[Federal Register Volume 81, Number 10 (Friday, January 15, 2016)]
[Rules and Regulations]
[Pages 2092-2106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00608]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Parts 262, 264, and 265

RIN 0970--AC56


Temporary Assistance for Needy Families (TANF) Program, State 
Reporting On Policies and Practices To Prevent Use of TANF Funds in 
Electronic Benefit Transfer Transactions in Specified Locations

AGENCY: Office of Family Assistance (OFA), Administration for Children 
and Families (ACF), Department of Health and Human Services (HHS).

ACTION: Final rule.

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

SUMMARY: This final rule makes regulatory changes to the Temporary 
Assistance for Needy Families (TANF) regulations to require states, 
subject to penalty, to maintain policies and practices that prevent 
TANF funded assistance from being used in any electronic benefit 
transfer transaction in any liquor store; any casino, gambling casino, 
or gaming establishment; or any retail establishment that provides 
adult-oriented entertainment in which performers disrobe or perform in 
an unclothed state for entertainment. This rule implements provisions 
of Section 4004 of the Middle Class Tax Relief and Job Creation Act of 
2012.

DATES: Effective Date: Provisions of this final rule become effective 
January 15, 2016.
    Compliance Date: For states, the District of Columbia, and 
territories (hereafter referred to as states), HHS will determine 
compliance with provisions in this final rule through review and 
approval of reports that states submit annually. Initial reports 
describing the policies and practices states implemented were due on 
February 22, 2014. All states submitted reports by this deadline. 
Hereafter, states will submit reports describing the policies and 
practices required by 45 CFR 264.60 and Section 4004 of the Middle 
Class Tax Relief and Job Creation Act of 2012 in the Annual Report on 
TANF and maintenance-of-effort (MOE) Programs in accordance with 45 CFR 
265.9(b)(10). As provided at 45 CFR 265.10, this report is due by 
November 14 of each fiscal year, which is the same time as the fourth 
quarter TANF data report, as provided in 45 CFR 265.4.

FOR FURTHER INFORMATION CONTACT: Rebecca Shwalb, Office of Family 
Assistance, 202-260-3305 (not a toll-free call). Deaf and hearing 
impaired individuals may call the Federal Dual Party Relay Service at 
1-800-877-8339 between 8:00 a.m. and 7:00 p.m. Eastern Time.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Notice of Proposed Rulemaking
III. Overview of Final Rule
IV. Statutory Authority
V. Section-by-Section Discussion of Comments and Regulatory 
Provisions
    Part 262--Accountability Provisions--General
    Section 262.1 What penalties apply to States?
    Section 262.2 When do the TANF penalty provisions apply?
    Section 262.3 How will we determine if a State is subject to a 
penalty?
    Part 264--Other accountability provisions: Subpart A--What 
specific rules apply for other program penalties?
    Section 264.0 What definitions apply to this part?
    Section 264.60 What policies and practices must a State 
implement to prevent assistance from being used in electronic 
benefit transfer transaction in locations prohibited by the Social 
Security Act?
    Section 264.61 What happens if a State fails to report or 
demonstrate it has implemented and maintained the policies and 
practices required in Sec.  264.60 of this subpart?
    Part 265--Data Collection and Reporting Requirements
    Section 265.9--What information must the State file annually?
VI. Paperwork Reduction Act
VII. Regulatory Flexibility Act
VIII. Regulatory Impact Analysis
IX. Unfunded Mandates Reform Act of 1995
X. Congressional Review
XI. Executive Order 13132
XII. Treasury and General Government Appropriations Act of 1999

[[Page 2093]]

I. Background

    Authorized by title IV-A of the Social Security Act, TANF is a 
block grant that provides states, territories, and tribes federal funds 
to design and operate a program to accomplish the purposes of TANF. The 
purposes are to: (1) Assist needy families so that children can be 
cared for in their own homes or in the homes of relatives; (2) reduce 
the dependency of needy parents by promoting job preparation, work, and 
marriage; (3) prevent out-of-wedlock pregnancies; and (4) encourage the 
formation and maintenance of two-parent families. In addition to 
federal TANF block grant funds, each state must spend a certain minimum 
amount of non-federal funds to help eligible families in ways that 
further a TANF purpose. This is referred to as maintenance-of-effort 
(MOE).
    In general, federal TANF and state MOE funds may be expended on 
benefits and services targeted to needy families, and activities that 
aim to prevent and reduce out-of-wedlock pregnancies or encourage the 
formation and maintenance of two-parent families, as well as 
administrative expenses. In particular, federal TANF and state MOE 
funds may be expended on ``assistance,'' defined at 45 CFR 260.31(a)(1) 
as including cash payments, vouchers, and other forms of benefits 
designed to meet a family's ongoing basic needs (i.e., food, clothing, 
shelter, utilities, household goods, personal care items, and general 
incidental expenses). Assistance also includes supportive services such 
as transportation and child care provided to families who are not 
employed (see 45 CFR 260.31(a)(3)). TANF funds also can be used for a 
wide range of benefits and services that do not fall within the 
definition of assistance; such expenditures are considered ``non-
assistance.'' This rule pertains only to assistance expenditures.
    Based on the most recent information provided to us by states, 
there are currently four means that states use to provide assistance 
payments to eligible low-income families with children: Paper checks, 
Electronic Funds Transfers (EFT), Electronic Benefit Transfer (EBT) 
cards, and Electronic Payment Cards (EPC). Most states have replaced 
paper checks with one or more of the other three delivery methods in 
order to provide benefits in a timelier manner, reduce theft and fraud, 
and eliminate the need for recipients to pay check-cashing fees. Some 
states automatically transfer assistance payments directly into a 
recipient's own private bank account through EFT. However, this option 
is not available if a recipient does not have access to or qualify for 
a checking account. Most states load the amount of assistance on EBT 
cards or EPCs, both of which allow recipients to use a debit-like card 
to access their benefits through automated teller machines (ATMs) and 
point-of-sale (POS) devices. EPCs differ from government EBT cards in 
that they are network-branded (e.g., Visa or MasterCard) prepaid cards 
that recipients may use virtually anywhere the brand's logo is 
displayed. EBT cards may be used in fewer locations, as retailers and 
ATMs must be authorized to accept EBT cards.
    Among its provisions, the Middle Class Tax Relief and Job Creation 
Act of 2012, Public Law (Pub. L.) 112-96, requires states to maintain 
policies and practices to prevent TANF assistance from being used in 
any EBT transaction (as defined at 42 U.S.C. 608(a)(12)(B)(iii)) in any 
liquor store; any casino, gambling casino, or gambling establishment; 
or any retail establishment which provides adult-oriented entertainment 
in which performers disrobe or perform in an unclothed state for 
entertainment.
    The legislation at Section 4004(b) also imposes a new reporting 
requirement as well as a new penalty. Each state is required to report 
annually to the Department of Health and Human Services (HHS) on its 
implementation of policies and practices related to restricting 
recipients from using their TANF assistance in EBT transactions at the 
prohibited locations. HHS will reduce a state's block grant by not more 
than five percent of the state family assistance grant in fiscal year 
(FY) 2014 and annually thereafter if the state fails to comply with 
this reporting requirement or if, based on the information that the 
state reports, HHS finds that the state has not implemented and 
maintained the required policies and practices. The statute provides 
the Secretary of HHS the authority to reduce the amount of the penalty 
based on the degree of noncompliance of the state.
    Finally, states are required under Section 4004(c) of Public Law 
112-96 to include in their state TANF plans a statement outlining how 
they intend to implement policies and procedures to prevent access to 
assistance through EFTs at casinos, liquor stores, and establishments 
providing adult-oriented entertainment. The state plan also must 
include an explanation of how the state will ensure that (1) recipients 
of the assistance have adequate access to their cash assistance, and 
(2) recipients of assistance have access to using or withdrawing 
assistance with minimal fees or charges, including an opportunity to 
access assistance with no fee or charges; are provided information on 
applicable fees and surcharges that apply to electronic fund 
transactions involving the assistance; and that such information is 
made publicly available. This rule does not regulate the state plan 
provisions at Section 4004(c) of Public Law 112-96, but it incorporates 
the statutory state plan language under the Middle Class Job Creation 
and Tax Relief Act of 2012. Following publication of the final rule, 
HHS plans to issue additional guidance regarding the adequate access 
provision.

II. Notice of Proposed Rulemaking

    HHS published a notice of proposed rulemaking (NPRM) (79 FR 7127) 
on February 6, 2014, to regulate the TANF provisions in Section 4004(a) 
and (b) of Public Law 112-96. The proposed rule added new penalties for 
failure to report or adequately demonstrate implementation of the 
requirements outlined in Public Law 112-96, defined terms relevant to 
the new requirements, specified when the penalty takes effect, and 
identified how HHS will determine whether a state warrants a penalty. 
It also provided details regarding what types of policies and practices 
HHS would accept as complying with the statutory requirements. In 
addition to general comments, the NPRM sought input from commenters 
regarding two specific issues: TANF assistance deposited directly in 
recipients' bank accounts and accessed with a personal debit card, and 
internet transactions.
    HHS received a total of 28 comments, including comments from six 
states, seven membership and research/advocacy organizations, and three 
EBT industry organizations. The remaining commenters were members of 
the public. We include a detailed summary of comments as well as HHS's 
responses to comments in Section V of this final rule. Public comments 
on the proposed rule are available for review on www.regulations.gov.

III. Overview of Final Rule

    The final rule amends the TANF program regulations in the following 
three ways: (1) It adds a requirement to implement policies and 
practices to prevent TANF assistance from being used in any electronic 
benefit transfer transaction in any: liquor store; any casino, gambling 
casino or gaming establishment; and any retail establishment which 
provides adult-oriented entertainment in which performers disrobe or 
perform in an unclothed state for entertainment, (2) it adds a 
requirement to report on policies and practices in an annual report, 
and

[[Page 2094]]

(3) it adds a penalty for failure to report on implementation and 
maintenance of these policies and practices. In response to comments on 
the proposed rule, we have made changes in the final rule where 
appropriate to address policy and other concerns raised by commenters, 
as well as to incorporate suggested clarifications and improvements. In 
this section, we provide an overview of the final rule and generally 
describe major changes in response to comments. A more detailed summary 
of comments in each area and reason for changes is included in the 
section-by-section discussion of comments later in this final rule.
    (1) When incorporating the requirement at 45 CFR 264.60 to 
implement policies and practices to prevent TANF assistance from being 
used in any electronic benefit transfer transaction in any liquor 
store; any casino, gambling casino or gaming establishment; and any 
retail establishment which provides adult-oriented entertainment in 
which performers disrobe or perform in an unclothed state for 
entertainment, we mirror the statutory language at Section 4004(a) of 
Public Law 112-96. The preambles to the NPRM and the final rule provide 
details on the types of policies and practices HHS would accept as 
complying with the statutory requirements, and identify those that do 
not. In doing so, we identify that different approaches may be 
acceptable depending on the method of delivery (EBT, EPC, or direct 
deposit). We also correct an error we made in the NPRM suggesting that 
bank identification number (BIN) blocking was a potential approach to 
preventing TANF assistance from being used in POS terminals in the 
specified locations. Finally, we reiterate that states have a 
responsibility to develop appropriate policies for preventing TANF cash 
assistance administered by state programs from being used at any of the 
three types of businesses, including those located on tribal land. In 
general, we have provided flexibility in meeting the statutory and 
regulatory requirements so that states may develop cost-effective 
implementation strategies that fit within the existing structures of 
state operations.
    We also have added the relevant accompanying definitions to the 
TANF regulations at 45 CFR 264.0. Regarding the definitions of the 
three types of establishments, we have made some changes to those we 
proposed in the NPRM. For example, we are striking from our definition 
of ``retail establishment which provides adult-oriented entertainment 
in which performers disrobe or perform in an unclothed state for 
entertainment,'' the language, ``such an establishment that prohibits 
the entrance of minors under the age specified by state law.'' 
Commenters noted that local ordinances, rather than state law, apply to 
such establishments, and can vary considerably from jurisdiction to 
jurisdiction. Since we are no longer expanding upon the statutory 
definition, we have deleted the definition of ``retail establishment 
which provides adult-oriented entertainment in which performers disrobe 
or perform in an unclothed state for entertainment'' from Sec.  264.0. 
Rather, we encourage states to exercise the flexibility provided by the 
statute to build on the required restrictions with respect to these 
establishments, consistent with state and local policies. Furthermore, 
in response to comments suggesting we quantify the term ``primarily'' 
in the definitions for ``casino, gambling casino, or gaming 
establishment'' and ``liquor store,'' we will defer to states' 
reasonable interpretation of the law. Additionally, we interpret 
Congress's use of ``liquor'' to refer to alcoholic beverages broadly, 
rather than a narrow definition that excludes alcoholic beverages such 
as beer and wine.
    We are clarifying that the broad definition of ``electronic benefit 
transfer transaction'' includes transactions using or accessing TANF 
funds in private bank accounts because those funds may be accessed by a 
TANF recipient in a manner that the statutory definition specifies, 
i.e., through use of a credit or debit card, ATM, point-of-sale 
terminal, or an online system for the withdrawal of funds or the 
processing of a payment. We subsequently discuss, see the discussion of 
Sec.  264.60, examples of policies and practices that HHS considers 
acceptable with regard to personal accounts and debit cards. We 
reiterate that the language used demonstrates that Congress intended to 
apply the requirements in Public Law 112-96 to EPCs. At the same time, 
we agree with all commenters that Congress did not intend to apply the 
requirements to internet transactions, pointing to language in the 
statute such as ``establishment,'' ``store,'' ``located in a place,'' 
and ``transactions in.''
    (2) In order to add the requirement to report on relevant policies 
and practices to the TANF regulations, we are amending 45 CFR parts 
262, 264, and 265. The regulations at 45 CFR 262.3 and 264.61 tie the 
reporting requirement to the penalty specified at 45 CFR 262.1(a)(16). 
We reiterate that we are requiring an annual EBT report in order to 
determine whether states have maintained the required policies and 
practices in each fiscal year following FY 2014. One commenter 
suggested that the statute does not provide authority for annual 
reporting, maintaining that the statute obligates HHS to impose a 
penalty only if a state fails to submit one required report; that state 
would be subject to a penalty for FY 2014 (for its failure to report by 
February 22, 2014) and each fiscal year until it submits a report. We 
disagree with this interpretation and do not believe that it comports 
with the statute.
    In response to suggestions for ways to ease the reporting burden, 
we have incorporated this reporting requirement in the Annual Report on 
TANF and MOE Programs under 45 CFR 265.9(b)(10), rather than requiring 
the submission of a separate EBT report. Accordingly, we are amending 
the regulation at 45 CFR 265.9(b).
    We continue to require that the reports address specific areas that 
will allow us to determine whether states have implemented policies and 
practices that comply with the statutory requirements. The NPRM 
identified these areas as follows: Identifying locations; methods to 
prevent use of TANF assistance via EBT transactions in restricted 
locations; monitoring; and enforcement of compliance. With this final 
rule, we are providing clearer descriptions of the type of information 
we are requesting. For example, we have amended the request for 
information on ``monitoring,'' to ``ongoing monitoring to ensure 
policies are being carried out as intended,'' and instead of 
``enforcement of compliance,'' this component should read ``responding 
to findings of non-compliance or program ineffectiveness.'' This way, 
we do not imply that specific practices, such as monitoring of 
transaction reports, are required. At the same time, we would like 
reports to describe how states will review and evaluate the policies 
and practices implemented, and correct for non-compliance and 
ineffectiveness. In sum, in 45 CFR 265.9(b)(10), the four areas we are 
requiring states to address in their reports are: (1) Procedures for 
preventing the use of TANF assistance via electronic benefit transfer 
transactions in any liquor store; any casino, gambling casino, or 
gaming establishment; and any retail establishment which provides 
adult-oriented entertainment in which performers disrobe or perform in 
an unclothed state for entertainment; (2) how the state identifies the 
locations specified in the statute; (3) procedures for ongoing 
monitoring to ensure policies are being carried out as intended; and 
(4) how the state

[[Page 2095]]

responds to findings of non-compliance or program ineffectiveness. 
Finally, we have reduced the burden hour estimate described in the 
Paperwork Reduction Act section of this final rule, as initial reports 
have been submitted and subsequent reports should not be as time-
consuming.
    (3) We are amending 45 CFR 262.1 and 264.61 to add the penalty for 
failure to report or demonstrate implementation and maintenance of 
these policies and practices. At 45 CFR 262.62, we specify that this 
penalty will be imposed for FY 2014 and each succeeding fiscal year in 
which a state fails to submit a report that demonstrates it has 
implemented and maintained the relevant policies and practices. Even 
though one commenter suggested that this approach exceeds our statutory 
authority, we maintain that the statute allows HHS to impose a penalty 
in ``each succeeding fiscal year in which the State does not 
demonstrate that such State has implemented and maintained such 
policies and practices.'' Furthermore, in response to commenters' 
recommendations, we have added language to the regulation related to 
reducing the penalty based on the degree of noncompliance. We also 
clarify in the regulations that states are not held responsible for 
individuals' fraudulent activities, as provided by the statute.

IV. Statutory Authority

    This final rule is being issued under the authority granted to the 
Secretary of Health and Human Services (HHS) by the Middle Class Tax 
Relief and Job Creation Act of 2012 (Pub. L. 112-96), Section 408 of 
the Social Security Act (42 U.S.C. 608), Section 409 of the Social 
Security Act (42 U.S.C. 609), and Section 1102 of the Social Security 
Act (42 U.S.C. 1302), which authorizes the Secretary to make and 
publish such rules and regulations, not inconsistent with the Act, as 
may be necessary to the efficient administration of functions under the 
Act.
    The statute at 42 U.S.C. 617 limits the authority of the federal 
government to regulate state conduct or enforce the TANF provisions of 
the Social Security Act, except as expressly provided. We have 
interpreted this provision to allow us to regulate where Congress has 
charged HHS with enforcing certain TANF provisions by assessing 
penalties. Because the legislation includes a TANF penalty, HHS has the 
authority to regulate in this instance.

V. Section-by-Section Discussion of Comments and Regulatory Provisions

Part 262--Accountability Provisions--General

    The final rule in part 262 adds new penalties for failure to report 
or adequately implement the new requirements outlined in Public Law 
112-96, specifies when a penalty takes effect, and identifies the 
reporting form that HHS will use to determine whether a state warrants 
a penalty.
Section 262.1 What penalties apply to States?
    Sec. 4004(b) of Public Law 112-96 at Sec. 409(a)(16) of the Social 
Security Act (the Act) creates a new TANF penalty. As provided in the 
statute, the penalty will be imposed if a state fails to report to HHS 
its implementation of the policies and practices to prevent assistance 
provided under the state program funded under this part from being used 
in any electronic benefit transfer transaction in: (i) Any liquor 
store; (ii) any casino, gambling casino, or gaming establishment; or 
(iii) any retail establishment which provides adult-oriented 
entertainment in which performers disrobe or perform in an unclothed 
state for entertainment. Furthermore, HHS may impose a penalty if it 
determines, based on the information provided in a state report, that 
the state has not demonstrated that it has implemented and maintained 
such policies and practices. This penalty may be imposed for FY 2014 
and each succeeding fiscal year in which a state does not demonstrate 
that it has implemented and maintained such policies and practices. If 
HHS determines that the state should be subject to a penalty, it will 
reduce the state family assistance grant in the succeeding fiscal year 
by five percent, or a lesser amount based on the degree of 
noncompliance. States should note that the regulations at 45 CFR 262.4 
through 262.7, concerning the processes for appealing a penalty, 
presenting a reasonable cause justification, and submitting a 
corrective compliance plan, apply to the new penalty added to 45 CFR 
262.1.
    Accordingly, this final rule adds paragraph (i) to Sec.  
262.1(a)(16) to provide that a penalty of not more than five percent of 
the adjusted State Family Assistance Grant (SFAG) will be applied for 
failure to report annually as part of the Annual Report on TANF and MOE 
Programs under 45 CFR 265.9(b)(10), on the state's implementation of 
policies and practices related to these prohibited EBT transactions. 
The final rule also adds paragraph (a)(16)(ii) to provide that a 
penalty likewise will be applied for FY 2014 and each succeeding fiscal 
year if the state does not demonstrate that it has implemented and 
maintained such policies and practices. Note that if a state fails to 
submit a report for a fiscal year and, when it ultimately submits a 
report, also fails to demonstrate its implementation of policies and 
practices, the combined penalty will not exceed five percent of its 
adjusted SFAG. Conforming changes have been made at Sec.  262.1(c)(2) 
to add reference to the penalties in paragraphs (a)(16)(i) and (ii).
    Comment: A few commenters remarked on the penalty calculation, 
suggesting that the rule mirror the statute's allowance for the 
Secretary to reduce penalties based on the degree of noncompliance and 
clarify that states are not responsible for fraudulent activity by any 
individual receiving TANF assistance in an attempt to circumvent the 
policies and practices required by section 608(a)(12). Further, 
commenters were concerned that the proposed rule does not adequately 
explain how the ``degree of noncompliance'' will be determined or how 
it would be translated into the penalty amount.
    Response: While we included language related to reducing the 
penalty based on the degree of noncompliance and clarifying that states 
are not held responsible for individuals' fraudulent activities in the 
preamble of the NPRM, we agree that this language should also be added 
to the regulation. We have added language in Sec. Sec.  262.1(a)(16) 
and 264.61 to address the statutory provisions. At the same time, we 
note that while states are not held responsible for an individual's 
fraudulent activities, reoccurring fraudulent activity could be an 
indication of deficiencies in a state's policies and practices and 
should be addressed.
    When determining ``degree of noncompliance'' with respect to 
reports submitted after the deadline, the Secretary may take into 
account factors such as the length of time a report was late and any 
extenuating circumstances that may have caused late reporting. When 
determining ``degree of noncompliance'' with respect to inadequate 
policies and practices, the Secretary may consider the steps taken to 
develop policies to comply with the requirements (even if not fully 
implemented), whether there are procedures related to identifying some 
or all of the types of locations specified in the statute, whether 
procedures take into account transactions at both ATMs and POS 
terminals, and whether the

[[Page 2096]]

state provides information for some or all of the components required 
in the annual report (described later in this preamble).
    Comment: One individual commented that imposing a penalty will be 
counterproductive because financial sanctions may inhibit a state's 
ability to implement EBT policies and practices, suggesting we increase 
the compliant states' block grants, provided that they consult and 
provide technical assistance to non-compliant states.
    Response: The statute requires a penalty for failure to meet the 
requirements of the statute; however, before we impose a financial 
penalty, states may request reasonable cause or submit a corrective 
compliance plan in response to a penalty, as provided at sections 
409(b) and (c) of the Social Security Act. We do not have the authority 
to increase compliant states' block grants.
Section 262.2 When do the TANF penalty provisions apply?
    The final rule amends Sec.  262.2 to add new paragraph (e) 
indicating that the penalty for failure to report on how the state is 
implementing and maintaining policies and practices to prevent 
assistance from being used in electronic benefit transfer transactions 
in specified locations will be imposed for FY 2014 and each succeeding 
fiscal year in which the state does not demonstrate it has implemented 
and maintained the policies and practices in accordance with 45 CFR 
264.60.
    Comment: One state commented that the statute does not require an 
annual reporting requirement. Rather, the commenter argued the statute 
required HHS to impose a penalty on an annual basis on states that had 
not submitted a report by February 22, 2014, and each subsequent year 
it had still not submitted a report. In other words, if a state 
submitted its initial report that describes the policies it implemented 
and how it will maintain them, it had met the requirements of the law 
and can no longer be subject to a penalty. On the other hand, a state 
that did not submit the initial report by February 22, 2014, would be 
subject to a penalty for FY 2014, as well as each fiscal year until it 
submits a report.
    Response: We do not agree with this interpretation and do not 
believe that the statutory requirements, particularly the requirement 
that states demonstrate that they are implementing and maintaining the 
relevant policies and practices, can be met through a one-time report. 
The statute provides that HHS shall impose a penalty in ``each 
succeeding fiscal year in which the State does not demonstrate that 
such State has implemented and maintained such policies and 
practices.'' Through these reports, we must assess whether states are 
implementing and maintaining EBT policies and practices to determine 
whether or not we should impose a penalty.
Section 262.3 How will we determine if a State is subject to a penalty?
    This final rule amends Sec.  262.3 by adding a new paragraph (g) to 
specify that in order to determine if a state is subject to a penalty 
under 45 CFR 262(a)(16)(i) and (ii), HHS will use the submission of the 
initial report that was due by February 22, 2014, and beginning in FY 
2015, the Annual Report on TANF and MOE Programs under 45 CFR 
265.9(b)(10). We are amending the Annual Report on TANF and MOE 
Programs under 45 CFR 265.9(b) in order to include reporting for 
electronic benefit transfer transaction policies and practices. The 
Annual Report on TANF and MOE Programs at 45 CFR 265.9(b) is due at the 
same time as the fourth quarter TANF data report, within 45 days 
following the end of the fourth quarter. Note that this reporting 
requirement is distinct from the provisions of Public Law 112-96 
related to additional state plan requirements (see Sec. 4004(c)).
    Comment: We received a number of comments raising concerns about a 
separate annual electronic benefit transfer transaction report 
requirement. They argued this requirement places an undue reporting 
burden on states and contradicts the intent of the statute. One 
commenter believed that because the statute requires states to describe 
their EBT policies and practices in the state plan, they will already 
be providing consistent reports on implementation, and should not be 
required to submit an additional report. A number of states recommended 
we use the state plan or the Annual Report on TANF and MOE programs as 
the reporting mechanism.
    Response: We agree that the Annual Report is an effective reporting 
mechanism and will ease the reporting burden on states. As described 
below, with this final rule, we are amending Sec.  265.9(b) of the TANF 
regulations to add to the annual report a section for states to 
describe their policies and practices related to electronic benefit 
transfer transactions.

Part 264--Other Accountability Provisions

Subpart A--What specific rules apply for other program penalties?
    The final part 264 explains in further detail what HHS expects of 
states when implementing the new requirements of Public Law 112-96 by 
specifying the policies and practices required, providing relevant 
definitions, and addressing consequences if a state fails to meet the 
requirement.
Section 264.0 What definitions apply to this part?
    In order to clarify the types of locations where states are 
required to prohibit the use of TANF assistance via electronic benefit 
transfer transactions and to ensure that the policies and practices are 
applied consistently between states, we are amending Sec.  264.0(b) to 
define the terms included in Section 4004 of Public Law 112-96. The 
following is a discussion of the definitions of the terms in 
alphabetical order.
    Casino, Gambling Casino, or Gaming Establishment: As we mentioned 
in the NPRM, the statute provides exclusions to the phrase ``casino, 
gambling casino, or gaming establishment,'' but does not provide a 
further definition. One such exclusion refers to establishments that 
offer casino, gambling, or gaming activities incidental to the 
principal purpose of the business. With this exclusion in mind, we 
proposed to interpret the statutory reference to ``casino, gambling 
casino, or gaming establishment'' to mean an establishment with a 
primary purpose of accommodating the wagering of money. Based on the 
statutory definition provided, this does not include a grocery store 
which also offers, or is located within the same building or complex as 
a, casino, gambling, or gaming activities, or any other establishments 
where such activities are incidental to the principal purpose of the 
business. We are not making any changes to this proposed definition in 
this final rule.
    Comment: Generally, commenters agreed with our definition, but also 
provided suggestions to address specific concerns. For example, one 
state and one advocacy organization stated the definition does not 
address co-joined businesses such as a hotel, grocery store, or 
restaurant connected to or within the casino. In order to clarify the 
definition and ensure that it could not be interpreted broadly, one 
commenter recommended that we add language that prohibits the entrance 
of minors under the age specified by state law, similar to

[[Page 2097]]

that in the proposed definition of ``Retail establishment which 
provides adult-oriented entertainment in which performers disrobe or 
perform in an unclothed state for entertainment.''
    Response: We disagree that language that related to prohibiting the 
entrance of minors under the age specified by state law is necessary, 
and we do not believe it solves the problem the commenters identified. 
The law addresses co-joined businesses by excluding from the definition 
a grocery store which also offers, or is located within the same 
building or complex as a casino, gambling, or gaming activities. We 
defer to a state's reasonable interpretation of the statute, to 
determine what other types of establishments that the statute excludes 
from the definition of ``casino, gambling casino, or gaming 
establishment,'' including co-joined businesses.
    Comment: One state is concerned with the phrase, ``an establishment 
with a primary purpose of accommodating the wagering of money.'' The 
regulatory definition does not quantify what ``primarily'' means. 
Because this is one area where regulations could provide consistency 
between states, it recommends establishing criteria states can apply in 
making this determination.
    Response: We defer to states' reasonable interpretations on this 
part of the definition. States may have different approaches of 
determining whether a business satisfies this standard, and we do not 
find it necessary to draw a line, or to impose uniformity here, while 
we provide flexibility in other areas.
    Electronic Benefit Transfer Transactions: The final rule will 
incorporate the statutory definition of ``electronic benefit transfer 
transaction,'' which is ``the use of a credit or debit card service at 
an automated teller machine, point-of-sales terminal, or access to an 
online system for the withdrawal of funds or the processing of a 
payment for merchandise or service.''
    Comment: Our NPRM noted the broad nature of this language and that 
questions had been raised about whether it includes TANF assistance 
deposited directly by a state into a recipient's bank account (i.e., 
via EFT) and accessed with a personal debit card. We requested comments 
related to whether states and banks have, or reasonably could have, the 
capacity to apply the EBT transaction restrictions to assistance funds 
deposited in private bank accounts and to monitor whether recipients 
use such funds in a prohibited manner. We received many comments 
responding to this request, all of which were in agreement that the 
requirements should not be applied to personal debit cards, supporting 
their recommendations with information pertaining to the following: (1) 
Infeasibility, (2) negative consequences that would result from 
applying the requirements to personal debit cards, and (3) 
Congressional intent.
    Although one commenter acknowledged that it may be theoretically 
possible for a deposit account to consist of a sub-account for TANF 
funds and a subaccount for all other funds, all agreed that 
implementing such a requirement would be practically infeasible. If 
implemented, the banks would face requirements to identify customers 
who receive cash benefits, determine the dollars in a checking or 
savings account that are ``TANF'' dollars versus wages or other income 
from the state, such as child support. Requiring the entire United 
States banking system to develop the appropriate capabilities (TANF 
funds recipients could have deposit accounts at any of the nearly 7,000 
banks and thousands more credit unions in the U.S.) would result in an 
extraordinary burden and high costs. While one commenter stated that 
the banks would need to develop the ability to monitor where funds are 
used, as there is no current mechanism for a state to monitor the use 
of such funds, another stated that current bank infrastructure could 
not support identification of individual retailers. Commenters 
emphasized that the capacity and infrastructure to apply the 
requirements to personal bank accounts/debit cards simply do not exist 
at this point, and the costs that would need to be devoted to this 
effort would not outweigh the benefit.
    A few commenters maintained that because states could not actually 
implement procedures in order to comply with this requirement, they 
would have to discontinue the option of direct deposit. One commenter 
maintained that even if states provided the option of direct deposit, 
the difficulties with applying the statutory requirement to TANF 
assistance in personal bank accounts would provide disincentives for 
banks to work with TANF customers. Commenters argued these would be 
unfortunate consequences of this legislation because there are many 
benefits of being ``banked'' (e.g., the ability to avoid unnecessary 
fees for accessing benefits and paying bills, promoting savings and 
financial management, permitting TANF recipients to build a credit 
history, etc.). Commenters emphasized that diminishing the ability of 
TANF recipients to establish and maintain bank accounts conflicts with 
the broader TANF goals of promoting work and self-sufficiency, and that 
HHS should be encouraging states to provide benefits through direct 
deposit, not discouraging it.
    Finally, a number of commenters maintained that Congress did not 
intend to include transactions with personal debit cards within the 
definition of ``electronic benefit transfer transaction'' in Public Law 
112-96, and that only accounts established by a government agency were 
intended to fall within Congress's definition of EBT systems.
    Ultimately, all commenters recommended that the restrictions not 
extend to TANF funds deposited into private bank accounts. One advocacy 
group recommended that if, in the future, there is sufficient evidence 
that TANF assistance recipients' use of bank accounts to purchase 
prohibited goods and services threatens the integrity of the TANF 
program, any new expansion of the current restrictions should be added 
only within the context of a full TANF reauthorization.
    Response: HHS considered all of the comments received. The broad 
statutory definition of ``electronic benefit transfer transaction,'' 
applies to TANF funds deposited in private bank accounts because the 
funds can be accessed using a credit or debit card, ATM, point-of-sale 
terminal, or an online system for the withdrawal of funds or the 
processing of a payment. However, HHS recognizes that TANF recipients 
may have private bank accounts that include TANF funds as well as 
income from other sources, including earnings from employment, 
refundable tax credits for working families, and child support. Because 
there is currently no feasible way to distinguish TANF funds from other 
sources in a private bank account, states are responsible for 
implementing policies and practices that apply to transactions using or 
accessing TANF funds directly deposited in private bank accounts, only 
in cases where TANF is the sole source of funds in those accounts. 
Further, given the current state of technology, we have concluded that 
there is no feasible enforcement mechanism for funds in private bank 
accounts, and therefore the state may meet the requirements of this 
regulation by providing notice to recipients that they cannot access 
TANF funds from private bank accounts at a prohibited location.
    Comment: One state maintained that the definition of ``electronic 
benefit transfer transaction'' should not include EPCs, which the state 
described as ``non-government issued, payee owned, pre-paid debit card 
loaded via `electronic funds transfer.''' The

[[Page 2098]]

commenter maintained that only accounts established by a government 
agency were intended to fall within Congress's definition of EBT 
systems.
    Response: HHS disagrees with the state's reading of the statute, 
given the definition of ``electronic benefit transfer transaction'' is 
so broad, as discussed above.
    Comment: We received many comments regarding whether or not 
internet transactions should be included in the definition of 
``electronic benefits transfer transaction.'' All commenters agreed 
that the regulations should not extend to internet transactions, 
particularly at this time. A few commenters noted that language in the 
statute, such as ``establishment,'' ``store,'' ``located in a place,'' 
and ``transaction in,'' suggests that the intent of Congress was to 
prevent TANF benefits from being used at certain physical locations. 
One commenter stated that the term ``online system'' in the definition 
of ``electronic benefit transfer transaction'' is vague because one may 
interpret it as payments made in near real time, such as the use of 
debit cards for purchases at a merchant location, or as the purchase of 
goods and services over the internet. The commenter argued most 
consumers understand ``online system'' to include purchases of goods 
and services via the internet, but suggests that we clarify this in the 
regulation. Another commenter argued that Congress intended to create 
an enforceable approach by limiting transactions to physical locations. 
While this comment did not object on principal to regulating internet 
transactions, it, along with responses from other commentators, 
explained that the logistics of applying this restriction to internet 
transactions would be unfeasible. Some comments suggested that the 
restrictions should apply if and when states can feasibly monitor such 
transactions and/or when data shows that online TANF assistance 
spending on prohibited goods and services becomes a major problem.
    Response: We agree the terms ``establishment,'' ``store,'' 
``located in a place,'' and ``transaction in'' point to Congress's 
intent to apply the requirements only to physical locations and not 
internet transactions. Therefore, the regulations do not apply to web-
based transactions. If the technology allows, a state has the 
flexibility to restrict internet transactions with EBT cards, but 
federal law does not require it.
    Liquor Store: The final rule will incorporate the statutory 
definition of ``liquor store,'' which is ``any retail establishment 
which sells exclusively or primarily intoxicating liquor. Such term 
does not include a grocery store which sells both intoxicating liquor 
and groceries including staple foods (within the meaning of section 
3(r) of the Food and Nutrition Act of 2008 (7 U.S.C. 2012(r))).''
    Comment: Five commenters commented on the definition of ``liquor 
store,'' with most supporting the approach of mirroring the definition 
in the statute. We also received a few recommendations for clarifying 
the definition. For example, one state highlighted the fact that the 
regulatory definition does not quantify what ``primarily'' means, and 
that this is one area where regulations could provide consistency 
between states by establishing certain criteria states can apply in 
making this determination.
    Response: Regarding the recommendation to quantify what 
``primarily'' means, just as in the definition of ``casino, gambling 
casino, or gaming establishment,'' we defer to states' reasonable 
interpretations on this part of the definition. States may have 
different ways of determining whether a business satisfies this 
standard, and we do not find it necessary to draw a line, or to impose 
uniformity here, while we provide flexibility in other areas.
    Comment: A few commenters pointed out that ``liquor'' has a very 
specific definition that sets it apart from other types of alcoholic 
beverages such as beer and wine. The commenters maintained that since 
the term ``liquor'' is used instead of ``alcohol,'' places that sell 
beer and wine only do not fall under this definition. They recommended 
that states should be given the flexibility to implement the definition 
in a way that best suits their state and local laws and population.
    Response: We disagree and continue to interpret Congress's use of 
``liquor'' to refer to alcohol broadly, including beer and wine, so 
that the term ``liquor store'' is inclusive of locations that serve 
primarily alcoholic beverages.
    Retail Establishment which Provides Adult-Oriented Entertainment in 
which Performers Disrobe or Perform in an Unclothed State for 
Entertainment: In the NPRM we proposed to clarify the intended 
locations to which restrictions apply, by adding ``such an 
establishment that prohibits the entrance of minors under the age 
specified by state law'' to the statutory definition. However, after 
considering the comments received and for the reasons discussed in the 
response below, we have decided against adding this language to the 
statutory definition. Since we are no longer expanding upon the 
statutory definition, we are not including this term in the list of 
definitions at 45 CFR 264.0 of the final regulation.
    Comment: Seven commenters commented on the proposed definition of 
``retail establishment which provides adult-oriented entertainment in 
which performers disrobe or perform in an unclothed state for 
entertainment.'' Only one commenter believed that it accurately 
described the types of locations where Congress intended to restrict 
access, and provided states with sufficient clarity to implement these 
provisions. All other commenters expressed concern about the statement 
we proposed to add to the statutory definition. They believed the 
proposed regulation expands the scope of prohibited establishments as 
it might be read to include book stores or establishments that serve 
liquor by the drink, and maintained that the statutory wording is clear 
and should be retained. Some comments also noted that not all states 
have a state law establishing entrance restrictions based on age with 
respect to places that provide entertainment where performers disrobe 
or perform in an unclothed state. In many states, local ordinances 
rather than state law apply to such establishments, and can vary 
considerably from jurisdiction to jurisdiction.
    Response: While we disagree that the addition of ``such an 
establishment that prohibits the entrance of minors under the age 
specified by state law'' expands the scope of prohibited 
establishments, we understand it can be problematic given the variation 
among states regarding whether state laws or local ordinances apply to 
these types of establishments. We are therefore removing this language 
and encourage states to exercise the flexibility provided by the 
statute to build on the required restrictions, with respect to any of 
these types of establishments, consistent with state and local 
policies. The term ``retail establishment which provides adult-oriented 
entertainment in which performers disrobe or perform in an unclothed 
state for entertainment'' itself is descriptive and specific, so we 
have decided it is not necessary to add a definition at Sec.  264.0.
    Comment: One commenter noted that we interpreted the statutory 
definition as applying beyond live entertainment, specifically to 
theaters and cinemas where state law prohibits entrance to minors under 
the age specified by state law. This commenter recommended that the 
restriction be limited to establishments that provide live 
entertainment.

[[Page 2099]]

    Response: We disagree that the statute applies only to 
establishments that provide live adult entertainment. We see no reason 
to exclude stores and theaters that exclusively or primarily sell or 
feature adult-oriented videos and movies.
Section 264.60 What policies and practices must a State implement to 
prevent assistance from being used in electronic benefit transfer 
transaction in locations prohibited by the Social Security Act?
    This final rule adds Sec.  264.60 under subpart A, which requires 
states to implement policies and practices to prevent assistance 
(defined at Sec.  260.31(a)) provided with federal TANF or state TANF 
MOE funds from being used in any electronic benefit transfer 
transaction in any: (a) Liquor store; (b) casino, gambling casino or 
gaming establishment; or (c) retail establishment which provides adult-
oriented entertainment in which performers disrobe or perform in an 
unclothed state for entertainment. The NPRM often used the phrase 
``policies and procedures'' in the discussion of this section. The 
final rule revises the language, instead referring to ``policies and 
practices,'' in order to mirror the statutory language. As we proposed 
in the NPRM, HHS will accept any reasonable approaches that further 
these goals and comply with the statutory and regulatory requirements. 
States' policies and practices must prohibit the use of TANF funds at 
the specified locations, while ensuring reasonable access to cash 
assistance, as directed by Congress.
    Comment: We received several comments from states supporting our 
statements in the NPRM that states would have ``flexibility in 
determining appropriate policies and practices'' and that we would 
accept ``any reasonable approaches'' states use to implement the 
transaction restrictions. For example, one commenter commented that we 
should not use our authority within this law to restrict state 
flexibility without a compelling reason, and that we should make 
reasonable choices that help promote employment and economic self-
sufficiency (to the extent that the ambiguity in the statutory language 
allows). Additionally, a few commenters argued that as technology 
evolves rapidly, regulations should allow room for approaches that have 
not been developed at this time. On the other hand, a few commenters 
stated that we should ``provide more of a standard so that there is 
more consistency in the calculation and then the implementation of the 
penalties.'' One advised that an over-arching framework for 
implementing the restrictions in the law should be shaped by the goals 
of TANF, and that we should avoid overly-broad interpretations of the 
law that would undercut rather than further the Congressional intent to 
bolster public confidence in TANF's program integrity. Another 
suggested that the proposed rule needs to be more stringent.
    Response: We believe that, given the various types of systems 
states use to deliver TANF assistance, it is important to provide 
states flexibility to implement policy and practices that comply with 
these statutory and regulatory requirements. Our intention is to inform 
states of their options while ensuring they fulfill the provisions of 
the law. These options include: Requiring that third-party processor 
agreements include language related to the TANF prohibitions; requiring 
retailers to meet certain eligibility criteria in order to accept EBT 
cards or EPCs; reviewing and revising state licensing requirements for 
casinos, liquor stores, and adult entertainment venues to include 
conditions for license issuance related to restricting TANF benefit 
use; amending or creating new educational materials for cardholders and 
retailers; pre-screening retailers prior to authorizing them to accept 
EBT cards; engaging EBT vendors to determine possible procedures for 
identifying electronic benefit transfer transactions with TANF 
assistance at prohibited locations; requiring cardholders to agree in 
writing not to use TANF assistance at prohibited locations as a 
condition of receipt; engaging relevant business owners, for example 
through the appropriate state licensing agencies, and instructing 
retailers to refuse EBT cards or EPCs at their locations; requiring 
that relevant business owners or ATM owners post a notification that 
EBT cards or EPCs may not be used for purchases or cash withdrawal at 
prohibited locations. While states may impose sanctions, assign a 
protective payee, or impose a conciliation process for individuals 
found in violation, the statute does not require that states do so.
    In their initial reports, a few states described procedures that 
involve informing recipients and/or owners of the restricted businesses 
of the rules (e.g., via letter, flyer, or brochure; posting information 
on TANF and regulatory agencies' Web sites; displaying posters that 
detail the EBT restrictions in relevant establishments or local welfare 
offices), without taking additional actions that aim to ensure the 
relevant parties are complying with the policy. Absent final rules, ACF 
accepted such approaches as complying with the statutory requirements. 
However, with the publication of this final rule, we clarify that 
notification approaches are only sufficient in situations where further 
action is not feasible, such as in the case of TANF funds accessed from 
private bank accounts or TANF funds used in other states. Where 
possible, we expect states to implement procedures that enforce 
policies, and take corrective actions when instances of non-compliance 
or ineffectiveness are identified.
    Comment: One state pointed out that Sec.  264.60 leaves out the key 
words ``as necessary'' following the phrase, ``states are required to 
implement policies and practices.'' Another state suggested replacing 
the word ``use'' with ``access'' in the proposed Sec.  264.60 heading 
and elsewhere in the narrative to carry a clearer meaning.
    Response: We agree that the words ``as necessary'' should be added 
to the regulation in order to be consistent with the statute. Regarding 
the proposed language change from ``use'' to ``access,'' the statute 
itself refers to ``use in electronic benefit transfer transaction.'' We 
think the best approach is to track the statutory language as much as 
possible. Therefore, we maintain the current text.
    Comment: A few commenters expressed concern with approaches that 
focus on penalizing individuals rather than preventing transactions in 
the first place, as they do not further public support for the program 
and place too much of the burden for compliance on recipients. Yet 
another commenter stated that we should not encourage states to have 
vendors post public signs because they unfairly stigmatize and shame 
public benefits recipients. These commenters suggested that we indicate 
to states that if a non-systemic approach to preventing TANF EBT use at 
prohibited locations (e.g., centralized electronic blocking of 
prohibited transactions) is not reasonably effective, then compliance 
actions will require a more systemic approach to prevention. They also 
argued that we should stress that prevention rather than severity of 
penalties furthers the goal of the legislation.
    Response: We appreciate this suggestion, and while we encourage 
comprehensive policies and practices that involve more than one method 
of preventing TANF EBT use at prohibited locations (e.g., notices to 
merchants coupled with monitoring of transaction records), we do not 
prescribe one specific approach or set of approaches. The intent of the 
law is to prevent transactions in the designated locations, and there 
is good reason to believe that

[[Page 2100]]

prevention cannot be achieved by placing the entire burden on the 
individual. At the same time, given the broad discretion that states 
have under TANF, we do not believe that there is a basis for us to 
require any specific approach so long as a state's approach is 
reasonable.
    We do encourage states to periodically evaluate the effectiveness 
of their policies and practices, and adapt or revise them as necessary. 
In doing so, they maintain the flexibility afforded by the regulation 
to implement either systemic or non-systemic approaches. We have 
suggested a number of options for how states may structure policies. We 
require states to describe how they plan to correct for non-compliance 
and ineffectiveness in the annual report.
    Comment: Two commenters stated that bank identification number 
(BIN) blocking at the point of sale cannot be done systematically as of 
now, though they do point out it is possible at ATMs. One of these 
commenters also suggested that we require that a TANF agency or its EBT 
vendor notify relevant merchants that they must contact the third party 
processor (that routes electronic transactions through the commercial 
debit and credit networks) with which they have a processing agreement 
and request that the third party processor disable or remove EBT access 
from their (the relevant merchant's) account. Further, the commenter 
suggested that we require merchants to have their processors send the 
merchant category code in the authorization message when an EBT card is 
swiped at the point of sale, and the TANF agency or its EBT vendor 
could then make a decision to approve or decline the transaction based 
on the merchant category code. Yet another commenter suggested that it 
would be easiest for states to require that all existing ATMs be 
reprogrammed and merchants would then have to apply to determine if 
they could be authorized to use EBT funds.
    Response: We apologize for our error in stating that a state may 
systematically prevent transactions via BIN blocking at the point of 
sale. Additionally, we appreciate these commenters' suggestions for 
ways states may comply with the statute, but note that, as we explained 
above, we do not prescribe any one approach for states to implement. 
Again, states may develop approaches that are cost effective and fit 
within the existing structure of state operations, yet at the same time 
meet the requirements of the law.
    Comment: One state recommended that we identify and address the 
differences between EBT and EPC when discussing the options for 
complying with the requirements, in particular with respect to the four 
components of reports. Specifically, HHS should acknowledge that EPC 
and EBT cards are subject to different federal laws and regulations, as 
well as industry and network standards depending on the type of card, 
then discuss options and any unique limitations or issues for policies 
and procedures related to each type of card within each component.
    Response: We understand the unique challenges associated with EPCs, 
and we have been mindful of limitations as we have reviewed state 
reports. For example, we are aware that banking and privacy laws 
prevent states from receiving transaction information that would allow 
them to track the places where individuals redeem their benefits (with 
very limited exceptions). The Privacy Act of 1974 (at 5 U.S.C. 552a) 
protects individuals' information maintained by federal agencies and 
the federal Right to Financial Privacy Act (at 12 U.S.C. 3401) protects 
personal and financial information of bank customers from disclosure to 
governmental agencies by banks and their agents. We are mindful of the 
limitations and will take them into consideration as we review state 
reports. States that use EPCs described in their initial reports 
policies and practices including: Blocking certain merchant category 
classification codes so as to prohibit the usage of the cards in 
businesses meeting the definition within the law; conducting outreach 
to businesses to educate impacted vendors and retailors on the 
prohibition; ensuring recipients are aware of the prohibition by 
informing applicants and re-applicants through notification; and 
assigning a protective payee to cases where it comes to the attention 
of the county eligibility worker or the TANF program administrator that 
an adult member of the household has demonstrated inappropriate use of 
funds. Regarding monitoring procedures, in its initial EBT transaction 
report submitted by the February 22, 2014 deadline, one state described 
a process for sending an electronic file to IRS approximately once a 
month for all new and current recipients in order to identify any 
gambling winnings claimed on tax returns; this information is used as a 
lead to determine possible fraud. Another state's EBT transaction 
report explained that the state TANF program receives a monthly Program 
Market Segment Report from the financial institution that issues the 
state's EPCs. The Program Market Segment Report displays merchant 
category codes, the cardholder count that completed a transaction at 
each type of business, the number of transactions completed, the 
percent of the total transactions by merchant category code, and the 
transaction amount by merchant category code. This information allows 
the state to monitor card and transaction activity.
    Comment: One state commented that states that have commingled funds 
in EBT accounts, such as child support funds, should not be required to 
restrict access to non-TANF programs. One state suggested that 
regulations should allow flexibility in this area and allow states to 
define policies and practices that restrict TANF but allow access for 
the other cash program benefits comingled with the TANF funds in the 
EBT accounts.
    Response: We agree that states have flexibility to define policies 
and practices that restrict TANF but allow access to the other cash 
program benefits that may be on a benefit card. We emphasize that the 
statutory restriction here solely applies to TANF assistance, not to 
child support funds or to other family benefits or resources other than 
TANF assistance.
    Comment: A few commenters expressed concern that certain terms in 
the NPRM indicated we would not support state flexibility, namely 
``consistently applied,'' ``required to block,'' and ``adequately 
implement.'' The commenters suggested that using such terms may lead 
states to feel compelled to adopt specific suggestions. A few 
commenters requested that we not include a specific list of four 
required reporting components (which are identifying locations; methods 
to prevent use of TANF assistance via EBT transactions in restricted 
locations; monitoring; and enforcement of compliance) in regulations, 
as doing so limits flexibility.
    Response: It was not our intention to limit state flexibility or be 
overly prescriptive, but rather to ensure that we receive complete 
reports describing the procedures states have chosen to implement to 
comply with the statutory requirements. We maintain that for states to 
demonstrate that they are implementing the required policies and 
practices, their implementation strategies must address all four 
components identified. At the same time, states have flexibility within 
each category with respect to the specific policies and practices they 
choose to implement. For further information on this topic, see the 
discussion related to Sec.  265.9 below, which explains our actions in 
relation to this issue. As

[[Page 2101]]

stated there, we are revising the text of the four components, but not 
eliminating the requirement.
    Comment: We received a few comments responding to suggestions 
presented in the NPRM for how states can identify locations specified 
in the law. In particular, one state seems to believe that we proposed 
requiring states to maintain a list of the establishments subject to 
the restrictions, and for state TANF agencies to provide a separate and 
additional notification to impacted merchants. The state recommended 
that we allow states to comply with the requirements of Public Law 112-
96 by requiring the appropriate state licensing agency to notify the 
entities that license businesses that are subject to the prohibitions, 
through broader public notice of the requirements for such locations to 
restrict access, by conducting periodic targeted reviews of EBT 
transactions, by following up on suspect locations, and by establishing 
appropriate penalties for the venues violating the restrictions. 
Additionally, one commenter warned against relying on internet 
searches, and suggested that states attempt to work through national 
associations of these businesses and their state affiliates.
    Response: We did not intend to imply that we are requiring a 
particular method for identifying locations subject to the 
requirements. Similarly, we do not require states to maintain a list of 
affected businesses. We want states to describe their processes for how 
they identify locations subject to these requirements in their reports. 
However, because the method or combination of methods states use for 
identifying locations depends on the policies and practices they 
implement, states should have flexibility in deciding how best to do 
so. For example, if a state's policy involves monitoring transaction 
reports, ``identifying locations'' could mean developing criteria for 
being able to recognize on the transaction reports that a transaction 
occurred at one of the three types of locations (e.g., what words or 
data elements do reviewers look for?). A state that blocks access at 
certain locations should describe its procedures for determining which 
locations should be blocked. Other ways states may identify locations 
subject to the TANF statutory requirements include working with 
entities that license businesses or national associations of these 
businesses and their state affiliates, using merchant category codes, 
or having states apply for an authorization to accept a state's benefit 
card based on the percentage of their gross revenue that is derived 
from the sale of alcoholic beverages, legalized games of chance, 
sexually oriented materials, coin-operated amusement machines, etc.
    Comment: We received one comment in relation to preventing access 
to TANF cash assistance by state programs at any type of business 
specified in the law that is located on tribal land. This commenter 
believed we inappropriately overstepped tribal authority because we 
``extended'' the requirements to tribal programs.
    Response: We reiterate that we are not extending the requirements 
to tribal TANF programs. We agree that Congress did not apply these 
requirements to TANF assistance administered by a tribal TANF program. 
However, states do have a responsibility to develop appropriate 
policies for preventing TANF cash assistance administered by state 
programs from being used at any of the three types of businesses, 
including those located on tribal land, to the extent practicable. As 
we stated in the NPRM, we encourage states to work with tribes to try 
to prevent state TANF assistance from being used at the prohibited 
locations on sovereign tribal land. We would consider it sufficient for 
states to provide notice to recipients that the prohibition of use 
extends to tribal lands.
    Comment: We received two comments related to whether a state should 
be responsible for restricting use of its TANF assistance in another 
state. Both maintained that it would be too challenging and costly for 
states to attempt to block transactions in businesses located in other 
states and recommended that we not require states to restrict 
transactions at locations outside their borders. At the same time, 
Illinois pointed out that this would not prevent states from reviewing 
and following up on cardholders' out-of-state spending of TANF benefits 
in the three restricted types of businesses.
    Response: We did not include a discussion of this issue in the 
preamble of the NPRM, and think it is important to provide clarity in 
the final rule. States are responsible for restricting transactions 
using state-provided assistance at prohibited locations whether or not 
the transaction occurs within the state. We recognize the infeasibility 
of restricting transactions in other states; and, therefore, the agency 
would consider providing a notice to recipients to be sufficient 
implementation of a policy or practice with respect to out-of-state 
transactions.
    Comment: We received a few comments regarding access and fees, 
raising concerns about protections for those living in isolated areas 
and noted that the regulations do not provide any exceptions or 
guidelines about how states may ensure access to cash assistance. 
Further, they highlighted that the statute's requirement to ensure 
access to cash assistance and minimal fees may benefit recipients, as 
the yearly amount of surcharges associated with cash assistance 
withdrawals is extraordinarily high. To minimize fees, they suggested 
that states allow a certain number of free withdrawals per month or 
eliminate withdrawal surcharges. One commenter suggested that the 
regulations should require states to allow TANF recipients to choose 
between benefits via direct deposit or an EBT card. It also suggested 
that the regulations should specify the ways in which states may 
implement guaranteed, surcharge free transactions (e.g., free ATM 
balance inquiries and surcharge subsidies), and HHS should provide 
technical assistance to states about promising practices for 
guaranteeing access.
    Response: We believe it is critical that states take steps to 
ensure access to cash assistance and minimize, or eliminate, fees for 
families who are working toward self-sufficiency. We strongly encourage 
states to develop strategies to ensure adequate access to benefits, 
such as guaranteeing a minimum number of free cash withdrawals per 
month or providing new options for cash assistance withdrawal in 
isolated areas. We will continue to work with states on an individual 
basis regarding these strategies.
    Finally, we want to reiterate that while one of the new state plan 
requirements at Sec. 4004(c) of Public Law 112-96 conveys a clear 
emphasis that states ensure adequate access to cash assistance for 
recipients, this language does not provide states the option to avoid 
imposing a restriction at an ATM or POS terminal located in any of the 
three types of specified businesses in order to ensure adequate access. 
Rather, it conveys a responsibility for states to take corrective 
actions to increase locations where TANF recipients may access their 
cash assistance if they find that there are an insufficient number of 
access points in a geographic area.
Section 264.61 What happens if a state fails to report or demonstrate 
it has implemented and maintained the policies and practices required 
in Sec.  264.60 of this subpart?
    We are adding a Sec.  264.61 to address the penalty associated with 
the new requirements. Under paragraph (a), HHS will impose a penalty of 
not more than five percent of a state's adjusted SFAG

[[Page 2102]]

for failure to submit annually a report demonstrating the state's 
implementation of policies and practices to prevent EBT use in the 
locations specified in Public Law 112-96. Under paragraph (b), HHS will 
impose a penalty of not more than five percent of a state's adjusted 
SFAG each fiscal year succeeding FY 2014 in which the state does not 
demonstrate it has implemented and maintained the required policies and 
practices. Note that we have revised the phrasing we used in the NPRM 
for the title of this section in order to clarify that the penalty will 
be imposed for a state's failure to demonstrate in the report its 
implementation and maintenance of policies and practices, rather than a 
failure to implement and maintain the policies and practices.
    In order to meet this requirement, states' reports must fully 
explain the policies and practices that are being implemented and 
maintained. Note that if a state submits a late report and once 
submitted, also fails to demonstrate its implementation of policies and 
practices, the combined penalty will not exceed five percent of its 
adjusted SFAG. Any deficiencies that arise with respect to a state's 
reporting of its EBT policies and practices in the Annual Report (i.e., 
for failure to submit a complete or timely report) will not trigger a 
separate penalty under 45 CFR 262.1(a)(3) or 265.8.
    All penalties will be imposed in accordance with 45 CFR part 262, 
which provides states with procedures for appealing a penalty, and 
submitting a reasonable cause justification or corrective compliance 
plan.
    Furthermore, Sec. 409(a)(16)(C) of the Act, as amended by Sec. 
4004(b) of Public Law 112-96 provides HHS the discretion to reduce the 
penalty amount based on the degree of noncompliance of the state. Sec. 
409(a)(16)(C) of the Act, as amended by Sec. 4004(b) of Public Law 112-
96, also specifies that ``Fraudulent activity by any individual in an 
attempt to circumvent the policies and practices required by Sec. 
408(a)(12) shall not trigger a state penalty under subparagraph (A);'' 
as such, HHS will not base any penalty on such information. We have 
added paragraphs (c) and (d) in this section of the regulation, 
incorporating these two provisions of the statute.
    Please see discussion after 45 CFR 262.1 for comments and responses 
related to these penalty provisions.

Part 265--Data Collection and Reporting Requirements

Section 265.9--What information must the state file annually?
    In response to comments expressing concern over the burden of 
having a separate annual report due on February 22 of each fiscal year, 
we are amending Sec.  265.9, by adding paragraph (b)(10) to state that 
in accordance with Sec. Sec.  264.60 and 264.61, a report of policies 
and practices to prevent assistance (defined at Sec.  260.31(a)) 
provided with federal TANF or state TANF MOE funds from being used in 
any electronic benefit transfer transaction in any liquor store; any 
casino, gambling casino, or gaming establishment; and any retail 
establishment which provides adult-oriented entertainment in which 
performers disrobe or perform in an unclothed state for entertainment. 
In an effort to receive reports that demonstrate whether states have 
implemented and maintained the required policies and practices, we are 
revising the Annual Report on TANF and MOE Programs under 45 CFR 
265.9(b). In doing so, we will require states to complete four 
sections, specifying: (1) Procedures for preventing the use of TANF 
assistance via electronic benefit transfer transactions in any liquor 
store; any casino, gambling casino, or gaming establishment; and any 
retail establishment which provides adult-oriented entertainment in 
which performers disrobe or perform in an unclothed state for 
entertainment; (2) how the state identifies the locations specified in 
the statute; (3) procedures for ongoing monitoring to ensure policies 
are being carried out as intended; and (4) how the state plans to 
respond to findings of non-compliance or program ineffectiveness. We 
believe that for states to demonstrate that they are implementing the 
required policies and practices, their implementation strategies must 
address all four components identified. At the same time, states have 
flexibility within each category with respect to the specific policies 
and practices they choose to implement.
    Comment: We received several comments responding to the expectation 
that states establish and report annually on policies and practices in 
four specific areas identified in the NPRM, namely: (1) Identifying 
locations; (2) preventing the use of TANF assistance via EBT 
transactions; (3) monitoring; and (4) enforcement of compliance. While 
two commenters agreed with our proposed framework and believed it would 
support the integrity of the program, other commenters argued that 
following this requirement would be labor intensive, cost prohibitive, 
and contrary to the philosophy of state flexibility in a block grant 
program. Some argued that states should have the flexibility to develop 
policies and practices best suited to them, which might not match the 
four stated areas. One state argued that requiring that reports address 
these four areas exceeded statutory authority and suggested that the 
four specific areas serve as suggestions for state policy rather than 
requirements. This commenter further suggested that we could require 
states to report on all four specified components, but allow states to 
determine whether to establish policies in these areas or not. If a 
state chose not to, it would assert that in the report. One commenter 
characterized these four specific components as requirements beyond 
those in the statute, and that they should not be made mandatory.
    Response: We disagree with the suggestion that requiring this 
reporting exceeds statutory authority, as the statute provides us the 
authority to reduce a state's block grant if the ``Secretary 
determines, based on the information provided in State reports, that 
any State has not implemented and maintained such policies and 
practices.'' We are requiring the four areas in the reports, but are 
changing the descriptions of the third and fourth to be clearer about 
what these terms mean. Instead of ``monitoring,'' the third component 
should read ``ongoing monitoring to ensure policies are being carried 
out as intended;'' and instead of ``enforcement of compliance,'' the 
fourth component should read ``plans to respond to findings of non-
compliance and/or program ineffectiveness.'' This way, we do not imply 
that specific practices, such as monitoring of transaction reports, are 
required. At the same time, reports must describe how states will 
review and evaluate the policies and practices implemented, and correct 
any particular aspects that are not leading to the intended results.
    Comment: Two commenters argued that states should be required to 
publish their annual reports online, in order to make this information 
publicly available. Commenters also argued that we should encourage 
information sharing among states by establishing venues for the 
exchange of information about program costs and successes.
    Response: We are not requiring states to publish their annual TANF 
and MOE reports online, but encourage states to do so. States also have 
many existing means to share information with each other, and we 
support states continuing to do so. ACF's Office of Family

[[Page 2103]]

Assistance will explore the feasibility of posting these reports on 
their Web site.

VI. Paperwork Reduction Act

    This rule establishes new information collection requirements in 
Sec. Sec.  262.3(g) and 265.9(b)(10) of the TANF regulations. This 
collection is subject to review by the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act of 1995 (the PRA) (44 U.S.C. 
3501-3520). We did not receive any public comments on the specific 
burden hour estimate identified in the proposed rule. The information 
collection requirements, as described below, are identical to those 
contained in the proposed rule (OMB control number 0970-0437). However, 
now that the initial reporting due February 22, 2014, has passed, we 
have reduced the burden hour estimate by half. We also note that we 
will incorporate this reporting requirement into the Annual Report on 
TANF and MOE Programs under 45 CFR 265.9(b), and will obtain OMB 
approval for a standard form before the next information collection is 
due. The annual report is due at the same time as the fourth quarter 
TANF data report, or within 45 days following the end of the fourth 
quarter.
    As required by the Paperwork Reduction Act of 1995, codified at 44 
U.S.C. 3507, ACF will submit a copy of these sections to the Office of 
Management and Budget (OMB) for review and they will not be effective 
until they have been approved and assigned a clearance number.

----------------------------------------------------------------------------------------------------------------
                                                                                Average  burden
                 Requirement                     Number of          Yearly      per  respondent   Total  burden
                                                respondents       submittals        (hours)           hours
----------------------------------------------------------------------------------------------------------------
Annual reporting on policies and practices                54                1               20            1,080
 to prevent TANF assistance from being used
 in electronic benefit transfer transactions
 in liquor stores; casinos, gambling
 casinos, or gaming establishments; or any
 retail establishment which provides adult-
 oriented entertainment in which performers
 disrobe or perform in an unclothed state
 for entertainment..........................
----------------------------------------------------------------------------------------------------------------

    We estimate the costs of implementing these requirements will be 
approximately $54,000 annually. We calculated this estimate by 
multiplying 1,080 hours by $50 (average cost per hour).

VII. Regulatory Flexibility Act

    The Secretary certifies under 5 U.S.C. 605(b), as enacted by the 
Regulatory Flexibility Act (Pub. L. 96-354), that this final regulation 
will not result in a significant impact on a substantial number of 
small entities. We note that any impact on businesses emanates from 
statutory mandate and the policies that states adopt in implementing 
the statutory requirement.
    In order to address potential concerns of the types of 
establishments specified in the statute, as well as state EBT vendors, 
HHS has drafted the regulation in a manner that minimizes the impact on 
businesses, including small businesses, by providing states flexibility 
when implementing policies and practices that comply with the new 
requirements. In particular, states have the flexibility to implement 
approaches that do not place significant burden or impose large costs 
on their EBT vendors, small businesses, or any particular party. 
Therefore, any costs resulting from policies under which states require 
action by small entities, including small businesses, are the result of 
choices states make when implementing the statutory requirements.
    The direct primary impact of this final regulation is on state 
governments. State governments are not considered small entities under 
the Act.

VIII. Regulatory Impact Analysis

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule meets the criteria for a significant regulatory 
action under E.O. 12866 and has been reviewed by OMB. For the reasons 
set forth below, ACF does not believe the impact of this regulatory 
action would be economically significant and that the annual cost would 
fall below the $100 million threshold.
    Costs. We received a few comments regarding the costs associated 
with the implementation of the regulation. Individual commentators 
raised general concerns about the regulation's cost/benefit ratio and 
the impact on TANF spending. A few commenters expressed concern that 
states will reallocate TANF money from direct services to resources for 
implementing this regulation.
    Commenters also noted that the regulation's benefits do not 
outweigh its costs, as implementation costs are so large and the 
percentage of TANF cash assistance recipients using EBT cards on 
prohibited transactions is so small. One of these commenters noted that 
some states have considered ending EBT programs and reinstating paper 
checks to exempt themselves from the regulatory requirements. They 
suggested increasing state flexibility in implementing the regulation 
by removing the four components that states must include in their 
implementation report listed in the proposed provision at 45 CFR 
262.3(g).
    We understand that this regulation will impose new costs on states. 
In response to this issue, we have provided flexibility in meeting the 
regulatory requirements so that states may develop cost-effective 
implementation strategies that fit within the existing structure of 
state operations. In general, the costs associated with implementation, 
and the parties that bear these costs, largely depend on the policies 
and practices a state chooses to in enact order to comply with the 
statutory requirements.
    Nevertheless, regardless of the approach a state may take when 
implementing policies in order to comply with the statute and 
regulations, there will be, at a minimum, administrative costs for the 
state agency responsible for administering the TANF benefits. We 
recognize that states will spend funds on the following types of costs 
to implement the changes in order to complete the annual progress 
report to ACF:

    [ssquf] Costs to identify the prohibited locations;
    [ssquf] Costs to modify existing tracking of recipient use of 
electronic benefits and/or electronic banking;
    [ssquf] Costs to monitor recipient use of electronic benefit 
transfers;
    [ssquf] Costs to investigate and follow up on violations of 
electronic benefit transfers;
    [ssquf] Cost to process and respond to appeals.


[[Page 2104]]


    With regard to the reporting requirement, based on our estimate 
described under the Paperwork Reduction Act section of this preamble, 
the total costs for all states to comply with this requirement would 
fall well below the $100 million threshold. We will not remove the four 
components of the report, as commenters recommended. We do agree that 
the language in the components should be clarified (see discussion of 
regulation at Sec.  265.9, above). It was not our intention to limit 
state flexibility or be overly prescriptive. The report components we 
have identified reflect general elements of all policies and practices 
that reflect full compliance with the statute, not specific policies 
and practices. As demonstrated by the initial reports states submitted 
in response to the statutory requirement, a majority of states have 
implemented sufficient policies and practices that take into account 
each of these components. Furthermore, by identifying these components 
in a standard form, we are ensuring that states take a comprehensive 
approach to composing their policies and practices, and that ACF 
receives complete reports describing the procedures states have chosen 
to implement.
    Additionally, the statutory requirements and regulation provide 
potential benefits that coincide with the goal of financial 
responsibility. For example, the policies and practices that states 
implement may result in reductions in inappropriate expenditures of 
government funds, and emphasize to recipients that they should ensure 
assistance is spent only on basic needs. There may also be 
opportunities to educate recipients on financial management and on ways 
to minimize access fees.
    Need for the Regulation: These regulations incorporate statutory 
changes to the TANF program enacted in the Middle Class Tax Relief and 
Job Creation Act of 2012 (Pub. L. 112-96). This regulation is limited 
to the penalty provisions of Section 4004 of Public Law 112-96. Because 
states have a range of systems for disbursement of assistance, and a 
number of questions have arisen regarding the applicability and 
requirements of the statutory language, HHS has published this 
regulation in order to clarify for states the information they should 
submit in order to avoid a penalty.

IX. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that a covered agency prepare a budgetary impact statement before 
promulgating a rule that includes any federal mandate that may result 
in the expenditure by state, tribal, and local governments, in the 
aggregate, or by the private sector, of $100 million or more in any one 
year. HHS has determined that this rule will not result in the 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector, of more than $100 million in any one year.
    For more detail regarding estimated costs, see the section 
containing the Regulatory Impact Analysis.

X. Congressional Review

    This regulation is not a major rule as defined in the Congressional 
Review Act or CRA (5 U.S.C. Chapter 8). The CRA defines a major rule as 
one that has resulted or is likely to result in: (1) An annual effect 
on the economy of $100 million or more; (2) a major increase in costs 
or prices for consumers, individual industries, federal, state, or 
local government agencies, or geographic regions; or (3) significant 
adverse effects on competition, employment, investment, productivity, 
or innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic and export markets. 
HHS has determined that this final rule does not meet any of these 
criteria. For more detail regarding estimated costs, see the section 
containing the Regulatory Impact Analysis.

XI. Executive Order 13132

    Executive Order 13132, Federalism, prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This final rule does not have 
federalism implications as defined in the Executive Order. Consistent 
with Executive Order 13132, HHS specifically requested comments from 
state and local government officials in the proposed rule regarding 
federalism implications; we did not receive any comments in response to 
this specific solicitation.

XII. Treasury and General Government Appropriations Act of 1999

    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 (Pub. L. 105-277) requires federal agencies to determine 
whether a regulation may negatively impact family well-being. The 
Department has concluded that this final rule does not have a negative 
impact on family well-being, but rather that it will have positive 
benefits. The statutory requirements and regulations promote the goal 
of financial responsibility, helping to ensure that families are using 
their TANF assistance for basic needs. States also may incorporate 
within their policies and practices opportunities to educate recipients 
on budgeting, and their state plans must include an explanation of how 
the state will ensure that recipients have access to using or 
withdrawing assistance with minimal fees.

List of Subjects in 45 CFR Parts 262, 264, and 265

    Administrative practice and procedures, Day care, Employment, Grant 
programs-social programs, Loan programs-social programs, Manpower 
training programs, Penalties, Public assistance programs, Reporting and 
recordkeeping requirements, Vocational education.

    Dated: January 11, 2016.
Mark H. Greenberg,
Acting Assistant Secretary for Children, and Families.
    Approved: January 11, 2016.

Sylvia M. Burwell,
Secretary.

    For the reasons set forth in the preamble, parts 262, 264, and 265 
of 45 CFR are amended as follows:

PART 262--ACCOUNTABILITY PROVISIONS-GENERAL

0
1. The authority citation for 45 CFR part 262 is revised to read as 
follows:

    Authority: 31 U.S.C. 7501 et seq.; 42 U.S.C. 606, 609, and 610; 
Sec. 7102, Pub. L. 109-171, 120 Stat. 135; Sec. 4004, Pub. L. 112-
96, 126 Stat. 197.


0
2. Amend Sec.  262.1 by adding paragraph (a)(16) and revising paragraph 
(c)(2) to read as follows:


Sec.  262.1  What penalties apply to states?

    (a) * * *
    (16)(i) A penalty of not more than five percent of the adjusted 
SFAG (in accordance with Sec.  264.61(a) of this chapter), for failure 
to report annually on the state's implementation and maintenance of 
policies and practices required in Sec.  264.60 of this chapter.
    (ii) A penalty of not more than five percent of the adjusted SFAG 
(in accordance with Sec.  264.61(b) of this chapter), for FY 2014 and 
each succeeding fiscal year in which the state does not demonstrate 
that it has implemented and maintained policies

[[Page 2105]]

and practices required in Sec.  264.60 of this chapter.
    (iii) The penalty under paragraphs (a)(16)(i) and (ii) of this 
section may be reduced based on the degree of noncompliance of the 
state.
    (iv) Fraudulent activity by any individual receiving TANF 
assistance in an attempt to circumvent the policies and practices 
required by Sec.  264.60 of this chapter shall not trigger a state 
penalty under paragraphs (a)(16)(i) and (ii) of this section.
* * * * *
    (c) * * *
    (2) We will take the penalties specified in paragraphs (a)(3) 
through (6) and (8) through (16) of this section by reducing the SFAG 
payable for the fiscal year that immediately follows our final 
decision.
* * * * *

0
3. Amend Sec.  262.2 by adding paragraph (e) to read as follows:


Sec.  262.2  When do the TANF penalty provisions apply?

* * * * *
    (e) In accordance with Sec.  264.61(a) and (b) of this chapter, the 
penalty specified in Sec.  262.1(a)(16) will be imposed for FY 2014 and 
each succeeding fiscal year.

0
4. Amend Sec.  262.3 by adding paragraph (g) as follows:


Sec.  262.3  How will we determine if a State is subject to a penalty?

* * * * *
    (g) To determine if a State is subject to a penalty under Sec.  
262.1(a)(16), we will use the information provided in annual state 
reports at Sec.  265.9(b)(10) of this chapter, in accordance with 
Section 409(a)(16) of the Social Security Act.

PART 264--OTHER ACCOUNTABILITY PROVISIONS

0
5. The authority citation for 45 CFR part 264 is revised to read as 
follows:

    Authority: 31 U.S.C. 7501 et seq.; 42 U.S.C. 608, 609, 654, 
1302, 1308, and 1337.


0
6. Amend Sec.  264.0(b) by adding definitions for ``Casino, gambling 
casino, or gaming establishment''; ``Electronic benefit transfer 
transaction''; and ``Liquor store'' in alphabetical order to read as 
follows:


Sec.  264.0  What definitions apply to this part?

* * * * *
    (b) * * *
    Casino, gambling casino, or gaming establishment means an 
establishment with a primary purpose of accommodating the wagering of 
money. It does not include:
    (i) A grocery store which sells groceries including staple foods 
and which also offers, or is located within the same building or 
complex as, casino, gambling, or gaming activities; or
    (ii) Any other establishment that offers casino, gambling, or 
gaming activities incidental to the principal purpose of the business.
* * * * *
    Electronic benefit transfer transaction means the use of a credit 
or debit card service, automated teller machine, point-of-sale 
terminal, or access to an online system for the withdrawal of funds or 
the processing of a payment for merchandise or a service.
* * * * *
    Liquor store means any retail establishment which sells exclusively 
or primarily intoxicating liquor. Such term does not include a grocery 
store which sells both intoxicating liquor and groceries including 
staple foods (within the meaning of Section 3(r) of the Food and 
Nutrition Act of 2008 (7 U.S.C. 2012(r))).
* * * * *

0
7. Add Sec. Sec.  264.60 and 264.61 to subpart A to read as follows:


Sec.  264.60  What policies and practices must a state implement to 
prevent assistance use in electronic benefit transfer transactions in 
locations prohibited by the Social Security Act?

    Pursuant to Section 408(a)(12) of the Act, states are required to 
implement policies and practices, as necessary, to prevent assistance 
(defined at Sec.  260.31(a) of this chapter) provided with federal TANF 
or state TANF MOE funds from being used in any electronic benefit 
transfer transaction in any: liquor store; casino, gambling casino or 
gaming establishment; or retail establishment which provides adult-
oriented entertainment in which performers disrobe or perform in an 
unclothed state for entertainment.


Sec.  264.61  What happens if a state fails to report or demonstrate it 
has implemented and maintained the policies and practices required in 
Sec.  264.60?

    (a) Pursuant to Section 409(a)(16) of the Act and in accordance 
with 45 CFR part 262, a penalty of not more than five percent of the 
adjusted SFAG will be imposed for failure to report by February 22, 
2014 and each succeeding fiscal year on the state's implementation of 
policies and practices required in Sec.  264.60. The penalty will be 
imposed in the succeeding fiscal year, subject to Sec.  262.4(g) of 
this chapter.
    (b) Pursuant to Section 409(a)(16) of the Act and in accordance 
with 45 CFR part 262, a penalty of not more than five percent of the 
adjusted SFAG will be imposed for FY 2014 and each succeeding fiscal 
year in which the state fails to demonstrate the state's implementation 
of policies and practices required in Sec.  264.60. The penalty will be 
imposed in the succeeding fiscal year subject to Sec.  262.4(g) of this 
chapter.
    (c) A penalty applied under paragraphs (a) and (b) of this section 
may be reduced based on the degree of noncompliance of the state.
    (d) Fraudulent activity by any individual in an attempt to 
circumvent the policies and practices required by Sec.  264.60 shall 
not trigger a state penalty under paragraphs (a) and (b) of this 
section.

PART 265--DATA COLLECTION AND REPORTING REQUIREMENTS

0
8. The authority citation for 45 CFR part 265 continues to read as 
follows:


    Authority: 42 U.S.C. 603, 605, 607, 609, 611, and 613; Pub. L. 
109-171.

0
9. Amend Sec.  265.9 by adding paragraphs (b)(10) and (11) to read as 
follows


Sec.  265.9  What information must a State file annually?

* * * * *
    (b) * * *
    (10) A comprehensive description of the state's policies and 
practices to prevent assistance (defined at Sec.  260.31(a) of this 
chapter) provided with federal TANF or state TANF MOE funds from being 
used in any electronic benefit transfer transaction in any: liquor 
store; casino, gambling casino or gaming establishment; or retail 
establishment which provides adult-oriented entertainment in which 
performers disrobe or perform in an unclothed state for entertainment. 
Reports must address:
    (i) Procedures for preventing the use of TANF assistance via 
electronic benefit transfer transactions in any liquor store; any 
casino, gambling casino, or gaming establishment; and any retail 
establishment which provides adult-oriented entertainment in which 
performers disrobe or perform in an unclothed state for entertainment;
    (ii) How the state identifies the locations specified in the 
statute;
    (iii) Procedures for ongoing monitoring to ensure policies are 
being carried out as intended; and
    (iv) How the state responds to findings of non-compliance or 
program ineffectiveness.
    (11) The state's TANF Plan must describe how the state will:
    (i) Implement policies and procedures as necessary to prevent 
access to assistance provided under the State

[[Page 2106]]

program funded under this part through any electronic fund transaction 
in an automated teller machine or point-of-sale device located in a 
place described in section 408(a)(12) of the Act, including a plan to 
ensure that recipients of the assistance have adequate access to their 
cash assistance; and
    (ii) Ensure that recipients of assistance provided under the State 
program funded under this part have access to using or withdrawing 
assistance with minimal fees or charges, including an opportunity to 
access assistance with no fee or charges, and are provided information 
on applicable fees and surcharges that apply to electronic fund 
transactions involving the assistance, and that such information is 
made publicly available.
* * * * *
[FR Doc. 2016-00608 Filed 1-13-16; 8:45 am]
BILLING CODE P