[Federal Register Volume 63, Number 224 (Friday, November 20, 1998)]
[Rules and Regulations]
[Pages 64544-64554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31089]



[[Page 64543]]

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Part III





Department of the Treasury





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Fiscal Service



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31 CFR Parts 317, 351, 353, and 370



Regulations Governing Agencies for the Issue and Offering of United 
States Savings Bonds, Including Sales by Electronic Means; Final Rule

  Federal Register / Vol. 63, No. 224 / Friday, November 20, 1998 / 
Rules and Regulations  

[[Page 64544]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Parts 317, 351, 353, and 370


Regulations Governing Agencies for the Issue and Offering of 
United States Savings Bonds, Including Sales by Electronic Means

AGENCY: Bureau of the Public Debt, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury hereby publishes a final rule 
governing the issue and offering of United States Savings Bonds. The 
final rule creates new categories of savings bond issuing agents and 
clarifies and expands the means by which savings bonds may be sold, 
including electronic means.

DATES: Effective November 20, 1998.

ADDRESSES: This final rule can be downloaded from the Bureau of the 
Public Debt at the following World Wide Web address: <http://
www.savingsbonds.gov>. It also is available for public inspection and 
copying at the Treasury Department Library, Freedom of Information Act 
(FOIA) Collection, Room 5030, Main Treasury Building, 1500 Pennsylvania 
Ave. NW, Washington, D.C. 20220. Individuals wishing to visit the 
library should call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Wallace L. Earnest, Director, Division 
of Staff Services, Savings Bond Operations Office, Bureau of the Public 
Debt, at (304) 480-6319 or <[email protected]>; Troy D. Martin, 
Senior Program Analyst, Savings Bond Operations Office, Bureau of the 
Public Debt, Division of Staff Services, at (304) 480-6545 or 
<[email protected]>; Edward C. Gronseth, Deputy Chief Counsel, 
Bureau of the Public Debt, at (304) 480-5192 or 
<[email protected]>; or Gregory J. Till, Attorney-Adviser, Office 
of the Chief Counsel, Bureau of the Public Debt, at (202) 219-3320 or 
<[email protected]>.

SUPPLEMENTARY INFORMATION:

I. Background

    The growth of electronic commerce and the World Wide Web have led 
to a flourishing of financial service providers and new payment 
methods. However, the Bureau of the Public Debt has been unable to take 
full advantage of these developments in the sale of United States 
Savings Bonds because of apparent restrictions in existing regulations.
    On April 30, 1998, the Department of the Treasury published a 
proposed rule addressing the issue and offering of United States 
Savings Bonds. The publication proposed to create new categories of 
savings bond issuing agents and clarify and expand the means by which 
savings bonds may be sold, including electronic means. Three written 
comment letters were received in response to the proposed rule. The 
proposed rule and comments can be downloaded from the Bureau of the 
Public Debt at the following World Wide Web address: <http://
www.savingsbonds.gov>. Treasury found the comments extremely useful in 
making revisions. Although some minor comments are not addressed, all 
comments have been considered in the formulation of this final rule. 
The comments are addressed below on a section-by-section basis.
    The most important aspects of the final rule are directed at four 
areas in title 31 of the Code of Federal Regulations. First, changes in 
Secs. 317.2 and 317.3 amend the regulations used to determine which 
organizations may serve as issuing agents and the procedures used to 
qualify these organizations as issuing agents. Second, changes to 
Sec. 351.5 expand the means by which issuing agents may sell savings 
bonds. Third, a new subpart in part 370 addresses the use of Automated 
Clearing House debit entries for the sale of savings bonds issued 
through the Bureau of the Public Debt. Fourth, another new subpart in 
part 370 addresses the electronic submission of transaction requests 
through the Bureau of the Public Debt.

II. Summary of Amendments

A. Regulations Governing Agencies for Issue of Savings Bonds (31 CFR 
Part 317)

(1) Definitions (Sec. 317.1)
    The revised definition of ``issuing agent'' notes the authority of 
the Commissioner of the Public Debt to qualify issuing agents, as 
explained in Sec. 317.2. The definition also clarifies that an issuing 
agent acts as an agent of the purchaser in handling the remittance. The 
language addressing the handling of the remittance is consistent with 
current practice. The Secretary of the Treasury collects purchase funds 
from issuing agents, not the public. If an issuing agent discovers that 
the remittance is uncollectible or must be returned after the issuance 
of a savings bond, the Secretary is nonetheless entitled to payment 
from the issuing agent. The issuing agent bears the risk of loss for 
non-collection or return of the remittance.
(2) Organizations Eligible To Serve as Issuing Agents (Sec. 317.2)
    In the past, issuing agent eligibility has been limited to 
financial institutions (such as banks and credit unions), agencies of 
the United States and state and local governments, and employers 
operating payroll savings plans. This final rule expands the types of 
organizations that are eligible to serve as issuing agents.
    One change, in Sec. 317.2(c), allows organizations that operate 
payroll savings plans on behalf of employers to issue bonds and serve 
as issuing agents. The change is designed to bolster payroll savings 
plan sales from small businesses, which often do not have the resources 
to maintain such plans themselves. As is the case with employer 
organizations, an organization operating a payroll savings plan on 
behalf of an employer organization will be eligible for issuing agent 
fees only if it inscribes savings bonds.
    Another addition, set out in Sec. 317.2(d), gives the Commissioner 
of the Bureau of the Public Debt the authority to qualify issuing 
agents when doing so is in the public interest. The Commissioner can 
use such process as deemed to be appropriate in selecting the issuing 
agent. The selected issuing agent also will be subject to such 
conditions as deemed to be appropriate.
    The new Sec. 317.2(d) will be used for the selection of entities to 
sell savings bonds in unique ways as new methods of sales emerge. In 
particular, this provision will facilitate the qualification of issuing 
agents to sell savings bonds through electronic methods, such as those 
offered by financial services providers through World Wide Web access. 
In qualifying issuing agents under this provision, the Commissioner 
will balance the convenience and cost-effectiveness of using new 
purchase methods against the need to insure the security and 
reliability of those methods.
    In its comment letter, the American Bankers Association indicated 
its general support for most of the changes being proposed but 
expressed concern over Section 317.2(d), stating, ``There is no 
demonstrable need to add this text given the capabilities and interest 
of currently eligible organizations.'' Treasury recognizes the long-
standing service of financial institutions as issuing agents of savings 
bonds and the significant contribution that financial institutions have 
made toward the success of the savings bond program.

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Treasury also looks forward to cooperating with financial institutions 
in selling savings bonds in new ways. In particular, Treasury is 
interested in selling savings bonds through home banking packages 
offered by financial institutions and exploring other new methods which 
may evolve over time. However, changes are taking place rapidly in 
other sectors of the savings bonds market place, and in particular, in 
portions of the market place not exclusively the domain of financial 
institutions which makes necessary the flexibility afforded by section 
317.2(d). Therefore, Treasury respectfully disagrees with the position 
that the flexibility to be gained through section 317.2(d) would not 
benefit the savings bond program, and has decided to retain the 
provision in the final rule.
(3) Procedures for Qualifying and Serving as an Issuing Agent 
(Sec. 317.3)
    In the past, designated Federal Reserve Banks have processed 
applications from prospective issuing agents. The section has been 
amended to state that an organization that seeks qualification because 
of its status as an organization operating a payroll savings plan on 
behalf of an employer under Sec. 317.2(c) or under the general ``public 
interest'' provision of Sec. 317.2(d) will apply directly to the 
Commissioner of the Bureau of the Public Debt. The application shall be 
supplemented by such other information as the Bureau of the Public Debt 
may request.
(4) Issuance of Bonds (Sec. 317.6)
    The issuing agent fee provision has been simplified by removing 
unnecessary detail. The section continues to emphasize that fee 
schedules are set out not in the regulations, but through a separate 
publication in the Federal Register. The changes have no effect on the 
current fee structure, though the Bureau of the Public Debt reserves 
the right to create new categories of fees as new ways of selling 
savings bonds develop.
(5) Appendix to Sec. 317.8--Remittance of Sales Proceeds and 
Registration Records, Department of the Treasury Circular, Public Debt 
Series No. 4-67 (Third Revision), Fiscal Service, Bureau of the Public 
Debt
    The appendix has been revised, primarily for changes in 
terminology. For instance, the definition of ``issuing agent'' has been 
redefined to reflect the changes to that term in Sec. 317.2. The term 
``over-the-counter'' has been redefined to reflect the expanded meaning 
given to that term in Sec. 351.5 of this chapter. Among other minor 
changes, paragraph (3) of subpart B has been removed because that 
provision no longer has application.

B. Offering of United States Savings Bonds, Series EE (31 CFR Part 351)

(1) Governing Regulations for Series EE Bonds (Sec. 351.1)
    This section has been amended to note that the regulations 
governing the transfer of funds by electronic means on account of 
United States securities in part 370 of this chapter apply to 
transactions for the purchase of savings bonds issued through the 
Bureau of the Public Debt. The regulations in part 370 have no 
application to transactions for the purchase of savings bonds 
accomplished through issuing agents generally, unless and to the extent 
otherwise directed by the Commissioner of the Bureau of the Public 
Debt. Furthermore, because these regulations are intended to be the 
source of the terms and conditions of Series EE bonds, Treasury does 
not warrant the correctness of representations that in any way conflict 
with these regulations.
(2) Purchase of Bonds (Sec. 351.5)
    The categories of savings bond sales provided for in this section 
have been revised. The section previously provided for four categories 
of sales: (1) ``payroll plans''; (2) ``over-the-counter/mail''; (3) 
``bond-a-month plan''; and (4) ``employee thrift, savings, vacation, 
and similar plans.'' Because some of these categories are limited and 
outdated, they may actually have inhibited rather than facilitated 
sales.
    Furthermore, a comparison of this section to the appendix to 
Sec. 317.8 of this chapter (discussing the remittance of sales proceeds 
and registration records by issuing agents) showed a lack of 
consistency in the categories and terminology used to define savings 
bond sales. In discussing savings bond sales, the appendix did not 
mirror Sec. 351.5 but rather combined the four categories of sales 
described in Sec. 351.5 into two categories: (1) ``payroll sale''; and 
(2) ``over-the-counter sale.'' The term ``payroll sale'' was not used 
in Sec. 351.5. Also, the term ``over-the-counter'' had an expanded 
meaning in the appendix to Sec. 317.8 as compared to its use in 
Sec. 351.5, making the regulations more difficult to understand.
    The final rule revises Sec. 351.5 (as well as the appendix to 
Sec. 317.8), essentially using the two categories in the appendix to 
Sec. 317.8: (1) ``payroll sales''; and (2) ``over-the-counter sales.'' 
The payroll sales category includes sales through ``payroll savings 
plans'' and ``employee thrift, savings, vacation, and similar plans,'' 
the provisions of which are largely unchanged. The final rule also 
states that employers and the organizations operating payroll savings 
plans on behalf of employers are allowed to sell savings bonds only 
pursuant to payroll savings plans. These types of issuing agents are 
not allowed to sell savings bonds over-the-counter.
    Over-the-counter sales are all sales that are not payroll sales. 
For over-the-counter sales, the section provides that ``the purchase 
application and remittance may be submitted to an issuing agent by any 
means acceptable to the issuing agent.'' This broad provision ensures 
that issuing agents have the flexibility to sell savings bonds through 
new channels. For instance, the final rule authorizes issuing agents to 
sell savings bonds through electronic means such as the World Wide Web. 
Both the application and remittance can be submitted and signed through 
electronic methods agreed upon by the parties.
    The final rule does not impose limitations on the types of 
remittances that an issuing agent may accept. As always, however, the 
issuing agent bears the burden of collection and risk of non-collection 
for remittances it accepts. The Secretary of the Treasury takes payment 
from the issuing agent, not the purchaser. The Secretary of the 
Treasury has no obligation to return funds received from an issuing 
agent after issuance of a savings bond if the issuing agent cannot 
collect or must return the remittance. However, as Treasury qualifies 
new types of issuing agents under the revised section 317.2 of this 
chapter, Treasury will examine carefully the types of remittances each 
new issuing agent will accept and the protections that will be 
necessary to insure that a purchaser's funds reach Treasury in proper 
fashion.
    Finally, although the changes have no effect on the current issuing 
agent fee structure, the Bureau of the Public Debt reserves the right 
to make changes to the fee structure as new ways of selling savings 
bonds develop.

C. Regulations Governing United States Savings Bonds, Series EE and HH 
(31 CFR Part 353)

(1) Payment to Judgment Creditors (Sec. 353.21)
    This section is amended to state that savings bonds registered in 
coownership form may be subject to levy by the Internal Revenue 
Service.

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(2) Application for Relief--Non-receipt of Bond (Sec. 353.27)
    The regulations have provided little guidance as to the status of 
savings bond purchases if the Secretary of the Treasury does not 
receive payment. While not likely, an issuing agent may fail after 
receiving the remittance from a purchaser but before the Secretary 
collects the sales proceeds from the issuing agent.
    If an issuing agent has inscribed a savings bond, the Secretary 
will honor the savings bond even if the Secretary cannot collect the 
sales proceeds from the issuing agent. This policy is consistent with 
existing regulations, which note that the registration of an issued 
savings bond generally is conclusive of ownership. If a savings bond 
has not been inscribed, the final rule states that the Secretary is 
authorized to issue savings bonds to preserve the public's confidence 
in dealing with issuing agents, even if the Secretary cannot collect 
the sales proceeds from the issuing agent.

D. Regulations Governing Electronic Transactions and the Transfer of 
Funds by Electronic Means on Account of United States Securities (31 
CFR Part 370)

(1) Applicability (Sec. 370.0)
    This section is amended to clarify that to the extent the 
regulations in part 210 of this title apply to the purchase or payment 
of interest and principal on United States securities, the regulations 
in this part 370 apply in the event of any inconsistencies. 
Furthermore, to the extent that Regulations E (12 CFR part 205) and Z 
(12 CFR part 226) of the Board of Governors of the Federal Reserve 
System (``Federal Reserve Board'' or ``Board'') apply to transactions 
accomplished pursuant to this part, those Federal laws are unaffected 
by this part. Regulations E and Z govern consumer rights for electronic 
funds transfers and credit card transactions, among other things. This 
part 370 is designed to compliment, not preempt, the rights a person 
has by recourse to the person's financial institution under Regulation 
E, to the extent that Regulation E applies.
    A determination of whether Regulation E applies to a transaction 
for the purchase of a United States security frequently depends upon 
whether the security is held in book-entry or definitive form. 
Regulation E excludes from its coverage ``[a]ny transfer of funds the 
primary purpose of which is the purchase or sale of a security * * * 
[h]eld in book-entry form by a Federal Reserve Bank or federal 
agency,'' at 12 CFR 205.3(c)(4)(iii). This exclusion was added by the 
Federal Reserve Board in a final rule published in the Federal Register 
on May 2, 1996, beginning at page 19661. In discussing this exclusion, 
the Board listed as an example transactions involving book-entry 
securities held in TREASURY DIRECT. Because savings bonds currently 
available for purchase primarily are held in definitive rather than 
book-entry form, the strict language of this exclusion does not extend 
to most transactions involving savings bonds available for purchase.
(2) Definitions (Sec. 370.1)
    Several definitions have been added or changed in this section. The 
definition of ``Automated Clearing House (ACH) entry'' refers to 
transactions accomplished in accordance with the Operating Rules and 
Guidelines of the National Automated Clearing House Association 
(``NACHA Rules''), as modified by these and other regulations and law. 
The definition of ``deposit account'' principally is taken from 
Regulation E. The definition of ``financial institution'' is the same 
as that included in a proposed rule to amend part 208 of this title, 
``Management of Federal Agency Disbursements,'' published in the 
Federal Register on September 16, 1997, beginning at page 48714. The 
definitions of ``originator'' and ``person'' are derived from the NACHA 
Rules. Also, the definition of ``payment'' has been amended to state 
that it applies only to subpart B of this part, which addresses credit 
entries. The limited definition of a payment as a deposit from the 
Treasury to the account of the owner only has application in subpart B 
and may have caused confusion by its application throughout part 370.
    The section also lists five definitions that have application 
primarily to subpart E of this part, addressing the electronic 
submission of transaction requests through the Bureau of the Public 
Debt. As noted in the discussion to Sec. 370.50, Treasury has looked to 
a number of sources in drafting these provisions. The most fundamental 
of these definitions is that of a ``signature.'' A signature is ``any 
symbol or method executed or adopted by a party with present intention 
to be bound,'' which is a traditional legal definition of a signature. 
The definition encompasses a signature manifested through electronic or 
similar means, which separately is referred to as an ``electronic 
signature.'' Case law on signatures indicates that almost anything can 
constitute a signature, from printed and typewritten names to account 
numbers, if executed with an intent to be bound. Electronic signatures 
are no different from other forms of signatures in this regard.
    In addition, the section includes a definition of ``digital 
signature,'' which is a type of electronic signature. Treasury will use 
digital signatures in its sales of savings bonds over the Internet. A 
digital signature uses ``public-key encryption'' and a ``message digest 
function'' in transforming an electronic ``record.'' The definitions of 
these terms largely are taken from model, proposed, or existing 
authorities.
    Public-key encryption is a process that relies upon an algorithm to 
produce two mathematically related but different keys. If public-key 
encryption is implemented securely, it is computationally infeasible to 
derive one key from the other. The keys can be used for several 
purposes, including the creation and verification of digital 
signatures. One key (the private key) is kept private and can be used 
to create a digital signature, while the other key (the public key) may 
be distributed to anyone and can be used by a relying party to verify a 
digital signature. The association of a public key (and by implication, 
its corresponding private key) to the identity of a particular person 
is accomplished through the use of digital certificates, issued by 
certification authorities.
    The use of a message digest function (also known as a hash 
function) is an essential element in the creation and verification of a 
digital signature. A message digest function is an algorithm that 
typically provides a shortened, mathematical version of a longer 
electronic record. Even a small change to an electronic record can 
result in a dramatic change to a message digest, aiding in the 
verification of a digital signature and any electronic record to which 
the signature is attached. The signer uses the signer's private key to 
encrypt the short message digest, rather than the entire electronic 
record. This digital signature (the message digest, encrypted by the 
signer's private key) is sent to the recipient, along with a copy of 
the electronic record.
    Upon receipt of the digital signature and electronic record, the 
recipient uses the signer's public key to decrypt the digital signature 
and recover the message digest. The recipient then runs the received 
copy of the electronic record through the same message digest function 
used to create the received message digest. If the two results are 
identical, the recipient knows that the electronic record was encrypted 
by the signer's private key and that the electronic record was not 
tampered with

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from the time the signer created the digital signature.
(3) Scope (Sec. 370.30)
    This section states that subpart D establishes regulations for 
debit entries to a purchaser's account to buy savings bonds issued by 
the Bureau of the Public Debt. The subpart also establishes the 
exclusive liability of the Bureau of the Public Debt for such entries. 
This subpart applies only to transactions for the purchase of savings 
bonds issued through the Bureau of the Public Debt. These regulations 
do not apply to transactions for the purchase of savings bonds 
accomplished through issuing agents generally, unless and to the extent 
the Commissioner of the Bureau of the Public Debt deems otherwise.
    It is anticipated that purchasers will authorize an entity named on 
an approved paper-based authorization form to be an originator for the 
debit entries. This entity will forward collected funds to Treasury 
(unless the Bureau of the Public Debt chooses to name itself as the 
originator). The Bureau of the Public Debt will then issue the savings 
bonds through a Federal Reserve Bank acting as a fiscal agent for the 
United States.
(4) Authorization (Sec. 370.31)
    This section states that all debit authorizations must be 
accomplished through an authorization form approved by the Bureau of 
the Public Debt. The purchaser must name a deposit account from which 
the purchaser is entitled to withdraw funds, and the purchaser (as well 
as any other necessary persons named on the deposit account) must sign 
the authorization form. Except to the extent required by the Bureau of 
the Public Debt, the originator will not be required to verify the 
identity of the purchaser or the authenticity of any signatures. 
Recurring debits may or must be authorized if the form so provides. 
Also, a purchaser's subsequent authorization will cancel a previous 
authorization.
    The Bureau of the Public Debt retains the right to name a successor 
to the originator without additional notice to the purchaser, though it 
may ask the successor to provide such notice as a customer service. 
This provision is drawn from the official staff interpretation of the 
Federal Reserve Board to 12 CFR 205.10(b) (Regulation E), which states 
that ``successor institutions'' may assume an originator's role without 
notice or a new authorization.
    In their comment letters, the Federal Reserve Board and NACHA 
speculated that Treasury may eventually allow the submission of debit 
authorizations through electronic means. Part 370 could allow for the 
submission of debit authorizations through electronic means.
    The Board and NACHA referenced provisions in Regulation E and the 
NACHA Rules addressing the electronic submission of debit 
authorizations. Neither Regulation E nor the NACHA Rules appear to 
allow for the electronic signature of debit authorizations. Regulation 
E requires that debit ACH authorizations be in a ``writing signed or 
similarly authenticated by the consumer,'' at 12 CFR 205.10(b). Section 
2.1.2 of the NACHA Rules uses identical language. Under Regulation E 
and the NACHA Rules, an electronic debit ACH authorization is not 
``signed,'' but rather is ``similarly authenticated.''
    Treasury is not inclined to add the words ``similarly 
authenticated'' to this final rule. Treasury believes that its 
definition of ``signature'' would encompass electronic means which also 
would qualify under the ``similarly authenticated'' category of 
Regulation E and the NACHA Rules. Treasury recognizes that the Federal 
Reserve Board may interpret the definition of ``similarly 
authenticated'' more strictly than Treasury in its definition of 
``signature.'' To address this concern, Sec. 370.0 of this part has 
been amended to note that transactions accomplished under this part are 
subject to Regulation E, when applicable. Thus, even if a debit 
authorization for the purchase of a definitive savings bond could be 
electronically signed under this part, the electronic signature would 
have to meet the ``similarly authenticated'' requirements of Regulation 
E.
(5) Prenotification (Sec. 370.32)
    The section leaves the requirement of a prenotification message to 
the discretion of the Bureau of the Public Debt. A financial 
institution that fails to respond to a prenotification warrants that 
the deposit account number and the type of account contained in the 
message is accurate as of the time of receipt of the prenotification. 
The proposed rule also would have left the time period in which a 
financial institution must respond to a prenotification up the Bureau 
of the Public Debt. In its comment letter, NACHA expressed the view 
that Treasury should not deviate from the NACHA Rules in setting its 
own time frame for a response. Treasury agrees with this suggestion and 
has changed this provision in the final rule to state that the time 
period for a response shall be that which is set out by NACHA.
(6) Warranties of Financial Institution (Sec. 370.33)
    This section states that a financial institution's acceptance and 
handling of a debit entry or failure to reject a prenotification made 
with respect to a security covered by this subpart shall constitute its 
agreement to the provisions of this subpart. Also, a financial 
institution that agrees to this subpart warrants that it has the 
authority to receive entries and to comply with any requirements 
imposed upon Receiving Depository Financial Institutions under the 
Operating Rules and Operating Guidelines of the National Automated 
Clearing House Association, as modified by these and other regulations 
and law.
(7) Responsibilities of Financial Institution (Sec. 370.34)
    This section states that a financial institution that receives a 
debit entry on behalf of its customer must debit the customer's account 
on the settlement date. If the financial institution is unable to debit 
the designated account, it shall return the entry by no later than the 
next business day after receipt, with an electronic message or other 
response explaining the reason for the return.
(8) Termination or Suspension by the Bureau of the Public Debt 
(Sec. 370.35)
    This section states that the Bureau of the Public Debt can 
terminate or suspend the availability of debit entries at any time, and 
its decision to do so will be final.
(9) Termination or Suspension by Purchaser or Deposit Account Owner by 
Notice to the Originator (Sec. 370.36)
    Under this section, a purchaser or deposit account owner will be 
able to cancel or suspend debit entries for the purchase of savings 
bonds by providing written or oral notice to the originator, which must 
be received by the originator within three days of the debit. The 
originator may require the person to give written confirmation within 
14 days of an oral notice. An oral notice ceases to be effective if the 
written confirmation is not received by the end of the 14-day period. A 
suspension will remain in effect for the duration specified by the 
purchaser, but for no more than six months. As noted in Sec. 370.53 of 
this part, a written notice can be accomplished through electronic 
means.
    The proposed rule was similar, but would have required written 
notice in all cases. In its comment letter, the Federal Reserve Board 
suggested that Treasury follow the stop-payment provisions in 
Regulation E, at 12 CFR

[[Page 64548]]

Sec. 205.10(c). The provision noted by the Federal Reserve Board allows 
for the option of oral notice. Treasury finds this approach to be more 
flexible and agrees with the Federal Reserve Board recommendation. The 
substance of 12 CFR Sec. 205.10(c), including provisions for oral 
notice, has been incorporated into the final rule.
(10) Changes and Error Resolution (Sec. 370.37)
    This section provides that while responding to an oral or written 
notice from a person relating to the propriety of issuance information 
or a debit entry involving the person's deposit account, the originator 
may suspend further debit entries. In response to an oral notice, the 
originator may require the person to give written notice, to be 
received by the originator within 10 business days of an oral notice. 
The originator promptly will investigate and correct any error, but is 
not bound to complete the investigation or correct the error within 10 
business days if the person fails to provide the requested written 
confirmation. As noted in Sec. 370.53 of this part, a written notice 
can be accomplished through electronic means.
    In its comment letter, the Federal Reserve Board focused on a 
provision of the proposed rule that would have allowed the originator 
to ignore an oral notice that was not received within 30 days of a 
written notice. The Board expressed the view that this provision varied 
from the error resolution procedures in Regulation E, at 12 CFR 
Sec. 205.11. Treasury has decided to drop this questioned provision. 
Treasury also has changed the time frame for a written confirmation to 
10 business days, consistent with Regulation E.
(11) Liability (Sec. 370.38)
    This section states that the Bureau of the Public Debt is not 
liable in disputes arising out of debit entries, unless the Bureau of 
the Public Debt names itself or a fiscal or financial agent as the 
originator. Disputes arising out of debit entries are the 
responsibility of the originator. Also, unless the Bureau of the Public 
Debt designates itself or a fiscal or financial agent as the 
originator, the originator serves as the agent of the purchaser in 
handling the remittance. At most, liability of the Bureau of the Public 
Debt is limited to the amount of the improper debit, less any losses 
caused by the failure of a claimant to exercise due diligence.
(12) Scope (Sec. 370.50)
    This section states that subpart E establishes provisions for the 
electronic submission of transaction requests through the Bureau of the 
Public Debt. The subpart also sets out the exclusive liability of the 
Bureau of the Public Debt for transactions completed pursuant to this 
subpart. These regulations do not apply to transactions requests 
accomplished through savings bond issuing agents generally, unless and 
to the extent the Commissioner of the Bureau of the Public Debt deems 
otherwise.
    It is important to note the limited scope and extent of this 
subpart E. This subpart only sets out Federal contract law provisions 
for electronic dealings with the Bureau of the Public Debt. For 
instance, a person who purchases a security from or opens a securities 
account with the Bureau of the Public Debt agrees to these provisions. 
The subpart does not apply to savings bond sales accomplished through 
issuing agents such as banks and employers offering payroll savings 
plans. The regulations leave unchanged the right of states to determine 
their own rules for electronic and digital signatures and does not 
address any issues related to certification authorities. Furthermore, 
the regulations are relatively brief, at least in comparison to work 
done by the American Bar Association, the National Conference of 
Commissioners on Uniform State Laws, the American Law Institute, the 
United Nations Commission on International Trade Law, and many states, 
among others.
(13) Requirements (Sec. 370.51)
    An electronically signed transaction request cannot be accepted by 
the Bureau of the Public Debt unless the signature has been 
accomplished through a method that has been approved for specific 
purposes by the Bureau of the Public Debt.
(14) Time of Acceptance (Sec. 370.52)
    Acceptance of a transaction request by the Bureau of the Public 
Debt will be effective no earlier than upon receipt of the message by 
the Bureau of the Public Debt, and no later than upon the transmittal 
of a message of acceptance by the Bureau of the Public Debt.
(15) Point of Transaction (Sec. 370.53)
    The point of transaction for a transaction request submitted 
electronically under this subpart will be Parkersburg, West Virginia.
(16) Effect of Electronic Signature (Sec. 370.54)
    This section states that an electronic signature and any electronic 
record to which it is affixed shall not be denied legal effect, 
including legal effect as a signature, a writing, or an original, 
solely because the signature or record is in electronic form. Some 
provisions of law, such as the Statute of Frauds, require evidence of 
an agreement to be in writing. Other provisions of law require that an 
original record be produced in court, rather than a copy, or require 
that a record be signed. However, there seems little reason to use 
these doctrines to preclude the admissibility of electronically signed 
records. These records are equivalent to signed writings, each copy of 
which is identical to the original.
(17) Admissibility of Digital Signature (Sec. 370.55)
    This section addresses the legal requirement that an item be 
authenticated before being introduced into evidence. ``Authentication'' 
is a term that has a technical meaning specifically linked to the 
security of electronic signatures, but also has a separate meaning in 
the law of evidence, at which this section is directed.
    Under Rule 901 of the Federal Rules of Evidence, ``The requirement 
of authentication * * * as a condition precedent to admissibility is 
satisfied by evidence sufficient to support a finding that the matter 
in question is what its proponent claims.'' For instance, under Rule 
901(b)(2), this evidentiary requirement may be met in regard to a 
handwritten record by nonexpert testimony as to the genuineness of 
handwriting. Although there have not as yet been any cases on the 
matter, the requirement of authentication for digital signatures likely 
can be met under Rule 901(b)(9), which allows for the sufficiency of 
``[e]vidence describing a process or system used to produce a result 
and showing that the process or system produces such a result.''
    However, in some situations authentication evidence is not required 
as a condition precedent to admissibility. As noted under Rule 902 of 
the Federal Rules of Evidence, extrinsic evidence of authenticity is 
not necessary for certified birth and death certificates, newspapers 
and periodicals, trade inscriptions, commercial paper, and notarized 
records, among other things. Because these items are likely to be 
authentic, a strict adherence to preliminary authentication procedures 
unnecessarily would expend a court's time and resources. Accordingly, 
the items are considered to be self-authenticating and--barring other 
objections to the evidence--may be admitted into evidence without 
additional preliminary review.
    The section states a limited self-authentication provision for 
digital

[[Page 64549]]

signatures. This section begins by noting that authentication of a 
purported digital signature may be accomplished by evidence sufficient 
to support a finding that a digital signature exists. However, 
extrinsic evidence of authenticity is unnecessary to establish that a 
digital signature corresponds to a public key pair, as well as that an 
electronic record to which a digital signature is affixed has not been 
altered from its original form.
    There are several reasons that support the insertion of a limited 
self-authentication clause into this final rule. If public-key 
encryption has been properly implemented, the risk of a successful 
forgery or alteration of a digital signature is extremely remote, and 
is significantly less than the risk of forgery or alteration for paper 
records. Furthermore, although a legal showing of authenticity in the 
absence of a self-authentication provision almost certainly could be 
accomplished, such a showing would require considerable time and 
resources. Among other things, it would entail extensive scientific 
testimony on encryption, leading to an expensive and unproductive 
``battle of the experts.'' Use of a self-authentication provision 
avoids this wasteful problem.
    In almost all cases, the existence of a digital signature should be 
beyond reasonable dispute. The most likely challenges to a digital 
signature and an electronic record to which it is affixed will turn not 
on whether a digital signature exists, but on whether the digital 
signature should be attributed to a particular person. These challenges 
frequently will focus on the issuance, protection, or revocation of the 
digital certificates used to link a digital signature and accompanying 
record to a particular person. This section does nothing to prevent 
such challenges, for the self-authentication provision does not tie a 
digital signature to a particular person. Extrinsic evidence tying the 
public key pair used in the creation of a digital signature to a 
particular person still will have to be provided before a digital 
signature and a record to which it has been affixed could be 
admissible. Furthermore, this section would have no application at all 
in criminal cases.
    Finally, even to the extent that a self-authenticated digital 
signature and accompanying record could be introduced into evidence 
under this section, this section in no way prevents a party against 
whom a digital signature is asserted from contesting the existence or 
authenticity of the signature. However, any arguments would go to the 
weight of the evidence, not to its admissibility.
(18) Negligence Contributing to Forged Signature (Sec. 370.56)
    This section states that a person whose failure to exercise 
ordinary care substantially contributes to the creation or submission 
of a forged signature is precluded from disavowing the forged 
signature. Furthermore, the burdens are on the person against whom a 
signature is asserted to produce evidence that ordinary care was 
exercised and to persuade a trier of fact that it is more likely than 
not that the person exercised ordinary care. However, in asserting a 
signature under this section the Bureau of the Public Debt first will 
have to establish that it exercised ordinary care in relying upon the 
signature.
    This section is drawn in part from section 3-406 of the Uniform 
Commercial Code (UCC) (``Negligence Contributing to Forged Signature or 
Alteration of Instrument.''). The responsibilities imposed upon persons 
in regard to the technology used to create and submit electronic 
signatures and accompanying electronic records are similar to those 
imposed under the UCC in regard to rubber signature stamps used to sign 
checks. Official Comment 3 to UCC section 3-406 is enlightening in this 
regard. If a person's rubber signature stamp and checks, kept in an 
unlocked drawer, are stolen and used by a party to forge a check, a 
bank may successfully be able to argue that the person is precluded 
from disavowing the forged signature because the person's lack of 
ordinary care substantially contributed to the forgery. Similarly, 
under the final rule if a person fails to take adequate security 
precautions to protect access to electronic signature technology (such 
as by not safekeeping a computer password, for instance) and this 
failure substantially contributes to the creation or submission of a 
forged signature, the person is precluded from disavowing the 
signature.
    By looking to the UCC provision, this section attempts to find 
middle ground between varying approaches in current law as to how 
liability should be distributed between the parties for unauthorized 
transactions. For instance, a person can be held accountable for all 
unauthorized calls from that person's telephone number, without regard 
to whether ordinary care was exercised by the person. At the other end 
of the spectrum, a person cannot be held accountable beyond $50 in 
unauthorized transactions on that person's credit card, regardless of 
whether the consumer exercised ordinary care in protecting the card or 
in promptly reporting a loss or theft of the card.
    Treasury believes that if pursued in these regulations, a provision 
that allows the assertion of a forged signature against a person even 
if the person exercised ordinary care would unfairly punish consumers 
and discourage electronic commerce. At the same time, if a person's 
fault has led to the creation of a forged signature, a provision that 
limits or precludes the assertion of the signature against the person 
does little to encourage the exercise of ordinary care. This section 
allows the assertion of a forged signature only if the person's failure 
to exercise ordinary care substantially contributed to the creation of 
the signature.
    This section places the burdens of production and persuasion upon 
the person against whom the signature would be asserted to show that 
the person exercised ordinary care. Because an electronic signature is 
not created in the presence of the person accepting the signature, the 
person accepting the signature typically does not have best access to 
the evidence needed to establish the forgery and the exercise of 
ordinary care. It is appropriate to require the person against whom the 
signature would be asserted to make this showing. Also, in asserting a 
signature under this section the Bureau of the Public Debt will have to 
establish that it exercised ordinary care in relying upon the 
signature. The evidence needed to establish that it used ordinary care 
will be within the control of the Bureau of the Public Debt and so it 
is fair to require the Bureau of the Public Debt to make this showing.
    In its comment letter, the Federal Reserve Board expressed concern 
that this section might be used to avoid the limitations of Regulation 
Z. As alluded to above, Regulation Z caps cardholder liability for 
unauthorized credit card use at $50. This section does not seek to 
encroach upon Regulation Z. To the extent this section might apply to 
unauthorized savings bond purchases involving credit cards, Treasury 
would be seeking to recover on a savings bond contract, not a credit 
card debt. In any event, Treasury has amended section 370.0 of this 
part to emphasize that to the extent Regulation Z applies to 
transactions accomplished pursuant to this part, the consumer 
protections extended by Regulation Z are unaffected.
(19) Liability (Sec. 370.57)
    This section limits the Bureau of the Public Debt's liability for 
claims involving this subpart E to the amount

[[Page 64550]]

of the transaction, less any losses caused by the failure of a claimant 
to exercise due diligence. For instance, this section could have 
application to claims involving errors in the handling of otherwise 
properly authorized transactions.

III. Procedural Requirements

    This final rule does not meet the criteria for a ``significant 
regulatory action,'' as defined in Executive Order 12866. Therefore, 
the regulatory review procedures contained therein do not apply.
    This final rule relates to matters of public contract and 
procedures for United States securities. The notice and public 
procedures requirements of the Administrative Procedure Act are 
inapplicable, pursuant to 5 U.S.C. 553(a)(2).
    As no notice of proposed rulemaking is required, the Regulatory 
Flexibility Act (5 U.S.C. 601, et seq.) does not apply.
    There are no new collections of information contained in this final 
rule. Therefore, the Paperwork Reduction Act (44 U.S.C. 3507) does not 
apply.

List of Subjects in 31 CFR Parts 317, 351, 353, and 370

    Bonds, Electronic Funds Transfers, Government Securities.

    For the reasons set forth in the preamble, 31 CFR parts 317, 351, 
353, and 370 are amended as follows:

PART 317--REGULATIONS GOVERNING AGENCIES FOR ISSUE OF UNITED STATES 
SAVINGS BONDS

    1. The authority citation for part 317 is revised to read as 
follows:

    Authority: 2 U.S.C. 901; 5 U.S.C. 301; 12 U.S.C. 391; 12 U.S.C. 
1767; 31 U.S.C. 3105.

    2. Revise Sec. 317.1 to read as follows:


Sec. 317.1  Definitions.

    (a) Bond(s) means Series EE United States Savings Bonds and Series 
I United States Savings Bonds.
    (b) Federal Reserve Bank refers to the Federal Reserve Bank or 
Branch providing savings bond services to the district in which the 
issuing agent or the applicant organization is located. See 
Sec. 317.9(a).
    (c) Issuing agent refers to an organization that has been qualified 
by a designated Federal Reserve Bank or the Commissioner of the Bureau 
of the Public Debt to sell savings bonds. An issuing agent acts as an 
agent of the purchaser in handling the remittance. The definition 
encompasses:
    (1) Each organization that accepts and processes purchase orders 
for bonds sold over-the-counter, but does not inscribe bonds, and
    (2) Each organization that is authorized to inscribe bonds sold 
over-the-counter or through payroll savings plans.
    (d) Offering circular refers to Department of the Treasury 
Circular, Public Debt Series No. 1-80, current revision, for Series EE 
savings bonds, and to Department of the Treasury Circular, Public Debt 
Series No. 1-98 for Series I savings bonds.
    (e) Organization means an entity, as described in Sec. 317.2, that 
may qualify as an issuing agent of bonds.
    3. Revise Sec. 317.2 to read as follows:


Sec. 317.2  Organizations authorized to act.

    Organizations eligible to apply for qualification and serve as 
issuing agents are the following:
    (a) Banks, Federal credit unions in good standing, trust companies, 
and savings institutions chartered by or incorporated under the laws of 
the United States, or those of any State or Territory of the United 
States, the District of Columbia, or the Commonwealth of Puerto Rico.
    (b) Agencies of the United States and State and local governments.
    (c) Employers operating payroll savings plans for the purchase of 
United States Savings Bonds, as well as organizations operating payroll 
savings plans on behalf of employers.
    (d) Other organizations specifically and individually qualified by 
the Commissioner of the Bureau of the Public Debt whenever the 
Commissioner deems such a qualification to be in the public interest. 
In selecting an issuing agent, the Commissioner may use such process 
that the Commissioner deems to be appropriate. The selected issuing 
agent will be subject to such conditions that the Commissioner deems to 
be appropriate.


Sec. 317.3  [Amended]

    4. Amend Sec. 317.3 as follows:
    A. Revise the introductory text to paragraph (a) to read as 
follows:


Sec. 317.3  Procedure for qualifying and serving as issuing agent.

    (a) Execution of application agreement. An organization seeking 
issuing agent qualification generally shall obtain from and file with a 
designated Federal Reserve Bank an application-agreement form. However, 
if an organization seeks qualification under Sec. 317.2(d) or because 
of its status as an organization operating a payroll savings plan on 
behalf of an employer under Sec. 317.2(c), it shall make application 
directly to the Bureau of the Public Debt for approval by the 
Commissioner of the Bureau of the Public Debt. An application-agreement 
sent directly to the Bureau of the Public Debt shall be supplemented by 
such other information as the Bureau of the Public Debt may request.
* * * * *
    B. Add the words ``or the Bureau of the Public Debt'' after the 
words ``Federal Reserve Bank'' in paragraphs (b) and (c).
    5. Revise Sec. 317.6(b) to read as follows:


Sec. 317.6  Issuance of bonds.

* * * * *
    (b) Fees. Each issuing agent, other than a Federal agency, will be 
paid fees. Only issuing agents are eligible to collect fees. With prior 
approval, agents that are authorized to inscribe bonds and receive fee 
payments will also be paid a bonus for presorting savings bond 
mailings. Schedules reflecting the amount of the fees and presort 
bonuses, and the basis on which they are computed and paid, will be 
published separately in the Federal Register.
* * * * *
    6. Amend the appendix to Sec. 317.8 as follows:
    A. Revise the section heading to the appendix to read as set out 
below;
    B. Remove paragraph 3 of subpart B;
    C. Revise paragraphs 2(c) and 2(e) of subpart A, all of subpart C, 
and paragraphs 2(a)(i) and 2(b) of subpart D to read as follows:


Sec. 317.8  Remittance of sales proceeds and registration records.

* * * * *

Appendix to Sec. 317.8--Remittance of Sales Proceeds and 
Registration Records, Department of the Treasury Circular, Public 
Debt Series No. 4-67, Third Revision (31 CFR Part 317), Fiscal 
Service, Bureau of the Public Debt

Subpart A--General Information

* * * * *
    2. Definition of terms. As used in this appendix:
* * * * *
    (c) Over-the-counter sale means any sale of savings bonds other 
than payroll sales.
* * * * *
    (e) Issuing agent, as provided in Sec. 317.1(c) of the Circular, 
refers to an organization that has been qualified by a designated 
Federal Reserve Bank or the Commissioner of the Bureau of the Public 
Debt to sell savings bonds.
* * * * *

[[Page 64551]]

Subpart C--Remittance of Payroll Sales Proceeds

    1. Application of requirements. The remittance requirements for 
payroll sales apply only to issuing agents. An employer that maintains 
a payroll savings plan but does not issue bonds shall be notified by 
the servicing issuing agent that it must remit sales proceeds to the 
issuing agent in sufficient time to permit compliance with the 
requirements.
    2. Remittance of payroll sales deductions. Issuing agents shall 
remit sales proceeds throughout the month shown in the issue date as 
soon as the full amount of the purchase price of the bonds has been 
received or accumulated. In no case should such proceeds be remitted 
later than the second business day of the month following the month 
shown in the issue date. The issuing agent shall ensure that its system 
properly accounts for and recognizes when the full purchase price has 
been received, or has been accumulated, so that timely remittance can 
be made. The issuing agent shall transmit registration records in an 
electronically processible format within thirty (30) days following the 
month shown on the issue date.

Subpart D--Interest on Late Remittances

* * * * *
    2. * * *
    (a) Bonds inscribed by issuing agent--(i) Payroll sales. If, during 
any three (3) month period, the interest assessed on an issuing agent's 
late remittance of proceeds from payroll savings plan sales or thrift, 
savings, vacation, or similar plan sales accumulates to less than $50 
for each type of sales, the interest assessed for the first month will 
be waived. The interest assessed for each type of sales for the 
remaining two (2) months will then be carried forward to the next 
period of three (3) consecutive months.
* * * * *
    (b) Bonds inscribed by the designated Federal Reserve Bank. The 
interest assessed on late remittance of all sales proceeds transmitted 
during a given month will be waived if it is less than $25.
* * * * *

PART 351--OFFERING OF UNITED STATES SAVINGS BONDS, SERIES EE

    1. The authority citation for part 351 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 3105.

    2. Revise Sec. 351.1 to read as follows:


Sec. 351.1  Governing regulations.

    Series EE bonds are subject to the regulations of the Department of 
the Treasury, now or hereafter prescribed, governing United States 
Savings Bonds of Series EE and HH, contained in Department of the 
Treasury Circular, Public Debt Series No. 3-80 (part 353 of this 
chapter). Treasury expressly disclaims the effect of, and does not 
warranty the correctness of, any representations or warranties 
regarding Series EE bonds, wherever made, that in any way conflict with 
the terms and conditions of Series EE bonds, as set out in these and 
other regulations and other applicable law. The regulations in part 370 
of this chapter apply to transactions for the purchase of United States 
Savings Bonds issued through the Bureau of the Public Debt. The 
regulations in part 370 do not apply to transactions for the purchase 
of bonds accomplished through issuing agents generally, unless and to 
the extent otherwise directed by the Commissioner of the Bureau of the 
Public Debt.
    3. Revise Sec. 351.5 to read as follows:


Sec. 351.5  Purchase of bonds.

    (a) Payroll sales--(1) Payroll savings plans. Bonds in $100 and 
higher denominations may be purchased through deductions from the pay 
of employees of organizations that maintain payroll savings plans. The 
bonds must be issued by an authorized issuing agent.
    (2) Employee thrift, savings, vacation, and similar plans. Bonds 
registered in the names of trustees of employee plans may be purchased 
in book-entry form in $100 multiples through a designated Federal 
Reserve Bank after Bureau of the Public Debt approval of the plan as 
eligible for the special limitation under Sec. 353.13 of this chapter, 
also published as Sec. 353.13 of Department of the Treasury Circular, 
Public Debt Series No. 3-80.
    (b) Over-the-counter sales--(1) Eligible issuing agents. Bonds may 
be purchased through any issuing agent, except that an organization 
serving as an issuing agent because of its status as an employer or an 
organization operating an employer's payroll savings plan under 
Sec. 317.2(c) of this chapter may sell bonds only through payroll 
savings plans.
    (2) Manner of sale. An application for the purchase of a bond must 
be accompanied by a remittance to cover the issue price. The purchase 
application and remittance may be submitted to an issuing agent by any 
means acceptable to the issuing agent. An application may authorize 
purchases on a recurring basis. The issuing agent bears the burden of 
collection and the risk of loss for non-collection or return of the 
remittance.

PART 353--REGULATIONS GOVERNING UNITED STATES SAVINGS BONDS, SERIES 
EE AND HH

    1. The authority citation for part 353 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 3105, 3125.


Sec. 353.6  [Amended]

    2. Remove the word ``deduction'' in Sec. 353.6(b)(4), and add, in 
its place, the word ``savings.''


Sec. 353.13  [Amended]

    3. Add the phrase ``, as amended'' after the word ``1954'' in 
Sec. 353.13(c)(3).
    4. Revise paragraph (a) of Sec. 353.21 to read as follows:


Sec. 353.21  Payment to judgment creditors.

    (a) Purchaser or officer under levy. The Department of the Treasury 
will pay (but not reissue) a savings bond to the purchaser at a sale 
under a levy or to the officer authorized under appropriate process to 
levy upon property of the registered owner or coowner to satisfy a 
money judgment. Payment will be made only to the extent necessary to 
satisfy the money judgment. The amount paid is limited to the 
redemption value 60 days after the termination of the judicial 
proceedings. Except in a case of a levy by the Internal Revenue 
Service, payment of a bond registered in coownership form pursuant to a 
judgment or a levy against only one coowner is limited to the extent of 
that coowner's interest in the bond. That interest must be established 
by an agreement between the coowners by judgment, decree, or order of a 
court in a proceeding to which both coowners are parties. Payment of a 
bond registered in coownership form pursuant to levy by the Internal 
Revenue Service will be made if the levy is against either coowner on 
the bond.
    5. Revise Sec. 353.27 to read as follows:


Sec. 353.27  Application for relief--Non-receipt of bond.

    If a bond issued on any transaction is not received, the issuing 
agent must be notified as promptly as possible and given all 
information about the non-receipt. An appropriate form and instructions 
will be provided. If the application is approved, relief will be 
granted by the issuance of a bond bearing the same issue date as the 
bond that was not received. Also, relief is authorized for the issuance 
of bonds for

[[Page 64552]]

which the Secretary has not received payment, in order to preserve 
public confidence in dealing with issuing agents.

PART 370--REGULATIONS GOVERNING ELECTRONIC TRANSACTIONS AND THE 
TRANSFER OF FUNDS BY ELECTRONIC MEANS ON ACCOUNT OF UNITED STATES 
SECURITIES

    1. The authority citation for part 370 is revised to read as 
follows:

    Authority: 12 U.S.C. 391; 31 U.S.C. chapter 31.

    2. The heading of part 370 is revised to read as set forth above.
    3. Revise subpart A to read as follows:

Subpart A--General Information

Sec.
370.0  Applicability.
370.1  Definitions.

Subpart A--General Information


Sec. 370.0  Applicability.

    The regulations in this part apply to electronic transactions and 
the transfer of funds by electronic means as employed by the Bureau of 
the Public Debt in connection with United States securities, except as 
varied by agreement or as otherwise provided. To the extent that the 
regulations in part 210 of this title apply to the purchase or payment 
of interest and principal on United States securities, the regulations 
in this part 370 apply in the event of any inconsistencies. Among other 
things, the written authorization of the Financial Management Service 
is not necessary for the issuance of routing numbers by a Federal 
Reserve Bank or for the receipt, origination, or reversal of any credit 
or debit entry accomplished pursuant to this part. Finally, to the 
extent that Regulation E (12 CFR part 205) and Regulation Z (12 CFR 
part 226) of the Board of Governors of the Federal Reserve System may 
apply to transactions authorized by this part, those Federal laws are 
unaffected by this part.


Sec. 370.1  Definitions.

    Automated Clearing House (ACH) entry means a transaction in 
accordance with applicable Operating Rules and Operating Guidelines of 
the National Automated Clearing House Association, as modified by these 
and other regulations and law. The regulations in this part control in 
the event of any inconsistencies with the applicable Operating Rules 
and Operating Guidelines.
    Credit entry means an ACH entry for the deposit of money to a 
deposit account.
    Debit entry means an ACH entry for the payment of money from a 
deposit account.
    Deposit account means a demand deposit (checking), savings, or 
asset account (other than an occasional or incidental credit balance in 
a credit plan) held directly or indirectly by a financial institution.
    Digital signature means a type of electronic signature. A digital 
signature uses public-key encryption and a message digest function to 
transform an electronic record. A person who has the initial electronic 
record and the signer's public key can verify:
    (1) Whether the transformation was accomplished by the private key 
that corresponds to the signer's public key; and
    (2) Whether the initial record has been altered since the 
transformation was made.
    Electronic signature means a signature manifested through 
electronic or similar means, including digital and biometric methods.
    Financial institution means:
    (1) An entity described in section 19(b)(1)(A), excluding 
subparagraphs (v) and (vii), of the Federal Reserve Act (12 U.S.C. 
461(b)(1)(A)). Under section 19(b)(1)(A) of the Federal Reserve Act and 
for purposes of this part only, the term ``depository institution'' 
means:
    (i) Any insured bank as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813) or any bank that is eligible to make 
application to become an insured bank under section 5 of such Act (12 
U.S.C. 1815);
    (ii) Any mutual savings bank as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) or any bank that is eligible to 
make application to become an insured bank under section 5 of such Act 
(12 U.S.C. 1815);
    (iii) Any savings bank as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) or any bank that is eligible to 
make application to become an insured bank under section 5 of such Act 
(12 U.S.C. 1815);
    (iv) Any insured credit union as defined in section 101 of the 
Federal Credit Union Act (12 U.S.C. 1752) or any credit union that is 
eligible to make application to become an insured credit union pursuant 
to section 201 of such Act (12 U.S.C. 1781);
    (v) Any savings association as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) that is an insured depository 
institution (as defined in such Act) (12 U.S.C. 1811 et seq.) or is 
eligible to apply to become an insured depository institution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and
    (2) Any agency or branch of a foreign bank as defined in section 
1(b) of the International Banking Act, as amended (12 U.S.C. 3101).
    Message digest function means an algorithm mapping or translating 
one sequence of bits into another, generally smaller, set such that:
    (1) An electronic record yields the same message digest result 
every time the algorithm is executed using the same electronic record 
as input;
    (2) It is computationally infeasible that an electronic record can 
be derived or reconstituted from the message digest result produced by 
the algorithm; and
    (3) It is computationally infeasible that two electronic records 
can be found that produce the same message digest using the algorithm.
    Originator means an entity authorized by a person to initiate debit 
or credit entries to the person's deposit account and that also has an 
agreement with a financial institution to transmit the debit or credit 
entries to the person's deposit account.
    Owner means the person(s) in whose name(s) a security is 
registered.
    Payment means, for the purpose of subpart B of this chapter, the 
deposit of money from the Department of the Treasury to the deposit 
account of the owner.
    Person means any natural person or organization.
    Public-key encryption means a process which generates and employs a 
key pair consisting of a private key and its mathematically related 
public key, in which one use of the public key is to verify a digital 
signature created by the private key.
    Record means information that is inscribed on a tangible medium or 
that is stored in an electronic or other medium and is retrievable in 
perceivable form.
    Security means any obligation issued by the United States that, by 
the terms of the applicable offering circular, is made subject to this 
part.
    Settlement date means the date an exchange of funds with respect to 
an entry is reflected on the books of the Federal Reserve Bank(s). For 
a security held in the TREASURY DIRECT system, the issue date will in 
most cases be the same as the settlement date. For United States 
Savings Bonds, the issue date will in most cases be the first day of 
the month in which settlement takes place.
    Signature means any symbol or method executed or adopted by a party 
with present intention to be bound.

[[Page 64553]]

    4. Revise the heading of subpart C to read as follows:

Subpart C--Debit ACH Entries for the Sale of Securities in TREASURY 
DIRECT

* * * * *

Subpart D--Redesignated

    5. Redesignate subpart D as subpart F and Secs. 370.30 and 370.31 
as Secs. 370.60 and 370.61.
    6. Add subparts D and E to read as follows:

Subpart D--Debit ACH Entries for the Sale of United States Savings 
Bonds Issued Through the Bureau of the Public Debt

Sec.
370.30  Scope.
370.31  Authorization.
370.32  Prenotification.
370.33  Warranties of financial institution.
370.34  Responsibilities of financial institution.
370.35  Termination or suspension by the Bureau of the Public Debt.
370.36  Termination or suspension by purchaser or deposit account 
owner by notice to the originator.
370.37  Changes and error resolution.
370.38  Liability.

Subpart O--Debit ACH Entries for the Sale of United States Savings 
Bonds Issued Through the Bureau of the Public Debt


Sec. 370.30  Scope.

    This subpart provides regulations for Automated Clearing House 
debit entries used for the sale of United States Savings Bonds issued 
through the Bureau of the Public Debt. This subpart also establishes 
the exclusive liability of the Bureau of the Public Debt for such 
entries. This subpart does not apply to transactions for the sale of 
United States Savings Bonds accomplished through savings bond issuing 
agents generally, unless and to the extent the Commissioner of the 
Bureau of the Public Debt directs otherwise.


Sec. 370.31  Authorization.

    (a) General. The purchaser of a security shall authorize an 
originator to initiate Automated Clearing House debit entries and shall 
designate a deposit account at a financial institution to receive such 
entries. An authorization shall be accomplished only through a form 
approved by the Bureau of the Public Debt.
    (b) Persons to sign. The signatures of the purchaser and any other 
persons whose signatures ordinarily are required to withdraw funds from 
the designated deposit account are necessary for the authorization to 
be effective. Except to the extent required by the Bureau of the Public 
Debt, the originator will not be required to verify the identity of the 
purchaser or the authenticity of the signatures.
    (c) Recurring debit entries. A single authorization may allow or 
require debit entries to be made to a deposit account on a recurring 
basis, if the approved authorization form so provides.
    (d) Subsequent authorizations. A purchaser's subsequent 
authorization cancels a previous authorization.
    (e) Successor originator. The Bureau of the Public Debt reserves 
the right to name a successor to the originator named on the debit 
authorization form. The designation of a successor shall be effective 
without additional notice to the purchaser.


Sec. 370.32  Prenotification.

    The requirement of a prenotification prior to the initiation of any 
debit entry is left to the discretion of the Bureau of the Public Debt. 
If sent, the receiving financial institution must respond within the 
time frame for such responses established by the National Automated 
Clearing House Association. If a prenotification is sent and the 
receiving financial institution does not reject or otherwise respond to 
the prenotification message within the specified time period, the 
financial institution shall be deemed to have warranted to Treasury and 
the originator that the information as to the deposit account number 
and the type of account contained in the message is accurate as of the 
time of receipt of the prenotification.


Sec. 370.33  Warranties of financial institution.

    A financial institution's acceptance and handling of a debit entry 
or failure to timely reject a prenotification made with respect to a 
security covered by this subpart shall constitute its agreement to the 
provisions of this subpart. In addition to warranties referred to in 
Sec. 370.32, a financial institution that agrees to this part also 
warrants that it has the authority to receive entries and to comply 
with any requirements imposed upon Receiving Depository Financial 
Institutions under the Operating Rules and Operating Guidelines of the 
National Automated Clearing House Association, as modified by these and 
other regulations and law.


Sec. 370.34  Responsibilities of financial institution.

    A financial institution that receives a debit entry on behalf of 
its customer must debit the customer's account on the settlement date. 
If the financial institution is unable to debit the designated account, 
it shall return the entry by no later than the next business day after 
receipt, with an electronic message or other response explaining the 
reason for the return.


Sec. 370.35  Termination or suspension by the Bureau of the Public 
Debt.

    The Bureau of the Public Debt may terminate or suspend the 
availability of debit entries as a means of purchase for savings bonds 
at any time. A decision to terminate or suspend the availability of 
debit entries as a means of purchase is in the sole discretion of the 
Bureau of the Public Debt and shall be final.


Sec. 370.36  Termination or suspension by purchaser or deposit account 
owner by notice to the originator.

    A purchaser of a security or a deposit account owner may terminate 
or suspend debits by notifying the originator orally or in writing at 
least three business days before the scheduled date of the transfer. In 
response to an oral notice, the originator may require the consumer to 
give written notice, to be received by the originator within 14 days of 
an oral notice. An oral notice ceases to be binding after 14 days if 
the purchaser fails to provide the required written confirmation. A 
suspension will remain in effect for the duration specified by the 
purchaser, but for no more than six months. The termination and 
revocation methods need not be recited in the authorization.


Sec. 370.37  Changes and error resolution.

    While responding to an oral or written notice from a person 
relating to the propriety of security issuance information or a debit 
entry involving the person's deposit account, the originator may 
suspend further debit entries. In response to an oral notice, the 
originator may require the person to give written notice, to be 
received by the originator within 10 business days of an oral notice. 
The originator promptly will investigate the allegation and provide 
relief for any error, but is not bound to complete the investigation or 
correct the error within 10 business days if the requested written 
confirmation is not provided.


Sec. 370.38  Liability.

    (a) Scope of liability. Unless the Bureau of the Public Debt has 
designated itself or a fiscal or financial agent as an originator, the 
Bureau of the Public Debt shall not be liable for any unauthorized, 
erroneous, duplicative, or otherwise improper debit entries, and shall 
not be liable for a failure to debit a deposit account. Unless the 
Bureau of the Public Debt has designated itself or

[[Page 64554]]

a fiscal or financial agent as the originator, the originator serves as 
the agent of the purchaser in handling the remittance. Any claims must 
be pursued against the originator. The Bureau of the Public Debt shall 
not be liable for its choice of an originator. The Bureau of the Public 
Debt shall not be liable to any Automated Clearing House association.
    (b) Extent of liability. For any claim involving this subpart that 
may proceed against the Bureau of the Public Debt, the Bureau of the 
Public Debt's liability is limited to the amount of the improper debit 
and does not extend to other damages or costs, including consequential 
damages, punitive damages, the costs of litigation, or payment of 
attorney fees. The liability of the Bureau of the Public Debt also 
shall be reduced by the amount of the loss resulting from a failure of 
the claimant to exercise due diligence, including a failure to follow 
standard commercial practices.

Subpart E--Electronic Submission of Transaction Requests Through the 
Bureau of the Public Debt

Sec.
370.50  Scope.
370.51  Requirements.
370.52  Time of acceptance.
370.53  Point of transaction.
370.54  Effect of electronic signature.
370.55  Admissibility of digital signature.
370.56  Negligence contributing to forged signature.
370.57  Liability.

Subpart E--Electronic Submission of Transaction Requests Through 
the Bureau of the Public Debt


Sec. 370.50  Scope.

    This subpart provides general regulations for the electronic 
submission of transaction requests through the Bureau of the Public 
Debt. This subpart also establishes the exclusive liability of the 
Bureau of the Public Debt for transactions accomplished under this 
subpart. This subpart does not apply to transactions for the sale of 
United States Savings Bonds accomplished through savings bond issuing 
agents generally, unless and to the extent the Commissioner of the 
Bureau of the Public Debt directs otherwise.


Sec. 370.51  Requirements.

    An electronically signed transaction request cannot be accepted by 
the Bureau of the Public Debt unless the signature has been 
accomplished through a method that has been approved for specific 
purposes by the Bureau of the Public Debt.


Sec. 370.52  Time of acceptance.

    A transaction request submitted electronically, including an offer 
to purchase a security, is accepted no earlier than at the moment the 
request is received by the Bureau of the Public Debt and no later than 
at the moment a message of acceptance is sent by the Bureau of the 
Public Debt, regardless of the method used to transmit the message of 
acceptance.


Sec. 370.53  Point of transaction.

    For jurisdiction and venue purposes, the point of transaction for a 
transaction request handled pursuant to this subpart is Parkersburg, 
West Virginia, regardless of from where the transaction request is 
transmitted or where the transaction request is actually processed.


Sec. 370.54  Effect of electronic signature.

    An electronic signature and any electronic record to which it is 
affixed or attached may not be denied legal effect, including legal 
effect as a signature, a writing, or an original, solely because the 
signature or record is in electronic form.


Sec. 370.55  Admissibility of digital signature.

    The requirement of authentication or identification as a condition 
precedent to admissibility is satisfied by evidence sufficient to 
support a finding that a digital signature exists. However, in 
asserting a digital signature against a particular person in any civil 
litigation or dispute, extrinsic evidence of authenticity as a 
condition precedent of admissibility shall not be necessary to 
establish that a digital signature corresponds to a specific public key 
pair and that an electronic record to which the digital signature is 
affixed has not been altered from its original form.


Sec. 370.56  Negligence contributing to forged signature.

    A person whose failure to exercise ordinary care substantially 
contributes to the creation or submission of a forged signature is 
precluded from disavowing the forged signature. The burden of 
production and the burden of persuasion is on the person against whom 
the signature is asserted to establish the exercise of ordinary care. 
However, in asserting a signature under this section, the Bureau of the 
Public Debt bears the burden of production and the burden of persuasion 
in establishing that it exercised ordinary care in relying upon the 
signature.


Sec. 370.57  Liability.

    For any claim involving this subpart that may proceed against the 
Bureau of the Public Debt, the Bureau of the Public Debt's liability is 
limited to the amount of the transaction and does not extend to other 
damages or costs, including consequential damages, punitive damages, 
the costs of litigation, or payment of attorney fees. The liability of 
the Bureau of the Public Debt shall also be reduced by the amount of 
the loss resulting from a failure of the claimant to exercise due 
diligence, including a failure to follow standard commercial practices.

    Dated: November 10, 1998.
Donald V. Hammond,
Fiscal Assistant Secretary.
[FR Doc. 98-31089 Filed 11-19-98; 8:45 am]
BILLING CODE 4810-39-P