[Federal Register Volume 62, Number 14 (Wednesday, January 22, 1997)]
[Proposed Rules]
[Pages 3242-3244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1384]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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 

  Federal Register / Vol. 62, No. 14 / Wednesday, January 22, 1997 / 
Proposed Rules  

[[Page 3242]]



FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-0959]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is publishing for comment proposed amendments to 
Regulation E, (Electronic Fund Transfers). The proposed revisions 
implement an amendment to the Electronic Fund Transfer Act (EFTA), 
contained in the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, that exempts certain electronic benefit 
transfer (EBT) programs from the EFTA. Generally, EBT programs involve 
the issuance of access cards and personal identification numbers to 
recipients of government benefits so that they can obtain their 
benefits through automated teller machines and point-of-sale terminals. 
The Board's proposal exempts from Regulation E needs-tested EBT 
programs established or administered by state or local government 
agencies. Federally administered EBT programs and state and local 
employment-related EBT programs (such as state pension programs) would 
continue to be subject to modified requirements that recognize the 
special characteristics of EBT programs.

DATES: Comments must be received on or before February 19, 1997.

ADDRESSES: Comments should refer to Docket No. R-0959, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, DC 20551. Comments also may be delivered to Room B-2222 of 
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the 
guard station in the Eccles Building courtyard on 20th Street, N.W. 
(between Constitution Avenue and C Street) at any time. Comments may be 
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and 
5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's 
rules regarding the availability of information.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Staff Attorney, 
Division of Consumer and Community Affairs, at (202) 452-2412 or (202) 
452-3667; for users of Telecommunications Device for the Deaf (TDD) 
only, contact Dorothea Thompson at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

EFT Act and Regulation E

    Regulation E implements the Electronic Fund Transfer Act (EFTA). 
The act and regulation cover any consumer electronic fund transfer 
initiated through an automated teller machine (ATM), point-of-sale 
(POS) terminal, automated clearinghouse, telephone bill-payment system, 
or home-banking program; and provide rules that govern these and other 
electronic transfers. The regulation sets rules for issuance of ATM 
cards and other access devices; disclosure of terms and conditions of 
an EFT service; documentation of electronic fund transfers by means of 
terminal receipts and account statements; limitations on consumer 
liability for unauthorized transfers; procedures for error resolution; 
and certain rights related to preauthorized transfers.
    The EFTA is not limited to traditional financial institutions 
holding consumers' accounts. For EFT services made available by 
entities other than an account-holding financial institution, the act 
directs the Board to assure, by regulation, that the provisions of the 
act are made applicable. The regulation also applies to entities that 
issue access devices and enter into agreements with consumers to 
provide EFT services.

Electronic Benefit Transfer Programs

    Electronic benefit transfer (EBT) programs are designed to deliver 
government benefits such as Aid to Families with Dependent Children 
(AFDC), food stamps, Supplemental Security Income (SSI) and social 
security. These systems function much like commercial systems for EFT. 
Eligible recipients receive plastic magnetic-stripe cards and personal 
identification numbers (PINs) and they access benefits through 
electronic terminals. In the case of cash benefits such as AFDC or SSI, 
the terminals may include ATMs that are part of existing commercial 
networks; for food stamp benefits, POS terminals in grocery stores are 
typically used.
    EBT offers numerous advantages over paper-based delivery systems, 
both for recipients and for program agencies. For recipients, these 
advantages include faster access to benefits, greater convenience in 
terms of times and locations for obtaining benefits, improved security 
because funds may be accessed as needed, lower costs because recipients 
avoid check-cashing fees, and greater privacy and dignity. For 
agencies, EBT programs offer a system that can more efficiently deliver 
benefits for both state and federal programs by reducing the cost of 
benefit delivery, facilitating the management of program funds, and 
helping to reduce fraud.
    In March 1994, the Board amended Regulation E to bring EBT programs 
expressly within its coverage. 59 FR 10678 (March 7, 1994). The special 
provisions, contained in Sec. 205.15, applied most of the requirements 
of the regulation--including those relating to liability for 
unauthorized transactions and error resolution--with some 
modifications. The major exception related to the requirement to 
provide periodic statements of account activity: EBT programs need not 
provide periodic statements as long as (1) account balance information 
is made available to benefit recipients via telephone and electronic 
terminals and (2) a written account history is given upon request. The 
basic premise underlying the Board's 1994 amendments to Regulation E 
was that all consumers using EFT services should receive substantially 
the same protection under the EFTA and Regulation E. To enable states 
that are interested in EBT to test and implement their programs, the 
Board delayed the date of mandatory compliance to March 1, 1997.

II. Proposed Regulatory Provisions

    On August 22, 1996, the Congress enacted the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996, a 
comprehensive welfare reform law (Pub. L. 104-193, 110 Stat. 2105) 
(``the 1996 Act''). The 1996 Act contains

[[Page 3243]]

amendments to the EFTA that exempt ``needs-tested'' EBT programs 
established or administered under state or local law (for example, 
benefits such as the food stamp and AFDC programs). The 1996 amendments 
were enacted by the Congress at the urging of state officials, who 
expressed concern about the costs of compliance with the EFTA and 
Regulation E. In particular, the states believed that the EFTA 
provisions limiting a recipient's liability for unauthorized transfers 
could raise serious budgetary problems at the state level.
    The proposed amendments to Regulation E implement the amendments to 
the EFTA. Federally administered EBT programs and employment-related 
programs established by federal, state, or local governments (such as 
state pension programs) would continue to be subject to the modified 
rules established by the Board's 1994 rulemaking.

III. Section-by-Section Analysis of Proposed Amendments

Section 205.15--Electronic Fund Transfers of Government Benefits

    Section 205.15 contains the rules that apply to EBT programs as 
defined by the regulation. It provides modified rules on the issuance 
of access devices, periodic statements, initial disclosures, liability 
for unauthorized use, and error resolution notices. Employment-related 
benefit programs established by federal, state, or local governments 
(as well as federally administered programs) remain subject to these 
modified rules.
15(a)  Government Agency Subject to Regulation
15(a)(1)
    The act and regulation define coverage in terms of ``financial 
institution,'' a term that is broadly construed. Coverage applies to 
entities that provide EFT services to consumers whether these entities 
are banks, other depository institutions, or other types of 
organizations entirely. Paragraph (a)(1) specifies when a government 
agency is a financial institution for purposes of the act and 
regulation. Under the Board's proposal, this provision has been revised 
to exclude needs-tested benefits in a program established under state 
or local law or administered by a state or local agency, consistent 
with the 1996 statutory amendments.
15(a)(2)
    The term ``account'' is defined generally in Sec. 205.2(b). For 
purposes of EBT programs, ``account'' is defined in Sec. 205.15(a)(2) 
to mean an account established by a government agency for distributing 
benefits to a consumer electronically, such as through ATMs or POS 
terminals, whether or not the account is directly held by the agency or 
a bank or other depository institution. For example, an ``account'' 
under this section includes the use of a database containing the 
consumer's name and record of benefit transfers that is accessed for 
verification purposes before a particular transaction is approved. 
Under the Board's proposal, the definition would be revised to exclude 
needs-tested benefits in a program established under state or local law 
or administered by a state or local agency, consistent with the 1996 
amendments to the EFTA. Government benefits that would remain covered 
include federally administered benefits such as social security and SSI 
and state and local benefits that are employment-related such as 
retirement and unemployment benefits.

IV. Form of Comments Letters

    Comment letters should refer to Docket No. R-0959. The Board 
requests that, when possible, comments be prepared using a standard 
courier typeface with a type size of 10 or 12 characters per inch. This 
will enable the Board to convert the text into machine-readable form 
through electronic scanning, and will facilitate automated retrieval of 
comments for review. Comments also may be submitted on 3.5 or 5.25 inch 
computer diskettes, in any IBM-compatible DOS-based format. Comments on 
computer diskettes must be accompanied by a paper version.

V. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 603), the Board's Office of the Secretary has reviewed the 
proposed amendments to Regulation E. The amendments, which establish an 
exemption for certain EBT programs established or administered by a 
state or local agency, are not expected to have a significant impact on 
small entities. A final regulatory flexibility analysis will be 
conducted after consideration of comments received during the public 
comment period.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule 
under the authority delegated to the Board by the Office of Management 
and Budget. Comments on the collections of information should be sent 
to the Office of Management and Budget, Paperwork Reduction Project 
(7100-0200), Washington, DC 20503, with copies of such comments to be 
sent to Mary M. McLaughlin, Chief, Financial Reports Section, Division 
of Research and Statistics, Mail Stop 97, Board of Governors of the 
Federal Reserve System, Washington, DC 20551.
    An agency may not conduct or sponsor, and an organization is not 
required to respond to, this information collection unless it displays 
a currently valid OMB control number. The OMB control number for 
Regulation E is 7100-0200.
    The disclosures required by this regulation are found in 12 CFR 
Part 205 and are required to ensure adequate disclosure of basic terms, 
costs, and rights relating to electronic fund transfer services 
provided to consumers. The recordkeepers are providers of these 
services. Records must be retained for 24 months.
    Regulation E applies to all types of institutions that offer EFT 
services, not just state member banks. Under the Paperwork Reduction 
Act, however, the Federal Reserve accounts for the paperwork burden 
associated with Regulation E only for state member banks. Any estimates 
of paperwork burden for institutions other than state member banks are 
provided by the federal agency or agencies that supervise those 
institutions.
    There are 1,042 state member banks that are covered by Regulation E 
requirements, with an average frequency of 85,808 responses per year 
per bank. The total annual burden for all state member banks is 
estimated to be 478,804 hours; the combined annual cost is estimated to 
be $9,496,080. The proposed amendments provide an exemption for state-
administered or state-established electronic benefit transfer (EBT) 
programs; the amendments are not expected to increase the hour burden 
that the regulation imposes on state member banks or on other 
institutions.
    The disclosures to consumers under Regulation E are mandatory. 
Because the records would be maintained at state member banks, no issue 
of confidentiality under the Freedom of Information Act arises. 
Disclosures relating to specific transactions or accounts are not 
publicly available.
    Comments are invited on: (a) whether the proposed collection of 
information is necessary for the proper performance of the Federal 
Reserve's functions, including whether the information has practical 
utility; (b) the accuracy of the Federal Reserve's estimate of the 
burden of the proposed information collection, including the cost of 
compliance; (c)

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ways to enhance the quality, utility, and clarity of the information to 
be collected; and (d) ways to minimize the burden of information 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology.

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
changes to Regulation E. New language is shown inside bold-faced 
arrows.
    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR Part 205 as set forth below:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

    1. The authority citation for Part 205 is revised to read as 
follows:

    Authority: 15 U.S.C. 1693-1693r.

    2. Section 205.15 would be amended by revising paragraphs (a)(1) 
and (a)(2) to read as follows:


Sec. 205.15  Electronic fund transfer of government benefits.

    (a) Government agency subject to regulation. (1) A government 
agency is deemed to be a financial institution for purposes of the act 
and this part if directly or indirectly it issues an access device to a 
consumer for use in initiating an electronic fund transfer of 
government benefits from an account, other than needs-tested 
benefits in a program established under state or local law or 
administered by a state or local agency. The agency shall 
comply with all applicable requirements of the act and this part, 
except as provided in this section.
    (2) For purposes of this section, the term account means an account 
established by a government agency for distributing government benefits 
to a consumer electronically, such as through automated teller machines 
or point-of-sale terminals, but does not include an account 
for distributing needs-tested benefits in a program established under 
state or local law or administered by a state or local 
agency.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, January 15, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-1384 Filed 1-21-97; 8:45 am]
BILLING CODE 6210-01-P