[Federal Register Volume 75, Number 116 (Thursday, June 17, 2010)]
[Proposed Rules]
[Pages 34394-34405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14614]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 208

RIN 1510-AB26


Management of Federal Agency Disbursements

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking with request for comment.

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SUMMARY: Federal law requires that, unless waived by the Secretary of 
the Treasury (Secretary), all Federal payments, other than payments 
made under the Internal Revenue Code of 1986, must be made 
electronically, that is, by electronic funds transfer (EFT). Direct 
deposit is the primary method that the Federal Government uses to make 
EFT payments. The Department of the Treasury (Treasury), Financial 
Management Service (FMS), is proposing to amend its regulation that 
describes the responsibilities of Federal agencies and recipients with 
respect to the electronic delivery of Federal payments and establishes 
the circumstances under which waivers from the EFT requirement are 
available.
    The proposed rule would generally require individuals to receive 
Federal nontax payments by EFT, effective March 1, 2011, except that 
there would be a delayed effective date to March 1, 2013, for two 
categories of individuals, namely: Individuals receiving Federal 
payments by check on March 1, 2011, and individuals whose claims for 
Federal benefits are filed before March 1, 2011, and who request check 
payments when they file.
    For Federal benefit recipients, this means that individuals whose 
claims for Federal benefits are filed on or after March 1, 2011, would 
receive their benefit payments by direct deposit. Individuals receiving 
their payments by direct deposit prior to March 1, 2011, would continue 
to do so. Individuals who do not choose direct deposit of their 
payments to an account at a financial institution would be enrolled in 
the Direct Express[supreg] Debit MasterCard[supreg] card program, a 
prepaid card program established pursuant to terms and conditions 
approved by FMS. Beginning on March 1, 2013, all recipients of Federal 
benefit and other non-tax payments would receive their payments by 
direct deposit, either to a bank account or to a Direct Express[supreg] 
card account.

DATES: Comments on the proposed rule must be received by August 16, 
2010.

ADDRESSES: You can download this proposed rule at the following Web 
site: http://www.fms.treas.gov/eft. You may also inspect and copy this 
proposed rule at: Treasury Department Library, Room 1428, Main Treasury 
Building, 1500 Pennsylvania Avenue, NW., Washington, DC 20220. Before 
visiting, you must call (202) 622-0990 for an appointment.
    In accordance with the U.S. Government's eRulemaking Initiative, 
FMS publishes rulemaking information on 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-2009-0003, 
should only be submitted using the following methods:
     Federal eRulemaking Portal: www.regulations.gov. Follow 
the instructions on the Web site for submitting comments. FMS 
recommends using this method to submit comments since mail can be 
subject to delays caused by security screening.
     Mail: Walt Henderson, Director, EFT Strategy Division, 
Financial Management Service, 401 14th Street, SW., Room 303, 
Washington, DC 20227. Please note that mail may be delayed due to 
security screening.
    The fax and e-mail methods of submitting comments on rules to FMS 
have been discontinued.
    Instructions: All submissions received must include the agency name

[[Page 34395]]

(``Financial Management Service'') and docket number FISCAL-FMS-2009-
0003 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 disclose any information in your 
comment or supporting materials that you consider confidential or 
inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Walt Henderson, Director, EFT Strategy 
Division; Natalie H. Diana, Senior Counsel; or Ronda Kent, Senior 
Counsel, at [email protected] or (202) 874-6619.

SUPPLEMENTARY INFORMATION: 

I. Background

Statutory Authority and Existing Regulation

    Section 3332, title 31 United States Code, as amended by subsection 
31001(x)(1) of the Debt Collection Improvement Act of 1996 (Pub. L. 
104-134) (Section 3332), generally requires that all nontax Federal 
payments be made by electronic funds transfer (EFT), unless waived by 
the Secretary. The Secretary must ensure that individuals required to 
receive Federal payments by EFT have access to an account at a 
financial institution ``at a reasonable cost'' and with ``the same 
consumer protections with respect to the account as other account 
holders at the same financial institution.'' See 31 U.S.C. 3332(f), 
(i)(2).
    Part 208 of title 31, Code of Federal Regulations (Part 208), 
implements the requirements of 31 U.S.C. 3332. Part 208 currently sets 
forth requirements for accounts to which Federal payments may be sent 
by EFT. ``Federal payment'' means any payment made by an agency, 
including, but not limited to, Federal wage, salary, and retirement 
payments; vendor and expense reimbursement payments; benefit payments; 
and miscellaneous payments. See 31 CFR 208.2(g). Federal payments 
include payments made to representative payees and other authorized 
payment agents. See 31 CFR 210.5(b)(1). For Part 208 purposes, 
``agency'' means any department, agency, or instrumentality of the 
United States Government, or a corporation owned or controlled by the 
Government of the United States. See 31 CFR 208.2(a).
    Part 208 provides that any individual who receives a Federal 
benefit, wage, salary, or retirement payment is eligible to open an 
Electronic Transfer Account (ETA) at a financial institution that 
offers such accounts, and establishes the responsibilities of Federal 
agencies and recipients under the regulation. Part 208 also sets forth 
a number of waivers to the general requirement that Federal payments be 
delivered by EFT. See 31 CFR 208.4. Among the waivers included in the 
existing regulation are waivers for situations in which an individual 
determines that payment by EFT would impose a hardship due to a 
physical or mental disability or a geographic, language or literacy 
barrier, or would impose a financial hardship. See 31 CFR 208.4(a). 
Treasury proposes to eliminate the waivers contained in section 
208.4(a) because of the availability of the Direct Express[supreg] \1\ 
card and for other reasons described below. Treasury seeks comments 
about examples of exceptional circumstances where specific types of 
individual EFT waivers could be needed, even with the availability of 
the Direct Express[supreg] card for Federal benefit recipients.
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    \1\ Direct Express[supreg] is a registered service mark of the 
Financial Management Service, U.S. Department of the Treasury. As 
explained below, the Direct Express[supreg] Debit MasterCard[supreg] 
card is issued by Comerica Bank, pursuant to a license by MasterCard 
International Incorporated. MasterCard[supreg] and the 
MasterCard[supreg] Brand Mark are registered trademarks of 
MasterCard International Incorporated.
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    The Secretary's waiver authority would remain unchanged, and 
Federal agencies would continue to have the flexibility to waive 
payment by direct deposit or other EFT method in the circumstances 
described in paragraphs (b) through (g) of Sec.  208.4, namely, for 
certain payments to payees in a foreign country where the 
infrastructure does not support EFT, for certain disaster or military 
situations, for situations in which there may be a security threat or 
for valid law enforcement reasons, for non-recurring payments, and for 
unusual situations that require urgent payment and the Government would 
be seriously injured unless payment is made by a method other than EFT.

Treasury Efforts To Increase Direct Deposit

    Direct deposit is the primary method that the Federal Government 
uses to make EFT payments. In fiscal year 2009, Treasury disbursed more 
than 80% of its payments electronically. The remaining payments were 
made by paper check, costing taxpayers millions of dollars more than if 
those payments had been made electronically and causing avoidable 
payment-related problems for many check recipients. Because the 
majority of the Government's check payments are delivered to Federal 
benefit recipients, primarily Social Security beneficiaries, and in 
light of the many benefits of direct deposit for recipients of 
recurring payments, Treasury has focused particular attention on 
encouraging current Federal benefit check recipients to switch to 
direct deposit. Treasury's Go Direct[supreg] campaign, sponsored with 
the Federal Reserve Banks, highlights the advantages to a Federal 
benefit recipient who opens an account at a financial institution and 
elects to receive his or her benefits via direct deposit to the 
account. As part of the campaign, Treasury established a Go 
Direct[supreg] campaign toll-free call center and Web site to 
facilitate enrollments via telephone at (800) 333-1795 (English) or 
(800) 333-1792 (Spanish), online at www.GoDirect.gov, or through an 
individual's financial institution. The Go Direct[supreg] campaign 
collaborates with more than 1,800 community-based organizations and 
financial institutions around the country that assist in delivering 
messages about the benefits of direct deposit, especially to those with 
bank or credit union accounts. Treasury estimates that more than 4.3 
million direct deposit enrollments have been achieved since 2005 as a 
result of the campaign's activities. However, even though Treasury is 
successfully converting millions of check recipients to direct deposit 
as a result of the Go Direct[supreg] campaign, more than 11 million 
Federal benefit recipients still receive checks each month.
    According to Treasury research conducted in 2007 (SSA & SSI Check 
Recipient Survey, OMB Control No. 1510-0074), 28% of Social Security 
check recipients and 59% of Supplemental Security Income (SSI) check 
recipients did not have bank accounts. Based on November 2007 Treasury 
check payment data, this indicated there were approximately 2.1 million 
Social Security recipients and 1.8 million SSI recipients who did not 
have bank accounts at that time. Treasury recognized that one of the 
barriers to increased use of direct deposit was that the estimated 4 
million Social Security and SSI benefit recipients lacked an account at 
a bank or credit union, despite the greater availability of low-cost 
and no-cost accounts for individuals who receive direct deposit 
payments. Therefore, in 2008, Treasury implemented a program in which 
Social Security and SSI benefit recipients can elect to receive their 
payments to a Direct Express[supreg] Debit MasterCard[supreg] card 
account. The Direct Express[supreg] card is a prepaid 
MasterCard[supreg]

[[Page 34396]]

debit card issued by Comerica Bank, which Treasury designated as its 
financial agent for this purpose.
    Treasury also recognized that another barrier to the use of direct 
deposit was the concern that direct deposit may expose the recipient to 
the risk that his or her benefit payments might be improperly garnished 
for debts owed to creditors. As a result, Treasury designed the Direct 
Express[supreg] card program to ensure that individuals who receive 
their benefit payments via the card are not at risk for improper 
garnishment of the benefits.
    In addition, Treasury has collaborated with the Federal benefit 
agencies to propose new regulations (75 FR 20299, Apr. 19, 2010) to 
address the improper garnishment of Federal benefit payments when they 
are directly deposited to an account. Treasury expects the garnishment 
regulations to be finalized prior to the implementation dates in this 
proposed rule. Moreover, Treasury is committed to the continued 
protection from garnishment of exempt benefits as offered by the Direct 
Express[supreg] card program, and will continue to take steps necessary 
to ensure that benefit recipients are afforded the protections required 
by law.
    For non-benefit payments, Treasury continues to expand the use of 
electronic payments and direct deposit by developing processes and 
programs designed to facilitate electronic disbursements and receipts 
of all payment types. For example, Treasury's International Treasury 
Services program (ITS.gov) provides international payment services to 
Federal agencies in nearly 200 countries, and the Automated Standard 
Application for Payments (ASAP.gov) allows grantee organizations 
receiving Federal funds to directly deposit pre-authorized funds to 
their accounts.

II. Proposed Change to Regulation

Summary of Proposal

    For the reasons discussed below, we are seeking to increase the use 
of direct deposit by individuals receiving Federal benefit and other 
payments. The proposed rule would generally require \2\ individuals to 
receive Federal nontax payments by EFT, effective March 1, 2011.
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    \2\ Agencies would continue to be permitted to waive payment by 
EFT in certain circumstances as authorized by the Secretary in Sec.  
208.4(b)-(g) of this part.
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    Individuals receiving Federal payments by check on March 1, 2011, 
however, could continue to do so through February 28, 2013. In 
addition, individuals who file claims for Federal benefits before March 
1, 2011, and who request check payments when they file, would be 
permitted to receive payments by check through February 28, 2013. 
Individuals who file claims for benefits on or after March 1, 2011, 
would receive their payments by direct deposit. Individuals receiving 
their payments by direct deposit prior to March 1, 2011, would continue 
to do so.
    Individuals may choose to receive their payments by direct deposit 
to their account at a financial institution and provide their bank 
account information for this purpose. Individuals who do not choose 
direct deposit of their payments to an account at a financial 
institution would be enrolled in the Direct Express[supreg] card 
program, a prepaid debit card program established pursuant to terms and 
conditions approved by FMS. The Direct Express[supreg] card would be 
made available to any recipient of Federal benefit payments, including 
individuals who have an account at a financial institution but prefer 
to receive their payments via the Direct Express[supreg] card. 
Beginning on March 1, 2013, all recipients of Federal benefit and other 
payments, including those then receiving their payments by check, would 
receive their payments by direct deposit, either to a bank account or 
to a Direct Express[supreg] card account.
    Accordingly, Federal nontax payment recipients would not be able to 
receive payments by check as of the dates listed above. We are 
proposing these changes primarily for three reasons: (1) For payment 
recipients, electronic payments are safer, easier and more convenient 
than paper checks; (2) the increased availability of electronic banking 
products, such as prepaid debit cards, including the Direct 
Express[supreg] card issued by Treasury's financial agent under terms 
and conditions approved by Treasury, makes it possible for Federal 
benefit recipients to receive and access their payments electronically 
at no or little cost and with the same or better consumer protections 
than those available with more traditional banking products; and (3) 
the Government's cost of delivering payments by check is substantially 
higher than delivering payments by direct deposit, and check delivery 
costs will continue to grow as the nation's baby boomers retire over 
the next two decades. Treasury seeks comments on all aspects of the 
proposed rule, including examples of exceptional circumstances where 
specific types of individual EFT waivers could be needed, the costs to 
recipients for using their benefit payments received by paper check as 
compared to those received by EFT, and alternative phase-in approaches.

Advantages of Direct Deposit for Individuals

    The predominant method for delivering Federal payments by EFT is 
direct deposit through the Automated Clearing House (ACH) network to an 
account at a financial institution designated by the recipient. The ACH 
network is a nationwide EFT system through which financial institutions 
exchange and settle electronic debit and credit transactions. The 
Federal government is the largest single user of the ACH system, 
originating tens of millions of direct deposit transactions each month.
    Electronic payments provide individuals with several advantages as 
compared to receiving payments by check. Direct deposit and other 
electronic payments are credited to recipients' accounts on the day 
payment is due, so the funds generally are available sooner than with 
check payments. Individuals receiving Federal payments electronically 
rarely have any delays or problems with their payments. In contrast, 
based on payment claims filed with Treasury, nine out of ten problems 
with Treasury-disbursed payments are related to paper checks even 
though checks constitute only 19 percent of all Treasury-disbursed 
payments made by the Government.
    Consumers recognize the benefits of direct deposit. In response to 
a 2009 survey sponsored by Treasury and the Federal Reserve Banks (Baby 
Boomer Survey, OMB Control No. 1510-0074), 96 percent of those who use 
direct deposit reported positive experiences, with 86 percent reporting 
``very positive'' experiences. As more people have become accustomed to 
electronic banking, and as the industry has continued to improve and 
expand its electronic services to the customer, more people now report 
positive experiences with direct deposit. Almost 90 percent of those 
surveyed in 2009 agreed that direct deposit is the safest way to 
receive payments, and 93 percent recognized the convenience of direct 
deposit (Baby Boomer Survey, OMB Control No. 1510-0074). Although the 
survey population was not limited to Federal check recipients, the 
study nevertheless illustrates how positively the direct deposit 
experience is viewed. Treasury expects Federal check recipients to 
similarly view the direct deposit experience as a positive one.
    In contrast to the direct deposit experience, each year 
approximately half a million individuals call Treasury to request 
claims packages related to

[[Page 34397]]

problems with check payments. For example, in fiscal year 2009, more 
than 670,000 Social Security and SSI checks were reported lost or 
stolen. Each year, Treasury investigates more than 70,000 cases of 
altered or fraudulently endorsed checks, totaling $64 million in 
estimated value. When checks are misrouted, lost in the mail, stolen, 
or fraudulently signed, Treasury must send replacement checks to the 
recipient. This can result in a delay in payment of weeks or months if 
fraud or counterfeiting is involved, thereby creating a hardship for 
benefit recipients who rely on these payments for basic necessities 
such as food, rent, or medication. Individuals who move or travel for 
extended periods of time may also experience delays in receiving their 
checks if they do not provide timely forwarding address information.
    Receiving payments by check rather than direct deposit also can 
increase the risk of identity theft. Although Treasury checks contain 
minimal information about a recipient, people intent on committing 
fraud nevertheless can use a stolen Treasury check, along with other 
stolen or fake identification documents, to open an account in the 
recipient's name or otherwise impersonate a check payee. A Treasury 
check that has been endorsed, but not cashed, offers further 
opportunities for identity theft.
    The benefits of direct deposit and, in contrast, the everyday 
problems associated with check payments are particularly apparent in 
disaster and emergency situations. As Hurricanes Katrina and Rita 
dramatically illustrated in 2005, in the extraordinary circumstances of 
a disaster or emergency, the delivery of checks may be delayed or 
disrupted at the very time when people urgently need funds in order to 
pay for food, clothing and shelter. Moreover, even where Treasury 
checks can be delivered without undue delay to disaster victims, 
individuals who have been displaced from their homes may be unable to 
establish their identities due to lost or inaccessible documentation. 
As a result, financial institutions may be unwilling to cash Treasury 
checks for these individuals, because they cannot determine the 
identity of the individual or whether a Treasury check that an 
individual is seeking to cash has been stolen and fraudulently 
endorsed. Finally, check payments may raise security concerns in 
disaster situations, since individuals who cash checks may be carrying 
significant amounts of cash in order to make purchases.
    Additional potential benefits associated with the proposed 
rulemaking are described in the Regulatory Impact Assessment, below.

Evolution of Banking Products and Services

    Since the adoption of Part 208 in 1998, banking services have 
dramatically expanded and evolved. There are more low-cost and no-cost 
accounts for benefit recipients offered by financial institutions and 
other financial service providers than were available during the 1990s 
when Part 208 was promulgated. Reloadable prepaid debit cards, which 
were a small specialty product in the 1990s, are now widely available 
and can be used at a vast number of merchant locations across the 
country, not only to purchase goods and services but also to obtain 
cash through cashback transactions at point-of-sale (POS) locations.
    A growing number of State agencies have moved aggressively away 
from check payments or paper-based vouchers to branded prepaid cards as 
an electronic payment option. For example, since 2004, all States have 
been delivering Supplemental Nutrition Assistance Program (SNAP) 
benefits, formerly known as food stamps, using an electronic benefits 
transfer system similar to a prepaid card system. More than 40 States 
are now using prepaid card programs (or planning to use them) to 
deliver various types of payments to the public, including State 
assistance payments, child support payments to custodial parents, 
workers compensation and unemployment insurance benefits. While some 
States are allowing individuals to choose between cards and checks, 
some States have made the cards mandatory.
    Globally, electronic payments and the use of prepaid cards continue 
to expand. The volume of prepaid debit card and mobile phone 
transactions has been growing worldwide. Central banks and other 
governments are seeking ways to increase electronic payments and reduce 
paper-based financial transactions. One dramatic example is the 
proposal by the United Kingdom Payments Council to eliminate all check 
transactions throughout the United Kingdom by October 31, 2018.

The Direct Express[supreg] Card

    In June 2008, Treasury introduced the Direct Express[supreg] Debit 
MasterCard[supreg] card, a low cost debit card developed exclusively 
for Federal benefit recipients (initially, for Social Security and SSI 
payment recipients). As of April 4, 2010, more than one million of the 
more than 10 million eligible Social Security and SSI check recipients 
had signed up for the voluntary card program.
    There are no monthly fees and most services are free, so it is 
possible for an individual to use the Direct Express[supreg] card for 
free. There are no fees for cardholders to sign up for or activate the 
card; receive deposits; make purchases at retail locations, online or 
by telephone; get cash at retail locations and financial institutions; 
or check the card's balance at an ATM, by telephone or online. 
Transaction history and other account information are available at no 
cost online or by telephone, but if desired, a cardholder may receive a 
monthly paper statement for a minimal fee. There are no fees for 
declined transactions and, in rare instances when overdrafts occur, 
there are no overdraft fees.
    Cardholders can choose to receive free automated text, email or 
telephone ``low balance'' alerts or ``deposit notifications'' when 
money is deposited to their card account. Cardholders may close their 
Direct Express[supreg] card account at any time without a fee. There 
are no inactivity fees and there is no charge for bank teller cash 
withdrawals at MasterCard[supreg] member banks. The free services and 
minimal fees are fully disclosed on the Direct Express[supreg] Web site 
(http://www.USDirectExpress.com), in materials available to interested 
applicants, and in materials that are sent to new cardholders along 
with the card. Fee and features information are also available by 
calling the Direct Express[supreg] toll-free call center.
    Cardholders may make purchases anywhere Debit MasterCard[supreg] is 
accepted, including millions of retail locations worldwide, online, or 
by telephone. Similarly, cardholders may make cash withdrawals and 
check their account balances at ATMs. A cardholder is allowed one free 
ATM cash withdrawal for every Federal payment the cardholder receives, 
valid until the end of the month following the month of receipt. For 
subsequent ATM cash withdrawals, a cardholder pays a fee to the card 
issuer of $.90 per ATM withdrawal in the United States. ATM owners 
often charge ATM users additional fees, known as ``surcharge fees;'' 
however, a Direct Express[supreg] cardholder may make cash withdrawals 
at more than 53,000 Direct Express[supreg] card surcharge-free network 
ATMs without paying any surcharge fees. Treasury seeks comments from 
the public about whether there are sufficient numbers of ATMs in remote 
and rural areas, and whether the ability to get cash back at POS and 
make cash withdrawals at MasterCard[supreg] member banks reduces the 
need for ATM access.

[[Page 34398]]

    Direct Express[supreg] cardholders are protected by Regulation E 
(12 CFR part 205), which generally provides certain protections to a 
cardholder whose card is lost or stolen, subject to reporting 
requirements. In fact, Direct Express[supreg] cardholders have 90 days 
to report unauthorized transactions rather than the typical 60 days 
offered by most financial institutions. Card balances are covered by 
deposit insurance by the Federal Deposit Insurance Corporation (FDIC) 
to the extent allowed by law and, as discussed above, Direct 
Express[supreg] cardholders are not at risk for an improper garnishment 
or the related freezing of funds on the card. More information about 
the Direct Express[supreg] card, including a list of all fees and the 
terms and conditions of card use, can be found at http://www.USDirectExpress.com.
    Currently, benefit recipients may sign up for the Direct 
Express[supreg] card in a variety of ways. They may call the Direct 
Express[supreg] toll-free call center or visit the Direct 
Express[supreg] Web site. In addition, a Social Security or SSI 
recipient may sign up for the card at the recipient's local Social 
Security Administration office or by calling the Social Security 
Administration's toll-free national 800 number services. In May 2010, 
Treasury's Go Direct[supreg] call center began accepting calls from 
Veterans who receive compensation and pension benefit payments and wish 
to sign up for the Direct Express[supreg] card. Treasury is exploring 
additional cost-effective, secure, and easy ways to enroll 
beneficiaries in the Direct Express[supreg] card program, and will work 
with Federal agencies to minimize any administrative burden to them as 
additional benefit payments are accepted into the program.
    To date, the Direct Express[supreg] card has been made available 
only to recipients of Social Security and SSI payments. In May 2010, 
Treasury began offering the Direct Express[supreg] card to Veterans 
compensation and pension check recipients as part of Treasury's plans 
to expand the program to accommodate other benefit recipients. Under 
the proposed rule, any benefit recipient would be eligible to receive a 
Direct Express[supreg] card.

Statutory Requirement for Account Access

    Section 3332(f) requires all Federal nontax payments to be made by 
EFT, except as waived by the Secretary for certain limited 
circumstances. See 31 U.S.C. 3332(f) and (j)(3). In fulfilling this 
statutory mandate, the Secretary must ensure that recipients of Federal 
payments required to be made by EFT have access to an account at a 
financial institution at a reasonable cost, and that recipients be 
given the same consumer protections with respect to the account as 
other account holders at the same financial institution. See 31 U.S.C. 
3332(i)(2).
    When Treasury originally published a final rule in 1998 
implementing Section 3332, Treasury simultaneously developed the 
Electronic Transfer Account (ETA) account, which was designed to meet 
these requirements. Although the ETA continues to meet the needs of 
some benefit recipients, it is not available on a nationwide basis and 
does not include some of the more useful features that have become 
available with prepaid debit cards in recent years. By offering the 
Direct Express[supreg] card, Treasury meets the requirements of Section 
3332(i) to ensure that payment recipients have access to an account at 
a reasonable cost and with the same consumer protections as other 
account holders at the financial institution that issues the card.
    According to research conducted in March 2009 (Direct Express--
Cardholder Satisfaction and Usage Survey, OMB Control No. 1510-0074), 
95 percent of Direct Express[supreg] cardholders are satisfied with the 
card. Eight in ten satisfied cardholders cite convenience, safety or 
immediate access to money as reasons for their satisfaction. Eighty-six 
percent of those surveyed said they would recommend the card to a 
friend or family member who receives Federal benefits.
    The Direct Express[supreg] card not only meets the statutory 
``reasonable cost'' and ``same consumer protection'' requirements of 
Section 3332, it exceeds those requirements. As discussed above, the 
Direct Express[supreg] card carries no monthly fee and can be used at 
no cost in many cases. In the above-referenced survey of Direct 
Express[supreg] cardholders, three out of four of the cardholders 
indicated that fees associated with the card are equal to or less than 
what they paid before. The Direct Express[supreg] card offers more 
extensive consumer protections than those generally afforded to account 
holders at financial institutions, including other account holders at 
Comerica Bank, which issues the card. Direct Express[supreg] cards are 
covered by FDIC insurance and the Federal Reserve's Regulation E (12 
CFR part 205), as well as MasterCard's ``zero liability'' policy. In 
addition, cardholders are not at risk for overdraft fees or improper 
garnishments or the related freezing of funds. Finally, cardholders 
have 90 days to report unauthorized transactions, which exceeds the 60 
days required under Federal law and provided as the accepted industry 
standard by most financial institutions.

Cost Savings of Direct Deposit

    Despite the general requirement that Federal payments be made 
electronically, Treasury continues to print and mail many millions of 
checks each year, at a substantially higher cost to the Government than 
if those payments were delivered by EFT. The potential cost savings as 
a result of the proposed rulemaking to the Government and taxpayers are 
significant, and are described in detail in the Regulatory Impact 
Assessment, below.

Technical Revision

    We are proposing to remove the current Sec.  208.6, which describes 
deposit account requirements for Federal payment recipients. These 
provisions are contained in 31 CFR 210.5, and do not need to be 
duplicated in this part 208. Section 208.6 will be replaced with a new 
section 208.6 making the Direct Express[supreg] card available to 
Federal payment recipients.

III. Section-by-Section Analysis

    Proposed new Sec.  208.2(c) would add a definition of the ``Direct 
Express[supreg] card'' as meaning the debit prepaid card issued to 
recipients of Federal benefits by Treasury's financial agent pursuant 
to requirements established by Treasury. The Direct Express[supreg] 
card features are explained above and on the Direct Express[supreg] 
card Web site at http://www.USDirectExpress.com.
    Proposed redesignated Sec.  208.2(e), formerly Sec.  208.2(d), 
would clarify that the definition of ``electronic benefits transfer'' 
includes disbursement through a Direct Express[supreg] card account. As 
has been the case, ``electronic benefits transfer'' (EBT) continues to 
include, but is not limited to, disbursement through an ETA\sm\ and a 
Federal/State EBT program.
    Proposed Sec.  208.4 is revised to eliminate the ability of an 
individual to claim a waiver from receiving payments electronically 
based on the individual's determination, in his or her sole discretion, 
that payment by direct deposit would impose a hardship or because the 
individual does not have an account with a financial institution. 
Benefit recipients who are receiving their payments from an agency by 
check before March 1, 2011, would be allowed to continue to receive 
those payments from that agency by check through February 28, 2013. In 
addition, individuals who have filed claims for Federal benefits before 
March 1, 2011, and who requested check payments

[[Page 34399]]

when they filed, would be permitted to receive payments by check 
through February 28, 2013. Individuals who file claims for Federal 
benefit payments on or after March 1, 2011, would receive their 
payments by direct deposit. Individuals receiving their benefit 
payments by direct deposit on or before March 1, 2011, would continue 
to do so. Beginning on March 1, 2013, all benefit recipients would 
receive their payments by direct deposit--either to an account at a 
financial institution or to a Direct Express[supreg] card account.
    The Secretary's waiver authority would remain unchanged, and 
Federal agencies would continue to have the flexibility to waive 
payment by direct deposit or other EFT method in the circumstances 
described in paragraphs (b) through (g) of Sec.  208.4, namely, for 
certain payments to payees in a foreign country where the 
infrastructure does not support EFT, for certain disaster or military 
situations, for situations in which there may be a security threat or 
for valid law enforcement reasons, for non-recurring payments, and for 
unusual situations that require urgent payment and the Government would 
be seriously injured unless payment is made by a method other than EFT.
    Proposed Sec.  208.6 is revised to remove the general account 
requirements for Federal payments made electronically to an account at 
a financial institutions. These requirements are contained in 31 CFR 
210.5 and do not need to be duplicated in Part 208. Proposed Sec.  
208.6 states that any individual who receives a Federal benefit, wage, 
salary, or retirement payment will be eligible for a Direct 
Express[supreg] card account.
    Proposed Sec.  208.7 is revised to state that agencies shall put 
into place procedures that allow recipients to provide the information 
necessary: (i) For the delivery of their payments by EFT to an account 
at a financial institution, or (ii) to enroll for a Direct 
Express[supreg] card account. Agencies would no longer need to notify 
individuals about their right to invoke a hardship waiver. FMS will 
work with agencies to ensure that they have the information they need 
to effectively explain the features and fees of the Direct 
Express[supreg] card to prospective cardholders.
    Proposed Sec.  208.8 is revised to state that payment recipients 
are required to provide a Federal agency with sufficient information to 
receive payments electronically. To receive a payment by direct deposit 
to an account at a financial institution, the recipient would need to 
provide his or her account information. To enroll for a Direct 
Express[supreg] card account, recipients would need to provide 
sufficient demographic information to allow for an account to be 
established, including information needed for identity verification 
purposes.
    Proposed Sec.  208.11 is revised to conform to the technical 
revision and delete the reference to Sec.  208.6.
    Appendices A and B containing Model ETA\sm\ Disclosure Notices are 
removed because they would no longer apply. ETA\sm\ accounts remain 
available from financial institutions that continue to offer them. For 
more information about ETA\sm\ accounts, visit www.eta-find.gov.

IV. Procedural Analysis

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 proposed 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 rule are clear; or (3) 
whether there is something else we could do to make this rule easier to 
understand.

Regulatory Planning and Review

    It has been determined that this regulation is a significant 
regulatory action as defined in Executive Order 12866 in that this rule 
would have an annual effect on the economy of $100 million or more, and 
this rule raises novel policy issues arising out of the legal mandate 
in 31 U.S.C. 3332. Accordingly, this proposed regulation has been 
reviewed by the Office of Management and Budget. The Regulatory Impact 
Assessment prepared by Treasury for this regulation is provided below.

                 Summary of Estimated Benefits and Costs
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Benefit.................................  $125 million.
Cost....................................  Not estimated.
Net Benefits............................  Not estimated.
------------------------------------------------------------------------
The analysis used nominal dollars in 2009.

1. Description of Need for the Regulatory Action
a. Statutory and Regulatory History
    This rulemaking is necessary to expand compliance with the 
electronic funds transfer (EFT) provisions of section 3332, title 31 
United States Code (Section 3332). In 1996, Congress enacted subsection 
31001(x)(1) of the Debt Collection Improvement Act of 1996 (Pub. L. 
104-134) (DCIA), which amended Section 3332 to generally require that 
all nontax Federal payments be made by EFT, unless waived by the 
Secretary of the Treasury (Secretary). The Secretary must ensure that 
individuals required to receive Federal payments by EFT have access to 
an account at a financial institution ``at a reasonable cost'' and with 
``the same consumer protections with respect to the account as other 
account holders at the same financial institution.'' See 31 U.S.C. 
3332(f), (i)(2).
    To implement Section 3332 as Congress intended, Treasury 
promulgated Part 208 of title 31, Code of Federal Regulations (Part 
208). Part 208 currently sets forth requirements for accounts to which 
Federal payments may be sent by EFT; provides that any individual who 
receives a Federal benefit, wage, salary, or retirement payment is 
eligible to open an Electronic Transfer Account (ETA) at a financial 
institution that offers such accounts; and establishes the 
responsibilities of Federal agencies and recipients under the 
regulation. Part 208 also sets forth a number of waivers to the general 
requirement that Federal payments be delivered by EFT. See 31 CFR 
208.4.
    In conjunction with the publication of Part 208, Treasury developed 
the ETA, a low-cost account offered by participating financial 
institutions for those individuals who wish to receive their Federal 
payments by direct deposit. The ETA was established with the intention 
that it would eventually become available nationwide, and thereby 
comply with the statutory mandate that any person required to receive 
payment by EFT have access to an account at a financial institution at 
a reasonable cost and with standard consumer protections. However, the 
ETA is not available nationwide, and, as a result, does not meet the 
statutory requirement related to account access.
    Any financial institution that wishes to offer the ETA may do so by 
entering into a financial agency agreement agreeing to offer the ETA in 
accordance with the terms and conditions established by Treasury. See 
Notice of Electronic Transfer Account Features, 64 FR 38510 (July 16, 
1999). A participating financial institution must open an ETA for any 
individual who requests one, with some limited exceptions, provided 
that the individual authorizes the direct deposit of his or her Federal 
benefit, wage, salary or retirement payments. A financial institution 
may charge an account fee of up to $3.00 per month, and may charge 
other account-related fees as usually and customarily charged to other 
retail customers. ETA cardholders must be allowed to withdraw funds at 
least four

[[Page 34400]]

times per month without incurring fees. Checks are not offered with 
ETAs. Account holders access their funds through online debit at ATM, 
commonly referred to as ``PIN debit,'' and point-of-sale (POS) 
networks. Offline (signature) debit is not permitted. Treasury pays a 
participating financial institution a fee of $12.60 for each ETA 
account established.
    The hardship waivers in Part 208 were necessary because the ETA was 
not (and is not) available to all benefit recipients across the 
country. In addition, because the ETA does not permit signature debit 
and does not include bill payment capability as a required feature, the 
ETA cardholders have limited options in paying for goods and services 
with an ETA. They cannot use the ETA, for example, to make online and 
telephone purchases. The limited payment capability of the ETA resulted 
in a need for hardship exceptions for geographic, financial, and 
physical disability reasons, since individuals might not have 
convenient or feasible access to physical POS or ATM locations. 
Moreover, the ETA allows monthly and other fees which, although 
limited, could still pose a financial hardship for some benefit 
recipients. This meant that a waiver for financial hardship was also 
necessary.
    Since its inception in 1999 through March 2010, fewer than 245,000 
ETA accounts have been opened, and as of March 2010, there are fewer 
than 118,000 active ETA accounts. Anecdotal evidence suggests that, 
with some exceptions, the ETA is not a cost-effective product for 
financial institutions. According to a 2002 report by the Government 
Accountability Office (GAO), although many financial institutions 
believed that the ETA was a good product for the target market, the 
financial institutions were reluctant to offer the account because they 
did not see the product as profitable. See, ``Electronic Transfers: Use 
by Federal Payment Recipients Has Increased but Obstacles to Greater 
Participation Remain,'' GAO-02-913, page 31 (Sept. 12, 2002) 
(www.gao.gov/new.items/d02913.pdf). From the consumer perspective, 
reasons for lack of interest include the inability to write checks, 
limited availability of ETAs, lack of awareness of ETAs, a difficult 
enrollment process, and a personal preference for doing business 
without a bank account. Id., at 35-36.
    GAO has issued at least two reports on the Federal Government's 
efforts to increase the use of electronic payments rather than checks. 
See, for example, 2002 GAO report cited above, and ``Electronic 
Payments: Many Programs Electronically Disburse Federal Benefits, and 
More Outreach Could Increase Use,'' GAO-08-645 (June 23, 2008) 
(www.gao.gov/new.items/d08645.pdf). In these referenced reports, GAO 
recognizes the advantages of electronic payments, but also recognizes 
the two major historical obstacles to removing the Part 208 individual 
waivers. First, there are a high number of check recipients who do not 
have a bank account or who lack convenient access to an account at a 
reasonable cost with appropriate consumer protections. GAO-02-913, 
pages 16-24 (Sept. 12, 2002); GAO-08-645, pages 19-20, 33 (June 23, 
2008). Second, consumer concerns about the improper freezing and 
seizure of Federal benefit funds typically exempt from garnishment has 
led to resistance to Treasury's efforts to remove the Part 208 
individual waivers to EFT requirements. GAO-08-645, pages 20-22.
b. Technology Changes in the Banking Industry
    The technological developments and widespread acceptance of debit 
and prepaid card products during the last decade make it feasible and 
advantageous for Treasury to revise its existing implementing 
regulation to expand the scope of individuals subject to the EFT 
requirements. Specifically, the development and implementation of the 
Direct Express[supreg] card, a MasterCard[supreg] prepaid debit card 
developed by Treasury exclusively for Federal benefit recipients, means 
that Treasury can now comply with the requirement of Section 3332 to 
ensure that individuals required to receive Federal payments by EFT 
have access to an account at a financial institution that is reasonably 
priced and subject to standard consumer protections.
    Reloadable prepaid debit cards, which were a small specialty 
product in the 1990s, are now widely available and can be used at a 
vast number of merchant locations across the country, not only to 
purchase goods and services, but also to obtain cash through cashback 
transactions at POS locations. With the expansion of the Internet and 
other technological advances, consumers have the ability to make online 
purchases with a debit card, as well as the ability to pay for goods 
and services over the telephone, resulting in the mitigation of some 
past obstacles to electronic payment acceptance. Even for those without 
access to the Internet, or who buy goods and use services from vendors 
who do not accept debit card payments, debit cards can be used to 
purchase money orders, thereby eliminating the step of having to cash a 
check or carry large amounts of cash to complete necessary financial 
transactions.
    The ``2007 Federal Reserve Payments Study, Noncash Payment Trends 
in the United States: 2003-2006,'' sponsored by the Federal Reserve 
System (released December 10, 2007) (http://www.frbservices.org/files/communications/pdf/research/2007_payments_study.pdf) highlights the 
growing acceptance of debit cards in the United States. According to 
the study, debit cards now surpass credit cards as the most frequently 
used payment type. The Federal Reserve noted that the highest rate of 
growth was in automated clearing house (ACH) payments, which grew about 
19 percent per year, followed closely by debit card payments. The 
annual use of debit cards increased by about 10 billion payments over 
the survey period to 25.3 billion payments in 2006, an annual growth 
rate of transactions of 17.5% from 2003 to 2006. Many financial service 
providers offer general prepaid branded reloadable cards intended for 
recipients of wages, incentive or bonus payments, State benefits and 
child support payments, and other types of high volume or regularly 
recurring payments. Many States offer or require the use of electronic 
payment cards for those who receive State benefits, such as temporary 
assistance to needy families.
    Treasury's experience with offering electronic payment card 
products dates back to 1989, and illustrates how Treasury's products 
have evolved and how acceptance of these products has grown. In 1989, 
Treasury offered a debit card product, known as the SecureCard, on a 
pilot basis in Baltimore, Maryland, at no cost to SSI recipients. The 
undeveloped nature of the POS system at that time presented the primary 
challenge in that pilot. To make the card useful, Treasury installed 
POS equipment at various local merchants, at a substantial cost to the 
Government. In 1992, Treasury initiated the Direct Payment Card pilot 
for Social Security and SSI recipients in Texas, which had a better 
developed POS infrastructure, and subsequently extended the pilot to 
Social Security recipients in Argentina. From 1992 through 1997, 
approximately 46,000 recipients enrolled, and the program was well-
received by recipients. Building on the success of the Direct Payment 
Card pilot, in 1996, Treasury joined a Federal-State electronic 
benefits transfer (EBT) program known as the Benefit Security Card 
program. The Benefit Security Card was offered to Federal and/or State 
benefit recipients in eight southeastern States, known as the Southern 
Alliance

[[Page 34401]]

of States, which included Alabama, Arkansas, Florida, Georgia, 
Kentucky, Missouri, North Carolina, and Tennessee. Treasury's Benefit 
Security Card program allowed benefit recipients to access their 
Federal and/or State benefits via a single debit card. When Treasury 
terminated the card program in January 2003, approximately 51,000 
Federal benefit recipients were enrolled in the program. Although 
customers were pleased with the product, Treasury and most States were 
concerned about cardholder costs, which were scheduled to increase at 
the time Treasury terminated the program. At the end of 2006, Treasury 
initiated a small Direct Express[supreg] card program to gauge the 
market for a branded debit card, reloadable only with Federal benefit 
payments. As part of the pilot, Treasury sent letters to 35,000 Social 
Security and SSI check recipients in Chicago and southern Illinois, 
offering them the opportunity to sign up for a Direct Express[supreg] 
card to receive their Federal benefit payments electronically. In 
addition, Treasury included information about the program in check 
envelopes mailed to all Illinois Social Security and SSI check 
recipients. The card features offered for the pilot program were 
similar to the current Direct Express[supreg] card product, although 
the fees were slightly higher.

2. Provision

    Treasury proposes a two-phased approach for implementation of its 
proposed rule. The first phase would require all new benefit recipients 
to sign up for direct deposit to a bank account of the recipients' 
choice or to a Direct Express[supreg] card account, beginning March 1, 
2011. The second phase would begin on March 1, 2013, at which time all 
recipients of Federal benefit and other nontax payments would receive 
their payments by direct deposit, either to a bank account or to a 
Direct Express[supreg] card account.
    Those receiving their benefit payments by check before March 2011, 
could continue to do so through February 28, 2013, after which those 
recipients would convert to direct deposit. For Federal benefit 
recipients, this means that individuals who file claims for Federal 
benefits before March 1, 2011, and who request check payments when they 
file, would be permitted to receive payments by check through February 
28, 2013. Individuals who file claims for benefits on or after March 1, 
2011, would receive their payments by direct deposit. Individuals 
receiving their payments by direct deposit prior to March 1, 2011, 
would continue to do so.
3. Baseline
a. Amount of Federal Disbursement
    In fiscal year 2009, Treasury disbursed more than 80% of its nontax 
payments electronically, or more than 750 million payments. Despite the 
general requirement that Federal payments be made electronically, and 
Treasury's efforts to persuade check recipients to convert to direct 
deposit, Treasury nevertheless continues to print and mail many 
millions of checks each year, at a substantially higher cost to the 
Government than if those payments were delivered by EFT. For example, 
of the 146 million checks disbursed for nontax payments, in fiscal year 
2009, more than 136 million of them were Federal benefit checks mailed 
to 11 million benefit recipients, causing avoidable payment-related 
problems for many check recipients, and resulting in extra costs to 
taxpayers of more than $125 million that would not have been incurred 
had those payments been made by EFT. Social Security (retirement, 
disability, and survivors benefits) and SSI payments represent more 
than 92 percent, or more than 125 million, of those benefit check 
payments. The remaining 11 million benefit check payments are made to 
recipients of civil service retirement, railroad retirement, Black 
Lung, and Veterans benefits. Although the direct deposit payments rate 
has increased since 1996, when it was 58%, the rate has climbed only 
slowly since fiscal year 2005 when it first reached 80%.
b. Affected Population
    As noted above, in fiscal year 2009, Treasury disbursed 136 million 
checks to 11 million benefit recipients. Treasury estimates that 
approximately 4 million of those recipients do not have bank accounts.
    Treasury recognizes the demographic differences between payment 
recipients who are more willing to accept direct deposit and those who 
are not. Treasury also recognizes that there are a variety of reasons 
why check recipients do not switch to direct deposit. Because the 
majority of its check payments are made to Social Security and SSI 
recipients, Treasury's research focuses on this population. During 
implementation of its proposed rule, Treasury will continue its 
research efforts to ensure that the needs of all check recipients are 
adequately addressed and take appropriate action.
    According to Treasury research conducted in 2004 (``Understanding 
the Dependence on Paper Checks--A Study of Federal Benefit Check 
Recipients and the Barriers to Boosting Direct Deposit,'' OMB Control 
No. 1510-0074), the average age of a Social Security check recipient 
was 66 years old. Sixty-one percent of the Social Security check 
recipients were female; 39% were male. Thirty-five percent of the 
Social Security check recipients had not completed high school, while 
26% had some college education or beyond. Sixty percent of Social 
Security recipients were retired; 27% did not have bank accounts; 12% 
received some other form of government assistance; 27% had a 
disability.
    Comparatively, the average age of a SSI check recipient was 50. 
Seventy percent of the SSI check recipients were female; 30% were male. 
Fifty-one percent of the SSI recipients had not completed high school, 
while 15% had some college education or beyond. Only 21% of SSI 
recipients were retired; 68% did not have a bank account; 42% received 
some other form of government assistance, and 42% had a disability.
    According to Treasury research in 2007 (SSA & SSI Check Recipient 
Survey, OMB Control No. 1510-0074), the check recipient population 
demographics had not changed significantly. The 2007 survey found that 
28% of Social Security check recipients did not have a bank account, 
but that 9% more SSI recipients had bank accounts than in 2004 (in 
2007, 59% of SSI recipients did not have a bank account).
    The above-referenced Treasury research shows that younger benefit 
recipients convert to direct deposit at a faster rate than older 
benefit recipients. Younger benefit recipients who have had their 
payments for less than a year are signing up for direct deposit at 
rates that far exceed their proportions in the population. Close to 50% 
of those Social Security and SSI check recipients who converted to 
direct deposit had been receiving their benefits for less than one 
year. Conversely, only 16% of Social Security check recipients and 15% 
of SSI recipients who had been receiving their payments nine (9) years 
or longer signed up for direct deposit.
    Treasury and the Social Security Administration found that, in 
fiscal year 2009, almost 80% of new enrollees signed up for direct 
deposit either to an existing bank account or to a Direct 
Express[supreg] card account. Since September 2008, the Social Security 
Administration has been offering new Social Security and SSI recipients 
the option of signing up for a Direct Express[supreg] card, in addition 
to direct deposit at a financial institution, at the time they enroll 
for benefits. Social Security is also allowing individuals to sign up 
at local offices and by

[[Page 34402]]

telephone. The Direct Express[supreg] card has been a major contributor 
in the decline of Social Security and SSI check payments over the last 
two years, but has had an especially significant impact on the SSI 
check payment volume. The average monthly payment amount for an SSI 
check recipient is $496, whereas the average monthly payment amount for 
a Social Security check recipient is $838. There has been a year-over-
year decrease in SSI checks of 6.91% in March 2010, compared to March 
2009, which is significantly greater than the 3.81% decline in March 
2009, compared to March 2008.
    Treasury seeks comments for Treasury's consideration about examples 
of exceptional circumstances where specific types of individual EFT 
waivers could be needed, even with the availability of the Direct 
Express[supreg] card for Federal benefit recipients.
4. Assessment of Potential Costs and Benefits
a. Potential Costs
    There are potential short-term costs associated with the proposed 
rulemaking. First, there are intangible emotional costs for individuals 
who are fearful or resistant to direct deposit. In its 2004 research, 
Treasury learned that there are some key differences among Social 
Security check recipients, SSI check recipients, and those that receive 
their benefit payments by direct deposit. Although these differences do 
not necessarily explain why certain individuals are more resistant than 
others to receiving payments by direct deposit, the data helps Treasury 
properly target its public education campaign. For example, because the 
data described below shows that Social Security check recipients are 
more likely than SSI check recipients to have a bank account, Treasury 
can direct its resources to informing Social Security check recipients 
about the benefits of directly depositing payments to an existing bank 
account. For SSI recipients who are less likely to have a bank account, 
Treasury can focus its Direct Express[supreg] card information to that 
population.
    Compared to SSI check recipients, Social Security check recipients 
are older (average age 66), more likely to have a bank account, more 
likely to be male and retired, less likely to have a disability, less 
likely to receive some other form of government assistance, less likely 
to depend on their benefit as their sole source of income, and more 
likely to be Caucasian. SSI recipients are likely to be younger 
(average age 50), less likely to have a bank account, more likely to 
have a representative payee acting on their behalf, more likely to be 
African-American, more likely to be female, more likely to live in a 
city, more likely to receive some other form of benefit payment, and 
more likely to depend on others for assistance with daily chores and 
errands. Direct deposit recipients are more technologically savvy than 
either Social Security or SSI check recipients. They are more likely to 
own a cell phone or to use a personal computer and the Internet. 
Compared with check recipients, direct deposit beneficiaries responding 
to the survey were more likely to have confidence in banks, to believe 
that computers are secure, and to feel that ATMs are safe.
    Despite these demographic differences, Treasury has found that the 
reasons for resistance to direct deposit among check recipients have 
remained fairly constant over the years. Many people express a desire 
to see the physical payment in check form. Others feel a greater sense 
of control when handling checks, and many, especially those receiving 
SSI, believe that receiving checks helps them to better manage their 
money and maintain their standard of living. Barriers that need to be 
overcome can be grouped into four general categories: informational 
(those who do not understand how direct deposit works); emotional 
(those who just prefer to receive checks); inertia (those who are 
receptive to electronic payments, but need to be motivated to sign up); 
and mechanical (those who do not have bank accounts, and in some cases, 
do not want bank accounts).
    Treasury expects most recipients to pay less for EFT payments than 
for check payments. While some individuals may be able to cash 
government checks at no cost, there are often fees of up to $20 or more 
for cashing a check. The Direct Express[supreg] card program is 
structured so that there are several ways for cardholders to access 
their funds and use their card without paying any fees. The Direct 
Express[supreg] card account fees compare favorably to those charged by 
financial service providers offering general purpose reloadable cards, 
which often charge fees for sign-up, monthly maintenance, ATM 
withdrawals, balance inquiries, and customer service calls. Cardholders 
may use their card to make purchases and get cash back at a POS 
location without paying a fee; obtain cash from any MasterCard[supreg] 
member bank teller window without paying a fee; and make one free ATM 
cash withdrawal for each benefit payment deposited to the card account 
(the free ATM cash withdrawal is available until the end of the month 
following the month of deposit). If the cardholder makes a withdrawal 
using an ATM within the Direct Express[supreg] surcharge-free ATM 
network, the cardholder will not pay a surcharge fee to an ATM owner. 
In addition, there are many other features that cardholders can access 
without paying a fee, including unlimited customer service calls (with 
or without live operators); optional automated low balance alerts or 
deposit notifications; and online or telephone transaction history and 
other account information. There is no fee to sign up for the card, 
close the account, or to obtain one replacement card per year. 
Importantly, there are no overdrafts, minimum balance requirements, or 
credit requirements to sign up for the card. The few fees that are 
charged for the card include $.90 for ATM transactions after free ATM 
transactions are used, $.75 per month for optional paper statements, 
fees for using the card outside the United States, and replacement 
cards beyond the free replacement card. Treasury seeks comments on the 
costs to recipients for using their benefit payments received by paper 
check as compared to those received by EFT.
    Treasury expects to continue to incur expenditures for the public 
education related to the implementation of any new rules and to 
temporarily expand its telephone and online direct deposit enrollment 
center to accommodate those converting from check payments to direct 
deposit to comply with the new rules, whether the conversion is to an 
account at a financial institution or to a Direct Express[supreg] card 
account. However, such expenditures will taper off after the new rules 
are fully implemented, since direct deposit enrollment in the future 
will occur at the time of benefit enrollment. Federal benefit agencies 
may incur costs to temporarily expand customer service centers to 
accommodate recipients' questions and enrollments until the new rules 
are fully implemented.
    Treasury expects increased costs for its call center and Web site 
used to enroll check recipients into direct deposit, although these 
costs are expected to drop off after 2013, when the proposed rule would 
be fully implemented. The education costs, expected to range from $3 
million to $4.5 million per year, through 2013, are costs that Treasury 
would have incurred even without the proposed rulemaking, and for 
potentially longer than the next 3-5 years. Similarly, Treasury expects 
benefit paying agencies to incur some initial costs for customer 
service training for customer service representatives responsible for

[[Page 34403]]

educating new enrollees and current check recipients about the new 
rules, but these costs are expected to be more than offset by the cost 
savings expected once customer service centers no longer have to 
respond to individual inquiries related to check problems. The one-time 
costs to increase customer service capacity at the Treasury enrollment 
center (both telephone and online) could total as high as $20 million 
from the effective date of the final rule through 2013. After 2013, 
Treasury expects these costs to drop off significantly.
    The Go Direct[supreg] campaign, sponsored by Treasury and the 
Federal Reserve Banks, highlights the need for this educational 
program. Despite the success of the campaign with more than 4.3 million 
direct deposit enrollments achieved since 2005 as a result of the 
campaign's activities, more than 11 million Federal benefit recipients 
still receive checks each month. Treasury research shows that the 
likelihood of current check recipients switching to direct deposit 
remained generally unchanged from 2004 to 2007, with 55% of banked 
Social Security check recipients surveyed in 2007 being very unlikely 
to change to direct deposit, down from 59% in 2004. The percentage of 
banked Social Security check recipients likely to switch to direct 
deposit went from 27% in 2004 to 28% in 2007. Comparatively, 40% of 
banked Supplemental Security Income (SSI) check recipients were likely 
to switch to direct deposit in 2007, up only one percentage point since 
2004. While Treasury research shows that direct deposit education has a 
positive impact on the likelihood of a check recipient to switch to 
direct deposit, the effort is time consuming, administratively 
burdensome, costly, and resource-intensive. During the period July 2009 
through June 2010, Treasury spent $4.5 million on its Go Direct[supreg] 
campaign, and expects to spend another $4 million during the period 
July 2010 through June 2011. Prior years' costs have ranged from $5 
million to $10 million for Treasury to establish and sustain its 
presence in target markets to promote and encourage check recipients to 
convert to direct deposit.
    Finally, and less directly, financial institutions may experience 
some costs associated with converting their check recipient customers 
to direct deposit, but Treasury does not expect this to be a 
significant burden since financial institutions already enroll a 
significant number of direct deposit recipients through Treasury's Go 
Direct[supreg] campaign.
b. Potential Benefits
    The potential benefits of the proposed rulemaking to the Government 
and taxpayers are significant. As noted above, in fiscal year 2009, 
Treasury mailed more than 136 million Federal benefit checks to 
approximately 11 million benefit recipients, resulting in extra costs 
to taxpayers of more than $125 million that would not have been 
incurred had those payments been made by EFT. Without the proposed rule 
change and given the current trends, the number of checks that Treasury 
prints and mails each year is expected to increase significantly over 
the coming years, primarily as a result of the aging of the baby boomer 
generation. Beginning in 2008, the first wave of 78 million baby 
boomers became eligible for Social Security benefits. Even as the more 
technologically-savvy baby boomers enter the rolls, the direct deposit 
rate for fiscal year 2010 through April remained at about 80% for new 
Social Security enrollees, relatively unchanged from fiscal year 2009, 
and only slightly higher than fiscal year 2008. With the increase in 
retiring baby boomers, Treasury expects to issue approximately 60 
million new payments each year to approximately 5 million newly 
enrolled recipients (based on Social Security Administration actuarial 
data). Of those 60 million payments, an estimated 9 million would be 
made by check based on the current overall direct deposit/check ratio 
(85 percent/15 percent) for Social Security payments. By 2020, the 
Social Security Administration projects there will be 18.6 million more 
Social Security beneficiaries than in fiscal year 2009, which would 
result in more than 223 million additional payments each year. At the 
current direct deposit/check ratio, this would mean 33.5 million 
additional checks each year beginning in 2020, at a cost of $31 million 
each year, leading to a total annual cost of more than $156 million 
more than if those payments were made by direct deposit.
    These projected cost savings do not take into account future 
increased costs in postage, paper, and salaries; the cost of issuing 
benefit checks other than Social Security and SSI; or the costs 
agencies incur in handling inquiries and authorizing replacement 
checks. For example, the Social Security Administration expects 
administrative savings resulting from a drop in non-receipt and lost 
check actions. The Social Security Administration also expects to save 
money by eliminating the ``Payment Delivery Alert System,'' which is a 
joint effort among the Social Security Administration, Treasury, and 
the U.S. Postal Service to locate and deliver delayed Social Security 
and SSI checks.
    Those who receive their payments by direct deposit do not have to 
worry about a lost or stolen check, or carrying around large amounts of 
cash that can be easily lost or stolen. Each year, approximately half a 
million individuals call Treasury to request claims packages related to 
problems with check payments. For example, in fiscal year 2009, more 
than 670,000 Social Security and SSI checks were reported lost or 
stolen. Each year, Treasury investigates more than 70,000 cases of 
altered or fraudulently endorsed checks, totaling $64 million. When 
checks are misrouted, lost in the mail, stolen, or fraudulently signed, 
Treasury must send replacement checks to the recipient. This can result 
in a delay in payment, especially if fraud or counterfeiting is 
involved, thereby creating a hardship for benefit recipients who rely 
on these payments for basic necessities such as food, rent, or 
medication. In contrast, individuals receiving Federal payments 
electronically rarely have any delays or problems with their payments. 
Nine out of ten problems with Treasury-disbursed payments are related 
to paper checks even though checks constitute only 19 percent of all 
Treasury-disbursed payments made by the Government.
    These projected savings also do not account for the costs that 
would no longer be incurred by banks and credit unions for cashing 
checks and reimbursing the Government when there are alterations, 
forgeries, or unauthorized indorsements of Federal benefit checks. In 
fiscal year 2009, it cost the banking industry $69.3 million to 
reimburse the Treasury for checks that had been fraudulently altered or 
counterfeited, or contained a forged or unauthorized indorsement.
5. Alternative Approaches Considered
    Treasury considered three alternative approaches to achieving the 
benefits of direct deposit other than the approach proposed in this 
rulemaking notice.
    First, Treasury could have proposed to eliminate the individual EFT 
waivers sooner for everyone, i.e., eliminate the waivers for all 
benefit recipients on the same effective date, but Treasury was 
concerned about the impact of such a rule on payment recipients if it 
had an inadequate amount of time to educate the public about the rule's 
requirements and benefits. It is important for Treasury and benefit 
agencies to be prepared to respond to recipients' inquiries about

[[Page 34404]]

the new rules, which requires sufficient time to train agency customer 
service representatives, educate those affected by the new rules, and 
to implement any process changes that may be required. Treasury will 
work closely with the agencies to ensure that implementation 
requirements are understood and can be addressed in the time frame 
proposed.
    Second, Treasury also considered phasing in the elimination of the 
individual EFT waivers over a longer period of time. Treasury is 
concerned that such a delay results in additional costs to individuals 
who will be delayed in realizing the benefits of direct deposit. 
Treasury intends to begin its public education campaign immediately 
upon the promulgation of a final rule. Treasury will monitor the 
progress of its campaign, and adjust the campaign as necessary to 
ensure maximum effectiveness. In addition, a delayed implementation 
results in additional costs to the Government and taxpayers. For every 
year that Treasury delays full implementation of the EFT rule, the 
government spends at least $125 million more for check payments than it 
would otherwise spend if recipients were receiving EFT payments. 
Treasury seeks comments on alternative phase-in approaches based on 
research evidence and increased effectiveness.
    Finally, Treasury considered whether to institute a formal 
application process for individuals seeking to invoke a waiver to the 
EFT requirement. Treasury is concerned that such an approach would 
require the unnecessary development of a new bureaucratic 
infrastructure to process the applications, and would impose 
administrative burdens on both Government agencies and benefit 
recipients. The availability of the Direct Express[supreg] card negates 
the need for the existing waivers. Agencies retain the ability to waive 
EFT requirements for classes of payments for various reasons. Finally, 
in an unusual or exceptional circumstance, the Secretary has the 
authority to waive the EFT requirement, but Treasury does not 
anticipate invoking this authority except in rare situations.
6. Other Issues
a. Financial Agent
    Building on the ``lessons learned'' in previous programs and the 
Direct Express[supreg] card program pilot, Treasury issued an 
announcement in 2007 seeking a financial institution qualified to act 
as a Treasury-designated financial agent to provide debit card services 
for Federal benefit recipients nationwide, through the Direct 
Express[supreg] card program. Treasury has unique legal authority to 
designate a financial institution as its financial agent to disburse 
Federal benefit payments electronically, which includes the 
establishment of an account meeting certain requirements, maintenance 
of an account, the receipt of Federal payments electronically, and the 
provision of access to funds in the account on the terms specified by 
Treasury. See 12 U.S.C. 90; 31 CFR 208.2. Fifteen financial 
institutions responded, and after careful review of the applications, 
Treasury selected Comerica Bank as its agent based on various criteria, 
including the proposed cardholder fees. Treasury considered, but 
rejected, selecting multiple financial agents (although it has the 
option to do so in the future) primarily to ensure that the selected 
financial agent would be able to maintain a sufficient volume of active 
accounts in order to cost-effectively sustain a program with the lowest 
possible cardholder fees. The financial agent selection process used by 
Treasury enabled Treasury to obtain debit card services with the most 
value for benefit recipients, including, among other things, better 
consumer protections than those offered by most prepaid card products, 
a surcharge-free ATM network of more than 53,000 surcharge-free ATMs, 
free low balance alerts and deposit notification, unlimited free 
customer service calls, and the ability to use the debit card product 
to access Federal benefit payments without incurring a fee. Treasury 
provides oversight to confirm that its financial agent operates the 
Direct Express[supreg] card program to provide maximum value at a 
reasonable cost to cardholders. Treasury has begun offering paper check 
recipients of Veterans compensation and pension benefits the option of 
using the Direct Express[supreg] card, and plans to expand the card 
program to other types of Federal payments, including civil service 
retirement, railroad retirement, and more. This would allow Federal 
payment recipients to receive multiple types of Federal payments to a 
single Direct Express[supreg] card account.
b. Garnishment
    Treasury has also addressed the garnishment issue, that is, the 
concerns about the improper freezing and seizure of benefit funds 
exempt from garnishment. On April 19, 2010, Treasury and the four major 
benefit paying agencies--Office of Personnel Management, Railroad 
Retirement Board, Social Security Administration, and Department of 
Veterans Affairs--published a joint notice of proposed rulemaking to 
address concerns associated with the garnishment of exempt Federal 
benefit payments. 75 FR 20299 (Apr. 19, 2010). The rule, as proposed, 
would establish straightforward, uniform procedures for financial 
institutions to follow in order to minimize the hardships encountered 
by Federal benefit payment recipients whose accounts are frozen 
pursuant to a garnishment order. The rule would require financial 
institutions to exempt from freezing or seizure an amount equivalent to 
benefit payments deposited to an account within the 60 days prior to a 
financial institution's receipt of a garnishment order. The rule will 
protect benefit recipients with regular, recurring benefit payments 
that are directly deposited to an account at a financial institution.
    Until the garnishment rule is finalized, the Direct Express[supreg] 
card offers another solution to address concerns about improper 
garnishment. Currently, the Direct Express[supreg] card accepts only 
exempt benefits, thus making it easier for the Direct Express[supreg] 
card issuer to identify all of the funds in an individual's account as 
consisting of exempt funds and then react accordingly to garnishment 
orders. Treasury will not allow a Direct Express[supreg] card account 
to commingle non-exempt and exempt funds until a final garnishment rule 
is promulgated or, alternatively, the card issuer offers protections 
similar to those proposed by Treasury and the other benefit agencies.

Regulatory Flexibility Act Analysis

    It is hereby certified that the proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule applies to individuals who receive Federal payments, 
and does not directly impact small entities. Accordingly, an initial 
regulatory flexibility analysis under the Regulatory Flexibility Act (5 
U.S.C. 601 et seq) is not required.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532 (Unfunded Mandates Act), requires that the agency prepare a 
budgetary impact statement before promulgating any rule likely to 
result in a Federal mandate that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more in any one year. If a budgetary 
impact statement is required, section 205 of the Unfunded Mandates Act 
also requires the agency to identify and consider a reasonable number 
of regulatory alternatives before promulgating the

[[Page 34405]]

rule. We have determined that the proposed rule will not result in 
expenditures by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. 
Accordingly, we have not prepared a budgetary impact statement or 
specifically addressed any regulatory alternatives.

List of Subjects in 31 CFR Part 208

    Accounting, Automated Clearing House, Banks, Banking, Electronic 
funds transfer, Financial institutions, Government payments.

    For the reasons set out in the preamble, we propose to amend 31 CFR 
part 208 as follows:

PART 208--MANAGEMENT OF FEDERAL AGENCY DISBURSEMENTS

    1. The authority citation for part 208 continues to read as 
follows:

    Authority:  5 U.S.C. 301; 12 U.S.C. 90, 265, 266, 1767, 1789a; 
31 U.S.C. 321, 3122, 3301, 3302, 3303, 3321, 3325, 3327, 3328, 3332, 
3335, 3336, 6503; Pub. L. 104-208, 110 Stat. 3009.

    2. In Sec.  208.2, redesignate paragraphs (c) through (o) as 
paragraphs (d) through (p), respectively, add new paragraph (c), and 
revise redesignated paragraph (e) to read as follows:


Sec.  208.2  Definitions.

* * * * *
    (c) Direct Express[supreg] card means the prepaid debit card issued 
to recipients of Federal benefits by a Financial Agent pursuant to 
requirements established by Treasury.
* * * * *
    (e) Electronic benefits transfer (EBT) means the provision of 
Federal benefit, wage, salary, and retirement payments electronically, 
through disbursement by a financial institution acting as a Financial 
Agent. For purposes of this part, EBT includes, but is not limited to, 
disbursement through an ETA\sm\, a Federal/State EBT program, or a 
Direct Express[supreg] card account.
* * * * *
    3. Revise Sec.  208.4(a) to read as follows:


Sec.  208.4  Waivers.

* * * * *
    (a) Where an individual is receiving Federal payments from an 
agency by check prior to March 1, 2011, the individual may continue to 
receive those payments by check through February 28, 2013. In addition, 
an individual who files a claim for Federal benefit payments prior to 
March 1, 2011, and who requests payment of those benefits by check at 
the time he or she files the claims, may receive those payments by 
check through February 28, 2013.
* * * * *
    4. Revise Sec.  208.6 to read as follows:


Sec.  208.6  Availability of the Direct Express[supreg] Card.

    Any individual who receives a Federal benefit, wage, salary, or 
retirement payment shall be eligible to open a Direct Express[supreg] 
card account. The offering of a Direct Express[supreg] card account 
shall constitute the provision of EBT services within the meaning of 
Public Law 104-208.
    5. Revise Sec.  208.7 to read as follows:


Sec.  208.7  Agency responsibilities.

    Each agency shall put in place procedures that allow each recipient 
to provide the information necessary for the delivery of payments to 
the recipient by electronic funds transfer to an account at the 
recipient's financial institution, or to sign up for a Direct 
Express[supreg] card account to be held by the recipient.
    6. Revise Sec.  208.8 to read as follows:


Sec.  208.8  Recipient responsibilities.

    Each recipient who is required to receive payment by electronic 
funds transfer shall provide to an agency the information requested by 
the agency in order to effect payment by electronic funds transfer.
    7. Revise the third sentence in Sec.  208.11 to read as follows:


Sec.  208.11  Accounts for disaster victims.

    * * * Treasury may deliver payments to these accounts 
notwithstanding any other payment instructions from the recipient and 
without regard to the requirements of Sec. Sec.  208.4 and 208.7 of 
this part and Sec.  210.5 of this chapter. * * *

Appendixes A and B to Part 208 [Removed]

    8. Remove Appendix A and Appendix B to Part 208.

    Dated: June 10, 2010.
Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2010-14614 Filed 6-16-10; 8:45 am]
BILLING CODE 4810-35-P