[Federal Register Volume 62, Number 90 (Friday, May 9, 1997)]
[Proposed Rules]
[Pages 25572-25576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11928]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 207

RIN 1510-AA59


Electronic Benefits Transfer; Selection and Designation of 
Financial Institutions as Financial Agents

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of the Treasury, Financial Management Service 
(Service), proposes to adopt a new regulation dealing with the Direct 
Federal electronic benefits transfer (EBT) program. The Direct Federal 
EBT program provides access to Federal program benefit payments through 
electronic funds transfer (EFT) to individuals who do not have an 
account at a financial institution. The proposed Part 207 describes how 
the Service will implement EBT through the selection and designation of 
financial institutions as Financial Agents of the Treasury, and 
specifies the duties of such Financial Agents.

DATES: Comments must be received no later than July 8, 1997.

ADDRESSES: Comments may be mailed to the Director, Card Technology 
Division, Financial Management Service, U.S. Department of the 
Treasury, Room 526, Liberty Center, 401 14th Street, S.W., Washington, 
D.C. 20227. A copy of the proposed rule is available at the Service's 
home page at: http://www.fms.treas.gov. Comments on the proposed rule 
will be available for inspection in a reading room in the Department of 
the Treasury.

FOR FURTHER INFORMATION CONTACT: John P. Galligan, Director, Card 
Technology Division, (202) 874-6550, or Anne Wallace, Senior Attorney 
(202) 874-6681.

SUPPLEMENTARY INFORMATION:

Background

    The Department of the Treasury's Financial Management Service 
(Service) is the Federal Government's financial manager. Its mission 
includes providing leadership and assistance to Federal agencies in 
cash management, payment policy and financial systems, and collecting 
and disbursing public money. The Service issues over 850 million 
payments each year, totaling in excess of $1 trillion.
    The Service disburses payments under a variety of Federal programs, 
including Social Security Old Age, Survivors, and Disability Insurance, 
Supplemental Security Income, Black Lung, Railroad Retirement Board 
Retirement and Annuity, Department of Veterans Affairs Compensation and 
Pension, Civil Service Retirement and Disability, and Office of 
Personnel Management wage and salary payments. These payments are 
referred to as Direct Federal payments.
    The Service disburses public monies in one of two ways: Treasury 
check and EFT. Slightly more than half of the 850 million payments made 
annually, representing payments to more than 30 million individuals, 
are made by Direct Deposit. Direct Deposit is a safe, reliable, and 
economical EFT payment mechanism in which funds are sent through the 
automated clearing house (ACH) into an account established by the 
recipient at a financial institution.
    To utilize Direct Deposit under Treasury's regulations, a Direct 
Federal payment recipient must have an account with a financial 
institution and must designate that account as the location to which 
payments are to be sent by means of Direct Deposit. 31 CFR 210.4(a). 
However, an estimated 20-30 million Americans, including 10 million 
recipients of the Direct Federal payments mentioned above, do not have 
a bank account. These individuals are referred to as ``unbanked 
recipients'' in this proposal. Without an account at a financial 
institution, these recipients cannot receive their Direct Federal 
benefits via Direct Deposit. In order to afford unbanked recipients 
with a safe, reliable, and economical means of accessing their 
benefits, Treasury, together with other agencies in the Executive 
Branch, has been developing EBT for Direct Federal payments.
    EBT is any delivery system which disburses government benefits 
through EFT and replaces paper benefit distribution with EFT and 
electronic access in the form of a plastic card. EBT may utilize a 
debit card or a stored value card, usable at point of sale (POS)

[[Page 25573]]

terminals and automated teller machines (ATMs). A debit card is a 
plastic card with a magnetic stripe that permits access to an account 
at a financial institution. A stored value card is a plastic card in 
which a computer chip is embedded. The computer chip retains a record 
of the card's value.
    A majority of the States have implemented or are developing EBT 
systems. The benefits distributed in State EBT programs include those 
which are partly or fully funded by the Federal Government and 
administered by the State, such as Aid to Families with Dependent 
Children (AFDC), Food Stamps, and Women, Infants, and Children, and 
those that are fully funded and administered by the State, such as 
general assistance and unemployment compensation. For example, a number 
of States have replaced paper Food Stamp coupons with plastic cards 
that Food Stamp recipients use when purchasing food at participating 
certified grocery stores.
    Treasury also has tested EBT in the delivery of Direct Federal 
payments. In 1989, Treasury designated the First National Bank of 
Maryland as its Financial Agent in the SecureCard pilot in Baltimore, 
Maryland. This one-year pilot was conducted with approximately 300 
Supplemental Security Income recipients. In 1992, Treasury designated 
Citibank, N.A. as its Financial Agent in the Direct Payment Card pilot 
in Texas. The Direct Payment Card is an EBT program which provides 
unbanked recipients with access to Direct Federal payments. At the 
present time, there are approximately 21,000 active users of the Direct 
Payment Card throughout the State of Texas. In January, 1996, Treasury 
designated Citibank F.S.B. as its Financial Agent for EBT in the 
Southern Alliance of States (SAS). The SAS includes the states of 
Alabama, Arkansas, Florida, Georgia, Kentucky, Missouri, North Carolina 
and Tennessee.
    In his National Performance Review Report, ``On An Implementation 
Plan For Nationwide EBT,'' Vice President Gore encouraged Federal 
agencies, in partnership with State and local governments, to develop a 
nationwide integrated EBT system utilizing the commercial 
infrastructure and combined access to Direct Federal payments and 
State-administered benefits for an individual recipient on a single 
card.
    Recent legislation has provided additional urgency to the 
development of an electronic delivery system for the unbanked. Chapter 
10 of Pub. L. 104-134, which was signed by the President on April 25, 
1996, is the Debt Collection Improvement Act (DCIA). Section 31001(x) 
of the DCIA amends 31 U.S.C. 3332 to require Federal agencies to 
convert Federal payments, other than payments under the Internal 
Revenue Code, from checks to EFT in two phases. Phase one affects 
newly-eligible recipients of Federal payments. During phase one, which 
began on July 26, 1996, a recipient of a Federal payment who becomes 
eligible to receive the payment on or after July 26, 1996, must receive 
it by EFT unless the recipient certifies in writing that the recipient 
does not have an account at a financial institution or authorized 
payment agent. Phase two involves the conversion from checks to EFT of 
all Federal payments, except payments under the Internal Revenue Code. 
The DCIA provides that, subject to the Secretary's authority to grant 
waivers, after January 1, 1999, all Federal payments must be made by 
EFT.
    Section 3332(i) authorizes Treasury to issue regulations to 
implement the mandatory EFT requirements. On July 26, 1996, the Service 
issued an interim rule to implement the provisions of the DCIA that 
took effect on that date and to seek public comment on issues relating 
to implementation of the requirements that take effect in January 1999. 
61 FR 39254. The Service also described the steps it intends to take to 
implement the DCIA. The Service noted that it plans to engage in 
extensive educational and marketing efforts to promote Direct Deposit 
and Direct Deposit Too. Direct Deposit Too is a collaborative marketing 
initiative between the Federal Government and the financial services 
industry under which the Federal Government will encourage the 
financial industry to offer simple, low-cost, electronically-accessible 
accounts and will help market such accounts. 61 FR 39254-5.
    Treasury hopes that many unbanked recipients of Direct Federal 
payments will become ``banked'' as a result of public and private 
sector educational and marketing efforts. However, it is likely that a 
certain percentage of Direct Federal recipients will remain unbanked by 
the January 1999 deadline. Therefore, by that time, Treasury must have 
in place payment systems, such as EBT, which will permit the electronic 
delivery of funds to the unbanked. Treasury believes that, by 
establishing a legal framework, the adoption of Part 207 will 
facilitate implementation of the Direct Federal EBT program.

Part 207

    The Service has adopted regulations dealing with Direct Deposit 
which are codified at 31 CFR Part 210. Although Direct Deposit and EBT 
are similar in that both involve the movement of funds by EFT through 
the ACH, there are significant distinctions between them. For this 
reason, the Service believes it is desirable to adopt a regulation that 
deals specifically with EBT.
    There are three principal distinctions between Direct Deposit and 
EBT. First, Direct Deposit is an EFT system for recipients who already 
have an account at a financial institution; EBT is an EFT system for 
unbanked recipients of Direct Federal benefit payments. In the Direct 
Federal EBT program, a financial institution designated by Treasury as 
its Financial Agent for EBT establishes an account in the name of the 
recipient for the purpose of receiving and providing adequate access to 
Direct Federal payments by EFT. The establishment of this account can 
be viewed as changing the recipient's status from ``unbanked'' to 
``banked.'' However, it is important to note that, in EBT, all of the 
attributes of the account are determined by Treasury, none by the 
recipient, and the recipient has no ability to change the attributes of 
the account.
    The second distinction relates to the nature of the disbursement 
process and the relationship between Treasury and the financial 
institution that receives the funds. Both Direct Deposit and EBT 
involve the disbursement of public funds. In Direct Deposit, Treasury 
disburses public funds by originating an ACH credit to the financial 
institution that holds the recipient's account. By definition, however, 
EBT is a payment system for the unbanked. Therefore, the mere 
origination of an ACH credit will not accomplish the program objective 
of placing funds representing the benefit payment into the hands of the 
recipient. Thus, in EBT, disbursement is a multi-step process that 
includes, in addition to the origination of an ACH credit, the 
establishment of an account for the unbanked recipient by Treasury's 
Financial Agent and the provision of access to that account by the 
Financial Agent.
    As discussed below, under Federal law, the authority to disburse 
public money is limited to specific persons and entities. Financial 
institutions that have been designated by the Secretary as financial 
agents of the Government are among the entities authorized by Federal 
law to carry out the disbursement function. The designation of a 
financial institution as a financial agent creates a principal-agent 
relationship between Treasury and the financial agent. As in any agency 
relationship, as agents of the United States, financial agents act upon 
the instructions of the principal, the

[[Page 25574]]

Treasury, and answer only to the principal. Under proposed Part 207, 
the Financial Agent acts as agent of the United States, not as agent of 
the unbanked recipient, in establishing the account and providing 
services. For example, under proposed Sec. 207.3(a)(1), the Financial 
Agent opens an account for the unbanked recipient at Treasury's 
direction and may close the account only at Treasury's direction. The 
Financial Agent for EBT is accountable only to Treasury, and Treasury 
will hold the Financial Agent responsible for the performance of these 
duties.
    In contrast, under Treasury's Direct Deposit regulations, a 
financial institution does not become a financial agent by virtue of 
its receipt of a payment by Direct Deposit. 31 CFR 210.7(g). This is 
because, in Direct Deposit, the financial institution is selected by 
and acts as agent of its depositor, the recipient, and not as an agent 
of the Government. The depositor has complete freedom to choose the 
financial institution at which the account will be maintained and to 
change institutions at will.
    The third distinction between Direct Deposit and EBT relates to the 
discretion possessed by the financial institution in providing access 
to the recipient's funds. In Direct Deposit, the recipient's financial 
institution provides access to funds in the recipient's account in 
accordance with the deposit contract between the financial institution 
and its depositor. Treasury is not a party to the deposit contract. 
Thus, the financial institution provides its depositor with whatever 
means of access, including checks, as agreed to by the parties. And, of 
course, Treasury has no responsibility for the nature or quality of 
services provided.
    In the Direct Federal EBT program, the Financial Agent provides 
unbanked recipients with access to their benefit payments in the manner 
and on the terms specified in Part 207 and the agreement between 
Treasury and the Financial Agent. Specifically, under proposed 
Sec. 207.3(a)(4), the Financial Agent is required to issue to each 
unbanked recipient a debit card bearing the Treasury's registered 
service mark for EBT, the Benefit Security Card. The 
service mark identifies the debit card, and the cardholder-recipient, 
with the Direct Federal EBT program. The recipient is able to use this 
card at ATMs and POS terminals on terms and conditions specified by 
Treasury. No checks are issued to the recipient.
    The statutory basis for the designation of financial institutions 
as financial agents and the relationship between Treasury, the 
Financial Agent for EBT, and the unbanked recipient are discussed in 
more detail below.

Section-by-Section Analysis

Section 207.1--Scope

    Proposed Sec. 207.1 provides that Part 207 governs Direct Federal 
EBT. The Direct Federal EBT program differs in several important 
respects from Direct Deposit, which is subject to regulations found at 
31 CFR Part 210. The Service believes it is desirable to adopt a 
regulation that reflects the unique character of Direct Federal EBT.

Section 207.2--Definitions

    The Service is the registered owner of the Benefit Security 
Card mark; the Patent and Trademark Office issued 
Registration number 1,946,344 to the Service on January 9, 1996. 
Treasury intends to use the Benefit Security Card mark to 
identify the Direct Federal EBT program. Proposed Sec. 207.3(a)(4) 
directs the Financial Agent for EBT to use this service mark on all EBT 
cards.
    The Service proposes to define the term ``Direct Federal electronic 
benefits transfer (EBT)'' as a program for providing the unbanked with 
electronic access to their Direct Federal benefit payments through the 
disbursement by a financial institution acting as Financial Agent of 
the United States. The proposed definition makes it clear that EBT is 
for the unbanked, unlike Direct Deposit where a recipient must have a 
preexisting account relationship with a financial institution. The 
proposed definition also makes clear that EBT involves the disbursement 
of public funds. See the discussion below of the proposed definition of 
``disburse.''
    The Service proposes to define the term ``Direct Federal payment'' 
as including payments under any Federally funded entitlement, pension, 
annuity, wage or salary program not administered by a State government. 
This category includes Social Security Old Age, Survivors, and 
Disability Insurance, Supplemental Security Income, Black Lung, 
Railroad Retirement Board Retirement and Annuity, Department of 
Veterans Affairs Compensation and Pension, Civil Service Retirement and 
Disability, and Office of Personnel Management wage and salary 
payments.
    Proposed Sec. 207.2 defines the term ``disburse'' in the context of 
EBT as the performance of a series of functions by a financial 
institution that has been designated as a Financial Agent of the United 
States. These functions are: The establishment of an account in the 
name of an unbanked recipient; the maintenance of the account; the 
crediting of Direct Federal payments to the account; and the provision 
of access to the account on terms specified by the Service.
    Two elements of this definition are significant: the multiple 
functions which, taken together, comprise the act of disbursement; and 
the identity of the party performing disbursement. First, it should be 
noted that the broad definition of ``disburse'' in proposed Sec. 207.2 
reflects the Service's determination that all these functions must be 
performed in order to accomplish Treasury's goal of providing unbanked 
recipients with electronic access to their benefit payments. By 
contrast, the term ``disburse'' is used in a narrower sense in 31 CFR 
Part 206, where the Service's regulation deals with the management of 
Federal agency receipts and collections. There, ``disburse'' is defined 
in 31 CFR 206.2 as the initiation of an electronic funds transfer 
because, in the context of agency cash management where all the parties 
have accounts at financial institutions, the only function that needs 
to be performed in order to deliver public money by EFT to the intended 
recipient is the initiation of an electronic funds transfer.
    Federal law authorizes the Secretary of the Treasury to disburse 
public money for the executive branch and specifies the individuals and 
entities to whom the Secretary can delegate the performance of this 
task. Section 3321 of Title 31 provides, in relevant part:

    (a) Except as provided in this section or another law, only 
officers and employees of the Department of the Treasury designated 
by the Secretary of the Treasury as disbursing officials may 
disburse public money available for expenditure by an executive 
agency.
    (b) For economy and efficiency, the Secretary may delegate the 
authority to disburse public money to officers and employees of 
other executive agencies.

    Thus, the authority to disburse public funds is limited to 
designated officers and employees of Treasury, designated officers and 
employees of another executive agency under a delegation of authority 
from Treasury, or other entities to the extent they are authorized 
under some other specific statutory provision. One such provision is 31 
U.S.C. 3327, which provides, in pertinent part:

    When the Secretary decides it is convenient to a public creditor 
and in the public interest, the Secretary may designate a depositary 
to issue a check or other draft on public money held by the 
depositary to pay an obligation of the Government.


[[Page 25575]]


    Other Federal laws specifically authorize ``depositaries'' of 
public money, that is, banks or other financial institutions, to 
disburse public money as ``financial agents'' of the Government. For 
example, 12 U.S.C. 90 authorizes the Secretary of the Treasury to 
designate national banks as financial agents. That section provides, in 
relevant part:

    All national banking associations, designated for that purpose 
by the Secretary * * * shall be depositaries of public money, under 
such regulations as may be prescribed by the Secretary; and they may 
also be employed as financial agents of the Government; and they 
shall perform all such reasonable duties, as depositaries of public 
money and financial agents * * * as may be required from time to 
time.

    Federal law also authorizes the Secretary to designate other types 
of financial institutions as financial agents. See, 12 U.S.C. 265, 266, 
391, 1452(d), 1767, 1789a, 2013, 2122, and 31 U.S.C. 3122 and 3303.
    Recent legislation clarified the Secretary's authority to use 
financial institutions designated as financial agents for EBT. Section 
665, Omnibus Consolidated Appropriations Act, 1997, Pub. L. 104-208, 
amends 12 U.S.C. 90 by adding the following sentence to the end of that 
provision:

    Notwithstanding the Federal Property and Administrative Services 
Act of 1949, as amended, the Secretary may select [national banking] 
associations as financial agents in accordance with any process the 
Secretary deems appropriate and their reasonable duties may include 
the provision of [EBT] services (including State-administered 
benefits with the consent of the States), as defined by the 
Secretary.

    Corresponding amendments were made to the ten other provisions of 
Federal law that authorize the designation of financial institutions as 
financial agents.
    Relying upon this authority, the Service proposes to use financial 
institutions designated as financial agents of the Government to 
perform the disbursement of public funds that is central to the Direct 
Federal EBT program. The Service wishes to emphasize that proposed 
definition would not preclude a financial agent from working with one 
or more non-financial institutions in providing Direct Federal EBT 
services.
    The proposed definition of ``eligible financial institution'' lists 
the eleven provisions in Federal law discussed above that authorize the 
designation of financial institutions as financial agents of the 
Government.
    The Service proposes to define the term ``Financial Agent'' as a 
financial institution that has been designated as a Financial Agent of 
the United States for EBT.
    Proposed Sec. 207.2 defines ``recipient'' as a natural person 
entitled to receive a Direct Federal payment.
    The proposed definition of the ``Service'' provides that the 
Financial Management Service is a bureau of the Department of the 
Treasury. The Service is responsible for implementation of the Direct 
Federal EBT program.
    The Service proposes to define ``State EBT program'' as a program 
established under State or local law or administered by a State or 
local agency to provide electronic access to benefits. A number of 
States distribute cash benefits, such as AFDC and unemployment 
compensation, through the ACH. Proposed Sec. 207.3(a)(3) authorizes the 
Financial Agent for EBT to credit such payments to the account 
established pursuant to Sec. 207.3(a)(1). Obviously, non-cash benefits, 
such as Food Stamps, could not be added to the deposit account 
established by the Financial Agent.
    The Service's proposed definition of ``State EBT program'' is based 
on language used by the Board of Governors of the Federal Reserve 
System in a recently proposed amendment to Regulation E, 12 CFR Part 
205. 62 FR 3242.
    The Board's proposed amendment implements legislation which 
exempted from the Electronic Funds Transfer Act ``needs-tested'' EBT 
programs, such as AFDC, established or administered under State or 
local law. However, the Service's proposed definition is not limited to 
needs-tested programs. Therefore, under this proposal, the Financial 
Agent could credit to the account established under Sec. 207.3(a)(1) 
needs-tested cash payments, such as AFDC, or cash payments which are 
not needs-tested, such as unemployment compensation.
    The proposed definition of ``unbanked recipient'' describes the 
class of persons eligible to participate in the Direct Federal EBT 
program as comprising those recipients who do not have an account at a 
financial institution. This definition reflects the distinction between 
Direct Deposit and the Direct Federal EBT program. The Service's Direct 
Deposit regulation provides that, in order to receive a benefit payment 
by Direct Deposit, the recipient ``shall designate the desired 
financial institution and account identification at that financial 
institution.'' 31 CFR 210.4(a). Obviously, a recipient who does not 
have an account at a financial institution cannot satisfy this 
requirement. The Direct Federal EBT program is designed to meet the 
needs of such recipients.

Section 207.3--Duties of the Financial Agent

    Proposed Sec. 207.3(a) describes the duties of a Financial Agent 
for EBT. The proposal contemplates the performance by the Financial 
Agent of a broad range of duties; as noted above, non-financial 
institutions can partner with the Financial Agent. In addition, it 
should be noted that Treasury possesses the inherent authority to 
perform, as principal, many of the duties described in this section. 
The regulation should not be interpreted as precluding Treasury from 
performing certain functions directly, should it determine that doing 
so is in the best interests of the Government.
    Proposed Sec. 207.3(a)(1) requires the Financial Agent to establish 
an account in the name of each unbanked recipient. The operational or 
accounting convention used by the Financial Agent is irrelevant; the 
account may be a master or subaccount, provided the deposit account 
records of the Financial Agent make clear the unbanked recipient's 
ownership rights in the account. In addition, the proposal provides 
that, since the Financial Agent acts as agent of Treasury in 
establishing the account, the account may be closed only at the 
direction of the Service.
    Proposed Sec. 207.3(a)(2) provides that the Financial Agent must 
comply with Regulation E, 12 CFR Part 205. The Financial Agent would be 
required to comply with Regulation E regardless of the requirement 
imposed by Sec. 207.3(a)(2); the Service includes this requirement in 
Part 207 merely to emphasize that unbanked recipients participating in 
the Direct Federal EBT program will receive full Regulation E 
protection.
    Proposed Sec. 207.3(a)(3) requires the Financial Agent to credit to 
the account established pursuant to Sec. 207.3(a)(1) Direct Federal 
payments received through the ACH. In addition, as discussed above, the 
Service is proposing to permit the Financial Agent to credit cash 
payments made to the recipient under a State EBT program to such 
account. No other deposits, whether over the counter or by EFT, may be 
made to the account.
    Proposed Sec. 207.3(a)(4) would require the Financial Agent to 
issue to each unbanked recipient a debit card bearing the Service's 
registered service mark, Benefit Security Card. The 
recipient may use this card to access his or her account at ATMs and 
POS terminals.

[[Page 25576]]

    Under proposed Sec. 207.3(a)(5), the Financial Agent is required to 
provide service to cardholders on such terms and conditions as the 
Service specifies. The customer service duties of the Financial Agent 
will be described in detail in the Invitation for Expression of 
Interest (IEI) or in the Financial Agency Agreement between the Service 
and the Financial Agent.
    Proposed Sec. 207.3(a)(6) is a catch-all provision that would 
require the Financial Agent to perform any duties not specifically 
enumerated in this Part which the Service determines are necessary or 
appropriate in connection with the Direct Federal EBT program.
    Proposed Sec. 207.3(b) provides that, in carrying out its duties, 
the Financial Agent acts as agent of the United States and not as agent 
of the unbanked recipient.

Rulemaking Analysis

    Treasury has determined that this proposed regulation is not a 
significant regulatory action as defined in Executive Order 12866. It 
is hereby certified that this rule will not have a significant economic 
impact on a substantial number of small business entities. The proposed 
rule does not require any actions on the part of small entities. 
Accordingly, a Regulatory Flexibility Act analysis is not required.

List of Subjects in 31 CFR Part 207

    Automated clearing house, Banks, Banking, Electronic funds 
transfer, Federal Reserve System, Financial institutions, Government 
payments.

    For the reasons set out in the preamble, the Service proposes to 
add Part 207 to title 31, chap. II, as follows:

PART 207--ELECTRONIC BENEFITS TRANSFER; DESIGNATION OF FINANCIAL 
INSTITUTIONS AS FINANCIAL AGENTS

Sec.
207.1  Scope.
207.2  Definitions.
207.3  Duties of the financial agent.

    Authority: 12 U.S.C. 90, 265, 266, 391, 1452(d), 1767, 1789a, 
2013, 2122; 31 U.S.C. 321, 3122, 3303, 3321, 3327, 3332, 3335 and 
3336.


Sec. 207.1  Scope.

    This part governs Direct Federal electronic benefits transfer 
(EBT), which involves the disbursement by electronic funds transfer of 
Direct Federal payments to unbanked recipients through the selection 
and designation of financial institutions as Financial Agents of the 
United States, and describes the duties of such Financial Agents.


Sec. 207.2  Definitions.

    For purposes of this part:
    Benefit Security Card means the Service's registered 
service mark for Direct Federal EBT.
    Direct Federal electronic benefits transfer (EBT) means a program 
for providing electronic access to Direct Federal payments to unbanked 
recipients through disbursement by a financial institution acting as 
Financial Agent of the United States.
    Direct Federal payment means a payment under any entitlement, 
pension, annuity, or wage or salary program.
    Disburse means, in the context of Direct Federal EBT, the 
performance of the following duties by a Financial Agent acting as 
agent of the United States: the establishment at a financial 
institution of an account in the name of an unbanked recipient; the 
maintenance of such account; the receiving of Direct Federal payments 
through the ACH and crediting of Direct Federal payments to the 
account; and the provision of access to such account on the terms 
specified by the Service and in accordance with this part.
    Eligible financial institution means an institution eligible for 
designation as a Depositary and Financial Agent under any one of the 
following provisions of Federal law: 12 U.S.C. 90, 265, 266, 391, 
1452(d), 1767, 1789a, 2013, 2122; and 31 U.S.C. 3122 and 3303.
    Financial agent means an eligible financial institution that has 
been designated as a Depository and Financial Agent of the United 
States for EBT pursuant to this part.
    Recipient means a natural person entitled to receive a Direct 
Federal payment.
    Service means the Financial Management Service, a bureau of the 
United States Treasury.
    State EBT program means a program established under State or local 
law or administered by a State or local agency for providing electronic 
access to needs-tested or other benefits.
    Unbanked recipient means a recipient who does not have an account 
at a financial institution.


Sec. 207.3  Duties of the financial agent.

    (a) The financial agent shall:
    (1) Establish an account in the name of each unbanked recipient. 
Such account must be eligible for Federal deposit insurance and may be 
closed only at the direction of the Service.
    (2) Comply with Regulation E, 12 CFR part 205.
    (3) Credit to such account Direct Federal payments received through 
the automated clearing house. The Financial Agent also may credit to 
the account payments under a State EBT program.
    (4) Issue to each unbanked recipient a debit card bearing the 
Benefit Security Card service mark which will permit the 
recipient to access the account established pursuant to paragraph 
(a)(1) of this section at automated teller machines and point of sale 
terminals.
    (5) Provide service to Benefit Security Card holders on 
such terms as the Service specifies; and,
    (6) Perform such other duties as the Service may specify.
    (b) In performing the duties described in subsection (a), the 
financial agent shall act solely as the agent of the United States, not 
as agent of the unbanked recipient, and shall be accountable only to 
the Treasury.

Russell D. Morris,
Commissioner.
[FR Doc. 97-11928 Filed 5-8-97; 8:45 am]
BILLING CODE 4810-35-P