[Federal Register Volume 67, Number 70 (Thursday, April 11, 2002)]
[Rules and Regulations]
[Pages 17896-17904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8885]



[[Page 17895]]

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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; Final 
Rule

  Federal Register / Vol. 67, No. 70 / Thursday, April 11, 2002 / Rules 
and Regulations  

[[Page 17896]]


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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: Final rule and interim rule with request for comment.

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SUMMARY: These rules amend our regulation which governs the use of the 
Automated Clearing House (ACH) system by Federal agencies. We adopt, 
with some exceptions, the ACH rules (ACH Rules) developed by NACHA--The 
Electronic Payments Association (NACHA)--as the rules governing the use 
of the ACH system by Federal agencies.
    This document includes two separate rulemaking actions. First, 
we're issuing a final rule to permit the conversion of checks to ACH 
debit entries at Federal agency (agency) points-of-purchase and at 
lockbox locations to which payments to agencies are mailed or 
delivered. The final rule also addresses the origination by agencies of 
ACH debit entries authorized over the Internet. We previously published 
a notice of proposed rulemaking requesting comment on the conversion of 
checks at points-of-purchase and lockboxes, and the origination of ACH 
debit entries authorized over the Internet. The final rule is discussed 
in Part I of this document.
    Second, we're issuing an interim rule to address other changes that 
NACHA has made to the ACH Rules during the past year. We are requesting 
comment on all aspects of the interim rule, which is discussed in Part 
II of this document.

DATES: Both the final rule and the interim rule are effective May 13, 
2002. Comments on the interim rule must be received by June 10, 2002. 
The incorporation by reference of the publication listed in the rules 
is approved by the Director of the Federal Register as of May 13, 2002.

ADDRESSES: You can download these rules at the following World Wide Web 
address: http://www.fms.treas.gov/ach. You may also inspect and copy 
these rules 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.
    You may send comments on the interim rule electronically to the 
following address: [email protected]. You may also mail your 
comments to John Galligan, 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.

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

SUPPLEMENTARY INFORMATION:  

Background

    Part 210 governs the use of the ACH system by Federal agencies 
(agencies). The ACH system is a nationwide electronic fund 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're issuing a final rule addressing the conversion of checks to 
ACH debit entries at agency points-of-purchase and at lockbox locations 
where payments to agencies are sent and the origination by agencies of 
ACH debit entries authorized over the Internet. Last year we published 
a notice of proposed rulemaking requesting comment on these issues. The 
final rule is discussed in Part I of this document.
    We're also issuing an interim rule amending part 210 to reflect 
certain changes that NACHA has made to the ACH Rules since the 
publication of NACHA's 2001 rule book. The interim rule addresses four 
topics: (1) Affidavit and electronic communication issues; (2) 
reinitiation of entries; (3) electronic authorization; and (4) 
electronic terminals. We are requesting comment on all of these topics, 
which are discussed in Part II of this document.

I. Final Rule

    On April 12, 2001, we published a notice of proposed rulemaking 
(NPRM) to amend Part 210 in order to address the conversion of checks 
to ACH debit entries at agency points-of-purchase and agency lockbox 
\1\ locations, as well as the origination by agencies of ACH debit 
entries authorized over the Internet. 66 FR 18888. We received 33 
comments in response to the proposed rule. Commenting organizations 
included financial institutions, trade groups, and individuals. A 
significant number of the comments received were in response to our 
proposal to convert business checks received at point-of-purchase and 
lockbox locations. A significant number of comments also addressed 
authorization issues in connection with check conversion transactions.
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    \1\ A post office box established by a financial institution for 
the purpose of receiving and processing paper-based payments to an 
agency.
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    We are adopting most of the provisions that we proposed without 
substantive changes. We have, however, modified certain provisions of 
the proposal in light of the comments we received. The most significant 
comments are discussed below.

A. Check Conversion Without Written Authorization

Point-of-Purchase Check Conversion
    In the NPRM, we requested comment on a framework in which agencies 
would be permitted to convert checks presented at a point-of-purchase 
provided that (1) a sign posted at the cash register notifies customers 
that presenting a completed, signed check for payment constitutes 
authorization to convert the check and (2) customers also are given a 
written disclosure that they can retain. We requested input as to 
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 entry. The ACH Rules governing point-of-purchase transactions 
require the merchant to obtain written authorization from the consumer 
prior to initiating the transaction. The ACH Rules also require the 
merchant to provide the consumer with a copy of the authorization and a 
receipt containing specific, minimum information relating to both the 
merchant and the transaction.
    In the NPRM, we noted that consumer checks converted to ACH debit 
entries at agency points-of-purchase under our proposed approach would 
constitute EFTs covered by Regulation E. See Official Staff Commentary 
to Regulation E, section 205.3(b)-1(v). The authorization requirements 
of Regulation E are met if a consumer who presents a check at a point-
of-purchase

[[Page 17897]]

receives notice that the transaction will be processed as an EFT and 
completes the transaction. See Official Staff Commentary, section 
205.3(b)-3.
    Some commenters expressed support for the ``notice equals 
authorization'' approach, noting that it is consistent with the Federal 
Reserve's revised Official Staff Commentary on Regulation E, provided 
that any notice is prominently displayed for the customer to see. 
However, a majority of the organizations that commented on this 
``notice equals authorization'' approach were opposed to the conversion 
of checks without first obtaining a separate, written authorization. 
Many commenters support the signature requirement, believing it best 
enables the consumer to understand that the transaction will be 
processed as an EFT. Consumer confusion was cited as a concern 
presented by the approach we proposed, since authorization requirements 
for point-of-purchase transactions at agencies would differ from 
private sector authorization requirements. Several financial 
institutions also commented that, without the written authorization 
requirement, customers confused by the transaction would contact their 
financial institutions, thereby resulting in increased customer 
inquiries made to Receiving Depository Financial Institutions (RDFIs).
    Notwithstanding these concerns, pilot applications of point-of-
purchase check conversion at agency locations have demonstrated that 
obtaining a separate, written authorization from the customer, and 
providing the customer with a copy of that authorization (as required 
by the ACH Rules), 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 paper 
check transactions. The additional time is a result of the need to 
explain the check conversion process to the customer and the 
requirement to have the customer sign an authorization. Despite the 
cost savings to the Federal government of converting checks to ACH 
debit entries, agencies are reluctant to use any method of payment 
collection that would result in longer, slower check-out lines.
    Although the initial introduction of any new payment technology 
will naturally generate questions for some period of time, we believe 
that the public will come to understand and accept check conversion as 
the use of the technology becomes more widespread. The Federal 
government's customer base and transaction types are, in some respects, 
different from private sector retail establishments. For example, most 
checks are presented for payment at agency locations for mandatory 
fees, fines, taxes, or other distinct services, or in closed military 
environments where the payment methods can be easily limited. Our 
pilots indicate that customers are receptive to check conversion. 
Moreover, we believe that Regulation E ensures that consumers' 
interests are protected.
    For all these reasons, we do not believe that the lack of current 
customer familiarity with the check conversion process is a reason to 
forgo or delay the benefits of moving to a more cost-saving and 
efficient method of collecting public monies. The use of a ``notice 
equals authorization'' approach for point-of-purchase check conversion 
will make the use of this technology attractive to agencies and result 
in efficiencies for the Federal government. Accordingly, we are 
modifying in part 210 the ACH Rules governing check conversion to 
provide that presentment to an agency of a completed and signed check, 
following notice that the check will be converted, constitutes 
authorization for the conversion of the check to an ACH debit entry. We 
are also permitting agencies to use a ``notice equals authorization'' 
approach to initiate an ACH debit entry to collect a service fee for an 
entry initiated at a point-of-purchase that has been returned for 
insufficient funds. This does not create for agencies the authority to 
impose a service fee; rather, it allows an agency that has the 
authority to impose such a fee to collect the fee by ACH debit without 
a written authorization.
    In order to address commenters' concerns about potential customer 
confusion, we have developed standard disclosures that agencies will be 
required to use for point-of-purchase check conversion. We believe that 
consistent and uniform disclosure language across agencies will be 
helpful to customers. The disclosure language that we have developed is 
designed to help customers understand the conversion process and to 
advise consumers of the fact that they have rights under Regulation E, 
as well as to help them identify these transactions on account 
statements provided by financial institutions. Agencies must ensure 
that the notice of conversion set forth at appendix A to part 210 
(Posted Notice) is posted conspicuously at the cash register, and that 
the disclosure set forth at appendix B to part 210 (Pamphlet or 
Brochure) is available from the cashier upon request.
Accounts Receivable (Lockbox) Check Conversion
    The NPRM proposed an approach toward lockbox conversion in which an 
agency could convert all checks received at a lockbox to ACH debit 
entries if the agency provided prior written notice of this policy to 
payors. Because the provision of notice would require that agencies 
redesign and reprint forms, or develop and mail special notices, we 
requested comment on how useful the notice of lockbox check conversion 
is for consumers, and how it might best be provided.
    At the time we published the NPRM, the ACH Rules required an 
Originator \2\ that wanted to convert checks at a lockbox to provide 
the consumer with notice of the check conversion policy. This notice 
had to be provided under one of two scenarios: (1) The consumer 
authorizes the entry by a writing that is signed or similarly 
authenticated (``opt-in''); or (2) the consumer is notified that if the 
consumer does not provide the Originator with written notice not to 
convert the item, the item will be converted (``opt-out''). The NPRM 
requested comment on the extent to which (if any) payors would be 
disadvantaged if their checks were converted without making available 
this opt-in/opt-out procedure.
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    \2\ In an ACH debit transaction, the Originator is the person or 
entity receiving a transfer of funds from a payor's account.
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    In the NPRM, we noted that consumer checks converted to ACH debits 
at agency lockboxes under our proposed approach would constitute EFTs 
covered by Regulation E. See Official Staff Commentary to Regulation E, 
section 205.3(b)-1(v). The authorization requirements of Regulation E 
are met if a consumer who mails a check to a lockbox receives notice 
that the transaction will be processed as an EFT and completes the 
transaction. See Official Staff Commentary, section 205.3(b)-3.
    Many of the organizations commenting on lockbox check conversion, 
primarily large financial institutions, were opposed to FMS'' proposal 
to eliminate the opt-in or opt-out requirement. Most of these 
organizations stated that customers would not understand what was 
happening to their checks if the opt-in/opt-out requirement were 
eliminated, thereby resulting in increased customer inquiries to 
financial institutions.
    Several organizations commenting on this issue were supportive of 
the proposal to eliminate the opt-in/opt-out requirement. These 
organizations indicated that removing the opt-in/opt-

[[Page 17898]]

out requirement would streamline the check conversion process because 
it would eliminate the need for two separate workflows at agency 
lockbox locations.
    Several organizations also responded to our request for comment on 
whether providing notice to consumers of lockbox check conversion was 
meaningful. All respondents to this issue indicated that notice is 
meaningful if the disclosure language is clear, concise, and included 
on an invoice or on the forms associated with the government service. 
These respondents explained that a clear and concise notice would 
improve customers' understanding of the process and thereby reduce the 
number of customer inquiries made to financial institutions. A few 
financial institutions recommended that FMS and other Federal agencies 
utilize public service announcements and magazine and newspaper 
articles to provide additional notice to consumers of check conversion.
    Since we published the NPRM, NACHA has amended the ACH Rules for 
lockbox check conversion. Under the revised ACH Rules, which become 
effective on March 15, 2002, presentment of a signed check at a lockbox 
following notice that the check will be converted constitutes 
authorization for the conversion of the check. The ACH Rules do not, 
however, prevent Originators from using an opt-in or opt-out 
authorization model for lockbox conversion.
    Requiring an opt-in/opt-out procedure would impose substantial 
costs and inefficiencies on the processing of checks at Federal 
lockboxes. Checks that are eligible for conversion because consumers 
have consented to conversion would have to be segregated from checks 
for which consent to convert has not been obtained. This would require 
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. As a result, we are accepting the ACH Rules regarding 
accounts-receivable consumer check conversion. These rules will allow 
agencies to convert checks after providing notice of conversion, but 
would not preclude an agency from using an opt-in/opt-out procedure if 
it chose to do so.
    In order to address commenters' concerns about potential customer 
confusion, we have developed standard disclosures that agencies will be 
required to use for lockbox check conversion. Agencies must ensure that 
the notice of conversion set forth at appendix C to part 210 is 
provided to payors before their checks are converted. See Section-By-
Section Analysis, discussion of Sec. 210.6(h).

B. Conversion of Business Checks

    In the NPRM we requested comment on proposed rules that would allow 
agencies to convert business checks received at points-of-purchase and 
lockboxes to ACH debit entries. The ACH Rules currently do not allow 
for the conversion of business checks, and thus do not support Standard 
Entry Class (SEC) codes appropriate for these transactions. NACHA is in 
the process of developing proposed changes to the ACH Rules to allow 
the conversion of business checks to ACH debit entries. However, at 
this time, it is unclear as to whether these proposed rule changes 
would be supported by the industry and approved by NACHA's voting 
membership.
    In the NPRM we proposed to require agencies to use the Prearranged 
Payment and Deposit (PPD) SEC code for business checks converted at 
lockboxes and the Cash Concentration or Disbursement (CCD) SEC code for 
business checks converted at the point-of-purchase. We requested 
comment on the issues raised by using the PPD SEC code for business 
checks converted at lockboxes, including whether it would be 
appropriate to extend the consumer and RDFI recredit and adjustment 
protections \3\ to business account-holders whose checks are converted 
at agency lockboxes and to their RDFIs.
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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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    A majority of the commenting organizations expressed concern about 
the conversion of business checks to ACH debit entries at points-of-
purchase and lockbox locations. The common theme was that the 
conversion of business checks to ACH debit entries may interfere with 
various cash management tools in place to protect some business 
accounts and that, as a result, ACH debit entries would be returned and 
negatively impact business customers. The Association for Financial 
Professionals (AFP) asked both FMS and NACHA to withdraw any proposals 
to convert business checks due to the potentially negative impact on 
corporate cash management. AFP's concern is that converting business 
checks may limit the effectiveness of controlled disbursement and 
positive pay systems because reconciliation could not occur between the 
converted item and a corporation's disbursement files. These systems 
would expect payments originated as checks to be presented for payment 
as checks, not as ACH debit entries. It was also noted that there would 
be a negative impact on automated corporate account reconciliation 
mechanisms.
    Many of the larger financial institutions indicated that in order 
to facilitate the conversion of business checks to ACH debit entries 
they would need to engage in extensive system changes so that back-end 
check processing systems could communicate internally with ACH systems. 
This would allow items originated by check, and subsequently converted 
to ACH debit entries, to be recognized as such, interact with various 
cash management tools, and properly post to business accounts with no 
negative impact on the business customer.
    We recognize that the conversion of business checks issued by large 
businesses may interfere with cash management tools until financial 
institution check processing and ACH systems are integrated. However, 
our check conversion pilot experience indicates that many of the 
business checks presented at agency points-of-purchase are issued by 
small businesses with accounts that do not employ these types of cash 
management tools. Indeed, we believe that it is unlikely that most 
business checks presented over-the-counter to agencies are drawn on 
accounts that employ these systems. In its comment letter, NACHA 
indicated that checks drawn on business accounts with debit blocks and/
or positive pay verification may, in all likelihood, involve too 
cumbersome a check issuance process to be candidates for over-the-
counter purchases at merchants and, thus, ACH conversion. Statistics 
from our check conversion pilot with a large Federal agency support 
this position. During the two-year pilot with this agency over 10,000 
business checks were presented at the point-of-purchase of which 99.86% 
of these transactions were successfully converted to ACH debit entries.
    We do not anticipate that check conversion at agency points-of-
purchase, in the manner we plan to use it, is likely to significantly 
disrupt corporate cash management. Moreover, it is important to note 
that our rules do not require agencies to use check conversion; rather, 
the rules provide a legal framework for check conversion for those 
agencies that wish to use this technology. Therefore, if a particular

[[Page 17899]]

agency receives a significant number of checks issued by large 
corporations, the agency may choose not to engage in check conversion. 
FMS will work closely with agencies to implement check conversion 
technology and will provide guidance to help agencies determine the 
appropriateness of this technology for various cash flows.
    We are aware that, until check and ACH systems are integrated, a 
debit entry to a business account utilizing a debit filter or positive 
pay system may be returned. To address this possibility, we are 
planning to handle debits to business accounts that are returned by 
generating a paper draft on the account, using the stored check image. 
These transactions, which are governed by the Uniform Commercial Code, 
will be settled through the check processing system. We also are aware 
that authorization issues can arise in connection with converting 
business checks at points-of-purchase. For example, it is possible that 
an individual presenting a business check to an agency may not have 
authority to act with respect to the account on which the check is 
drawn. We believe that the ACH Rules incorporated in part 210 provide 
an adequate framework to enable a Receiver \4\ to pursue recovery of an 
unauthorized debit to the Receiver's account.\5\ Moreover, we have not 
found in our pilot programs that Receivers have challenged or attempted 
to disavow ACH debits resulting from the conversion of business checks.
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    \4\ 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. In this document, we may refer to a person or entity 
making a payment to a Federal agency as a payor, a Receiver, a 
customer, or a consumer, as appropriate.
    \5\ For example, under the ACH Rules, the ODFI warrants that a 
debit entry has been authorized by the Receiver and must provide a 
copy of the Receiver's authorization upon the RDFI's request. See 
ACH Rules 2.2.1.1 and 4.1.1.
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    With regard to lockbox check conversion, we continue to believe, as 
discussed in the NPRM, that providing for two separate workflows at 
lockbox locations would be costly and burdensome, and that the full 
benefits of this technology cannot be realized unless all checks 
received at lockbox locations are converted. However, we plan to 
operate lockbox check conversion pilots in such a manner as to minimize 
the concerns voiced by commenters. For example, we anticipate that 
alternate payment methods will be made available for any lockbox at 
which all checks are converted, so that remitters have the option of 
making payment by ACH credit or another means if they do not want their 
checks converted. In addition, we will work with agencies to focus 
check conversion on cash flows consisting of payments from primarily 
small and medium-sized businesses that are less likely to use 
sophisticated cash management tools.
    Based on the concerns expressed by financial institutions with 
regard to extending consumer re-credit provisions to business 
customers, we have determined that it would be more appropriate to use 
the CCD SEC code rather than the PPD SEC code for business checks 
converted at lockboxes and points-of-purchase. In order to accommodate 
the use of appropriate SEC codes at lockboxes, we plan to analyze 
agency cash flows and implement pilot programs initially only at 
lockboxes where either consumer checks or business checks (but not 
both) are sent. By distinguishing consumer lockboxes from business 
lockboxes, we can ensure that the CCD SEC code is used to convert 
business checks and the Accounts Receivable Entry (ARC) SEC code is 
used to convert consumer checks.

C. Other Check Conversion Issues

    Although the NPRM did not address the retention of check 
information and destruction of paper checks converted at lockboxes, we 
received comments on these issues. Since we published the NPRM, NACHA 
has amended the ACH Rules for lockbox check conversion. Under the 
revised ACH Rules, a check is used as a source document to initiate an 
accounts receivable (lockbox) entry. A check converted to ACH debit 
entry in this manner at a lockbox is to be copied or imaged. The copied 
or imaged check information is to be retained for a minimum of 7 years. 
The original check is to be destroyed no later than 14 calendar days 
after the settlement date of the accounts receivable entry. This 
requirement is to protect against the risk that by human error the 
check (source document), in addition to being presented as an ACH debit 
entry, might subsequently be entered into the check processing system 
for payment as a check.
    Commenters urged us to adopt these provisions of the ACH Rules. We 
agree with these comments and are accepting the ACH Rules regarding 
check retention and destruction as they apply to checks presented by 
the public for payment at agency lockbox locations.\6\
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    \6\ Checks received at certain Federal lockboxes are subject to 
court orders mandating the preservation of the original checks. As 
discussed above, we plan to implement check conversion only at 
lockboxes where conversion is appropriate in light of the nature of 
the checks received. We will not implement check conversion at 
lockboxes where the checks received are subject to court-mandated 
preservation requirements.
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D. Internet-Initiated ACH Debits

    The NPRM proposed to incorporate in Part 210 the ACH Rules that 
allow the use of the Internet-Initiated Entry (WEB) SEC code to 
initiate ACH debit entries for purchases made over the Internet, with 
two exceptions. First, we proposed not to adopt the requirement that 
Originating Depositary Financial Institutions (ODFIs) establish 
exposure limits for Originators of Internet-initiated debit entries. 
Second, we proposed to allow agencies to originate WEB entries to 
corporate accounts as well as to consumer accounts.
    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. We do not 
believe that it would be appropriate for FMS, which functions as an 
ODFI for agencies, to establish transaction limits for Federal 
agencies. We also do not believe that 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. Most respondents were supportive of our position on 
this issue.
    In addition, we proposed to permit agencies to initiate WEB entries 
to business accounts in order to provide businesses with a convenient 
and cost-beneficial way to make payments to agencies. Because, 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, allowing agencies to use 
the WEB code for a debit entry to a business account raises the issue 
of whether the RDFI can or must provide the business customer with the 
right of recredit available to consumers under the ACH Rules. See ACH 
Rule 7.6.1, ACH Rule 7.7.1. We proposed to extend to business Receivers 
of WEB entries, and their RDFIs, the same re-credit and adjustment 
rights, respectively, that apply to debits to consumer accounts.
    The majority of commenters, primarily large financial institutions 
and trade associations, were opposed to the use of the WEB SEC code for 
business entries. Several respondents argued that the WEB SEC code was 
designed solely for consumer entries and that WEB entries to business 
accounts would likely be rejected. Additionally, most dissenters were 
opposed to the extension of re-credit and adjustment rights to business

[[Page 17900]]

corporate entries. Many commenters wrote that a better approach to this 
issue is to use standard SEC codes, such as the CCD or Corporate Trade 
Exchange (CTX), for business Internet entries.
    Our pilot experience underscores the importance of the commenters' 
concerns that operational discrepancies may occur if the WEB SEC code 
is used for corporate items. Many corporations employ cash management 
tools on their accounts that would reject and return these entries. In 
view of this experience and the comments received, and because it 
appears to be possible to use CCD SEC code for Internet-initiated ACH 
debits without compromising the efficiency of Internet systems, we will 
use the WEB SEC code for consumer entries and the CCD SEC code for 
business entries. Use of the CCD SEC code for business entries means 
that consumer re-credit provisions will not apply to business entries.

II. Interim Rule

A. Background

    As discussed above, part 210 incorporates (with certain exceptions) 
the ACH Rules, which NACHA periodically updates. 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. Part 210 currently provides that any amendment to the ACH Rules, 
as published in NACHA's 2001 rule book, that takes effect after 
September 14, 2001, will not apply to Federal government ACH entries 
unless we publish notice of acceptance of the amendment in the Federal 
Register. 31 CFR 210.3(b)(2). NACHA recently published its 2002 rule 
book. We're publishing this interim rule in order to incorporate in 
Part 210 all of the amendments to the ACH Rules that NACHA adopted 
within the last year, other than those relating to accounts receivable 
entries, which are addressed in our final rule.
    Unlike the final rule discussed in Part I of this document, we have 
not previously sought comment on the issues addressed in this interim 
rule. We therefore are requesting comment on all aspects of the interim 
rule discussed below.

B. Changes to ACH Rules

    The ACH Rules published in NACHA's 2002 rule book reflect changes 
to the ACH Rules published in NACHA's 2001 rule book related to four 
topics in addition to accounts receivable entries. Those four topics 
are: (1) Affidavit and electronic communication issues; (2) 
reinitiation; (3) electronic authorization; and (4) electronic 
terminals. By amending Sec. 210.2 (d) and Sec. 210.3 (b), we are 
incorporating these four ACH rule changes into the interim rule.
    In order to incorporate these ACH Rule changes in Part 210, the 
only revision necessary to the current regulation is to replace 
references to the 2001 rule book with references to the 2002 rule book.
1. Affidavit and Electronic Communication Issues
    NACHA has adopted a rule to facilitate the use of electronic 
agreements and the electronic storage of records in conformance with 
the Electronic Signatures in Global and National Commerce Act (E-Sign 
Act). This rule amendment will allow any agreement, authorization, 
affidavit or other record (e.g., notices, disclosures, etc.) required 
by the ACH Rules to be executed in an electronic form. It is not a 
requirement of the ACH Rules that these documents be executed in 
electronic form; this rule amendment simply provides another option for 
ACH participants. In addition, this rule amendment would change the 
term ``affidavit'' to ``written statement under penalty of perjury'' in 
order to clarify that, for purposes of the ACH Rules, such a 
declaration need not be notarized. RDFIs, at their option, can continue 
to use affidavits and/or require notarization. This rule amendment 
became effective March 15, 2002.
    FMS, as well as the Federal government as a whole, supports 
regulations and policies that facilitate electronic commerce, including 
those that support the validity of electronic signatures. As a result, 
we are accepting this change to the ACH Rules.
2. Reinitiation Issues
    NACHA has adopted a rule to limit the number of times that an ACH 
entry returned using Return Reason Code R01 (Insufficient Funds) or R09 
(Uncollected Funds) may be reinitiated to a maximum of two reinitiation 
attempts following the return of the original entry. This limitation 
applies to all SEC codes except RCK (Re-presented Check Entry), which 
has a distinct limit. This rule amendment became effective March 15, 
2002.
    FMS supports the consistency that this change to the ACH Rules 
brings to ACH return items. As a result, we are accepting this change 
to the ACH Rules.
3. Electronic Authorization
    NACHA has adopted a rule revising the language concerning the 
similarly authenticated standard for consumer authorizations to be 
consistent with the recent revisions to the Federal Reserve Board's 
Official Staff Commentary on Regulation E. This revised language states 
that electronic authorization that is similarly authenticated by the 
consumer will satisfy the necessary standards by being in compliance 
with the requirements of the E-Sign Act. The authorization process 
chosen must evidence both the consumer's identity and his assent to the 
transaction. This rule amendment became effective January 1, 2002.
    FMS supports consistency between the ACH Rules and Regulation E. As 
a result, we are accepting this change to the ACH Rules.
4. Terminal Location
    Under Regulation E, a point-of-purchase terminal used to capture 
data electronically for purposes of initiating an EFT constitutes an 
``electronic terminal'' even if no access device is used to originate 
the transaction, such as when a check is used to capture information to 
initiate a one-time EFT. Therefore, when a check is used as a source 
document at a point-of-purchase and is run through a terminal to 
capture the account information from the check (as is the case with the 
POP entry), the requirements of Regulation E with respect to electronic 
terminals apply. These requirements include the provision of a receipt 
for POP entries that includes the terminal location, as well as the 
inclusion of the terminal location on the consumer's bank account 
statement, as provided in Regulation E, Sec. 205.9(b)(1)(iv).
    NACHA has adopted a rule to require that (1) an Originator of POP 
entries include information within the POP entry to identify the city 
and state in which the electronic terminal used for the transaction is 
located; (2) the Originator include the Terminal City and Terminal 
State on the receipt provided to the consumer at the point-of-purchase; 
and (3) RDFIs expand the information provided on the consumer's monthly 
bank account statement to include the city and state where the terminal 
is located. This rule amendment became effective January 1, 2002.
    We recognize that this rule change, which is necessary to conform 
to the requirements of Regulation E, provides consumers with useful 
transaction information. As a result, we are accepting this change to 
the ACH Rules.

[[Page 17901]]

III. Section-by-Section Analysis

Section 210.2(d) [Interim amendment]

    We are amending 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. We are amending Sec. 210.2(d) to refer to the ACH 
Rules with an effective date on or before March 15, 2002. The effect of 
this amendment is that the changes to the ACH rules addressed in our 
interim rule are incorporated by reference in part 210.
    To implement our adoption of a final rule governing accounts 
receivable check truncation and Internet-initiated debit entries, we 
are deleting the exceptions in paragraphs (d)(6) (accounts receivable 
check truncation) and (d)(7) (Internet-initiated debit entries). The 
deletion of these paragraphs reflects our adoption of the ACH rules 
governing those transactions, with certain exceptions that are 
addressed in Sec. 210.2(d)(6) and Sec. 210.6(h). Section 210.2(d)(6) 
excludes 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(h) sets 
forth the requirements for accounts receivable check truncation by 
agencies.

Section 210.3(b) [Interim amendment]

    We are amending Sec. 210.3(b), ``Incorporation by reference--
applicable ACH Rules,'' by replacing the references to the ACH Rules as 
published in the 2001 rule book with references to the ACH Rules as 
published in the 2002 rule book.

Section 210.6(g) [Final amendment]

    To implement the part of our final rule that addresses the 
conversion of checks at agency points-of-purchase, we are amending 
Sec. 210.6, which sets forth the obligations and liabilities of 
agencies that initiate or receive Government entries. We are adding a 
new paragraph (g) to address the conversion of checks to ACH debit 
entries at agency points-of-purchase. Paragraph (g) permits agencies to 
convert to ACH debit entries both consumer and business checks 
presented at agency points-of-purchase. The term ``point-of-purchase'' 
is intended to mean any location where an agency accepts checks as 
payment in connection with a contemporaneous transaction or any 
location where an agency cashes checks for employees or the public. 
Thus, an actual purchase need not take place at a ``point-of-
purchase.''
    ACH Rule 2.1.2 requires that a Receiver authorize the Originator to 
initiate an entry to the Receiver's account. In the case of a debit 
entry to a consumer account, the authorization must be in writing, 
signed or similarly authenticated by the consumer. ACH Rule 3.4 
requires that an Originator provide a Receiver with a copy of the 
Receiver's authorization for a debit entry initiated to a consumer 
account. Under Sec. 210.6(g), these requirements are met if the agency 
posts a notice containing the disclosure set forth at Appendix A and 
makes available to the customer, in a form that the customer can 
retain, the disclosure set forth at Appendix B. It is not necessary 
that the cashier actually hand the customer the Appendix B disclosure; 
it is sufficient that the disclosure is made available if the customer 
requests it. Agencies that convert checks at points-of-purchase must 
use the standard disclosures at Appendices A and B--they may not modify 
the disclosures except where indicated by brackets.
    ACH Rules 3.10 and 4.1.1 require, respectively, that the Originator 
retain the original or a copy of the Receiver's authorization for two 
years and that the ODFI provide a copy of the Receiver's authorization 
to an RDFI upon request. Under Sec. 210.6(g), these requirements can be 
met by providing a copy of the Receiver's check plus a copy of the 
notice that was posted at the cash register.

Section 210.6(h) [Final amendment]

    To implement the part of our final rule that addresses the 
conversion of checks at lockboxes, we are adding a new paragraph (h) to 
Sec. 210.6. Section 210.6(h)(1) allows an agency to originate an 
accounts receivable entry if the agency has first provided the 
disclosure set forth at Appendix C to the consumer. Like the point-of-
purchase disclosure, Appendix C contains a standard disclosure that 
agencies may not modify except as indicated by brackets. The disclosure 
need not appear on the invoice document itself, but should be provided 
in such a way that the Receiver can be expected to have read the 
disclosure before sending in a check. For example, it would be 
appropriate to include the disclosure with remittance instructions.
    Section 210.6(h)(2) allows agencies to convert business checks 
received at a lockbox or dropbox \7\ to ACH debit entries using a CCD 
SEC code. Under section 210.6(h)(2), the authorization requirements of 
the ACH Rules are met if, and only if, the agency has provided the 
disclosure set forth in Appendix C prior to converting the check. For 
purposes of the document retention and availability requirements of ACH 
Rules 3.10 and 4.1.1, a copy of the notice and a copy of the Receiver's 
source document together constitute a copy of the authorization.
---------------------------------------------------------------------------

    \7\ A dropbox is similar to a lockbox except that a payor 
delivers a payment to a dropbox in person rather than mailing the 
payment.
---------------------------------------------------------------------------

Section 210.6(i) [Final amendment]

    To implement the part of our final rule that addresses the 
origination of a service fee for returned transactions in connection 
with conversion of checks at points-of-purchase and lockboxes, we are 
adding a new subsection (i) to Sec. 210.6. The ACH Rules do not allow 
merchants to initiate an ACH debit entry to collect a service fee for 
an entry that has been returned for insufficient funds except where the 
Receiver has, in writing, authorized the collection of the fee. Section 
210.6(i) overrides this restriction for Federal agencies and allows an 
agency to collect by ACH debit, without the Receiver's written 
authorization, a one-time service fee in connection with any entry 
originated by converting a check at a point-of-purchase or lockbox that 
is returned unpaid. The agency must have provided the disclosures set 
forth at Appendices A and B (for point-of-purchase entries) or Appendix 
C (for lockbox entries) in order to collect the service fee by ACH 
debit. This subsection does not create for agencies the authority to 
impose a service fee; rather, it allows an agency that has the 
authority to impose such a fee to collect the fee by ACH debit without 
a written authorization.

Appendices A, B and C

    We are adding appendices A, B and C to the regulation to set forth 
the disclosures required in our final rule for point-of-purchase check 
conversion and lockbox check conversion.

IV. Procedural Requirements

Request for Comment on Interim Rule

    We invite comment on all aspects of the interim rule.

Request for Comment on Plain Language--Interim and Final Rules

    Executive Order 12866 requires each agency in the Executive branch 
to write regulations that are simple and easy to understand. We invite 
comment on how

[[Page 17902]]

to make either the interim rule or the final 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 the rules are clear; 
or (3) whether there is something else we could do to make these rules 
easier to understand.

Notice and Comment and Effective Date--Interim Rule

    We find that good cause exists for issuing the interim rule without 
prior notice and comments. 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 
and agencies 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.
    Those consequences include uncertainty as to the rules governing 
government ACH transactions, as well as the inability of financial 
institutions to segregate the processing of those transactions. We have 
published a notice, and considered the comments received, on those 
provisions of NACHA's rule changes that we believe are significant or 
controversial, and we are addressing those rule changes in our final 
rule.

Executive Order 12866--Interim and Final Rules

    The interim and final rules do 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--Interim and Final Rules

    It is hereby certified that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
[The conversion to ACH debits of checks remitted by small entities to 
Federal agencies is not expected to result in increased costs to those 
entities. Similarly, there should be no economic impact to small 
entities as a result of allowing Federal agencies to originate ACH 
debits authorized by small entities over the Internet. Accordingly, a 
regulatory flexibility analysis under the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) is not required. Because no notice of proposed 
rulemaking is required for the interim rule, it is not subject to the 
provisions of the Regulatory Flexibility Act.

Unfunded Mandates Act of 1995--Interim and Final Rules

    Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532 (Unfunded Mandates Act), requires that the agency prepare a 
budgetary impact statement before promulgating any rule likely to 
result in a Federal mandate that may result in the expenditure by 
State, local, and tribal governments, in the aggregate or by the 
private sector, of $100 million or more in any one year. If a budgetary 
impact statement is required, section 205 of the Unfunded Mandates Act 
also requires the agency to identify and consider a reasonable number 
of regulatory alternatives before promulgating the rule. We have 
determined that the final rule will not result in expenditures by 
State, local, and tribal governments, or by the private sector, of $100 
million or more in any one year. Accordingly, we have not prepared a 
budgetary impact statement or specifically addressed any regulatory 
alternatives. Although the Unfunded Mandates Reform Act of 1995 does 
not apply to the interim rule, we have determined that it will not 
result in such expenditures.

Executive Order 13132--Federalism Summary Impact Statement--Interim and 
Final Rules

    Executive Order 13132 requires Federal agencies, including FMS, to 
certify their compliance with that Order when they transmit to the 
Office of Management and Budget (OMB) any draft final regulation that 
has federalism implications. Under the Order, a regulation has 
federalism implications if it has ``substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government.'' In the case of a regulation that has 
federalism implications and that preempts State law, the Order imposes 
certain specific requirements that the agency must satisfy, to the 
extent practicable and permitted by law, prior to the formal 
promulgation of the regulation.
    In general, the Executive Order requires the agency to adhere 
strictly to Federal constitutional principles in developing rules that 
have federalism implications; provides guidance about an agency's 
interpretation of statutes that authorize regulations that preempt 
State law; and requires consultation with State officials before the 
agency issues a final rule that has federalism implications or that 
preempts State law.
    The interim and final rules will not have substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.

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 forth in the preamble, part 210 of title 31 of 
the Code of Federal Regulations 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(d) to read as follows:


Sec. 210.2  Definitions.

* * * * *
    (d) Applicable ACH Rules means the ACH Rules with an effective date 
on or before March 15, 2002, as published in Parts II, III, and IV of 
the ``2002 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

[[Page 17903]]

limits for Originators of Internet-initiated debit entries).
* * * * *

    3. Revise Sec. 210.3(b) to read as follows:
* * * * *
    (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 March 15, 
2002, as published in Parts II, III, and IV of the ``2002 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 ``2002 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, N.W., Suite 700, Washington, D.C.
    (2) Any amendment to the applicable ACH Rules that takes effect 
after March 15, 2002, 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 notice expressly accepting such 
amendment.

    4. 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 business account and 
presented at a point-of-purchase. Agencies shall use the Point-of-
Purchase (POP) Standard Entry Class (SEC) code for entries to consumer 
accounts and the Cash Concentration or Disbursement (CCD) SEC code for 
entries to business accounts. The requirements of ACH Rules 2.1.2 and 
3.4 shall be met for such an entry if the Receiver presents the check 
at a location where the agency has posted a conspicuous notice at the 
point-of-purchase containing the disclosure set forth at Appendix A to 
this part and makes available to the Receiver, in a form that the 
Receiver can retain, the disclosure set forth at Appendix B to this 
part. For purposes of ACH Rules 3.10 and 4.1.1, authorization shall 
consist of a copy of the notice and a copy of the Receiver's source 
document.
    (h) Accounts receivable check conversion.
    (1) Conversion of consumer checks. The notice and authorization 
requirements of ACH Rules 2.1.4 and 3.6.1 shall be met for an accounts 
receivable entry only if an agency has provided the Receiver with the 
disclosure set forth at Appendix C to this part.
    (2) Conversion of business checks. An agency may convert to an ACH 
debit a check drawn on a business account that is received via mail or 
at a dropbox location if the agency has provided the Receiver with the 
disclosure set forth at Appendix C. The agency shall use the CCD SEC 
code for such entries, which shall be deemed to meet the requirements 
of ACH Rule 2.1.2 if the agency has provided the disclosure set forth 
at Appendix C. For purposes of ACH Rules 3.10 and 4.1.1, authorization 
shall consist of a copy of the notice and a copy of the Receiver's 
source document.
    (i) Returned item service fee. An agency may originate an ACH debit 
entry to collect a one-time service fee in connection with an ACH debit 
entry originated pursuant to paragraph (g) or (h) of this section that 
is returned due to insufficient funds. An entry originated pursuant to 
this paragraph shall meet the requirements of ACH Rules 2.1.2 and 3.4 
if the agency has complied with the disclosure requirements of 
paragraph (g) or (h), as appropriate. For purposes of ACH Rule 3.10 and 
4.1.1, authorization shall consist of a copy of the notice provided 
under paragraph (g) or (h), as applicable, and a copy of the Receiver's 
source document.

    5. Add new Appendices A, B, and C to Part 210 to read as follows:

Appendix A to Part 210--Standard Disclosure for Point-of-Purchase 
Conversion--Posted Notice

Notice to Customers Presenting Checks

    Conversion of Checks--If you are presenting a check to the 
cashier, your check will be converted into an electronic fund 
transfer. When you hand your completed, signed check to the cashier, 
your check will be copied. The account information from your check 
will be used to make an electronic fund transfer from your account 
in the amount of the check. The cashier will void the check and 
return it to you.
    Insufficient Funds--The electronic fund transfer from your 
account will usually occur within 24 hours, which is faster than a 
check is normally processed. Do not present a check to the cashier 
unless there are sufficient funds available in your checking 
account. If the electronic fund transfer cannot be completed because 
of insufficient funds, we may try to make the transfer up to two 
more times [and we will charge you a one-time fee of $ ______, which 
we will also collect by electronic fund transfer].
    Authorization--By reading this notice and handing your check to 
the cashier, you authorize the conversion of your check into an 
electronic fund transfer. If the electronic fund transfer cannot be 
processed for technical reasons, you authorize us to process the 
copy of your original check.
    More Information--A pamphlet with more information about this 
process, including information about your rights under Federal law, 
is available from the cashier. [You may also call ______ or visit 
our Internet site at ______ for detailed information.]

    Note: This notice must be conspicuous. This means that the 
notice should be printed on a sign that is prominently posted at the 
location where checks are presented to a cashier, in such a way that 
it is clearly visible from several feet away to customers waiting to 
present checks.

Appendix B to Part 210--Standard Disclosure for Point-of-Purchase 
Conversion--Brochure or Pamphlet

    What is point-of-purchase check conversion? Point-of-purchase 
check conversion is the process of converting checks that customers 
present to cashiers into electronic fund transfers. ``Electronic 
fund transfer'' is the term used to refer to the process in which we 
electronically instruct your financial institution to transfer funds 
from your account to our account, rather than processing your check. 
When you hand a check to the cashier, your check is copied and the 
account information from your check is used to make an electronic 
fund transfer from your account. The cashier voids your check and 
returns it to you. By presenting your check at a location where a 
sign notifies you that your check will be converted, you authorize 
the conversion of your check into an electronic fund transfer in 
this manner.
    How quickly will funds be transferred from my account? The 
electronic fund transfer from your account will usually occur within 
24 hours, which is faster than a check is normally processed. 
Therefore, you should be sure that there are sufficient funds 
available in your checking account when you present your check. If 
the electronic fund transfer cannot be completed because there are 
insufficient funds in your account, we may try to make the transfer 
up to two more times [and we will impose a one-time fee of $______ 
against your account, which we will also collect by electronic fund 
transfer].
    Will the electronic fund transfer appear on my account 
statement? The electronic fund transfer from your account will be on 
the account statement that you receive from your financial 
institution. However, the transfer may be in a different place on 
your statement than the place where your checks normally appear. For 
example, it may appear under ``other withdrawals'' or ``other 
transactions.'' The electronic fund transfer should be identified on 
your statement as ``[insert].''
    What if there is a problem with the electronic fund transfer? 
You should contact

[[Page 17904]]

your financial institution immediately if you believe that the 
electronic fund transfer reported on your account statement was not 
properly authorized or is otherwise incorrect. Consumers have 
protections under a Federal law called the Electronic Fund Transfer 
Act for an unauthorized or incorrect electronic fund transfer.
    What if the electronic fund transfer cannot be processed? In 
rare instances, an electronic fund transfer cannot be processed for 
reasons other than insufficient funds. In these cases, we will 
process the copy of your original check. Different rights apply to 
the processing of the copy of the check than apply to an electronic 
fund transfer.
    [More detailed information about this process is available on 
our Internet site at ______ or by calling ______.]

    Note: This disclosure must be conspicuous. This means that it 
should be printed in reasonably large typeface. If this disclosure 
is combined with other information, it should be set off by 
contrasting color, by surrounding it with a box, or by using other 
means to ensure that it is prominently featured.

Appendix C to Part 210--Standard Disclosure for Lockbox Conversion--
Notice

Notice to Customers Making Payment by Check

    Authorization to Convert Your Check--If you send us a check to 
make your payment, your check will be converted into an electronic 
fund transfer. ``Electronic fund transfer'' is the term used to 
refer to the process in which we electronically instruct your 
financial institution to transfer funds from your account to our 
account, rather than processing your check. By sending your 
completed, signed check to us, you authorize us to copy your check 
and to use the account information from your check to make an 
electronic fund transfer from your account for the same amount as 
the check. If the electronic fund transfer cannot be processed for 
technical reasons, you authorize us to process the copy of your 
check.
    Insufficient Funds--The electronic fund transfer from your 
account will usually occur within 24 hours, which is faster than a 
check is normally processed. Therefore, make sure there are 
sufficient funds available in your checking account when you send us 
your check. If the electronic fund transfer cannot be completed 
because of insufficient funds, we may try to make the transfer up to 
two times [and we will charge you a one-time fee of $______, which 
we will also collect by electronic fund transfer].
    Transaction Information--The electronic fund transfer from your 
account will be on the account statement you receive from your 
financial institution. However, the transfer may be in a different 
place on your statement than the place where your checks normally 
appear. For example, it may appear under ``other withdrawals'' or 
``other transactions.'' You will not receive your original check 
back from your financial institution. For security reasons, we will 
destroy your original check, but we will keep a copy of the check 
for recordkeeping purposes.
    Your Rights--You should contact your financial institution 
immediately if you believe that the electronic fund transfer 
reported on your account statement was not properly authorized or is 
otherwise incorrect. Consumers have protections under a Federal law 
called the Electronic Fund Transfer Act for an unauthorized or 
incorrect electronic fund transfer.

    Note: This disclosure must be conspicuous. This means that it 
should be printed in reasonably large typeface. If this disclosure 
is combined with other information, it should be set off by 
contrasting color, by surrounding it with a box, or by using other 
means to ensure that it is prominently featured.


    Dated: April 5, 2002.
Richard L. Gregg,
Commissioner.
[FR Doc. 02-8885 Filed 4-10-02; 8:45 am]
BILLING CODE 4810-35-P