[Federal Register Volume 62, Number 179 (Tuesday, September 16, 1997)]
[Proposed Rules]
[Pages 48714-48726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24553]
[[Page 48713]]
_______________________________________________________________________
Part II
Department of the Treasury
_______________________________________________________________________
Fiscal Service
_______________________________________________________________________
31 CFR Part 208
Management of Federal Agency Disbursements; Proposed Rule
Federal Register / Vol. 62, No. 179 / Tuesday, September 16, 1997 /
Proposed Rules
[[Page 48714]]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 208
RIN 1510-AA56
Management of Federal Agency Disbursements
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Notice of proposed rulemaking; notice of public hearings.
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SUMMARY: Section 31001(x) of the Debt Collection Improvement Act of
1996 (the ``Act'') amends 31 U.S.C. 3332 to require Federal agencies
(``agencies'') to convert all Federal payments (other than payments
under the Internal Revenue Code) from checks to electronic funds
transfer (``EFT'') in two phases. Phase one began July 26, 1996. All
recipients who become eligible to receive Federal payments on or after
that date are required to receive such payments by EFT unless the
recipient certifies in writing that the recipient does not have either
an account with a financial institution or an authorized payment agent.
The Department of the Treasury (``Treasury'') issued an interim rule on
July 26, 1996, to implement these requirements.
Phase two begins January 2, 1999. The Act provides that, subject to
the authority of the Secretary of the Treasury (the ``Secretary'') to
grant waivers, all Federal payments (other than payments under the
Internal Revenue Code) made after January 1, 1999 must be made by EFT.
This proposed rule, to implement the requirements that take effect
after January 1, 1999, is being published for comment.
DATES: Written comments on the proposed rule must be received no later
than December 16, 1997. Public hearings on the proposed rule will be
held in Dallas on October 14, 1997, in New York City on October 27,
1997, and in Baltimore on October 30, 1997. Requests to speak at one of
the three public hearings must be received 14 days before the date of
that hearing. See the Supplementary Information for further details
concerning the hearings.
ADDRESSES: Comments should be sent to Cynthia L. Johnson, Director,
Cash Management Policy and Planning Division, Financial Management
Service, U.S. Department of the Treasury, Room 420, 401 14th Street
S.W., Washington, D.C. 20227. A copy of the proposed rule is available
on the Financial Management Service's EFT web site at http://
www.fms.treas.gov/eft/. Public hearings will be held in Dallas on
October 14, 1997, in New York City on October 27, 1997, and in
Baltimore on October 30, 1997. Requests to present oral comments at one
of the public hearings should be directed to Martha Thomas-Mitchell by
calling (202) 874-6757, or by sending an Internet e-mail to
[email protected]. See the Supplementary
Information for further details concerning the hearings. Comments on
the proposed rule and transcripts of the hearings will be available for
public inspection and downloading at the web site address shown above
and for public inspection and copying at the Department of the Treasury
Library, Room 5030, 1500 Pennsylvania Avenue, N.W., Washington, D.C. To
make an appointment to inspect comments and transcripts, please call
(202) 622-0990.
FOR FURTHER INFORMATION CONTACT: Robyn Schulhof, Financial Program
Specialist, at (202) 874-6754; Diana Shevlin, Financial Program
Specialist, at (202) 874-7032; Cynthia L. Johnson, Director, Cash
Management Policy and Planning Division, at (202) 874-6590; Sally
Phillips, Senior Financial Program Specialist, at (202) 874-6749;
Margaret Marquette, Attorney-Advisor at (202) 219-3320; or Natalie
Diana, Attorney-Advisor at (202) 874-6827.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
Section 31001(x) of the Act amends 31 U.S.C. 3332 to require
agencies to convert from paper-based payment methods to EFT under
regulations issued by the Secretary. The Act, which exempts only
payments under the Internal Revenue Code of 1986, provides that the
conversion from checks to EFT be made in two phases.
During the first phase, which began July 26, 1996, all Federal
payments to recipients who become eligible to receive those payments on
or after that date must be made by EFT unless the recipient provides a
written certification that the recipient does not have an account with
a financial institution 1 or an authorized payment agent. On
July 26, 1996, Treasury issued an interim rule to implement these
requirements. 61 FR 39254. The interim rule will remain in effect
through January 1, 1999.
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\1\ As used herein, ``financial institution'' means any
institution included in the definition of depository institution in
12 U.S.C. 461(b)(1)(A), excluding subparagraphs (v) and (vii), and
any agency or branch of a foreign bank as defined in 12 U.S.C. 3101.
See also the related section-by-section discussion of this term
defined in the proposed rule at Sec. 208.2(e).
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Phase two begins on January 2, 1999; after that date all Federal
payments must be made by EFT unless a waiver is available. Under 31
U.S.C. 3332(f)(2), the Secretary is authorized to waive the EFT
requirement in specified circumstances based on standards developed by
the Secretary. The Act requires recipients of Federal payments (1) to
designate a financial institution or authorized agent to which the
Federal payments shall be made and (2) to provide the agency that makes
the payments with the information needed to make the payments by EFT.
12 U.S.C. 3332(g). The final rule, which will take effect on January 2,
1999, is intended to provide guidance to agencies and recipients
regarding compliance with these requirements.
The Act makes EFT the standard for Federal payments. In
implementing the Act, Treasury seeks to bring into the mainstream of
the financial system those millions of Americans who receive Federal
payments and who currently do not use the financial system to receive
funds, make payments, save, borrow or invest. Treasury's goals in the
implementation process are simple, and focus on payment recipients.
These goals include the following: making certain that recipients have
access to their funds at a reasonable cost; providing appropriate
consumer protection; ensuring that the system delivers payments and
information accurately, conveniently, and in a timely manner; and
significantly increasing participation by recipients in the country's
financial system.
The Financial Management Service (the ``Service''), a bureau in the
Department of the Treasury, is responsible for implementation of the
Act. As the Federal Government's financial manager, the Service is
responsible for collecting and disbursing public money. In fiscal year
1996, the Service issued more than 850 million payments. Approximately
81 percent of those payments (685 million payments) were made to
individuals under various benefit programs such as Social Security; the
remaining payments consisted of salary, vendor, loan, grant, and tax
refund payments.
In fiscal year 1996, approximately 53 percent of Treasury payments
were made by EFT. Making payment by EFT benefits both recipients and
the Government. Agency records indicate that recipients are 20 times
less likely to have a problem with an electronic payment than with a
paper check. Unlike check payments, electronic
[[Page 48715]]
payments are not susceptible to being lost, stolen, or damaged in
transit. In those few cases where an electronic payment is misrouted,
it can be traced and rerouted to the recipient, usually within 24 hours
after a claim of non-receipt is received, compared to an average of 14
days for a check. Further, electronic payments are far less susceptible
to forgery or alteration than checks. Each year, the Government handles
claims relating to approximately $60 million in forged checks, $1.8
million in counterfeit checks, and $3.3 million in altered checks.
EFT payments are also less costly than checks. A check costs the
Government approximately 43 cents, including postage, paper check stock
and labor costs. An EFT payment costs approximately two cents. Full
implementation of the Act is expected to achieve Government-wide
savings of about $100 million per year.
Over the past two decades, Treasury has developed numerous products
and services to enable agencies to make EFT payments. These include
Direct Deposit, Vendor Express, the Automated Standard Application for
Payments (``ASAP'') and electronic benefits transfer (``EBT'').
The Direct Deposit program is used by agencies to make benefit
payments, as well as wage, salary, retirement, allotment, and travel
advance and reimbursement payments.
The Vendor Express program transfers payments directly into the
accounts of vendors and other commercial payees. It also provides
identifying information about the payment, referred to as remittance
data, in an addendum to the payment.
The ASAP system is an electronic payments system used to deliver
time-sensitive Federal funds to organizations that have a continuing
relationship with the Federal Government. ASAP is used for grant
payments and ``same day'' payments to contractors.
The above products primarily use the Automated Clearing House
(``ACH'') network, a nationwide processing and delivery facility that
provides for the distribution and settlement of electronic financial
transactions. Some of Treasury's payment services use Fedwire, a funds
transfer system operated by the Federal Reserve System. Fedwire is used
primarily for large dollar, small volume payments that need to be
confirmed immediately, such as payments to businesses, State and local
governments, and educational institutions.
Treasury, along with other agencies, is continuously researching
and developing new electronic payment products. In the near future,
Treasury expects to publish for comment a proposal to amend its
regulation dealing with the use of the ACH network by agencies. The
revision of 31 CFR Part 210 will accommodate the current and future use
of the ACH network by agencies.
B. Participation in Rulemaking Process
Treasury believes that the success of the conversion to EFT depends
on the involvement of all interested parties in the rulemaking process.
In developing the proposed rule, Treasury used a wide variety of
approaches to obtain data and solicit input from these parties.
The interim rule specifically invited the public to comment on
obstacles to receiving payments electronically, the availability of
banking services, suggestions for new and improved electronic payment
methods, the role of authorized payment agents, and the needs of
recipients without bank accounts. The financial industry was invited to
discuss electronic payment processing capabilities and suggestions for
new and improved electronic payment methods. Agencies were asked to
submit implementation plans that describe the types of payments they
make by check, the obstacles they face in converting such payments to
EFT, suggestions for removing these obstacles, timetables for
converting payments, and whether assistance is needed.
Since the publication of the interim rule, Treasury has held
numerous meetings with representatives from consumer interest
organizations and the financial industry. Treasury also hosted a
consumer briefing session attended by representatives from over 30
consumer organizations and a similar briefing for industry that was
attended by representatives from 13 financial trade associations.
In addition, Treasury contracted for two research studies related
to the electronic payment mandate. The studies were used primarily to
obtain information regarding the characteristics of Federal check
recipients and to better understand the needs of those recipients,
particularly with respect to Federal benefit payments. The studies are
available on the Service's EFT web site at http://www.fms.treas.gov/
eft/.
Treasury obtained input from agencies through a number of forums,
including 11 regional meetings that were attended by more than 1100
agency representatives. Treasury also established an EFT Interagency
Policy Workgroup consisting of representatives from 25 executive branch
agencies. Finally, Treasury has reviewed the agency implementation
plans submitted in response to the interim rule.
C. Public Hearings
In addition, Treasury will hold three public hearings on the
proposed rule. The first hearing will be held in Dallas on October 14,
1997, at the Federal Reserve Bank of Dallas, 2200 North Pearl Street,
Dallas, Texas. The second hearing will be held in New York City on
October 27, 1997, at the U.S. Alexander Hamilton Customs House, 1
Bowling Green, New York, New York. The third hearing will be held in
Baltimore on October 30, 1997, at the Baltimore Branch of the Federal
Reserve Bank of Richmond, 502 South Sharp Street, Baltimore, Maryland.
The hearings in Baltimore and Dallas will begin at 9:00 a.m. The
hearing in New York City will begin at 10:00 a.m.
Requests to present oral comments at one of the public hearings
should be directed to Martha Thomas-Mitchell by calling (202) 874-6757
or by sending an Internet e-mail to martha-thomas-
[email protected] not later than 14 days before the date of the
hearing. Requests to present oral comments must be accompanied by an
outline of topics to be discussed. In order to facilitate the
distribution of the comments to attendees at the hearings, presenters
must submit, in writing, the text of the comments to be made, at least
three business days prior to the hearing. Presentations will be limited
to approximately 10 minutes or less. Treasury reserves the right to
impose further time or other restrictions on all presentations.
Please notify Martha Thomas-Mitchell prior to the date of the
public hearing if any special arrangements or auxiliary aids or
services are needed.
II. Comments on the Interim Rule
Treasury received 33 comment letters on the interim rule.\2\ The
letters were submitted by four consumer organizations, nine trade and
labor organizations and associations, two banks, four non-financial
institutions, two State government agencies, and nine Federal agencies
and offices. Three organizations submitted two letters. The comment
letters generally supported the Act and the interim rule, although
commenters expressed a wide range of views regarding how best to
achieve the Act's objectives.
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\2\ Comments on the interim rule are available for public
inspection and copying at the Treasury Library, Room 5030, 1500
Pennsylvania Avenue, N.W., Washington, D.C.
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The principal issues addressed in the comment letters were the
needs of
[[Page 48716]]
recipients who do not have bank accounts; the need for consumer
protection in connection with EFT; the definition of authorized payment
agent and the regulation of such entities; the costs associated with
EFT; waivers; vendor payments; and the importance of educating
recipients about the EFT mandate. Specific comments are discussed below
in the section-by-section analysis.
III. Section-by-Section Analysis
A. Section 208.1--Scope and Application
With one exception, proposed Sec. 208.1 is the same as the
corresponding provision in the interim rule. The interim rule requires
agencies to make payments by EFT, ``unless a waiver is granted.''
Treasury proposes to replace this phrase with a reference to Sec. 208.4
indicating that agencies and recipients may rely upon the waivers
described in that section.
B. Section 208.2--Definitions
Section 208.2(a)--Agency
The definition of agency is identical to the definition in the
interim rule. For a discussion of this term, see 61 FR 39254, 39255.
Section 208.2(b)--Authorized Payment Agent
The term authorized payment agent was the focus of extensive
comment and discussion. Some consumer organizations urged Treasury to
prohibit certain entities from acting as authorized payment agents,
while other organizations suggested that Treasury impose a variety of
substantive restrictions on such entities. Some commenters supported
defining this term as including non-financial institutions as well as
financial institutions on the ground that this would allow recipients
without bank accounts to have greater access to electronic payments,
while others urged Treasury to limit the category to Federally-insured
financial institutions. Concern was expressed about non-financial
institutions that charge what was described as excessively high fees
for check cashing and other financial services. Treasury was urged to
limit the fees charged by authorized payment agents for recipients to
access their funds and to regulate the contractual arrangements between
authorized payment agents and recipients.
One commenter recommended that if non-financial institutions were
included in the definition of ``authorized payment agent,'' they should
be required to provide the same level of consumer protection as
financial institutions.
One consumer organization argued that only financial institutions
and ``possibly the U.S. Post Office'' should be permitted to act as
authorized payment agents because no limitations on the contractual
relationship between the non-financial institution and the recipient
could protect the recipient adequately. A group representing the
elderly expressed concern that if nursing homes, assisted living
facilities, or other institutions with a financial interest in the
recipient's payment are permitted to act as payment agents, they could
impose excessive service fees.
A group representing check cashers urged Treasury to define
``authorized payment agent'' in a manner that would allow check cashers
to be designated as authorized payment agents. The group commented that
check cashers were in a unique position to deliver payments to Federal
recipients because of their locations in areas where there are few bank
branches and because of the customer service they provide.
A national money transmitter commented that Treasury should allow
money transmitters to be authorized payment agents because of their
numerous locations nationwide and because of their experience in
serving those without bank accounts.
In formulating the proposed regulation, Treasury has considered the
language of the Act, as well as the protection of recipients, the
comments received, and consistency with other Treasury regulations.
The Act refers to ``authorized payment agent,'' ``authorized
agents,'' and ``agent.'' Section 3332(e)(2) directs an agency to waive
the requirement to receive payment by EFT during phase one of the EFT
mandate if the recipient certifies in writing that he or she ``does not
have an account with a financial institution or an authorized payment
agent.''
Section 3332(g) provides that:
Each recipient of Federal payments required to be made by
electronic funds transfer shall--
(1) designate 1 or more financial institutions or other
authorized agents to which such payments shall be made; and
(2) provide to the Federal agency that makes or authorizes the
payments information necessary for the recipient to receive
electronic funds transfer payments through each institution or agent
designated under paragraph (1).
(Emphases added.)
The Act, however, does not define ``authorized payment agent,'' and
the legislative history is silent on the meaning of this term. Treasury
believes that all three terms--``authorized payment agent,''
``authorized agents,'' and agent''--refer to the same entity or
entities and are to be construed identically. The language quoted above
suggests that an authorized payment agent is an entity other than a
financial institution. Further, this language could be read as meaning
that payment may be made to an authorized payment agent, either
directly to an account held by an authorized payment agent, or to an
account held by a financial institution in the name of the authorized
payment agent.
At the present time, however, Treasury cannot deliver a Federal
payment by EFT directly to an entity other than a financial institution
because electronic financial transactions are made primarily through
the ACH network and membership in the ACH network system is limited to
financial institutions. Further, as a general rule, the Federal Reserve
Banks provide ACH and wire services only to financial institutions.
Therefore, it is not possible from an operational standpoint to deliver
Federal payments by EFT directly to any entity that is not a financial
institution.
It is possible operationally to deliver a payment by EFT to an
account in the name of an authorized payment agent held by a financial
institution. However, the deposit of a Federal payment into an account
controlled by a third party other than the person entitled to the
payment raises concerns about the protection of the recipient's
interests. Specifically, Treasury is concerned about the potential
failure of agents to honor their obligations, especially since, except
in limited cases, there is no Federal oversight of such arrangements.
Additionally, non-financial institutions may not be subject to Federal
consumer protection laws. Therefore, defining ``authorized payment
agent'' broadly and permitting Federal payments to be deposited into
accounts controlled by a wide range of entities may expose recipients
to the credit risk associated with the failure of such authorized
payment agents. However, there is one situation in which experience
suggests that it is in the best interest of the recipient to make a
Federal payment to someone other than the recipient. This situation
involves recipients who are physically or mentally incapable of
managing their payments.
Proposed Sec. 208.2(b) defines ``authorized payment agent'' as any
individual or entity that is appointed or otherwise selected as a
representative payee or fiduciary, under regulations of the Social
Security Administration (``SSA''), the Department of Veterans
[[Page 48717]]
Affairs (``VA''), the Railroad Retirement Board (``RRB'')(collectively,
the ``benefit agencies'' for purposes of the section-by-section
analysis), or other agency making Federal payments, to act on behalf of
an individual entitled to a Federal payment. The Social Security Act
permits the SSA to make a benefit payment to ``another individual, or
an organization'' when doing so is in the best interest of the
recipient.3 The Veterans' Benefits Act 4 and the
Railroad Retirement Act 5 contain similar provisions. SSA
and the RRB use the term ``representative payee'' to refer to
individuals and organizations that have been selected to receive
benefits on behalf of a beneficiary who is ``legally incompetent or
mentally incapable of managing benefit payments.'' The VA uses the term
``fiduciary'' to refer to individuals or organizations appointed to
serve in similar circumstances.
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\3\ 42 U.S.C. 1383(a)(2)(A)(ii)(I).
\4\ 38 U.S.C. 5502.
\5\ 45 U.S.C. 231k.
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Other agencies, such as the Office of Personnel Management, also
make Federal payments to individuals and provide for representative
payees and fiduciaries. While not included by name, the phrase ``or
other agency'' in the proposed definition is intended to refer to these
agencies.
SSA, the VA, and the RRB have issued detailed regulations
addressing the qualifications and duties of representative payees and
fiduciaries.6 The rules governing these representational
relationships are long-standing and well established. In addition, the
definition of the term ``recipient'' in Treasury's regulation governing
the use of ACH by agencies refers to representative payees and
fiduciaries. See 31 CFR 210.2. In fiscal year 1996, approximately 10
percent of Social Security benefit payments (60 million payments) were
made to approximately five million representative payees. Therefore,
Treasury believes that it is appropriate to define the term
``authorized payment agent'' by reference to existing practice and the
regulations of the agencies making Federal payments.
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\6\ See 20 CFR Parts 404, 410, 416, 266, and 348; and 38 CFR
Part 13.
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The effect of the proposed definition in Sec. 208.2(b), together
with the requirement in Sec. 208.6, which outlines account requirements
for purposes of this rule, is that all Federal payments will be made to
an account at a financial institution. Such account must be in the name
of the recipient or in the name of an authorized payment agent who
stands in the shoes of the recipient for purposes of
payment.7 The involvement of a financial institution at this
stage provides recipients and agencies with important protections,
namely, deposit insurance in most cases 8 and the safety and
soundness associated with a regulated financial institution. Treasury
specifically invites public comment on the proposed definition of
``authorized payment agent'' in Sec. 208.2(b) and the provision,
Sec. 208.6, in which this term is used.
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\7\ Section 208.6 also permits a Federal payment to be deposited
into an account in the name of a securities broker or dealer. See
discussion below.
\8\ Treasury is aware that a few financial institutions that are
capable of receiving Federal payments through the ACH system may not
have deposit insurance. The proposed rule does not place any
additional requirements on these institutions, i.e., recipients who
currently receive Federal payments by EFT through such institutions
will not be required to make any changes to existing arrangements.
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Section 208.2(c)--Electronic funds transfer
The proposed definition of electronic funds transfer in
Sec. 208.2(c) is similar to the definition of that term in the Act. It
is identical to the definition in the statute and the interim rule
except that the proposed definition includes a statement that the term
includes a credit card transaction.
Treasury recognizes that the definition of ``electronic funds
transfer,'' as proposed, is somewhat broader than the definition of
that term in the Electronic Fund Transfer Act, 15 U.S.C. 1693
(``EFTA''). Specifically, the credit card transactions referred to in
the proposed rule do not satisfy the definition of an EFT in the EFTA
in that the transaction does not debit or credit a consumer asset
account. In addition, ACH transactions to or from a commercial account
would not be covered by the EFTA.
Section 208.2(d)--Federal Payment
The definition of Federal payment is the same in the proposed rule
as in the interim rule, except for minor technical changes in the
miscellaneous payments section.
Section 208.2(e)--Financial Institution
The definition of financial institution has been changed from the
definition of that term in the interim rule. The proposed rule defines
``financial institution'' to mean a depository institution as defined
in 12 U.S.C. 461(b)(1)(A), excluding subparagraphs (v) and (vii), and
an agency or branch of a foreign bank as defined in 12 U.S.C. 3101.
Under this definition, banks, savings banks, credit unions, savings
associations, and United States-based foreign bank branches would be
considered ``financial institutions.'' This change has been made to
reflect the class of entities that can participate directly in the ACH,
i.e., financial institutions that are authorized by law to accept
deposits.
Section 208.2(f)--Individual
Treasury proposes to add a definition of individual. Proposed
Sec. 208.2(f) defines ``individual'' to mean a natural person.
Section 208.2(g)--Recipient
Treasury proposes to add a definition of recipient. Proposed
Sec. 208.2(g) is based on the definition of ``recipient'' in 31 CFR
210.2 and provides that ``recipient'' means an individual, corporation,
or other public or private entity that is authorized to receive a
Federal payment from an agency.
Section 208.2(h)--Secretary
Proposed Sec. 208.2(h) defines Secretary to mean Secretary of the
Treasury.
Section 208.2(i)--Treasury
Proposed Sec. 208.2(i) defines Treasury to mean the United States
Department of the Treasury.
The interim rule contains a definition of the terms ``benefit
payment'' and ``payment.'' Since the proposed rule defines the term
``Federal payment,'' Treasury proposes to omit the definition of
``benefit payment'' and ``payment'' from the rule.
C. Section 208.3--Payment by Electronic Funds Transfer
Proposed Sec. 208.3 implements 31 U.S.C. 3332(f)(1) and provides
that, notwithstanding any other provision of law, all Federal payments
made by an agency after January 1, 1999, must be made by EFT, unless
one of the waivers set forth in Sec. 208.4 applies. Under the
definition of ``Federal payment,'' payments made under the Internal
Revenue Code of 1986 (i.e., tax refunds) are excluded from the EFT
mandate.
D. Section 208.4--Waivers
The Act authorizes the Secretary to waive the requirement to make
Federal payments by EFT for individuals or classes of individuals for
whom compliance imposes a hardship; for classifications or types of
checks; and in other circumstances as may be necessary. 31 U.S.C.
3332(f)(2)(A). Subparagraph (B) of Sec. 3332(f)(2) directs the
Secretary to make waiver determinations based on standards developed by
the Secretary.
The interim rule invited public comment on the need for waivers. In
the
[[Page 48718]]
public comments and in meetings with agencies, the public, and
industry, several themes were expressed repeatedly, regarding the
standards that should be developed for waivers.
The first standard is the need for waivers where the conversion
from check to EFT imposes a hardship on the recipient. Consumer
organizations urged Treasury to make waivers readily available to all
recipients who assert that receiving payment by EFT would impose a
hardship.
The second standard is ``impossibility.'' Agencies noted that, for
a payment to be made by EFT and for the recipient to gain access to the
funds, certain conditions must be present. EFT requires a modern
communications system and the participation of financial institutions
with the requisite operational capabilities. In addition, in foreign
countries, EFT requires a reasonably stable political environment. If
these conditions are not present, EFT becomes more difficult and, in
some cases, impossible.
The third standard is ``cost-benefit.'' Agencies described cases in
which they make small dollar payments or one-time payments and urged
Treasury to authorize agencies to take into account the costs and
benefits of using EFT in such cases.
The fourth standard relates to law enforcement and national
security. Agencies engaged in law enforcement and national security
described circumstances in which making a payment by EFT would endanger
the safety of an agent or a person cooperating with an agency.
Based on these four standards, Treasury proposes to adopt the eight
waiver categories set forth in Sec. 208.4. Treasury considered adopting
a process under which agencies would apply to Treasury for a waiver.
However, Treasury believes that an application process would impose an
unnecessary administrative burden on the agencies and Treasury and
could delay the processing of Federal payments. For these reasons, the
proposed regulation does not require agencies to apply to Treasury for
the waivers that are available to an agency. Instead, the proposal
contemplates that agency officials will determine whether a payment or
class of payments falls within one of the waiver categories described
in subsections (c) through (h). As appropriate, Treasury will provide
guidance to agencies regarding the various waiver categories.
In the case of the waivers available for individuals, Treasury
plans to develop, and make available to agencies, model language that
an individual would use to certify to the agency that receiving payment
by EFT would impose a hardship due to one of the enumerated barriers.
The certification would be based on the individual's own evaluation of
his or her circumstances. Treasury believes that this subjective
approach is consistent with Congressional interest in minimizing the
hardship associated with conversion from check to EFT for some
recipients, and recognizes the wide variety of circumstances in which
recipients live and work. The proposed rule does not anticipate that
agencies will evaluate an individual's circumstances; rather, Treasury
expects that a waiver from payment by EFT will be automatic and based
solely on the individual's certification.
Proposed Sec. 208.4 (a) and (b) provide waivers from the
requirement to receive payment by EFT for certain classes of
individuals for whom such requirement would impose a hardship.
Specifically, proposed Sec. 208.4(a) sets forth two waivers for those
individuals who have an account with a financial institution and who
became eligible for a Federal payment before July 26, 1996, and
Sec. 208.4(b) sets forth three waivers for individuals who do not have
an account with a financial institution, regardless of when they became
eligible for payment. There are no waivers for individuals who have an
account with a financial institution and who become eligible for a
Federal payment on or after July 26, 1996 (``newly-eligible
recipients''), although there may be circumstances in which an
individual is paid by check because the agency's obligation to pay by
EFT is waived pursuant to a waiver described in subsections (c) through
(h).
Treasury's proposal to tie the availability of a waiver for an
individual who has a bank account to the date an individual became
eligible for the Federal payment is based on a review of its
experience, and the experience of the agencies responsible for the vast
majority of Federal payments, during phase one. As noted above, the Act
and Treasury's interim rule provide that newly-eligible recipients must
receive payment by EFT unless the recipient certifies in writing that
he or she does not have an account with a financial institution. The
SSA, which certifies 71% of the payments made by Treasury each month,
reports that approximately 76% of the recipients who became eligible to
receive Social Security and Supplemental Security Income payments since
July 26, 1996, are receiving payment by EFT.9 Benefit
agencies report that very few of these recipients have indicated that
receiving payment by EFT would cause a hardship of any kind.
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\9\ The VA and the RRB report similar experiences.
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Based on the favorable experience of SSA and the other benefit
agencies, and the fact that newly-eligible recipients do not have a
history of receiving their Federal benefit payments by check and,
therefore, would not experience a change in the manner in which they
receive payment, Treasury proposes to take an approach with respect to
newly-eligible recipients who have an account with a financial
institution that parallels the approach taken during phase one.
Therefore, the proposed rule provides no waivers for these recipients,
although one or more of the waivers described in subsections (c)
through (h) may apply.
Under proposed Sec. 208.4(a), an individual who has an account with
a financial institution and who became eligible to receive payment
before July 26, 1996, would not be required to receive payment by EFT
where the use of EFT would impose a hardship due to either a physical
disability or a geographic barrier.
The Act does not define the term ``hardship.'' The legislative
history mentions geographical, physical, mental, educational, and
language barriers, but does not define these terms. Treasury and the
benefit agencies believe that, for the reasons discussed more fully
below, three of the five categories mentioned--mental, educational, and
language--do not pose a barrier to the use of EFT. These factors can
affect an individual's ability to use any method of payment, whether
check or EFT, and, therefore, there is no need to provide waivers for
these categories. In fact, for many individuals, the safety and
reliability associated with EFT outweigh the difficulty associated with
a new method of payment.
With regard specifically to mental disabilities, Treasury notes
that, as mentioned above in the discussion on ``authorized payment
agent,'' some agencies have already provided in their regulations for
recipients who are mentally incapable of managing their payments. Under
these regulations, an individual or entity may be appointed or
otherwise selected to act on behalf of an individual entitled to a
Federal payment. For example, when an application for Social Security
or Supplemental Security Income benefits is filed by or on behalf of an
individual who is not able to manage his or her benefit payment, SSA's
regulations provide for the appointment of a representative payee. This
person or entity receives the payment and arranges for the funds to be
used for the benefit of the individual. The method by
[[Page 48719]]
which payment is made to the representative payee has no effect on the
actual recipient.
The proposed rule does not provide waivers based on the recipient's
educational level, limited literacy skills, or lack of fluency in
English. The experience of Treasury and the benefit agencies suggests
that the obstacles posed by these factors are not uniquely associated
with the use of EFT. Educational and language barriers can interfere
with the comfortable and successful use of any method of payment,
including checks and EFT. In implementing EBT, the benefit agencies
have found that educational and language barriers present a challenge
in making the transition to EFT, but the transitional hurdle is short-
lived and ameliorated by educational programs targeted to the specific
needs of recipients. The benefit agencies and the financial industry
have developed, and are continuing to develop, educational materials
that assist recipients with limited education or literacy skills in
making the transition to EFT. In addition, Treasury intends to conduct
an extensive education campaign on receiving payment by EFT.
Finally, with respect to language, the benefit agencies and the
financial industry have programs to assist recipients who do not speak
English. For example, in those parts of the country where a language
other than English is predominant, SSA employees assist recipients in
their native language. In these areas, many ATMs and POS terminals
offer the choice of on-screen instructions in the predominant language
as well as English. Also, materials provided during the public
education campaign will be available in selected languages other than
English to accommodate non-English speaking recipients.
Treasury believes, however, that there are two instances in which
recipients who have an account with a financial institution and who
have previously been receiving payment by check should not be required
to convert to receiving payment by EFT; namely, where a physical
disability or a geographic barrier would result in a hardship to the
individual.
For example, Treasury believes that a waiver should be available to
a recipient with a physical disability who currently has an arrangement
with a nearby grocery store to cash his or her monthly check, but would
have great difficulty traveling even a short distance to a bank or ATM
to get his or her payment by EFT. Similarly, Treasury believes that a
waiver should be available to someone who lives in a rural area or on
an Indian reservation with limited access to transportation or banking
facilities and who would have great difficulty getting to a bank or ATM
to receive payment by EFT.
The proposed rule does not define physical disability or specify
what constitutes a geographic barrier. In the case of physical
disability, Federal law contains several definitions, including those
found in the Americans with Disabilities Act, the Social Security Act,
and the Veterans' Benefits Act. Treasury believes that referencing in
Part 208 all applicable definitions of disability would be unwieldy and
confusing, and that creating a new definition for purposes of Part 208
would create an unnecessary administrative burden for agencies and
recipients. In addition, in light of the approach the proposed rule
takes with regard to the waiver process, Treasury does not believe that
it is necessary to define physical disability or specify what
constitutes a geographic barrier.
Under proposed Sec. 208.4(b), an individual who does not have an
account with a financial institution is not required to receive payment
by EFT where the use of EFT would impose a hardship on the individual
due to a physical disability or a geographic barrier, or where the use
of EFT would impose a financial hardship on the individual.
Waivers are provided for individuals with a physical disability or
a geographic barrier for the reasons discussed above. In addition, a
third waiver category--financial hardship--has been provided for
individuals who do not have bank accounts, and for whom Treasury will
provide an account as described in Sec. 208.5. Although financial
hardship is not mentioned in the legislative history, Treasury is aware
that some individuals who do not have accounts with a financial
institution cash their checks at grocery stores and other locations at
little or no cost. Treasury does not believe that Congress intended
such individuals to pay more to receive payment by EFT than they
currently pay to receive payment by check, particularly low-income
recipients whose Federal payment may be their sole source of income.
Therefore, Treasury is proposing to make a waiver available for these
individuals on this basis. The financial hardship waiver is not
available to recipients who already have accounts with financial
institutions because these individuals presumably will not incur any
additional expense to receive payment by EFT.
The financial hardship waiver proposed in Sec. 208.4(b) will, as a
practical matter, take effect upon the availability of the account
described in Sec. 208.5. Under the Act, Treasury is required to ensure
that individuals who are required to have an account at a financial
institution in order to receive Federal payments will have access to
such an account at a reasonable cost and with the same consumer
protections as other account holders at the same financial institution.
Treasury is in the process of designing such an account. While Treasury
is hopeful that the account will be available nationwide by January 2,
1999, and will make every effort to achieve that goal, it is possible
that the account will not be available on a nationwide basis by that
time. For this reason, the requirement to receive payment by EFT is
automatically waived for all individuals who certify that they do not
have an account with a financial institution until the earlier of
January 2, 2000, or the date as of which the Secretary determines that
the account referred to in Sec. 208.5 is available.
Proposed Sec. 208.4(c) provides that an agency is not required to
make a payment by EFT where the political, financial, or communications
infrastructure in a foreign country does not support payment by EFT.
This waiver category responds to concerns expressed by agencies that
make international payments. For example, the SSA certifies benefit
payments to recipients in 132 countries around the world but, at the
present time, international Direct Deposit is available only in 10
countries. Treasury also recognizes that in some countries, payment by
EFT is feasible in some areas, such as large cities, but is not
feasible outside these areas. In such cases, payments should be made
electronically to any area within the country where the necessary
infrastructure exists, unless the recipient qualifies for one of the
other waivers.
Proposed Sec. 208.4(d) proposes a waiver in those cases where a
natural or other disaster makes payment by EFT not feasible. This
waiver responds to concerns raised by the Federal Emergency Management
Agency and other disaster assistance agencies who advised Treasury
that, in areas affected by natural disasters, financial institutions
may be closed or inaccessible due to electrical or telecommunications
failure or structural damage.
Treasury recognizes that agencies that respond to emergencies must
have the flexibility to fulfill their missions, and that providing
payments to emergency victims and emergency personnel must
[[Page 48720]]
be done in the most efficient and expedient manner possible. Therefore,
Treasury is proposing a waiver for disaster assistance agencies making
payments to recipients residing in areas that are designated by the
President or an authorized agency administrator as a disaster area. The
waiver period would last for 120 days from the date the disaster is
declared. The disaster assistance agencies indicated that most
emergency response phases do not last longer than 120 days and that,
after that time, the financial and communications infrastructure
typically is restored so that recipients can receive their payments
electronically. If the emergency response time exceeds 120 days, the
agency is expected to notify Treasury in writing of the need to extend
the waiver period. The notification should include a justification for
the extension and state the length of the extension period required.
Proposed Sec. 208.4(e) provides a waiver for payments made in
response to contingency operations conducted by the Department of
Defense. A contingency operation is defined in 10 U.S.C. 101(a)(13) as
a military operation that either is designated by the Secretary of
Defense as an operation in which armed forces undertake military
actions against an enemy or results in a call or order to, or retention
on, active duty of members of the armed forces during a war or national
emergency declared by the President or Congress.
Proposed Sec. 208.4(f) provides a waiver from the mandatory EFT
requirement where payment by EFT may pose a threat to national
security, jeopardize the life or physical safety of an individual, or
compromise a law enforcement action. Agencies engaged in law
enforcement and national security, as well as the military, advised
Treasury that in many cases payment by EFT is not feasible or could
endanger employees or other individuals. For example, the physical
safety of undercover agents or participants in a witness protection
program could be jeopardized by the audit trail left by an electronic
payment. Under the proposed rule, a waiver also would be available for
military or other sensitive operations where the provision of bank
routing information to third parties might compromise the security of
the operation, thereby jeopardizing national security.
Under proposed Sec. 208.4(g), an agency would not be required to
make a payment by EFT if the cost of using EFT for making a non-
recurring payment is greater than the cost of making that payment by
check. Treasury considers non-recurring to mean a frequency of not more
than once in a 12-month period to the particular recipient. In comments
and in discussions with Treasury, agencies frequently identified non-
recurring payments as a payment class in which a check might be more
cost-effective than an EFT given the administrative cost of enrolling a
recipient for an ACH payment. Since one of the principal purposes of
the Act was to reduce the Government's cost, Treasury believes this is
an appropriate waiver category.
Agencies also questioned the wisdom of requiring small dollar
payments to be made by EFT. Proposed Sec. 208.4(g) should not be read
as a waiver for all small dollar payments. The cost associated with
making a $100 payment is proportionately higher than the cost of making
a $10,000 payment, regardless of the payment method used. Thus, a
factor in addition to the dollar amount of an individual payment is
whether it is a small dollar single payment or a small dollar recurring
payment.
Proposed Sec. 208.4(h) provides that agencies are not required to
make payments by EFT when public necessity suggests that payment by
methods other than EFT is in the best interest of the Government. An
agency may determine that a need for goods and services is of such
unusual and compelling urgency that the Government would be seriously
injured if payment were required to be made by EFT. Alternatively, an
agency may determine that, where there is only one source for goods or
services, payment by a method other than EFT would prevent serious
injury to the Government. Unusual and compelling urgency means that
there is a need to act without delay to protect a legitimate Government
interest. Serious injury means that the Government faces an imminent
loss of money or property, or the disruption of a Federal program or
activity.
Treasury received a number of comments from agencies expressing
concern that the Act would interfere with their efforts to obtain goods
or services deemed essential to the agencies' missions in a timely
fashion. For example, in some cases, an agency may have only one
supplier of an essential material or service, and that supplier may not
be able to accept payment by EFT. While the Act clearly requires
vendors to accept payment by EFT, Treasury recognizes that, in limited
cases, agencies require flexibility in dealing with vendors who are
unable to receive EFT payments.
Agencies and other commenters asked Treasury to consider making a
waiver available for vendor payments where, because of system
limitations or cost, remittance data is not available to the vendor. As
noted above, remittance data is information that identifies the
payment. This data permits the vendor to reconcile funds received
against outstanding invoices.
A number of commenters stressed the importance of passing
remittance data on to the vendor, stating that the lack of remittance
data is the primary reason why vendors are reluctant to receive payment
by EFT. Several commenters noted that many financial institutions lack
the capability to provide remittance data to their depositors which
requires the translation of data from machine readable to human
readable form. It is estimated that of the approximately 11,000
financial institutions which can accept an electronic payment, fewer
than a thousand are capable of translating remittance data into a human
readable form. In addition, financial institutions sometimes charge
their customers for remittance data, which also reduces the incentive
for smaller vendors to accept payment by EFT.
Treasury is working with agencies, the financial industry, and
vendors to solve the remittance data problem. For example, several
pilots are underway to test the feasibility of making remittance data
available through a variety of methods, including on an agency's web
site. The proposed rule does not contain a waiver for vendor payments
because Treasury expects that, as a result of these efforts, the
problem of making remittance data readily available will be solved by
January 1999. However, Treasury will monitor developments closely and
will reconsider the need for a waiver at that time.
Finally, several agencies noted that the Federal Acquisition
Regulation (``FAR'') interim rule on Payment by Electronic Funds
Transfer, published on August 29, 1996,10 exempts certain
classes of contracts from the Act. Treasury is working with the
appropriate agencies to reconcile any differences between the two
rules.
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\10\ 61 FR 45776.
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E. Section 208.5--Access to Account Provided by Treasury
Proposed Sec. 208.5 provides that where an individual certifies
that he or she does not have an account at a financial institution, or
where an individual fails to respond to a request for information
pursuant to Sec. 208.8, Treasury will, pursuant to the Act's mandate,
provide the individual with access to an account at a Federally-insured
financial institution selected by Treasury. (All such individuals will,
of course, retain
[[Page 48721]]
the right to establish their own account relationships at institutions
of their choice.)
This section addresses the problem of delivering Federal payments
by EFT to individuals who do not have an account at a financial
institution. In order to use Direct Deposit, a recipient must have an
account at a financial institution.11 It is estimated that
approximately 10 million individuals who receive Federal payments do
not have an account at a bank, savings association, savings bank, or
credit union, and, therefore, cannot receive payment by Direct Deposit.
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\11\ See 31 CFR 210.4(a).
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One of Treasury's domestic policy objectives is to encourage
individuals who do not have an account at a financial institution to
move into the financial services mainstream. Since the Act was passed,
Treasury has been working with agencies and the financial industry on
educational efforts designed to encourage individuals to open an
account at a financial institution so that they can receive their
Federal payments by Direct Deposit. In addition, Treasury and the
financial industry are participating jointly in the marketing of Direct
Deposit Too, which is a model for a simple, low-cost, electronically
accessible deposit account. Treasury hopes that many recipients without
accounts will open accounts as a result of these public and private
sector educational and marketing efforts. However, Treasury recognizes
that a certain percentage of individuals who are required to receive
payment by EFT, i.e., individuals who are not eligible for a waiver,
likely will not have accounts by the January 1999 deadline, and the Act
specifically requires that Treasury regulations ensure access to an
account by individuals who are required to have an account because of
the EFT mandate.12
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\12\ 31 U.S.C. 3332(i)(2).
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Treasury considered several approaches to implementing this
requirement. Several commenters suggested that Treasury require
financial institutions to provide a basic account at a reasonable price
to individuals without accounts. Treasury does not believe that
financial institutions should be required to provide these types of
account services as a result of the Act. Another approach involves the
development of a model deposit account with an invitation to financial
institutions to offer this account, at a specified price or at a price
below some ceiling determined by Treasury, to individuals without
accounts. Treasury believes that identifying institutions willing to
participate in a voluntary program and monitoring their activities
would require the creation and maintenance of a regulatory
infrastructure. In addition, it is possible that, in some geographic
areas, no institutions would be willing to participate, resulting in
gaps in coverage.
A third approach is for Treasury to engage one or more Federally-
insured financial institutions to act as Treasury's financial agent for
the provision of accounts to those individuals. Treasury believes that
this approach will enable Treasury to perform its obligation under 31
U.S.C. 3332(i)(2) to ensure that all individuals required to receive
payments electronically will have access to an account at a financial
institution at a reasonable cost and with consumer protections
comparable to those afforded other account holders at such
institutions. In addition, a number of consumer organizations strongly
urged Treasury to permit only Federally-insured financial institutions
to act as agent for Treasury to hold accounts for individuals who do
not have such accounts. Treasury takes seriously the concern expressed
by these commenters, and specifically invites comment on this issue.
Treasury plans to obtain such account services through a
competitive process that will select one or more entities to act as
Treasury's agent to provide these services to recipients that do not
have, or do not choose to open, accounts at financial institutions of
their own choice. Any financial institution designated by Treasury as
its financial agent will perform those functions that involve the
disbursement of public funds, including the establishment of the
recipient's account and the crediting of the Federal payment to the
account. Other functions, however, may be performed by non-financial
institutions working in partnership with the financial
agent.13
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\13\ The notice of proposed rulemaking for Treasury's rule
relating to electronic benefits transfer, 31 CFR Part 207, describes
the disbursement of public funds and the statutory basis for the use
of financial agents. 62 FR 25572.
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The proposed regulation does not attempt to define the specific
characteristics of the account that will be made available. Following
the close of the comment period on this notice of proposed rulemaking,
Treasury will develop proposed terms, conditions, and attributes of the
account to be offered and will publish this proposal for a limited
period of public comment. After evaluating comments received, Treasury
will determine the specific terms, conditions, and attributes of the
account to be offered and will request that interested organizations
submit bids on the cost of providing such an account within defined
geographic areas. Bidders also may be requested to submit bids on
different permutations of alternative account structures and geographic
areas. It is anticipated that such accounts will be offered on the
basis of a specified periodic service charge paid by the recipient.
Treasury believes the design of these Federally-provided accounts
is critical to the successful implementation of the Act. While no final
decisions have been made as to the attributes of the account, it is the
preliminary view of Treasury that each recipient should have an
individual account at a Federally-insured financial institution that
can be directly accessed via plastic debit card at any location of that
institution, including any automated teller machines or point-of-sale
terminals that accept transactions by the institution's cardholders.
Treasury has retained the services of a consultant to evaluate and
provide advice to Treasury with respect to both the account structure
and the design of the competitive selection process for the account
providers. In addition, Treasury is seeking public comment on this
subject.
Commenters are encouraged to provide their views on any issues that
they believe are important to the successful design of this new
account. In submitting views, commenters should consider that the cost
of the account to be offered by bidding institutions is likely to be
affected by the range of attributes required to be included in the
account, as well as the institutions' expected average balance, i.e.,
float, for the account. In particular, Treasury requests comments on
the following questions:
Should Treasury make available a debit card-based account
to individuals who are required to receive Federal payments by EFT and
who do not have an account of their own with a financial institution?
Should the cost of the account to the recipient be the
most important factor for selecting the account structure and/or the
account providers, or should the account structure be designed to meet
other objectives even if the cost to recipients is increased as a
result? If the latter, which objectives? What is an appropriate
standard by which to weigh tradeoffs between increased costs and
additional account features?
Should the account be structured to provide only a basic
withdrawal service at the lowest possible cost, with additional service
charges for additional features, or should the account offer a range of
services at a fixed monthly cost,
[[Page 48722]]
even if greater than the cost of a basic account?
How many withdrawals should be included in the base price
of the account? Should the account terms address the charges imposed by
automated teller machine owners other than the account provider?
Should the account structure provide for additional
electronic or nonelectronic deposits within the basic monthly service
charge? If so, what number of deposits?
Should the account provide for some number of third-party
payments, such as payments for rent or utility bills? If so, how many
third party payments should be provided for and should they be priced
in the basic monthly service charge?
Should the account include a savings feature? How would
such a feature operate? Would additional free withdrawals or the
capability to accept deposits other than the Federal payment act to
foster savings by the recipient?
How important is a broad geographic reach to meeting the
access objectives that most recipients will want? How should Treasury
best meet access needs in underserved areas?
Treasury has been urged to adopt restrictions for the account that
it furnishes that would preclude arrangements between the financial
institution at which the account is maintained and third parties, such
as check cashers and money transmitters, under which recipients might
be provided with additional means of accessing the account. Those
favoring such restrictions argue that recipients should be protected
against excessive charges that might be imposed for such services.
These arguments raise important concerns, particularly with respect to
low-income recipients who have in the past paid high fees to cash
government checks. In light of these concerns, Treasury requests
comment on some additional questions relating to the account it will
design and make available to recipients who do not have bank accounts:
Should access to the account be provided at outlets in
addition to those normally offered by the financial institution
providing the account? For example, should arrangements be permitted
under which third parties may offer other means by which a recipient
may, in effect, withdraw funds from the account. If yes, should there
be any restrictions on where additional access may be provided or under
what terms it can be offered?
If additional access is offered through arrangements with
third parties, should the cost of this additional access be included in
the pricing proposal in the competitive bid process?
Which account design would provide the appropriate
opportunity for non-financial institutions to participate in the
delivery of services to Federal payment recipients?
Treasury will make every effort to ensure that the account referred
to in Sec. 208.5 will be available throughout the country by January 2,
1999. Moreover, Treasury has been working with a number of States to
link the delivery of Federal payments to State EBT programs. Where such
linkage occurs, recipients who receive a Federal payment, such as
Supplemental Security Income, as well as benefits under a State-
administered program, for example, Food Stamps, will be offered an
option of accessing both benefits by means of a single card. However,
as discussed above in connection with proposed Sec. 208.4(b), in the
event that the account described in Sec. 208.5 is not available, the
requirement to receive a Federal payment by EFT will be waived for
individuals who certify that they do not have an account with a
financial institution until the earlier of January 2, 2000, or the date
as of which the Secretary determines that the account is available.
F. Section 208.6--Account Requirements
Proposed Sec. 208.6 addresses account requirements for Federal
payments made by EFT. The proposal sets forth a general rule for all
Federal payments, and then provides two exceptions from the general
rule for situations that involve an authorized payment agent or an
investment account established through a registered securities broker
or dealer.
Under Sec. 208.6(a), all Federal payments made by EFT must be
deposited into an account in the name of the recipient at a financial
institution, unless one of the exceptions described in subsection (b)
applies. The requirement to deposit the payment into an account in the
name of the recipient 14 is consistent with Treasury's
regulations governing use of the ACH 15 and thus provides
continuity with existing arrangements for the Direct Deposit of Federal
payments.
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\14\ Section 208.6 would not prohibit the use of a joint account
between the recipient and a spouse or other member of the
recipient's family so long as the recipient has the right to
withdraw funds from the account.
\15\ 31 CFR 210.4.
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Proposed Sec. 208.6(b)(1) addresses cases in which an authorized
payment agent has been selected or designated. In such cases, the
account may be titled in any manner that satisfies the regulations of
the appropriate agency. See the discussion of ``authorized payment
agent'' in the section-by-section analysis of Sec. 208.2(b) above.
Proposed Sec. 208.6(b)(2) permits a Federal payment to be deposited
into an account in the name of a broker or dealer registered under the
Securities Exchange Act of 1934 with whom the recipient has an account.
Treasury is aware that many brokers and dealers offer services that
combine investment and transaction features. In these services, funds
deposited into an account at a financial institution--which may be in
the name of the securities broker or the name of the customer--are
swept out of such an account on a regular basis and into an investment
vehicle owned by the recipient. When the customer uses the funds for
transaction purposes, whether by credit or debit card or check, the
funds needed to cover the transaction are transferred out of the
investment vehicle.
Such services offer cash management features, and Treasury sees no
reason to discourage recipients of Federal payments from using these
services, provided certain protections are available, namely, that the
broker or dealer is registered under the Securities Exchange Act of
1934 and that the recipient's funds are protected by deposit insurance
during the time the funds are on deposit at the financial institution.
The registration requirement ensures that the broker or dealer is
subject to certain basic requirements such as membership in the
appropriate self-regulatory organization, membership in the Securities
Investor Protection Corporation, recordkeeping and reporting
requirements, and net capital requirements. In addition, such brokers
and dealers are subject to inspections by the Securities and Exchange
Commission and the self-regulatory organizations. The requirement that
the account and associated records be structured so that the
recipient's interest is protected under applicable Federal or state
deposit insurance regulations ensures that the recipient's interest in
a master account is individually insured to the same extent it would be
if the account were in the name of the recipient alone.
Other than payments made to an authorized payment agent or an
investment account, Federal payments made by EFT must be deposited to
an account at a financial institution. The proposed rule is silent on
the role that non-financial institutions may play in the delivery of
Federal payments to
[[Page 48723]]
recipients with bank accounts and the relationship between non-
financial institutions and such recipients. Treasury anticipates that
non-financial institutions will continue to have the opportunity to
partner with financial institutions and to market products and services
to recipients. Treasury's research and the comments received on the
interim rule indicate that non-financial institutions have performed
such functions in the past and are developing new products and services
that will allow them to serve recipients who receive their Federal
payments by EFT. Treasury specifically invites comments on this
opportunity for market innovations.
The use of such products and services would be purely voluntary on
the part of recipients who would continue to be able to access their
payments directly at a financial institution of their choice if they
chose not to use the services of a non-financial institution. These
relationships are distinguished from the account that Treasury proposes
to provide for individuals who do not have an account with a financial
institution. See Sec. 208.5.
Treasury has been urged to interpret the Act as requiring
regulation of the fees charged by financial institutions and the
imposition of certain consumer protections on the services they offer.
Consumer organizations urged Treasury to limit the fees that authorized
payment agents may charge for their services, and suggested that
reasonable costs for recipients without bank accounts should range from
no cost to low cost. Some commenters suggested that Treasury either
subsidize or regulate account fees. Other commenters stated that
efforts to reduce costs for the Government should not place an undue
financial burden on the private sector. These commenters opposed
Treasury's defining ``reasonable cost'' or establishing limits on fees,
and expressed concern that their costs would exceed any ceiling on fees
set by Treasury. They considered ``reasonable cost'' to include all
costs plus a reasonable profit and argued that to regulate otherwise
would discourage the private sector from developing systems to address
problems posed by the electronic payment mandate.
Section 3332(i)(2) provides:
Regulations under this subsection shall ensure that individuals
required under subsection (g) to have an account at a financial
institution because of the application of subsection (f)(1)--
(A) will have access to such an account at a reasonable cost;
and
(B) are given the same consumer protections with respect to the
account as other account holders at the same financial institution.
This provision could possibly be interpreted in two ways. The
requirement that Treasury ensure access to an account could be read
very broadly to refer to all individual recipients who receive their
Federal payments by EFT, whether or not they already have an account.
Such a broad interpretation potentially would place Treasury in the
position of determining the reasonableness of prices charged by
thousands of financial institutions, for a wide variety of account
services, to individuals who have account relationships at institutions
they have chosen voluntarily.
Section 3332(i)(2) also could be read more narrowly as referring to
those individuals who, as of January 2, 1999, have not voluntarily
selected or opened an account at a financial institution and who will
need access to such an account in order to receive a Federal payment by
EFT.
Treasury believes the latter interpretation is the better one,
i.e., that Sec. 3332(i)(2) should be read to require Treasury to
provide ``unbanked'' individuals with access to a reasonably-priced
account at a financial institution. Treasury does not believe that
there should be widespread regulation of the prices of deposit services
voluntarily obtained by recipients in a competitive marketplace.
Gathering information about the prices charged for accounts by
financial institutions throughout the United States and evaluating
those prices to determine their reasonableness would impose a heavy
administrative burden both on the industry and on Treasury. In
addition, widespread price regulation would interfere with the
functioning of the market for account services. Accordingly, the
reasonable cost and consumer protection standards will be applied as
specified in Sec. 208.5 to any account provided by Treasury to
individuals who do not otherwise have access to an account.
G. Section 208.7--Agency Responsibilities
Section 208.3 of the proposed rule sets forth the general rule
that, effective January 2, 1999, all Federal payments for which a
waiver is not available must be made by EFT. Proposed Sec. 208.7
describes the agencies' operational responsibilities in carrying out
this mandate.
First, under proposed Sec. 208.7(a), an agency must collect from
each recipient who is required to receive payment by EFT and who has an
account with a financial institution the information required to make
the payment. This information can be collected electronically through
the ACH system by use of an Automated Enrollment Entry (ENR). The ENR
is a new ACH entry that was specifically designed to meet the needs of
agencies as a replacement for the paper form that has been used for
enrollment in the Direct Deposit program. The phrase, ``who is required
to receive payment by electronic funds transfer,'' is an acknowledgment
that waivers will apply in some cases.
Under this section, agencies are required to collect the
information needed to make a payment through the ACH network, namely,
the recipient's account number and the financial institution's name and
routing number. Treasury encourages agencies to collect this
information at the earliest possible opportunity in their dealings with
potential recipients of Federal payments. For vendor payments, agencies
are encouraged to collect this information as a condition of awarding a
contract, issuing a purchase order, or formalizing an agreement to
obtain goods or services. Collection of this information as a condition
of award ensures that the agency is doing business only with vendors
who are willing and able to accept an EFT payment and consequently
ensures that all vendor payments, unless waived under Sec. 208.4, will
be made by EFT.
In order to ensure compliance by January 2, 1999, agencies must
take action as early as possible in 1998 to inform recipients who still
receive checks of the requirement to convert to EFT. Collection of the
required information should begin no later than July 1, 1998, and
recipients should be encouraged to convert to EFT as soon as possible.
Under proposed Sec. 208.7(b), agencies are directed to obtain from
individuals who do not have an account at a financial institution a
written certification that the individual does not have an account with
a financial institution unless the individual has determined that he or
she needs a hardship waiver. Treasury will provide individuals who
certify that they do not have an account with access to an account in
accordance with Sec. 208.5.
Proposed Sec. 208.7(c) directs agencies to obtain from any
individual who applies for a waiver under Sec. 208.4 (a) or (b) a
written certification that receiving payment by EFT would impose a
hardship. As indicated above, agencies may rely upon the individual's
assertion that a hardship exists; Treasury does not expect agencies to
go beyond the certification to evaluate the individual's circumstances.
[[Page 48724]]
H. Section 208.8--Recipient Responsibilities
Proposed Sec. 208.8(a) implements 31 U.S.C. 3332(g), which requires
recipients of Federal payments who are required to receive payment by
EFT to designate a financial institution or an authorized payment agent
to which payment will be made and provide the agency that makes or
authorizes the payment with the information needed in order to deliver
the payment by EFT. Under the Privacy Act (5 U.S.C. 552a), such
information is considered confidential with respect to individuals, and
may not be disclosed by the agency except as authorized by law.
Proposed Sec. 208.8(b) provides that an individual who is required
to receive payment by EFT and who does not have an account at a
financial institution must certify in writing to the agency making the
payment that he or she does not have an account. Such an individual
will be provided with access to an account provided by Treasury unless
he or she is eligible for a waiver. See the discussion of Sec. 208.5
above.
Proposed Sec. 208.8(c) requires all individuals who apply for a
waiver under Sec. 208.4 (a) or (b) to certify in writing that receiving
payment by EFT would impose a hardship. As discussed above in the
section-by-section analysis of Sec. 208.4, an individual's
certification would be based on the individual's own evaluation of his
or her circumstances.
I. Section 208.9--Compliance
Section 208.9 of the proposed rule provides for Treasury to monitor
agencies' compliance with the EFT mandate. It further provides that
agencies that fail to make payment by EFT as required under this part
may be assessed a charge in accordance with 31 U.S.C. 3335.
Treasury expects agencies to be in compliance with the Act and this
part by January 2, 1999, and will begin to monitor compliance as of
that date. In order to avoid placing an unnecessary administrative
burden on agencies, Treasury does not intend to impose an ongoing
reporting requirement on agencies that are in compliance with the EFT
mandate. Agencies found to be in noncompliance, however, may be
required to submit information on the methods by which they make
payments. Further, such agencies may be assessed a charge equal to an
amount determined by the Secretary to be the cost to the general fund
of the Treasury caused by such noncompliance.
J. Section 208.10--Reservation of Rights
Proposed Sec. 208.10 specifically authorizes the Secretary to waive
any provision of the rule. This provision has been included in the
event that circumstances make such a waiver necessary or appropriate.
Under this provision, the Secretary could grant a waiver not
specifically provided for in this part without having to amend the
rule.
IV. Special Analysis
Although it has been determined that this proposed regulation is a
significant regulatory action for purposes of section 3(f)(4) of
Executive Order 12866, the Office of Management and Budget (``OMB'')
has waived the preparation of a Regulatory Assessment.
Pursuant to the Regulatory Flexibility Act, it is hereby certified
that the proposed regulation, if adopted, will not have a significant
economic impact on a substantial number of small entities. Treasury has
included eight categories of waivers in the proposed rule. The first
two categories are designed specifically to alleviate hardships that
might be imposed on individuals, including sole proprietors, as a
result of the mandatory conversion from check to EFT. Further, the
proposed rule does not prohibit small entities from participating in
the delivery of services to recipients who receive their Federal
payments by EFT. Therefore, Treasury believes the rule does not have a
significant economic impact on a substantial number of small entities
and that a regulatory flexibility analysis is not required. Treasury
welcomes, however, all comments and specifically any comments related
to the impact of the proposed rule on small entities.
The Paperwork Reduction Act of 1995 requires that collections of
information prescribed in the proposed rules be submitted to the OMB
for review and approval. Under this Act, an agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a valid OMB control number. Comments on
the collection of information may be submitted to the Office of
Management and Budget, Office of Information and Regulatory Affairs,
Attention: Desk Office for the Department of the Treasury, Financial
Management Service, Washington, D.C. 20503, with copies to Jacqueline
Perry, Public Reports Clearance Officer, Financial Management Service,
3361 75th Avenue, Landover, Maryland 20785.
The collection of information in this proposed regulation is
contained in Sec. 208.8. The information (name of financial
institution, routing number, and account number) is required to enable
an agency to pay a recipient of a Federal payment by EFT. The
collection of information is mandatory. Section 3332(g), as amended,
requires recipients of Federal payments to ``provide to the Federal
agency that makes or authorizes the payments information necessary for
the recipient to receive electronic funds transfer payments.'' The
likely respondents vary depending on the agency making the payment. For
the Service, the likely respondents are employees of the Service who
currently receive payments, such as payments for salary, travel
reimbursement, or retirement, by check; and individuals and vendors
that currently receive vendor payments by check.
The estimated total annual reporting burden is 46 hours. The
estimated burden hours per respondent is 0.25 hours. The estimated
number of respondents is 183. These figures represent the burden
imposed by the Service. The reporting burden imposed by other agencies
will be addressed by those agencies.
Comments are specifically requested on:
1. Whether the proposed collection of information is necessary for
the proper performance of functions of the Service, including whether
the information will have practical utility;
2. The accuracy of the estimated burden associated with the
proposed collection of information;
3. How the quality, utility, and clarity of the information to be
collected may be enhanced; and
4. How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques and other forms of information
technology.
List of Subjects in 31 CFR Part 208
Accounting, Banks, Banking, Electronic Funds Transfer.
Authority and Issuance
For the reasons set out in the preamble, Part 208 of Title 31 is
proposed to be revised to read as follows.
PART 208--MANAGEMENT OF FEDERAL AGENCY DISBURSEMENTS
Sec.
208.1 Scope and application.
208.2 Definitions.
208.3 Payment by electronic funds transfer.
208.4 Waivers.
208.5 Access to account provided by Treasury.
208.6 Account requirements.
208.7 Agency responsibilities.
208.8 Recipient responsibilities.
[[Page 48725]]
208.9 Compliance.
208.10 Reservation of rights.
Authority: 5 U.S.C. 301; 31 U.S.C. 321, 3301, 3302, 3321, 3325,
3327, 3328, 3332, 3335, and 6503.
Sec. 208.1 Scope and application.
This part applies to all Federal payments made by an agency and,
except as specified in Sec. 208.4, requires such payments to be made by
electronic funds transfer. This part does not apply to payments under
the Internal Revenue Code of 1986 (26 U.S.C.).
Sec. 208.2 Definitions.
(a) Agency means any department, agency, or instrumentality of the
United States Government, or a corporation owned or controlled by the
Government of the United States.
(b) Authorized payment agent means any individual or entity that is
appointed or otherwise selected as a representative payee or fiduciary,
under regulations of the Social Security Administration, the Department
of Veterans Affairs, the Railroad Retirement Board, or other agency
making Federal payments, to act on behalf of an individual entitled to
a Federal payment.
(c) Electronic funds transfer means any transfer of funds, other
than a transaction originated by cash, check, or similar paper
instrument, that is initiated through an electronic terminal,
telephone, computer, or magnetic tape, for the purpose of ordering,
instructing, or authorizing a financial institution to debit or credit
an account. The term includes, but is not limited to, Automated
Clearing House transfers, Fedwire transfers, and transfers made at
automated teller machines and point-of-sale terminals. For purposes of
this part only, the term electronic funds transfer includes a credit
card transaction.
(d) Federal payment means any payment made by an agency.
(1) The term includes, but is not limited to:
(i) Federal wage, salary and retirement payments;
(ii) Vendor and expense reimbursement payments;
(iii) Benefit payments; and
(iv) Miscellaneous payments including, but not limited to:
interagency payments; grants; loans; fees; principal, interest, and
other payments related to U.S. marketable and nonmarketable securities;
overpayment reimbursements; and payments under Federal insurance or
guarantee programs for loans.
(2) For purposes of this part only, the term ``Federal payment''
does not apply to payments under the Internal Revenue Code of 1986.
(e) Financial institution means:
(1) An entity described in section 19(b)(1)(A), excluding
subparagraphs (v) and (vii), of the Federal Reserve Act (12 U.S.C.
461(b)(1)(A)). Under section 19(b)(1)(A) of the Federal Reserve Act and
for purposes of this part only, the term ``depository institution''
means:
(i) Any insured bank as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make
application to become an insured bank under section 5 of such Act (12
U.S.C. 1815);
(ii) Any mutual savings bank as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible to
make application to become an insured bank under section 5 of such Act
(12 U.S.C. 1815);
(iii) Any savings bank as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible to
make application to become an insured bank under section 5 of such Act
(12 U.S.C. 1815);
(iv) Any insured credit union as defined in section 101 of the
Federal Credit Union Act (12 U.S.C. 1752) or any credit union which is
eligible to make application to become an insured credit union pursuant
to section 201 of such Act (12 U.S.C. 1781);
(v) Any savings association (as defined in section 3 of the Federal
Deposit Insurance Act) (12 U.S.C. 1813) which is an insured depository
institution (as defined in such Act) (12 U.S.C. 1811 et seq.) or is
eligible to apply to become an insured depository institution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and
(2) Any agency or branch of a foreign bank as defined in section
1(b) of the International Banking Act, as amended (12 U.S.C. 3101).
(f) Individual means a natural person.
(g) Recipient means an individual, corporation, or other public or
private entity that is authorized to receive a Federal payment from an
agency.
(h) Secretary means Secretary of the Treasury.
(i) Treasury means the United States Department of the Treasury.
Sec. 208.3 Payment by electronic funds transfer.
Subject to Sec. 208.4, and notwithstanding any other provision of
law, effective January 2, 1999, all Federal payments made by an agency
shall be made by electronic funds transfer.
Sec. 208.4 Waivers.
Payment by electronic funds transfer is not required in the
following cases:
(a) Where an individual who became eligible for a Federal payment
before July 26, 1996, and who has an account with a financial
institution, certifies that payment by electronic funds transfer would
impose a hardship on him or her due to a physical disability or
geographic barrier;
(b) Where an individual certifies that he or she does not have an
account with a financial institution and that payment by electronic
funds transfer under Sec. 208.5 would impose a hardship due to a
physical disability or geographic barrier, or would impose a financial
hardship. In addition, the requirement to receive payment by electronic
funds transfer is automatically waived for all individuals who certify
that they do not have an account with a financial institution until the
earlier of January 2, 2000, or the date as of which the Secretary
determines that the account referred to in Sec. 208.5 is available;
(c) Where the political, financial, or communications
infrastructure in a foreign country does not support payment by
electronic funds transfer;
(d) Where the payment is to a recipient within an area designated
by the President or an authorized agency administrator as a disaster
area. This waiver is limited to payments made within 120 days after the
disaster is declared;
(e) Where either:
(1) A military operation is designated by the Secretary of Defense
in which armed forces undertake military actions against an enemy, or
(2) A call or order to, or retention on, active duty of members of
the armed forces is made during a war or national emergency declared by
the President or Congress;
(f) Where a threat may be posed to national security, the life or
physical safety of any individual may be endangered, or a law
enforcement action may be compromised;
(g) Where the payment is non-recurring and the cost of making the
payment via electronic funds transfer exceeds the cost of making the
payment by check. For purposes of this rule, ``non-recurring'' means
the agency does not expect to make more than one payment to the same
recipient within a one-year period; and
(h) Where an agency's need for goods and services is of such
unusual and compelling urgency that the Government would be seriously
injured unless payment is made by a method other than electronic funds
transfer; or, where there is only one source for goods
[[Page 48726]]
or services and the Government would be seriously injured unless
payment is made by a method other than electronic funds transfer.
Sec. 208.5 Access to account provided by Treasury.
Where the requirement to pay by electronic funds transfer is not
waived under Sec. 208.4 and an individual either certifies that he or
she does not have an account with a financial institution, or fails to
provide information pursuant to Sec. 208.8, Treasury shall provide the
individual with access to an account at a Federally-insured financial
institution selected by Treasury. Such account will be provided at
reasonable cost to the individual and with the same consumer
protections as other accounts at the same financial institution.
Sec. 208.6 Account requirements.
(a) All Federal payments made by electronic funds transfer shall be
deposited into an account at a financial institution. The account at
the financial institution shall be in the name of the recipient, except
as provided in paragraph (b) of this section.
(b) (1) Where an authorized payment agent has been selected, the
Federal payment shall be deposited into an account titled in accordance
with the regulations governing the authorized payment agent.
(2) Where a Federal payment is to be deposited into an investment
account established through a securities broker or dealer registered
under the Securities Exchange Act of 1934, such payment may be
deposited into an account in the name of the broker or dealer, provided
the account and all associated records are structured so that the
recipient's interest is protected under applicable Federal or state
deposit insurance regulations.
Sec. 208.7 Agency responsibilities.
An agency shall:
(a) Obtain from each recipient who is required to receive payment
by electronic funds transfer and who has an account with a financial
institution, the information required to make such payment;
(b) Obtain from each individual who is required to receive payment
by electronic funds transfer and who indicates that he or she does not
have an account with a financial institution, a written certification
that the individual does not have an account with a financial
institution; and
(c) Obtain from each individual who applies for a waiver under
Sec. 208.4(a) or (b) a written certification that receiving payment by
electronic funds transfer would impose a hardship.
Sec. 208.8 Recipient responsibilities.
(a) Each recipient who is required to receive payment by electronic
funds transfer and who has an account with a financial institution
must, within the time frame specified by the agency making the payment,
designate a financial institution through which the payment may be made
and provide the agency with the information requested by the agency in
order to effect payment by electronic funds transfer.
(b) Each individual who is required to receive payment by
electronic funds transfer and who does not have an account with a
financial institution must certify in writing, within the time frame
specified by the agency making the payment, that he or she does not
have an account with a financial institution. Such individual will be
provided an account as indicated in Sec. 208.5.
(c) Each individual who qualifies for, and wishes to apply for, a
waiver under Sec. 208.4(a) or (b) must certify in writing, within the
time frame specified by the agency making the payment, that receiving
payment by electronic funds transfer would impose a hardship.
Sec. 208.9 Compliance.
(a) Treasury will monitor agencies' compliance with this part.
Treasury may require agencies to provide information about the methods
by which they make payments.
(b) If an agency fails to make payment by electronic funds
transfer, as prescribed under this part, Treasury may assess a charge
to the agency pursuant to 31 U.S.C. 3335.
Sec. 208.10 Reservation of rights.
The Secretary reserves the right, in the Secretary's discretion, to
waive any provision(s) of the regulations in this part in any case or
class of cases.
Dated: September 11, 1997.
Russell D. Morris,
Commissioner.
[FR Doc. 97-24553 Filed 9-15-97; 8:45 am]
BILLING CODE 4810-35-P