[Federal Register Volume 70, Number 214 (Monday, November 7, 2005)]
[Rules and Regulations]
[Pages 67364-67367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-22064]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 210

RIN 1510-AB04


Federal Government Participation in the Automated Clearing House

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Interim final rule with request for comments.

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SUMMARY: This interim final rule amends our regulation at 31 CFR part 
210 (Part 210), which governs the use of the Automated Clearing House 
(ACH) system by Federal agencies. Part 210 adopts, with some 
exceptions, the ACH Rules developed by NACHA--The Electronic Payments 
Association (NACHA) as the rules governing the use of the ACH system by 
Federal agencies. We are issuing this rule to address changes that 
NACHA has made to the ACH Rules since the publication of NACHA's 2003 
rule book.

DATES: Comments on the interim final rule are due January 6, 2006. This 
rule is effective January 6, 2006. The incorporation by reference of 
the publication listed in the rule is approved by the Director of the 
Federal Register as of January 6, 2006.

ADDRESSES: You can download this interim final rule at the following 
Web site: http://www.fms.treas.gov/ach. You may also inspect and copy 
this rule at: Treasury Department Library, Freedom of Information Act 
(FOIA) Collection, Room 1428, Main Treasury Building, 1500 Pennsylvania 
Avenue, NW., Washington, DC 20220. Before visiting, you must call (202) 
622-0990 for an appointment.
    You can view Treasury's procedural guidelines for ACH payments in 
the Green Book at the following Web site: http://www.fms.treas.gov/greenbook. You may also register at this Web site for e-mail 
notification of updates to the Green Book.
    You may submit comments on the rule by any of the following 
methods. You may go to the Government-wide rulemaking Web site http://www.regulations.gov and follow the instructions for sending your 
comments electronically. Alternatively, you may email your comments to 
FMS at 210 [email protected]. You may also mail your comments to 
Matthew Friend, Financial Management Service, 401 14th Street, SW., 
Room 401, Washington, DC 20227.

FOR FURTHER INFORMATION CONTACT: Matthew Friend, at (202) 874-1251 or 
[email protected]; or Natalie H. Diana, Senior Counsel, at 
(202) 874-6680 or [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    Part 210 governs the use of the ACH system by Federal 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 or to 
revise the regulation as otherwise appropriate.
    We are issuing an interim final rule amending part 210 to reflect 
certain changes that NACHA has made to the ACH Rules since the 
publication of NACHA's 2003 rule book. We are publishing this interim 
final rule in order to indicate which amendments to the ACH Rules we 
are accepting and which amendments we are rejecting.

II. Summary of Rule Changes

    Since 2003, NACHA has published two sets of changes to the ACH 
Rules. The first set of changes was published in NACHA's 2004 rule book 
(2004 ACH Rule Book), and the second set of changes was published in 
NACHA's 2005 rule book (2005 ACH Rule Book). We are adopting all of the 
rule changes except those relating to the audit provisions of the ACH 
Rules, which we have previously determined not to incorporate in part 
210. The rule changes that we are adopting are largely technical 
operational changes that will have little or no impact on Federal 
agencies' use of the ACH system. For example, the changes discussed 
below to the title and description of Return Reason Code R12 and the 
expansion of the Automated Accounting Advice Standard Entry Class code 
are changes that we believe are beneficial to the ACH system, but that 
do not significantly affect the government's use of the ACH system. In 
addition, some changes merely clarify existing provisions of the ACH 
rules (such as the addition of a warranty relating to authentication of 
receivers of Internet-Initiated Entries) or impose requirements that do 
not affect or change government ACH processes (such as ACH Operator and 
Third Party Processor requirements).

[[Page 67365]]

A. Changes to ACH Rules Published in 2004 ACH Rule Book

    1. Arbitration Procedures. Effective December 12, 2003, the ACH 
Rules governing the arbitration process were modified to (1) Revise the 
classifications of disputes handled under such procedures; (2) 
establish criteria under which participation in an arbitration 
proceeding is mandatory once a dispute has been submitted to 
arbitration; (3) revise the number of arbitrators and stipends for each 
arbitration procedure; and (4) expand the time frame in which a dispute 
may be submitted for arbitration. Arbitration is voluntary under the 
ACH Rules.
    We are adopting these modifications to the arbitration provisions 
of the ACH Rules.
    2. Copy of Source Document for Accounts Receivable (ARC) Entries. 
In the 2004 ACH Rule Book, NACHA published a modification to the rules 
governing ARC entries to eliminate the requirement that an Originator 
retain a copy of the back of the source document used for an ARC entry. 
The rule change became effective December 12, 2003. We are adopting 
this rule change. We do not anticipate that this rule change will 
affect government ARC check conversion, since we will continue to scan 
the backs of checks in order to make it possible to present an item for 
payment through the check system in the event the item cannot be 
converted to an ACH entry.
    3. Operational Efficiency Issues--Excused Delay. In the 2004 ACH 
Rule Book, NACHA published changes to the ACH Rules that clarify that 
an operational outage at a Depository Financial Institution (DFI) and 
ACH Operator due to the general failure or interruption of 
communication or computer facilities or other equipment does not 
constitute an excused delay. This rule became effective March 12, 2004. 
We agree that DFIs and ACH Operators should have contingency backup 
systems and that a system failure should not excuse the DFI or ACH 
Operator from the time limits prescribed by the ACH Rules unless the 
system failure is due to circumstances beyond their control. 
Accordingly, we are adopting this ACH rule clarification.
    4. Operational Efficiency Issues--Return Reason Code R12 & Check 
Serial Number XCK in Audit. NACHA amended the ACH Rules, effective 
March 12, 2004, to modify the title and description of Return Reason 
Code R12 from ``Branch Sold to Another DFI'' to ``Account Sold to 
Another DFI'' to more accurately reflect that this code is used to 
return an entry that is destined to a specific account that has been 
sold. The amendment also expanded the audit provisions of the ACH Rules 
to require a Receiving Depository Financial Institution (RDFI) to 
verify that it includes the Check Serial Number of XCK entries on the 
consumer's bank account. We are adopting the amendment modifying the 
title and description of Return Reason Code R12. We are not adopting 
the expansion of the audit provisions because the audit provisions are 
not incorporated in part 210 and do not apply to agencies' use of the 
ACH system. See 31 CFR 210.2(d)(3); 65 FR 18866 (April 7, 2000).
    5. Operational Efficiency Issues--Automated Accounting Advices. The 
ACH Rules were modified, effective September 10, 2004, to modify the 
Automated Accounting Advice (ADV) Standard Entry Class code. The ADV 
Standard Entry Class code is used for an optional service offered by 
ACH Operators in which accounting information is provided to 
participating DFIs in machine-readable format. The amendment expanded 
the Total Credit Entry Dollar Amount and Total Debit Entry Dollar 
Amount Fields within the ADV Company/Batch Control Record from 12 
characters to 20 characters to accommodate ADV entries with larger 
dollar values and created a new File Control Record that is unique to 
ADV entries. We are incorporating this amendment in part 210.

B. Changes to ACH Rules Published in 2005 ACH Rule Book

    1. Consumer Opt-Out of ARC Check Conversion. Effective June 4, 
2004, NACHA amended the ACH Rules to require Originators of ARC entries 
to allow Receivers to opt out of ARC check conversion. Originators must 
ensure that they have established reasonable procedures under which 
Receivers may notify Originators that their checks are not to be 
converted to ARC entries. We are adopting this amendment.
    FMS provides ARC check conversion services for agencies through a 
centralized back-end processing operation. We have developed an 
automated process for identifying checks that are not to be converted, 
so that those items can be presented for payment as checks rather than 
as ACH entries. In order to provide flexibility and convenience to the 
public, we are working with agencies to develop several ways in which 
remitters can choose to contact the government to instruct that their 
checks not be converted, including telephone, fax, e-mail and/or 
regular mail. Agencies are responsible for notifying their remitters 
that they may opt out of ARC check conversion and for providing 
remitters with specific opt-out instructions.
    2. ACH Data Security Requirements. In the 2005 ACH Rule Book, NACHA 
published an amendment to the ACH rules to expand the data security 
requirements by requiring all ACH transactions, regardless of the 
Standard Entry Class Code, that involve the exchange or transmission of 
banking information via Unsecured Electronic Networks to be either (a) 
encrypted using a commercially reasonable security technology that, at 
a minimum, is equivalent to 128-bit RC4 encryption technology, or (2) 
transmitted via a secure session utilizing a commercially reasonable 
security technology that provides a level of security that, at a 
minimum, is equivalent to 128-bit RC4 encryption technology. Prior to 
this amendment, the ACH Rules defined specific data security 
requirements only for Internet-Initiated (WEB) Entries. This amendment 
took effect on September 10, 2004.
    We agree that ACH transactions that involve the transmission of 
banking information via an Unsecured Electronic Network should be 
subject to data security requirements even if the Originator obtains 
information from the Receiver by telephone and then key-enters the 
information via the Internet. We are incorporating these requirements 
in part 210.
    3. Returns Issues--ACH Operator Requirements. Effective September 
10, 2004, the ACH Rules were amended to (1) remove the ACH Operator 
mandatory field error edit on the Original Receiving DFI Identification 
Field within the addenda records of dishonored return and contested 
dishonored return entries since this field is defined as a required, 
rather than mandatory, field, and (2) establish a requirement within 
the ACH Rules that prohibits ACH Operators from settling return entries 
prior to the effective entry date in the Company/Batch Header record of 
the original entry, as reflected in the return Entry Detail Record. 
This amendment, which generally affects only ACH Operators, was 
developed in order to correct an inconsistency in the ACH Rules related 
to the Original Receiving DFI Identification Field in the addenda 
records for returns. We do not believe that this amendment has any 
impact on agencies or Federal payment recipients. We are adopting this 
amendment.
    4. Third Party Service Provider Issues. NACHA amended the ACH 
Rules, effective December 10, 2004, to impose specific obligations and 
processing requirements for certain types of Third-Party Service 
Providers (referred to as ``Third-Party Senders'') that act as

[[Page 67366]]

intermediaries between an Originator and an Originating Depository 
Financial Institution (ODFI). We believe it is appropriate to establish 
a legal framework within the ACH Rules to support a widely-used 
business practice in which some Originators do not have agreements 
directly with the ODFI. We are adopting this amendment to the ACH 
Rules.
    5. Internet Issues. Effective March 18, 2005, NACHA modified the 
ACH Rules to (1) add a new ODFI warranty specific to the requirement 
that an Originator of WEB entries use commercially reasonable methods 
of authentication to verify the identity of the Receiver, and (2) 
uniquely identify this requirement under the Originator's obligations 
with respect to WEB entries. Prior to this modification, the use of 
verification procedures was implicit in the ACH Rules but was not set 
forth as an explicit warranty. We are adopting this modification to the 
ACH Rules.
    6. Returns for Unauthorized Debits to Consumer Accounts Using a 
Corporate SEC Code. The ACH Rules were amended, effective March 18, 
2005, to reactivate Return Reason Code R05 to accommodate the return of 
unauthorized debit entries to consumer accounts when those debits were 
transmitted using a corporate Standard Entry Class Code.
    We agree that if an Originator transmits an ACH entry to a consumer 
account that is erroneously formatted using an incorrect SEC Code, the 
RDFI should be permitted to apply the return rules and time frames for 
returning unauthorized debits to consumer accounts, notwithstanding the 
incorrect SEC Code contained within the entry. Accordingly, we are 
incorporating this rule in part 210.

C. Section-by-Section Analysis

    In order to incorporate in part 210 the ACH rule changes that we 
are accepting, the only change necessary to the current regulation is 
to replace references to the 2003 rule book with references to the 2005 
ACH Rule Book. No change to part 210 is necessary in order to exclude 
the amendments to the audit provisions, since part 210 already provides 
that the ACH audit requirements do not apply to Federal agency ACH 
transactions.
Section 210.2(d)
    We are amending the definition of ``applicable ACH Rules'' at Sec.  
210.2(d) to reference the rules published in NACHA's 2005 rule book 
rather than the rules published in NACHA's 2003 rule book. There have 
been changes in the numbering of the ACH Rules that are reflected in 
some of the enumerated exceptions in Sec.  210.2(d). For example, the 
numbering of the ACH Rules governing the reclamation of benefit 
payments that are referenced in Sec.  210.2(d)(4) has changed from ACH 
Rules 2.2.1.8 and 4.7 to ACH Rules 2.2.1.10 and 4.8, respectively. 
Other numbering changes include: ACH Rule 2.2.1.12, referenced in Sec.  
210.2(d)(3), was previously ACH Rule 2.2.1.10; ACH Rule 9.3, referenced 
in Sec.  210.2(d)(5), was previously ACH Rule 8.3; and ACH Rule 
2.10.2.3, referenced in Sec.  210.2(d)(6), was previously ACH Rule 
2.10.2.2.
Section 210.3(b)
    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 2003 rule book with references to the ACH Rules as 
published in the 2005 rule book.
Section 210.6
    We are updating several references to ACH Rules to reflect 
numbering changes that have been made to the ACH Rules.
Section 210.8(b)
    We are replacing a reference to ACH Rule 7.7.2 with a reference to 
ACH Rule 7.7.3 to reflect a numbering change.

III. Procedural Requirements

Request for Comment

    We invite comment on all aspects of the interim final rule.

Request for Comment on Plain Language

    On June 1, 1998, the President issued a memorandum directing each 
agency in the Executive branch to write its rules in plain language. 
This directive is effective for all new proposed and final rulemaking 
documents issued on or after January 1, 1999. We invite comment on how 
to make this interim 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 this interim final rule are clear; or 
(3) whether there is something else we could do to make this rule 
easier to understand.

Notice and Comment; Effective Date

    We find that good cause exists for issuing this interim final rule 
without prior notice and comment. Under the Administrative Procedure 
Act, an agency is permitted to issue a rule without prior notice and 
comment when the agency for good cause finds that notice and public 
procedure thereon are impracticable, unnecessary, or contrary to the 
public interest. 5 U.S.C. 553(b)(B). We believe that it is important to 
address the publication of new ACH Rules as quickly as possible in 
order to mitigate the uncertainty and inconvenience to financial 
institutions 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, 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. For these reasons, we find that we have good cause 
for issuing this interim final rule without prior notice and comment. 
Nevertheless, we are inviting comment and will consider the comments 
received.

Executive Order 12866, Regulatory Planning and Review

    This interim final rule does not meet the criteria for a 
``significant regulatory action'' as defined in Executive Order 12866.

Regulatory Flexibility Act

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

Paperwork Reduction Act

    This interim final rule contains no new collections of information. 
Therefore, the Paperwork Reduction Act does not apply.

List of Subjects in 31 CFR Part 210

    Automated clearing house, Electronic funds transfer, Financial 
institutions, Fraud, and Incorporation by reference.

Authority and Issuance

0
For the reasons set out in the preamble, 31 CFR part 210 is amended as 
follows:

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

0
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.


0
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

[[Page 67367]]

before March 18, 2005, as published in Parts II, III, and IV of the 
``2005 ACH Rules: A Complete Guide to Rules & Regulations Governing the 
ACH Network'':
    (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; 2.2.1.12; Appendix Eight and Appendix Eleven 
(governing the enforcement of the ACH Rules, including self-audit 
requirements);
    (4) ACH Rules 2.2.1.10; 2.6; and 4.8 (governing the reclamation of 
benefit payments);
    (5) ACH Rule 9.3 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);
    (6) ACH Rule 2.10.2.3 (requiring that originating depository 
financial institutions (ODFIs) establish exposure limits for 
Originators of Internet-initiated debit entries); and
    (7) ACH Rule 2.11.3 (requiring reporting regarding unauthorized 
Telephone-initiated entries).
* * * * *

0
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 18, 
2005, as published in Parts II, III, and IV of the ``2005 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 ``2005 ACH Rules'' are available from NACHA--The Electronic 
Payments Association, 13665 Dulles Technology Drive, Suite 300, 
Herndon, Virginia 20171. Copies also are available for public 
inspection at the Office of the Federal Register, 800 North Capitol 
Street, NW., Suite 700, Washington, DC 20002; and the Financial 
Management Service, 401 14th Street, SW., Room 401, Washington, DC 
20227.
    (2) Any amendment to the applicable ACH Rules that takes effect 
after March 18, 2005, 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.
* * * * *


Sec.  210.6  [Amended]

0
4. Amend Sec.  210.6 as follows:
0
a. Amend the first sentence of Sec.  210.6 by deleting ``7.7.2'' and 
inserting ``8.7.2.''
0
b. Amend paragraph (g) by deleting ``3.4'' and ``3.10'' and inserting 
``3.5'' and ``3.12,'' respectively.
0
c. Amend paragraph (h)(1) by deleting ``3.6.1'' and inserting 
``3.7.1.''
0
d. Amend paragraph (h)(2) by deleting ``3.10'' and inserting ``3.12.''
0
e. Amend paragraph (i) by deleting ``3.4'' and ``3.10'' and inserting 
``3.5'' and ``3.12,'' respectively.


Sec.  210.8  [Amended]

0
5. Amend paragraph (b) introductory text of Sec.  210.8 by deleting 
``7.7.2'' and inserting ``8.7.2.''

Richard L. Gregg,
Commissioner.
[FR Doc. 05-22064 Filed 11-4-05; 8:45 am]
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