[Federal Register Volume 63, Number 96 (Tuesday, May 19, 1998)]
[Proposed Rules]
[Pages 27511-27514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13227]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 273 and 274

RIN 0584-AC61


Food Stamp Program: Electronic Benefits Transfer Benefit 
Adjustments

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed Rule.

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SUMMARY: This rule proposes to revise Food Stamp Program regulations 
pertaining to State agencies' ability to make adjustments to a 
recipient account in an Electronic Benefits Transfer (EBT) system, in 
order to correct a system error or an out-of-balance condition. EBT 
stakeholders have proposed the changes so that States and their 
processors can correct errors when they are identified, rather than 10 
days after the advance notice has been sent to the household. The 
changes would enable State agencies to correct errors in a more timely 
manner, and bring EBT closer in line with current commercial Electronic 
Funds Transfer (EFT) practices. This rule also proposes to revise the 
formula

[[Page 27512]]

for recovering funds under the re-presentation rule.

DATES: Comments must be received on or before July 20, 1998, to be 
assured of consideration.

ADDRESSES: Comments should be submitted to Jeffrey N. Cohen, Chief, 
Electronic Benefit Transfer Branch, Benefit Redemption Division, Food 
and Nutrition Service, USDA, 3101 Park Center Drive, Alexandria, 
Virginia, 22302. Comments may also be datafaxed to the attention of Mr. 
Cohen at (703) 605-0232, or by e-mail to [email protected]. 
Written comments will be open for public inspection at the office of 
the Food and Nutrition Service during regular business hours (8:30 a.m. 
to 5 p.m., Monday through Friday) at 3101 Park Center Drive, 
Alexandria, Virginia, Room 718.

FOR FURTHER INFORMATION CONTACT: Questions regarding this rulemaking 
should be addressed to Mr. Cohen at the above address or by telephone 
at (703) 305-2517.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be non-significant for 
purposes of Executive Order 12866 and therefore was not reviewed by the 
Office of Management and Budget.

Public Law 104-4

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Food and Nutrition Service generally must prepare a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures to State, local or 
tribal governments, in the aggregrate, or to the private sector, of 
$100 million or more in any one year. When such a statement is needed 
for a rule, Section 205 of the UMRA generally requires the Food and 
Nutrition Service to identify and consider a reasonable number of 
regulatory alternatives and adopt the least costly, more cost-effective 
or least burdensome alternative that achieves the objectives of the 
rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of UMRA) for State, local and tribal governments 
or the private sector of $100 million or more in any one year. Thus 
this rule is not subject to the requirements of sections 202 and 205 of 
the UMRA.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule in 7 CFR part 3015, subpart V and related Notice (48 FR 29115), 
this Program is excluded from the scope of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley Watkins, 
the Under Secretary for Food, Nutrition and Consumer Service, has 
certified that this proposed rule will not have a significant economic 
impact on a substantial number of small entities. State and local 
welfare agencies will be the most affected to the extent that they 
administer the Program.

Paperwork Reduction Act

    This rule does not contain reporting or recordkeeping requirements 
subject to approval by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3507).

Executive Order 12778

    This rule has been reviewed under Executive Order 12778, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Effective Date'' paragraph of this 
preamble. Prior to any judicial challenge to the provisions of this 
rule or the application of its provisions, all applicable 
administrative procedures must be exhausted. In the Food Stamp Program 
the administrative procedures are as follows: (1) For Program benefit 
recipients--State administrative procedures issued pursuant to 7 U.S.C. 
2020(e)(1) and 7 CFR 273.15; (2) for State agencies--administrative 
procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 for 
rules related to non-quality control (QC) liabilities or Part 283 for 
rules related to QC liabilities; (3) for Program retailers and 
wholesalers--administrative procedures issued pursuant to 7 U.S.C. 2023 
set out at 7 CFR 278.8.

Background

Adjustments

    The Food and Nutrition Service (FNS) has been contacted by a number 
of State agencies and other interested stakeholders regarding its 
policy on making adjustments to EBT-issued benefits when a system error 
has resulted in an out-of-balance condition. During normal EBT 
processing for an authorized transaction, settlement is completed when 
the transaction acquirer has been properly credited for an amount equal 
to the amount debited from the household's benefit allotment. System 
malfunctions, however, can cause an interruption to this process. For 
purposes of this proposed regulation, an out-of-balance settlement 
condition exists when system errors or other technical malfunctions 
cause an interruption to the end-to-end settlement process from 
acquirer back to issuer, resulting in a settlement condition that does 
not reflect the authorized transaction. In the commercial EFT 
environment, such conditions are routinely corrected via a manual 
adjustment to the customer's account without notification to the 
account holder. In this proposed rule, an adjustment is defined as a 
debit or credit transaction initiated to correct a system error or to 
correct an out-of-balance condition identified in the settlement 
process. Current food stamp regulations, however, do not allow such 
adjustments without prior notification to the food stamp household.
    Regulations found at 7 CFR 274.12(f)(4) require that State agencies 
establish a date when the household's benefits become available to them 
each month. By regulation, State agencies are not allowed to make 
adjustments to the food stamp allotment after the availability date. 
This is in keeping with the coupon system which has no mechanism to 
retrieve benefits after they have been issued to the household. 
However, FNS recognizes that EBT provides additional tools that were 
not available in the coupon system. Corrections to technical errors can 
be made quickly and accurately, where previously, in the paper system, 
they could not be made. Commercial operating rules for EFT systems and 
the QUEST EBT operating rules have provisions which require adjustments 
for system errors. (The QUEST operating rules set forth EBT 
requirements for those state agencies that choose to issue benefits 
under the QUEST service mark.) This proposed rule would allow 
adjustments, after the availability date, to correct a system error.

[[Page 27513]]

    Proposing this change leads to the need to propose a second change. 
Section 11(e)(10) of the Food Stamp Act of 1977, as amended, gives 
households the right to a fair hearing over any action that affects 
their participation in the program. This section stipulates that to 
exercise this right households must request a fair hearing in a timely 
manner following receipt of an individual notice of the agency's 
action. Further, households have the right to delay the State agency's 
action and receive benefits at the previous level, pending a decision 
by the hearing official. Regulations implementing these provisions of 
the Act and signifying when a notice of action is necessary are found 
in Sec. 273.15.
    With some exceptions, which are specified in the regulation, 
households must be given an advance notice of 10 days before reduction 
in benefits can be put in place. The excepted situations in the 
regulation allow for concurrent benefit adjustment and notice--referred 
to as adequate notice. That is, State agencies are allowed to notify 
households at the same time as an action is taken.
    The nature of EBT settlement adjustments makes timeliness critical. 
A 10-day advanced notice, as required by current regulation, could have 
a negative impact on the State agency's ability to correct the out-of-
balance condition. For example, to provide notice 10 days prior to the 
adjustment action could risk benefits no longer being available since, 
unlike certification actions, the household has immediate access to the 
benefits in question. For this reason, in Sec. 273.13(a)(3)(vii), we 
propose that State agencies be allowed to send an adequate notice when 
the action is taken. This would allow the error condition to be 
corrected expeditiously, while preserving the household's right to 
adequate notice and a fair hearing.
    In order to ensure that the rights of the household are protected, 
this rule proposes to only allow adjustments under the following 
conditions:
    (1) Adjustments would not be allowed against future month benefits, 
i.e, against those benefits that were not in the account at the time of 
the original transaction.
    (2) In those cases in which a household no longer has benefits 
available from the issuance month, this rule proposes that the funds 
may be recovered using the re-presentation procedures set forth in 7 
CFR 274.12(l). If, however, there are sufficient benefits remaining to 
cover only part of the adjustment, the adjustment may be made using the 
remaining balance, with the difference being subject to the re-
presentation procedures.
    (3) If the household is no longer receiving benefits, the State 
agency is under no further obligation to recover the funds.
    (4) The household shall be given adequate notice at the time of the 
adjustment in accordance with procedures set forth in 7 CFR 
273.13(a)(3). An adequate notice includes an explanation of the action 
being taken, the reason for the action, the household's right to a fair 
hearing, and the household's right to continued benefits.
    (5) If the household chooses to have a fair hearing and elects to 
have benefits continued pending the fair hearing decision, the State 
agency would be required to re-credit the adjusted amount until the 
dispute is adjudicated. If the hearing finds in favor of the State 
agency, the State agency would re-process the adjustment (debit) for 
the full amount credited at the time of the fair hearing request. If 
there are no benefits remaining in the household's account at the time 
the State agency action is upheld, the State agency shall make the 
adjustment from the next month's benefit. If the household is no longer 
receiving benefits when the fair hearing decision is rendered, the 
State agency would be under no further obligation to recover the funds. 
An adjustment would not be made if the affected retailer is no longer 
on the EBT system.
    (6) Adjustments would only be allowed when auditable documentation 
is available to substantiate the out-of-balance condition.
    Finally, it has come to the Department's attention that EBT 
regulations do not provide time frames by which system errors must be 
resolved. The Department, therefore, proposes that all system errors be 
corrected within 5 business days. After 5 business days, any recovery 
of funds from a recipient's account must be handled through the re-
presentation process. The Department believes that unless the 
adjustment is made within a reasonable time, recipients will be unable 
to understand the connection between the original transaction and the 
adjustment action. The 5-day time frame also ensures that households 
negatively impacted by a system error will not have to wait 
unreasonably long periods of time for resolution.

Re-presentations

    Current regulations give State agencies the option to implement a 
re-presentation system to recoup certain losses in instances specified 
in 7 CFR 274.12(l). Regulations at 7 CFR 274.12(l)(1)(iii) stipulate 
that the rate of re-presentation be $50 for the first month and $10 or 
10 percent--whichever is greater--in subsequent months, until the re-
presentation is completely repaid. These amounts were originally 
selected so that the electronic system would be consistent with the 
claims process in place in the coupon system. Some State agencies have 
argued that the variation in the rate of re-presentation for the first 
month and subsequent months makes it particularly difficult to 
implement an automated re-presentation system. Currently, only one 
State agency has implemented re-presentation because of the burden of 
programming a system which would meet these requirements. Therefore, 
the Department proposes that the required rate differentiation between 
the first month and subsequent months be eliminated; the State agency 
would have the option to debit the benefit allotment of a household 
following the insufficient funds transaction in an amount equal to at 
least $10, but no higher than 10 percent of the allotment. This 
deduction would be repeated on a monthly basis until the re-
presentation is completely repaid. State agencies may choose to recover 
funds at an amount less than 10% of the allotment, but shall apply the 
lesser repayment amount to all households.

Implementation

    The Department is proposing that the provisions of this rulemaking 
be implemented 30 days after publication of the final rule. The 
Department also proposes to allow variances resulting from 
implementation of the provisions of the final rule to be excluded from 
error analysis for 120 days from the required implementation date, in 
accordance with 7 CFR 275.12(d)(2)(vii).

List of Subjects

7 CFR Part 273

    Administrative practice and procedures, Aliens, Claims, Food 
stamps, Grant programs--social programs, Penalties, Reporting and 
recordkeeping requirements, Social security, Students.

7 CFR Part 274

    Administrative procedures and practices, Food stamps, Grant 
programs--social programs, Reporting and recordkeeping requirements.
    Accordingly, for the reasons set forth in the preamble, 7 CFR parts 
273 and 274 are proposed to be amended as follows:

[[Page 27514]]

    1. The authority citation for 7 CFR parts 273 and 274 continues to 
read as follows:

    Authority: 7 U.S.C. 2011-2032.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    2. In Sec. 273.13, a new paragraph (a)(3)(vii) is added to read as 
follows:


Sec. 273.13  Notice of adverse action.

    (a) * * *
    (3) * * *
    (vii) An EBT system-error has occurred during the redemption 
process, resulting in an out-of-balance settlement condition. The State 
agency shall adjust the benefit in accordance with Sec. 274.12 of this 
chapter.
* * * * *
    3. In Sec. 273.15, the fourth sentence of paragraph (k)(1) is 
revised and three new sentences are added after the fourth sentence to 
read as follows:


Sec. 273.15  Fair hearings.

* * * * *
    (k) Continuation of benefits. 
    (1) * * * If the State agency action is upheld by the hearing 
decision, a claim against the household shall be established for all 
overissuances except in the case of an EBT adjustment, in which case 
another adjustment (debit) shall be made immediately to the household's 
account for the total amount erroneously credited when the fair hearing 
was requested. If there are no benefits remaining in the household's 
account at the time the State agency action is upheld, the State agency 
shall make the adjustment from the next month's benefits. If the 
household is no longer receiving benefits at the time of the fair 
hearing decision, the State agency is under no further obligation to 
recover the debt. An adjustment shall not be done if the affected 
retailer is no longer on the EBT system. * * *
* * * * *

PART 274--ISSUANCE AND USE OF COUPONS

    4. In Sec. 274.12:
    a. Paragraph (f)(4) is revised;
    b. Paragraph (f)(7)(iii) is amended by removing the second 
sentence;
    c. Paragraph (l) introductory text is redesignated as the first 
sentence of paragraph (l)(1) introductory text;
    d. Paragraph (l)(1) introductory text is amended by redesignating 
the last sentence as the introductory text of paragraph (l);
    e. Paragraph (l)(1)(iii) is revised;
    f. Paragraphs (l)(2), (l)(3), (l)(4), and (l)(5) are redesignated 
as (l)(3), (l)(4), (l)(5), and (l)(6); and
    g. A new paragraph (l)(2) is added.
    The revisions and additions read as follows:


Sec. 274.12  Electronic Benefit Transfer system issuance approval 
standards.

* * * * *
    (f) Household participation * * *
    (4) Issuance of benefits. State agencies shall establish an 
availability date for household access to their benefits and inform 
households of this date.
    (i) The State agency may make adjustments to benefits posted to 
household accounts after the posting process is complete but prior to 
the availability date for household access in the event benefits are 
erroneously posted.
    (ii) A State may make adjustments to an account after the 
availability date only to correct an auditable, out-of-balance 
settlement condition that occurs during the redemption process as a 
result of a system error.
    (A) Adjustments shall be made no later than 5 business days after 
the out-of-balance condition occurred.
    (B) Adjustments shall not be made against a future month's benefit. 
If there are sufficient benefits remaining to cover only part of the 
adjustment, the adjustment may be made with the remaining balance.
    (C) The household must be given, at a minimum, adequate notice in 
accordance with Sec. 273.13 of this chapter.
    (D) Should the household dispute the adjustment, the benefits must 
be re-credited to the household's account pending resolution.
    (E) Should a State agency wish to process an adjustment against 
future month benefits, such an action shall be in accordance with re-
presentation procedures found in paragraph (l) of this section.
    (iii) The appropriate management controls and procedures for 
accessing benefit accounts after the posting shall be instituted to 
ensure that no unauthorized adjustments are made in accordance with 
paragraph (f)(7)(iii) of this section.
* * * * *
    (l) Re-presentation. * * *
    (1) * * *
    (iii) The State agency may debit the benefit allotment of a 
household following the insufficient funds transaction in any amount 
which equals at least $10 or up to 10% of the transaction. This amount 
will be deducted monthly until the total owed is paid. State agencies 
may opt to re-present at a level that is less than the 10% maximum, 
however, this lesser amount must be applied to all households.
    (2) When a system-error has resulted in an out-of-balance condition 
at settlement, and the State agency is unable to recover an erroneous 
credit as an adjustment, a re-presentation may be made as follows:
    (i) the state agency shall debit the benefit allotment of a 
household monthly in an amount equal to at least $10 or up to 10% of 
the allotment until the re-presentation is completely paid.
    (ii) notice shall be provided prior to the month re-presentation 
occurs and shall state the amount of the reduction in the benefit 
allotment.
* * * * *
    Dated: May 12, 1998.
George A. Braley,
Acting Administrator, Food and Nutrition Service.
[FR Doc. 98-13227 Filed 5-18-98; 8:45 am]
BILLING CODE 3410-30-U