[Federal Register Volume 76, Number 181 (Monday, September 19, 2011)]
[Rules and Regulations]
[Pages 57907-57910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23896]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 240

RIN 1510-AB25


Indorsement and Payment of Checks Drawn on the United States 
Treasury

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: This final rule authorizes the Department of the Treasury 
(Treasury), Financial Management Service (FMS), to direct Federal 
Reserve Banks to debit a financial institution's Master Account for all 
check reclamations against the financial institution that the financial 
institution has not protested. Financial

[[Page 57908]]

institutions will continue to have the right to file a protest with FMS 
if they believe a proposed reclamation is in error.

DATES: This rule is effective October 19, 2011.

FOR FURTHER INFORMATION CONTACT: Sandra Walls, Reclamation Branch 
Manager, Check Resolution Division, at (202) 874-7945 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 amending its regulation at 31 CFR part 240 (Part 
240), governing the indorsement and payment of checks drawn on the 
United States Treasury. Part 240 sets forth how checks may be indorsed 
and the remedies available to Treasury when checks are improperly 
negotiated. The rule provides for the allocation of loss between the 
Government and indorsers of the check. In addition, Part 240 provides 
information on how Treasury will collect debts owed by financial 
institutions and other indorsers when they fail to pay check 
reclamations made by Treasury.
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    \1\ FMS is the bureau within Treasury charged with implementing 
Treasury's authority in this area. The terms Treasury and FMS are 
used interchangeably in this rule.
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    On January 4, 2010, Treasury issued a notice of proposed rulemaking 
(NPRM) requesting comments on its proposal to provide Treasury with the 
authority to direct Federal Reserve Banks to debit a financial 
institution's Master Account for all check reclamations for which the 
financial institution has not submitted a valid protest with supporting 
documentation. See 75 FR 95. The proposed rule explained that FMS will 
notify the financial institution of the reclamation by sending a NOTICE 
OF DIRECT DEBIT (RECLAMATION), which also will inform the financial 
institution that, if the reclamation is not paid by the 30th day after 
the direct debit notice date, the financial institution's Master 
Account will be debited by its servicing Federal Reserve Bank.

II. Discussion of Comments

    FMS received two comments on the proposed rule--one from a 
financial institution and one from a banking association. Both 
commenters indicated that the proposed 30-day notice period before a 
direct debit is carried out was too short. Rather, they suggested that 
FMS provide a financial institution with notice 60 days before 
directing the Federal Reserve to debit the financial institution's 
Master Account. FMS carefully considered this comment and decided to 
keep the proposed 30-day notice period. Currently 95% of all Treasury 
reclamations are already paid by financial institutions within 30 days. 
An extended processing time would not be consistent with the goal of 
the revised regulation--to expedite and streamline the process of 
collecting unpaid reclamations. When a financial institution has reason 
to believe the reclamation direct debit should not proceed, it may file 
a protest.
    Both commenters indicated that FMS should clarify which account 
will be debited in a reclamation direct debit. They pointed out that 
the NPRM refers to both an ``account'' and a ``reserve account.'' FMS 
agrees that this point should be clarified. Therefore, the final rule 
includes a new definition for ``Master Account'' that mirrors the 
definition found in Federal Reserve Banks Operating Circular 1. 
Additionally, throughout the rule, ``reserve account'' and ``account'' 
have been replaced with ``Master Account.''
    Although not a direct comment on the proposed rule, both commenters 
expressed concern with the amount of time FMS takes to process 
reclamation protests. In response to this concern, FMS notes that it 
routinely exceeds the goal set forth in Part 240: that FMS will make 
every effort to decide a properly submitted protest within 60 days. In 
fiscal year 2010, 85% of bank protests received were resolved within 30 
days. Still, some complicated protests take longer to resolve. FMS will 
continue to work diligently to make final decisions as quickly as 
possible. Contrary to one commenter's assertion, FMS maintains a 
reclamations Web page (http://www.fms.treas.gov/goldbook) that provides 
a telephone number, a facsimile number, an e-mail address, and a 
mailing address for financial institutions to use to get information 
about their protests.
    Finally, one commenter asked FMS to include in the final rule 
requirements for refund transaction processing. The commenter was 
concerned that, in the event FMS provides a refund for a reclamation 
payment, the refund may include interest and penalties already paid by 
the financial institution in addition to the original reclamation debt. 
To maintain accurate accounting for refund transactions, the commenter 
asked FMS to provide more information about the refund amount and to 
include the requirements for refund transaction processing in the final 
rule. Currently, on the check issued in settlement for a bank protest, 
FMS prints ``refund for check XXXX-XX,XXX,XXX'' to aid the 
financial institution in cross-referencing against their reclamation 
records. After direct debiting has been instituted, FMS will begin to 
make changes to its systems to allow electronic refunds via credit to 
the financial institution's Master Account. FMS believes that more 
information about the refund amount is not necessary because normally, 
penalties, administrative fees, and interest will not be assessed since 
the debit will occur on the 31st day after the reclamation date.

III. Clarifications and Technical Corrections

    FMS is amending Sec.  240.9(b)(3)(ii) to clarify that Treasury must 
receive a reclamation protest within 60 days after the reclamation 
date. The NPRM specified that if a financial institution files a 
reclamation protest within 30 days after the reclamation date, Treasury 
would not instruct the Federal Reserve Bank to debit the financial 
institution's Master Account. See Sec.  240.9(a)(1)(iii). The preamble 
to the NPRM specified that a financial institution has an additional 30 
days after the direct debit date to submit a reclamation protest. To 
provide for a 30-day period before direct debit and a 30-day period 
after direct debit, Sec.  240.9(b)(3)(ii) is amended to specify a total 
of 60 days after the reclamation date.
    Throughout the rule, the term ``Director, Financial Processing 
Division,'' is replaced with ``responsible FMS Director.'' This change 
allows the rule to remain accurate should re-organizations occur.
    Sections 240.9(a)(2) and 240.9(b)(3) are revised to update the 
mailing address for submitting a request to inspect Treasury records, 
to submit a repayment agreement, or to submit a reclamation protest. 
The rule is revised to provide addresses through the Check Claims Web 
site or the Goldbook: The Check Reclamation Guide.
    Sections 240.9(a)(1)(i) and (iii), and 240.9(b)(4)(iii) are revised 
to replace the words ``of'' and ``from'' with the word ``after,'' to 
make it clear that a financial institution has 30 days after the 
reclamation date to pay the reclamation debt or file a protest before 
Treasury instructs the Federal Reserve Bank to debit the financial 
institution's Master Account. Therefore, the debit will occur on the 
31st day after the reclamation date.
    This Final Rule also corrects the NPRM by spelling the word

[[Page 57909]]

``indorsement'' with an ``i'' wherever it appears.

IV. Procedural Analyses

Regulatory Planning and Review

    The final 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 
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.

List of Subjects in 31 CFR Part 240

    Banks, Banking, Checks, Counterfeit checks, Federal Reserve system, 
Forgery, and 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

0
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, 3343, 3711, 3712, 3716, 3717; 332 U.S. 234 (1947); 
318 U.S. 363 (1943).


0
2. In part 240 revise all references to ``the Director, Financial 
Processing Division'' and ``the Director of the Financial Processing 
Division'' wherever they appear to read ``the responsible FMS 
Director''.


0
3. In Sec.  240.1, add paragraph (d) to read as follows:


Sec.  240.1  Scope of regulations.

* * * * *
    (d) A financial institution's indorsement 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 the financial institution's Federal Reserve Master 
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.


0
4. In Sec.  240.2, redesignate paragraphs (t) through (mm) as (u) 
through (nn), and add new paragraph (t) to read as follows:


Sec.  240.2  Definitions.

* * * * *
    (t) Master Account means the record of financial rights and 
obligations of an account holder and the Federal Reserve Bank with 
respect to each other, where opening, intraday, and closing balances 
are determined.
* * * * *


0
5. In Sec.  240.9, revise paragraphs (a), (b)(3) introductory text, 
(b)(3)(ii), 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 days after the 
reclamation date, Treasury intends to collect the amount outstanding by 
instructing the appropriate Federal Reserve Bank to debit on the 31st 
day the Master Account used 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 days after the reclamation date, Treasury 
will not instruct the appropriate Federal Reserve Bank to debit the 
Master Account used 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 Treasury's records with respect to a reclamation debt and 
requests to enter into repayment agreements must be sent in writing to 
the address provided on the Check Claims Web site at http://www.fms.treas.gov/checkclaims or to such other address as Treasury may 
publish in the Goldbook: The Check Reclamation Guide, which can be 
found at http://www.fms.treas.gov.
    (3) If Treasury determines a reclamation debt is due and the 
Federal Reserve Bank is unable to debit the financial institution's 
Master 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 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) * * *
    (3) Procedures for filing a protest. A reclamation protest must be 
sent in writing to the address provided on the Check Claims Web site at 
http://www.fms.treas.gov/checkclaims or to such other address as 
Treasury may publish in the Goldbook: The Check Reclamation Guide, 
which can be found at http://www.fms.treas.gov.
* * * * *
    (ii) Treasury will not consider reclamation protests received more 
than 60 days after the reclamation date.
* * * * *
    (4) * * *
    (iii) If the responsible FMS Director, or an authorized designee, 
finds, by a preponderance of the evidence, the reclamation debtor is 
liable for the reclamation debt, Treasury will notify the reclamation 
debtor of his or her decision in writing. If the reclamation debtor has 
not paid the reclamation in full, Treasury will direct the Federal 
Reserve Bank to debit the financial institution's Master Account 
immediately, provided at least 30 days have passed after the date of 
the NOTICE OF DIRECT DEBIT (RECLAMATION). If at least 30 days have not 
yet passed after the date of the NOTICE OF DIRECT DEBIT (RECLAMATION), 
Treasury will direct the Federal Reserve Bank to debit the financial 
institution's Master Account on the 31st day after the date of the

[[Page 57910]]

NOTICE OF DIRECT DEBIT (RECLAMATION). 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 Master Account, Treasury will proceed to collect the 
reclamation debt through offset in accordance with Sec.  240.10 and 
Sec.  240.11.
* * * * *

    Dated: September 12, 2011.
Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2011-23896 Filed 9-16-11; 8:45 am]
BILLING CODE 4810-35-P