[Federal Register Volume 69, Number 63 (Thursday, April 1, 2004)]
[Rules and Regulations]
[Pages 17272-17282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7270]



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Part II





Department of the Treasury





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Fiscal Service



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31 CFR Part 240



Indorsement and Payment of Checks Drawn on the United States Treasury; 
Final Rule

  Federal Register / Vol. 69, No. 63 / Thursday, April 1, 2004 / Rules 
and Regulations  

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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 240

RIN 1510-AA45


Indorsement and Payment of Checks Drawn on the United States 
Treasury

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the rule governing the indorsement and 
payment of checks drawn on the United States Treasury and the remedies 
available when checks are lost or stolen and then negotiated by someone 
other than the intended payee. In instances where losses occur, Part 
240 provides for the allocation of losses between the Federal 
Government and indorsers of the check. Part 240 also provides notice of 
how Treasury will collect debts owed by banks and other indorsers when 
they fail to pay claims arising under its terms.

EFFECTIVE DATE: May 3, 2004.

FOR FURTHER INFORMATION CONTACT: Ronald Brooks, (202) 874-7573, 
[email protected], Senior Program Analyst, Financial 
Processing Division, Financial Management Service, Prince Georges 
Center II Building, 3700 East-West Highway, Room 725-D, Hyattsville, 
Maryland 20782. Individuals who use a telecommunications device for the 
deaf (TDD) may call the Federal Information Relay Service at 1-800-877-
8339 between 8 a.m. and 4 p.m. Eastern time, Monday through Friday, 
excluding Federal holidays. A copy of this final rule is being made 
available on the Financial Management Service Web site at the following 
address: http://www.fms.treas.gov/checkclaims/31_CFR_240.pdf.

SUPPLEMENTARY INFORMATION:

I. Background

    On April 23, 2003, The Financial Management Service (FMS) issued a 
Notice of Proposed Rulemaking (NPRM) (68 FR 20046) proposing changes 
constituting a comprehensive revision of 31 CFR Part 240 (Part 240). 
The NPRM addressed, in part, the time for first examination of Treasury 
checks, the apportionment of risk when losses occur, deceased payee 
check intercepts, declination protests, the use of debt collection 
tools in the collection of reclamation debts, and the use of powers of 
attorney. The NPRM also included changes made in an Interim Rule issued 
on May 24, 2002, which related to Treasury Check Offset (TCO) (67 FR 
36517). This final rule addresses issues raised in comments submitted 
in response to the NPRM and finalizes the NPRM with changes. In 
addition, it supercedes the Interim Rule. FMS did not receive any 
comments on the Interim Rule.
    The revised regulation includes provisions governing how checks may 
be indorsed, and remedies available to payees and other indorsers when 
checks are lost or stolen and then subsequently negotiated by someone 
other than the intended payee. In instances where losses occur, such as 
when a check bearing a fraudulent indorsement is paid, the regulation 
provides for the allocation of losses between the Government and 
indorsers of the check. The regulation also provides notice of how 
Treasury will collect debts owed by financial institutions and other 
indorsers when they fail to pay claims arising under the terms of this 
regulation.

II. Summary of Comments

    We received 12 comments in response to the NPRM. Comments were 
received from credit unions, credit union associations, bank 
associations, and one bank. The comments reflected particular interest 
in the following four issues: (1) The definition of a material defect 
or alteration (Sec.  240.2); (2) the time frame within which Treasury 
must complete first examination (Sec.  240.5); (3) protests of 
declinations and reclamations (Sec. Sec.  240.6 and 240.8); and (4) the 
use of powers of attorney (Sec.  240.16). In addition to these four 
main areas of interest, comments and recommendations regarding several 
other sections were also submitted. A summary of these comments and 
Treasury's response to the comments follows.

Material Defect or Alteration

    Three comments opposed the provision in Sec.  240.2 that includes 
counterfeit checks within the definition of ``material defect or 
alteration.'' The commenters stated that Treasury is in the best 
position to detect counterfeit checks and therefore counterfeit checks 
should not be subject to reclamation. After careful consideration, we 
have retained counterfeit checks within the definition of ``material 
defect or alteration.'' Section 240.7 specifies that after final 
payment, Treasury will not reclaim on a counterfeit check unless the 
reclamation debtor has failed to make all reasonable efforts to ensure 
that a check is an authentic Treasury check and not a counterfeit 
check. Therefore, we believe that we have appropriately provided for 
those situations where a financial institution has taken ``all 
reasonable efforts,'' and that the risk properly lies with the 
financial institution if it fails to take reasonable steps necessary to 
detect counterfeit checks.
    Three commenters suggested that Treasury provide guidance regarding 
what is meant by ``reasonable efforts.'' Four commenters suggested that 
Treasury provide guidance on detecting counterfeit checks. In response, 
we have added a definition of the term ``reasonable efforts'' to the 
definition section found at Sec.  240.2. This new definition clarifies 
that ``reasonable efforts'' needed to ensure that a check is authentic 
include, as a minimum, verifying the existence of the U.S. Treasury 
watermark. However, the definition makes clear that ``reasonable 
efforts'' will not be the same in every instance because the minimum 
effort required will be dependent upon the facts of each particular 
case. For instance, depending on the facts, it may be reasonable to 
expect the verification of other security features, such as the 
bleeding ink or the ultraviolet overprinting. Guidance on the various 
security features found on U.S. Treasury checks is available on the FMS 
Web site at: http://www.fms.treas.gov. Institutions also may contact 
the FMS Questioned Documents Branch at (202) 874-7640 for additional 
information about these security features or to request training.
    One commenter suggested that Treasury make an on-line database 
available that would enable institutions to verify check information. 
Although there are currently no plans to implement such a system, 
institutions may contact the Federal Reserve Bank of Richmond to verify 
limited check issue information. Institutions must remember, however, 
that just because a check contains the correct issue information that 
does not necessarily mean the check is authentic--it may only be a 
copy. Therefore, security features such as the watermark must also be 
verified. Contact information for the Federal Reserve Bank of Richmond 
is available on the FMS Web site at: http://www.fms.treas.gov.

First Examination

    Section 240.5 specifies that Treasury shall have a reasonable 
amount of time, not to exceed 90 days, to complete first examination 
(unless Treasury is on notice of a question of law or fact about 
whether a check is properly payable). Seven commenters supported the 
proposed provision in Sec.  240.5. Three

[[Page 17273]]

commenters opposed the 90-day time frame. Five commenters suggested a 
shorter time frame in which to complete first examination. Two of these 
five commenters stated that Treasury should complete first examination 
by midnight of the next business day. One commenter suggested a 30-day 
time frame or, in the alternative, a 30-day time frame for checks under 
$10,000. One commenter suggested a 45-day time frame and one commenter 
suggested less than 90 days but did not specify a specific number of 
days.
    We have carefully considered the comments received relating to 
first examination and the concerns raised therein. Given the inherent 
delays that Treasury experiences in receiving check issue records from 
non-Treasury disbursing officials, Treasury must have sufficient time 
to complete first examination. The proposed rule issued in 1997 set a 
date certain at 150 days from the date that a check is presented to a 
Federal Reserve Bank for payment. The NPRM reduced this amount of time 
further to 90 days. Treasury has continued to work diligently to reduce 
the number of days necessary to complete first examination, as well as 
the potential for losses when issue records are not received in a 
timely manner. As a consequence, we have decided for the final rule to 
reduce the amount of time available for first examination to 60 days. 
Treasury will continue to strive to make additional reductions to this 
time frame whenever possible.

Protests

    Three commenters opposed the provisions at Sec. Sec.  240.6 and 
240.8, which provide that only a presenting bank may protest the 
declination of a check and that only a reclamation debtor may protest a 
reclamation. Two commenters supported these provisions. In the case of 
declinations, Treasury declines payment only against the presenting 
bank. As such, it is only the presenting bank that may protest this 
decision. (See Casa de Cambio Comdiv S.A. de C.V. v. U.S., 291 F.3d 
1356 (Fed. Cir. 2002)). Likewise, any indorser that directly receives a 
reclamation has the right to protest the reclamation. Consistent with 
the decision of the Court in Casa, we have left unchanged the 
provisions related to who may protest a declination or reclamation.
    Two commenters suggested that Treasury respond to a protest within 
a set time frame (one suggested 45 days, the other suggested 60 days). 
Treasury agrees that a protester should be able to expect a response 
within a reasonable time frame. Therefore, Sec. Sec.  240.6 and 240.8 
have been revised to provide that the deciding official will make every 
effort to decide the protest within 60 days of receiving a proper 
protest, or will provide notice of the reason for delay. We note that 
in some cases it is not possible to render a decision within 60 days 
due to the need for a referral to the Secret Service or for additional 
handwriting samples. In such situations, a final decision will be 
rendered as soon as the necessary information becomes available.

Powers of Attorney

    This final rule retains the general provision that general powers 
of attorney may be used only to negotiate certain enumerated checks, 
the right to which does not expire upon the death of the payee/
beneficiary. For all other checks, such as recurring benefit payments, 
a special power of attorney is required. This rule expands the use of 
special powers of attorney by allowing such powers of attorney to be 
executed in favor of any entity or individual, rather than only 
financial institutions as is currently the rule. One commenter opposed 
the continued required use of special powers of attorney. Five 
commenters supported the proposed expanded use of special powers of 
attorney.
    This rule continues the mandatory use of special powers of attorney 
for all checks that do not qualify for the use of a general power of 
attorney. The reason for this decision is two-fold: First, a general 
power of attorney is more easily abused by the attorney-in-fact; and 
second, a special power of attorney must explicitly state that it does 
not purport to assign the right to receive payments to the attorney-in-
fact or to any other person. Requiring use of a special power of 
attorney for payments such as recurring benefit payments ensures both 
that the intended recipient has a clear intent to authorize an 
attorney-in-fact to negotiate such payments, and that all parties 
seeking to rely on the power of attorney are aware that it cannot be 
used as a means of assigning the right to receive payment. While the 
rule requires the continued use of special powers of attorney, Treasury 
believes that removing the requirement that they be executed in the 
name of a financial institution will assist recipients of recurring 
benefit payments by affording them greater flexibility in designating 
an attorney-in-fact.
    Three commenters suggested that Treasury keep Appendix A that 
provides forms for Treasury powers of attorney. These commenters felt 
that the forms provide a customer service and are efficient in that 
they include the necessary special power of attorney language. In 
response, this rule retains the forms in Appendix A as optional use 
forms. These forms are available on the FMS Web site at: http://www.fms.treas.gov.

Miscellaneous

    One commenter suggested reducing the deadline for presenting a 
check claim to 90-120 days. However, since 31 U.S.C. 3702 specifies a 
one-year time frame within which to present a check claim, we cannot by 
regulation reduce this amount of time. One commenter requested that we 
clarify when the one-year presentment deadline begins--specifically, 
whether the negotiated date will be the presentment date. According to 
Sec.  240.4(a), ``Treasury shall not be required to pay any check that 
is not negotiated to a financial institution within 12 months after the 
date on which the check was issued.'' Therefore, the operative dates 
are the check issuance date and the date of first presentment.
    One commenter suggested that we address check truncation 
legislation such as ``Check 21'' in the final rule. We note that the 
Check Clearing for the 21st Century Act, Pub. L. 108-100, was enacted 
on October 28, 2003, and that its provisions do not become effective 
until October 28, 2004. Given that this is new legislation and does not 
become effective until October 2004, we have concluded that, to the 
extent Part 240 must be amended to be consistent with ``Check 21,'' 
that will be done in a separate regulatory action.
    Section 240.18, Implementing Instructions, was removed from the 
final rule. Instead, specific references to the Treasury Financial 
Manual have been included within the body of the regulation where 
appropriate.

II. Procedural Matters

Executive Order 12866, Regulatory Planning and Review

    It has been determined that this final rule is not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
Regulatory Assessment is not required.

Clarity of the Regulations

    Executive Order 12866 and the President's memorandum of June 1, 
1998, require each agency to write all rules in plain language. We 
invite your comments on how to make this final rule easier to 
understand. Please send any comments you may have on this final rule to 
the address specified in the FOR FURTHER INFORMATION CONTACT section.

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Regulatory Flexibility Act

    It is hereby certified pursuant to the Regulatory Flexibility Act 
that this final rule will not have a significant impact on a 
substantial number of small business entities. The major revisions to 
Part 240 in this final rule incorporate recent statutory changes and 
Court decisions, or revise current agency practices relating to 
implementation of Federal Claims Collection Standards (FCCS) 
requirements. Specifically, the provisions concerning collection 
procedures do not create, in and of themselves, new debt collection 
tools, impose new fees not authorized by law, or otherwise create new 
limits on the rights of affected parties, including small business 
entities. The provisions concerning the referral of delinquent debts to 
other agencies or United States disbursing officials, and the 
provisions concerning the collection of delinquent debts by means of 
Treasury check offset, are all in furtherance of specific authorities 
established by the Debt Collection Improvement Act of 1996 (DCIA). In 
particular, the DCIA provides that, ``By presenting Treasury checks for 
payment a presenting bank is deemed to authorize this offset.'' 31 
U.S.C. 3712(e). Consequently, any economic impact on small entities 
will be the result of specific statutory authority, rather than a 
direct result of Treasury regulations.
    The provisions relating to how and when penalties and 
administrative costs will be added to delinquent debts represent a 
change in Treasury policy relating to implementation of the 
requirements of the FCCS. While the change in policy may result in some 
additional costs to small business entities, any such additional costs 
will be the result of Treasury's compliance with the requirements of 
the FCCS, and not a direct result of this regulation. Further, the 
impact of the change in policy will not be significant, as the costs 
will be waived for those who pay within 60 days of the date of 
reclamation; such costs will be incurred only by those who fail to pay 
a reclamation in a timely fashion.
    Provisions relating to declinations clarify existing Treasury 
practices concerning the processing of checks determined to include a 
material defect or alteration prior to Treasury's making final payment 
on a check. Including such provisions benefits financial institutions, 
as well as the general public, by providing notice of how and when 
actions by Treasury to decline final payment may be protested. 
Accordingly, a Regulatory Flexibility Analysis is not required.
    Finally, while provisions in this rule supercede existing Federal 
common law to the extent that such law applies to counterfeit checks, 
and may result in a shift in liability for losses associated with 
counterfeit checks, the actual amounts involved are expected to be 
minimal. An analysis of Treasury statistics for calendar year 2001 
indicates that of 95 counterfeit checks presented to Treasury for 
payment, only 1 such counterfeit item took more than 30 days to detect. 
In that instance, the item was detected on the 105th day following 
presentment. Even in that instance, under the proposed rule, liability 
for the loss would be shifted to an indorser only if it were determined 
that the indorser breached the guarantee of authenticity in Sec.  
240.3(d) by failing to make all reasonable efforts to ensure that the 
check was authentic. Consequently, the provisions relating to liability 
for losses resulting from the payment of counterfeit checks is not 
expected to have a significant impact on a substantial number of small 
business entities.

List of Subjects in 31 CFR Part 240

    Banks, Banking, Checks, Counterfeit checks, Federal Reserve system, 
Forgery, Guarantees.

Authority and Issuance

0
For the reasons stated in the preamble, part 240 of title 31 is revised 
to read as follows:

PART 240--INDORSEMENT AND PAYMENT OF CHECKS DRAWN ON THE UNITED 
STATES TREASURY

General Provisions

Sec.
240.1 Scope of regulations.
240.2 Definitions.
240.3 Presentment guarantees.
240.4 Limitations on payment; cancellation and distribution of 
proceeds of checks.
240.5 Provisional credit; first examination; declination; final 
payment.
240.6 Declination protest.
240.7 Reclamation of amounts of paid checks.
240.8 Reclamation procedures; reclamation protests.
240.9 Offset.
240.10 Treasury Check Offset.
240.11 Processing of checks.

Indorsement of Checks

240.12 Indorsement by payees.
240.13 Checks issued to incompetent payees.
240.14 Checks issued to deceased payees.
240.15 Checks issued to minor payees.
240.16 Powers of attorney.
240.17 Lack of authority to shift liability.
240.18 Reservation of rights.
Appendix A to Part 240--Optional Forms for Powers of Attorney and 
Their Application.

    Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 321, 3327, 
3328, 3331, 3334, 3343, 3711, 3712, 3716, 3717; 332 U.S. 234 (1947); 
318 U.S. 363 (1943).

General Provisions


Sec.  240.1  Scope of regulations.

    (a) The regulations in this part prescribe the requirements for 
indorsement and the conditions for payment of checks drawn on the 
United States Treasury. These regulations also establish procedures for 
collection of amounts due the United States Treasury based on claims 
arising from the breach of presentment guarantees by presenting banks 
and other indorsers of Treasury checks when checks bearing material 
defects or alterations or forged disbursing officer (drawer) signatures 
are presented for payment and are paid.
    (b) Standards contained in this regulation supersede existing 
Federal common law to the extent that they are inconsistent with 
Federal common law rules relating to counterfeit checks. Under the 
provisions of this regulation, the risk of loss on certain counterfeit 
checks is placed on presenting banks and other indorsers unless 
Treasury fails to timely reclaim on a check payment in accordance with 
31 U.S.C. 3712(a) and Sec.  240.7 of this regulation. Treasury will 
reclaim on counterfeit checks that are deemed paid under Sec.  240.5(d) 
of this regulation when a presenting bank or other indorser fails to 
make all reasonable efforts to ensure that a check is an authentic 
Treasury check.


Sec.  240.2  Definitions.

    (a) Administrative offset or offset, for purposes of this section, 
has the same meaning as defined in 31 U.S.C. 3701(a)(1) and 31 CFR part 
285.
    (b) Agency means any agency, department, instrumentality, office, 
commission, board, service, or other establishment of the United States 
authorized to issue Treasury checks or for which checks drawn on the 
United States Treasury are issued.
    (c) Certifying agency means an agency authorizing the issuance of a 
payment by a disbursing official in accordance with 31 U.S.C. 3325.
    (d) Check or checks means a check or checks drawn on the United 
States Treasury.
    (e) Check payment means the amount paid to a presenting bank by a 
Federal Reserve Bank.
    (f) Counterfeit check means a document that purports to be an 
authentic check drawn on the United

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States Treasury, but in fact is not an authentic check.
    (g) Days means calendar days. For purposes of computation, the last 
day of the period will be included unless it is a Saturday, Sunday, or 
Federal holiday; the first day is not included. For example, if a 
reclamation was issued on July 1, the 90 day protest period under Sec.  
240.8(b) would begin on July 2. If the 90th day fell on a Saturday, 
Sunday or Federal holiday, the protest would be accepted if received on 
the next business day.
    (h) Declination means the process by which Treasury refuses to make 
final payment on a check, i.e., declines payment, by instructing a 
Federal Reserve Bank to reverse its provisional credit to a presenting 
bank.
    (i) Declination date means the date on which the declination is 
issued by Treasury.
    (j) Disbursing official means an official, including an official of 
the Department of the Treasury, the Department of Defense, any 
Government corporation (as defined in 31 U.S.C. 9101), or any official 
of the United States designated by the Secretary of the Treasury, 
authorized to disburse public money pursuant to 31 U.S.C. 3321 or 
another law.
    (k) Drawer's signature means the signature of a disbursing official 
placed on the front of a Treasury check as the drawer of the check.
    (l) Federal Reserve Bank means a Federal Reserve Bank (FRB) or a 
branch of a Federal Reserve Bank.
    (m) Federal Reserve Processing Center means a Federal Reserve Bank 
center that images Treasury checks for archiving check information and 
transmitting such information to Treasury.
    (n) Financial institution means:
    (1) Any insured bank as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make 
application to become an insured bank under section 5 of such Act (12 
U.S.C. 1815);
    (2) Any mutual savings bank as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible to 
make application to become an insured bank under section 5 of such Act 
(12 U.S.C. 1815);
    (3) Any savings bank as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make 
application to become an insured bank under section 5 of such Act (12 
U.S.C. 1815);
    (4) Any insured credit union as defined in section 101 of the 
Federal Credit Union Act (12 U.S.C. 1752) or any credit union which is 
eligible to make application to become an insured credit union under 
section 201 of such Act (12 U.S.C. 1781);
    (5) Any savings association as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) which is an insured depositary 
institution (as defined in such Act) (12 U.S.C. 1811 et seq.) or is 
eligible to apply to become an insured depositary institution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and
    (6) Any financial institution outside of the United States if it 
has been designated by the Secretary of the Treasury as a depositary of 
public money and has been permitted to charge checks to the General 
Account of the United States Treasury.
    (o) First examination means Treasury's initial review of a check 
that has been presented for payment. The initial review procedures, 
which establish the authenticity and integrity of a check presented to 
Treasury for payment, may include reconciliation; retrieval and 
inspection of the check or the best available image thereof; and other 
procedures Treasury deems appropriate to specific circumstances.
    (p) Forged or unauthorized drawer's signature means a drawer's 
signature that has been placed on the front of a Treasury check by a 
person other than:
    (1) A disbursing official; or
    (2) A person authorized to sign on behalf of a disbursing official.
    (q) Forged or unauthorized indorsement means:
    (1) An indorsement of the payee's name by another person who is not 
authorized to sign for the payee; or
    (2) An indorsement of the payee's name made by another person who 
has been authorized by the payee, but who has not indorsed the check in 
accordance with Sec.  240.3 and Sec. Sec.  240.12 through 240.16; or
    (3) An indorsement added by a financial institution where the 
financial institution had no authority to supply the indorsement; or
    (4) A check bearing an altered payee name that is indorsed using 
the payee name as altered.
    (r) Guarantor means a financial institution that presents a check 
for payment and any prior indorser(s) of a check.
    (s) Material defect or alteration means:
    (1) The counterfeiting of a check; or
    (2) Any physical change on a check, including, but not limited to, 
a change in the amount, date, payee name, or other identifying 
information printed on the front or back of the check (but not 
including a forged or unauthorized drawer's signature); or
    (3) Any forged or unauthorized indorsement appearing on the back of 
the check.
    (t) Minor means the term minor as defined under applicable State 
law.
    (u) Monthly statement means a statement prepared by Treasury which 
includes the following information regarding each outstanding 
reclamation:
    (1) The reclamation date;
    (2) The reclamation number;
    (3) Check identifying information; and
    (4) The balance due, including interest, penalties, and 
administrative costs.
    (v) Payee means the person that the certifying agency designated to 
receive payment pursuant to 31 U.S.C. 3528.
    (w) Person means an individual, institution, including a financial 
institution, or any other type of entity; the singular includes the 
plural.
    (x) Presenting bank means:
    (1) A financial institution which, either directly or through a 
correspondent banking relationship, presents checks to and receives 
provisional credit from a Federal Reserve Bank; or
    (2) A depositary which is authorized to charge checks directly to 
Treasury's General Account and present them to Treasury for payment 
through a designated Federal Reserve Bank.
    (y) Provisional credit means the initial credit provided to a 
presenting bank by a Federal Reserve Bank. Provisional credit may be 
reversed by Treasury until the completion of first examination or final 
payment is deemed made pursuant to Sec.  240.5(d).
    (z) Reasonable efforts, for purposes of Sec.  240.7, means, at a 
minimum, verifying the existence of the U.S. Treasury watermark. Based 
upon the facts at hand, reasonable efforts may require the verification 
of additional security features.
    (aa) Reclamation means a demand for the amount of a check for which 
Treasury has requested an immediate refund.
    (bb) Reclamation date means the date on which a reclamation is 
issued by Treasury. Normally, demands are sent to presenting banks or 
other indorsers within two business days of the reclamation date.
    (cc) Reclamation debt means the amount owed as a result of 
Treasury's demand for refund of a check payment, and includes interest, 
penalties and administrative costs assessed in accordance with Sec.  
240.7.
    (dd) Reclamation debtor means a presenting bank or other indorser 
of a

[[Page 17276]]

check from whom Treasury has demanded a refund in accordance with 
Sec. Sec.  240.7 and 240.8. The reclamation debtor does not include a 
presenting bank or other indorser who may be liable for a reclamation 
debt, but from which Treasury has not demanded a refund.
    (ee) Recurring benefit payment includes but is not limited to a 
payment of money for any Federal Government entitlement program or 
annuity.
    (ff) Treasury means the United States Department of the Treasury, 
or when authorized, an agent designated by the Secretary of the 
Treasury or his delegee.
    (gg) Treasury Check Offset means the collection of an amount owed 
by a presenting bank in accordance with 31 U.S.C. 3712(e).
    (hh) U.S. securities means securities of the United States and 
securities of Federal agencies and Government corporations for which 
Treasury acts as the transfer agent.
    (ii) Writing includes electronic communications when specifically 
authorized by Treasury in implementing instructions.


Sec.  240.3  Presentment guarantees.

    The guarantors of a check presented to the Treasury for payment are 
deemed to guarantee to the Treasury all of the following:
    (a) Indorsements. That all prior indorsements are genuine, whether 
or not an express guarantee is placed on the check. When the first 
indorsement has been made by one other than the payee personally, the 
presenting bank and the indorsers are deemed to guarantee to the 
Treasury, in addition to other guarantees, that the person who so 
indorsed had unqualified capacity and authority to indorse the check on 
behalf of the payee.
    (b) Alterations. That the check has not been materially altered.
    (c) Drawer's signature. That the guarantors have no knowledge that 
the signature of the drawer is forged or unauthorized.
    (d) Authenticity. That the guarantors have made all reasonable 
efforts to ensure that a check is an authentic Treasury check, not a 
counterfeit check.


Sec.  240.4  Limitations on payment; cancellation and distribution of 
proceeds of checks.

    (a) Limitations on payment.
    (1) Treasury shall not be required to pay any check that is not 
negotiated to a financial institution within 12 months after the date 
on which the check was issued.
    (2) All checks shall bear a legend, stating ``Void After One 
Year.'' The legend is notice to payees and indorsers of a general 
limitation on the payment of checks. The legend, or the inadvertent 
lack thereof, does not limit, or otherwise affect, the rights of 
Treasury under the law.
    (b) Cancellation and distribution of proceeds of checks.
    (1) Any check that has not been paid and remains outstanding for 
more than 12 months after the issue date will be canceled by Treasury.
    (2) The proceeds from checks canceled pursuant to paragraph (b)(1) 
of this section will be returned to the payment certifying or 
authorizing agency for ultimate credit to the appropriation or fund 
account initially charged for the payment.
    (3) On a monthly basis, Treasury will provide to each agency that 
authorizes the issuance of checks a list of those checks issued for 
such agency which were canceled during the preceding month pursuant to 
paragraph (b)(1) of this section.


Sec.  240.5  Provisional credit; first examination; declination; final 
payment.

    (a) Any credit issued by a Federal Reserve Bank to a financial 
institution shall be a provisional credit until Treasury completes 
first examination of the check, or as provided in paragraph (d) of this 
section.
    (b) Treasury shall have the right as a drawee to complete first 
examination of checks presented for payment, to reconcile checks, and, 
when appropriate, to make a declination on any check.
    (c) Treasury will decline payment on a check when first examination 
by Treasury establishes that the check:
    (1) Has a material defect or alteration; or
    (2) Bears a forged or unauthorized drawer's signature.
    (d) Treasury shall have a reasonable amount of time to complete 
first examination. However, except as provided in paragraph (e) of this 
section, if Treasury has not declined payment on a check within 60 days 
after the check is presented to a Federal Reserve Processing Center for 
payment, Treasury will be deemed to have made final payment on the 
check.
    (e) Notwithstanding the provisions of paragraph (d) of this 
section, in accordance with 31 U.S.C. 3328(a)(2), if, upon presentment 
for payment, Treasury is on notice of a question of law or fact about 
whether a check is properly payable, Treasury may defer final payment 
until the question is settled.
    (f) If a Federal Reserve Bank debits a financial institution's 
reserve account as a result of an erroneous declination, Treasury will 
promptly refund the amount of the payment.


Sec.  240.6  Declination protest.

    (a) Who may protest. Only a presenting bank may protest the 
declination of a check that it has presented to a Federal Reserve Bank 
for payment.
    (b) Basis for protest. Where Treasury, in accordance with Sec.  
240.5, has made a declination of a check presented for payment and a 
Federal Reserve Bank has reversed its provisional credit to the 
presenting bank, the presenting bank may file a protest challenging the 
factual basis for such declination. Protests may be filed challenging 
the following determinations:
    (1) Counterfeit checks. The presenting bank may offer evidence that 
the check is not a counterfeit.
    (2) Altered checks. The presenting bank may offer evidence that the 
check is not altered.
    (3) Checks bearing forged or unauthorized drawer's signatures. The 
presenting bank may offer evidence that the drawer's signature was 
authentic or was authorized.
    (4) Checks bearing a forged or unauthorized indorsement. The 
presenting bank may offer evidence that an indorsement on the back of 
the check was not forged or was otherwise authorized in accordance with 
the requirements of Sec. Sec.  240.12 through 240.16.
    (c) Procedures for filing a protest. A declination protest must be 
in writing, and must be sent to: Department of the Treasury, Financial 
Management Service, Branch Manager, Financial Processing Division, 
Check Reconciliation Branch, Room 700-A, PO Box 1849, 3700 East-West 
Highway, Hyattsville, MD 20788, or to such other address as Treasury 
may publish in the Treasury Financial Manual, which can be found at 
http://www.fms.treas.gov. Treasury will not consider any protest unless 
it is received within 90 days from the declination date.
    (d) Review of a declination protest. The Director, Financial 
Processing Division, or an authorized designee, will make every effort 
to decide any protest properly submitted under this section within 60 
days, and will notify the presenting bank of Treasury's decision. In 
those cases where it is not possible to render a decision within 60 
days, the Director, Financial Processing Division, or an authorized 
designee, will notify the presenting bank of the delay. Neither the 
Director, Financial Processing Division, nor an authorized designee, 
will have any involvement in

[[Page 17277]]

the decision to deny payment of a check under Sec.  240.5 of this Part.
    (1) If, based on the evidence provided, the Director of the 
Financial Processing Division, or an authorized designee, finds that 
the presenting bank has met, by a preponderance of the evidence, the 
criteria in paragraph (b) of this section, Treasury will reverse its 
decision to decline payment on the check by directing a Federal Reserve 
Bank to provide credit in the amount of the check to the presenting 
bank.
    (2) If, based on the evidence provided, the Director of the 
Financial Processing Division, or an authorized designee, finds that 
the presenting bank has failed to meet, by a preponderance of the 
evidence, the criteria in paragraph (b) of this section, the 
declination will not be reversed.


Sec.  240.7  Reclamation of amounts of paid checks.

    (a) If, after making final payment in accordance with Sec.  240.5, 
Treasury determines that any guarantor has breached a presentment 
guarantee listed in Sec.  240.3, the guarantor shall be liable to 
Treasury for the full amount of the check payment. Treasury may reclaim 
the amount of the check payment from any such guarantor prior to:
    (1) The end of the 1-year period beginning on the date that a check 
is processed for payment by a Federal Reserve Processing Center; or
    (2) The expiration of the 180-day period beginning on the close of 
the period described in paragraph (a)(1) of this section if a timely 
claim under 31 U.S.C. 3702 is presented to the certifying agency.
    (b) Treasury will not reclaim on a check that bears a forged or 
unauthorized drawer's signature unless it has evidence that the 
reclamation debtor had knowledge of the forged or unauthorized drawer's 
signature.
    (c) Treasury will not reclaim on a counterfeit check unless the 
reclamation debtor has failed to make all reasonable efforts to ensure 
that a check is an authentic check and not a counterfeit check. 
Guidance on the key security features found on U.S. Treasury checks is 
available on the FMS Web site at: http://www.fms.treas.gov/checkclaims/check_security.pdf. Institutions may contact the FMS Questioned 
Documents Branch at (202) 874-7640 for additional information about 
these security features or to request training.
    (d) Reclamation debts are due to be paid upon receipt of the 
reclamation by the reclamation debtor. Interest, penalties, and 
administrative costs associated with unpaid balances will accrue as 
follows:
    (1) Interest. Treasury will assess interest on the unpaid principal 
of the reclamation debt beginning on the 61st day following the 
reclamation date, and will calculate interest based on the rate 
published annually by Treasury in accordance with 31 U.S.C. 3717. 
Interest will continue to accrue until the full amount of the 
reclamation is paid or Treasury determines that payment is not 
required.
    (2) Penalties. Treasury will assess a penalty beginning on the 91st 
day following the reclamation date. The penalty will be assessed in 
accordance with 31 U.S.C. 3717 on the unpaid principal of the 
reclamation debt, and will continue to accrue until the full amount of 
the reclamation debt is paid or Treasury determines that payment is not 
required.
    (3) Administrative costs. Treasury will assess administrative costs 
associated with the unpaid reclamation debt beginning on the 61st day 
following the reclamation date. Administrative costs will continue to 
accrue until the full amount of the reclamation debt is paid or 
Treasury determines that payment is not required.
    (e) If Treasury is unable to fully collect a reclamation debt from 
a reclamation debtor, after pursuing all appropriate means of 
collection (including, but not limited to, administrative offset in 
accordance with Sec.  240.9 and Treasury Check Offset in accordance 
with Sec.  240.10), Treasury will discharge the unpaid reclamation 
debt. See 31 CFR 903.5 (Discharge of indebtedness; reporting 
requirements). Treasury or the certifying agency will report the amount 
of the unpaid reclamation debt to the Internal Revenue Service in 
accordance with the requirements of 26 U.S.C. 6050P and 26 CFR 1.6050P-
1.


Sec.  240.8  Reclamation procedures; reclamation protests.

    (a) Reclamation procedures.
    (1) Treasury will send a ``REQUEST FOR REFUND (CHECK RECLAMATION)'' 
to the reclamation debtor in accordance with Sec.  240.7(a). This 
request will advise the reclamation debtor of the amount demanded and 
the reason for the demand. Treasury will make follow-up demands by 
sending at least three monthly statements to the reclamation debtor. 
Monthly statements will identify any unpaid reclamation debts (as 
defined at Sec.  240.2) and will contain or be accompanied by notice to 
the reclamation debtor that:
    (i) If the reclamation debt is not paid within 120 days of the 
reclamation date, Treasury intends to collect the debt through 
administrative offset in accordance with Sec.  240.9;
    (ii) If the administrative offset is unsuccessful, Treasury intends 
to collect the debt through Treasury Check Offset in accordance with 
Sec.  240.10;
    (iii) The reclamation debtor has an opportunity to inspect and copy 
Treasury's records with respect to the reclamation debt;
    (iv) The reclamation debtor may, by filing a protest in accordance 
with Sec.  240.8(b), request Treasury to review its decision that the 
reclamation debtor is liable for the reclamation debt; and
    (v) The reclamation debtor has an opportunity to enter into a 
written agreement with Treasury for the repayment of the reclamation 
debt. A request for a repayment agreement must be accompanied by 
documentary proof that satisfies Treasury that the reclamation debtor 
is unable to repay the entire amount owed when due.
    (2) Requests by a reclamation debtor for an appointment to inspect 
and copy Treasury's records with respect to a reclamation debt and 
requests to enter into repayment agreements must be sent in writing to: 
Department of the Treasury, Financial Management Service, Financial 
Processing Division, Reclamation Branch, Room 700D, PO Box 1849, 
Hyattsville, MD 20788, or to such other address as Treasury may publish 
in the Treasury Financial Manual, which can be found at http://www.fms.treas.gov.
    (3) If a reclamation debt remains unpaid for 90 days after the 
reclamation date and if there is no unresolved protest associated with 
the reclamation debt, the monthly statement will be annotated with a 
notice that the reclamation debtor has until the next billing date to 
make payment on the reclamation debt or Treasury will proceed to 
collect the reclamation debt through offset in accordance with Sec.  
240.9 and Treasury Check Offset in accordance with Sec.  240.10.
    (4) If Treasury determines that a reclamation has been made in 
error, Treasury will abandon the reclamation. If Treasury already has 
collected the amount of the reclamation from the reclamation debtor, 
Treasury will promptly refund to the reclamation debtor the amount of 
its payment. Treasury may refund the amount either by applying the 
amount to another reclamation debt owed by the reclamation debtor in 
accordance with this Part or other applicable law, or by returning the 
amount to the reclamation debtor.
    (b) Reclamation protests.

[[Page 17278]]

    (1) Who may protest. Only a reclamation debtor may protest a 
reclamation.
    (2) Basis for protest. Where Treasury, in accordance with Sec.  
240.7 and paragraph (a) of this section, reclaims the amount of a check 
payment, the reclamation debtor may file a protest challenging such 
reclamation. Protests may be filed challenging the following 
determinations:
    (i) Counterfeit checks. The reclamation debtor may offer evidence 
that it made all reasonable efforts to ensure that a check is 
authentic. The reclamation debtor must include evidence that the check 
was examined for a watermark as required under Sec. Sec.  240.2(z) and 
240.3. Depending on the circumstances, FMS may require evidence that 
the reclamation debtor also examined the check for evidence of 
additional security features as described in guidance provided by 
Treasury or on Treasury's behalf.
    (ii) Altered checks. The reclamation debtor may offer evidence that 
the check is not altered.
    (iii) Checks bearing forged or unauthorized drawer's signatures. 
The reclamation debtor may offer evidence that the reclamation debtor 
did not have knowledge of the forged or unauthorized drawer's 
signature.
    (iv) Checks bearing a forged or unauthorized indorsement. The 
reclamation debtor may offer evidence that the indorsement was not 
forged or was otherwise authorized in accordance with the requirements 
of Sec. Sec.  240.12 through 240.16.
    (3) Procedures for filing a protest. A reclamation protest must be 
in writing, and must be sent to: Department of the Treasury, Financial 
Management Service, Financial Processing Division, Reclamation Branch, 
Room 700D, PO Box 1849, Hyattsville, MD 20788, or to such other address 
as Treasury may publish in the Treasury Financial Manual, which can be 
found at http://www.fms.treas.gov.
    (i) The reclamation protest must include supporting documentation 
(including, but not limited to, affidavits, account agreements, and 
signature cards) for the purpose of establishing that the reclamation 
debtor is not liable for the reclamation debt.
    (ii) Treasury will not consider reclamation protests received more 
than 90 days after the reclamation date.
    (iii) Treasury may, at its discretion, consider information 
received from a guarantor other than the reclamation debtor. However, 
in so doing, Treasury does not waive any of its rights under this Part, 
nor does Treasury grant rights to any guarantor that are not otherwise 
provided in this Part.
    (4) Review of a reclamation protest. The Director, Financial 
Processing Division, or an authorized designee, will make every effort 
to decide any protest properly submitted under this section within 60 
days, and will notify the reclamation debtor of Treasury's decision. In 
those cases where it is not possible to render a decision within 60 
days, the Director, Financial Processing Division, or an authorized 
designee, will notify the reclamation debtor of the delay. Neither the 
Director, Financial Processing Division, nor an authorized designee, 
will have any involvement in the process of making determinations under 
Sec.  240.7(a) of this Part or sending a ``REQUEST FOR REFUND (CHECK 
RECLAMATION)'' under Sec.  240.8(a) of this Part.
    (i) Treasury will refrain from the collection activities identified 
in Sec. Sec.  240.9 and 240.10 while a timely protest is being 
considered. However, interest, penalties, and administrative costs will 
continue to accrue and will be added to the reclamation debt until a 
final determination on the protest has been made.
    (ii) If, based on the evidence provided, the Director of the 
Financial Processing Division, or an authorized designee, finds that 
the reclamation debtor has met, by a preponderance of the evidence, the 
criteria in paragraph (b)(2) of this section, Treasury will notify the 
reclamation debtor, in writing, of his or her decision to terminate 
collection and will refund any amounts previously collected for the 
reclamation debt. Treasury may refund the amount either by applying the 
amount to another reclamation debt owed by the reclamation debtor in 
accordance with this Part or other applicable law, or by returning the 
amount to the reclamation debtor.
    (iii) If the Director, Financial Processing Division, or an 
authorized designee, finds, by a preponderance of the evidence, that 
the reclamation debtor is liable for the reclamation debt, Treasury 
will notify the reclamation debtor, in writing, of his or her decision. 
If the reclamation debtor has not paid the reclamation in full, the 
reclamation debtor must pay any outstanding amounts in full within 30 
days from the date of Treasury's decision. If the reclamation debtor 
fails to pay the reclamation debt in full within that time frame, 
Treasury will proceed to collect the reclamation debt through offset in 
accordance with Sec. Sec.  240.9 and 240.10.
    (5) Effect of protest decision. The notice provided to the 
reclamation debtor under paragraph (b)(4)(iii) of this section shall 
serve as the final agency determination under the Administrative 
Procedure Act (5 U.S.C. 701, et seq.). No civil suit may be filed until 
the reclamation debtor has filed a protest under this section, and 
Treasury has provided notice of its final determination.


Sec.  240.9  Offset.

    (a) If a reclamation debt remains unpaid for 120 days after the 
reclamation date, Treasury will refer the reclamation debt, if 
eligible, to Treasury's centralized offset program (see 31 CFR Part 
285) or another Federal agency for offset in accordance with 31 U.S.C. 
3716. Prior to making a referral for offset, Treasury, in accordance 
with Sec.  240.8(a)(3), will send at least one monthly statement to the 
reclamation debtor informing the reclamation debtor that Treasury 
intends to collect the reclamation debt by administrative offset and 
Treasury Check Offset.
    (b) If a reclamation debtor wishes to make payment on a reclamation 
debt referred for offset, the reclamation debtor should contact 
Treasury at the address listed in Sec.  240.8(b) to resolve the debt 
and avoid offset.
    (c) If Treasury is unable to collect a reclamation debt by use of 
the offset described in paragraph (a) of this section, Treasury shall 
take such action against the reclamation debtor as may be necessary to 
protect the interests of the United States, including, but not limited 
to, Treasury Check Offset in accordance with Sec.  240.10, or referral 
to the Department of Justice.
    (d) If Treasury effects offset under this section and it is later 
determined that the reclamation debtor already had paid the amount of 
the reclamation debt, or that a reclamation debtor which had timely 
filed a protest was not liable for the amount of the reclamation, 
Treasury will promptly refund to the reclamation debtor the amount of 
its payment. Treasury may refund the amount either by applying the 
amount to another reclamation debt owed by the reclamation debtor in 
accordance with this Part or other applicable law, or by returning the 
amount to the reclamation debtor.


Sec.  240.10  Treasury Check Offset.

    (a) If Treasury is unable to effect collection pursuant to 
Sec. Sec.  240.7, 240.8, or 240.9, of this Part, Treasury will collect 
the amount of the reclamation debt through Treasury Check Offset. 
Treasury Check Offset occurs when, at the direction of the Treasury, a 
Federal Reserve Bank withholds, that is, offsets, credit from a 
presenting bank. The amount of credit offset is applied to the

[[Page 17279]]

reclamation debt owed by the presenting bank. By presenting Treasury 
checks for payment, the presenting bank is deemed to authorize Treasury 
Check Offset.
    (b) If Treasury effects offset under this section and it is later 
determined that the presenting bank paid the reclamation debt in full, 
or that a presenting bank was not liable for the amount of the 
reclamation debt, Treasury will promptly refund to the presenting bank 
the amount of its overpayment. Treasury may refund the amount either by 
applying the amount to another reclamation debt in accordance with this 
Part or other applicable law, or by returning the amount to the 
presenting bank.
    (c) Treasury Check Offset is used for the purpose of collecting 
debt owed by a presenting bank to the Federal Government. As a 
consequence, presenting banks shall not be able to use the fact that 
Treasury checks have not been paid as the basis for a claim against 
Treasury, a Federal Reserve Bank, or other persons or entities, 
including payees or other indorsers of checks, for the amount of the 
credit offset pursuant to 31 U.S.C. 3712(e) and this section.
    (d) This section does not apply to a claim based upon a reclamation 
that has been outstanding for more than 10 years from the date of 
delinquency.


Sec.  240.11  Processing of checks.

    (a) Federal Reserve Banks.
    (1) Federal Reserve Banks must cash checks for Government 
disbursing officials when such checks are drawn by the disbursing 
officials to their own order, except that payment of such checks must 
be refused if:
    (i) A check bears a material defect or alteration;
    (ii) A check was issued more than one year prior to the date of 
presentment; or
    (iii) The Federal Reserve Bank has been notified by Treasury, in 
accordance with Sec.  240.14(c), that a check was issued to a deceased 
payee.
    (2) Federal Reserve Banks are not required to cash checks presented 
directly to them by the general public.
    (3) As a depositary of public funds, each Federal Reserve Bank 
shall:
    (i) Receive checks from its member banks, nonmember clearing banks, 
or other depositors, when indorsed by such banks or depositors who 
guarantee all prior indorsements thereon;
    (ii) Give immediate provisional credit therefore in accordance with 
their current Time Schedules and charge the amount of the checks cashed 
or otherwise received to the General Account of the United States 
Treasury, subject to first examination and payment by Treasury;
    (iii) Forward payment records, requested original checks, and 
copies of checks to Treasury; and
    (iv) Release the original checks to a designated Regional Records 
Services Facility upon notification from Treasury.
    (4) If a check is to be declined under Sec.  240.5, Treasury will 
provide the Federal Reserve Bank with notice of declination upon the 
completion of first examination. Federal Reserve Banks must give 
immediate credit therefor to Treasury's General Account, thereby 
reversing the previous charge to the General Account for such check.
    (5) Treasury authorizes each Federal Reserve Bank to release a copy 
of the check to the presenting bank when payment is declined.
    (b) Treasury General Account (TGA) designated depositaries outside 
the United States.
    (1) Financial institutions outside the United States designated by 
Treasury as depositaries of public money in accordance with 31 U.S.C. 
3303 and permitted to charge checks to the General Account of the 
United States Treasury in accordance with Treasury implementing 
instructions shall be governed by the operating instructions contained 
in the letter of authorization to them from Treasury and are, as 
presenting banks, subject to the provisions of Sec. Sec.  240.3, 240.7, 
and 240.8.
    (2) If a check is to be declined under Sec.  240.5, Treasury will 
provide the presenting bank with notice of declination upon the 
completion of first examination and will provide the presenting bank 
with a copy or image of the check. Such presenting bank must give 
immediate credit therefore to the General Account of the United States 
Treasury, thereby reversing the previous charge to the Account for such 
check. Treasury authorizes the designated Federal Reserve Bank to 
return to such presenting bank the original check when payment is 
declined in accordance with Sec.  240.4(a) or Sec.  240.14(c).
    (3) To ensure complete recovery of the amount due, reclamation 
refunds require payment in U.S. dollars with checks drawn on or payable 
through U.S. financial institutions located in the United States. 
Reclamation refunds initiated by financial institutions outside of the 
United States must be sent through their headquarters or U.S. 
correspondent financial institution only. The payments should be 
accompanied by documentation identifying the check that was the subject 
of the reclamation (such as a copy of the reclamation notice or the 
current monthly statement). Reclamation refunds shall not be deposited 
to Treasury's General Account.
    (4) Additional information relating to designated depositaries 
outside the United States may be found in Volume VI, Chapter 2000, of 
the Treasury Financial Manual, which can be found at http://www.fms.treas.gov.

Indorsement of Checks


Sec.  240.12  Indorsement by payees.

    (a) General requirements. Checks shall be indorsed by the named 
payee or by another on behalf of such named payee as set forth in this 
Part.
    (b) Acceptable indorsements.
    (1) A check is properly indorsed when:
    (i) The check is indorsed by the payee in a form recognized by 
general principles of law and commercial usage for negotiation, 
transfer or collection of negotiable instruments.
    (ii) The check is indorsed by another on behalf of the named payee, 
and sufficiently indicates that the indorser has indorsed the check on 
behalf of the payee pursuant to authority expressly conferred by or 
under law or other regulation. An example would be: ``John Jones by 
Mary Jones.'' This example states the minimum indication acceptable. 
However, Sec. Sec.  240.13, 240.14, and 240.16(f) specify the addition 
of an indication in specified situations of the actual capacity in 
which the person other than the named payee is indorsing.
    (iii) Absent a signature, the check is indorsed ``for collection'' 
or ``for deposit only to the credit of the within named payee or 
payees.'' The presenting bank shall be deemed to guarantee good title 
to checks without signatures to all subsequent indorsers and to 
Treasury.
    (iv) The check is indorsed by a financial institution under the 
payee's authorization.
    (2) Indorsement of checks by a duly authorized fiduciary or 
representative. The individual or institution accepting a check from a 
person other than the named payee is responsible for determining 
whether such person is authorized and has the capacity to indorse and 
negotiate the check. Evidence of the basis for such a determination may 
be required by Treasury in the event of a dispute.
    (3) Indorsement of checks by a financial institution under the 
payee's authorization. When a check is credited by a financial 
institution to the payee's account under the payee's authorization, the 
financial institution may use an indorsement substantially as follows: 
``Credit to the account of the

[[Page 17280]]

within-named payee in accordance with the payee's instructions. XYZ 
[Name of financial institution].'' A financial institution using this 
form of indorsement will be deemed to guarantee to all subsequent 
indorsers and to the Treasury that it is acting as an attorney-in-fact 
for the payee, under the payee's authorization, and that this authority 
is currently in force and has neither lapsed nor been revoked either in 
fact or by the death or incapacity of the payee.
    (4) Indorsement of checks drawn in favor of financial institutions. 
All checks drawn in favor of a financial institution, for credit to the 
account of a person designating payment so to be made, must be indorsed 
in the name of the financial institution as payee in the usual manner. 
However, no check drawn in favor of a financial institution for credit 
to the account of a payee may be negotiated by the financial 
institution after the death of the payee.
    (c) Unacceptable indorsements.
    (1) A check is not properly indorsed when the check is signed or 
otherwise is indorsed by a person without the payee's consent or 
authorization.
    (2) Failure to include the signature of the person signing the 
check as required by paragraph (b)(1)(ii) of this section will create a 
rebuttable presumption that the indorsement is a forgery and is 
unacceptable.
    (3) Failure to include sufficient indication of the indorser's 
authority to act on behalf of the payee as required by paragraph 
(b)(1)(ii) of this section will create a rebuttable presumption that 
the indorsing person is not authorized to indorse a check for the 
payee.


Sec.  240.13  Checks issued to incompetent payees.

    (a) Handling of checks when a guardian or other fiduciary has been 
appointed.
    (1) A guardian appointed in accordance with applicable State law, 
or a fiduciary appointed in accordance with other applicable law, may 
indorse checks issued for the following classes of payments the right 
to which under law does not terminate with the death of the payee: 
payments for the redemption of currencies or for principal and/or 
interest on U.S. securities; payments for tax refunds; and payments for 
goods and services.
    (i) A guardian or other fiduciary indorsing any such check on 
behalf of an incompetent payee, must include, as part of the 
indorsement, an indication of the capacity in which the guardian or 
fiduciary is indorsing. An example would be: ``John Jones by Mary 
Jones, guardian of John Jones.''
    (ii) When a check indorsed in this fashion is presented for payment 
by a financial institution, it will be paid by Treasury without 
submission of documentary proof of the authority of the guardian or 
other fiduciary, with the understanding that evidence of such claimed 
authority to indorse may be required by Treasury in the event of a 
dispute.
    (2) A guardian or other fiduciary may not indorse a check issued 
for any class of payment other than one specified in paragraph (a)(1) 
of this section. When a check other than one specified in paragraph 
(a)(1) of this section is received by a guardian or other fiduciary, 
the check must be returned to the certifying agency with information as 
to the incompetence of the payee and documentary evidence showing the 
appointment of the guardian or other fiduciary in order that a 
replacement check, and future checks, may be drawn in favor of the 
guardian or other fiduciary.
    (b) Handling of checks when a guardian or other fiduciary has not 
been appointed. If a guardian or other fiduciary has not been 
appointed, all checks issued to an incompetent payee must be returned 
to the certifying agency for determination as to whether, under 
applicable law, payment is due and to whom it may be made.
    (c) Handling of certain checks by an attorney-in-fact. 
Notwithstanding paragraph (a)(2) of this section, if a check was issued 
for a class of payments the right to which under law terminates upon 
the death of the beneficiary, such as a recurring benefit payment or 
annuity, the check may be negotiated under a durable special power of 
attorney or springing durable special power of attorney subject to the 
restrictions enumerated in Sec.  240.16. After the end of the six-month 
period provided in Sec. Sec.  240.16(d) and (e), such checks must be 
handled in accordance with paragraph (a)(2) of this section.


Sec.  240.14  Checks issued to deceased payees.

    (a) Handling of checks when an executor or administrator has been 
appointed.
    (1) An executor or administrator of an estate that has been 
appointed in accordance with applicable State law may indorse checks 
issued for the following classes of payments the right to which under 
law does not terminate with the death of the payee: payments for the 
redemption of currencies or for principal and/or interest on U.S. 
securities; payments for tax refunds; and payments for goods and 
services.
    (i) An executor or administrator indorsing any such check must 
include, as part of the indorsement, an indication of the capacity in 
which the executor or administrator is indorsing. An example would be: 
``John Jones by Mary Jones, executor of the estate of John Jones.''
    (ii) When a check indorsed in this fashion is presented for payment 
by a financial institution, it will be paid by Treasury without the 
submission of documentary proof of the authority of the executor or 
administrator, with the understanding that evidence of such claimed 
authority to indorse may be required by Treasury in the event of a 
dispute.
    (2) An executor or administrator of an estate may not indorse a 
check issued for any class of payment other than one specified in 
paragraph (a)(1) of this section. Other checks, such as recurring 
benefit payments and annuity payments, may not be negotiated after the 
death of the payee. Such checks must be returned to the certifying 
agency for determination as to whether, under applicable law, payment 
is due and to whom it may be made.
    (b) Handling of checks when an executor or administrator has not 
been appointed. If an executor or administrator has not been appointed, 
all checks issued to a deceased payee must be returned to the 
certifying agency for determination as to whether, under applicable 
law, payment is due and to whom it may be made.
    (c) Handling of checks when a certifying agency learns, after the 
issuance of a recurring benefit payment check, that the payee died 
prior to the date of issuance.
    (1) A recurring benefit payment check, issued after a payee's 
death, is not payable. As a consequence, when a certifying agency 
learns that a payee has died, the certifying agency must give immediate 
notice to Treasury, as prescribed at Volume I, Part 4, Chapter 7000 of 
the Treasury Financial Manual, which can be found at http://www.fms.treas.gov. Upon receipt of such notice from a certifying 
agency, Treasury will instruct the Federal Reserve Bank to refuse 
payment of the check upon presentment. Upon receipt of such instruction 
from Treasury, the Federal Reserve Bank will make every appropriate 
effort to intercept the check. If the check is successfully 
intercepted, the Federal Reserve Bank will refuse payment, and will 
return the check unpaid to the presenting bank with an annotation that 
the payee is deceased. If a financial institution learns that a date of 
death triggering action under this section is erroneous, the financial

[[Page 17281]]

institution must advise the payee to contact the payment certifying 
agency.
    (2) Nothing in this section shall limit the right of Treasury to 
institute reclamation proceedings under the provisions of Sec. Sec.  
240.7 and 240.8 with respect to a check issued to a deceased payee that 
has been negotiated and paid over a forged or unauthorized indorsement.


Sec.  240.15  Checks issued to minor payees.

    (a) Checks in payment of principal and/or interest on U.S. 
securities that are issued to minors may be indorsed by:
    (1) Either parent with whom the minor resides; or
    (2) If the minor does not reside with either parent, by the person 
who furnishes the minor's chief support.
    (b) The parent or other person indorsing on behalf of the minor 
must present with the check the indorser's signed statement giving the 
minor's age, and stating that the payee either resides with the parent 
or receives his or her chief support from the person indorsing on the 
minor's behalf and that the proceeds of the check will be used for the 
minor's benefit.


Sec.  240.16  Powers of attorney.

    (a) Specific powers of attorney. Any check may be negotiated under 
a specific power of attorney executed in accordance with applicable 
State or Federal law after the issuance of the check and describing the 
check in full (check serial and symbol numbers, date of issue, amount, 
and name of payee).
    (b) General powers of attorney. Checks may be negotiated under a 
general power of attorney executed, in accordance with applicable State 
or Federal law, in favor of a person for the following classes of 
payments:
    (1) Payments for the redemption of currencies or for principal and/
or interest on U.S. securities;
    (2) Payments for tax refunds, but subject to the limitations 
concerning the mailing of Internal Revenue refund checks contained in 
26 CFR 601.506(c); and
    (3) Payments for goods and services.
    (c) Special powers of attorney. Checks issued for classes of 
payments other than those specified in paragraph (b) of this section, 
such as a recurring benefit payment, may be negotiated under a special 
power of attorney executed in accordance with applicable State or 
Federal law, which describes the purpose for which the checks are 
issued, names a person as attorney-in-fact, and recites that the 
special power of attorney is not given to carry into effect an 
assignment of the right to receive such payment, either to the 
attorney-in-fact or to any other person.
    (d) Durable special powers of attorney. A durable special power of 
attorney is a special power of attorney that continues despite the 
principal's later incompetency, and is created by the principal's use 
of words explicitly stating such intent. Classes of checks other than 
those specified in paragraph (b) of this section may be negotiated 
under a durable special power of attorney executed in accordance with 
applicable State or Federal law, which describes the purpose for which 
the checks are issued, names a person as attorney-in-fact, and recites 
that the special power of attorney is not given to carry into effect an 
assignment of the right to receive such payment, either to the 
attorney-in-fact or to any other person. For the purpose of negotiating 
Treasury checks, durable special powers of attorney are effective only 
during the six-month period following a determination that the named 
payee is incompetent.
    (e) Springing durable special powers of attorney. A springing 
durable special power of attorney is similar to a durable power of 
attorney except that its terms do not become effective until the 
principal's subsequent incompetence. As with a durable special power of 
attorney, a springing durable special power of attorney is created by 
the principal's use of language explicitly stating that its terms 
become effective at such time as the principal is determined to be 
incompetent. Classes of checks other than those specified in paragraph 
(b) of this section may be negotiated under a springing durable special 
power of attorney executed in accordance with applicable State or 
Federal law, which describes the purpose for which the checks are 
issued, names a person as attorney-in-fact, and recites that the 
springing durable special power of attorney is not given to carry into 
effect an assignment of the right to receive payment, either to the 
attorney-in-fact or to any other person. For the purpose of negotiating 
Treasury checks, springing durable special powers of attorney are 
effective only during the six-month period following a determination 
that the named payee is incompetent.
    (f) Proof of authority. Checks indorsed by an attorney-in-fact must 
include, as part of the indorsement, an indication of the capacity in 
which the attorney-in-fact is indorsing. An example would be: ``John 
Jones by Paul Smith, attorney-in-fact for John Jones.'' Such checks 
when presented for payment by a financial institution, will be paid by 
Treasury without the submission of documentary proof of the claimed 
authority, with the understanding that evidence of such claimed 
authority to indorse may be required by Treasury in the event of a 
dispute.
    (g) Revocation of powers of attorney. Notwithstanding any other 
law, for purposes of negotiating Treasury checks, all powers of 
attorney are deemed revoked by the death of the principal and may also 
be deemed revoked by notice from the principal to the parties known, or 
reasonably expected, to be acting on the power of attorney.
    (h) Optional use forms. Optional use power of attorney forms are 
listed in the appendix to this part. These forms are available on the 
FMS Web site at: http://www.fms.treas.gov.


Sec.  240.17  Lack of authority to shift liability.

    (a) This Part neither authorizes nor directs a financial 
institution to debit the account of any person or to deposit any funds 
from any account into a suspense account or escrow account or the 
equivalent. Nothing in this Part shall be construed to affect a 
financial institution's contract with its depositor(s) under authority 
of state law.
    (b) A financial institution's liability under this Part is not 
affected by any action taken by it to recover from any person the 
amount of the financial institution's liability to the Treasury.


Sec.  240.18  Reservation of rights.

    The Secretary of the Treasury reserves the right, in the 
Secretary's discretion, to waive any provision(s) of this regulation 
not otherwise required by law.

Appendix A to Part 240--Optional Forms for Powers of Attorney and Their 
Application

    FMS Form 231--General Power of Attorney (Individual). This 
general power of attorney form may be executed by an individual, 
unincorporated partnership, or sole owner, for checks drawn on the 
United States Treasury, in payment: (1) For redemption of currencies 
or for principal or interest on U.S. securities; (2) for tax 
refunds; and (3) for goods and services.
    FMS Form 232--Specific Power of Attorney (Individual). This 
specific power of attorney form may be executed by an individual, 
unincorporated partnership, or sole owner to authorize the 
indorsement of any class of check drawn on the United States 
Treasury. To be valid, the form must be executed after the issuance 
of the check and must describe the check in full, including the 
check serial and symbol numbers, date of issue, amount, and name of 
the payee.
    FMS Form 233--Special Power of Attorney (Individual). This 
special power of attorney form may be executed by an individual, 
unincorporated partnership, or sole owner, to

[[Page 17282]]

authorize the indorsement of payments other than those listed under 
FMS Form 231, such as recurring benefit payments. It may name any 
person (as the term person is defined in 31 CFR Part 240) as 
attorney-in-fact, but must describe the purpose for which the checks 
are issued and recite that it is not given to carry into effect an 
assignment of the right to receive payment, either to the attorney-
in-fact or to any other person. A special power of attorney is not 
effective for purposes of negotiating checks issued after the payee 
is determined to be incompetent, unless the payee has indicated that 
the special power of attorney is to: (1) Remain effective following 
a determination that the principal is incompetent (a durable special 
power of attorney); or (2) become effective following a 
determination that the principal is incompetent (a springing durable 
special power of attorney). In no instance may a special power of 
attorney be used as the basis for negotiation of a check drawn on 
the United States Treasury more than six months after a 
determination that the principal is incompetent.
    FMS Form 234--General Power of Attorney (Corporation). This 
general power of attorney form may be executed by a corporation to 
authorize the indorsement by an attorney-in-fact for the classes of 
payments listed under FMS Form 231. When authority is given to an 
officer of the corporation to execute a power of attorney 
authorizing a third person to indorse and collect checks drawn on 
the United States Treasury in the name of the corporation, the power 
of attorney on FMS Form 234 should be accompanied by FMS Form 235 
(Resolution by Corporation Conferring Authority Upon an Officer to 
Execute a Power of Attorney for the Collection of Checks Drawn on 
the Treasurer of the United States), executed by the officer 
authorized herein to execute such a power.
    FMS Form 236--Specific Power of Attorney (Corporation). This 
specific power of attorney form may be executed by a corporation to 
authorize the indorsement by an attorney-in-fact of any class of 
check drawn on the United States Treasury. To be valid, the form 
must be executed after the issuance of the check and must describe 
the check in full, including the check serial and symbol numbers, 
date of issue, amount, and name of the payee. When authority is 
given to an officer of the corporation to execute a power of 
attorney authorizing a third person to indorse and collect checks 
drawn on the United States Treasury in the name of the corporation, 
the power of attorney on FMS Form 236 should be accompanied by FMS 
Form 235 (Resolution by Corporation Conferring Authority Upon an 
Officer to Execute a Power of Attorney for the Collection of Checks 
Drawn on the Treasurer of the United States), executed by the 
officer authorized herein to execute such a power.

    Dated: March 26, 2004.
Richard L. Gregg,
Commissioner.
[FR Doc. 04-7270 Filed 3-31-04; 8:45 am]
BILLING CODE 4811-15-P