[Federal Register Volume 75, Number 1 (Monday, January 4, 2010)]
[Proposed Rules]
[Pages 95-97]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-31166]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 240

RIN 1510-AB25


Endorsement and Payment of Checks Drawn on the United States 
Treasury

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking, with request for comment.

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SUMMARY: The Department of the Treasury, Financial Management Service 
(FMS), is proposing to amend its regulation governing the endorsement 
and payment of checks drawn on the United States Treasury, to provide 
that Treasury may direct Federal Reserve Banks to debit a financial 
institution's account at the financial institution's servicing Federal 
Reserve Bank for all check reclamations that the financial institution 
has not protested. Financial institutions will continue to have the 
right to file a protest with FMS if they believe a proposed reclamation 
is in error.

DATES: Comments on the proposed rule must be received by March 5, 2010.

ADDRESSES: The Financial Management Service (FMS) participates in the 
U.S. government's eRulemaking Initiative by publishing rulemaking 
information on http://www.regulations.gov. Regulations.gov offers the 
public the ability to comment on, search, and view publicly available 
rulemaking materials, including comments received on rules.
    Comments on this rule, identified by docket FISCAL-FMS-2009-0002, 
should only be submitted using the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions on the Web site for submitting comments.
     Mail: Larry Phelps, Financial Management Service, 3700 
East-West Highway, Room 7-D-24, Hyattsville, Maryland 20782.
    The fax and e-mail methods of submitting comments on rules to FMS 
have been retired.
    Instructions: All submissions received must include the agency name 
(``Financial Management Service'') and docket number FISCAL-FMS-2009-
0002 for this rulemaking. In general, comments received will be 
published on Regulations.gov without change, including any business or 
personal information provided. Comments received, including attachments 
and other supporting materials, are part of the public record and 
subject to public disclosure. Do not enclose any information in your 
comment or supporting materials that you consider confidential or 
inappropriate for public disclosure.
    You may also inspect and copy this proposed 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.

FOR FURTHER INFORMATION CONTACT: Larry Phelps, Management and Program 
Analyst, Check Resolution Division, at (202) 874-8263 or [email protected]; or William J. Erle, Senior Counsel, at (202) 874-6975 or 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    The Department of the Treasury (Treasury), Financial Management 
Service (FMS),\1\ is proposing revisions to its regulation, 31 CFR part 
240 (Part 240), governing the endorsement and payment of checks drawn 
on the United States Treasury. The rules in Part 240 set forth how 
checks may be endorsed, and the remedies available to Treasury when 
checks are improperly negotiated, such as a negotiation over a forged 
endorsement. Part 240 provides for the allocation of loss between the 
Government and endorsers of the check. The regulation also provides 
information on how Treasury will collect debts owed by financial 
institutions and other endorsers when they fail to pay check 
reclamations made by Treasury pursuant to the regulation.
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    \1\ FMS is the bureau within Treasury that is charged with 
implementing Treasury's authority in this area. The terms Treasury 
and FMS are used interchangeably in this proposed rule.
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    FMS is proposing to amend Part 240 to provide that Treasury may 
direct Federal Reserve Banks to debit a financial institution's account 
at the financial institution's servicing Federal Reserve Bank for all 
check reclamations for which the financial institution has not 
submitted a valid protest with supporting documentation. Financial 
institutions will continue to have the right to file a protest with FMS 
if they believe a proposed reclamation is in error and are able to 
supply supporting documentation.
    Under the existing regulation, Treasury sends a ``Request for 
Refund (Reclamation)'' to the financial institution that presented the 
check being reclaimed. The request advises the

[[Page 96]]

financial institution of the amount demanded and the reason for the 
demand. If the debtor financial institution does not make payment, 
Treasury presents follow-up demands by sending monthly statements to 
the financial institution and begins to assess interest, penalties and 
administrative costs at intervals after the 60th calendar day.
    Under the existing regulation, if the reclamation debt is not paid 
within 120 calendar days of the reclamation date, Treasury attempts to 
collect the debt through administrative offset. If administrative 
offset is unsuccessful, Treasury attempts to collect the debt through 
Treasury Check Offset (TCO). Finally, if administrative offset and TCO 
are unsuccessful, Treasury discharges the debt under 31 CFR 903.5 and 
reports the unpaid amount to the IRS. This is a time-consuming process 
that unnecessarily burdens both FMS systems and human resources.
    FMS intends to expedite and streamline the process of collecting 
unpaid reclamations by instructing a financial institution's servicing 
Federal Reserve Bank to debit that financial institution's Federal 
Reserve account if that financial institution has neither paid nor 
filed a valid protest with supporting documentation within 30 days of 
the date of the reclamation. FMS will notify the financial institution 
of the reclamation by sending a Notice of Direct Debit, which will also 
inform the financial institution that, if the reclamation is not paid 
by the 30th calendar day from the direct debit notice date, the 
financial institution's reserve account will be debited by its 
servicing Federal Reserve Bank. FMS will allow, as FMS currently does 
for all reclamations, the ability to challenge the debit both before 
and after it occurs. The financial institution may protest within the 
30 calendar days from the direct debit notice. After the direct debit 
occurs, the financial institution has an additional 30 calendar days 
from the direct debit date to submit a valid protest with supporting 
documentation.
    The vast majority of reclamation debts (currently 91 percent) are 
already paid by financial institutions within 30 calendar days. The 
remaining 9% of reclamations either have protests pending, which means 
the debt would not be subject to direct debit, or are for financial 
institutions that have ignored repeated notices. In most cases, 
directly debiting the financial institution's reserve account would 
simply streamline the reclamation and collection processes. FMS 
believes this change would result in operational efficiencies for both 
Treasury and the financial institutions.
    If Treasury is unable to debit a financial institution's reserve 
account, the current procedures for assessing interest, penalty and 
administrative cost amounts and for attempting to collect the 
reclamation debt through administrative offset and TCO would continue 
to apply.

II. Procedural Analyses

Request for Comment on Plain Language

    Executive Order 12866 requires each agency in the Executive branch 
to write regulations that are simple and easy to understand. We invite 
comment on how to make the rule clearer. For example, you may wish to 
discuss: (1) Whether we have organized the material to suit your needs; 
(2) whether the requirements of the rules are clear; or (3) whether 
there is something else we could do to make these rules easier to 
understand.

Regulatory Planning and Review

    The proposed rule does not meet the criteria for a ``significant 
regulatory action'' as defined in Executive Order 12866. Therefore, the 
regulatory review procedures contained therein do not apply.

Regulatory Flexibility Act Analysis

    It is hereby certified that the rule will not have a significant 
economic impact on a substantial number of small entities. This rule 
would eliminate certain administrative fees and interest and penalty 
charges in order to streamline and automate reclamation procedures. The 
proposed changes to the regulation related to automating reclamations 
should have a minimal economic impact on small financial institutions 
and in fact, may reduce some costs for financial institutions affected 
by the changes. Accordingly, a regulatory flexibility analysis under 
the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) is not required. 
FMS invites comments on this determination.

List of Subjects in 31 CFR Part 240

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

    For the reasons set forth in the preamble, we are amending 31 CFR 
part 240 as follows:

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

    1. The authority citation for part 240 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 321, 3327, 
3328, 3331, 3334, 3711, 3712; 332 U.S. 234 (1947); 318 U.S. 363 
(1942).

    2. In Sec.  240.1, add new paragraph (d) to read as follows:


Sec.  204.1  Scope of regulations.

* * * * *
    (d) A financial institution's endorsement or presentment of a U.S. 
Treasury check shall constitute its agreement to this part. The 
financial institution hereby authorizes its servicing Federal Reserve 
Bank to debit its Federal Reserve account for the amount of the 
reclamation and any accrued interest, penalties and/or administrative 
costs in accordance with the provisions of Sec.  240.9.
    3. In Sec.  240.9, revise paragraphs (a) and (b)(4)(iii) to read as 
follows:


Sec.  240.9  Reclamation procedures; reclamation protests.

    (a) Reclamation procedures. (1) Treasury will send a ``Notice of 
Direct Debit (Reclamation)'' to the reclamation debtor in accordance 
with Sec.  240.8(a). This notice will advise the reclamation debtor of 
the amount demanded and the reason for the demand. Treasury will 
provide notice to the reclamation debtor that:
    (i) If the reclamation debt is not paid within 30 calendar days of 
the reclamation date, Treasury intends to collect the amount 
outstanding by instructing the appropriate Federal Reserve Bank to 
debit the account utilized by the reclamation debtor. The Federal 
Reserve Bank will provide advice of the debit to the reclamation 
debtor;
    (ii) The reclamation debtor has an opportunity to inspect and copy 
Treasury's records with respect to the reclamation debt;
    (iii) The reclamation debtor may, by filing a protest in accordance 
with Sec.  240.9(b), request Treasury to review its decision that the 
reclamation debtor is liable for the reclamation debt. If such a 
protest is filed within 30 calendar days of the reclamation date, 
Treasury will not instruct the appropriate Federal Reserve Bank to 
debit the account utilized by the reclamation debtor while the protest 
is still pending; and
    (iv) 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

[[Page 97]]

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, Check Resolution 
Division, Reclamation Branch, Room 700D, P.O. 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 the Federal Reserve Bank is unable to debit the financial 
institution's reserve account, FMS will assess interest, penalties, and 
administrative costs in accordance with Sec.  240.8. Additionally, 
Treasury will proceed to collect the reclamation debt through offset in 
accordance with Sec.  240.10 and Treasury Check Offset in accordance 
with Sec.  240.11.
    (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.
    (b) * * *
    (4) * * *
    (iii) If the Director, Check Resolution 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, Treasury 
will direct the Federal Reserve Bank to debit the financial 
institution's reserve account immediately, provided that at least 30 
calendar days have passed from the date of the Notice of Direct Debit. 
If at least 30 calendar days have not yet passed from the date of the 
Notice of Direct Debit, Treasury will direct the Federal Reserve Bank 
to debit the financial institution's reserve account on the 30th 
calendar day from the date of the Notice of Direct Debit. The Federal 
Reserve Bank will provide advice of the debit to the reclamation 
debtor. If the appropriate Federal Reserve Bank is unable to debit a 
reclamation debtor's reserve account, Treasury will proceed to collect 
the reclamation debt through offset in accordance with Sec.  240.10 and 
Sec.  240.11.
* * * * *

    Dated: December 23, 2009.
Richard L. Gregg,
Acting Fiscal Assistant Secretary.
[FR Doc. E9-31166 Filed 12-31-09; 8:45 am]
BILLING CODE 4810-35-P