[Federal Register Volume 64, Number 174 (Thursday, September 9, 1999)]
[Rules and Regulations]
[Pages 48933-48938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23410]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 64, No. 174 / Thursday, September 9, 1999 / 
Rules and Regulations  

[[Page 48933]]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272, 273 and 274

[Amdt. No. 378]
RIN 0584-AC61


Food Stamp Program: Electronic Benefit Transfer Benefit 
Adjustments

AGENCY: Food and Nutrition Service, USDA.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This action provides interim rulemaking for a proposed rule 
published on May 19, 1998. It revises Food Stamp Program regulations 
pertaining to the State agency's ability to make an adjustment to a 
household's account in an Electronic Benefit Transfer (EBT) system. The 
changes enable State agencies to make an adjustment to correct system 
errors without sending an advance notice as currently required. This 
rule also revises the formula for recovering funds under the re-
presentation rule.
    The Department received a large number of comments to the proposed 
rule, many of which suggested substantive changes. At least two 
significant changes to the proposed rule have been incorporated as a 
result of the comments received. Therefore, the Department has decided 
to allow further comment by publishing an interim final rule. All 
comments received will be analyzed, and any appropriate changes in the 
rule will be incorporated into the subsequent publication of a final 
rule.

DATES: This interim rule is effective October 12, 1999. State agencies 
must implement the rule no later than March 7, 2000. Comments must be 
received on or before November 8, 1999.

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

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

SUPPLEMENTARY INFORMATION:

Interim Rule

    Because this rule has significant changes from the proposed rule, 
the Department is soliciting further public comment for 60 days. All 
comments received will be analyzed, and any appropriate changes in the 
rule will be incorporated in the subsequent publication of a final 
rule.

Executive Order 12866

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

Public Law 104-4

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

Executive Order 12372

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

Regulatory Flexibility Act

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

Paperwork Reduction Act

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

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Dates'' paragraph of this preamble. Prior 
to any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted. In the Food Stamp Program, the administrative 
procedures are as follows: (1) for Program benefit recipients--State

[[Page 48934]]

administrative procedures issued pursuant to 7 U.S.C. 2020(e)(1) and 7 
CFR 273.15; (2) for State agencies--administrative procedures issued 
pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 for rules related to 
non-quality control (QC) liabilities or 7 CFR Part 283 for rules 
related to QC liabilities; (3) for Program retailers and wholesalers--
administrative procedures issued pursuant to 7 U.S.C. 2023 set out at 7 
CFR 278.8.

Background

    Proposed regulations were published in the Federal Register on May 
19, 1998 at 63 FR 27511 to change the way in which certain EBT error 
conditions are handled. The change was proposed following concerns from 
the EBT community that current regulations do not allow State agencies, 
or their processors, to make an adjustment to correct certain system 
errors in a manner consistent with the commercial environment. During 
normal EBT transaction processing, settlement is completed when the 
transaction acquirer has been properly credited for an amount equal to 
the amount debited from the household's benefit allotment. System 
malfunctions, however, can cause an interruption to this process, 
resulting in a settlement condition that does not reflect the original 
transaction. The regulations proposed to allow State agencies to make 
adjustments for these errors when concurrent notice was sent to the 
household as opposed to the advance notice required by current 
regulations. Changes were also proposed for handling re-presentations. 
Readers are referred to the proposed regulation for a more complete 
understanding of this final action.
    Comments on the proposal were solicited through July 20, 1998. This 
final action takes those comments received into account. Twenty-eight 
comment letters were received in response to the proposed rule. 
Individual comments were received from eighteen State agencies. (An 
additional 10 State agencies commented as part of joint consortia 
letters.) Of the remaining letters, 4 were from retailers and/or their 
associations, 2 from EBT processors, 3 were from Public Interest 
Groups, and 1 was from an alliance of States, networks, financial 
institutions and retailers. Although four of the letters were received 
late, their comments were considered. None of these four, however, 
raised comments resulting in changes to the proposed rule that were not 
raised by other commenters.
    In general, the commenters supported the Department's efforts to 
streamline the adjustment process for certain types of system errors. 
The overwhelming majority of the commenters, however, believed that the 
Department did not go far enough in doing so and that the EBT 
adjustment policy should mirror commercial practice. The major comments 
deemed by the Department to be significant are discussed below.

General

    There is a significant difference between how EBT adjustments would 
be handled under the proposed rules and how they are handled in the 
commercial environment. While commercial adjustments are handled by 
processors as routine corrections not requiring special notification to 
customers, in the Food Stamp Program, when adjustments are a debit 
against the household's account, they are viewed as a type of adverse 
action. A majority of commenters believed that the food stamp 
adjustment policy should strictly follow commercial or Electronic Funds 
Transfer (EFT) standards, arguing that Congress expressly recognized 
the importance of conforming EBT programs to commercial standards by 
directing that ``an electronic benefit transfer system should take into 
account generally accepted standard operating rules based on commercial 
electronic technology'' (7 U.S.C. 2016 (i)(1)(D)).
    The Department is aware that Congress wanted programs to ``take 
into account'' commercial practices; however, by not mandating that EBT 
follow commercial practices, Congress recognized that EBT differs from 
EFT and, in some circumstances, must adhere to different standards. 
Certainly, in the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, Pub. L. 104-193, (PRWORA), a precedent for 
such a divergence was set when EBT was explicitly exempted from 
Regulation E, a requirement for commercial EFT.
    The Department believes that, while the overall procedural 
framework for handling adjustments in the commercial environment is 
acceptable, there are certain areas--i.e., notifications and the rights 
to appeal--that must adhere to the requirements set forth in the Food 
Stamp Act of 1977, as amended, 7 U.S.C. Sec. 2011-2036, (FSA), and food 
stamp regulations. This is especially important in light of the fact 
that the commercial environment is silent in some of these areas, or 
the commercial standards in place are not appropriate for those who 
depend upon food stamp benefits for basic subsistence.
    Several commenters wanted the rule to clarify that State agencies 
have final authority and reversal authority on all adjustments. They 
also wanted the rule to require EBT processors to give State agencies 
adjustment information upon request. The Department believes that Food 
Stamp regulations already require processors to provide such 
information by mandating at 7 CFR Sec. 274.12(j)(1)(vi) that systems 
maintain an audit trail documenting the full cycle of issuance 
``through settlement of retailer credits'' and by requiring at 7 CFR 
Sec. 274.12(j)(2) that the system provide appropriate management 
reports. As for final authority over adjustments, the Department 
believes that EBT regulations, and contracts between State agencies and 
their processors, give States final authority over all matters 
pertaining to household accounts.
    One commenter believed that the proposed rule implied that all 
adjustments take place at the State level, when, in fact, they are 
usually handled by the processors. The proposed rule was not meant to 
imply that the State agencies handle adjustments. All EBT regulations 
are addressed to the States, as they have authority over the 
administration of the Food Stamp Program. As with other operational 
components of EBT, any of the requirements of this rule can be handled 
by processors, as agents of the State agencies, if appropriate. State 
agencies remain ultimately responsible, however, for the actions of 
their contractors.
    One commenter suggested that adjustments should be handled as any 
other administrative claim. The Department believes that adjustments 
are different from claims in that the errors do not result in money 
owed to FNS. All of the processing and reporting of claims are based on 
a collection against an incorrect benefit issuance being passed back to 
the government. Collection for adjustments, on the other hand, do not 
result in savings to the government and, therefore, cannot be handled 
in the same manner as claims.
    One commenter stated that the proposed rule implied that 
adjustments are allowed, but not required. The intent of the proposed 
rule was to clarify, through regulations, how EBT system errors would 
be corrected under EBT. It was, therefore, the Department's intent to 
require all State agencies to follow these rules. The interim rule 
includes clarifying language that makes the adjustment rule mandatory.

Definitions

    The proposed rule limited the type of adjustments that could be 
processed without advance notice, to system errors resulting in an out-
of-balance settlement condition. Several commenters supported this 
restriction, echoing the

[[Page 48935]]

Department's belief that adjustments resulting from human error should 
not be included in this rule. Other commenters sought to expand the 
definition of adjustments to include monthly issuance-posting errors 
and other State agency, non-settling errors. A number of commenters 
asked for clarifications regarding the definition of a system error.
    The Department agrees that adjustments should be allowed only in 
those situations in which a transaction was not completed because of a 
system error. A system error is one which occurs due to malfunction at 
the EBT host, the third party processor, the retailer host system, the 
Point-of-Sale (POS), or as a result of telecommunications malfunctions. 
By definition, the amount of an adjustment cannot differ from the value 
of the original transaction. (The Department recognizes that the 
original transaction amount may no longer be available in a recipient's 
account at the time of the adjustment and will allow an adjustment 
against remaining benefits, even if it differs from the original 
transaction amount). This definition is in keeping with commercial 
operating rules and the QUEST EBT operating rules.
    Human errors, such as those that may result in incorrect postings, 
incorrect entries at the POS by the clerk, operating in training mode, 
etc., are not covered by this rule. The Department believes the 
household should have the right to advance notice on these more 
questionable ``adjustments'' to their allotments. Human errors do not 
leave the same audit trail that system errors do, i.e., documentation 
of an out-of-balance condition, such as system logs that are generated 
from any of the reconciliation points.
    Monthly-issuance posting errors are pre-issuance errors and, as 
such, are not within the rule's definition of an adjustment; however, 
the Department recognizes the need for State agencies to expeditiously 
correct these errors. The Department will take this comment under 
consideration for future proposed rulemaking.

Future Month's Benefits

    The proposed rule did not allow a debit adjustment from a 
recipient's account to be made from a future month's benefit, i.e., 
benefits that were not in the account at the time of the error. 
Commenters overwhelmingly disagreed with this restriction, arguing that 
the restriction in the proposed rule increases the probability that the 
funds will not be available to do a debit adjustment to the household's 
account. These commenters also argued that restricting adjustments 
against a future month also puts an unfair burden on retailers who may 
suffer a loss of revenue if recipients spend benefits prior to an 
adjustment being made. Finally, many commenters raised concerns about 
the administrative burdens inherent in using the re-presentation 
process when collecting from future month's benefits.
    The Department has been persuaded by the commenters that adjusting 
from future months' benefits prevents retailers from having to bear an 
unfair financial burden due to system errors. Further, since this rule 
only applies to situations in which the need for an adjustment can be 
clearly documented, we are confident that there is a minimal risk that 
recipients will have their accounts adjusted erroneously. The 
Department understands that the average debit adjustment to a household 
is relatively small. This is consistent with overall transaction data 
that shows the average EBT transaction amount is $20. This would lead 
us to project that, on average, most transactions requiring adjustments 
would not be large enough to cause a hardship to a food stamp 
household, where the average benefit amount is $173. This average 
transaction amount is also well below the $50 currently allowed in the 
first month of a re-presentation against the household. The interim 
final rule is, therefore, changed to allow an adjustment against a 
future month's benefit. This includes future months in which there has 
been a break in receipt of benefits.
    In implementing this change to the proposed rule, the Department 
will require State agencies to amend training materials to disclose 
information to households about adjustments including the possibility 
that an adjustment can be made against a future month's benefit. 
Training material must also inform the households of their right to a 
fair hearing if they do not feel that the adjustment is warranted, and 
their right to receive a credit for the adjustment amount, pending a 
fair hearing decision. States that have already implemented EBT will 
have one year from the date of this notice to grandfather disclosure 
information on adjustments into their training materials.

Notice and Fair Hearing Requirement

    The proposed rule required State agencies to send a concurrent 
notice when an adjustment was done that would adversely affect the 
household. The notice would give households the right to a fair hearing 
and the right to be credited for the adjustment amount pending the 
outcome of the fair hearing. The majority of comments received on this 
subject did not agree with the notice and fair hearing requirements for 
EBT adjustments. Most commented that it was inappropriate to apply 
these requirements to adjustments because they believe notice 
requirements in the program rules should be limited to circumstances in 
which benefits are being reduced to collect a previous overissuance of 
benefits. There were also a number of concerns about the cost of 
mailing notices, as well as the coordination required between the State 
agency and the processor, since the processor usually does not have 
current household addresses. Several commenters, however, supported the 
application of the notice and hearing requirements, including one which 
suggested that the Department prescribe the level of detail that should 
be in the notice. Three commenters supported the adequate notice as 
opposed to a 10-day advance notice. Another commenter suggested that a 
notice not be sent as long as the adjustment was done within 5 days as 
required by the proposed rule.
    The Department is not convinced that adjustments should be exempt 
from the notice requirement. The Food Stamp Act gives recipients 
certain rights which cannot be abrogated because of the logistical 
problems inherent in providing the notice. Nor does the fact that these 
are transactional errors as opposed to benefit overissuances nullify 
this right. Section 11(e)(10) of the FSA requires State agencies to 
provide ``for the granting of a fair hearing and a prompt determination 
thereafter to any household aggrieved by the action of the State agency 
under any provision of its plan of operation as it affects the 
participation of such household in the food stamp program or by a claim 
against the household for an overissuance.'' (emphasis added) Further, 
in Goldberg v. Kelly, 397 U.S. 254 (1970), the Court ruled that, where 
``basic subsistence is at stake,'' due process requires that households 
receive notice and an opportunity for a fair hearing prior to the 
denial of such government benefits. Absent a guarantee that there is 
absolutely no chance of erroneous adjustments, the Department concludes 
that households shall retain their notice and fair hearing rights. The 
level of detail required in the notice is described in 7 CFR 273.13, 
i.e., State agencies are required to include information about the 
circumstances which resulted in the adverse action. States are 
encouraged to include as much detail about the transaction--date, time 
and location--as possible, since

[[Page 48936]]

such information could reduce calls to the Help Desk.
    States have requested clarification on the timeframes for the fair 
hearing. The interim rule has been clarified to state that the 
household has 90 days from the date of the notice to request a fair 
hearing. Further, the household has 10 days from the date of the notice 
to request a re-credit or provisional credit pending the fair hearing 
decision. Two commenters suggested that a notice (with attendant fair 
hearing rights) only be required when there has been an incorrect 
adjustment. For the reasons cited above, the Department believes that 
all actions taken to reduce the household's allotment are subject to 
notice.
    Two commenters questioned the cost effectiveness of sending a 
notice when the adjustment is a credit to the client. The notice and 
fair hearing requirements found in 7 CFR 273.13 and 273.15 only apply 
to adverse action; therefore, an adjustment which resulted in a credit 
to a household would not require a notice.
    One commenter suggested that the State be required to send the 
notice, not the contractor. The Department does not want to prescribe 
how the notice requirement is handled but, instead, prefers to give 
each State agency and their processor an opportunity to develop a 
process that works in their unique environment.
    Finally, two commenters objected to the State agencies paying a 
share of administrative costs associated with mailing out notices, 
handling appeals, and handling re-credits or provisional credits. The 
Department has no authority in Federal law to pay more than the federal 
financial participation for food stamp administrative costs, and 
therefore, cannot pay the States' share.

Re-Credits (Provisional Credits)

    A number of other comments related to re-crediting or provisional 
credits pending a determination of the fair hearings. Some commenters 
objected to re-crediting pending a fair hearing, while an equal number 
of those commenting in this area supported it. A few commenters 
requested clarification on how to handle re-credits, specifically who 
is liable when an adjustment is due, how re-credits should be funded, 
and how they should be reported. Some commenters thought the State 
agency or the processors should be liable, not the retailers.
    The Department is clarifying that provisional credits should be 
handled as any other adjustment. If a household requests a provisional 
credit pending a fair hearing, the State agency must notify the 
processor to initiate another adjustment to credit the recipient's 
account. If the original adjustment was already completed, and payment 
made to the party suffering the loss, then that account must be debited 
in order to give a provisional credit to the household.
    Two commenters opposed language that allowed State agencies to 
discontinue collection activity when households and/or retailers were 
no longer on the program. The Department believes that by allowing an 
adjustment against future month's benefits, it is simplifying the 
management controls necessary to collect from households if they return 
to the program after a break in assistance. Therefore, language stating 
that households that have left the program are not subject to further 
collection activity has been removed. Similarly, the proposed rule did 
not require processors or others such as third party processors to 
collect against a household when the retailer is no longer with the 
Food Stamp Program. The Department is not persuaded to change its 
position regarding retailers. FNS recognizes that once retailers leave 
the system they are not easily tracked and wishes to reduce the 
administrative burden on State agencies by not requiring them to 
further track retailers. However, collections made from clients that 
are not credited to retailers must be returned to FNS.
    The Department is also clarifying the interim rule by changing the 
term ``re-credits'' to ``provisional credits'' to keep the language in 
line with commercial nomenclature.

Timeframes

    Most of the commenters believed that the proposed 5-day timeframes 
to complete an adjustment were too short given the actions that must 
take place and the number of participants inherent in the adjustment 
process. The processes described by the commenters include compilation 
of documentation, research, notification to other participants and 
making the adjustment--more business partners in the chain add to the 
processing time. Some commenters estimated that the process in the 
commercial environment typically takes from 10-45 days, influenced by 
uncontrollable factors, such as retailers who don't settle daily. The 
Department has taken these comments into consideration and has modified 
the interim rule. The interim rule distinguishes between adjustments 
generated by retailers and recipients.
    We believe that most recipient generated adjustments will result in 
funds owed to the household. In these scenarios, recipients have 
suffered a loss through no fault of their own, ostensibly through a 
verifiable system error. By allowing an adjustment against a future 
month's benefit, the Department is giving the processor the opportunity 
to do an adjustment prior to a full investigation, if required, without 
risk of liability if a household is erroneously credited. The 
Department wishes to emphasize that the provisions of this interim rule 
also apply to ``correcting adjustments'', i.e., those adjustments 
generated to reverse an erroneous credit to a recipient's account. 
Therefore, for client initiated adjustments, the 5-day timeframe 
remains as proposed.
    Commenters identified several scenarios where either the retailer, 
the client, or the processor would be unaware of an error until well 
after it has occurred. After reviewing the comments, the Department 
determined that the timeframes for client initiated adjustments should 
be counted from the date the household notifies the State agency of the 
error. This distinction is critical since EBT recipients do not receive 
monthly statements and, therefore, may not be aware of an error until 
the next time they attempt to do a transaction. The problem is 
exacerbated by the fact that a system error often results in an 
incorrect receipt. For these reasons, the rule has been changed. Client 
initiated adjustments shall be made within 5 business days of the date 
the household notifies the State agency or the Help Desk of the error. 
The household has 180 days from the date the error occurred to make the 
notification. This requirement does not absolve the State agency/
processor from making the adjustment if the 5-day deadline is missed.
    The Department acknowledges that retailer and client initiated 
adjustments are handled differently. The retailer has access to 
settlement information from the processor or third party. Several 
commenters stated that not all retailers, particularly small ones, 
settle on a daily basis and would not know of an error until after the 
5-day timeframe had passed. The Department has been persuaded by these 
arguments and has modified the rule. Retailer initiated adjustments 
must be completed within 10 days from the date the error occurred. 
Retailer initiated adjustments that result in a debit to the 
household's account are not allowed after 10 days.
    One commenter requested that correction of benefits should be done 
in 24 hours, whenever possible. The Department wishes to emphasize the 
importance to both State agencies and processors of making adjustments 
as quickly as possible. However, 24 hours

[[Page 48937]]

is not a reasonable expectation given the number of parties that are 
typically involved in the process.
    One commenter thought the Department should put specific deadlines 
on each business partner in the process, i.e. prescribe timeframes to 
the third parties, processors, retailers, contractors, etc. for 
handling their own segment of the process. The Department believes that 
such an approach would be administratively burdensome. We realize, 
however, that each of these partners has a responsibility to the others 
to handle their portion expeditiously if timeframes are to be met. We 
would recommend that this level of detail be addressed in retailer and 
third party agreements.
    The rule has been re-written to clarify that these provisions apply 
to both credit and debit adjustments. The rule is also being clarified 
to state that business days means Automated Clearing House (ACH) days.
    One commenter wanted clarification on the ramifications of not 
meeting timeframes. This rule will not impose penalties for not meeting 
timeframes. As with other regulatory requirements, States are required 
to ensure the processor's compliance.

Investigations

    One commenter thought the rule should be more prescriptive in the 
area of dispute resolutions: such as, requiring control numbers on 
complaints taken at customer service, providing detailed instructions 
for investigating claims, etc. The commenter went on to suggest that 
the burden of proof be on the retailer in investigating disputes.
    The Department is not convinced that this rule should provide more 
details in investigating system error adjustment claims. The rule 
covers a very limited type of error, not unlike those handled routinely 
in the commercial environment. Since there is nothing unique to a food 
stamp adjustment that would require the Department to justify deviation 
from existing practices, the interim final rule will remain silent on 
details for investigating these types of errors. Processors, third 
parties, retailers and customer service representatives should follow 
industry practice in ensuring that investigations are handled correctly 
in a timely manner.

Re-Presentations

    As stated in the preamble to the proposed rule, the Department has 
heard from States and processors that the current re-presentation 
regulations present costly programming challenges. In an effort to 
provide some relief, the proposed rules allowed a second collection 
option for States: a flat $10 or 10% of the allotment from the first 
month. This eliminated the need to program up to $50 for the first 
month and a different retention for the remaining months. Most of the 
commenters believed that, even with the proposed changes, re-
presentation remains an unworkable and inefficient way of handling 
collections. Some commenters stated that the programming involved would 
still be expensive, and the monthly accounting would take up too much 
in resources. FNS believes that the change to allow adjustments to 
future month's benefits for system errors will obviate the need for re-
presentations in most circumstances covered by this rule. However, the 
need for re-presentations remains for those cases in which there has 
been system downtime. Therefore, the Department is finalizing the rule 
to allow the State agency to collect at the current rate of $50 in the 
first month and 10% thereafter, or to go to the flat monthly rate of 
$10 or 10%, as proposed.
    Several commenters asked for clarification on whether or not re-
presentation becomes mandatory under this rule. Another commenter 
suggested that re-presentation should be mandatory. The Department is 
clarifying that re-presentation remains voluntary under this rule since 
most States have not been willing to incur the associated costs.
    One commenter requested clarification on who holds the funds during 
re-presentation and who holds the outstanding account. In a re-
presentation scenario, the money is collected by the State agency on 
behalf of the party to whom the debt is owed. The State agency would 
pass the payments to the parties owed through the processor.
    Finally, one commenter asked for clarification on re-presentation 
since the term is not used in the same way as the QUEST Operating 
Rules. The Department recognizes that re-presentation, as used in this 
rule, is unique to the Food Stamp Program. Any references to re-
presentation are used in the context of 7 CFR 274.12(e). Food Stamp 
Program regulations and QUEST Operating Rules, are mutually exclusive, 
since all States have not adopted the QUEST rules and the Food Stamp 
Program regulations take precedence over the QUEST rules.

Implementation

    This interim rule is effective October 12, 1999. State agencies 
must implement the rule no later than March 9, 2000.

List of Subjects

7 CFR Part 272

    Alaska, Civil Rights, Food Stamps, Grant Programs-social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 273

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

7 CFR Part 274

    Administrative procedures and practices, Food Stamps, Grant 
programs-social programs, Reporting and recordkeeping requirements.

    Accordingly, for the reasons set forth in the preamble, 7 CFR Parts 
272, 273 and 274 are amended as follows:
    1. The authority citation for 7 CFR Parts 272, 273 and 274 
continues to read as follows:

    Authority: 7 U.S.C. 2011-2036.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    2. In Sec. 272.1, paragraph (g)(154) is added to read as follows:


Sec. 272.1  General terms and conditions.

* * * * *
    (g) Implementation. * * *
    (154) Amendment No. 378. The provisions of Amendment No.378 are 
effective October 12, 1999. State agencies must implement the rule no 
later than March 7, 2000. Any variances resulting from implementation 
of the provisions of this amendment shall be excluded from error 
analysis for 120 days from this required implementation date in 
accordance with Sec. 275.12(d)(2)(vii) of this chapter.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

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


Sec. 273.13  Notice of adverse action.

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

[[Page 48938]]

sentences are added after the fourth sentence to read as follows:


Sec. 273.15  Fair hearings.

* * * * *
    (k) Continuation of benefits.
    (1) * * * If the State agency action is upheld by the hearing 
decision, a claim against the household shall be established for all 
overissuances, with one exception. In the case of an EBT adjustment, 
the State agency shall debit the household's account immediately for 
the total amount erroneously credited when the fair hearing was 
requested. If there are no benefits remaining in the household's 
account at the time the State agency action is upheld, the State agency 
shall make the adjustment from the next month's benefits, subject to 
the limitations of this section and, if necessary, continue each month 
until the debt is re-paid. * * *
* * * * *

PART 274--ISSUANCE AND USE OF COUPONS

    5. In Sec. 274.12:
    a. Paragraph (f)(4) is revised;
    b. Paragraph (f)(7)(iii) is amended by removing the second 
sentence;
    c. A new paragraph (f)(10)(viii) is added;
    d. Paragraph (l)(1)(iii) is revised;
    The revisions and addition read as follows:


Sec. 274.12  Electronic Benefit Transfer issuance system approval 
standards.

* * * * *
    (f) Household participation * * *
    (4) Issuance of Benefits. State agencies shall establish an 
availability date for household access to their benefits and inform 
households of this date.
    (i) The State agency may make adjustments to benefits posted to 
household accounts after the posting process is complete but prior to 
the availability date for household access in the event benefits are 
erroneously posted.
    (ii) A State agency shall make adjustments to an account after the 
availability date to correct an auditable, out-of-balance settlement 
condition that occurs during the redemption process as a result of a 
system error. A system error is defined as an error resulting from a 
malfunction at any point in the redemption process: from the system 
host computer, to the switch, to the third party processors, store host 
computer or POS device. By definition, an adjustment must be equal to 
the amount of the original error transaction and may result in either a 
debit or credit to the household.
    (A) Client initiated adjustments shall be made no later than 5 
business days from the date the household notifies the State agency of 
the error. Business days are defined as Automated Clearing House (ACH) 
days.
    (B) The household has 180 days from the date of the error to notify 
the State agency of the need for an adjustment.
    (C) Retailer initiated adjustments shall be made no later than 10 
business days from the date the error occurred.
    (D) If there are insufficient benefits remaining to cover the 
entire adjustment, the adjustment shall be made using the remaining 
balance, with the difference being subject to collection in a future 
month, subject to the limitations found in Sec. 273.15 of this chapter 
and in this section.
    (E) The household shall be given, at a minimum, adequate notice in 
accordance with Sec. 273.13 of this chapter.
    (F) The household shall have 90 days from the date of the notice to 
request a fair hearing.
    (G) Should the household dispute the adjustment and a request is 
made within 10 days of the notice, a provisional credit must be made to 
the household's account pending resolution.
    (iii) The appropriate management controls and procedures for 
accessing benefit accounts after the posting shall be instituted to 
ensure that no unauthorized adjustments are made in accordance with 
paragraph (f)(7)(iii) of this section.
* * * * *
    (10) * * *
    (viii) Disclosure information regarding adjustments and the 
households rights to notice, fair hearings and provisional credits. The 
disclosure should also state where to call to dispute an adjustment and 
request a fair hearing. State agencies that have already implemented 
EBT shall have one year in which to grandfather adjustment disclosure 
into their training materials.
* * * * *
    (l) Re-presentation. * * *
    (1) * * *
    (iii) The State agency may debit the benefit allotment of a 
household following the insufficient funds transaction in either of two 
ways:
    (A) Any amount which equals at least $10 or up to 10% of the 
transaction. This amount will be deducted monthly until the total 
balance owed is paid-in-full. State agencies may opt to re-present at a 
level that is less than the 10% maximum, however, this lesser amount 
must be applied to all households.
    (B) $50 in the first month and the greater of $10 or 10% of the 
allotment in subsequent months until the total balance owed is paid-in-
full. If the monthly allotment is less than $50, the State shall debit 
the account for $10.
* * * * *
    Dated: August 23, 1999.
Samuel Chambers, Jr.,
Administrator, Food and Nutrition Service.
[FR Doc. 99-23410 Filed 9-8-99; 8:45 am]
BILLING CODE 3410-30-U