[Federal Register Volume 74, Number 188 (Wednesday, September 30, 2009)]
[Rules and Regulations]
[Pages 50105-50108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-23407]



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  Federal Register / Vol. 74, No. 188 / Wednesday, September 30, 2009 / 
Rules and Regulations  

[[Page 50105]]



FEDERAL RESERVE SYSTEM

12 CFR Part 219

[Regulation S; Docket No. R-1325]


Reimbursement for Providing Financial Records; Recordkeeping 
Requirements for Certain Financial Records

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
has approved amendments to Subpart A of Regulation S, which implements 
the requirement under the Right to Financial Privacy Act (RFPA) that 
the Board establish the rates and conditions under which payment shall 
be made by a government authority to a financial institution for 
assembling or providing financial records pursuant to RFPA. These 
proposed amendments update the fees to be charged and takes account of 
recent advances in electronic document productions.

DATES: Effective Date: January 1, 2010.

FOR FURTHER INFORMATION CONTACT: Jason Gonzalez, Counsel (202/452-
3275), Legal Division, Board of Governors of the Federal Reserve 
System, Washington, DC 20551. For users of the Telecommunication Device 
for the Deaf (TDD), please call (202) 263-4869.

SUPPLEMENTARY INFORMATION:

Background

    Section 1115 of the RFPA (12 U.S.C. 3415) requires the Board to 
establish, by regulation, the rates and conditions under which payment 
is made by a Government authority to a financial institution for 
searching for, reproducing, or transporting data required or requested 
under the RFPA. Shortly after the RFPA was adopted, the Board issued 
Regulation S (12 CFR Part 219) to implement this provision (44 FR 
55812, September 28, 1979). These provisions were subsequently 
designated Subpart A of Regulation S. In June 1996, the Board revised 
Regulation S by updating the fees financial institutions could charge 
and streamlining the Subpart generally. (61 FR 29638, June 12, 1996).
    Since the last revision, two significant changes have occurred that 
now require further amendments to Subpart A of Regulation S. First, 
increases in salary and benefits have caused the fees chargeable for 
reproducing financial records to become outdated. Furthermore, in 
recent years, the production of electronically stored information 
during investigations and in litigation has become increasingly 
common.\1\ Many government agencies now prefer to receive information 
in digital formats, thereby easing handling and analysis. In addition, 
many agency document requests now require that information be submitted 
in electronic form.
---------------------------------------------------------------------------

    \1\ Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, 
Federal Practice & Procedure, Sec.  2218 at 449 (2d ed. 2006).
---------------------------------------------------------------------------

Proposed Amendments

    In response to these developments, the Board proposed in August 
2008 issuing amendments designed to update the existing rates to be 
paid for personnel costs, to provide a reimbursement scheme that more 
accurately reflects the costs of producing electronically stored 
information in digital formats, and making minor clarifying changes (73 
FR 47854, August 15, 2008). Specifically, the proposed amendments 
substantially increased the labor rates, added a third job category for 
specialized computer support, included an automatic adjustment every 
five years for changes in labor rates, precluded reimbursement on a 
per-page basis for production of paper documents that had been stored 
electronically unless the requesting government agency sought 
production of paper documents, and replaced the $5.00 ``per diskette'' 
charge with a $5.00 fee for electronic transmissions, per request. The 
Federal Register Notice accompanying the proposed amendments also 
sought comments on whether the existing fees for microfiche or 
microfilm-based productions should be eliminated as outmoded.

Summary and Analysis of the Comments

    The Board received eleven comments on the proposed revisions, most 
of which were supportive of the Board's effort to update the 
regulation.

Personnel Labor Rates

    Most of the comments strongly supported increasing the labor rates 
found in Subpart A. Four comments asserted that the new rates were too 
low, but none suggested an alternative benchmark for salary and 
benefits that would be more reliable than what is contained in the 
Occupational Employments Statistics (``OES'') program maintained by the 
Bureau of Labor Statistics (``BLS''), which provided the basis for the 
labor wage rates in the proposed amendments.
    None of the comments objected to the Board's mechanism for 
periodically updating the labor rates found in the regulation; however, 
three comments urged the Board to consider updating the rates more 
frequently than every five years, such as annually, bi-annually, or 
every three years. Under the proposed rule, the labor rates would be 
adjusted on April 1, 2012, and every five years thereafter. In May 
2009, the BLS issued new data under the OES program, but the new data 
did not result in any changes to the personnel reimbursement rates set 
forth in the proposed amendments. The Board has modified the schedule 
in the final rule to provide for updated labor rates every three years, 
beginning September 30, 2012. The Board believes that a three-year 
schedule provides an appropriate balance between the convenience of 
having financial institutions and agencies using the same rates for an 
extended period of time against the benefit of relying on more recent 
wage data. The September 30 date is appropriate because the BLS data 
are typically released in May, which will provide the Board with an 
adequate lead time to incorporate the recent data to into the 
reimbursement rate schedules and publicize these changes to the 
industry.
    Three comments suggested adding language that would permit the 
Board to designate an equivalent source of wage data in the event the 
BLS substantially changes or eliminates the relevant job

[[Page 50106]]

categories found in the OES program. The final rule accepts this 
suggestion so that a full rulemaking proceeding does not need to be 
initiated just to make a technical conforming change to the calculation 
of the labor rates.

Limitations on per-Page Reimbursement for Paper Documents

    One trade group raised several issues about the provision that 
would prevent financial institutions from being reimbursed on a per-
page basis for paper copies of electronically stored documents, unless 
the government agency seeking the documents requested production of the 
information on paper. The trade group questioned whether the Board has 
the authority to limit reimbursement in this fashion. Section 1115 of 
the RFPA (12 U.S.C. 3415) requires the Board to issue regulations ``to 
establish the rates and conditions'' for reimbursement of ``such costs 
as are reasonably necessary and which have been directly incurred in 
searching for, reproducing or transporting the books, papers, records 
or other data required or requested * * *'' (emphasis added). The Board 
interprets this statutory language not to require additional 
reimbursement to financial institutions for the creation of paper 
records when the information is stored in electronic form, paper 
documents are not required in order for the financial institution to 
comply with the government agency's request, and reimbursement is 
available for personnel and certain out-of-pocket costs incurred while 
searching for, reproducing, and delivering the information to the 
requesting agency in digital form. In such a case, costs incurred for 
production of paper records are not reasonably necessary to comply with 
the government agency request.
    The trade group that opposed the conditions on per-page 
reimbursement for paper copies also asserted that some financial 
institutions will need to devote resources to converting their 
electronic information to usable formats in order to comply with a 
government document request, and that such conversion may be complex or 
costly, but not be reimbursed. The Board believes that some such costs 
are likely to be incurred in any event because an increasing proportion 
of document requests (governmental and nongovernmental) now require 
that information be provided in electronic formats. See Fed. R. Civ. 
Proc. 45(d)(1)(B)(electronically stored information must be produced in 
format specified, or, if not specified, in the form in which it is 
ordinarily maintained or in a reasonably usable form). Moreover, 
Regulation S permits institutions to receive reimbursement, ``[i]f 
itemized separately [for] the actual cost of extracting information 
stored by computer in the format in which it is normally produced, 
based on computer time and necessary supplies.'' 12 CFR 219.4(b)(2). 
Accordingly, such conversion costs are reimbursable according to the 
terms of the regulation. Finally, under the terms of the amended 
regulation, a government agency may agree to accept paper copies in 
lieu of an electronic production, and the financial institution will be 
reimbursed on a per-page basis.
    The trade group and a financial institution also expressed concern 
that production of customer information in electronic form could raise 
privacy issues and the possibility of data breaches, as well as 
evidentiary issues in subsequent proceedings. While privacy protection 
is a significant issue, financial institutions generally are required 
to have policies and procedures to safeguard customer data under other 
laws. The Board also notes that production of customer information in 
paper form is among the least secure media, without password protection 
or encryption. As discussed below, the amended regulation also provides 
that financial institutions may be reimbursed for the actual cost of 
storage media, which may include encryption technologies. Financial 
institutions may also be reimbursed for delivery costs, which may 
include reasonable measures taken to insure against a data breach, such 
as the use of registered mail or courier services as required. 
Additional concerns about customer privacy and safeguards against data 
breaches may be addressed by the requesting government agency and the 
financial institution producing the information. Similarly, any issues 
about authentication of electronic data as opposed to paper documents 
may be addressed between the requesting agency and the financial 
institution. A government agency that is concerned about authentication 
of electronically produced information may request production in paper 
form, which entitles the financial institution to reimbursement on a 
per-page basis.
    Alternatively, the trade group requested that the implementation of 
the amended rule be delayed for a year to enable financial institutions 
to revamp their systems to produce documents electronically. The Board 
has determined that January 1, 2010, should be the effective date. This 
effective date is more than a year after the amended rule was first 
proposed. Financial institution reimbursements for personnel costs will 
significantly increase as a result of the amendments, which are likely 
to offset in whole or in part any reduction in reimbursement amounts 
attributable to the inability to charge on a per-page basis for paper 
documents.

Proposed $5.00 Fee for ``Electronic Productions, per Request''

    Several comments indicated that there was ambiguity concerning the 
proposed $5.00 reimbursement for ``Electronic Productions, per 
request.'' This reimbursement provision was designed to replace the 
$5.00 ``per diskette'' charge in the existing regulation, because 
diskettes are no longer widely used, having been replaced by other 
storage media. The comments also noted that there was ambiguity as to 
whether ``per request'' meant each account requested by an agency, each 
customer whose information was being sought, or each production of 
electronic information. One commenter also noted that some storage 
media (such as encrypted flash storage devices or ``memory sticks'') 
cost more than $5.00.
    In response to these comments and to eliminate any ambiguity, the 
Board is revising the provision and eliminating the $5.00 fixed fee for 
electronic transmissions. In the final version, the schedule in 
Appendix A specifically contemplates reimbursement for the actual 
acquisition price to the financial institution of the storage medium 
(CD, flash storage device, etc.) used to transmit the data. No fixed 
reimbursement will be available for transmittal made by electronic mail 
(``e-mail''), because it does not appear to be practical to quantify 
the costs directly incurred (if any) for making e-mail transmissions. 
Financial institutions may be reimbursed, however, for the personnel 
costs and other identified costs incurred related to making e-mail 
transmissions. Whether transmission of customer data by e-mail is 
acceptable on information security and evidentiary grounds is a matter 
between the requesting government agency and the financial institution.

Reimbursement for Microfiche and Microfilm Productions

    Three comments urged the Board to keep the provisions regarding 
microfilm and microfiche duplication. Apparently, although use of these 
media is declining, a significant number of financial institutions 
continue to maintain records in these formats. Accordingly, the final 
rule will continue to allow financial institutions to charge $0.25 (per 
frame) for photocopying microfiche and $.50 (per microfiche) for 
duplicating microfiche.

[[Page 50107]]

Fees for Delivery and Transportation Costs

    Two commenters requested that the regulation set out that costs for 
delivery of the information be reimbursable, such as postage, or 
courier costs. Reimbursement for these items is already covered by the 
existing regulation, 12 CFR 219.3(d). However, in light of the 
comments, the Board is clarifying the language of section 219.3(d) to 
make explicit that it includes reimbursement for reasonable delivery-
related costs.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires an agency that is 
issuing a final rule to prepare and make available a regulatory 
flexibility analysis that describes the impact of the final rule on 
small entities. 5 U.S.C. 603(a). The RFA provides that an agency is not 
required to prepare and publish a regulatory flexibility analysis if 
the agency certifies that the final rule will not have a significant 
economic impact on a substantial number of small entities. 5 U.S.C. 
605(b).
    Pursuant to section 605(b), the Board certifies that this final 
rule will not have a significant economic impact on a substantial 
number of small entities. The rule implements the reimbursement 
requirement under the RFPA and will benefit small institutions as a 
result of the increases in the reimbursement schedule for personnel 
costs associated with the requirement to assemble and reproduce 
financial records. The impact on institutions of converting their 
electronic information to a usable format, at the request of a 
government agency, would be positive because institutions may be 
reimbursed for personnel costs in searching for and processing a 
request for information that is stored electronically, including the 
personnel time directly incurred in converting the information to a 
format that the government agency requires. There are no new reporting, 
recordkeeping, or other compliance requirements associated with this 
rule.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule 
under the authority delegated to the Board by the Office of Management 
and Budget. No collections of information pursuant to the Paperwork 
Reduction Act are contained in the proposed rule.

List of Subjects in 12 CFR Part 219

    Banks, banking, Currency, Federal Reserve System, Foreign banking, 
Reporting and recordkeeping requirements.

Authority and Issuance

0
For the reasons set out in the preamble, 12 CFR Part 219 is amended as 
set forth below.

PART 219--REIMBURSEMENT FOR PROVIDING FINANCIAL RECORDS; 
RECORDKEEPING REQUIREMENTS FOR CERTAIN FINANCIAL RECORDS 
(REGULATION S)

0
1. The authority citation for part 219 continues to read as follows:

    Authority: 12 U.S.C. 3415.


0
2. In Sec.  219.3, paragraphs (a), (b)(2), (c), and (d) and appendix A 
to Sec.  219.3 are revised and paragraph (b)(3) is added to read as 
follows:


Sec.  219.3  Cost Reimbursement

    (a) Fees payable. (1) Except as provided in Sec.  219.4 of this 
part, a government authority seeking access to financial records 
pertaining to a customer, by written request, through:
    (i) A court order;
    (ii) A subpoena issued pursuant to the Federal Rules of Criminal 
Procedure or the Federal Rules of Civil Procedure; or
    (iii) Other agency administrative procedures, including 
administrative subpoenas, voluntary requests, or other process shall 
reimburse the financial institution for reasonably necessary costs 
directly incurred in searching for, reproducing or transporting books, 
papers, records, or other data as set forth in this section.
    (2) The reimbursement schedule for a financial institution is set 
forth in Appendix A to this section. If a financial institution has 
financial records that are stored at an independent storage facility 
that charges a fee to search for, reproduce, or transport particular 
records requested, these costs are considered to be directly incurred 
by the financial institution and may be included in the reimbursement.
    (b) * * *
    (2) If itemized separately, search and processing costs may include 
the actual cost of extracting electronically stored records, based on 
computer time and necessary supplies; however, personnel time for 
computer searches may be paid for at the rates set for computer support 
specialist, specified in Appendix A to this section, but only when 
compliance with the request for information requires that the financial 
institution use programming or other higher level technical services of 
a computer support specialist in order to reproduce electronically 
stored information in the format requested by the government authority.
    (3) Rates for Search and Processing in Appendix A shall be 
recalculated as follows on October 1, 2012, and on October 1 of each 
subsequent three-year period utilizing Bureau of Labor Statistics 
(``BLS'') data or equivalent data (as so designated by the Board) by 
replacing the existing hourly rates with the sum of:
    (i) Base labor rate recalculation--Using the most recently 
available wage data from the Occupational Employment Statistics program 
(http://www.bls.gov/oes/home.htm) for the BLS industry category 
``Credit Intermediation and Related Activities'' (NAICS Code Number 
522000) (or successor category):
    (A) [Clerical/Technical category] the average of the median hourly 
rates for the ``Information and Records Clerk'' and ``Computer 
Operator'' job categories (SOC Code Number 43-4199 and 43-9011) (or any 
successor job categories);
    (B) [Manager/Supervisor category] the median hourly rate for the 
``first-line supervisors/managers of office'' job category (SOC Code 
Number 43-1011) (or successor category), and
    (C) [Computer Support Specialist category] the median hourly rate 
for the ``computer support specialist'' job category (SOC Code Number 
15-1041) (or successor category); plus
    (ii) Benefits Adjustment--an amount for each hourly rate category 
that is equal to the product of:
    (A) The hourly rates set forth in paragraph (b)(3)(i) of this 
section, and
    (B) The most recently available ``percent of total compensation'' 
represented by ``total benefits'' for the ``Credit Intermediation and 
Related Activities'' industry category (private sector) set out in the 
Employment Cost Trends section of the National Compensation Survey 
(http://data.bls.gov/PDQ/outside.jsp?survey=cm); and
    (iii) If the recalculated rates for Search and Processing 
(including the Base labor rate and the benefits adjustment) are not a 
multiple of $1, the recalculated rates shall be rounded up to the next 
multiple of $1.
    (c) Reproduction costs. The reimbursement rates for reproduction 
costs for requested information are set forth in Appendix A to this 
section, subject to the Conditions for Payment set forth in Sec.  219.5 
of this part. Copies of photographs, films and other materials not 
listed in Appendix A to this section are reimbursed at actual cost.
    (d) Transportation or delivery costs. Reimbursement for 
transportation or

[[Page 50108]]

delivery costs shall be for the reasonably necessary costs directly 
incurred to transport personnel to locate and retrieve the requested 
information, and to deliver such material to the place of examination.

Appendix A to Sec.  219.3--Reimbursement Schedule

Reproduction:
  Photocopy, per page....................  $0.25
  Paper copies of microfiche, per frame..  0.25
  Duplicate Microfiche, per microfiche...  0.50
  Storage media..........................  Actual cost.
Search and Processing:
  Clerical/Technical, hourly rate........  22.00
  Computer Support Specialist, hourly      30.00
   rate.
  Manager/Supervisory, hourly rate.......  30.00
 



0
3. In Sec.  219.5, revise paragraph (a) to read as follows:


Sec.  219.5  Conditions for payment.

    (a) Direct costs. Payment shall be made only for costs that are 
both directly incurred and reasonably necessary to provide requested 
material. Search and processing, reproduction, and transportation or 
delivery costs shall be considered separately when determining whether 
the costs are reasonably necessary. Photocopying or microfiche charges 
are reasonably necessary only if the institution has reproduced 
financial records that were not stored electronically (i.e., where the 
information requested was stored only on paper or in microfiche), or 
where the government authority making the request has specifically 
asked for printed copies of electronically stored records.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, September 23, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-23407 Filed 9-29-09; 8:45 am]
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