[Federal Register Volume 65, Number 68 (Friday, April 7, 2000)]
[Rules and Regulations]
[Pages 18866-18869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8636]



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Part VI





Department of the Treasury





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Fiscal Service



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31 CFR Part 210



Federal Government Participation in the Automated Clearing House; 
Interim Rule

  Federal Register / Vol. 65, No. 68 / Friday, April 7, 2000 / Rules 
and Regulations  

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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 210

RIN 1510-AA81


Federal Government Participation in the Automated Clearing House

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Interim Rule with request for comment.

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SUMMARY: We're issuing an interim rule amending our regulation 
governing the use of the Automated Clearing House (ACH) system by 
Federal agencies. Our regulation generally adopts the ACH rules 
developed by NACHA--The Electronic Payments Association (NACHA) (ACH 
Rules) as the rules governing ACH transactions by Federal agencies. 
We're revising our regulation to reflect changes that NACHA has made to 
the ACH Rules since the publication of NACHA's 1999 rule book.

DATES: This interim rule is effective May 8, 2000. Comments must be 
received by June 6, 2000. The incorporation by reference of the 
publication listed in the rule is approved by the Director of the 
Federal Register as of May 8, 2000.

ADDRESSES: You can download this interim rule at the following World 
Wide Web address: http://www.fms.treas.gov/ach/.
    You may also inspect and copy this interim rule at: Treasury 
Department Library, Freedom of Information Act (FOIA) Collection, Room 
5030, Main Treasury Building, 1500 Pennsylvania Avenue, NW, Washington, 
DC 20220. Before visiting, you must call (202) 622-0990 for an 
appointment.
    You may send comments electronically to the following address: 
[email protected]. You may also mail comments to Cynthia L. 
Johnson, Director, Cash Management Policy and Planning Division, 
Financial Management Service, 401 14th Street, SW, Room 420, 
Washington, DC 20227.

FOR FURTHER INFORMATION CONTACT:  

Walt Henderson, Senior Financial Program Specialist, at (202) 874-6705 
or [email protected];
Natalie H. Diana at (202) 874-6590 or [email protected];
Adam Martin, Financial Program Specialist, at (202) 874-6881 or 
[email protected];
Cynthia L. Johnson, Director, Cash Management Policy and Planning 
Division, at (202) 874-6590 or [email protected]; or
Margaret Marquette, Deputy Chief Counsel, at (202) 874-6681.

SUPPLEMENTARY INFORMATION:

I. Background

    On April 9, 1999, we published a final rule in the Federal Register 
(64 FR 17472). The final rule amended our regulations at 31 CFR Part 
210 (Part 210), which govern the use of the ACH system by Federal 
agencies (agencies). The ACH system is a nationwide electronic funds 
transfer system that provides for the interbank clearing of credit and 
debit transactions and for the exchange of information among 
participating financial institutions. The final rule adopted the ACH 
Rules published in NACHA's 1999 rule book (including rule changes with 
an effective date on or before September 17, 1999) as the rules 
governing all Government ACH transactions, with 11 exceptions.
    NACHA periodically updates the ACH Rules. Each year NACHA publishes 
a new rule book that reflects the changes to the ACH Rules that have 
been approved since the publication of the previous rule book. NACHA 
recently published its 2000 rule book.
    Part 210 provides that any amendment to the ACH Rules, as published 
in the 1999 Rule Book, that takes effect after September 17, 1999, will 
not apply to Government ACH entries unless we publish notice of 
acceptance of the amendment in the Federal Register. 31 CFR 
210.3(b)(2). We're publishing this interim rule in order to indicate 
which amendments to the ACH Rules we're accepting and which amendments 
we're rejecting, and to provide an opportunity for comment.

II. Summary of Rule Changes

A. Changes to ACH Rules

    The ACH Rules published in NACHA's 2000 rule book reflect changes 
to the ACH Rules published in NACHA's 1999 rule book related to seven 
topics:
1. Self-Audit Requirements
    NACHA has revised the self-audit provisions of the ACH Rules to 
require self-audits annually rather than every three years; to require 
third-party service providers to conduct self-audits; to require proof 
be retained that a self-audit was completed; and to require that 
originating depository financial institutions (ODFIs) and receiving 
depository financial institutions (RDFIs) specifically warrant that 
they have completed self-audits. The effective date of these changes 
was December 17, 1999.
2. Point-of-Purchase Electronic Check Transactions
    NACHA has adopted an interim rule to provide a legal framework for 
the conversion of checks to ACH debit entries at the point-of-purchase. 
The interim rule expands the definition of Prearranged Payment and 
Deposit (PPD) format in the ACH Rules to allow this format to be used 
to initiate a one-time ACH debit entry to a Receiver's account for 
purchases made in person at the point-of-purchase. The implementation 
period for the interim rule began on September 17, 1999 and will 
continue through September 14, 2000.
    NACHA also has adopted a final rule, which will take effect when 
the interim rule ends, that amends the ACH Rules by establishing a 
legal framework to allow for the conversion of checks to ACH debit 
entries at the point-of-purchase. The amendment creates a new Standard 
Entry Class (SEC) code, POP (Point-of-Purchase Entry), that will allow 
for an Originator to initiate a one-time ACH debit entry to a 
Receiver's account for purchases made in person at the point-of-
purchase. This rule change will become effective as of September 15, 
2000.
3. Accounts Receivable Check Truncation
    NACHA has adopted an interim rule expanding the definition of the 
PPD format in the ACH Rules to allow Originators to utilize the PPD 
format to truncate checks received through the U.S. mail for payment 
for goods or services and convert them to ACH debit entries. The rule 
provides a legal framework to allow pilot tests of lockbox check 
truncation. The rule requires the Originator to provide the consumer 
with notice of the check truncation policy prior to receiving the first 
check payment that will be truncated. The consumer must authorize the 
entry in writing, signed or similarly authenticated, unless the notice 
to the consumer indicates that the item will be truncated if the 
consumer doesn't provide the Originator with written notice not to 
truncate. The implementation period for the interim rule began on 
December 17, 1999, and will continue through December 15, 2000.
4. ACH Operator Definition
    NACHA has revised the definition of ACH Operator to more clearly 
define the role and functions assumed by ACH Operators when clearing 
and settling

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ACH transactions. This revision became effective June 18, 1999.\1\
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    \1\ Part 210 adopted the ACH Rules published in NACHA's 1999 
rule book (including rule changes with an effective date on or 
before September 17, 1999) as the rules governing all Government ACH 
transactions, with certain exceptions. Although NACHA's effective 
date for the ACH Operator definition was June 18, 1999, the changes 
to the definition were not published in the 1999 rule book and thus 
not previously incorporated in Part 210.
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5. Cross-Border Payments
    NACHA has amended the ACH Rules to establish two new SEC codes, CBR 
(Corporate Cross-Border Transactions) and PBR (Consumer Cross-Border 
Transactions), to be used for the origination and receipt of cross-
border ACH entries. The amendment will become effective as of September 
15, 2000.
6. Re-Presented Check Entries
    NACHA has established a new SEC code to provide commercial 
depositors and their financial institutions with a legal framework and 
technical specifications to transmit ACH debit entries to collect 
checks that have been returned for insufficient or uncollected funds. 
The new code will become effective as of September 15, 2000.
7. Types of Accounts for ACH Transactions
    NACHA has established two new sets of transaction codes to support 
the transmission of ACH credit and debit entries to financial 
institutions' general ledger accounts and the transmission of credit 
entries to loan accounts. This change to the ACH Rules will become 
effective as of September 15, 2000.

B. ACH Rule Changes That We Are Accepting

    We are accepting all of the changes to the ACH Rules that are 
reflected in the 2000 Rule Book with two exceptions discussed in 
Section C below. Under the interim rule, there are still 11 provisions 
of the ACH Rules that Part 210 preempts, except that we are broadening 
our preemption of the ACH rules enforcement provisions to include the 
self-audit requirements (see 210.2(d)(3)). No change to the 11 
preempted provisions is necessary to reflect our preemption of the 
changes related to types of accounts, because we were aware of NACHA's 
intention to permit the crediting of ACH credits to general ledger and 
loan accounts and had already preempted that provision of the ACH Rules 
for Federal payments other than vendor payments. See 64 FR 17474.
    All of the ACH rule changes that we are accepting are effective as 
of the effective date of publication of this interim rule or NACHA's 
effective date for the rule change, whichever is later.
Point-of-Purchase Electronic Check Transactions
    We're accepting both the interim and the final ACH rule changes 
that allow an Originator to initiate a one-time ACH debit entry to a 
Receiver's account for purchases made in person at the point-of-
purchase.
    We are currently engaged in pilot programs with several agencies to 
test the conversion of checks to ACH debit entries at the point-of-
purchase. We believe that these transactions could expand the utility 
of the ACH system and might provide useful and cost-effective 
applications for Government agency collections. We also recognize, 
however, that the conversion of checks to ACH debits raises various 
issues, including the kind of disclosure and authorization that is 
appropriate for such transactions and the kinds of checks that can or 
should be converted.
    While we believe that the establishment of a legal framework for 
such transactions is desirable, it's difficult to determine the 
appropriate responsibilities and liabilities of the parties before the 
application of this technology has been tested. Moreover, attempting to 
establish a definitive legal framework for point-of-purchase check 
conversion by agencies at this time could hamper innovation and impede 
operational flexibility. Because of the diversity and unique concerns 
of Government check collections, it's unclear whether the model of POP 
check conversion will be workable or appropriate on a Government-wide 
basis. Accordingly, although we're accepting the NACHA's interim and 
final rule changes in order to provide a basic legal foundation for 
these transactions, we anticipate that we would seek public comment on 
the rules governing POP check conversion before engaging in POP check 
conversion on anything other than a pilot basis. In addition, in view 
of the experimental nature of pilot programs, it is possible that our 
pilots may not conform to all of the requirements otherwise imposed 
under the ACH Rules. It is our intention, however, to ensure that any 
on-going Government POP check conversion programs that we might 
establish in the future will conform to the ACH Rules that we 
incorporate in Part 210.
Accounts Receivable Check Truncation
    We're accepting the Interim Rule that provides a legal framework 
for Originators to truncate checks received through the mail in payment 
for goods or services and convert them to ACH debit entries. The rule 
requires the Originator to provide the consumer with notice of the 
check truncation policy prior to receiving the first check payment that 
will be truncated. The Receiver must authorize the truncation, either 
by ``opting-in'' (meaning that the Receiver must authorize the entry in 
writing, signed or similarly authenticated), or ``opting-out'' (meaning 
that the notice to the Receiver indicates that the Receiver may provide 
the Originator with written notice not to truncate the check).
    Although we're not engaged in lockbox check truncation at this 
time, we are aware that lockbox check truncation could offer 
significant cost savings for Government collections. However, we're 
concerned that consumers understand and consent to such transactions. 
It is therefore our intention to seek public comment on the rules 
governing lockbox check truncation before engaging in lockbox check 
truncation other than on a pilot basis. As discussed above in the 
context of POP check conversion, pilot programs, by virtue of their 
very nature in exploring new or novel applications of technology, may 
not conform to all of the requirements otherwise imposed under the ACH 
Rules.
ACH Operator Definition
    We are accepting the revisions to the ACH Operator definition.
Cross-Border Payments
    We are accepting the rules establishing two new SEC codes to be 
used for the origination and receipt of cross-border ACH entries. We 
don't anticipate that agencies will be utilizing these codes for the 
origination or receipt of cross-border entries in the immediate future. 
However, it is possible that at some future time, agencies may wish to 
utilize these codes.
Re-Presented Check Entries
    We're accepting the rule changes that establish a new SEC code to 
provide commercial depositors and their financial institutions with a 
legal framework and technical specifications to transmit ACH debit 
entries to collect checks that have been returned for insufficient or 
uncollected funds. We believe that the ability to use ACH debit entries 
in this manner may facilitate the Government's ability to collect on 
checks that have been returned unpaid.

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C. ACH Rule Changes That We Aren't Accepting

Self-Audit Requirements
    We aren't accepting the ACH Rule changes related to the self-audit 
requirements. The purpose of the changes to the self-audit requirements 
is to promote better compliance with the ACH Rules. We believe that 
compliance with the ACH Rules is important and we are working with 
agencies to achieve Government-wide compliance with all ACH Rule 
requirements, including applicable time frames. Federal agencies are 
subject to oversight and audit requirements unique to the Federal 
Government. For example, the Office of the Inspector General and the 
General Accounting Office periodically review and audit various aspects 
of Federal agencies' operations. Accordingly, we believe that the 
imposition of a separate ACH compliance self-examination is both 
unnecessary and unlikely to significantly enhance the Government's 
compliance with Part 210.
Types of Accounts for ACH Transactions
    We're not accepting, for Federal payments other than vendor 
payments, the changes to the ACH Rules that permit the crediting of ACH 
credits to a financial institution general ledger account or to a loan 
account. Section 210.5 provides that ACH credit entries representing 
Federal payments other than vendor payments must be deposited to an 
account at a financial institution in the name of the recipient, with 
three exceptions. As discussed in the rulemaking release that 
accompanied our adoption of this requirement, the term ``account'' for 
purposes of Sec. 210.5 is intended to mean a deposit account and not a 
loan account or general ledger account. See 64 FR 17472, 17474 (1999). 
We believe that important consumer protections are associated with the 
crediting of Federal payments to a deposit account, including those 
available under Regulation E (12 CFR Part 205) and Regulation DD (12 
CFR Part 230), as well as the availability of Federal deposit or share 
insurance. Therefore, we're not accepting this change to the ACH Rules 
with respect to payments other than vendor payments.

D. Section-by-Section Analysis

Section 210.2(a)
    We are amending the definition of ACH Rules to reflect NACHA's name 
change from the National Automated Clearing House Association to 
NACHA--The Electronic Payments Association.
Section 210.2(d)
    We are amending the definition of ``applicable ACH Rules'' at 
section 210.2(d) to reference the rules published in NACHA's 2000 rule 
book rather than the rules published in NACHA's 1999 rule book. In 
addition, we are amending section 210.2(d)(3) to exclude the self-audit 
requirements of the ACH Rules.
Section 210.3(b)
    We are amending subsection 210.3(b), ``Incorporation by reference--
applicable ACH Rules,'' by replacing the references to the ACH Rules as 
published in the 1999 rule book with references to the ACH Rules as 
published in the 2000 rule book.
Section 210.5
    We are revising section 210.5, ``Account requirements for Federal 
payments,'' by specifically providing in subsection 210.5(a) that an 
ACH entry representing a Federal payment other than a vendor payment 
must be deposited into a deposit account at a financial institution. 
This revision of the regulatory language does not represent a 
substantive change from the existing rule since, as discussed above, 
the rulemaking release that accompanied our adoption of this 
requirement indicated that Sec. 210.5 was intended to require that 
Federal payments other than vendor payments must be deposited to a 
deposit account and not a loan account or general ledger account. See 
64 FR 17472, 17474 (1999).
    We also are amending the first sentence of Sec. 210.5 to read, 
``Notwithstanding ACH Rules 2.1.2, 4.1.3, and Appendix Two, section 2.2 
(listing general ledger and loan accounts as permissible transaction 
codes) * * *'' in order to clarify that the requirements of Sec. 210.5 
preempt the ACH Rules that would otherwise allow ACH credits generally 
to be sent to general ledger or loan accounts.

III. Procedural Requirements

A. Request for Comment

    We invite comment on all aspects of the interim rule.

B. Request for Comment on Plain Language

    On June 1, 1998, the President issued a memorandum directing each 
agency in the Executive branch to write its rules in plain language. 
This directive is effective for all new proposed and final rulemaking 
documents issued on or after January 1, 1999. We invite comment on how 
to make this interim rule clearer. For example, you may wish to 
discuss: (1) Whether we have organized the material to suit your needs; 
(2) whether the requirements of this interim rule are clear; or (3) 
whether there is something else we could do to make this rule easier to 
understand.

C. Notice and Comment; Effective Date

    We find that good cause exists for issuing this interim rule 
without prior notice and comment. Under the Administrative Procedure 
Act, an agency is permitted to issue a rule without prior notice and 
comment when the agency for good cause finds that notice and public 
procedure thereon are impracticable, unnecessary, or contrary to the 
public interest. 5 U.S.C. 553(b)(B). We believe that it is important to 
address the publication of new ACH rules as quickly as possible in 
order to mitigate the uncertainty and inconvenience to financial 
institutions that would result from a time lag in responding to NACHA's 
rule changes. When we proposed to address changes to the ACH Rules by 
reviewing and responding to rule changes on an annual basis, we 
received many comments expressing concern over the potential 
consequences of such a time lag. For these reasons, we conclude that we 
have good cause for issuing this interim rule without prior notice and 
comment. Nevertheless, we are inviting comment and will consider the 
comments received. For these reasons we also find that good cause 
exists to make this interim rule effective without a delayed effective 
date.

D. Executive Order 12866

    This interim 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.

E. Regulatory Flexibility Act

    Because notice and public comment are not required, the Regulatory 
Flexibility Act (5 U.S.C. 601) does not apply.

F. Paperwork Reduction Act

    We ask for no new collections of information in this final rule. 
Therefore, the Paperwork Reduction Act (44 U.S.C. 3501) does not apply.

List of Subjects in 31 CFR Part 210

    Automated Clearing House, Electronic funds transfers, Financial 
institutions, Fraud, Incorporation by reference.

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Authority and Issuance

    For the reasons set out in the preamble, 31 CFR Part 210 is amended 
as follows:

PART 210--FEDERAL GOVERNMENT PARTICIPATION IN THE AUTOMATED 
CLEARING HOUSE

    1. The authority citation for part 210 continues to read as 
follows:


    Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31 U.S.C. 321, 3301, 
3302, 3321, 3332, 3335, and 3720.


    2. Revise Sec. 210.2(a) and (d) to read as follows:


Sec. 210.2  Definitions.

* * * * *
    (a) ACH Rules means the Operating Rules and the Operating 
Guidelines published by NACHA--The Electronic Payments Association 
(NACHA), a national association of regional member clearing house 
associations, ACH Operators and participating financial institutions 
located in the United States.
* * * * *
    (d) Applicable ACH Rules means the ACH Rules with an effective date 
on or before September 15, 2000, as published in Parts I, II, and IV of 
the ``2000 ACH Rules: A Complete Guide to Rules & Regulations Governing 
the ACH Network,'' except:
    (1) ACH Rule 1.1 (limiting the applicability of the ACH Rules to 
members of an ACH association);
    (2) ACH Rule 1.2.2 (governing claims for compensation);
    (3) ACH Rule 1.2.4; 2.2.1.10; Appendix Eight and Appendix Eleven 
(governing the enforcement of the ACH Rules, including self-audit 
requirements);
    (4) ACH Rules 2.2.1.8; 2.6; and 4.7 (governing the reclamation of 
benefit payments);
    (5) ACH Rule 8.3 and Appendix Two (requiring that a credit entry be 
originated no more than two banking days before the settlement date of 
the entry--see definition of ``Effective Entry Date'' in Appendix Two).
* * * * *
    3. Revise Sec. 210.3(b) to read as follows:


Sec. 210.3  Governing law.

* * * * *
    (b) Incorporation by reference--applicable ACH Rules. (1) This part 
incorporates by reference the applicable ACH Rules, including rule 
changes with an effective date on or before September 15, 2000, as 
published in Parts I, II, and IV of the ``2000 ACH Rules: A Complete 
Guide to Rules & Regulations Governing the ACH Network.'' The Director 
of the Federal Register approves this incorporation by reference in 
accordance with 5 U.S.C. 552(a) and 1 CFR Part 51. Copies of the ``2000 
ACH Rules'' are available from NACHA--The Electronic Payments 
Association, 13665 Dulles Technology Drive, Suite 300, Herndon, 
Virginia 20171. Copies also are available for public inspection at the 
Office of the Federal Register, 800 North Capitol Street, NW., Suite 
700, Washington, D.C.
    (2) Any amendment to the applicable ACH Rules that takes effect 
after September 15, 2000, shall not apply to Government entries unless 
the Service expressly accepts such amendment by publishing notice of 
acceptance of the amendment to this part in the Federal Register. An 
amendment to the ACH Rules that is accepted by the Service shall apply 
to Government entries on the effective date of the rulemaking specified 
by the Service in the Federal Register document expressly accepting 
such amendment.

    4. Revise Sec. 210.5 to read as follows:


Sec. 210.5  Account requirements for Federal payments.

    (a) Notwithstanding ACH Rules 2.1.2, 4.1.3, and Appendix Two, 
section 2.2 (listing general ledger and loan accounts as permissible 
transaction codes), an ACH credit entry representing a Federal payment 
other than a vendor payment shall be deposited into a deposit account 
at a financial institution. For all payments other than vendor 
payments, the account at the financial institution shall be in the name 
of the recipient, except as provided in paragraph (b) of this section.
* * * * *

    Dated: April 4, 2000.
Richard L. Gregg,
Commissioner.
[FR Doc. 00-8636 Filed 4-6-00; 8:45 am]
BILLING CODE 4810-35-P