One commenter suggested that the format for the meter license be 
reevaluated to make it less intimidating.
    The new license application was reviewed by meter users in six 
customer focus groups before the issuance of the proposed changes. 
Invariably, the meter users acknowledged the reasonableness of the 
requirements for additional applicant information and stated that the 
proposed application would not be burdensome to complete. However, the 
statement pertaining to the penalties for submission of a false, 
fictitious, or fraudulent statement is deleted.
    Another commenter believed that clarification is required on the 
options for submitting licenses.
    The two options for submission of a meter license application are 
clearly stated in DMM P030.2.1, which pertains to meter license 
procedures.
    This same commenter believed that implementation of new licensing 
procedures is inappropriate at this time because requirement and 
implementation issues are still undefined.
    As stated above, the effective date for the electronic transmission 
of license applications, use of the revised PS Form 3601-A, and 
centralized application processing is January 2, 1996. Before this 
implementation, the Centralized Meter Licensing System (CMLS) 
requirements will be published in the Federal Register for public 
review and comment.
    One commenter stated that the new licensing procedures constitute a 
form of worksharing that should result in some form of compensation to 
the meter manufacturers.
    CMLS is essential for the effective control and management of 
applications and licenses. The Postal Service does not agree that this 
cooperative effort [[Page 30717]] with the manufacturers, which will 
result in serving customers better, constitutes a form of worksharing 
for which compensation should be made. Manufacturers are engaged in a 
profit-making enterprise and must incur some costs as the price of 
doing business. The Postal Service, on the other hand, collects no fees 
for processing meter applications from either manufacturers or 
licensees.
    One of the same commenters noted that MATS was not addressed in the 
proposed regulations.
    MATS does not pertain to these regulations because it is a separate 
system being developed and implemented by another department within the 
Postal Service.

D. Performance Regulations

    No comments were received.
E. Suspension and Revocation

    One commenter stated that the criteria on which the Postal Service 
may suspend or revoke a meter manufacturer's authorization under 39 CFR 
501.5 or approval of a meter under 39 CFR 501.12 fail to provide clear 
and ascertainable standards to guide meter manufacturer conduct or 
Postal Service decisionmaking. In the commenter's view, 39 CFR 501.5 
authorizes the Postal Service to revoke a meter manufacturer's 
authorization based on potentially minor violations and in a manner not 
readily amenable to judicial review. The commenter suggested that 
suspension under 39 CFR 501.5 be imposed only when the Postal Service 
determines that a manufacturer has committed serious or persistent 
violations.
    With respect to 39 CFR 501.5, the Postal Service refers the 
commenter to paragraph (b) of that section, which clearly sets forth 
the criteria in forming a decision to suspend or revoke. One of these 
factors is the ``nature and circumstances of the violation.'' This 
factor enables the Postal Service to consider the seriousness of the 
violation in determining whether to suspend or revoke a manufacturer's 
authorization. Thus, if the violation is not serious, the sanction 
imposed, if any, can be narrowly tailored to fit the circumstances.
    With respect to 39 CFR 501.12, the Postal Service refers the 
commenter to paragraph (a) of that section, which establishes the 
criteria to be evaluated when determining to suspend approval to 
manufacture or distribute a meter or class of meters. The rule clearly 
provides that decisionmaking will be based on the potential risk to 
postal revenue. Thus, the rule contemplates that when the risk to 
postal revenue is high in terms of amount and probability of loss, a 
suspension is more likely; when the amount at stake and probability of 
loss are low, suspension is less likely.
    One commenter suggested that the standard of proof required by the 
Postal Service to suspend or revoke a meter manufacturer's 
authorization be raised to ``clear and convincing evidence'' instead of 
``preponderance of evidence.''
    The Postal Service does not subscribe to the commenter's view. 
First, the Postal Reorganization Act (Pub. L. No. 91-375, 84 Stat. 719 
(1970)) is silent on regulation of the meter industry, and there is no 
suggestion in the legislative history that a standard of proof higher 
than a preponderance of the evidence was ever contemplated in this 
context, much less intended. Nor is the nature of the proceeding and 
parties affected similar to those in which courts have imposed a higher 
standard. The U.S. Supreme Court has generally required proof by clear 
and convincing evidence where ``particularly important individual 
interests or rights are at stake,'' such as the potential deprivation 
of individual liberty, citizenship, or parental rights. Herman & 
MacLean v. Huddleston, 459 U.S. 375, 389 (1983). Such compelling 
individual interests are not present here.
    Second, adoption of the commenter's proposal would, in essence, 
express a preference for the manufacturers' interests. The balance of 
interests here, however, warrants use of the preponderance standard. 
Postal Service revenue is placed at risk when manufacturers fail to 
execute their responsibilities in accordance with postal regulations. 
As experience demonstrates, this risk is not insubstantial. Ratepayers 
ultimately bear the cost of covering these losses. The interests of the 
manufacturers are thus outweighed by the interests of the Postal 
Service and ratepayers in protecting postal revenue.
    One commenter stated that the Postal Service does not have the 
statutory authority to impose punitive sanctions.
    The Postal Service does not accept the commenter's suggestion that 
express statutory authority is a prerequisite to the Postal Service's 
imposition of administrative sanctions in this context. In enacting the 
Postal Reorganization Act, Congress delegated broad rulemaking 
authority to the Postal Service to manage its operations. Largely 
absent from the Postal Reorganization Act are provisions establishing 
detailed postage payment programs. Prior to the enactment of the Postal 
Reorganization Act, Congress established that postage could be paid by 
meter. This statutory framework was eliminated by the Postal 
Reorganization Act, leaving no specific statutory authority for any 
meter program. Rather than addressing the specific methods of payment 
of postage available to ratepayers, the Postal Reorganization Act 
merely provides that the Postal Service has the power ``to prescribe, 
in accordance with [title 39], the amount of postage and the manner in 
which it is to be paid'' and ``to provide such other evidences of 
payment of postage and fees as may be necessary or desirable.'' 39 
U.S.C. 404(a)(2), (4). Accordingly, the Postal Reorganization Act 
evinces the intent of Congress to divest itself of the details of 
postage payment systems, including meters, and to delegate to the 
Postal Service the responsibility for establishing and maintaining 
programs for postage payment systems and their attending regulatory 
schemes. It is therefore implicit from the text of the Postal 
Reorganization Act that Congress delegated to the Postal Service 
authority to promulgate a regulatory scheme for the postage meter 
program without need for express statutory authority establishing the 
postage meter program.
    Notwithstanding, in the view of the Postal Service the proposed 
administrative sanctions are not penalties because only make-whole 
relief is contemplated. As such, no express statutory authority is 
required. See Gold Kist v. U.S. Dep't of Agriculture, 741 F.2d 344, 
347-48 (11th Cir. 1984), amended in part, 751 F.2d 115 (11th Cir. 
1985); Frame v. United States, 885 F.2d 1119, 1142 (3d Cir. 1989), 
cert. denied, 493 U.S. 1094 (1990). Both the Frame and Gold Kist courts 
generally held that agencies have the power to impose administrative 
sanctions that are not penalties if the sanctions are remedial and 
reasonably related to the purposes of the enabling statutes. If the 
purpose of an administrative sanction is ``not to stigmatize or punish 
wrongdoers,'' the sanction is remedial rather than punitive. Frame, 885 
F.2d at 1143 (citing West v. Bergland, 611 F.2d 710, 722 n.14 (8th Cir. 
1979), cert. denied, 449 U.S. 821 (1990)).
    The proposed regulations at issue here are strictly remedial. Their 
purpose is not to punish or stigmatize manufacturers; rather, they 
serve to make the Postal Service whole for its losses attributable to 
manufacturers' products or conduct. Indeed, the Postal Service does not 
seek to recover any amount exceeding its costs or losses, net of any 
amount collected by meter users. The proposed sanctions merely permit 
the Postal Service to collect a fair [[Page 30718]] approximation of 
its costs and revenue losses and thus establish a method for allocating 
the risk of loss of Postal Service revenue.
    One commenter stated that the temporary suspension under 39 CFR 
501.5(c) and 501.12(b) should not be permitted to be extended more than 
120 days for further investigation in the absence of clearly 
articulated good cause or the manufacturer's consent.
    In response, the Postal Service notes that a good cause showing is 
implicit in the rule. Under 39 CFR 501(c)(4), the Postal Service must 
decide the disposition of a suspension at the end of a 90-day period. 
At such time, the Postal Service must withdraw the suspension, make a 
determination to revoke authorization, or extend the suspension either 
to allow more time for investigation or to permit the manufacturer to 
correct the problem. Thus, a suspension may extend beyond 90 days only 
if the Postal Service demonstrates good cause for its continuation, 
e.g., additional time is needed to investigate or the manufacturer 
needs additional time to correct the problem.
    The commenter also suggested that the Postal Service lift a 
suspension under 39 CFR 501.5(c)(3) immediately upon the implementation 
of a solution to the problem that originally gave rise to the 
suspension.
    The language in 39 CFR 501.5(c)(3) implicitly incorporates the 
standard in 39 CFR 501.5(c)(4)(iii) that a suspension is withdrawn 
before the close of the 90-day period upon the manufacturer's 
identification and implementation of a satisfactory solution. The final 
rule is revised to clarify this cross-reference. The parallel provision 
in 39 CFR 501.12(b)(3) is also revised.
    One commenter stated that 39 CFR 501.5, 501.12, 501.14, and 501.23 
do not expressly provide for separation of function in the adjudication 
of alleged violations. The commenter also proposed that the rules 
clarify that such appeals will be decided by an officer who is 
independent of the initial decisionmaking.
    The Postal Service recognizes the importance of maintaining the 
integrity of the decisionmaking process. To maximize resource 
flexibility, however, the Postal Service has determined to address this 
concern on an ad hoc basis. In cases in which the decisionmaker has 
participated in the investigation, the adjudication will be handled by 
an alternative decisionmaker.

F. Installations and Withdrawals

    One commenter believed that the meter installation/withdrawal 
report (PS Form 3601-C) should be redesigned or not implemented until 
the Meter Accounting and Tracking System is on-line. Another commenter 
recommended that the format and details required on PS Form 3601-C be 
tested in the field.
    The Postal Service will require the use of PS Form 3601-C effective 
January 2, 1996, when the Centralized Meter Licensing System is 
implemented.

III. Other Issues

    Other issues concern the taking of a meter outside the United 
States; licensee reporting of faulty or defective meters; quarterly 
meter reports; Postal Service examination of meters; and training 
media.

A. Taking a Meter Outside the United States

    One commenter noted that the regulations for taking a meter outside 
the United States do not address the exceptions for government agencies 
and military branches.
    DMM P030.2.2 provides that meters may be taken outside the United 
States, its territories, and its possessions with the express consent 
of the Postal Service. This provision applies to government agencies 
and military branches.

B. Licensee Reporting of Faulty or Defective Meters

    No comments were received about this section.

C. Quarterly Meter Reports

    No comments were received about this section.

D. Postal Service Examination of Meters

    Three commenters stated that the requirements for the examination 
of meters that have not been reset within 3 months are excessive and 
inconvenient to customers. It is their opinion that a 6-month cycle is 
more appropriate. In addition, one commenter suggested that for CMRS 
meters, periodic calls be made to the manufacturers' data center 
instead of meter inspections.
    The Postal Service does not agree that the requirement for the 
examination of those meters not reset within 3 months is excessive or 
especially burdensome to licensees. To extend the period would greatly 
increase the period of time before the Postal Service might identify 
tampering or misuse. Mailers who participated in the focus group 
discussion on this subject expressed no concerns on this requirement.

E. Training Media

    One commenter expressed a concern about the costs associated with 
the development and distribution of training media for resetting and 
inspection and suggested that the manufacturers provide a master tape 
to the Postal Service for reproduction as needed.
    The Postal Service is working in a cooperative effort with the 
manufacturers to develop training material. Once a master copy of the 
training materials is produced that covers all the meter families for 
all manufacturers, the Postal Service will reproduce and distribute 
copies to post offices. The expense borne by the manufacturers should 
be minimal.

IV. Computerized Remote Postage Meter Resetting System

    The Postal Service is changing the cash management arrangements of 
the Computerized Remote Postage Meter Resetting System (CMRS) to 
establish more direct control of licensee payments and balances and to 
provide improved service for CMRS licensees.
    One commenter stated that the proposed rule would improve the 
efficiency and security of Postal Service funds handling over the 
current methods. Also, the commenter believed that Postal Service 
investment results would improve because of earlier availability of 
funds that could be invested. This same commenter also requested that 
the Postal Service change the wording in the last sentence in the last 
paragraph under CMRS to read as follows: ``The funds in the Postal 
Service fund at Treasury would be backed in full faith and credit by 
the U.S. Treasury, whereas that is not the case with investments by a 
commercial bank trustee.''
    The Postal Service agrees with the suggestion that ``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.'' The change is incorporated 
into 39 CFR 501.28(b)(1).
    Another commenter supported the Postal Service initiative for CMRS 
and believed that customers would prefer this approach to the 
alternatives currently available. The commenter also stated that this 
initiative should promote the wider use of CMRS.
    The Postal Service agrees that customers will prefer modernized 
cash management procedures that make customer funds available as soon 
as possible, and it believes that the initiative will promote the wider 
use of CMRS.
    A third commenter strongly disagreed that approved changes to CMRS 
are [[Page 30719]] necessary or in the best interests of mailers. This 
same commenter stated that it is unfair and unjustified for the Postal 
Service to restructure the system in a way that increases the 
responsibility of the manufacturers and simultaneously deprives them of 
compensation.
    After careful consideration, the Postal Service respectfully 
disagrees with the assertions that the changes are unnecessary and 
contrary to mailers' best interests. The Postal Service believes 
strongly that current cash management and payment methods must be 
modernized, and it has therefore agreed to pay for envelopes, deposit 
tickets, and multiple lockbox bank locations. The Postal Service 
believes that the manufacturers should promote payment methods for 
customers that encourage customers to reduce or eliminate funds held in 
trust account deposits. Finally, the Postal Service believes that the 
responsibilities of manufacturers will remain the same while the Postal 
Service's responsibilities will increase.
    A fourth commenter expressed concern about compensation to 
manufacturers and about procedures to advance funds to customers. The 
same commenter was concerned about customer price increases resulting 
from new CMRS procedures. This commenter found representatives of the 
Postal Service Corporate Treasury and the Finance Department to be 
responsive to the issues raised by bringing a new form of funds 
management to CMRS. The commenter also believed that the commenter's 
company should not be forced to suffer a financial penalty if its 
competitors are allowed an excessive amount of time to convert to the 
new system.
    The Postal Service disagrees with the use of the term 
``compensation.'' The Postal Service has asked each manufacturer to 
provide details about expenses associated with CMRS and has indicated 
that it will review the services provided by the manufacturers in 
collecting and accounting for Postal Service revenue. The Postal 
Service also has repeatedly expressed its intention to have all 
manufacturers operating under the new regulations so that no 
manufacturer is at an advantage or disadvantage.
    A fifth commenter objected to the proposed rulemaking on CMRS and 
stated that the current relationship cannot be unilaterally amended by 
regulation.
    Before the publication of the proposed regulations, the Postal 
Service thoroughly reviewed and considered its legal authority and 
determined that it had the requisite authority to issue the proposed 
regulations. Upon receipt and review of the comments, the Postal 
Service reaffirmed its earlier conclusion.
    The commenter stated that the proposed regulations violate a 
statement of understanding between the commenter and the Postal Service 
and that the Postal Service is recommending unilateral changes to the 
understanding to take over financial control of CMRS. This proposed 
takeover of a successful private sector-operated enterprise is contrary 
to the government trend of outsourcing business functions.
    The Postal Service does not believe that the proposed regulations 
violate any relationship with any manufacturer. Further, the Postal 
Service is not proposing a takeover of a private sector-operated 
enterprise but rather the modernization of cash management and payment 
methods. The Postal Service has received letters supporting its 
position, including one from a cabinet-level agency. A key component of 
the new regulations is extensive use of the most modern collection 
methods available in the private commercial banking system.
    One commenter maintained that investments were made based on the 
contractual commitment, entitling the manufacturer to recoup its 
investment.
    The Postal Service concludes that no change to the proposed 
regulations is warranted in response to the comment about recoupment of 
investments.
    One commenter stated that CMRS has attained a high degree of 
customer satisfaction and that all parties have benefited from enhanced 
security.
    With respect to customer satisfaction, there has been no 
substantiation of high customer satisfaction, only anecdotal statements 
about adverse effects on customers. Customer satisfaction is one of the 
primary factors considered in publishing regulations designed partly to 
promote CMRS meters.
    The commenter believed that the risks and benefits have not been 
identified by the Postal Service and that customers would object to any 
increased costs resulting from the proposed changes.
    The Postal Service has identified the costs and benefits of the 
proposed regulations and continues to believe that the proposed changes 
will benefit both customers and meter manufacturers. Further, after 
reviewing manufacturers' CMRS costs and pricing behavior, the growth in 
the use of CMRS meters, the increase in competition in providing remote 
meter resetting services, and the savings that customers should realize 
from the proposed changes, the Postal Service believes that the changes 
can be made without necessarily increasing costs to customers. The 
Postal Service will continue to work with the manufacturers to identify 
additional ways in which costs can be controlled.
    The same commenter disagreed with the Postal Service position that 
funds in commercial accounts are at risk.
    The Postal Service considered the risk of loss of customer funds in 
commercial trustee accounts, both before and after publication of the 
proposed regulations. The Postal Service has determined that it should 
not continue to have more than $7 billion of its revenue held by and 
flow through an unnecessary third party, and the Postal Service 
continues to believe that the safest place for customer advance 
deposits is the U.S. Treasury, a view supported by the U.S. Department 
of the Treasury.
    The commenter stated that Postal Service Treasury officials had not 
responded to the commenter's previous offer to review investment 
strategy.
    The Postal Service believes that the location of the customer funds 
is an important component of risk. Because the safest place for 
customer advance deposits is the U.S. Treasury, the Postal Service has 
determined that the funds must be kept there, backed in full faith and 
credit by the U.S. Treasury.
    The commenter also believed that there is no evidence that mail 
float time is an issue of customer concern.
    The Postal Service disagrees. Another commenter indicated that 
customers would be pleased to have their funds available sooner for 
postage. Furthermore, reduction in the time between when funds are sent 
by a CMRS customer and the availability of such funds is consistent 
with commonly recognized, prudent business cash management practices.
    The same commenter believed that one-time conversion costs would be 
significant and that the Postal Service has not presented an adequate 
proposal for compensation. The commenter stated that there is no 
evidence to support Postal Service notions of improved customer funds 
management or the reduced need for meter manufacturers to furnish 
advances to customers.
    The Postal Service has asked each manufacturer to provide details 
on conversion costs, although the Postal Service does not agree with 
use of the term ``compensation.'' Not all manufacturers have provided 
information in support of conversion costs, and that information is 
necessary for the Postal Service to determine the magnitude of such 
costs, if any. [[Page 30720]] 

V. General Comments

    All the manufacturers supported the Postal Service efforts to 
improve meter security and control. One manufacturer specifically 
commented that the Postal Service was business-like and professional in 
giving manufacturers an opportunity to discuss their views on the 
regulations in an open forum. Another commenter believed that the 
Postal Service had disregarded comments previously made by 
manufacturers on the proposed regulations.
    To keep the manufacturers informed, the Postal Service held several 
meetings to discuss the proposed regulations. Each manufacturer was 
given an opportunity to express the specific views of its organization 
and of the industry. In addition, the Postal Service conducted a series 
of customer focus group sessions to provide a forum for comments from 
interested parties who were not manufacturers. A public meeting also 
was conducted in which the manufacturers and others could express their 
views. The Postal Service noted the concerns and opinions from these 
discussions before publishing the proposed regulations.
    One commenter stated that market tests or analyses were not 
conducted to measure the effect the proposed regulations would have on 
customers. In addition, the commenter believed that the regulations do 
not take into account new technology for encrypted data verification.
    Participants in the customer focus groups recognized the need for 
revising meter regulations and indicated that any inconvenience to 
meter users will be minimal. They supported the Postal Service's effort 
because, in their opinion, meter misuse and fraud affect postage rates.
    The Postal Service has solicited the cooperation of the meter 
manufacturers in the development of encrypted indicia. This effort is 
under way, and the results and specifications will be published for 
public review and comment when they become available.

VI. Revisions

    The following sections were revised since the proposed rule; the 
revisions are reflected in the final rule.

A. PS Form 3601-A

    The statement on PS Form 3601-A, Application for a License to Lease 
and Use Postage Meters, pertaining to the penalties for submission of a 
false, fictitious, or fraudulent statement is deleted.
Reference

Exhibit B

B. PS Form 3602-A

    The use of PS Form 3602-A, Daily Record of Meter Register Readings, 
is voluntary, but its use is recommended to support refunds in case of 
register malfunctions.
References
DMM P030.2.1 Procedures
DMM P030.2.6 Licensee Responsibilities
DMM P030.3.4 Alternative Meter Setting Location
DMM P030.3.7 Postage Transfers and Refunds
DMM P030.3.8 Postage Adjustments, Misregistering Meters
DMM P030.3.11 Periodic Examination of CMRS Meters
39 CFR 501.22(g) Distribution controls.
39 CFR 501.22(h)(2) Distribution controls.
39 CFR 501.25(b)(3) Inspections of meters in use.

C. Computerized Remote Postage Meter Resetting System

    For customers participating in the Computerized Remote Postage 
Meter Resetting System (CMRS) program, the Postal Service will include 
deposit tickets with check payments.
Reference
39 CFR 501.28(e)(6) Computerized remote postage meter resetting 
(parts of proposed 39 CFR 501.28 are renumbered).

D. Deposits in U.S. Treasury

    Deposits in the Postal Service fund at Treasury are backed in full 
faith and credit by the U.S. Treasury.
Reference
39 CFR 501.28(b)(1) Computerized remote postage meter resetting.

E. Manufacturer Suspensions

    Manufacturer suspensions may be withdrawn before the end of the 90-
day period if the Postal Service determines that the manufacturers 
solution and implementation are satisfactory.
References
39 CFR 501.5(c)(4)(iii) Suspension and revocation of authorization.
39 CFR 501.12(b)(4)(iii) Suspension and revocation of approval.

F. Domestic Mail Manual

    Domestic Mail Manual (DMM) P030.2.0, Meter License, is reorganized 
and renumbered since the proposed rule. DMM P030.1.9, Appeals, is 
renumbered as DMM P030.2.5.

G. High-Volume Mailers

    High-volume mailers are defined for manufacturer meter inspections.
Reference
39 CFR 501.25 Inspection of meters in use.

H. Domestic Mail Manual Transition Book

    Domestic Mail Manual Transition Book part 144 is transferred as 
revised to 39 CFR 501, with the exception of these sections: 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 144.67.

                        Tables of Cross-References.--Domestic Mail Manual (DMM) Revisions                       
----------------------------------------------------------------------------------------------------------------
 DMM P030 old section   DMM P030 new section                         Changes and comments                       
----------------------------------------------------------------------------------------------------------------
1.1..................                   1.1   Editorial changes.                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
1.2..................                   1.2   1.2 is revised to update names and addresses of authorized meter  
                                               manufacturers. Editorial changes.                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
1.3..................                   1.3   Editorial changes.                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
1.4, 1.5, 1.6, 1.7...    1.4, 1.5, 1.6, 1.7   None.                                                             
                                                                                                                
----------------------------------------------------------------------------------------------------------------
[[Page 30721]]
                                                                                                                
1.8, 1.9.............                   1.8   1.8, Meter Documentation, and 1.9, Markings and Endorsements, are 
                                               combined into 1.8, Meter Documentation, Markings, and            
                                               Endorsements. Editorial changes.                                 
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.0..................                   2.0   None.                                                             
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.1..................                   2.1   2.1 is modified to include electronic transmission of license     
                                               applications by the manufacturer and to require all licenses to  
                                               be processed at a central location.                              
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.2..................                   2.2   2.2 is renamed Licensee Agreement. Parts of 2.7 are incorporated  
                                               into 2.2 and restrictions are clarified on taking meters outside 
                                               the United States.                                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.3..................                   2.3   Editorial changes.                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.4..................                   2.6   2.4 is renumbered as 2.6 and revised to make Postal Service (PS)  
                                               Form 3602-A optional though recommended to support refunds.      
                                               Revised 2.6 includes examination requirements; license revocation
                                               for failure to comply with examination requirements;             
                                               modifications to licensing procedures; reporting of              
                                               malfunctioning meters; labeling requirements.                    
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                   2.5   New 2.5, Appeals, is added to specify appeal procedures for       
                                               licensees and applicants.                                        
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                   2.7   New 2.7, Custody of Suspect Meters, is added to cite authority of 
                                               postal inspectors to make on-site visits and withdraw suspect    
                                               meters.                                                          
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.5..................                   2.8   2.5 is renumbered as 2.8, renamed Defective Meters, and revised to
                                               change procedures when a meter's registers are faulty or         
                                               defective. Manufacturers are required to check meters out of     
                                               service within a specific period and provide replacement meter.  
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.6..................                   2.4   2.6, Place of Mailing, is incorporated into 2.4(e), Revocation of 
                                               License.                                                         
                                                                                                                
----------------------------------------------------------------------------------------------------------------
2.7..................                   2.4   2.7 is renumbered as 2.4 and revised to clarify that taking meters
                                               outside the United States can be grounds for license revocation. 
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                   2.9   2.9, Missing Meters, is added to specify reporting requirements   
                                               for missing meters.                                              
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                  2.10   2.10, Returning Meters, is added to specify procedures for        
                                               returning meters to manufacturer whenever meter is defective or  
                                               no longer wanted by licensee.                                    
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.0..................                   3.0   None.                                                             
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.1..................                   3.1   3.1 is revised to require use of new PS Form 3601-C for meter     
                                               installations, withdrawals, or replacements.                     
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.2..................                   3.2   3.2 is renamed Licensee Relocation. Editorial changes.            
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.3..................                   3.3   Editorial changes.                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.4..................                   3.4   3.4 is renamed Alternative Meter Setting Location. Editorial      
                                               changes.                                                         
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.5..................                   3.6   3.5 is renumbered as 3.6.                                         
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.6..................                    --   3.6, Manufacturer Withdrawal, is moved to 39 CFR 501.22(g) and    
                                               501.22(i).                                                       
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.7..................                   3.5   3.7 is renumbered as 3.5. Editorial changes.                      
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.8..................                   3.7   3.8 is renumbered as 3.7 and renamed Postage Transfers and        
                                               Refunds. Editorial changes.                                      
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                   3.8   New 3.8, Postage Adjustments, Misregistering Meters, is added to  
                                               expand requirements that include new procedures for processing   
                                               refunds for defective meters.                                    
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.9..................                   3.8   3.9, Manufacturer's Statement, is incorporated into new 3.8,      
                                               Postage Adjustments, Misregistering Meters.                      
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.10.................                   3.9   3.10 is renumbered as 3.9 and renamed Computerized Meter Resetting
                                               System. Requirement is added for use of PS Form 3601-C, Meter    
                                               Installation, Withdrawal, or Replacement.                        
                                                                                                                
----------------------------------------------------------------------------------------------------------------
[[Page 30722]]
                                                                                                                
3.11.................                  3.10   3.11 is renumbered as 3.10 and renamed Postage Transfer for CMRS  
                                               Meters. Editorial changes.                                       
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.12.................                  3.11   3.12 is renumbered 3.11 and renamed Periodic Examination of CMRS  
                                               Meters. Editorial changes.                                       
                                                                                                                
----------------------------------------------------------------------------------------------------------------
3.13.................                  3.12   3.13 is renumbered as 3.12 and revised to specify requirement     
                                               changes.                                                         
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                  3.13   New 3.13, CMRS Refunds, is added to outline CMRS refund           
                                               procedures.                                                      
                                                                                                                
----------------------------------------------------------------------------------------------------------------
4.0..................                   4.0   None.                                                             
                                                                                                                
----------------------------------------------------------------------------------------------------------------
4.1..................                   4.1   Editorial changes.                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
4.2, 4.3, 4.4, 4.5,                                                                                             
 4.6, 4.7, 4.8, 4.9,                                                                                            
 4.10, 4.11, 4.12,                                                                                              
 4.13, 4.14, 5.0,                                                                                               
 5.1, 5.2, 5.3, 5.4..   4.2, 4.3, 4.4, 4.5,                                                                     
                        4.6, 4.7, 4.8, 4.9,                                                                     
                          4.10, 4.11, 4.12,                                                                     
                       4.13, 4.14, 5.0, 5.1,                                                                    
                              5.2, 5.3, 5.4   None.                                                             
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
6.0..................                   6.0   6.0 is revised to reference that requirements for manufacture and 
                                               distribution of meters are published in 39 CFR 501.              
                                                                                                                
----------------------------------------------------------------------------------------------------------------
6.1..................                    --   6.1 is eliminated and requirements moved to 39 CFR 501.1 and      
                                               501.2.                                                           
                                                                                                                
----------------------------------------------------------------------------------------------------------------
6.2..................                    --   6.2 is eliminated and requirements moved to 39 CFR 501.3          
                                                                                                                
----------------------------------------------------------------------------------------------------------------
6.3..................                    --   6.3 is eliminated and requirements moved to 39 CFR 501.5.         
                                                                                                                
----------------------------------------------------------------------------------------------------------------
6.4..................                    --   6.4 is eliminated and requirements moved to 39 CFR 501.5.         
                                                                                                                
----------------------------------------------------------------------------------------------------------------
6.5..................                   6.0   6.5 is revised and renumbered as 6.0.                             
----------------------------------------------------------------------------------------------------------------


                      Domestic Mail Manual Transition Book (DMMT) and 39 CFR 501 Revisions                      
----------------------------------------------------------------------------------------------------------------
     DMMT section        39 CFR 501 section                          Changes and comments                       
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                                                                                
144.9................-------------------501---None.-------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.91, 144.912......                 501.1   Section is moved from DMMT 144.91 and 144.912 and DMM P030.6.0.   
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.911..............                 501.2   Section is moved from DMMT 144.911. Editorial changes.            
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.915..............                 501.3   Section is moved from DMMT 144.915 and combined with DMM P030.6.0.
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                 501.4   New 39 CFR 501.4, Burden of proof standard, clarifies burden of   
                                               proof standard.                                                  
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.913, 144.914.....                 501.5   Section is moved from DMMT 144.913 and 144.914, clarified, and    
                                               expanded.                                                        
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.92...............                 501.6   Section is moved from DMMT 144.92.                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.931..............                 501.7   Section is moved from DMMT 144.931. Editorial changes.            
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.932..............                 501.8   Section is moved from DMMT 144.932.                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.935..............                 501.9   Section is moved from parts of DMMT 144.935 and redrafted.        
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.933, 144.935.....                501.10   Section is moved from DMMT 144.933 and parts of DMMT 144.935 and  
                                               redrafted.                                                       
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.936, 144.937.....                501.11   Section is moved from DMMT 144.936 and 144.937 and expanded.      
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.913, 144.914.....                501.12   Section is moved from parts of DMMT 144.913 and 144.914 and       
                                               expanded.                                                        
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                501.13   39 CFR 501.13, Reporting, specifies manufacturer reporting        
                                               requirements.                                                    
                                                                                                                
----------------------------------------------------------------------------------------------------------------
[[Page 30723]]
                                                                                                                
--...................                501.14   39 CFR 501.14, Administrative sanction on reporting, specifies    
                                               sanctions for noncompliance with manufacturer reporting          
                                               requirements.                                                    
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.941..............                501.15   Section is moved from DMMT 144.941.                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.934, 144.942.....                501.16   Section is moved from DMMT 144.934 and 144.942.                   
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.943..............                501.17   Section is moved from DMMT 144.943.                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.944..............                501.18   Section is moved from DMMT 144.944.                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.945..............                501.19   Section is moved from DMMT 144.945.                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.946..............                501.20   Section is moved from DMMT 144.946 and expanded.                  
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.951..............                501.21   Section is moved from DMMT 144.951.                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.21, 144.225,                                                                                                
 144.343, 144.355a,                                                                                             
 144.36, 144.361,                                                                                               
 144.383, 144.952,                                                                                              
 144.963.............                501.22   Section is moved from DMMT 144.21, 144.225, 144.343, 144.355a,    
                                               144.36, 144.361, 144.383, 144.952, and 144.963, expanded, and    
                                               redrafted.                                                       
                                                                                                                
----------------------------------------------------------------------------------------------------------------
--...................                501.23   39 CFR 501.23, Administrative sanction, specifies manufacturer    
                                               sanctions for failure to comply with meter standards.            
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.96...............                501.24   Section is moved from DMMT 144.96.                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.962..............                501.25   Section is moved from DMMT 144.962 and expanded.                  
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.952f, 144.963....                501.26   Section is moved from DMMT 144.952f and 144.963 and expanded.     
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.964..............                501.27   Section is moved from DMMT 144.964.                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.97, 144.971,                                                                                                
 144.972, 144.973,                                                                                              
 144.974, 144.975,                                                                                              
 144.976, 144.977....                501.28   Section is moved from DMMT 144.97, 144.971, 144.972, 144.973,     
                                               144.974, 144.975, 144.976, and 144.977 and expanded.             
                                                                                                                
----------------------------------------------------------------------------------------------------------------
144.98...............                501.29   Section is moved from DMMT 144.98.                                
----------------------------------------------------------------------------------------------------------------

List of Subjects in 39 CFR Part 111

    Administrative practice and procedure, Postal Service.

    In consideration of the foregoing, the Postal Service hereby adopts 
the following amendments to the Domestic Mail Manual, which is 
incorporated by reference in the Code of Federal Regulations (see 39 
CFR part 111).

PART 111--[AMENDED]

    1. The authority citation for 39 CFR 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 Domestic Mail Manual to 
read as set forth below:

P030  Postage Meters and Meter Stamps

1.0  BASIC INFORMATION

21.1  Description of Meters

    Postage meters can print one or more denominations of postage and 
display the amount of postage used and the amount remaining. A meter 
locks when no postage or minimal postage remains. A meter generally 
must be taken 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 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 [[Page 30724]] 
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 meter license and a rental agreement with 
the meter manufacturer and until the USPS sets, seals (if applicable), 
and checks the meter into service. Other parties in possession of a 
meter must immediately surrender it to the manufacturer or USPS.
* * * * *
1.8  Meter Documentation, Markings, and Endorsements
    Unless excepted by standard, a mailing of pieces bearing meter 
stamp postage must be accompanied by documentation meeting the 
standards in P012 if the mailing contains nonidentical-weight pieces or 
pieces without the full correct postage at the applicable rate. Each 
piece bearing meter postage must show the markings and endorsements 
required for the rate claimed and any special service requested.

2.0  METER LICENSE

2.1  Procedures
    An applicant wanting to be licensed to lease and use a meter must 
provide an original signed Form 3601-A to the post office where the 
applicant intends to deposit metered mail. A meter manufacturer may, on 
behalf of the applicant, electronically transmit the information 
requested on Form 3601-A to the designated USPS license application 
central processing center in USPS-specified format. A single license 
covers all meters licensed to the same applicant 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. The use of Form 3602-A is voluntary, but 
its use supports refunds in the case of meter register malfunctions. If 
a meter manufacturer transmits the application on behalf of the 
applicant, the USPS notifies the manufacturer 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 in these cases: the meter is used in any fraudulent or 
unlawful scheme or enterprise; the meter is unused during any 
consecutive 12-month period; the licensee fails to exercise sufficient 
control of the meter or fails to comply with the standards for meter 
care or use; or a meter is taken outside the United States, its 
territories, or its possessions (without written permission by the 
manager of Retail Systems and Equipment, USPS Headquarters).
2.3  Refusal to Issue Meter License
    The USPS may refuse to issue a meter license for these reasons: the 
applicant submitted false or fictitious information on the license 
application; 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 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 meters is refused, the USPS sends the licensee 
written notice of the reason. If the license application is 
electronically transmitted to the USPS by a manufacturer on behalf of 
the applicant, the USPS notifies the manufacturer of the refusal. An 
applicant refused a meter license may appeal the decision under 2.5.
2.4  Revocation of License
    The USPS notifies the licensee in writing of the reasons why the 
meter license is to be revoked. The USPS also 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 takes 10 days thereafter unless, within that time, the 
licensee appeals the decision under 2.5. 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 meter is not used for 12 consecutive 
months.
    c. Sufficient control of a meter is not exercised or the standards 
for its care or use are not followed.
    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. Metered mail is deposited at other than the licensing post 
office (except as permitted by 5.0 or D072).
2.5  Appeals
    An applicant who has been refused a meter license, or a licensee 
who has had a license revoked, may file a written appeal with the 
manager of Retail Systems and Equipment (RSE), USPS Headquarters, 
within 10 calendar days of receipt of the decision. A licensee 
appealing decisions on postage adjustments may file the appeal with the 
same official within 60 days of the date that the manufacturer 
submitted the postage recommendation to the USPS.
2.6  Licensee Responsibilities
    The meter licensee's responsibilities for the care and use of a 
meter include the following:
    a. After a meter is delivered to a licensee, the licensee must keep 
the meter 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 may 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). The licensee may bring Form 3602-A 
to the post office when the meter is reset or examined.
    c. The licensee must make meters in the licensee's custody and 
records on meter transactions immediately available for review and 
audit on request by the USPS or the meter manufacturer.
    d. The licensee must present meters not reset within a 3-month 
period to the licensing post office for examination. 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 
as required following notification can result in revocation of the 
licensee's authorization to lease and use meters.
    e. The licensee must immediately notify the licensing post office 
and manufacturer's representative of any change in the licensee's name, 
address, or telephone number, or the location of the meters, or any 
other information contained on the original Form 3601-A. The USPS 
thereafter issues a modified meter license reflecting the updated 
information. The licensee must verify and update license information on 
a periodic basis as well as following any event that indicates the need 
to update this information immediately (e.g., billings returned to a 
meter manufacturer or failure of a manufacturer to locate a meter for 
inspection). [[Page 30725]] 
    f. The licensee must report a misregistering or otherwise defective 
meter to the manufacturer according to 2.8 and must ensure that the 
meter is not used.
    g. The licensee must ensure that the cautionary and barcode labels 
placed onto each meter before its being checked into service are not 
removed while the meter is in the licensee's possession. The cautionary 
label contains basic reminders on leasing, meter movement, and misuse. 
The barcode label contains a barcoded representation of the meter 
serial number. Meters without these labels may not be checked into 
service.
2.7  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 the licensee a receipt for the meter, forwards a 
copy to the manufacturer, and, if necessary, assists in obtaining a 
replacement meter from the meter manufacturer. Where possible, the 
Inspection Service provides the manufacturer with advance notice that a 
meter is to be inspected. Unless 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.
2.8  Defective Meters
    The licensee must immediately report any defective meter to the 
licensing postmaster and the manufacturer. The manufacturer must pick 
up any defective meter and take it to the licensing post office to be 
checked out of service within 3 business days of being notified by the 
licensee. A faulty meter may not be used under any circumstance, and it 
must be removed from service when taken to the licensing post office. 
The manufacturer provides the licensee with a replacement meter.
2.9  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 any police report.
2.10  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. A licensee with a faulty or misregistering meter 
or no longer wanting to retain a meter must notify the meter 
manufacturer's representative of any meter to be returned to the 
licensing post office to be checked out of service. Meters must be 
shipped by registered mail unless the manager of RSE, USPS 
Headquarters, gives written permission to ship meters otherwise.
3.0  SETTING METERS

3.1  Initial Setting
    Before delivering a meter to the licensee, the meter manufacturer 
must take the 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 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 under 3.4 or 3.5, meters must be set at the licensing post 
office, not at contract stations or branches. Remote-set meters are 
subject to 3.9 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 the license to 
the licensee's local post office with the meter for setting and Form 
3602-A, if maintained (or its electronic equivalent).
    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. Such matter 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 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 meters at a licensee's place of business within the area served 
by the licensing post office. Only the licensee's meters participating 
in the program may be 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 office, unless a USPS employee (qualified to set meters) 
is regularly assigned to that licensee's location for postal 
administrative duties. The licensee must pay on-site setting or 
examination fees (shown in R900) and postage by check or advance 
deposit account at the time of the setting or examination.
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  Postage Transfers and Refunds
    Upon USPS verification, 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 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. The licensee may also submit Form 
3602-A, if maintained, or a system-generated register as supporting 
documentation.
3.8  Postage Adjustments, Misregistering Meters
    To request a postage adjustment for a faulty or misregistering 
meter, the [[Page 30726]] licensee must present to the manufacturer the 
meter and the licensee's Form 3602-A, if maintained. After examining a 
meter checked out of service for apparent faulty operation affecting 
registration, the manufacturer must provide the licensing post office 
with a report of the malfunction. The report must contain all 
applicable meter documentation (including a copy of the licensee's Form 
3602-A, if maintained, 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 may submit some other reliable 
evidence showing that a postage adjustment is warranted.) A licensee 
may appeal a postage adjustment under 2.5.
3.9  Computerized Meter Resetting
    The Computerized Remote Postage Meter Resetting System (CMRS) 
allows certain 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 delivering a meter to the licensee, 
the manufacturer must take the meter and a completed Form 3601-C to the 
licensing post office to have the meter 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 be reset or examined every 3 months. CMRS meters 
set at least once every 3 months require examination by a USPS employee 
only annually. The licensee must take a CMRS meter and applicable Form 
3602-A, if maintained, to the licensing post office when notified by 
the manufacturer of a required examination. A licensee who does not 
comply with examination requirements may not reset 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 conditions must be met for resetting 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. The licensee may deposit funds by check, 
electronic funds, or automated clearinghouse transfer.
    b. The licensee must provide the manufacturer or designated meter 
resetting company with the meter serial number, licensee's account 
number, and the meter's ascending and descending registers.
    c. 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 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 
meters; the suspension and revocation of such authorization; 
performance standards required in meters, test plans, testing, and 
approval of meters; required manufacturing security measures; and 
standards for the distribution and maintenance of meters. Further 
information may be obtained from Retail Systems and Equipment, USPS 
Headquarters.

List of Subjects in 39 CFR Part 501

    Administrative practice and procedure, Postal Service.

    3. Add subchapter G, Postage Meters, consisting of part 501 to read 
as set forth below:

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.

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 410, 
2601, 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 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.


Sec. 501.2  Manufacturer qualification.

    Any concern wanting authorization to manufacture and/or lease 
postage meters for use by licensees under Domestic Mail Manual P030.1.2 
must:
    (a) Satisfy the Postal Service of its integrity and financial 
responsibility;
    (b) Obtain approval of at least one 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 [[Page 30727]] 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 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 postage 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 of 
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 shall 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 on the manufacturer's 
performance history. Before determining whether a manufacturer's 
authorization to manufacture and/or distribute meters should be 
revoked, the procedures in paragraph (c) of this section shall 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 
shall 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 shall 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 shall 
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 shall remain in effect for up to 90 days 
unless withdrawn by the Postal Service, as provided in paragraph 
(c)(4)(iii) of this section.
    (4) At the end of the 90-day suspension, 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. Manufacturer 
suspensions may be withdrawn  before the end of the 90-day period if 
the Postal Service determines that the manufacturer's solution and 
implementation are satisfactory.
    (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 period 
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 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 that 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 or concern.
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 take the meter to the post office for setting or examination.
    (b) A 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 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 that prevents 
further operation of the meter after the register descends to zero or 
an amount less than the largest denomination printable in one 
operation. In electronic meters, the locking device must prevent 
printing if the amount to be printed reduces the descending register to 
less than zero. The construction of the descending register must allow 
the post office to set 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 [[Page 30728]] 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, by imprint on tape or card, or by a 
combination of the two methods. The construction of the housing must 
make it impossible to alter the readings of the ascending register 
except by normal operation or impossible 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 
meter slogan or ad plate must 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 the 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, Postal Service-M-942 
(RDC). Persons wanting to manufacture electronic meters may obtain a 
copy of this Postal Service test specification from Postal Service 
Headquarters.
    (j) Auxiliary equipment required for the operation of the meters 
must be part of the final production models submitted for Postal 
Service approval. Failure of the auxiliary equipment, which could cause 
malfunction in meter operation, is considered the same as a 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 conducting 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.
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 meter 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, unless authorized for preliminary field testing.


Sec. 501.9  Security testing.

    The Postal Service reserves the right to require or conduct 
additional examination and testing at any time, 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 change 
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 before distribution. The 
contents of the media must explain how the meter is reset and describe 
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 Retail Systems and Equipment, Postal Service 
Headquarters, with any additional documentation on request.
    (d) On request by the Postal Service, additional meters must be 
submitted to the Postal Service for testing, at the expense of the 
manufacturer. [[Page 30729]] 


Sec. 501.12  Suspension and revocation of approval.

    (a) The Postal Service may suspend meter 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 revenue. Suspension of approval to manufacture or distribute a 
meter or class of meters in whole or in part shall be based on the 
potential risk to postal revenue. Before 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 revenue, the Postal Service shall issue a 
written notice of proposed suspension citing deficiencies for which 
suspension may be imposed under paragraph (b)(2) of this section. The 
manufacturer shall 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 shall 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 shall remain in effect for up to 90 days 
unless withdrawn by the Postal Service, as provided in paragraph 
(b)(4)(iii) of this section.
    (4) At the end of the 90-day suspension, 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. Manufacturer 
suspensions may be withdrawn before the end of the 90-day period if the 
Postal Service determines that the manufacturer's solution and 
implementation are satisfactory.
    (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 period 
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 written 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 period is deemed 
necessary), as specified therein. The appeal must include all 
supporting evidence and state with specificity the reasons that the 
manufacturer believes that 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 or concern.


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 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 from June 
30, 1995) of the following:
    (1) All findings or results of any testing known to the 
manufacturer concerning the security or revenue protection 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).
    (2) All potential security weaknesses or methods of meter tampering 
of the meters that the manufacturer distributes of which the 
manufacturer knows or should know, and the meter or model subject to 
each method. These potential security weaknesses include but are not 
limited to suspected equipment defects, suspected abuse by a meter 
licensee or manufacturer employee, suspected security breaches of the 
Computerized Remote Postage Meter Resetting System, 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 before June 30, 1995, 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 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 
takes 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 [[Page 30730]] 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 or concern.


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 the dies 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 shall maintain 
control over the procurement, manufacture, and distribution of meter 
security seals. Manufacturers must reimburse the Postal Service 
promptly for the cost of the seals. All costs associated with meter 
security seals are 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 of the distribution, control, and maintenance of postage 
meters. All such facilities and records are subject to inspection by 
Postal Service representatives.


Sec. 501.22  Distribution controls.

    Each authorized postage meter 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 
Postal Service requirements for suitable quality and content.
    (e) (1) Have all meters set, sealed (if applicable), and checked 
into service by the appropriate Postal Service representative before 
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.
    (2) 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.
    (3) A meter should show a zero in the descending register before 
being checked into service. If a zero is not shown, the initial payment 
must include the residual amount the locked-out meter could not 
imprint.
    (f) Notify Computerized Remote Postage Meter Resetting System 
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 taken 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 a response is not 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 [[Page 30731]] 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, or equivalent.
    (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, Record of Meter 
Register Readings, or equivalent, 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, if maintained, and applicable system-
generated register documentation (if maintained in lieu of PS Form 
3602-A); 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 promptly the loss or theft of any meter or the recovery 
of any lost or stolen meter. The manufacturer must provide notification 
by the Postal Service with completing a standardized lost and stolen 
meter incident report notifying 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 before submitting this report to the Postal 
Service.
    (j) Provide the designated Postal Service Information Systems 
Service Center (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 reporting 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 Postal Service officials at any time during 
business hours. These records must 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 of the keys is essential, preferably 
in the form of signed receipt cards. The record must include the date, 
location, and details of any loss, theft, or recovery 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.
    (p) Provide monthly the designated ISSC with a compatible computer 
tape of lost or stolen meters. 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 use by unauthorized individuals. Manufacturers 
must ship all meters by Postal Service registered mail unless given 
written permission by the Postal Service to use another carrier. The 
manufacturer must demonstrate that the alternative delivery carrier 
employs security procedures equivalent to those for registered mail.
    (r) Affix to all meters both 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 label must be placed on all meters in a 
conspicuous and highly visible location. Words printed in capital 
letters should be emphasized, preferably printed 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:
-----------------------------------------------------------------------


POSTAL SERVICE
RENTED POSTAGE MEMBER--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.
-----------------------------------------------------------------------

POSTAL SERVICE
    (2) The barcode label must be placed near the stamped serial number 
and must meet these 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. [[Page 30732]] 
    (3) Exceptions to the formatting of required labeling are 
determined on a case-by-case basis. Any deviation 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 postage 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, to 
follow standardized lost and stolen meter incident reporting in 
Sec. 501.26, or to conduct any of the inspections required by 
Sec. 501.25 in a timely fashion is 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 and/or loss occurred, as 
determined by the Postal Service. Sanctions shall 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 that the 
action shall take effect if a written defense is not presented within 
30 calendar days of receipt of the notice.
    (d) The manufacturer may present to the Postal Service a written 
defense to the proposed action within 30 calendar days of receipt of 
the notice. 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 written 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 receiving the decision, addressed to the 
manager of Retail and Customer Service, Postal Service 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 or concern.


Sec. 501.24  Meter replacement.

    The manufacturer must keep its postage 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. A high-volume 
mailer is defined as one who has annual metered postage in excess of 
$12,000.

BILLING CODE 7710-12-P
[GRAPHIC][TIFF OMITTED]TR09JN95.008


BILLING CODE 7710-12-C

    (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, Record of Meter Register 
Readings, or equivalent, and a copy of the most recent 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 then comparing the register readings 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 no screw 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. [[Page 30733]] 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 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 
irregularity in the operation of the meter or sign 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 postage meters in service 
cannot be located, the manufacturer must undertake reasonable efforts 
to locate the meters by following a series of Postal Service-specified 
actions designed to locate the meters. If these efforts are 
unsuccessful and a meter is determined to be lost or stolen, the 
manufacturer must notify the Postal Service within 30 days by 
submitting 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 with return receipt to the licensee at 
the last known address with the notation ``Forwarding and Address 
Correction 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 following actions:
    (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.
    (c) 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.
    (d) 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 
purging lost and stolen meter reports that are provided on a periodic 
basis to the Postal Service ISSC for those meters that have been 
recovered.
    (e) Any authorized manufacturer that fails to comply with 
standardized lost and stolen reporting procedures and instructions is 
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 internal repairs are undertaken.


Sec. 501.28  Computerized remote postage meter resetting.

    (a) Description. The Computerized Remote Postage 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. Before 
proceeding with the setting transaction, the MRC must verify the data 
and ascertain from its own files whether the licensee has sufficient 
funds 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)(5) of this section, the MRC may complete the setting 
transaction.
    (b) Deposits with the Postal Service. (1) Deposits in the Postal 
Service Fund at Treasury are backed in full faith and credit by the U. 
S. Treasury.
    (2) A CMRS licensee is required to have funds available on deposit 
with the Postal Service before 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 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.
    (3) The MRC is required to incorporate the following language into 
its 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.

-----------------------------------------------------------------------

    (4) 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 daily all available balances 
to the Postal Service.
    (5) If the MRC chooses to offer advancement of funds to licensees, 
the MRC 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 [[Page 30734]] 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 circumstance. The Postal Service shall not be 
liable for any payment made by the MRC on behalf of a licensee that is 
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 deficiency that is 
likely to result in the loss of funds to the Postal Service as provided 
in Sec. 501.12.
    (d) Equipment. The 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) Before 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 processes the CMRS deposits 
daily, consolidates the data, and performs a direct file transmission 
to each MRC. The daily deposit processing cutoff times and the 
automated file transmission times are coordinated independently with 
each of the MRCs. Manufacturers must ensure that their data center 
computers are programmed to reflect each licensee deposit and track all 
licensee activity.
    (3) The MRC must require each licensee that requests meter 
resetting 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 
sufficient 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 is to transfer, by 10 a.m. 
local 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 transfers (wire transfers).
    (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 
preencoded deposit ticket. The Postal Service provides CMRS customers 
with deposit tickets for inclusion with check payments. At the time a 
new account is opened, a licensee not possessing a preencoded 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 ACH 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, advises 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 provides collection 
services for returned checks on behalf of the Postal Service. The 
Postal Service lockbox bank notifies the MRC once this item is paid. 
The MRC then releases the account for activity.
    (f) Refunds. The Postal Service issues a refund to a licensee for 
any unused postage in a meter. Refunds of 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:

                                                                                                                
[[Page 30735]]
------------------------------------------------------------------------
     Report                                                             
   description         Content         Frequency            Medium      
------------------------------------------------------------------------
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                           
 Report.           Code; Amount of   request only).  Paper.             
                   Refund.                                              
Funds Advanced    Customer ID; ZIP  Daily (by                           
 Report.           Code; Amount of   request only).  Paper.             
                   Funds Advanced.                                      
------------------------------------------------------------------------

  (h) Inspection of records and facilities. The manufacturer must 
make its facilities that handle 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.
Stanley F. Mires,
Chief Counsel, Legislative.

    Note: The following report and Postal Service forms are 
published for information only and will not be codified in the Code 
of Federal Regulations.

BILLING CODE 7710-12-P

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[FR Doc. 95-14137 Filed 6-8-95; 8:45 am]
BILLING CODE 7710-12-C