[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]]

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Part IV





Department of the Treasury





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Fiscal Service



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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.

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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