[Federal Register Volume 63, Number 186 (Friday, September 25, 1998)]
[Rules and Regulations]
[Pages 51490-51505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25667]
[[Page 51489]]
_______________________________________________________________________
Part IV
Department of the Treasury
_______________________________________________________________________
Fiscal Service
_______________________________________________________________________
31 CFR Part 208
Management of Federal Agency Disbursements; Final Rule
Federal Register / Vol. 63, No. 186 / Friday, September 25, 1998 /
Rules and Regulations
[[Page 51490]]
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: Final rule.
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SUMMARY: This regulation implements the provisions of section 31001(x)
of the Debt Collection Improvement Act of 1996 (Act) that require that,
subject to the authority of the Secretary of the Treasury (Secretary)
to grant waivers, all Federal payments (other than payments under the
Internal Revenue Code of 1986) made after January 1, 1999, must be made
by electronic funds transfer (EFT). This regulation establishes the
circumstances under which waivers are available; sets forth
requirements for accounts to which Federal payments may be sent by EFT;
provides that any individual who receives a Federal benefit, wage,
salary, or retirement payment shall be eligible to open a low-cost
Treasury-designated account at a financial institution that offers such
accounts; and sets forth the responsibilities of Federal agencies and
recipients under the regulation.
In addition, this regulation provides for the designation of
financial institutions as Financial Agents for purposes of implementing
electronic benefits transfer (EBT) programs. EBT is the provision of
Federal benefit, wage, salary, and retirement payments electronically,
through disbursement by a Financial Agent. EBT includes payment through
an electronic transfer account (ETASM) as well as payment
through a Federal/State program.
DATES: This rule is effective January 2, 1999.
ADDRESSES: This rule is available on the Financial Management Service's
EFT web site at the following address: http://www.fms.treas.gov/eft/.
FOR FURTHER INFORMATION CONTACT: Diana Shevlin, Financial Program
Specialist, at (202) 874-7032; Donna Wilson, Financial Program
Specialist, at (202) 874-6799; Sally Phillips, Senior Financial Program
Specialist, at (202) 874-6749; Natalie H. Diana at (202) 874-6950;
Cynthia L. Johnson, Director, Cash Management Policy and Planning
Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor,
at (202) 874-6681.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
Section 31001(x) of the Act amends 31 U.S.C. 3332 to require that
agencies 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, recipients who became eligible to receive Federal payments on or
after July 26, 1996, are required to receive such payments by EFT
unless they certify in writing that they do not have an account with a
financial institution or an authorized payment agent. Treasury issued
an interim rule on July 26, 1996, to implement these requirements. 61
FR 39254. The interim rule will remain in effect through January 1,
1999.
The second phase begins January 2, 1999. Beginning on that date,
all Federal payments, except payments under the Internal Revenue Code,
must be made by EFT unless waived by the Secretary. This regulation
(Part 208), which was published for comment on September 16, 1997 (62
FR 48714)(208 NPRM), implements the second phase requirements.
Part 208 provides guidance to agencies and recipients regarding
compliance with the Act's requirements. In developing this rule,
Treasury followed four principles: (1) The transition to EFT should be
accomplished with the interests of recipients being of paramount
importance; (2) Treasury's policies should maximize private sector
competition for the business of handling Federal payments, so that
recipients not only have a broad range of payment options, but also
receive their payments at a reasonable cost, with substantial consumer
protections, and with the greatest possible convenience, efficiency,
and security; (3) recipients, especially those having special needs,
should not be disadvantaged by the transition to EFT; and (4)
recipients without accounts at financial institutions should be brought
into the mainstream of the financial system to the extent possible.
Proposed 31 CFR Part 207
Part 208 also incorporates selected provisions from the proposed
rule 31 CFR Part 207, Electronic Benefits Transfer; Selection and
Designation of Financial Institutions as Financial Agents (207 NPRM)
published for comment on May 9, 1997. 62 FR 25572. As described below,
the EBT system is a system for making certain types of Federal payments
available electronically (by EFT) to recipients. In EBT, the payments
are disbursed to the recipient by a financial institution acting as
Treasury's Financial Agent. Legislation enacted in 1996 authorized the
Secretary of the Treasury to designate financial institutions as
Financial Agents to provide EBT services. Section 664, Omnibus
Consolidated Appropriations Act, 1997, Pub. L. 104-208.
At the time the 207 NPRM was published, Treasury contemplated
fulfilling the mandate in the Act that it assure that individuals
required to have an account in order to receive electronic payments
have access to an account at a reasonable cost and with the same
consumer protections as other account holders at the same financial
institution, by establishing one or more EBT systems through a
competitive selection process, and thus provide for the electronic
delivery of payments to those individuals who did not have an account
with a financial institution. The 207 NPRM proposed to establish a
legal framework for obtaining the services of financial institutions as
Financial Agents to perform the disbursement of public funds that is
central to the Federal EBT program.
As indicated below in the discussion on Sec. 208.5, Treasury has
determined that the statutory mandate to assure recipients access to
accounts is better implemented by designing an ETASM that
may be offered by any Federally-insured financial institution that
enters into an ETASM Financial Agency Agreement with
Treasury. It has also determined that the ETASM should be
made available to any individual who receives a Federal benefit, wage,
salary, or retirement payment. Under Part 208, an ETASM
falls within the definition of ``EBT.''
Also within the definition of EBT are Federal/State programs under
which a recipient who receives benefit payments from both the Federal
government and a State government can receive his or her payments
through the same system. This is consistent with the National
Performance Review implementation plan for nationwide EBT encouraging
Federal agencies, in partnership with State and local governments, to
develop a nationwide integrated EBT system utilizing the existing
commercial infrastructure to provide combined access to Federal
payments and State-administered benefits for a recipient on a single
card. As discussed below in the analysis of Sec. 208.5, Treasury
intends, where requested by States to do so, to work with States in
implementing joint
[[Page 51491]]
Federal/State EBT programs. Individuals who are in States with a
Federal/State program and who receive both Federal and State benefit
payments will have the option of participating in the program.
Based on the shift in focus from a competitive selection process
for obtaining EBT services to the development of an ETASM to
be offered at the option of Federally-insured financial institutions,
as well as on comments to the 207 NPRM indicating some confusion over
the relationship of the 207 NPRM to Part 208 and other related
documents, Treasury believes that a separate Part 207 rulemaking is no
longer necessary or desirable. Instead, those portions of the 207 NPRM
that relate to the statutory authority of the Secretary to designate
financial institutions to provide EBT services, including the offering
of ETAsSM, as Treasury's Financial Agents, have been
modified and incorporated in Part 208. Those portions of the 207 NPRM
that outline the duties of financial institutions designated as
Financial Agents, some of which may vary depending on a specific EBT
program, will be included in the Financial Agency Agreement for that
particular program, e.g., the ETASM Financial Agency
Agreement or the Financial Agency Agreement governing the disbursement
of Federal benefits in a Federal/State EBT program. Selected duties,
e.g., the duty related to complying with Regulation E, 12 CFR Part 205,
will also be reflected in the notice of ETASM attributes to
be published at a later date in the Federal Register.
B. Participation in Rulemaking Process
As part of the rulemaking process for Part 208, Treasury has
provided multiple forums for public comment and discussion. Since the
publication of the 208 NPRM, Treasury has actively solicited the views
of interested parties, including consumer and community-based
organizations, most of which are advocates for Federal recipients
likely to be most affected by the rule. For example, focus groups were
held nationwide to understand better the needs of Federal payment
recipients and to test public education messages and materials
developed to explain EFT to recipients. Also, the public was invited to
attend four Treasury-sponsored public hearings in the cities of
Baltimore, Dallas, Los Angeles, and New York. Over 50 interested
parties testified as to their views and concerns regarding EFT. In
addition, representatives from consumer and community-based
organizations and from financial institutions, financial institution
trade associations, and ATM networks were invited to participate in two
public meetings to discuss the account to be made available pursuant to
Sec. 208.5.
Finally, through an EFT Interagency Policy Workgroup, Treasury has
worked with Federal agencies to solicit input on EFT conversion as well
as to understand better agency implementation concerns. Agency feedback
has been essential to formulating a final rule that meets both Federal
agency and recipient needs.
II. Comments
A. 208 NPRM
Treasury received 212 comment letters in response to the 208 NPRM
that was published on September 16, 1997. Copies of the comments are
available on the Financial Management Service's (Service's) web site at
http://www.fms.treas.gov/eft/. Comments were received from consumer and
community-based organizations, recipients, financial institutions, non-
financial institutions, Federal agencies, and other interested parties.
In addition, comments were received in the form of testimony at the
four public hearings on EFT.
In general, commenters supported the use of EFT for Federal
payments. Although comments were received on a multitude of issues, the
principal issues addressed in the comment letters were the expansion of
hardship waivers; the availability and features of the ETASM
to be made available by Treasury pursuant to Sec. 208.5 of the 208
NPRM; and the regulation of accounts other than the ETASM to
which Federal payments may be sent.
These issues are discussed below in the section-by-section
analysis.
B. 207 NPRM
Treasury received 33 comment letters on the 207 NPRM that was
published on May 9, 1997. Copies of the comments are available on the
Service's web site at http://www.fms.treas.gov/eft/. Comments were
received from consumer organizations, financial institutions, financial
trade associations, a representative of non-bank financial service
providers, State government organizations, and a software development
company. The comment letters generally supported the use of EBT to make
Federal payments.
Some of the comments on the 207 NPRM related to issues that were
the subject of Part 208, in particular Sec. 208.5, Availability of the
ETASM. Those comments have been addressed below in the
section-by-section analysis of Part 208.
Other comments related to issues that will be the subject of a
notice of proposed ETASM features to be published in the
Federal Register and, therefore, will be addressed in that document.
Comments related to the attributes of the ETASM include
comments on provisions in proposed Sec. 207.3 that an account
established by a Financial Agent may be closed only at the direction of
Treasury; that Financial Agents must comply with Regulation E; and that
recipients must be provided debit card access to the account.
Still other comments, related to the duties and compensation of
Financial Agents, will be reflected in the Financial Agency Agreement
between Treasury and any financial institution that elects to provide
EBT services, e.g., ETAsSM, as Treasury's Financial Agent.
The characteristics and requirements of EBT programs, including the
duties of the Financial Agent for a particular program, may vary
according to the program. Therefore, Treasury believes that these
duties are best incorporated in the Financial Agency Agreement for the
particular program.
III. Section-by-Section Analysis of Part 208
A. Section 208.1--Scope and Application
Final Sec. 208.1, which is unchanged from proposed Sec. 208.1,
states that this rule applies to all Federal payments made by an agency
and, except as waived by the Secretary, requires that such payments be
made by EFT. This part does not apply to payments under the Internal
Revenue Code of 1986.
B. Section 208.2--Definitions
All definitions contained in the 208 NPRM are substantively
unchanged in the final Part 208 rule. Definitions for the terms
``ETASM,'' ``Federal/State EBT program,'' and ``Federally-
insured financial institution'' have been added to the rule. In
addition, definitions from the 207 NPRM for ``Direct Federal electronic
benefits transfer (EBT)'' and ``disburse'' have been modified and
incorporated into Part 208 as ``electronic benefits transfer (EBT)''
and ``disbursement.'' The definitions of ``eligible financial
institution'' and ``Financial Agent'' have been combined as ``Financial
Agent.'' Comments were received on the 208 NPRM definitions of
``authorized payment agent'' and ``Federal payment.'' For the reasons
discussed below, Treasury has left these two definitions unchanged in
the final rule.
[[Page 51492]]
Disbursement
The final rule includes a definition for ``disbursement.'' This
definition is similar to that for ``disburse'' in the 207 NPRM. The
term ``disbursement'' is used in the definition of ``electronic
benefits transfer (EBT)'' as meaning the performance of a series of
functions by a financial institution that has been designated by
Treasury as a Financial Agent. The functions are: the establishment of
an account that meets the requirements of the Federal Deposit Insurance
Corporation or the National Credit Union Administration Board for
deposit or share insurance; the maintenance of the account; the receipt
and crediting of Federal payments to the account; and the provision of
access to the account on terms specified by Treasury.
The broad definition of ``disbursement'' in Part 208 reflects
Treasury's determination that all of the functions must be performed in
order to accomplish Treasury's goal of providing recipients access to
their payments through an ETASM or a Federal/State EBT
program. By contrast, the term ``disburse'' is used in a narrower sense
in 31 CFR Part 206, Treasury's regulation dealing with the management
of Federal agency receipts and collections. ``Disburse'' is defined in
31 CFR 206.2 as the initiation of an EFT because, in the context of
agency cash management where all the parties have accounts at financial
institutions, the only function that needs to be performed in order to
deliver public money by EFT to the intended recipient is the initiation
of the EFT.
The definition of ``disburse'' in proposed Sec. 207.3(a)(1)
required that the Financial Agent establish an account in the name of
each unbanked recipient. Part 208 deletes the requirement that the
account be ``in the name of'' the recipient because this requirement,
and certain exceptions, are already set forth in Sec. 208.6 of the
final rule.
However, the reference in the definition of ``disbursement'' to the
establishment of an EBT account ``for the recipient'' is intended to
clarify that the account is established on behalf of the recipient and
that the recipient has an ownership interest in the account. While
Treasury controls the nature of the account and imposes certain
obligations on the Financial Agent, the account itself, once
established, is the recipient's account. Accordingly, when Treasury
sends a Federal payment to the account, the funds transferred to the
account cease to be public monies and become the property of the
recipient. In addition, it is the recipient's account for deposit or
share insurance purposes. Also, the recipient is entitled to any
available protection under Regulation E and other consumer protection
laws with respect to the account. Just as with any other account to
which Federal payments are sent, Treasury's liability to the recipient
is extinguished upon final crediting of the transfer of the funds to
the recipient's account.
The final rule adds the phrase ``or other electronic means'' to the
definition of ``disbursement'' to clarify that EBT may not necessarily
be effected through the Automated Clearing House (ACH) system. In
addition, the final definition incorporates, with minor modifications,
the requirement in proposed Sec. 207.3, Duties of the Financial Agent,
that the account established by the Financial Agent be eligible for
Federal deposit insurance.
Electronic Benefits Transfer (EBT)
The final rule includes a definition for ``electronic benefits
transfer (EBT)'' to make clear that certain types of Federal payments
disbursed by a Financial Agent through an ETAsm or a
Federal/State EBT program are considered to be EBT payments. ``EBT'' is
defined specifically as the provision of Federal benefit, wage, salary,
and retirement payments electronically, through disbursement by a
Financial Agent. This definition has been modified from the definition
of ``direct Federal electronic benefits transfer (EBT)'' that appeared
in the 207 NPRM. For reasons discussed below in the section-by-section
analysis of Sec. 208.5, the definition of ``EBT'' is no longer limited
to the disbursement of payments to recipients who do not have an
account at a financial institution.
In 1996, Congress amended the Federal laws that govern Treasury's
designation of financial institutions as Financial Agents. The
amendments clarify the broad authority of the Secretary to define EBT
and to utilize any process deemed appropriate to select Financial
Agents to provide EBT services:
Notwithstanding the Federal Property and Administrative Services
Act of 1949, as amended, the Secretary may select [financial
institutions] as financial agents in accordance with any process the
Secretary deems appropriate and their reasonable duties may include
the provision of electronic benefit transfer services (including
State-administered benefits with the consent of the States), as
defined by the Secretary.
Section 664, Omnibus Consolidated Appropriations Act, 1997, Pub. L.
104-208 amending 12 U.S.C. 90. Conforming amendments were made to 12
U.S.C. 265, 266, 391, 1452(d), 1767, 1789a, 2013, 2122 and to 31 U.S.C.
3122 and 3303.
Part 208 defines the term ``EBT'' for purposes of Pub. L. 104-208
as the provision of certain types of Federal payments electronically,
through disbursement by a financial institution acting as a Financial
Agent. As indicated above, the term ``EBT'' includes disbursement
through ETAsSM and Federal/State EBT programs.
EBT is distinguished from Direct Deposit, the program used by
agencies, at the request of the payment recipient, to send funds
through the ACH system to an account established by the recipient at a
financial institution. Although Direct Deposit and EBT are similar in
that both involve the movement of funds by EFT to an account at a
financial institution, there are significant distinctions between them.
In Direct Deposit, Treasury initiates an electronic payment to a
recipient's account, but has no responsibilities with respect to the
account or the nature or quality of the account services provided. In
contrast, in an EBT program, the attributes of the account to which the
Federal payments are sent are determined by Treasury, and the financial
institution provides recipients access to their payments in the manner
and on terms specified by Treasury. The financial institution holding
the EBT account acts as Treasury's Financial Agent in establishing and
maintaining the account for the recipient, and thus has a legal
relationship with Treasury with respect to the account.
In addition, as mentioned above, although both Direct Deposit and
EBT involve the disbursement of public funds, what is involved in
accomplishing the disbursement differs. In Direct Deposit, Treasury
disburses public funds by originating an ACH credit to the financial
institution designated by the recipient as the financial institution
that holds the recipient's account. In EBT, disbursement is a multi-
step process that includes, in addition to the origination of an ACH
credit, the establishment of an account for the recipient by Treasury's
Financial Agent and the provision of access to that account by the
Financial Agent in accordance with the terms specified by Treasury.
ETASM
The final rule includes a definition for ``ETASM. The
208 NPRM did not use the term ``ETASM and, therefore, did
not define the term. Since the final rule uses the term in Sec. 208.5
as well as selected other sections, a definition has been
[[Page 51493]]
added to facilitate the referencing of the Treasury-designated account
to which Federal payments may be made electronically. The definition
states that an ETASM is a Treasury-designated account, i.e.,
Treasury will determine the features of the account. In addition, the
definition makes clear that a financial institution offering an
ETASM does so as Treasury's Financial Agent. As indicated
above in the discussion on ``EBT,'' an ETASM falls within
the definition of ``EBT.''
Federal/State EBT Program
The final rule includes a definition for ``Federal/State EBT
program'' to distinguish an account offered through this type of
program from an ETASM. As defined, a Federal/State EBT
program is a program that provides access to Federal payments and
State-administered benefits through a single delivery system and in
which Treasury designates the Financial Agent to disburse the Federal
payments.
Federally-Insured Financial Institution
The final rule includes a definition for ``Federally-insured
financial institution. This definition was added because of the
requirement in Sec. 208.5 that all financial institutions that offer an
ETASM must be Federally insured.
Financial Agent
The final rule includes a definition for ``Financial Agent.''
``Financial Agent'' is defined as a financial institution that has been
designated by Treasury as a Financial Agent for EBT pursuant to any
statutory Financial Agent designation authority. The definition makes
reference to certain selected United States Code sections, amended by
Pub. L. 104-208, that authorize the designation of financial
institutions as Financial Agents.
As indicated in the discussion on ``EBT,'' Pub. L. 104-208
clarifies the Secretary's authority to designate financial institutions
as Financial Agents to provide EBT services. As also indicated, for
purposes of Part 208, EBT services include disbursement of Federal
payments through ETAsSM as well as through Federal/State EBT
programs, where applicable.
The Part 208 definition of ``Financial Agent'' combines the 207
NPRM definitions of ``eligible financial institution'' and ``Financial
Agent.'' The substance of the definition remains the same.
Financial Agent--Designation
A number of financial institutions and financial trade associations
commenting on the 207 NPRM requested clarification as to whether a
financial institution could be designated as a Financial Agent and
compelled to provide EBT services even if the institution did not wish
to do so. These entities urged Treasury to allow financial institutions
to decide whether or not they wish to act as Financial Agents for the
provision of EBT services and to clarify in the rule that participation
is voluntary. Treasury does not intend to designate as Financial Agents
financial institutions that do not wish to provide EBT services. To
clarify this point, Sec. 208.5 has been modified to read, ``Any
Federally-insured financial institution shall be eligible, but not
required, to offer ETAsSM as Treasury's Financial Agent.''
Financial Agent--Liability
A number of commenters on the 207 NPRM requested clarification
regarding the responsibilities and liabilities of financial
institutions that are designated as Financial Agents for the provision
of EBT services. Some financial institutions and financial trade
associations were concerned about the potential liabilities that
financial institutions would face in serving as Financial Agents.
Several of these organizations commented that, in particular, the
regulations should be more specific regarding the potential liability
of a Financial Agent for erroneous payments. Other financial
institutions commented that since Financial Agents will be required to
accept recipients as customers and will not have the discretionary
right to freeze or close an EBT account, the risk of loss associated
with such accounts may be significantly higher than for regular
customer accounts. For example, losses could be incurred if the
Financial Agent is required, pursuant to Regulation E, to provide
provisional funds as a result of an account dispute and the funds are
subsequently withdrawn. In light of the higher risk that commenters
believe EBT accounts might involve, Treasury was urged to indemnify
Financial Agents against all losses associated with providing EBT
services.
With respect to the issue of erroneous payments, Federal payments
made pursuant to an EBT program through the ACH system will be governed
by 31 CFR Part 210, Treasury's regulation establishing the rights and
liabilities of parties in connection with ACH credit entries, debit
entries, and entry data originated or received by a Federal agency
through the ACH system. A Notice of Proposed Rulemaking to revise Part
210 was published for public comment on February 2, 1998. 63 FR 5426.
Treasury has not included in Part 208 any reference to the closing
of accounts. Rather, Treasury will include in the Financial Agency
Agreement a provision that the account may only be closed in
circumstances that have been approved by Treasury. It is not Treasury's
intent to restrict a Financial Agent's ability to prevent losses
arising from fraudulent or abusive activity in the account. However,
Treasury is concerned that the closure of EBT accounts could pose a
significant hardship to recipients who are relying on the availability
of such accounts in order to receive their Federal payments. Treasury
believes that the hardship to recipients that could result from the
closing of EBT accounts must be balanced against the need to detect and
limit fraudulent activity on the accounts. Treasury also believes that
the bases upon which it is appropriate to permit a Financial Agent to
close an account may vary among EBT programs, depending on the nature
and features of the accounts. The Financial Agency Agreement will
include program-specific criteria for the closing of accounts, i.e.,
will establish the circumstances under which a Financial Agent may
close an account. The Financial Agency Agreement will also address the
allocation of any resulting losses.
With respect to losses to Financial Agents resulting from
recipients' abuse of EBT accounts, Treasury's legal authority to
indemnify Financial Agents must be determined on a case-by-case basis.
Treasury does not believe that, as a general matter, it is necessary or
appropriate to indemnify Financial Agents for all losses associated
with providing the EBT services. Any unusual risks that might be
presented by the structure of a particular EBT program will be
evaluated and addressed on a program-specific basis.
Financial Agent--Compliance With Regulation E
Several financial trade associations and financial institutions
requested clarification on the responsibilities of Financial Agents
regarding Regulation E. Section 207.3(a)(2) of the 207 NPRM proposed to
require all Financial Agents to comply with Regulation E. At the same
time, Sec. 207.3(b) of the 207 NPRM proposed that the Financial Agent
``be accountable only to the Treasury,'' which appeared to some
commenters to conflict with the obligations that a financial
institution would have to recipients under Regulation E. In addition,
several State government entities requested clarification on how
Regulation E claims would be handled
[[Page 51494]]
in cases where both State and Federal funds are included in the same
account. Two financial trade associations commented that the Regulation
E exemption for small financial institutions should be available for
such institutions. Another financial institution trade association
commented that Financial Agents should be allowed to delegate
Regulation E compliance requirements to a third party, such as a
corporate credit union (in the case of credit unions).
The rule language of Part 208 does not incorporate the 207 NPRM
provision on Regulation E. The extent to which Regulation E applies to
an account established under a particular EBT program will be addressed
on a program-by-program basis, including in the context of a Federal/
State EBT program. The Board of Governors of the Federal Reserve System
is responsible for the implementation and interpretation of Regulation
E. See 15 U.S.C. 1693b. Accordingly, Treasury does not believe it is
appropriate for Treasury to address the availability of the exemption
for small financial institutions or the ability of financial
institutions to delegate Regulation E requirements. For purposes of the
ETASM, requirements related to Regulation E will be included
in the notice of proposed ETASM attributes and in the
ETASM Financial Agency Agreement.
Treasury has not included in Part 208 the accountability language
of Sec. 207.3(b) of the 207 NPRM. Treasury notes, however, that a
Financial Agent will be accountable to Treasury for any failure of the
Financial Agent to comply with its obligations under the agreement
between Treasury and the Financial Agent.
Authorized Payment Agent
The 208 NPRM defined ``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, 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. The final rule
makes no change in this definition.
Treasury received comments from non-financial institutions
requesting Treasury to expand the definition of an authorized payment
agent to include non-financial institutions. Commenters stated that the
current financial infrastructure is not sufficiently extensive to reach
all Federal recipients required to receive payments electronically.
Many of these entities stressed their extensive network of agents in
locations in rural areas and low and moderate income neighborhoods.
These locations include convenience stores, supermarkets, pharmacies,
travel agents, gas stations, and other retail outlets. In their
comments, money transmitters, currency exchanges, and check cashers
stressed their current role in providing financial services in
locations where there are few bank branches.
Treasury has considered the role of non-financial institutions in
two contexts in the rule: Sec. 208.5 related to the ETASM
and Sec. 208.6 related to account requirements. A discussion of
comments received and Treasury's response is included in the section-
by-section analysis of the respective sections.
Federal Payment
The definition of ``Federal payment'' in the final rule is
identical to the definition of that term in the proposed rule.
Treasury received many comments from agencies seeking clarification
on whether payments made to recipients through third parties are
required to be made by EFT. For example, the Department of Health and
Human Services requested that Treasury clarify whether payments made by
third-party contractors to doctors and hospitals for Medicare claims
are required to be made by EFT. Typically, when an agency relies on a
third-party contractor for payment services, the contractor makes a
payment to a Federal payment recipient on behalf of the Government and
the Government either (1) funds the payment by sending the funds to the
contractor before the contractor makes the payment, or (2) reimburses
the contractor for amounts already paid on the Government's behalf.
Treasury will consider on a case-by-case basis situations in which
an agency makes an EFT payment to a third-party contractor for purposes
of funding a paper payment issued by that third party to a recipient.
Treasury believes that some of these arrangements comply with this
part. For example, in light of certain specific statutory provisions
governing the issuance of Medicare payments, as well as the overall
structure of the program, the issuance of paper Medicare payments by
intermediaries and carriers would be in compliance with this part.
However, Treasury does not believe that other arrangements in which a
Federal agency reimburses a contractor by EFT for the contractor's
issuance of checks to the agency's payees necessarily comply with this
part.
Several agencies also requested clarification on whether third-
party drafts and certain other paper-based instruments such as credit
card convenience checks utilized by some agencies are considered to be
in compliance with the Act. Under current third-party draft and
convenience check arrangements, agencies make payments using drafts and
checks drawn against an account held by a third party. After the draft
or check has been presented to and paid by the third party's bank, the
third party bills the agency and the agency reimburses the third party
by EFT. Several agencies commented that the issuance of a check or
draft in these circumstances is only a component of the overall
transaction which, viewed in its entirety, should be considered to be a
Federal payment made by EFT because the agency is reimbursing the third
party by EFT.
It is Treasury's view that a payment made by a third-party draft or
convenience check in this manner is a Federal payment, and therefore
must be made by EFT unless a waiver is available. The fact that third-
party drafts and convenience checks are not drawn against an account of
the United States Government does not exclude them from the category of
Federal payments. The essential nature of such arrangements is simply
the issuance of a paper check, with the added step of utilizing an
account owned by a third party. One goal of the Act is to save the
Government money by eliminating checks and the incremental costs
associated with them and converting all payments to less costly EFT.
Third-party draft arrangements involve all the costs associated with
paper instruments, plus the additional expense of reimbursing the third
party for the agency's use of the account. Accordingly, third-party
drafts, credit card convenience checks, and similar arrangements
utilizing paper-based instruments may only be used when the requirement
to make payment by EFT is waived under the waiver categories found at
Sec. 208.4.
C. Section 208.3--Payment by Electronic Funds Transfer
This section, which is unchanged from Sec. 208.3 of the 208 NPRM,
implements 31 U.S.C. 3332(f)(1) and provides that, 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 EFT. Pursuant to the definition of Federal payment, payments made
under the Internal
[[Page 51495]]
Revenue Code of 1986 are not required to be made by EFT.
D. Section 208.4--Waivers
Waiver Standards
Section 208.4 lists waivers from the requirement that Federal
payment be made by EFT. As explained in the preamble to the 208 NPRM,
the waiver categories are based on the following four standards
developed by the Secretary: (1) Hardship on the recipient; (2)
impossibility; (3) cost-benefit; and (4) law enforcement and national
security. The 208 NPRM provided eight waiver categories; for the
reasons described below, the final rule provides seven waiver
categories.
The waivers contained in the 208 NPRM related to standards two
through four named above remain the same, except for a minor change in
wording in proposed Sec. 208.4(e) from ``armed forces'' to ``uniformed
services'' to reflect the use of that term in 10 U.S.C. 101(1)(13)
defining contingency operations. Those waivers, contained in the 208
NPRM as Secs. 208.4(c) through (h), appear in the final rule as
Secs. 208.4(b) through (g).
Hardship Waivers
Sections 208.4(a) and (b) of the 208 NPRM, related to standard one
(hardship on the recipient), have been revised and combined into
Sec. 208.4(a) in the final rule. As with Secs. 208.4(a) and (b) of the
208 NPRM, the hardship waivers referenced in final Sec. 208.4(a) apply
only to recipients who are individuals as defined under Sec. 208.2.
Hardship Waivers--Recipients With and Without Accounts
Final Sec. 208.4(a) broadens the hardship waivers available to
individuals. The final rule does not distinguish between recipients who
have an account with a financial institution and those who do not.
Rather, it simply refers to individuals who determine that payment by
EFT would impose a hardship.
Treasury received a number of comments from consumer organizations,
recipients, and Government agencies stating that the hardship waivers
should apply to all Federal payment recipients, regardless of whether
they have an account at a financial institution. Commenters stated that
by limiting the financial hardship provision in the 208 NPRM to
individuals who do not have an account at a financial institution, no
accommodation is made for recipients who may have an account but, for
whatever reason, may not be able to afford keeping such an account.
This could happen if, for example, account fees or charges increase to
what becomes an unaffordable amount for the recipient. It could also
happen if the recipient's overall financial situation were to change
for the worse for some reason beyond the recipient's control, such as a
job loss, a serious illness of a dependent, or the death of an income
provider.
Commenters also noted that, as proposed, the financial hardship
provision would not be available to those recipients who opened
accounts because of the fear of losing or interrupting their benefits.
A number of consumer organizations stated that some of their
constituents had enrolled in high cost programs with financial and non-
financial institutions in the mistaken belief that they needed to have
an account in order to continue to receive Federal benefit payments. In
response to these comments, Treasury has deleted from the hardship
waiver category any reference to persons having or not having an
account at a financial institution.
Hardship Waivers--Date of Eligibility
The final rule does not distinguish between recipients who became
eligible for a Federal payment before July 26, 1996, and those who
became eligible on or after that date. Final Sec. 208.4(a) provides
that certain hardship waivers are available to individuals, regardless
of when they became eligible to receive their Federal payments.
The majority of consumer organizations, recipients, and Government
agencies commenting on the 208 NPRM objected to the ``date of
eligibility'' distinction in the NPRM. As proposed, there were no
hardship waivers for recipients who had an account with a financial
institution and who became eligible for a Federal payment on or after
July 26, 1996. Commenters stated that a recipient's physical condition
and geographic location have no direct relationship to the recipient's
date of eligibility for his or her Federal payments. For example,
recipients who are physically disabled may need a hardship waiver,
regardless of when they began receiving their benefits. In addition,
commenters pointed out that the date of eligibility distinction makes
no allowance for future changes in the circumstances of a recipient.
For example, a recipient who was receiving payment by EFT and then
becomes physically disabled should be eligible for a physical hardship
waiver.
Benefit agencies presented other reasons for removing the ``date of
eligibility'' distinction from the hardship waiver provisions. Several
agencies expressed concern about the complexity of implementing a
system to track waivers where a hardship waiver would be available for
one type of payment for which an individual became eligible prior to
July 26, 1996, and not available for another type of payment for which
the same individual became eligible after that date.
Several other agencies, however, defended the ``date of
eligibility'' distinction in the NPRM, based on their past experiences
in enrolling Federal payment recipients in EFT. These agencies stated
that even though there is no direct relationship between a recipient's
ability to receive an EFT payment and his or her date of eligibility
for Federal benefits, this policy makes sense from an operational
perspective, since the majority of new payment recipients voluntarily
enroll in EFT. For example, the Social Security Administration is
currently enrolling 85% of its new benefit recipients in EFT. In
addition, these agencies expressed concern that Treasury would diminish
the effectiveness of the EFT mandate by providing liberal waiver
policies. However, even though there is clear evidence that the
majority of new Federal payment recipients voluntarily enroll in EFT,
it is not clear that those for whom EFT would impose a hardship are
proportionately represented. Based on this and on the comments
received, Treasury has determined that there is not sufficient
justification to distinguish between recipients based on their date of
eligibility for payment.
Expansion of Hardship Waivers
Final Sec. 208.4(a) expands the hardship waiver provisions to
accommodate recipients with mental disabilities or language or literacy
barriers. Comments on the 208 NPRM from consumer and community-based
organizations and payment recipients presented reasons as to why EFT
may not be a viable option for recipients with such disabilities and
barriers. A recurring argument heard for each of these categories was
that there are factors specific to EFT payments that present greater
challenges to recipients than do check payments. For example, a
recipient with a mental disability or a language or literacy barrier
may be able to sign his or her name on a check but may not be able to
navigate through the information on ATM screens.
Consumer and community-based organizations also took issue with the
position taken in the 208 NPRM that agencies currently accommodate
recipients with mental disabilities by allowing for representative
payees to manage the recipients' benefit payments, and that the method
by
[[Page 51496]]
which payment is made to the representative payee has no effect on the
actual recipient. These commenters stated that many recipients with
mental disabilities are able to perform tasks necessary to negotiate a
check payment on their own and do not need to rely on a representative
payee to do so. However, this is not usually the case with EFT
payments, since an electronic system is more difficult to
conceptualize. As a result, the EFT requirement can drastically reduce
a recipient's financial independence and subject him or her to the
inherent risks associated with relying on a third party to access a
payment.
Broadening the hardship waivers available to recipients is
consistent with the legislative history of the Act which refers
specifically to ``individuals who have geographical, physical, mental,
educational, or language barriers'' and a concern that these
individuals may not be able to receive their benefits if payment is
required to be made by EFT. See 142 Cong. Rec. H4090 (April 25, 1996).
Waiver Process
In addition to broadening the hardship waivers available to
individuals, the final rule makes clear Treasury's intent that the
waiver process will be based on an individual's self-determination that
a hardship exists. By changing the language from ``certifies'' to
``determines'' and adding the phrase ``in his or her sole discretion,''
Treasury is indicating that an individual has the right to determine
whether he or she qualifies for a waiver. As discussed below in the
section-by-section analysis of Sec. 208.7, an agency may request that
the individual inform the agency of his or her election to rely upon a
waiver. However, the agency may not require evidence of any condition
underlying the recipient's election of a waiver. In addition, if the
agency receives no response from a recipient, the agency must continue
to make payment by check.
The change from ``certifies'' to ``determines'' also addresses a
concern raised by the Social Security Administration and other agencies
that collecting and documenting written waiver certifications would
impose a heavy administrative burden on those agencies. Under the final
rule, there is no requirement that written certifications be obtained.
In contrast to Sec. 208.4(a), the availability of a waiver under
Secs. 208.4(b) through (g) is to be determined in the first instance by
the agency responsible for making the payment. Under the regulation,
there is no requirement that Treasury approve or certify the
applicability of a waiver under circumstances described in
Secs. 208.4(b) through (g). Treasury believes that, as a general
matter, agencies are in the best position to determine whether the
criteria set forth at Secs. 208.4(b) through (g) are met in a
particular set of circumstances. Treasury does not intend to review
routinely agency decisions to make payment by check or cash in
circumstances addressed in Secs. 208.4(b) through (g). However,
Treasury may consider the appropriateness of check or cash payments in
reliance on Secs. 208.4(b) through (g) on a case-by-case basis.
Automatic Waiver
In addition to the changes mentioned above, the final rule contains
three changes in the automatic waiver provision for individuals who do
not have an account with a financial institution. In the 208 NPRM, this
waiver was until the earlier of January 2, 2000, or the date as of
which the Secretary determines that the ETASM is available.
First, the final rule adds the phrase ``who are eligible to open an
ETASM'' to reflect the change made in final Sec. 208.5
limiting eligibility for an ETASM to individuals who receive
a Federal benefit, wage, salary, or retirement payment. Second, the
final rule deletes the phrase ``who certify'' to emphasize that
individuals who do not have an account with a financial institution do
not need to take any action in order to invoke the automatic waiver.
Third, the final rule deletes the reference to January 2, 2000, and
states that an automatic waiver is granted until such date as the
Secretary determines that the ETASM is available. Agencies
stated that they will need six to nine months after the
ETASM becomes operationally available to enroll recipients
who elect to have access to their payment through this account. In
order to ensure that agencies have the necessary lead time, Treasury
has deleted the January 2, 2000, date reference.
Waiver for Non-Recurring Payments
Agency comments were received on proposed Sec. 208.4(g), which
provides a waiver for payment by EFT where the agency does not expect
to make more than one payment to the same recipient within a one-year
period, i.e., the payment is non-recurring, and the cost of making the
payment via EFT exceeds the cost of making the payment by check. This
waiver was intended to address those situations in which payment by
check might be more cost-effective than payment by EFT given the
administrative cost of enrolling a recipient for an EFT payment.
One agency requested clarification as to who would be responsible
for the cost/benefit analysis. Another agency requested clarification
as to whether a cost/benefit analysis must be documented to support an
agency's decision to issue a check. While the cost/benefit of making an
EFT payment over a check payment is generally known, the cost to each
agency of enrolling a recipient for EFT payment is best determined by
that agency. Therefore, Treasury is leaving it to the agency to
determine if it is more cost-effective to make a non-recurring payment
by check rather than electronically. Agencies will not be expected to
document a cost/benefit analysis for every non-recurring payment, but
should establish internal procedures for determining when such payments
are to be made by check.
As pointed out in the preamble to the 208 NPRM, this waiver
category was not meant to suggest that the dollar amount of the payment
is at any time a determining factor for the application of the waiver.
Rather, the determining factor is whether the payment is a one-time
payment as opposed to a recurring payment.
No Waiver for Vendor Payments
As with the 208 NPRM, the final rule contains no specific waiver
for vendor payments. Treasury received several comments from agencies
and Federal Government vendors citing a need for a waiver in those
circumstances where remittance data, i.e., information that identifies
the payment, is not available to the vendor. This may happen because a
financial institution is not capable operationally of delivering the
data to the vendor in human readable form or because the cost to the
vendor of obtaining the data is determined to be unacceptably high.
Vendors require this payment-related information to reconcile payments
against outstanding invoices.
Since the publication of the 208 NPRM, much progress has been made
in the effort to provide vendors with access to remittance data. As of
September 1998, the National Automated Clearing House Association rules
require that upon request of a recipient, a financial institution
receiving a payment to be credited to the recipient's account through
the ACH must provide all payment-related information sent with the
payment. To assist in this effort, the Board of Governors of the
Federal Reserve System has acquired low-cost software that will enable
financial institutions to capture payment
[[Page 51497]]
information and present it to the vendor in readable form. This
software, expected to be released in the fourth quarter of 1998, will
be made available to approximately 12,000 financial institutions
through Fedline, the Federal Reserve's telecommunication service.
Also, the Service's Austin Financial Center has developed an online
internet site where vendors can use a password to access information
about a Federal payment. This service currently is available to all
Federal agencies and their vendors. Other ongoing efforts include
training for agencies on correctly formatting the addenda record in
which payment information is contained and outreach through literature
and local ACH association workshops for financial institutions and
their customers. In addition, Treasury has developed a standard check
insert, which agencies are encouraged to use, to assist in enrolling
vendors in Direct Deposit.
Treasury expects that these efforts will result in readily
available solutions to this problem by the January 2, 1999, deadline.
Treasury will continue to monitor the development of these solutions to
determine if some modification is needed.
E. Section 208.5--Availability of the ETASM
Proposed Sec. 208.5 provided that where the requirement to pay by
EFT is not waived and an individual either certifies that he or she
does not have an account with a financial institution or fails to
provide information necessary to send the payment by EFT, Treasury
would provide the individual with access to an account at a Federally-
insured financial institution selected by Treasury.
In response to comments and as a result of further research and
analysis, Treasury has taken a different approach to account access in
the final rule. Final Sec. 208.5 states that an individual who receives
a Federal benefit, wage, salary, or retirement payment shall be
eligible to open an ETASM at a financial institution that
offers ETAsSM. Any Federally-insured financial institution
will be permitted (but not required) to offer ETAsSM as
Treasury's Financial Agent upon entering into an ETASM
Financial Agency Agreement. (The designation of the financial
institution as Treasury's Financial Agent is authorized under Pub. L.
104-208.) The final regulation provides that Treasury shall publish
required attributes for ETAsSM and that any ETASM
offered by a financial institution must comply with those requirements.
Further, it clarifies that the offering of an ETASM
constitutes the provision of EBT services within the meaning of Pub. L.
104-208.
Eligibility for an ETASM
The final rule limits eligibility for an ETASM to
individuals who receive a Federal benefit, wage, salary, or retirement
payment. The comments received indicate that it is this group of
recipients of Federal payments--rather than recipients of vendor or
miscellaneous payments--who most need, and would benefit from, a low-
cost account such as the ETASM. It is Treasury's objective
to encourage this group of individuals to move into the financial
mainstream through access to ETAsSM.
The 208 NPRM stated that Treasury would provide access to an
account ``where the requirement to pay by electronic funds transfer is
not waived'' 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.'' All of these conditions have been
removed in the final rule. Under final Sec. 208.5, any recipient of a
Federal benefit, salary, wage, or retirement payment is eligible to
open an ETASM. However, if a recipient does not
affirmatively elect electronic deposit to an ETASM or
another account at a financial institution, the recipient will receive
payment by check.
Comments received from consumer and community-based organizations
urged Treasury to allow recipients to receive their Federal payments
through an ETASM even if the recipient has another account
at a financial institution. Several commenters expressed the concern
that some recipients are opening accounts which are too costly because
of the fear that their payments would be stopped or interrupted if an
account was not opened. Some commenters were concerned that financial
institutions' fee structures are confusing for some recipients and that
account-related fees may increase, with the result that recipients can
no longer afford to maintain an account that was affordable when
opened. Other commenters expressed a concern that a recipient's
financial circumstances can change, so that the recipient can no longer
afford to maintain an account at a financial institution. Some consumer
and community-based organizations also commented that individuals may
have established accounts for certain limited uses, such as a savings
account set up for a special purpose, which they do not wish to use to
access their Federal payment.
The final rule addresses all of these concerns by making any
individual who receives a Federal benefit, wage, salary, or retirement
payment eligible for an ETASM, regardless of whether the
individual has an account at a financial institution.
Regulation of Non-ETASM Accounts
Treasury believes that expanding eligibility for the
ETASM mitigates the concern expressed by several consumer
organizations that the provision of the ETASM as
contemplated in the 208 NPRM would not fully satisfy the Act's
``reasonable cost'' and ``same consumer protections'' requirements.
Specifically, the Act provides:
Regulations under this subsection shall ensure that individuals
required under subsection (g) 1 to have an account at a
financial institution because of the application of subsection (f)(1)
2--
---------------------------------------------------------------------------
\1\ Subsection (g) requires each recipient of Federal payments
required to be made by EFT to designate a financial institution or
other authorized agent to which payments shall be made and to
provide the paying agency with the information necessary for the
recipient to receive EFT payments through the institution or agent.
\2\ Subsection (f)(1) requires that, with certain exceptions,
all Federal payments made after January 1, 1999, be made by EFT.
---------------------------------------------------------------------------
(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. 31
U.S.C. 3332(i).
As discussed in the preamble to the 208 NPRM, the requirement that
Treasury ensure access to an account could be read very broadly to
refer to all individual recipients who are required to receive their
Federal payments by EFT, whether or not they already have an account.
62 FR 48714, 48723. The Act also could be read more narrowly as
referring to those individuals who have not voluntarily selected or
opened an account at a financial institution, who are not eligible for
a waiver, and who will need access to an account in order to receive a
Federal payment by EFT. Several commenters urged Treasury to read the
requirement in the broader fashion and to regulate the pricing and
terms of all accounts at financial institutions to which Federal
payments may be sent by EFT. Consumer and community-based organizations
in favor of such regulation stated that some financial institutions
charge fees for basic banking services that are excessive or
inadequately disclosed. These groups were particularly concerned with
the development of arrangements between financial institutions and non-
financial institution payment service providers in
[[Page 51498]]
which individuals may have access to their Federal payments only
through the service provider under terms and conditions that the
individuals may not understand. Consumer and community-based
organizations stated that the fees charged in connection with accessing
payments through these types of arrangements may be both substantial
and complicated.
In contrast to comments received from consumer and community-based
organizations, financial institutions commented that Treasury should
not regulate banking fees and services because such regulation would
interfere with the efficient operation of the free market. Both
financial institutions and other providers of financial services,
including check cashers, urged Treasury not to regulate arrangements in
which recipients establish and access accounts at financial
institutions through check cashers, stating that check cashers provide
convenient hours and locations and a variety of services not otherwise
available to recipients.
Treasury has decided in this rulemaking not to engage in a broad
regulation of accounts, other than ETAsSM, offered directly
by financial institutions. By providing that all recipients of Federal
benefit, wage, salary, and retirement payments are eligible for an
ETASM, Treasury believes that many of the concerns expressed
by consumer organizations should be allayed. Regulating all accounts
opened voluntarily by Federal payment recipients would create a
significant burden on bank regulatory agencies and the banking industry
and would interfere with the functioning of the market for financial
services. Treasury believes that the emphasis of the Act is on ensuring
that individuals required to have an account in order to receive
Federal payments will not be disadvantaged by establishing an account
for receipt of their payments. To this end, the Act requires that these
individuals be afforded access to an account at a reasonable cost and
with the same consumer protections made available to other individuals
who maintain accounts at the same financial institution.
Non-Financial Institution Payment Service Providers
Treasury believes that a majority of Federal payment recipients
receiving electronic Federal payments have chosen or will choose an
account that best suits their needs and resources. However, Treasury is
very concerned with the nature of certain arrangements that some
financial institutions have entered into with non-financial institution
providers of payment services, such as check cashers, currency
exchanges, or money transmitters. Such arrangements may involve giving
recipients access to EFT deposits in their insured accounts through the
uninsured service provider. Some commenters stated that non-financial
institutions provide payment services in rural areas and low and
moderate income neighborhoods not served by banks and other financial
institutions. While arrangements between financial institutions and
non-financial institution payment service providers could provide
recipients with an expanded range of alternatives for payment services,
they also raise the possibility that recipients would not be clearly
informed of the fee structures involved, the legal nature of the
relationship, the application of deposit insurance, or the other
options available under the Act. At present, there is no comprehensive
Federal regulation of non-financial institution payment service
providers and, except in limited cases, no Federal oversight of
arrangements between financial institutions and non-financial
institution service providers.
Treasury has advised the Federal bank regulatory agencies that
supervise financial institutions that an insured financial institution
should provide appropriate disclosures to customers when it
participates in arrangements with non-financial institution providers
of payment services. Such disclosures should fully and fairly convey
information about the fees and costs imposed by all of the parties to
the arrangement, as well as the legal relationships involved, and
should explain the applicability of federal deposit insurance insofar
as it is relevant to the arrangement. In addition, disclosures should
be framed so as not to mislead recipients as to the requirements of the
Act.
Treasury is monitoring the development of arrangements between
financial institutions and uninsured non-financial institution payment
service providers and may propose a regulation covering these
arrangements. Any such action would be undertaken as a new regulatory
action and will be published for public comment.
Notice of ETASM Attributes
With respect to the particular features and structure of the
ETASM, the preamble to the 208 NPRM requested comment on
several questions related to the ETASM, including the role
of non-financial institutions in providing access to the
ETASM. Treasury expects to publish shortly in the Federal
Register a notice of proposed ETASM features with a request
for comment. Following the comment period, Treasury will publish a
notice setting forth the required attributes for ETAsSM.
Access to an ETASM
In formulating a final rule that allows, but does not require, any
Federally-insured financial institution to offer ETAsSM,
Treasury's goal is to provide maximum convenient access for recipients.
However, Treasury is aware that not all financial institutions may opt
to offer ETAsSM and that some recipients may not have
convenient access to an ETASM. In such cases, the recipient
will have the option of relying on a geographic, financial, or other
hardship waiver in order to continue receiving payment by check.
Participation by Credit Unions
Treasury received comments from a number of credit unions
expressing an interest in providing ETAsSM. Credit unions
emphasized their long tradition of providing low-cost banking services
and financial education to their members. Credit unions were concerned,
however, that the common bond and field of membership limitations
contained in the Federal Credit Union Act (FCUA) would limit their
ability to provide ETAsSM to non-members.
Treasury recognizes that credit unions' current common bond and
field of membership requirements may limit their ability to offer
accounts to non-members, and is aware of recent legislation that
broadens the common bond requirements of the FCUA. Treasury encourages
credit unions to participate in making low-cost accounts available to
recipients, subject to any applicable constraints on their legal
authority to do so.
Federal/State EBT Programs
Several States submitted comments requesting clarification of the
relationship between the ETASM and State EBT programs. One
State sought reassurance that the development of the ETASM
would not conflict with the ongoing development of joint Federal/State
EBT programs. Another State requested clarification of whether the use
of existing account structures for Federal/State EBT programs would be
in compliance with this regulation. Two States raised concerns about
the relationship between a Financial Agent designated for the Federal/
State EBT program and a Financial Agent designated for the
ETASM. One State expressed the concern that different
requirements for Regulation E coverage
[[Page 51499]]
for State-administered benefits and for Federal benefits would hinder
efforts to have both State and Federal benefits on a single card. One
State commented that States should be allowed to participate in the
selection of a Financial Agent in situations in which the State wishes
to credit payments to an account opened by Treasury on behalf of a
recipient. A financial institution providing State EBT services urged
Treasury to make Federal benefit card services available through a
State EBT program on a voluntary basis and regardless of whether or not
a recipient was receiving State EBT services.
It is Treasury's intention to continue working with States in
designing and implementing Federal/State EBT programs. States will play
an active role in developing the linkage between State and Federal EBT
programs and will have an opportunity to provide input on many of the
duties and qualifications of the Financial Agents designated by
Treasury in connection with Federal/State EBT programs.
Treasury anticipates that many individuals who receive both Federal
and State benefit payments may elect to participate in a Federal/State
EBT program in light of the convenience of receiving both Federal and
State payments through a single delivery system. Those individuals will
also have the option of receiving their State payments through a State
EBT program, if available, and their Federal payments through Direct
Deposit or an ETASM.
F. Section 208.6--General Account Requirements
Section 208.6 provides requirements for accounts held by recipients
at a financial institution and designated by the recipient for deposit
of a Federal payment. These accounts include ETAsSM as well
as accounts other than ETAsSM to which a Federal payment is
sent.
Proposed Sec. 208.6 required that all Federal payments made by EFT
be deposited into an account at a financial institution. It further
required that the account at the financial institution be in the name
of the recipient with two exceptions: (1) where an authorized payment
agent has been selected and (2) where payment is to be deposited into
an investment account established through a registered broker/dealer,
provided the account and associated records are structured so that the
recipient's interest is protected under applicable Federal or State
deposit insurance regulations.
Account Title Requirement
Treasury received numerous comments regarding the requirement that
the account be in the name of the recipient. Several vendors pointed
out that, for operational reasons, it may be advantageous for vendor
payments to be deposited into an account other than one in the name of
the vendor. For example, to avoid a proliferation of bank accounts, a
vendor that is a subsidiary of a corporation may designate that payment
be made to an account in the general corporate name rather than one in
the name of the subsidiary. Other vendors, especially small businesses,
commented that they routinely designate a bank account in the name of
an accountant or other service provider to receive payments on behalf
of the business.
Other commenters explained that Federal wage, salary, and
retirement payments are sometimes deposited into savings, debt
repayment, and other accounts that may not be in the recipient's name.
In the case of Federal wage and salary payments, recipients may request
that their payment be directed to a third party's account for a variety
of reasons including those related to child support and payments to
designated charities. For retirement payments, it is common for a
surviving spouse to be entitled to a portion of a deceased recipient's
retirement payment. In these cases, the payment may be deposited into
an account in the name of the surviving spouse.
The requirement that an account be in the name of the recipient is
designed to ensure that a payment reaches the intended recipient.
Treasury acknowledges, however, that there may be valid reasons for
allowing payments to be made to accounts in names other than those of
the payment recipient. In the case of vendor payments, Treasury
believes that the benefits of allowing payments to be deposited into an
account in a name other than that of the vendor outweigh the risks of
doing so. Therefore, Treasury has modified the ``in the name of the
recipient'' requirement in Sec. 208.6 to exclude vendor payments.
Treasury has not made any changes to final Sec. 208.6 with respect
to wage, salary, and retirement payments. Treasury has considered the
concerns expressed in the comment letters and believes that such
concerns are in most, if not all, cases already addressed by existing
rules. For example, where a recipient's payment is garnished for child
support purposes or where a recipient has designated a discretionary
allotment for a charity, such garnishment or allotment is made prior to
the time the recipient's payment is deposited into an account at a
financial institution and, therefore, would not fall within the ``in
the name of the recipient'' requirement. Where a surviving spouse is
entitled to a deceased recipient's retirement payment, the surviving
spouse is considered to be the recipient and, therefore, the payment
would be deposited into the surviving spouse's account.
Exceptions to Account Title Requirements
As with the 208 NPRM, final Sec. 208.6 contains two exceptions to
the ``in the name of the recipient'' requirement. The first exception
related to authorized payment agents is unchanged from the 208 NPRM.
The second exception related to investment accounts contains two
changes from the 208 NPRM.3 First, the exception has been
expanded to cover investment accounts established through an investment
company registered under the Investment Company Act of 1940 in addition
to investment accounts established through a securities broker or
dealer registered under the Securities Exchange Act of 1934. Second,
the requirement contained in the 208 NPRM that the investment account
and all associated records be structured so that the recipient's
interest is protected under applicable Federal or State deposit
insurance regulations has been deleted.
---------------------------------------------------------------------------
\3\ This exception from the requirement that the account be ``in
the name of the recipient'' would not be available for an ETA
SM since ETAsSM will not be investment
accounts established through a securities broker or dealer or
through an investment company.
---------------------------------------------------------------------------
Authorized Payment Agent Exception
Numerous comments were received on the two exceptions to the ``in
the name of the recipient'' requirement contained in proposed
Sec. 208.6(b). Some commenters argued for expanding the first exception
related to authorized payment agent. As discussed above in the section-
by-section analysis of Sec. 208.2, these commenters believed that the
definition of ``authorized payment agent'' should be expanded beyond
its present definition of an authorized payment agent as representative
payee or fiduciary under payment agency regulations.
Two types of entities that requested either an expansion of the
definition or another exception to the requirement that the account be
in the name of the recipient were nursing homes and non-financial
institutions. According to the
[[Page 51500]]
comments received from nursing homes, many nursing home residents sign
their monthly benefit checks over to the nursing home for payment of
services rendered and funds maintenance. To comply with EFT, these
check recipients would be required to establish individual bank
accounts to receive their Federal benefit payments unless a
representative payee or fiduciary is designated. According to one
nursing home, many of their residents are not able to designate the
nursing home as representative payee or fiduciary because the residents
in question do not satisfy the required qualifications issued by
benefit agencies. Comments from nursing homes indicate that by allowing
Federal payments to be deposited into a trust account held by the
nursing home, not only would the cost to the recipient decrease, since
one account would replace a myriad of accounts, but this would allow
for more efficient and convenient service to recipients.
In the 208 NPRM, Treasury noted that the determination of who can
act on behalf of a payment recipient is addressed under the rules of
the various agencies, e.g., the Railroad Retirement Board, the Social
Security Administration, and the Department of Veterans Affairs. The
rules governing these representational relationships are longstanding
and well established. In the 208 NPRM, Treasury deferred to the
administrating agencies in determining who is authorized to receive
payment on behalf of a beneficiary and, therefore, left any questions
regarding who is or who may be considered a representative payee or
fiduciary to the agency making the payment.4 While
recognizing that there may be specific circumstances not addressed in
the current regulations, Treasury believes that these issues are better
left to the payment agencies. Therefore, Treasury has left unchanged
the exception related to authorized payment agent.
---------------------------------------------------------------------------
\4\ Several nursing homes requested clarification on whether a
trust account could be established to receive benefit payments on
behalf of all residents that had designated the nursing home as
representative payee. Treasury's regulations require only that the
account be titled in accordance with the regulations governing the
representative payee or fiduciary, i.e., the account may be titled
in any manner that satisfies the regulations of the payment agency.
---------------------------------------------------------------------------
Numerous comments were also received from non-financial
institutions requesting an exception to the requirement that the
account be in the name of the recipient. According to non-financial
institutions, an exception would streamline the process by which non-
financial institutions would have access to Federal payments. Instead
of the funds being deposited into an account in the name of the
recipient and then swept into a master account held by the non-
financial institution, the funds could be directly deposited to the
master account. In its comments to the 208 NPRM, one money transmitter
pointed out that it is far more efficient and cost-effective to
maintain one master account than a multitude of individual transaction
accounts. According to the money transmitter, a reduction in the costs
incurred to set up the accounts would result in a reduction in the cost
passed on to the recipient.
Treasury acknowledges that allowing payments to be deposited into a
master account in the name of a non-financial institution could
potentially be a cost savings to a recipient. However, as discussed in
the preamble to the 208 NPRM, Treasury is concerned that such
arrangements might not provide the same level of consumer protection as
do the arrangements otherwise provided for in Sec. 208.6. Specifically,
Treasury is concerned about the potential failure of entities to honor
their obligations, especially since there is no comprehensive Federal
regulation of non-financial institution service providers and, except
in limited cases, no Federal oversight of arrangements such as were
proposed in the comment letters. Therefore, 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 entities. For the above reasons, Treasury has decided not to
extend the authorized payment agent exception to non-financial
institutions or provide an additional exception for such institutions.
Investment Account Exception
In addition to comments on the authorized payment agent exception
contained in proposed Sec. 208.6(b), Treasury also received comments on
the investment account exception. Investment advisors and investment
management companies generally commented that limiting the exception to
investment accounts established through a broker or dealer registered
under the Securities Exchange Act of 1934 was too restrictive and
requested that the exception be broadened. Commenters stated that, as
proposed, this exception would not permit the deposit of Federal
payments directly into money market mutual funds. Rather, a recipient
would be required to have the payment first deposited into his or her
own account or into a brokerage account and then transferred to the
mutual fund account.
In support of their request, commenters emphasized that registered
investment companies, like registered brokers and dealers, are highly
regulated entities. The Investment Company Act of 1940 imposes
comprehensive requirements on the organization and operation of
investment companies. Before making a public offering, an investment
company must register under the Investment Company Act, and it must
register its securities under the Securities Act of 1933. Among other
things, the Investment Company Act imposes requirements regarding
custody of assets, capital structure, investment activities, valuation
of assets, and conflicts of interest.
Treasury has carefully considered these comments and has consulted
with the Securities and Exchange Commission regarding the regulation of
registered investment companies. Based on the information received,
Treasury believes it is appropriate to expand the ``investment
account'' exception to include investment accounts established through
an investment company registered under the Investment Company Act of
1940, and has modified proposed Sec. 208.6(b)(2) accordingly.
Another provision in proposed Sec. 208.6(b)(2) that received
comment was the requirement that, for an account in the name of the
broker or dealer, the account and all associated records be structured
so that the recipient's interest is protected under applicable Federal
or State deposit insurance regulations. Commenters urged Treasury to
reconsider this requirement. They stated that the costs and burden of
restructuring operations to establish and maintain a system that would
provide individual deposit insurance coverage would far outweigh any
possible benefit to payment recipients.
According to commenters, funds deposited into an account in the
name of a broker or dealer generally remain in the account for a very
short period of time. In most cases, the funds, once deposited, are
transferred immediately to an investment vehicle. Therefore, the
required deposit insurance would only apply for the short period of
time that the funds remained in the account. Commenters also stated
that any recipient depositing a payment into a broker or dealer account
would have already established an account with the broker or dealer and
therefore would be aware of the uninsured nature of an investment and
the associated risks.
Based on these comments and after consultation with the Securities
Investor Protection Corporation and the Federal Deposit Insurance
Corporation, Treasury has determined that the nature of
[[Page 51501]]
investment accounts makes it impractical to require that deposit
insurance apply to such accounts. Treasury has, therefore, deleted in
the final rule the requirement that any account in the name of the
broker or dealer and all associated records be structured so that the
recipient's interest is protected under applicable Federal or State
deposit insurance regulations.
G. Section 208.7--Agency Responsibilities
Final Sec. 208.7 requires agencies to notify check recipients and
newly-eligible payment recipients of options available to them and to
establish procedures that allow recipients to indicate that they elect
to have payment deposited by EFT to an account held by them.
Requirement To Make Disclosures
Final Sec. 208.7(a) requires agencies to notify each individual who
is eligible to receive a Federal benefit, wage, salary, or retirement
payment and who is not already receiving payment by EFT, of the
individual's rights and obligations under Secs. 208.3, 208.4(a), and
208.5. The agency disclosure requirement does not extend to individuals
to whom the agency is not required to make payments electronically
pursuant to a waiver provided in Secs. 208.4(b) through 208.4(g).
Treasury received comments from consumer and community-based
organizations urging Treasury to fully inform Federal benefit payment
recipients of all options available to them so that these recipients
would not enter into costly or otherwise inappropriate account
arrangements. Some community-based organizations asked that Treasury's
public education efforts be stopped until the features of the
ETASM and waiver categories are established. One benefit
agency requested that it be exempted from the January 2, 1999, deadline
for all payments and instead be allowed to begin its enrollment for all
recipients after the features of the ETASM have been
established.
Treasury agrees that fully informing recipients of all options is a
critical component of EFT implementation. Treasury sees no benefit to
stopping the public education effort or delaying implementation of EFT
but will instead focus on ensuring that recipients are aware of
available waiver categories and options concerning the
ETASM. As of the effective date of this regulation, agencies
are required to begin providing such disclosures to all individuals
eligible to receive a Federal benefit, wage, salary, or retirement
payment and who are not already receiving payment by EFT. In addition,
once the ETASM is available, agencies will be expected to
notify all eligible individuals who are not receiving payment by EFT,
including those who may have received a prior disclosure, of the
availability of the ETASM and other options.
Agencies must provide the required disclosure to newly eligible
recipients and those currently receiving checks, but not to those
currently receiving their payments by EFT. Requiring agencies to notify
recipients who currently receive payments by EFT would place a heavy
administrative and financial burden on agencies. However, to ensure
that all recipients are aware of their options, including those
recipients who currently receive their payments electronically, it is
Treasury's intent to provide, through the public education effort,
ongoing disclosure and notification.
Model Disclosure Language
To facilitate compliance with Sec. 208.7(a), Appendices A and B set
forth model language for agency use. Appendix A is for use until the
date the Secretary determines the ETASM is available.
Appendix B is for use on and after the date the Secretary determines
the ETASM is available. The phrase ``substantially similar''
in Sec. 208.7 gives an agency the flexibility to tailor the model
disclosure to its recipients. For example, the Social Security
Administration might prefer to use the phrase ``Social Security
payment'' instead of ``Federal payment'' in communicating with its
recipients.
Requirement To Establish Procedures
In addition to requiring disclosure, the final rule requires
agencies to establish procedures that allow recipients to indicate that
the recipient elects to have payment deposited by EFT to an account
held by the recipient. Proposed Sec. 208.7 required that the agency
``obtain'' either 1) information to make an EFT payment if the
recipient had an account at a financial institution or 2) a written
certification that the recipient did not have an account or that
receiving an EFT payment would impose a hardship on the recipient. The
word ``obtain'' implied that a written response was necessary and also
implied that the recipient must respond in all cases.
The requirement in final Sec. 208.7(b) that agencies ``put into
place procedures that allow recipients to indicate that the recipient
elects to have payment deposited by electronic funds transfer to an
account held by the recipient'' replaces the requirement in the 208
NPRM that agencies ``obtain'' account information or written waiver
certifications from recipients. The word ``indicate'' is used to make
it clear that the communication need not be in writing, as was implied
by the use of the term ``certification'' in the 208 NPRM. The term
``elect'' is used to clarify that individuals have a range of options.
Under final Part 208, agencies are not required to obtain written
waiver determinations, and in the case of the automatic waiver,
recipients need not respond at all. The language in final Sec. 208.7(b)
makes it clear that although the agency must have a procedure in place
for collecting account information if the recipient elects to receive
payment electronically, the agency is not required to gather waiver
information from the recipient. Rather, the agency may decide, at its
discretion, whether or not to request information from the recipient,
in writing or orally, indicating that a hardship waiver has been
invoked. However, if the recipient does not respond to such a request,
the agency must presume that the recipient has invoked a waiver until
further communication is received and may not delay or withhold the
recipient's payment.
H. Section 208.8--Recipient Responsibilities
The wording of final Sec. 208.8 is identical to that in proposed
Sec. 208.8(a). In the 208 NPRM, however, the phrase ``an account with a
financial institution'' referred only to non-ETASM accounts.
In the final rule ``an account with a financial institution'' refers to
ETAsSM as well other accounts held by recipients at
financial institutions. As with the 208 NPRM, the phrase ``who is
required to receive payment by electronic funds transfer'' is an
acknowledgment that waivers will apply in some cases.
Under proposed Sec. 208.8(b), any individual required to receive
payment by EFT who does not have an account with a financial
institution would have been required to certify in writing that he or
she does not have an account, and would have been provided with an
ETASM. As discussed in connection with Sec. 208.5, the final
rule provides that the ETASM is available to all individuals
who are eligible to receive a Federal benefit, wage, salary, or
retirement payment and who request an ETASM, whether or not
they already have an account at a financial institution. Therefore,
final Sec. 208.8 removes this provision.
Proposed Sec. 208.8(c) required that each individual who qualifies
for, and wishes to apply for, a waiver must certify that
[[Page 51502]]
election in writing. As discussed above in connection with
Sec. 208.4(a), the recipient has the sole discretion to determine
whether he or she qualifies for a waiver. There is no longer an
application and written certification requirement. Therefore, proposed
Sec. 208.8(c) is removed from the final rule.
I. Section 208.9--Compliance
Monitoring Compliance
Final Sec. 208.9 is unchanged from proposed Sec. 208.9 except that
the 208 NPRM stated that Treasury may require agencies to provide
information about ``the methods by which they make payments,'' whereas
the final regulation provides that Treasury may require agencies to
provide information about ``their progress in converting payments to
electronic funds transfer.'' This change was made to clarify that
Treasury intends to monitor agencies' progress in converting payments
to EFT. If Treasury has reason to believe that sufficient progress is
not being made, notwithstanding payments made by check as a result of
waivers, an agency may be required to furnish to Treasury information
concerning their conversion efforts.
Documentation of Waivers
Comments were received from several agencies requesting guidance on
documenting compliance with this section. Agencies requested
clarification as to what information they must provide to Treasury to
document compliance, particularly with respect to the documentation of
waivers. One agency asked if Treasury would ever challenge a waiver.
Another agency urged Treasury to clearly state that check payments that
result from the invocation of a waiver will not result in the
assessment of a charge pursuant to 31 U.S.C. 3335.
Treasury does not intend to challenge, or to permit agencies to
challenge, the bases upon which individuals invoke waivers. As
discussed in connection with Sec. 208.8, individuals are given
discretion to determine their eligibility for waivers under
Sec. 208.4(a). Check payments made by an agency on the basis of such a
waiver will not result in the assessment of a charge. Moreover,
Treasury does not intend to review routinely agency decisions to make
payment by check or cash in circumstances addressed in Secs. 208.4(b)
through (g). However, Treasury may consider the appropriateness of
check or cash payments by agencies in reliance on Secs. 208.4(b)
through (g) on a case-by-case basis.
Treasury expects that agencies will document their policies and
procedures regarding the use of waivers (including any presumption that
a waiver has been invoked where a recipient has not responded to the
agency). If Treasury finds such documentation to be sufficient for
determining compliance, Treasury will not assess a charge to the agency
pursuant to 31 U.S.C. 3335. If there is no documentation for a waived
payment or classes of payments, Treasury may determine whether those
payments are in compliance with this part on a case-by-case basis.
J. Section 208.10--Reservation of Rights
This section states that the Secretary reserves the right to waive
any provision(s) of this regulation in any case or class of cases.
Treasury received a comment on this section from a consumer advocacy
organization concerned that the Secretary's discretion in waiving any
provision(s) of Part 208 was overly broad and potentially harmful to
those recipients currently protected from hardship by waiver provisions
set forth in Sec. 208.4(a). Treasury has no intention of withdrawing
any hardship waivers set forth in this rule. The intent of this section
is to give Treasury flexibility to grant waivers, without amending the
rule, for any unforseen situation where an EFT payment is impossible or
impracticable and for which no waivers set forth in Sec. 208.4 may be
relied upon.
IV. Special Analysis
Although it has been determined that this regulation is a
significant regulatory action for purposes of Sec. 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 regulation will not have a significant economic impact on a
substantial number of small entities. Treasury has included seven
categories of waivers in the final rule. Further, the rule does not
restrict small entities who are currently participating in the delivery
of services to recipients who receive their Federal payments by EFT
from continuing to do so in the future. 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.
The collection of information contained in the final rule has been
reviewed and approved by the Office of Management and Budget under
section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35) under Control Number 1510-0066. Under the Paperwork
Reduction 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.
The collection of information in this 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. 31 U.S.C. 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 on the accuracy of the estimate for this collection of
information or suggestions to reduce the burden should be sent to the
Office of Information and Regulatory Affairs of the Office of
Management and Budget, Attention: Desk Officer for 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, MD, 20785.
List of Subjects in 31 CFR Part 208
Accounting, Automated Clearing House, Banks, Banking, Electronic
funds transfer, Financial institutions, Government payments.
Authority and Issuance
For the reasons set out in the preamble, 31 CFR Part 208 is revised
to read as follows:
PART 208--MANAGEMENT OF FEDERAL AGENCY DISBURSEMENTS
Sec.
208.1 Scope and application.
208.2 Definitions.
[[Page 51503]]
208.3 Payment by electronic funds transfer.
208.4 Waivers.
208.5 Availability of the ETASM.
208.6 General account requirements.
208.7 Agency responsibilities.
208.8 Recipient responsibilities.
208.9 Compliance.
208.10 Reservation of rights.
Appendix A--Model Disclosure for Use Until ETASM Becomes
Available
Appendix B--Model Disclosure for Use After ETASM Becomes
Available
Authority: 5 U.S.C. 301; 12 U.S.C. 90, 265, 266, 1767, 1789a; 31
U.S.C. 321, 3122, 3301, 3302, 3303, 3321, 3325, 3327, 3328, 3332,
3335, 3336, 6503; Pub. L. 104-208, 110 Stat. 3009.
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) Disbursement means, in the context of electronic benefits
transfer, the performance of the following duties by a Financial Agent
acting as agent of the United States:
(1) The establishment of an account for the recipient that meets
the requirements of the Federal Deposit Insurance Corporation or the
National Credit Union Administration Board for deposit or share
insurance;
(2) The maintenance of such an account;
(3) The receipt of Federal payments through the Automated Clearing
House system or other electronic means and crediting of Federal
payments to the account; and (4) The provision of access to funds in
the account on the terms specified by Treasury.
(d) Electronic benefits transfer (EBT) means the provision of
Federal benefit, wage, salary, and retirement payments electronically,
through disbursement by a financial institution acting as a Financial
Agent. For purposes of this part, EBT includes disbursement through an
ETASM and through a Federal/State EBT program.
(e) 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.
(f) ETASM means the Treasury-designated electronic
transfer account made available by a Federally-insured financial
institution acting as a Financial Agent in accordance with Sec. 208.5
of this part.
(g) 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 (26
U.S.C.).
(h) Federal/State EBT program means any program that provides
access to Federal benefit, wage, salary, and retirement payments and to
State-administered benefits through a single delivery system and in
which Treasury designates a Financial Agent to disburse the Federal
payments.
(i) Federally-insured financial institution means any financial
institution, the deposits of which are insured by the Federal Deposit
Insurance Corporation under 12 U.S.C. Chapter 16 or, in the case of a
credit union, the member accounts of which are insured by the National
Credit Union Share Insurance Fund under 12 U.S.C. Chapter 14,
Subchapter II.
(j) Financial Agent means a financial institution that has been
designated by Treasury as a Financial Agent for the provision of EBT
services under any provision of Federal law, including 12 U.S.C. 90,
265, 266, 1767, and 1789a, and 31 U.S.C. 3122 and 3303, as amended by
the Omnibus Consolidated Appropriations Act, 1997, Section 664, Public
Law 104-208.
(k) Financial institution means:
(1) 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);
(2) 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);
(3) 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);
(4) 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 under
section 201 of such Act (12 U.S.C. 1781);
(5) 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
(6) 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).
(l) Individual means a natural person.
(m) Recipient means an individual, corporation, or other public or
private entity that is authorized to receive a Federal payment from an
agency.
(n) Secretary means Secretary of the Treasury.
(o) 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.
[[Page 51504]]
Sec. 208.4 Waivers.
Payment by electronic funds transfer is not required in the
following cases:
(a) Where an individual determines, in his or her sole discretion,
that payment by electronic funds transfer would impose a hardship due
to a physical or mental disability or a geographic, language, or
literacy 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 do not have an account
with a financial institution and who are eligible to open an
ETASM under Sec. 208.5, until such date as the Secretary
determines that the ETASM is available;
(b) Where the political, financial, or communications
infrastructure in a foreign country does not support payment by
electronic funds transfer;
(c) 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;
(d) Where either:
(1) A military operation is designated by the Secretary of Defense
in which uniformed services undertake military actions against an
enemy, or
(2) A call or order to, or retention on, active duty of members of
the uniformed services is made during a war or national emergency
declared by the President or Congress;
(e) 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;
(f) Where the agency does not expect to make more than one payment
to the same recipient within a one-year period, i.e., 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; and
(g) 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 or services and
the Government would be seriously injured unless payment is made by a
method other than electronic funds transfer.
Sec. 208.5 Availability of the ETASM.
An individual who receives a Federal benefit, wage, salary, or
retirement payment shall be eligible to open an ETASM at any
Federally-insured financial institution that offers ETAsSM.
Any Federally-insured financial institution shall be eligible, but not
required, to offer ETAsSM as Treasury's Financial Agent. A
Federally-insured financial institution that elects to offer
ETAsSM shall, upon entering into an ETASM
Financial Agency Agreement with the Treasury, be designated as
Treasury's Financial Agent for the offering of the account pursuant to
Public Law 104-208. Treasury shall make publicly available required
attributes for ETAsSM and any ETASM offered by a
Federally-insured financial institution shall comply with such
requirements. The offering of an ETASM shall constitute the
provision of EBT services within the meaning of Public Law 104-208.
Sec. 208.6 General account requirements.
(a) All Federal payments made by electronic funds transfer,
including those made through an ETASM, shall be deposited
into an account at a financial institution. For all payments other than
vendor payments, 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
with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or an investment account established through an
investment company registered under the Investment Company Act of 1940
or its transfer agent, such payment may be deposited into an account
designated by such broker or dealer, investment company, or transfer
agent.
Sec. 208.7 Agency responsibilities.
(a) An agency shall disclose to each individual who is eligible to
receive a Federal benefit, wage, salary, or retirement payment and who
is not already receiving payment by electronic funds transfer the
individual's rights and obligations under Secs. 208.3, 208.4(a) and
208.5 of this part, unless payment by electronic funds transfer is not
required pursuant to any provision of subsections (b) through (g) of
Sec. 208.4.
(1) Prior to the date the ETASM becomes available, the
disclosure shall be in a form substantially similar to the model
disclosure set forth in appendix A of this part.
(2) On and after the date the ETASM becomes available,
the disclosure shall be in a form substantially similar to the model
disclosure set forth in appendix B of this part.
(b) An agency shall put into place procedures that allow recipients
to indicate that the recipient elects to have payment deposited by
electronic funds transfer to an account held by the recipient at a
financial institution. In addition, an agency may put into place
procedures to request that individuals who are invoking a hardship
waiver under Sec. 208.4(a) indicate, in writing or orally, that a
hardship waiver has been invoked. However, an agency may not delay or
withhold payment if a recipient does not respond to such a request.
Sec. 208.8 Recipient responsibilities.
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.
Sec. 208.9 Compliance.
(a) Treasury will monitor agencies' compliance with this part.
Treasury may require agencies to provide information about their
progress in converting payments to electronic funds transfer.
(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 this regulation in any case or class of
cases.
Appendix A to Part 208--Model Disclosure for Use Until
ETASM Becomes Available
The Debt Collection Improvement Act of 1996 requires that most
Federal payments be made by electronic funds transfer after January
2, 1999.
If you are currently receiving your Federal payment by check or
you have just become eligible to begin receiving a Federal payment,
you have several choices:
(1) Receive your payment by Direct Deposit through the financial
institution of your choice.
The Government makes payments electronically through a program
called Direct Deposit. Direct Deposit is a safe, convenient, and
reliable way to receive your Federal payment through a financial
institution. (A financial institution can be a
[[Page 51505]]
bank, credit union, savings bank, or thrift.) Many financial
institutions offer basic, low-cost accounts in addition to full-
service checking or savings accounts.
(2) Do nothing now and wait for a basic, low-cost account,
called an ETASM, to become available.
If you do not have an account with a financial institution, you
do not need to do anything now. In the future a low-cost account,
called an ETASM, will be available at many financial
institutions. Like Direct Deposit, the ETASM (which
stands for electronic transfer account) is a safe, convenient, and
reliable way to receive your Federal payment through a financial
institution. You are eligible to open this account, at a low monthly
fee, if you receive a Federal benefit, wage, salary, or retirement
payment. [Agency name] will contact you and let you know when the
ETASM is available and which financial institutions in
your area offer the account.
(3) Continue to receive a check.
If receiving your payment electronically would cause you a
hardship because you have a physical or mental disability, or
because of a geographic, language, or literacy barrier, you may
receive your payment by check. In addition, if receiving your
payment electronically would cause you a financial hardship because
it would cost you more than receiving your payment by check, you may
receive your payment by check.
Please call [agency name] at [agency customer service number] if
you would like more information on Direct Deposit, the
ETASM, or hardship waivers.
Appendix B to Part 208--Model Disclosure for Use After
ETASM Becomes Available
The Debt Collection Improvement Act of 1996 requires that most
Federal payments be made by electronic funds transfer after January
2, 1999.
If you are currently receiving your Federal payment by check or
you have just become eligible to begin receiving a Federal payment,
you have several choices:
(1) Receive your payment by Direct Deposit through the financial
institution of your choice.
The Government makes payments electronically through a program
called Direct Deposit. Direct Deposit is a safe, convenient, and
reliable way to receive your Federal payment through a financial
institution. (A financial institution can be a bank, credit union,
savings bank, or thrift.) Many financial institutions offer basic,
low-cost accounts in addition to full-service checking or savings
accounts.
(2) Receive your payment through a basic, low-cost account
called an ETASM.
If you receive a Federal benefit, wage, salary, or retirement
payment, you are eligible to open an ETASM. This account
is available for a low monthly fee at many financial institutions.
Like Direct Deposit, the ETASM (which stands for
electronic transfer account) is a safe, convenient, and reliable way
to receive your Federal payment through a financial institution.
Please call the customer service number listed below to find out
which financial institutions in your area offer the
ETASM.
(3) Continue to receive a check.
If receiving your payment electronically would cause you a
hardship because you have a physical or mental disability, or
because of a geographic, language, or literacy barrier, you may
receive your payment by check. In addition, if receiving your
payment electronically would cause you a financial hardship because
it would cost you more than receiving your payment by check, you may
receive your payment by check.
Please call [agency name] at [agency customer service number] if
you would like more information on Direct Deposit, the
ETASM, or hardship waivers.
Dated: September 21, 1998.
Richard L. Gregg,
Commissioner.
[FR Doc. 98-25667 Filed 9-24-98; 8:45 am]
BILLING CODE 4810-35-P