[Federal Register Volume 66, Number 71 (Thursday, April 12, 2001)]
[Proposed Rules]
[Pages 18888-18893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9015]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 210

RIN 1510-AA84


Federal Government Participation in the Automated Clearing House

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: We're proposing to revise our regulation, 31 CFR part 210 
(Part 210), governing the use of the Automated Clearing House (ACH) 
system by Federal agencies. The proposed rule would govern the 
conversion of checks to ACH debit entries at Federal agency (agency) 
points-of-purchase and at lockbox locations where payments to agencies 
are sent. The check conversion methods proposed represent a departure 
from the traditional means of how checks presented by the public to 
agencies are processed. The proposed rule would also govern the 
origination by agencies of ACH debit entries authorized over the 
Internet.
    The proposed rule supports the continuation of the efforts of the 
Financial Management Service (FMS) and agencies to move to an all-
electronic environment for the processing of payments and collections. 
More efficient processing of payments received at agency and lockbox 
locations could result in substantial savings for the Federal 
government and the taxpayer. In addition, the proposed rule supports 
the movement of collection activities to the Internet and supports the 
implementation of the Government Paperwork Elimination Act (GPEA). FMS 
is in the process of developing and implementing a government-wide 
collection portal, Pay.gov, which provides for the authorization of 
both consumer and corporate payments via the Internet. FMS also is 
conducting a pilot Internet application of the Electronic Federal Tax 
Payment System (EFTPS).
    The proposed rule would generally adopt the ACH rules (ACH Rules) 
developed by NACHA--The Electronic Payments Association (NACHA) as the 
rules governing these transactions, with several exceptions.

DATES: Comments must be received by July 11, 2001.

ADDRESSES: You may send comments electronically to the following 
address: [email protected]. You may also mail your comments to 
Donna Kotelnicki, Acting Director, Cash Management Policy and Planning 
Division, Financial Management Service, U.S. Department of the 
Treasury, Room 420, 401 14th Street, SW., Washington, DC 20227.
    You can download this notice of proposed rulemaking at the 
following World Wide Web address: http://www.fms.treas.gov/ach. You may 
also inspect and copy this notice at: Treasury Department Library, 
Freedom of Information Act (FOIA) Collection, Room 1428, Main Treasury 
Building, 1500 Pennsylvania Ave., NW., Washington, DC 20220. Before 
visiting, you must call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Walt Henderson, Senior Financial 
Program Specialist, at (202) 874-6705 or [email protected]; 
Matthew Helfrich, Financial Program Specialist, at (202) 874-6754 or 
[email protected]; Natalie H. Diana, Senior Attorney, at 
(202) 874-6680 or [email protected]; or Donna Kotelnicki, 
Acting Director, Cash Management Policy and Planning Division, at (202) 
874-6590 or [email protected].

SUPPLEMENTARY INFORMATION:  

I. Background

    Part 210 governs the use of the ACH system by agencies. The ACH 
system is a nationwide electronic funds transfer (EFT) system that 
provides for the inter-bank clearing of credit and debit transactions 
and for the exchange of information among participating financial 
institutions. Part 210 incorporates the ACH Rules adopted by NACHA, 
with certain exceptions. From time to time we amend Part 210 in order 
to address changes that NACHA periodically makes to the ACH Rules.
    We are proposing to amend the ACH Rules currently incorporated in 
Part 210 governing the conversion of checks to ACH debit entries at the 
point-of-purchase. FMS is testing the conversion of checks to ACH debit 
entries at the point-of-purchase in on-going pilot programs with 
several agencies. Pilot check conversion activities are limited to 
consumer and corporate checks received over-the-counter by these 
agencies. These limited pilot programs involve patent and trademark 
filing fees (consumer and corporate), general store sales at hospital 
canteens (consumer), and gift shop sales (consumer). During the pilot 
evaluation period of September 1998 to August 2000, 21,717 items worth 
over $3.4 million were processed. Of the total items processed, 99.61% 
were successfully processed.
    These pilots have demonstrated that point-of-purchase check 
conversion can be a useful and cost-effective way to collect certain 
payments made to Federal agencies. However, certain issues have arisen 
in connection with the operation of the pilot programs, including 
issues related to the conversion of corporate checks and the way in 
which the Receiver's authorization is obtained.
    At the same time, FMS is evaluating whether the conversion of 
checks to ACH debits at Government lockboxes could offer significant 
cost savings as compared with regular check processing. Although we 
have not piloted accounts receivable check conversion, we are aware 
that several agencies are interested in testing this technology. We 
believe, however, that accounts receivable check conversion presents 
some of the same issues raised by point-of-purchase check conversion.
    On February 16, 2001 (66 FR 10578), we published an interim rule 
amending part 210 in order to address certain amendments to the ACH 
Rules that NACHA published in its 2001 rule book. Among the NACHA rule 
amendments that we considered at that time were rules governing the 
conversion of checks at lockbox locations, as well as rules governing 
Internet-initiated ACH debit entries. We did not incorporate these ACH 
rules in our interim rule because we believed that we should seek 
public comment on the rules before they are adopted. The purpose of 
this notice of proposed rulemaking is to request comment on proposed 
rules that would govern point-of-purchase check conversion, lockbox 
check conversion, and Internet-initiated ACH debit entries, 
particularly with respect to the issues discussed below.

II. Summary of Issues We Are Seeking Comment On

A. Point-of-Purchase Check Conversion

    Our regulation at 31 CFR part 210 currently incorporates the ACH 
Rules that allow for the conversion of checks to ACH debit entries at 
the point-of-purchase. Under the ACH Rules, a merchant may use a 
consumer's check as a source document to initiate a one-time ACH debit 
entry to the consumer's account for a purchase made in person at the 
point-of-purchase, using Standard

[[Page 18889]]

Entry Class (SEC) code POP (Point-of-Purchase Entry). Corporate checks 
may not be converted.
    The ACH check conversion rule requires that the merchant 
(Originator) obtain written authorization from the consumer 
(Receiver)\1\ prior to initiating the transaction. The merchant must 
provide the consumer with a copy of the authorization as well as a 
receipt containing specific, minimum information relating to both the 
merchant and the transaction.
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    \1\ In an ACH debit transaction, the Receiver is the person or 
entity making the payment (i.e., the payor) by authorizing a debit 
to an account. The ACH Rules permit a check to be converted to an 
ACH debit only where the Receiver (payor) is a consumer. In this 
notice, we may refer to a person making a payment to a Federal 
agency as a payor, a Receiver, or a consumer, as appropriate.
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    Under this model of point-of-purchase check conversion, the 
merchant voids the consumer's check, scans it (capturing the consumer's 
routing number, check serial number, and account number) and returns 
the voided check to the consumer. The captured information is used to 
initiate an ACH debit entry to the consumer's account. The merchant 
must either retain the original, a microfilm, or a microfilm-equivalent 
copy of the consumer's authorization for a period of two years.
    In our pilot programs, we have encountered certain difficulties in 
using this model. Based on input from agencies that have participated 
in our pilot programs, we are proposing to adopt rules that would allow 
the use of point-of-purchase check conversion in a way that may be more 
useful for Federal agencies. We are requesting comment regarding the 
possible use by Federal agencies of point-of-purchase check conversion 
using the model discussed in greater detail below.
Presentment of Check Constitutes Authorization
    Pilot applications of point-of-purchase check conversion at Federal 
agency locations have demonstrated that obtaining a separate, written 
authorization from the customer and providing the customer with a copy 
of the authorization are major obstacles to the use of this technology. 
In our pilot programs, it took significantly more time at the point-of-
purchase to convert checks to ACH debit entries than to process a 
regular check transaction. The additional time is a result of the need 
to explain the conversion process to the customer and have the customer 
sign an authorization stamped on the back of the check. Thus, agencies 
that piloted point-of-purchase check conversion experienced longer, 
slower checkout lines. Despite the cost savings to the Federal 
government of converting checks to ACH debit entries, individual 
agencies are reluctant to use any method of payment collection that 
impedes efficient customer service. Accordingly, we are requesting 
comment regarding a framework in which Receivers would be notified by 
signage at the point-of-purchase, as well as by disclosure on receipts 
and/or literature provided at the point-of-purchase, that presenting a 
completed, signed check for payment constitutes authorization to 
convert the check to an ACH debit.
    The Federal Reserve Board recently issued revisions to the Official 
Staff Commentary on Regulation E (12 CFR part 205) that address the 
treatment under Regulation E of point-of-purchase check conversion 
transactions. 66 FR 15187, March 16, 2001. As revised, the commentary 
indicates that a transaction in which a check is converted to an ACH 
debit entry at the point-of-purchase constitutes an electronic funds 
transfer (EFT) subject to Regulation E. See Official Staff Commentary, 
section 205.3(b)(1)(v). Accordingly, consumers whose checks are 
converted at the point-of-purchase under the model that we are 
proposing would have the protections provided under Regulation E. We 
request comment regarding whether, notwithstanding the consumer 
protections of Regulation E, the model of point-of-purchase check 
conversion we are proposing to use presents any issues or problems for 
consumers. The revised commentary also states that a consumer 
authorizes a one-time EFT (in providing a check to a merchant or other 
payee for encoding), where the consumer receives notice that the 
transaction will be processed as an EFT and completes the transaction. 
Official Staff Commentary, section 205.3(b)(3). We request input 
regarding whether a posted notice at the point-of-purchase, either 
alone or in combination with a paper disclosure handed to consumers, is 
sufficient to ensure that consumers understand that by presenting a 
check for payment, they are authorizing the conversion of the check to 
an ACH debit.

Conversion of Corporate Checks

    Although the ACH Rules permit the conversion at the point-of-
purchase of consumer checks only, in our pilot programs we convert both 
consumer checks and corporate checks at the point-of-purchase.\2\ Some 
agencies that are participating in point-of-purchase check conversion 
pilots routinely accept both consumer and corporate checks at the 
point-of-purchase. For these agencies, converting corporate checks to 
ACH debit entries offers the same efficiency and cost-savings benefits 
as converting consumer checks. Moreover, providing for separate 
processing of corporate checks and consumer checks at point-of-purchase 
locations where both kinds of checks are accepted would make check 
conversion more time consuming and costly.
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    \2\ As we indicated in our interim rule adopting the ACH point-
of-purchase check conversion rules, our pilot programs may not 
conform to all of the requirements otherwise imposed under the ACH 
Rules, in view of the experimental nature of the pilot programs. 68 
FR 18866, 18867, April 7, 2000.
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    For these reasons, we are proposing to amend part 210 to allow for 
the conversion of corporate checks at Federal agency points-of-
purchase. Because currently there is not a SEC code designed for use in 
converting corporate checks at the point-of-purchase, we plan to train 
cashiers to identify corporate checks and to use a Cash Concentration 
or Disbursement (CCD) SEC code to convert those items. Technology would 
be employed allowing the cashier to generate the appropriate 
transaction.
    We believe that it is important to use a corporate SEC code 
because, under the ACH Rules incorporated in part 210, a Receiving 
Depository Financial Institution (RDFI) is entitled to rely on an entry 
as complying with the requirements for the particular code that the 
Originating Depository Financial Institution (ODFI) used. See ACH Rule 
4.4.6. Since the ACH Rules restrict the use of the POP SEC code to a 
debit to a consumer account, it appears that an RDFI that receives a 
point-of-purchase entry may have the right to treat the debit as one to 
a consumer account, even if the account is in fact a corporate account. 
The use of the POP SEC code presumably would mean that the RDFI would 
be required to recredit the corporate account if the account holder 
notified the RDFI that the debit is unauthorized within the fifteen day 
period, and that the RDFI could request an adjustment from an ODFI for 
the unauthorized debit within 60 days of the settlement date.\3\ These 
are rights that do not normally exist with respect to corporate 
accounts.
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    \3\ The ACH Rules require an RDFI to recredit a consumer's 
account if the consumer has notified the RDFI of an unauthorized 
debit within fifteen days after receiving his statement. See ACH 
Rule 7.6.1. The RDFI may then send an adjustment entry to the ODFI, 
as long as the adjustment entry is sent within 60 days of the 
settlement date of the debit at issue. See ACH Rule 7.7.1
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    We are aware that the authorization issues in converting corporate 
checks are more complex than is the case for

[[Page 18890]]

consumer checks. In some instances, an individual presenting a 
corporate check to an agency may not have authority to act with respect 
to the corporate account. For example, a messenger from a messenger 
service may be authorized to deliver a check, but would not have 
authority to act with respect to the corporate account by authorizing 
the conversion of the check. However, we believe that the provisions of 
the ACH Rules incorporated in part 210 adequately address the 
Receiver's rights regarding an unauthorized debit to the Receiver's 
account. We also believe it is unlikely that corporate payors would 
wish to disavow a transaction on the basis that the funds were 
collected through the ACH system rather than through the check 
collection system.
    We also are aware that converting corporate checks raises certain 
operational issues. For example, a debit entry to a corporate account 
could be returned as a result of a debit filter or positive pay system 
in use by a corporate accountholder. It has been our experience in our 
pilot programs to date that very few corporate entries are returned for 
these reasons. However, to address this possibility, we are proposing 
to handle debits to corporate accounts that are returned by generating 
a paper draft on the account, using the stored check image. Because a 
corporate debit that is returned due to a debit filter or positive pay 
system will not be reflected as returned for insufficient funds, it is 
our understanding that neither the return of the item nor the process 
of generating a paper draft should result in any consequential damages 
(such as fines or penalties) to the corporate payor.
    We request comment on all aspects of our proposed conversion of 
corporate checks. We specifically request comment from the perspective 
of an RDFI and a corporate Receiver on the operational impact and 
consequences of the conversion of corporate checks when debit filtering 
or positive pay technology is employed.

B. Accounts Receivable Check Conversion

    Accounts receivable check conversion presents some of the same 
issues raised by point-of-purchase check conversion. Although NACHA has 
adopted a short-term ACH Rule governing accounts receivable check 
conversion,\4\ we have not incorporated that rule in part 210. The ACH 
Rule requires the Originator to provide the consumer with notice of the 
check conversion policy prior to receiving the first check payment that 
will be converted. The ACH Rules provide that notice be given under one 
of two scenarios: (1) The Receiver authorizes the entry by a writing 
that is signed or similarly authenticated (``opt-in''); or (2) the 
Receiver is notified that if the Receiver does not provide the 
Originator with written notice not to convert the item, the item will 
be converted (``opt-out''). Only consumer checks received through the 
U.S. mail may be converted--not over-the-counter payments.
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    \4\ The ACH Rules use the phrase ``truncation'' rather than 
``conversion'' to refer to the process of using checks received at a 
lockbox to initiate ACH debit transactions. The use of the term 
``truncation'' was intended to indicate that the transaction 
constituted a check transaction subject to the Uniform Commercial 
Code rather than an EFT subject to Regulation E. In light of the 
Federal Reserve Board's recent revisions of the Official Staff 
Commentary to Regulation E, these transactions do in fact constitute 
EFTs subject to Regulation E. Therefore we are using the term 
conversion in both the lockbox and the point-of-sale contexts.
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    Originators must retain a copy of the consumer's authorization for 
two years and must be prepared to provide a copy of the authorization 
to the ODFI if requested to do so. Originators may transmit an accounts 
receivable converted check debit entry a maximum of three times via the 
ACH Network. Originators must retain the original check for 90 days 
from the settlement date of the entry, and must retain a copy of the 
check for seven years from the settlement date. In certain 
circumstances, the RDFI may return the entry up to 60 days following 
the settlement date and the Receiver may request that the RDFI recredit 
his or her account. Those circumstances include, among other things, 
where the item was converted without proper authorization, where the 
Receiver states that the signatures on the check are not authentic or 
authorized, or where the item has been altered.
    The Federal government processes millions of checks annually. In 
Fiscal Year 1999, we processed over 100 million checks through our 
lockbox network alone. The checks processed represent a wide-range of 
payments to agencies, including payments for taxes, fees, permits, 
licenses, and merchandise or other consumer goods. Payments to Federal 
government lockboxes can be drawn on either consumer or corporate 
accounts. We believe that lockbox check conversion may offer the 
opportunity to lower the cost of our collection activities and bring 
greater value to the taxpayer.
    There are two aspects of the ACH Rules model of accounts receivable 
check conversion rules that would significantly restrict our ability to 
implement check conversion technology across the Federal government. 
First, the ACH Rules require that Receivers consent to conversion of 
their checks though an opt-in or opt-out process. Second, the ACH Rules 
prohibit the conversion of corporate checks.
Conversion Without Opt-in or Opt-out Authorization
    The ACH opt-in/opt-out requirement would impose substantial costs 
and inefficiencies on the processing of checks at Federal lockboxes. 
Checks that are eligible for conversion (because Receivers have 
consented) would have to be segregated from checks as to which consent 
to convert has not been obtained. This would necessitate the 
duplication of lockboxes and maintenance of separate processing 
systems. These costs are likely to offset any cost-savings and 
efficiencies that would otherwise be available through check 
conversion. For these reasons, we are proposing to provide notice that 
checks received at lockboxes will be converted, and to convert all 
checks received.
    Checks converted to ACH debits at lockboxes under the approach we 
are proposing would constitute EFTs covered by Regulation E. The 
Official Staff Commentary to Regulation E indicates that a check mailed 
to a merchant or other payee or a lockbox and later converted to an ACH 
transaction constitutes an EFT subject to Regulation E. See Official 
Staff Commentary, section 205.3(b)(1)(v). The authorization 
requirements of Regulation E would be met because a consumer who mails 
a check to a lockbox authorizes an EFT if he or she receives notice 
that the transaction will be processed as an EFT and completes the 
transaction. See Official Staff Commentary, section 205.3(b)(3).
    We request comment on the extent to which (if any) payors would be 
disadvantaged if their checks were converted without making available 
an opt-in, opt-out procedure. We are also seeking comment on how useful 
the notice of the conversion of checks at lockboxes is for consumers, 
and how such notice might best be provided. The provision of notice to 
payors represents an additional burden to agencies in that forms may 
need to be redesigned and reprinted. Moreover, in some instances, 
payors send checks to lockbox locations without having received an 
invoice, rendering prior notice of the conversion of the check 
difficult.
Conversion of Corporate Checks
    As mentioned above, the Federal government processes a large annual 
volume of both consumer and corporate

[[Page 18891]]

checks. Operational efficiencies are realized in lockbox operations 
when all checks are subject to the same process. Many lockboxes receive 
both consumer and corporate checks. If it is necessary to segregate 
corporate checks and process them separately, the cost efficiencies of 
check conversion may be defeated. However, converting corporate checks 
at lockboxes raises legal and operational issues.
    The ACH Rules provide that the Prearranged Payment and Deposit 
(PPD) SEC code is to be used to convert consumer checks at lockbox 
locations. The ACH Rules require an RDFI to recredit a consumer's 
account if the consumer has notified the RDFI of an unauthorized debit 
using the PPD SEC code within fifteen days after receiving his 
statement. See ACH Rule 7.6.1. The RDFI has a corresponding right to an 
adjustment from the ODFI. See ACH Rule 7.7.1. Accordingly, we request 
comment on the issues raised by using the PPD SEC code for both 
consumer and corporate check conversions, including whether it would be 
appropriate to extend the consumer and RDFI recredit and adjustment 
protections to corporate account-holders whose checks are converted at 
agency lockboxes and their RDFIs.
    In addition to requesting comment on the foregoing specific issues, 
we're requesting comment on all aspects of our proposed accounts 
receivable check conversion rule.

C. Internet-Initiated ACH Debit Entries

    Effective March 16, 2001, the ACH Rules will allow an Originator to 
use an SEC code, WEB, to initiate ACH debit entries to consumer 
accounts for purchases made over the Internet. NACHA's Internet-
initiated ACH debit rule requires that each ODFI that transmits WEB 
entries on behalf of its Originators assume additional warranties in 
addition to the general warranties that cover ODFI transmission of all 
ACH entries. These additional warranties relate to the following areas: 
Verification of Routing Numbers; Security of Internet Sessions; Fraud 
Detection System; ODFI Exposure Limits; and Website Security.
Verification of Routing Numbers
    The rule requires Originators to use commercially reasonable 
procedures to verify that routing numbers are valid.
Security of Internet Sessions
    Each Originator that originates WEB entries must establish a secure 
Internet session prior to and during the key entry by the consumer of 
any banking information.
Fraud Detection System
    The rule requires Originators to employ commercially reasonable 
fraudulent transaction detection systems in order to both authenticate 
the purchaser and minimize the risk of fraud related to Internet-
initiated payments.
ODFI Exposure Limits
    Each ODFI must establish an exposure limit for each Originator of 
Internet-initiated debit entries and establish procedures to monitor 
these entries and such exposure limits periodically.
Website Security
    Originators must conduct an internal or external audit on an annual 
basis to ensure that its security practices and policies are adequate 
to protect the integrity and security of Receivers' financial 
information.
Internet-Initiated ACH Debit Entry Rules That We Propose to Accept
    We are proposing to incorporate in part 210 the provisions of the 
ACH Rules relating to Internet-initiated ACH debit entries with two 
exceptions. First, we are proposing to allow agencies to originate WEB 
entries to corporate accounts as well as to consumer accounts. Second, 
we are proposing not to adopt the requirement that ODFIs establish 
exposure limits for Originators of Internet-initiated debit entries.
    The purpose of establishing exposure limits is to ensure that ODFIs 
will verify the identity and creditworthiness of their merchant 
customers and to ensure that the volume and dollar amount of the 
transactions that merchants originate are appropriate. While we believe 
that these ``know-your-customer'' requirements are appropriate for most 
ODFIs, we do not believe that such requirements are appropriate or 
necessary for Federal government agencies originating ACH debit 
entries. The relationship between FMS and the Federal agencies for 
which we make payments and collections differs in some respects from 
the relationship between ODFIs and their Originators in the private 
sector. We do not believe it would be appropriate for FMS to establish 
transaction limits for Federal agencies. Nor do we believe such limits 
are necessary, because the collection of payments by agencies over the 
Internet does not raise the merchant creditworthiness concerns that 
have emerged in the private sector. Accordingly, we are proposing not 
to adopt the ODFI exposure limit requirement for WEB entries originated 
by Federal agencies.
    In addition, we are proposing to permit agencies to initiate WEB 
entries to corporate accounts. While we understand that the primary use 
of ACH debit for Internet-initiated purchases has been in the context 
of consumer purchases, we are aware that some agencies are actively 
pursuing the use of Internet-initiated ACH debit entries to collect 
funds from corporations. Internet-initiated ACH debit transactions may 
be a convenient and cost-beneficial way for corporations to make 
payments to agencies.
    Under the ACH Rules, the use of the WEB SEC code for an entry 
signifies that the entry is a debit to a consumer account. RDFIs are 
permitted to rely on the SEC code used for an entry as accurately 
reflecting the underlying transaction. Allowing agencies to use the WEB 
code for a debit entry to a corporate account raises the issue of 
whether the RDFI can or must provide the corporate customer with the 
right of recredit available to consumers under the ACH Rules. 
Specifically, the ACH Rules require an RDFI to recredit a consumer's 
account if the consumer has notified the RDFI of an unauthorized debit 
within fifteen days after receiving his or her bank statement. See ACH 
Rule 7.6.1. The RDFI may then send an adjustment entry to the ODFI, as 
long as the adjustment entry is sent within 60 days of the settlement 
date of the debit at issue. See ACH Rule 7.7.1.
    We propose to extend to corporate Receivers of WEB entries, and 
their RDFIs, the same recredit and adjustment rights, respectively, 
that apply to debits to consumer accounts. While this is a right that 
does not normally apply to corporate Receivers of debit entries, we 
believe that it is appropriate to do so unless or until a separate SEC 
code is developed for debit entries initiated to corporate accounts 
over the Internet.

III. Section-by-Section Analysis

Section 210.2(d)

    We are proposing to amend the definition of applicable ACH rules at 
Sec. 210.2(d). Current Sec. 210.2(d) defines applicable ACH rules to 
mean the ACH Rules with an effective date on or before September 14, 
2001, as published in Parts II, III, and IV of the ``2001 ACH Rules: A 
Complete Guide to Rules & Regulations Governing the ACH Network,'' with 
certain exceptions. Those exceptions include the ACH rules addressing 
accounts receivable check conversion (210.2(d)(6)) and Internet-
initiated debit entries (210.2(d)(7)). We are proposing to delete the 
current exceptions contained in subsections (d)(6) and (d)(7) to 
reflect our adoption

[[Page 18892]]

of the ACH rules governing those transactions, with certain limited 
exceptions that are addressed in Sec. 210.6(h) and (i) of the proposed 
rule. We are proposing to add a new Sec. 210.2(d)(6) to exclude, in its 
entirely, ACH Rule 2.10.2.2. from the definition of applicable ACH 
rules. ACH Rule 2.10.2.2 requires ODFIs to establish exposure limits 
for Originators of Internet-initiated debit entries.

Section 210.6(g)

    We are proposing to amend Sec. 210.6, which sets forth the rights 
and obligations of agencies that initiate or receive Government 
entries, by adding a new subsection (g) to specifically address the 
conversion of checks to ACH debit entries at agency points of purchase. 
Proposed subsection (g) would permit agencies to convert both corporate 
and consumer checks to ACH debit entries.
    ACH Rule 2.1.2 requires that a debit entry to a consumer account be 
authorized in writing, signed or similarly authenticated by the 
consumer, and that the authorization be readily identifiable as such. 
Proposed Sec. 210.6(g) provides that these requirements are met if the 
agency posts a notice at the point of purchase stating that presentment 
of a signed, completed check constitutes authorization to the agency to 
convert the check to an ACH debit entry and gives the customer the same 
disclosure in a form that the customer can retain. ACH Rule 3.4 and 3.8 
require, respectively, that the Originator provide a copy of the 
authorization to the consumer and retain a copy of the authorization 
for two years. Under proposed Sec. 210.6(g) either the check itself or 
an image of the check is equivalent to a copy of the authorization for 
purposes of these requirements. Similarly, the ODFI's obligation under 
ACH Rule 4.1 to provide a copy of the Receiver's authorization to an 
RDFI may be met by providing an image of the check.

Section 210.6(h)

    Proposed Sec. 210.6(h)(1) would allow an agency to originate a PPD 
Accounts Receivable Truncated Check Debit Entry without the Receiver's 
authorization or approval. Under proposed Sec. 210.6(h)(1), an agency 
would be required to provide notice of the transaction, as provided in 
the ACH Rules, but would not be required to allow the Receiver to opt 
in or opt out of the transaction.
    Proposed Sec. 210.6(h)(2) would allow agencies to originate PPD 
Accounts Receivable Truncated Check Debit Entries relating to items 
drawn on corporate accounts. Under this provision, corporate Receivers 
and their RDFIs would have the same rights of recredit and adjustment 
that consumer Receivers and their RDFIs have under the ACH Rules 7.6 
and 7.7, respectively.

Section 210.6(i)

    Proposed Sec. 210.6(i) would provide that an agency may transmit a 
WEB entry to a corporate account. The Receiver of a WEB entry to a 
corporate account would have the same right to recredit provided to 
Receivers of consumer entries in ACH Rule 7.6, and the RDFI would have 
the same right to adjustment provided with respect to consumer entries 
in ACH Rule 7.7.

IV. Procedural Requirements

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 proposed 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 proposed rule are clear; or (3) 
whether there is something else we could do to make this rule easier to 
understand.

Executive Order 12866

    This proposed 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.

Regulatory Flexibility Act Analysis

    It is hereby certified that this regulation will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required.

List of Subjects in 31 CFR Part 210

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

Authority and Issuance

    For the reasons set out in the preamble, we propose to amend 31 CFR 
part 210 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(d) to read as follows:


Sec. 210.2  Definitions.

* * * * *
    (d) Applicable ACH Rules means the ACH Rules with an effective date 
on or before September 14, 2001, as published in Parts II, III, and IV 
of the ``2001 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); 
and
    (6) ACH Rule 2.10.2.2. (requiring that Originating Depository 
Financial Institutions (ODFIs) establish exposure limits for 
Originators of Internet-initiated debit entries).
* * * * *
    3. Add new paragraphs (g), (h) and (i) to Sec. 210.6 to read as 
follows:


Sec. 210.6  Agencies.

* * * * *
    (g) Point-of-purchase debit entries.
    An agency may convert to an ACH debit entry a check drawn on a 
consumer or corporate account and presented at a point of purchase. The 
authorization requirements of ACH Rule 2.1.2 shall be met for such 
transactions if the agency (a) has posted a clear and conspicuous 
notice at the point of purchase stating that presentment of a signed, 
completed check constitutes authorization to the agency to convert the 
check to a ACH debit entry and (b) gives the customer the same 
disclosure in a form that the customer can retain. For purposes of ACH 
Rule 3.4, ACH Rule 3.8 and ACH Rule 4.1, either the check itself or an 
image of the check shall be equivalent to a copy of the authorization.
    (h) Accounts Receivable Check Conversion.
    (1) Conversion following prior notice. Notwithstanding ACH Rules 
2.1.4, 2.9.1, and Appendix 2 (definition of

[[Page 18893]]

Prearranged Payment and Deposit (PPD)), an agency may initiate a PPD 
Accounts Receivable Truncated Check Debit Entry if it provides the 
Receiver with prior notice of the check conversion program. 
Notwithstanding ACH Rules 7.6.3 and 7.6.4, an agency is not obligated 
to recredit the amount of a PPD Accounts Receivable Truncated Check 
Debit Entry to a Receiver's account on the basis that the Receiver 
provided notice to the agency not to convert the item to which the 
entry relates.
    (2) Notwithstanding ACH Rules 2.9.2 and 13.1.36, an agency may 
originate a PPD Accounts Receivable Truncated Check Debit Entry 
relating to an item drawn on a non-consumer account. A Receiver of a 
PPD Accounts Receivable Truncated Check Debit Entry to a non-consumer 
account shall have the same right to recredit provided to Receivers of 
consumer entries in ACH Rule 7.6, and the RDFI shall have the same 
right to adjustment provided with respect to consumer entries in ACH 
Rule 7.7, except that the Receiver shall not have a right of recredit 
on the basis that it provided notice to the agency not to convert the 
item.
    (i) Internet-Initiated ACH Debit Entries.
    Notwithstanding ACH Rules 2.10, 13.1.52 and Appendix 2 (definition 
of WEB), an agency may transmit an Internet-Initiated Entry (WEB) to 
effect a transfer of funds from a non-consumer account. A Receiver of a 
WEB entry to a Non-Consumer Account shall have the same right to 
recredit provided to Receivers of consumer entries in ACH Rule 7.6, and 
the RDFI shall have the same right to adjustment provided with respect 
to consumer entries in ACH Rule 7.7.

    Dated: April 5, 2001.
Richard L. Gregg,
Commissioner.
[FR Doc. 01-9015 Filed 4-11-01; 8:45 am]
BILLING CODE 4810-35-P