NOTE:

COMMENTS REGARDING ANY FEDERAL REGISTER NOTICE MUST BE SENT TO THE ADDRESS
INDICATED IN THE DOCUMENT. ANY COMMENTS ON THE RAPID INFORMATION BULLETIN
BOARD SYSTEM (RIBBS) ABOUT ANY FEDERAL REGISTER NOTICES WILL NOT BE USED
OR CONSIDERED IN THE COURSE OF ANY RULE MAKING.

[Federal Register: June 9, 1995 (Volume 60, Number 111)]
[Rules and Regulations ]
[Page 30713-30742]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[[Page 30713]]

_______________________________________________________________________

Part V

Postal Service

_______________________________________________________________________

39 CFR Parts 111 and 501

Manufacture, Distribution, and Use of Postage Meters; Final Rule

[[Page 30714]]

POSTAL SERVICE

39 CFR Parts 111 and 501

Manufacture, Distribution, and Use of Postage Meters

AGENCY: Postal Service.

ACTION: Final rule.

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

SUMMARY: This final rule clarifies and amends the standards in the
Domestic Mail Manual (DMM) and the Domestic Mail Manual Transition Book
(DMMT) regarding the manufacture, distribution, and use of postage
meters.
    This final rule adopts most of the proposed changes to the
standards governing the manufacture, distribution, and use of postage
meters as published by the Postal Service in the Federal Register on
January 31, 1995 (60 FR 5964-5995). The final rule also allows the
Postal Service to tighten its controls over meters and to protect
postal revenue more efficiently. The changes are designed to increase
the information available to the Postal Service for effective
management and control of the meter program. In addition, security
controls are being supplemented to ensure that correct postage is paid
and that postage meter misuse is minimized.

EFFECTIVE DATE: This rule is effective June 30, 1995, except for
Secs. 501.22(b) and 501.22(e)(2), which are effective January 2, 1996.

    January 2, 1996, is the effective date for the electronic
transmission of license applications and centralized application
processing. (In this document, see DMM P030.2.1, Procedures and DMM
P030.2.3, Refusal to Issue Meter License.
    January 2, 1996, is the effective date for the use of revised PS
Form 3601-A, Application for a License to Lease and Use Postage Meters,
and PS Form 3601-C, Postage Meter Installation, Withdrawal, or
Replacement. (In this document, see Exhibit B, Exhibit C.
    June 30, 1995, is the effective date for the use of the new
security seals; however, implementation will depend on the availability
from the Postal Service's supplier.

(In this document, see 39 CFR 501.20 Keys and setting equipment and 39
CFR 501.25(b)(5) Inspection of meters in use)

FOR FURTHER INFORMATION CONTACT: Nicholas S. Stankosky, (202) 268-5311.

SUPPLEMENTARY INFORMATION: On January 31, 1995, the Postal Service
published a notice of proposed rulemaking for public comment in the
Federal Register (60 FR 5964-5995) to revise existing standards in the
Domestic Mail Manual (DMM) and Domestic Mail Manual Transition Book
(DMMT) regarding the manufacture, distribution, and use of postage
meters. Moreover, this proposed rule would introduce new regulations in
title 39, Code of Federal Regulations (CFR), to clarify postal
standards for the manufacture and distribution of postage meters.
    The proposed rule detailed efforts undertaken by the Postal Service
to adopt new standards for postage meters that satisfy and protect the
interests of the users, manufacturers, and the Postal Service. These
standards are designed to improve meter security through new rules on
design deficiencies, manufacturers' inspections, refunds, meter
licensing, missing meters, shipment of meters, security seals, meter
labeling, and meter testing. The new rules also establish
administrative controls and make adjustments to the Computerized Remote
Postage Meter Resetting System (CMRS).
    The Postal Service requested that comments on the proposed rules be
submitted by March 17, 1995. Twelve written comments were received from
interested companies and individuals. Having given thorough
consideration to these comments, the Postal Service now adopts its
final rule.
    The Postal Service's evaluation of the comments follows. Because
the regulations fall into four categories (meter security,
administrative controls, other issues, and Computerized Remote Postage
Meter Resetting System), the comments are organized into four sections
in the comment section under these four categories. In addition, a
fifth section in this comment section addresses general comments
separately. The sixth section discusses specific revisions to the
Domestic Mail Manual, Domestic Mail Manual Transition Book, and title
39, Code of Federal Regulations, part 501, followed by tables
summarizing the revisions.
    The revised regulations are published herein in their entirety.
Applicable modifications to the proposed regulations, based on the
comments received, are referenced in each section and summarized at the
end of the comment section. Otherwise, the rules are adopted as
proposed. The numbering scheme shown in the section titled Discussion
of Comments reflects the scheme published in the Federal Register for
the proposed rule (60 FR 5964-5995).

Discussion of Comments

I. Meter Security

    Meter security pertains to integrity weakness and design
deficiencies; meter manufacturers* inspections; custody of suspect
meters; missing meters; security seals; and meter labeling. Prompt
notification of all potential security weaknesses identified in a
particular meter or class of meters is necessary to protect postal
revenue. The Postal Service depends on manufacturers to identify and
notify the Postal Service of any potential security weakness and to
maintain proper distribution controls. The Postal Service therefore
adopts with this final rule new requirements for reporting by
manufacturers. The Postal Service will impose administrative sanctions
against manufacturers that do not comply with these reporting and
distribution requirements.
A. Integrity Weakness and Design Deficiencies

    One commenter expressed concern about the meter security
regulations proposed in 39 CFR 501.13 and 501.14. The commenter stated
that the Postal Service is placing undue emphasis on meter design for
revenue security.
    The Postal Service notes that postage meters must protect against
tampering and misuse. The Postal Service must emphasize the importance
of meter security to reduce the threat of revenue losses to the
greatest extent possible.
    This commenter also believed that the proposed regulations fail to
address adequately the importance of mailer profile and Postal Service
in-plant verification as critical components of a secure postal payment
system.
    The commenter's point is well-taken. The new rules do take account
of the importance of mailer profiles. For example, inspection
frequencies in 39 CFR 501.25 are based on the characteristics of
particular meters and on the mailer's profile. Additionally, in-plant
verification of the makeup of metered mail is done during the
acceptance process, and metered indicia are sampled at destinating post
offices.
    The commenter also stated that the proposed regulations are more a
predicate for imposing penalties on meter manufacturers than an
efficient means to improve security and that the Meter Accounting and
Tracking System (MATS) is being developed with no assurance of
operational efficiency or cost-effectiveness.
    The Postal Service does not accept the commenter's view that the
rules are a predicate for imposing penalties or that penalties are
contemplated. Rather, these rules place more responsibility for
security and revenue protection on those who manufacture and distribute
postage meters. The new sanctions are remedial in nature, and, ideally,
the Postal Service should never have to impose administrative
sanctions. MATS [[Page 30715]] does not pertain to the proposed
rulemaking in the Federal Register notice published on January 31,
1995; therefore, it is not appropriate for the Postal Service to
address MATS in this notice.
    One commenter stated that one postal official had previously
expressed that proposed 39 CFR 501.13, which establishes the
manufacturer's duty to report integrity weaknesses and design
deficiencies, would apply only to security defects or weaknesses of
design in a particular meter or model of postage meter. The commenter
further suggested that the rule should not apply to information or
knowledge received by a manufacturer relating to postage-meter
tampering by a customer or to other potential security breaches
unrelated to the design and operation of a postage meter.
    The requirements for reporting security weaknesses and methods of
meter tampering are directly related to the manipulation of the meter
made possible because of design deficiencies. The manipulation of a
meter in and of itself is evidence of a security weakness of the
manufacturer's product. It is the manufacturer's obligation to report
those incidents in which misuse occurs because someone can take
advantage of such deficiencies. Additionally, the collection of this
information will increase manufacturer's awareness of a problem with
meter performance. The number of reported instances will help in
determining the extent or seriousness of the situation.
    One commenter noted that the standards in 39 CFR 501.13 do not
provide sufficient clarity and due process regarding what needs to be
reported.
    The standards in 39 CFR 501.13 define the information that must be
provided in general terms. If there is any doubt about information that
must be reported, the Postal Service invites interested parties to
submit requests for advisory opinions on an ad hoc basis.
    The same commenter also stated that the standards in 39 CFR 501.14
and 501.23 lack sufficient clarity and ascertainable standards for
imposing administrative sanctions.
    The Postal Service sees no reason for including additional
standards. The sanctions in these sections merely allocate the risk of
loss entirely to the manufacturer only when the manufacturer fails to
execute certain prescribed tasks. Once facts underlying the violation
and costs and losses are proved, the manufacturer is held liable for
costs and losses. Except as provided in these sections, no other
factors are considered, and thus no additional standards need be
prescribed.
    The same commenter also stated that 39 CFR 501.14 is arbitrary
because it does not relate the sanction to losses actually caused by an
alleged failure to report. The commenter suggested that the rule
measure losses from the date when the defect should have been reported
rather than the date of discovery.
    The Postal Service does not agree. Sanctions are measured from the
date when the manufacturer knows or should know information giving rise
to the duty to report; hence, the measurement of damages and of duty to
report are rationally related.
    The commenter also stated that the proposed regulations would
promote manufacturers' filing of numerous inconclusive reports to avoid
liability. According to the commenter, such filings would place
unnecessary strain on limited Postal Service resources and increase
manufacturers' administrative costs. The commenter recommended that the
Postal Service require manufacturers to report only those design
deficiencies that, following testing, cause the manufacturer to
conclude that a security threat exists.
    The proposed regulations clearly articulate the manufacturer
requirements for ``preliminary'' and ``final'' reporting. These
requirements cover a substantial list of situations and occurrences
relating to possible meter misuse. To limit reporting as the commenter
suggested would undermine the ability of the manufacturers and the
Postal Service to maintain control of the program. Although there might
be some additional cost incurred by both parties, the risk of revenue
losses would increase if the suggestion were adopted.
    One commenter stated that the term ``employees'' should be deleted
from the definition of manufacturer under 39 CFR 501.13(a). The
definition of employee should be limited to the officers and those
management employees of the manufacturer who have meter security
responsibilities.
    The Postal Service expects that each individual employed by a meter
manufacturer is already charged with the responsibility to report meter
security problems to the manufacturer's headquarters unit. To limit the
definition as suggested would reduce the possible number of available
sources of pertinent information. Field employees are important sources
of information because they see meters in a live environment.
    The commenter also suggested that the term ``findings'' should be
deleted from 39 CFR 501.13(b)(1). Because findings must be based on
test results, the commenter believed that the term ``findings'' is
unnecessary and will result in the filing of superfluous reports and in
contributing to confusion about when the meter manufacturer's
obligation to report arises.
    The Postal Service does not accept the commenter's narrow reading
of the term ``findings,'' which refers to the discovery, awareness,
determination, or perception of information relating to all meter
activities. The term is not limited to those situations surrounding
meter-testing results. Findings in the field are just as important as
testing results because they enable on-site evaluations of meter
performance and mailer practices.
    One commenter believed that manufacturers should be required to
file reports on security issues only when they concern common security
design features present in meters approved for use in the United
States. The commenter suggested that the scope of the rule be narrowed
so that the manufacturer need only report information about meter
security when a meter model in use in foreign jurisdictions is
subsequently submitted to the Postal Service for approval.
    The Postal Service does not agree; it must be apprised of problems
relating to all postage meters of the authorized manufacturers,
regardless of where the meters have been approved for distribution.
Because all meters share many of the same components, a problem
discovered in a foreign location may provide useful information about a
meter approved for use in the United States.

B. Meter Manufacturers' Inspections

    One commenter expressed concern about the meter security
regulations proposed in 39 CFR 501.5 and 501.23. The commenter believed
that high-volume and high-risk mailers are not clearly identified for
increased meter inspections. The commenter recommended that the Postal
Service identify these mailers by the Standard Industrial Codes for
third-party mailers.
    A high-volume mailer is defined as one who has annual metered
postage exceeding $12,000. Part B ``Business Profile'' of the license
application (PS Form 3601-A) asks the applicant to report his or her
annual estimated metered postage. The report is incremented to show
usage exceeding $12,000. This information can be used initially to
identify high-volume mailers. Manufacturers may use the Standard
Industrial Codes for third-party mailers, other codes as appropriate,
and their own mailer [[Page 30716]] records for the identification of
high-volume and high-risk mailers.

C. Custody of Suspect Meters

    No comments were received.

D. Missing Meters

    No comments were received.

E. Shipment of Meters

    Four commenters expressed concern about the meter security
regulations proposed in 39 CFR 501.22 and 501.23 and in DMM P030.2.9.
One commenter believed that only meters destined for customers should
be shipped by registered mail. Another commenter stated that the
criteria for exceptions and implementation schedules for shipping
meters by registered mail must be developed. This commenter was
concerned with the lengthy process for tracing registered mail. A third
commenter stated that there is no justification for the mandated use of
registered mail, and another commenter stated that the requirement to
use registered mail is costly and unjustified.
    All postage meters are capable of printing postage indicia for
services to be rendered by the Postal Service. Meters must accordingly
be kept out of the hands of unauthorized individuals who might misuse
the meter. Therefore, the rule applies to all meter shipments
regardless of destination to ensure security and safety. The regulation
permits the manufacturers to use alternative delivery carriers that
offer the same level of security as registered mail. However, the
requirement for use of registered mail is retained in the final rule.

F. Security Seals

    Two commenters expressed concern about the meter security
regulations proposed in 39 CFR 501.20. One of these commenters had no
objection to the proposed use of the seals but expressed concern about
the added cost to manufacturers. The other commenter believed that the
new seal was incompatible with one of its meter products.
    Because the manufacturers lease meters and the Postal Service does
not collect fees from the manufacturers or licensees, the cost of the
new seals should be borne by the manufacturers as a cost of doing
business. The new seals are being slightly modified in size to
accommodate all postage meters.

G. Meter Labeling

    One commenter expressed concern about the meter security
regulations proposed in 39 CFR 501.22(r) and 501.23 and in DMM
P030.2.4(g). The commenter stated that the Postal Service has not
allowed sufficient time to complete meter labeling.
    The manufacturers were originally notified of the labeling
requirements in August 1993 and have been given a reasonable time in
which to comply. Manufacturers are expected to have meter labeling
completed by the effective date of these regulations.

H. Postage Meter Testing

    No comments were received.

II. Administrative Controls

    The administrative controls include postage meter refunds; use of
PS Form 3602-A; meter licensing procedures; performance regulations;
suspension and revocation; and installations and withdrawals. The
Postal Service is establishing new procedures to enhance control over
electronic meter register refunds and to expedite the refund process.

A. Postage Meter Refunds

    No comments were received.

B. Use of PS Form 3602-A

    Five commenters expressed concern about the standard proposed in
DMM P030.2.4(b) requiring that meter users maintain a daily record of
meter register readings (PS Form 3602-A). The commenters did not
understand the need for this standard and believed that it would impose
a hardship on small businesses. Another commenter believed that a
reasonable transition period be allowed to supply the form to mailers
and instruct them on its use.
    These comments have merit; however, the form is a valuable document
in substantiating the amount of refunds to be issued. The use of PS
Form 3602-A will continue to be voluntary. In the event that a meter
malfunctions and a customer has not maintained the PS 3602-A or its
equivalent, the customer may not be eligible for a refund of the amount
claimed. Current regulations are modified to reflect the Postal Service
recommendation that the form be maintained by meter users. DMM
P030.2.4(b) is revised accordingly in the final rule.
C. Meter Licensing Procedures

    Three commenters expressed concern about the procedures proposed in
39 CFR 501.22(b) and 501.22(e) and in DMM P030.1.9, P030.2.2, P030.2.3,
and P030.2.4. One commenter stated that customer-requested information
on meter applications should be limited because of mailer privacy and
the placement of an undue administrative burden on the applicant and
the Postal Service system.
    The mailer privacy issue is being addressed in proposed
modifications to the Postal Service Administrative Support Manual and
will be published in a separate Federal Register notice.
    The commenter also recommended that the Postal Service be required
to issue a decision on an appeal within 10 days after the appeal is
filed with the Postal Service.
    In some cases, time is needed to conduct additional research.
Consistent with this objective, the commenter's recommendation to limit
the decision process for appeals to 10 days is not reasonable. It is
the intention of the Postal Service to act as quickly as possible on
appeals without sacrificing the fact-finding effort required to render
a fair decision.
    One commenter suggested that the format for the meter license be
reevaluated to make it less intimidating.
    The new license application was reviewed by meter users in six
customer focus groups before the issuance of the proposed changes.
Invariably, the meter users acknowledged the reasonableness of the
requirements for additional applicant information and stated that the
proposed application would not be burdensome to complete. However, the
statement pertaining to the penalties for submission of a false,
fictitious, or fraudulent statement is deleted.
    Another commenter believed that clarification is required on the
options for submitting licenses.
    The two options for submission of a meter license application are
clearly stated in DMM P030.2.1, which pertains to meter license
procedures.
    This same commenter believed that implementation of new licensing
procedures is inappropriate at this time because requirement and
implementation issues are still undefined.
    As stated above, the effective date for the electronic transmission
of license applications, use of the revised PS Form 3601-A, and
centralized application processing is January 2, 1996. Before this
implementation, the Centralized Meter Licensing System (CMLS)
requirements will be published in the Federal Register for public
review and comment.
    One commenter stated that the new licensing procedures constitute a
form of worksharing that should result in some form of compensation to
the meter manufacturers.
    CMLS is essential for the effective control and management of
applications and licenses. The Postal Service does not agree that this
cooperative effort [[Page 30717]] with the manufacturers, which will
result in serving customers better, constitutes a form of worksharing
for which compensation should be made. Manufacturers are engaged in a
profit-making enterprise and must incur some costs as the price of
doing business. The Postal Service, on the other hand, collects no fees
for processing meter applications from either manufacturers or
licensees.
    One of the same commenters noted that MATS was not addressed in the
proposed regulations.
    MATS does not pertain to these regulations because it is a separate
system being developed and implemented by another department within the
Postal Service.

D. Performance Regulations

    No comments were received.
E. Suspension and Revocation

    One commenter stated that the criteria on which the Postal Service
may suspend or revoke a meter manufacturer's authorization under 39 CFR
501.5 or approval of a meter under 39 CFR 501.12 fail to provide clear
and ascertainable standards to guide meter manufacturer conduct or
Postal Service decisionmaking. In the commenter's view, 39 CFR 501.5
authorizes the Postal Service to revoke a meter manufacturer's
authorization based on potentially minor violations and in a manner not
readily amenable to judicial review. The commenter suggested that
suspension under 39 CFR 501.5 be imposed only when the Postal Service
determines that a manufacturer has committed serious or persistent
violations.
    With respect to 39 CFR 501.5, the Postal Service refers the
commenter to paragraph (b) of that section, which clearly sets forth
the criteria in forming a decision to suspend or revoke. One of these
factors is the ``nature and circumstances of the violation.'' This
factor enables the Postal Service to consider the seriousness of the
violation in determining whether to suspend or revoke a manufacturer's
authorization. Thus, if the violation is not serious, the sanction
imposed, if any, can be narrowly tailored to fit the circumstances.
    With respect to 39 CFR 501.12, the Postal Service refers the
commenter to paragraph (a) of that section, which establishes the
criteria to be evaluated when determining to suspend approval to
manufacture or distribute a meter or class of meters. The rule clearly
provides that decisionmaking will be based on the potential risk to
postal revenue. Thus, the rule contemplates that when the risk to
postal revenue is high in terms of amount and probability of loss, a
suspension is more likely; when the amount at stake and probability of
loss are low, suspension is less likely.
    One commenter suggested that the standard of proof required by the
Postal Service to suspend or revoke a meter manufacturer's
authorization be raised to ``clear and convincing evidence'' instead of
``preponderance of evidence.''
    The Postal Service does not subscribe to the commenter's view.
First, the Postal Reorganization Act (Pub. L. No. 91-375, 84 Stat. 719
(1970)) is silent on regulation of the meter industry, and there is no
suggestion in the legislative history that a standard of proof higher
than a preponderance of the evidence was ever contemplated in this
context, much less intended. Nor is the nature of the proceeding and
parties affected similar to those in which courts have imposed a higher
standard. The U.S. Supreme Court has generally required proof by clear
and convincing evidence where ``particularly important individual
interests or rights are at stake,'' such as the potential deprivation
of individual liberty, citizenship, or parental rights. Herman &
MacLean v. Huddleston, 459 U.S. 375, 389 (1983). Such compelling
individual interests are not present here.
    Second, adoption of the commenter's proposal would, in essence,
express a preference for the manufacturers' interests. The balance of
interests here, however, warrants use of the preponderance standard.
Postal Service revenue is placed at risk when manufacturers fail to
execute their responsibilities in accordance with postal regulations.
As experience demonstrates, this risk is not insubstantial. Ratepayers
ultimately bear the cost of covering these losses. The interests of the
manufacturers are thus outweighed by the interests of the Postal
Service and ratepayers in protecting postal revenue.
    One commenter stated that the Postal Service does not have the
statutory authority to impose punitive sanctions.
    The Postal Service does not accept the commenter's suggestion that
express statutory authority is a prerequisite to the Postal Service's
imposition of administrative sanctions in this context. In enacting the
Postal Reorganization Act, Congress delegated broad rulemaking
authority to the Postal Service to manage its operations. Largely
absent from the Postal Reorganization Act are provisions establishing
detailed postage payment programs. Prior to the enactment of the Postal
Reorganization Act, Congress established that postage could be paid by
meter. This statutory framework was eliminated by the Postal
Reorganization Act, leaving no specific statutory authority for any
meter program. Rather than addressing the specific methods of payment
of postage available to ratepayers, the Postal Reorganization Act
merely provides that the Postal Service has the power ``to prescribe,
in accordance with [title 39], the amount of postage and the manner in
which it is to be paid'' and ``to provide such other evidences of
payment of postage and fees as may be necessary or desirable.'' 39
U.S.C. 404(a)(2), (4). Accordingly, the Postal Reorganization Act
evinces the intent of Congress to divest itself of the details of
postage payment systems, including meters, and to delegate to the
Postal Service the responsibility for establishing and maintaining
programs for postage payment systems and their attending regulatory
schemes. It is therefore implicit from the text of the Postal
Reorganization Act that Congress delegated to the Postal Service
authority to promulgate a regulatory scheme for the postage meter
program without need for express statutory authority establishing the
postage meter program.
    Notwithstanding, in the view of the Postal Service the proposed
administrative sanctions are not penalties because only make-whole
relief is contemplated. As such, no express statutory authority is
required. See Gold Kist v. U.S. Dep't of Agriculture, 741 F.2d 344,
347-48 (11th Cir. 1984), amended in part, 751 F.2d 115 (11th Cir.
1985); Frame v. United States, 885 F.2d 1119, 1142 (3d Cir. 1989),
cert. denied, 493 U.S. 1094 (1990). Both the Frame and Gold Kist courts
generally held that agencies have the power to impose administrative
sanctions that are not penalties if the sanctions are remedial and
reasonably related to the purposes of the enabling statutes. If the
purpose of an administrative sanction is ``not to stigmatize or punish
wrongdoers,'' the sanction is remedial rather than punitive. Frame, 885
F.2d at 1143 (citing West v. Bergland, 611 F.2d 710, 722 n.14 (8th Cir.
1979), cert. denied, 449 U.S. 821 (1990)).
    The proposed regulations at issue here are strictly remedial. Their
purpose is not to punish or stigmatize manufacturers; rather, they
serve to make the Postal Service whole for its losses attributable to
manufacturers' products or conduct. Indeed, the Postal Service does not
seek to recover any amount exceeding its costs or losses, net of any
amount collected by meter users. The proposed sanctions merely permit
the Postal Service to collect a fair [[Page 30718]] approximation of
its costs and revenue losses and thus establish a method for allocating
the risk of loss of Postal Service revenue.
    One commenter stated that the temporary suspension under 39 CFR
501.5(c) and 501.12(b) should not be permitted to be extended more than
120 days for further investigation in the absence of clearly
articulated good cause or the manufacturer's consent.
    In response, the Postal Service notes that a good cause showing is
implicit in the rule. Under 39 CFR 501(c)(4), the Postal Service must
decide the disposition of a suspension at the end of a 90-day period.
At such time, the Postal Service must withdraw the suspension, make a
determination to revoke authorization, or extend the suspension either
to allow more time for investigation or to permit the manufacturer to
correct the problem. Thus, a suspension may extend beyond 90 days only
if the Postal Service demonstrates good cause for its continuation,
e.g., additional time is needed to investigate or the manufacturer
needs additional time to correct the problem.
    The commenter also suggested that the Postal Service lift a
suspension under 39 CFR 501.5(c)(3) immediately upon the implementation
of a solution to the problem that originally gave rise to the
suspension.
    The language in 39 CFR 501.5(c)(3) implicitly incorporates the
standard in 39 CFR 501.5(c)(4)(iii) that a suspension is withdrawn
before the close of the 90-day period upon the manufacturer's
identification and implementation of a satisfactory solution. The final
rule is revised to clarify this cross-reference. The parallel provision
in 39 CFR 501.12(b)(3) is also revised.
    One commenter stated that 39 CFR 501.5, 501.12, 501.14, and 501.23
do not expressly provide for separation of function in the adjudication
of alleged violations. The commenter also proposed that the rules
clarify that such appeals will be decided by an officer who is
independent of the initial decisionmaking.
    The Postal Service recognizes the importance of maintaining the
integrity of the decisionmaking process. To maximize resource
flexibility, however, the Postal Service has determined to address this
concern on an ad hoc basis. In cases in which the decisionmaker has
participated in the investigation, the adjudication will be handled by
an alternative decisionmaker.

F. Installations and Withdrawals

    One commenter believed that the meter installation/withdrawal
report (PS Form 3601-C) should be redesigned or not implemented until
the Meter Accounting and Tracking System is on-line. Another commenter
recommended that the format and details required on PS Form 3601-C be
tested in the field.
    The Postal Service will require the use of PS Form 3601-C effective
January 2, 1996, when the Centralized Meter Licensing System is
implemented.

III. Other Issues

    Other issues concern the taking of a meter outside the United
States; licensee reporting of faulty or defective meters; quarterly
meter reports; Postal Service examination of meters; and training
media.

A. Taking a Meter Outside the United States

    One commenter noted that the regulations for taking a meter outside
the United States do not address the exceptions for government agencies
and military branches.
    DMM P030.2.2 provides that meters may be taken outside the United
States, its territories, and its possessions with the express consent
of the Postal Service. This provision applies to government agencies
and military branches.

B. Licensee Reporting of Faulty or Defective Meters

    No comments were received about this section.

C. Quarterly Meter Reports

    No comments were received about this section.

D. Postal Service Examination of Meters

    Three commenters stated that the requirements for the examination
of meters that have not been reset within 3 months are excessive and
inconvenient to customers. It is their opinion that a 6-month cycle is
more appropriate. In addition, one commenter suggested that for CMRS
meters, periodic calls be made to the manufacturers' data center
instead of meter inspections.
    The Postal Service does not agree that the requirement for the
examination of those meters not reset within 3 months is excessive or
especially burdensome to licensees. To extend the period would greatly
increase the period of time before the Postal Service might identify
tampering or misuse. Mailers who participated in the focus group
discussion on this subject expressed no concerns on this requirement.

E. Training Media

    One commenter expressed a concern about the costs associated with
the development and distribution of training media for resetting and
inspection and suggested that the manufacturers provide a master tape
to the Postal Service for reproduction as needed.
    The Postal Service is working in a cooperative effort with the
manufacturers to develop training material. Once a master copy of the
training materials is produced that covers all the meter families for
all manufacturers, the Postal Service will reproduce and distribute
copies to post offices. The expense borne by the manufacturers should
be minimal.

IV. Computerized Remote Postage Meter Resetting System

    The Postal Service is changing the cash management arrangements of
the Computerized Remote Postage Meter Resetting System (CMRS) to
establish more direct control of licensee payments and balances and to
provide improved service for CMRS licensees.
    One commenter stated that the proposed rule would improve the
efficiency and security of Postal Service funds handling over the
current methods. Also, the commenter believed that Postal Service
investment results would improve because of earlier availability of
funds that could be invested. This same commenter also requested that
the Postal Service change the wording in the last sentence in the last
paragraph under CMRS to read as follows: ``The funds in the Postal
Service fund at Treasury would be backed in full faith and credit by
the U.S. Treasury, whereas that is not the case with investments by a
commercial bank trustee.''
    The Postal Service agrees with the suggestion that ``funds in the
Postal Service fund would be backed in full faith and credit by U.S.
Treasury securities, whereas that is not always the case with
investments by a commercial bank trustee.'' The change is incorporated
into 39 CFR 501.28(b)(1).
    Another commenter supported the Postal Service initiative for CMRS
and believed that customers would prefer this approach to the
alternatives currently available. The commenter also stated that this
initiative should promote the wider use of CMRS.
    The Postal Service agrees that customers will prefer modernized
cash management procedures that make customer funds available as soon
as possible, and it believes that the initiative will promote the wider
use of CMRS.
    A third commenter strongly disagreed that approved changes to CMRS
are [[Page 30719]] necessary or in the best interests of mailers. This
same commenter stated that it is unfair and unjustified for the Postal
Service to restructure the system in a way that increases the
responsibility of the manufacturers and simultaneously deprives them of
compensation.
    After careful consideration, the Postal Service respectfully
disagrees with the assertions that the changes are unnecessary and
contrary to mailers' best interests. The Postal Service believes
strongly that current cash management and payment methods must be
modernized, and it has therefore agreed to pay for envelopes, deposit
tickets, and multiple lockbox bank locations. The Postal Service
believes that the manufacturers should promote payment methods for
customers that encourage customers to reduce or eliminate funds held in
trust account deposits. Finally, the Postal Service believes that the
responsibilities of manufacturers will remain the same while the Postal
Service's responsibilities will increase.
    A fourth commenter expressed concern about compensation to
manufacturers and about procedures to advance funds to customers. The
same commenter was concerned about customer price increases resulting
from new CMRS procedures. This commenter found representatives of the
Postal Service Corporate Treasury and the Finance Department to be
responsive to the issues raised by bringing a new form of funds
management to CMRS. The commenter also believed that the commenter's
company should not be forced to suffer a financial penalty if its
competitors are allowed an excessive amount of time to convert to the
new system.
    The Postal Service disagrees with the use of the term
``compensation.'' The Postal Service has asked each manufacturer to
provide details about expenses associated with CMRS and has indicated
that it will review the services provided by the manufacturers in
collecting and accounting for Postal Service revenue. The Postal
Service also has repeatedly expressed its intention to have all
manufacturers operating under the new regulations so that no
manufacturer is at an advantage or disadvantage.
    A fifth commenter objected to the proposed rulemaking on CMRS and
stated that the current relationship cannot be unilaterally amended by
regulation.
    Before the publication of the proposed regulations, the Postal
Service thoroughly reviewed and considered its legal authority and
determined that it had the requisite authority to issue the proposed
regulations. Upon receipt and review of the comments, the Postal
Service reaffirmed its earlier conclusion.
    The commenter stated that the proposed regulations violate a
statement of understanding between the commenter and the Postal Service
and that the Postal Service is recommending unilateral changes to the
understanding to take over financial control of CMRS. This proposed
takeover of a successful private sector-operated enterprise is contrary
to the government trend of outsourcing business functions.
    The Postal Service does not believe that the proposed regulations
violate any relationship with any manufacturer. Further, the Postal
Service is not proposing a takeover of a private sector-operated
enterprise but rather the modernization of cash management and payment
methods. The Postal Service has received letters supporting its
position, including one from a cabinet-level agency. A key component of
the new regulations is extensive use of the most modern collection
methods available in the private commercial banking system.
    One commenter maintained that investments were made based on the
contractual commitment, entitling the manufacturer to recoup its
investment.
    The Postal Service concludes that no change to the proposed
regulations is warranted in response to the comment about recoupment of
investments.
    One commenter stated that CMRS has attained a high degree of
customer satisfaction and that all parties have benefited from enhanced
security.
    With respect to customer satisfaction, there has been no
substantiation of high customer satisfaction, only anecdotal statements
about adverse effects on customers. Customer satisfaction is one of the
primary factors considered in publishing regulations designed partly to
promote CMRS meters.
    The commenter believed that the risks and benefits have not been
identified by the Postal Service and that customers would object to any
increased costs resulting from the proposed changes.
    The Postal Service has identified the costs and benefits of the
proposed regulations and continues to believe that the proposed changes
will benefit both customers and meter manufacturers. Further, after
reviewing manufacturers' CMRS costs and pricing behavior, the growth in
the use of CMRS meters, the increase in competition in providing remote
meter resetting services, and the savings that customers should realize
from the proposed changes, the Postal Service believes that the changes
can be made without necessarily increasing costs to customers. The
Postal Service will continue to work with the manufacturers to identify
additional ways in which costs can be controlled.
    The same commenter disagreed with the Postal Service position that
funds in commercial accounts are at risk.
    The Postal Service considered the risk of loss of customer funds in
commercial trustee accounts, both before and after publication of the
proposed regulations. The Postal Service has determined that it should
not continue to have more than $7 billion of its revenue held by and
flow through an unnecessary third party, and the Postal Service
continues to believe that the safest place for customer advance
deposits is the U.S. Treasury, a view supported by the U.S. Department
of the Treasury.
    The commenter stated that Postal Service Treasury officials had not
responded to the commenter's previous offer to review investment
strategy.
    The Postal Service believes that the location of the customer funds
is an important component of risk. Because the safest place for
customer advance deposits is the U.S. Treasury, the Postal Service has
determined that the funds must be kept there, backed in full faith and
credit by the U.S. Treasury.
    The commenter also believed that there is no evidence that mail
float time is an issue of customer concern.
    The Postal Service disagrees. Another commenter indicated that
customers would be pleased to have their funds available sooner for
postage. Furthermore, reduction in the time between when funds are sent
by a CMRS customer and the availability of such funds is consistent
with commonly recognized, prudent business cash management practices.
    The same commenter believed that one-time conversion costs would be
significant and that the Postal Service has not presented an adequate
proposal for compensation. The commenter stated that there is no
evidence to support Postal Service notions of improved customer funds
management or the reduced need for meter manufacturers to furnish
advances to customers.
    The Postal Service has asked each manufacturer to provide details
on conversion costs, although the Postal Service does not agree with
use of the term ``compensation.'' Not all manufacturers have provided
information in support of conversion costs, and that information is
necessary for the Postal Service to determine the magnitude of such
costs, if any. [[Page 30720]]

V. General Comments

    All the manufacturers supported the Postal Service efforts to
improve meter security and control. One manufacturer specifically
commented that the Postal Service was business-like and professional in
giving manufacturers an opportunity to discuss their views on the
regulations in an open forum. Another commenter believed that the
Postal Service had disregarded comments previously made by
manufacturers on the proposed regulations.
    To keep the manufacturers informed, the Postal Service held several
meetings to discuss the proposed regulations. Each manufacturer was
given an opportunity to express the specific views of its organization
and of the industry. In addition, the Postal Service conducted a series
of customer focus group sessions to provide a forum for comments from
interested parties who were not manufacturers. A public meeting also
was conducted in which the manufacturers and others could express their
views. The Postal Service noted the concerns and opinions from these
discussions before publishing the proposed regulations.
    One commenter stated that market tests or analyses were not
conducted to measure the effect the proposed regulations would have on
customers. In addition, the commenter believed that the regulations do
not take into account new technology for encrypted data verification.
    Participants in the customer focus groups recognized the need for
revising meter regulations and indicated that any inconvenience to
meter users will be minimal. They supported the Postal Service's effort
because, in their opinion, meter misuse and fraud affect postage rates.
    The Postal Service has solicited the cooperation of the meter
manufacturers in the development of encrypted indicia. This effort is
under way, and the results and specifications will be published for
public review and comment when they become available.

VI. Revisions

    The following sections were revised since the proposed rule; the
revisions are reflected in the final rule.

A. PS Form 3601-A

    The statement on PS Form 3601-A, Application for a License to Lease
and Use Postage Meters, pertaining to the penalties for submission of a
false, fictitious, or fraudulent statement is deleted.
Reference

Exhibit B

B. PS Form 3602-A

    The use of PS Form 3602-A, Daily Record of Meter Register Readings,
is voluntary, but its use is recommended to support refunds in case of
register malfunctions.
References
DMM P030.2.1 Procedures
DMM P030.2.6 Licensee Responsibilities
DMM P030.3.4 Alternative Meter Setting Location
DMM P030.3.7 Postage Transfers and Refunds
DMM P030.3.8 Postage Adjustments, Misregistering Meters
DMM P030.3.11 Periodic Examination of CMRS Meters
39 CFR 501.22(g) Distribution controls.
39 CFR 501.22(h)(2) Distribution controls.
39 CFR 501.25(b)(3) Inspections of meters in use.

C. Computerized Remote Postage Meter Resetting System

    For customers participating in the Computerized Remote Postage
Meter Resetting System (CMRS) program, the Postal Service will include
deposit tickets with check payments.
Reference
39 CFR 501.28(e)(6) Computerized remote postage meter resetting
(parts of proposed 39 CFR 501.28 are renumbered).

D. Deposits in U.S. Treasury

    Deposits in the Postal Service fund at Treasury are backed in full
faith and credit by the U.S. Treasury.
Reference
39 CFR 501.28(b)(1) Computerized remote postage meter resetting.

E. Manufacturer Suspensions

    Manufacturer suspensions may be withdrawn before the end of the 90-
day period if the Postal Service determines that the manufacturer*s
solution and implementation are satisfactory.
References
39 CFR 501.5(c)(4)(iii) Suspension and revocation of authorization.
39 CFR 501.12(b)(4)(iii) Suspension and revocation of approval.

F. Domestic Mail Manual

    Domestic Mail Manual (DMM) P030.2.0, Meter License, is reorganized
and renumbered since the proposed rule. DMM P030.1.9, Appeals, is
renumbered as DMM P030.2.5.

G. High-Volume Mailers

    High-volume mailers are defined for manufacturer meter inspections.
Reference
39 CFR 501.25 Inspection of meters in use.

H. Domestic Mail Manual Transition Book

    Domestic Mail Manual Transition Book part 144 is transferred as
revised to 39 CFR 501, with the exception of these sections: 144.312,
144.313, 144.341, 144.342, 144.344, 144.345, 144.346, 144.347, 144.348,
144.349, 144.35, 144.363, 144.37, 144.382(b), 144.383(b), 144.383(c),
144.383(d), 144.384, 144.53, 144.54, 144.61, 144.62, 144.63, 144.64,
144.65, and 144.67.

    Tables of Cross-References.--Domestic Mail Manual (DMM) Revisions
-----------------------------------------------------------------------------
DMM P030 old section   DMM P030 new section   Changes and comments
-----------------------------------------------------------------------------
1.1..................                   1.1   Editorial changes.

-----------------------------------------------------------------------------
1.2..................                   1.2   1.2 is revised to update names
                                              and addresses of authorized
                                              meter manufacturers. Editorial
                                              changes.

-----------------------------------------------------------------------------
1.3..................                   1.3   Editorial changes.

-----------------------------------------------------------------------------
1.4, 1.5, 1.6, 1.7...    1.4, 1.5, 1.6, 1.7   None.

-----------------------------------------------------------------------------
[[Page 30721]]
1.8, 1.9.............                   1.8   1.8, Meter Documentation, and
                                              1.9, Markings and Endorsements,
                                              are combined into 1.8, Meter
                                              Documentation, Markings, and
                                              Endorsements. Editorial changes.

-----------------------------------------------------------------------------
2.0..................                   2.0   None.

-----------------------------------------------------------------------------
2.1..................                   2.1   2.1 is modified to include
                                              electronic transmission of
                                              license applications by the
                                              manufacturer and to require all
                                              licenses to be processed at a
                                              central location.

-----------------------------------------------------------------------------
2.2..................                   2.2   2.2 is renamed Licensee
                                              Agreement. Parts of 2.7 are
                                              incorporated into 2.2 and
                                              restrictions are clarified on
                                              taking meters outside the
                                              United States.

-----------------------------------------------------------------------------
2.3..................                   2.3   Editorial changes.

-----------------------------------------------------------------------------
2.4..................                   2.6   2.4 is renumbered as 2.6 and
                                              revised to make Postal Service
                                              (PS) Form 3602-A optional
                                              though recommended to support
                                              refunds. Revised 2.6 includes
                                              examination requirements;
                                              license revocation for failure
                                              to comply with examination
                                              requirements; modifications to
                                              licensing procedures; reporting
                                              of malfunctioning meters;
                                              labeling requirements.

-----------------------------------------------------------------------------
--...................                   2.5   New 2.5, Appeals, is added to
                                              specify appeal procedures for
                                              licensees and applicants.

-----------------------------------------------------------------------------
--...................                   2.7   New 2.7, Custody of Suspect
                                              Meters, is added to cite
                                              authority of postal inspectors
                                              to make on-site visits and
                                              withdraw suspect meters.

-----------------------------------------------------------------------------
2.5..................                   2.8   2.5 is renumbered as 2.8,
                                              renamed Defective Meters, and
                                              revised to change procedures
                                              when a meter's registers are
                                              faulty or defective.
                                              Manufacturers are required to
                                              check meters out of service
                                              within a specific period and
                                              provide replacement meter.

-----------------------------------------------------------------------------
2.6..................                   2.4   2.6, Place of Mailing, is
                                              incorporated into 2.4(e),
                                              Revocation of License.

-----------------------------------------------------------------------------
2.7..................                   2.4   2.7 is renumbered as 2.4 and
                                              revised to clarify that taking
                                              meters outside the United
                                              States can be grounds for
                                              license revocation.

-----------------------------------------------------------------------------
--...................                   2.9   2.9, Missing Meters, is added
                                              to specify reporting
                                              requirements for missing meters.

-----------------------------------------------------------------------------
--...................                  2.10   2.10, Returning Meters, is added
                                              to specify procedures for
                                              returning meters to manufacturer
                                              whenever meter is defective or
                                              no longer wanted by licensee.

-----------------------------------------------------------------------------
3.0..................                   3.0   None.

-----------------------------------------------------------------------------
3.1..................                   3.1   3.1 is revised to require use
                                              of new PS Form 3601-C for meter
                                              installations, withdrawals, or
                                              replacements.

-----------------------------------------------------------------------------
3.2..................                   3.2   3.2 is renamed Licensee
                                              Relocation. Editorial changes.

-----------------------------------------------------------------------------
3.3..................                   3.3   Editorial changes.

-----------------------------------------------------------------------------
3.4..................                   3.4   3.4 is renamed Alternative
                                              Meter Setting Location.
                                              Editorial changes.

-----------------------------------------------------------------------------
3.5..................                   3.6   3.5 is renumbered as 3.6.

-----------------------------------------------------------------------------
3.6..................                    --   3.6, Manufacturer Withdrawal,
                                              is moved to 39 CFR 501.22(g)
                                              and 501.22(i).

-----------------------------------------------------------------------------
3.7..................                   3.5   3.7 is renumbered as 3.5.
                                              Editorial changes.

-----------------------------------------------------------------------------
3.8..................                   3.7   3.8 is renumbered as 3.7 and
                                              renamed Postage Transfers and
                                              Refunds. Editorial changes.

-----------------------------------------------------------------------------
--...................                   3.8   New 3.8, Postage Adjustments,
                                              Misregistering Meters, is added
                                              to expand requirements that
                                              include new procedures for
                                              processing refunds for
                                              defective meters.

-----------------------------------------------------------------------------
3.9..................                   3.8   3.9, Manufacturer's Statement,
                                              is incorporated into new 3.8,
                                              Postage Adjustments,
                                              Misregistering Meters.

-----------------------------------------------------------------------------
3.10.................                   3.9   3.10 is renumbered as 3.9 and
                                              renamed Computerized Meter
                                              Resetting System. Requirement
                                              is added for use of PS Form
                                              3601-C, Meter Installation,
                                              Withdrawal, or Replacement.

-----------------------------------------------------------------------------
[[Page 30722]]
3.11.................                  3.10   3.11 is renumbered as 3.10 and
                                              renamed Postage Transfer for
                                              CMRS Meters. Editorial changes.

-----------------------------------------------------------------------------
3.12.................                  3.11   3.12 is renumbered 3.11 and
                                              renamed Periodic Examination of
                                              CMRS Meters. Editorial changes.

-----------------------------------------------------------------------------
3.13.................                  3.12   3.13 is renumbered as 3.12 and
                                              revised to specify requirement
                                              changes.

-----------------------------------------------------------------------------
--...................                  3.13   New 3.13, CMRS Refunds, is
                                              added to outline CMRS refund
                                              procedures.

-----------------------------------------------------------------------------
4.0..................                   4.0   None.

-----------------------------------------------------------------------------
4.1..................                   4.1   Editorial changes.

-----------------------------------------------------------------------------
4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8,      4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8,
4.9, 4.10, 4.11, 4.12, 4.13, 4.14,      4.9, 4.10, 4.11, 4.12, 4.13, 4.14,
5.0, 5.1, 5.2, 5.3, 5.4..               5.0, 5.1, 5.2, 5.3, 5.4   

                                              None.

-----------------------------------------------------------------------------
6.0..................                   6.0   6.0 is revised to reference that
                                              requirements for manufacture and
                                              distribution of meters are
                                              published in 39 CFR 501.

-----------------------------------------------------------------------------
6.1..................                    --   6.1 is eliminated and
                                              requirements moved to 39 CFR
                                              501.1 and 501.2.

-----------------------------------------------------------------------------
6.2..................                    --   6.2 is eliminated and
                                              requirements moved to 39 CFR
                                              501.3

-----------------------------------------------------------------------------
6.3..................                    --   6.3 is eliminated and
                                              requirements moved to 39 CFR
                                              501.5.

-----------------------------------------------------------------------------
6.4..................                    --   6.4 is eliminated and
                                              requirements moved to 39 CFR
                                              501.5.

-----------------------------------------------------------------------------
6.5..................                   6.0   6.5 is revised and renumbered
                                              as 6.0.
-----------------------------------------------------------------------------

    Domestic Mail Manual Transition Book (DMMT) and 39 CFR 501 Revisions
-----------------------------------------------------------------------------
DMMT section             39 CFR 501 section   Changes and comments
-----------------------------------------------------------------------------

144.9................                 501     None.

-----------------------------------------------------------------------------
144.91, 144.912......                 501.1   Section is moved from DMMT
                                              144.91 and 144.912 and DMM
                                              P030.6.0.

-----------------------------------------------------------------------------
144.911..............                 501.2   Section is moved from DMMT
                                              144.911. Editorial changes.
                                                                         
-----------------------------------------------------------------------------
144.915..............                 501.3   Section is moved from DMMT
                                              144.915 and combined with DMM
                                              P030.6.0.

-----------------------------------------------------------------------------
--...................                 501.4   New 39 CFR 501.4, Burden of
                                              proof standard, clarifies
                                              burden of proof standard.

-----------------------------------------------------------------------------
144.913, 144.914.....                 501.5   Section is moved from DMMT
                                              144.913 and 144.914, clarified,
                                              and expanded.

-----------------------------------------------------------------------------
144.92...............                 501.6   Section is moved from DMMT
                                              144.92.

-----------------------------------------------------------------------------
144.931..............                 501.7   Section is moved from DMMT
                                              144.931. Editorial changes.

-----------------------------------------------------------------------------
144.932..............                 501.8   Section is moved from DMMT
                                              144.932.

-----------------------------------------------------------------------------
144.935..............                 501.9   Section is moved from parts of
                                              DMMT 144.935 and redrafted.

-----------------------------------------------------------------------------
144.933, 144.935.....                501.10   Section is moved from DMMT
                                              144.933 and parts of DMMT
                                              144.935 and redrafted.

-----------------------------------------------------------------------------
144.936, 144.937.....                501.11   Section is moved from DMMT
                                              144.936 and 144.937 and
                                              expanded.

-----------------------------------------------------------------------------
144.913, 144.914.....                501.12   Section is moved from parts of
                                              DMMT 144.913 and 144.914 and
                                              expanded.

-----------------------------------------------------------------------------
--...................                501.13   39 CFR 501.13, Reporting,
                                              specifies manufacturer
                                              reporting requirements.

-----------------------------------------------------------------------------
[[Page 30723]]
--...................                501.14   39 CFR 501.14, Administrative
                                              sanction on reporting, specifies
                                              sanctions for noncompliance with
                                              manufacturer reporting
                                              requirements.

-----------------------------------------------------------------------------
144.941..............                501.15   Section is moved from DMMT
                                              144.941.

-----------------------------------------------------------------------------
144.934, 144.942.....                501.16   Section is moved from DMMT
                                              144.934 and 144.942.

-----------------------------------------------------------------------------
144.943..............                501.17   Section is moved from DMMT
                                              144.943.

-----------------------------------------------------------------------------
144.944..............                501.18   Section is moved from DMMT
                                              144.944.

-----------------------------------------------------------------------------
144.945..............                501.19   Section is moved from DMMT
                                              144.945.

-----------------------------------------------------------------------------
144.946..............                501.20   Section is moved from DMMT
                                              144.946 and expanded.

-----------------------------------------------------------------------------
144.951..............                501.21   Section is moved from DMMT
                                              144.951.

-----------------------------------------------------------------------------
144.21, 144.225, 144.343, 144.355a,
144.36, 144.361, 144.383, 144.952,
144.963.............                 501.22   Section is moved from DMMT
                                              144.21, 144.225, 144.343,
                                              144.355a, 144.36, 144.361,
                                              144.383, 144.952, and 144.963,
                                              expanded, and redrafted.

-----------------------------------------------------------------------------
--...................                501.23   39 CFR 501.23, Administrative
                                              sanction, specifies manufacturer
                                              sanctions for failure to comply
                                              with meter standards.

-----------------------------------------------------------------------------
144.96...............                501.24   Section is moved from DMMT
                                              144.96.

-----------------------------------------------------------------------------
144.962..............                501.25   Section is moved from DMMT
                                              144.962 and expanded.

-----------------------------------------------------------------------------
144.952f, 144.963....                501.26   Section is moved from DMMT
                                              144.952f and 144.963 and
                                              expanded. 

-----------------------------------------------------------------------------
144.964..............                501.27   Section is moved from DMMT
                                              144.964.

-----------------------------------------------------------------------------
144.97, 144.971, 144.972, 144.973,
144.974, 144.975, 144.976, 144.977...501.28   Section is moved from DMMT
                                              144.97, 144.971, 144.972,
                                              144.973, 144.974, 144.975,
                                              144.976, and 144.977 and
                                              expanded.

-----------------------------------------------------------------------------
144.98...............                501.29   Section is moved from DMMT
                                              144.98.
-----------------------------------------------------------------------------

List of Subjects in 39 CFR Part 111

    Administrative practice and procedure, Postal Service.

    In consideration of the foregoing, the Postal Service hereby adopts
the following amendments to the Domestic Mail Manual, which is
incorporated by reference in the Code of Federal Regulations (see 39
CFR part 111).

PART 111--[AMENDED]

    1. The authority citation for 39 CFR 111 continues to read as
follows:

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 3001-
3011, 3201-3219, 3403-3406, 3621, 3626, 5001.

    2. Revise the following sections of the Domestic Mail Manual to
read as set forth below:

P030  Postage Meters and Meter Stamps

1.0  BASIC INFORMATION

21.1  Description of Meters

    Postage meters can print one or more denominations of postage and
display the amount of postage used and the amount remaining. A meter
locks when no postage or minimal postage remains. A meter generally
must be taken to the licensing post office to be reset by payment for
additional postage. Avoiding the payment of postage by misusing a meter
is punishable by law.
1.2  Meter Manufacturers
    Postage meters are available only by lease from authorized
manufacturers. The USPS holds manufacturers responsible for the
control, operation, maintenance, and replacement of their meters. The
following manufacturers are authorized to lease meters:

ASCOM HASLER MAILING SYSTEMS INC
19 FOREST PKY
SHELTON CT 06484-0903

FRANCOTYP-POSTALIA INC
1980 UNIVERSITY LN
LISLE IL 60532-2152

FRIDEN NEOPOST
30955 HUNTWOOD
HAYWARD CA 94544-7005

PITNEY BOWES INC [[Page 30724]]
1 ELMCROFT RD
STAMFORD CT 06926-0700
1.3  Possession
    No one other than an authorized manufacturer may possess a postage
meter without a valid USPS meter license and a rental agreement with
the meter manufacturer and until the USPS sets, seals (if applicable),
and checks the meter into service. Other parties in possession of a
meter must immediately surrender it to the manufacturer or USPS.
* * * * *
1.8  Meter Documentation, Markings, and Endorsements
    Unless excepted by standard, a mailing of pieces bearing meter
stamp postage must be accompanied by documentation meeting the
standards in P012 if the mailing contains nonidentical-weight pieces or
pieces without the full correct postage at the applicable rate. Each
piece bearing meter postage must show the markings and endorsements
required for the rate claimed and any special service requested.

2.0  METER LICENSE

2.1  Procedures
    An applicant wanting to be licensed to lease and use a meter must
provide an original signed Form 3601-A to the post office where the
applicant intends to deposit metered mail. A meter manufacturer may, on
behalf of the applicant, electronically transmit the information
requested on Form 3601-A to the designated USPS license application
central processing center in USPS-specified format. A single license
covers all meters licensed to the same applicant by the same post
office, but a separate application must be submitted for each post
office where the applicant wants to deposit metered mail. There is no
fee for this application and license. After approving an application,
the USPS issues a license (Form 3601-B) and one Form 3602-A for each
meter checked into service. The use of Form 3602-A is voluntary, but
its use supports refunds in the case of meter register malfunctions. If
a meter manufacturer transmits the application on behalf of the
applicant, the USPS notifies the manufacturer when a license is issued.
2.2  Licensee Agreement
    By submitting an application, the licensee agrees that the license
may be revoked immediately and the meter removed by the manufacturer or
the USPS in these cases: the meter is used in any fraudulent or
unlawful scheme or enterprise; the meter is unused during any
consecutive 12-month period; the licensee fails to exercise sufficient
control of the meter or fails to comply with the standards for meter
care or use; or a meter is taken outside the United States, its
territories, or its possessions (without written permission by the
manager of Retail Systems and Equipment, USPS Headquarters).
2.3  Refusal to Issue Meter License
    The USPS may refuse to issue a meter license for these reasons: the
applicant submitted false or fictitious information on the license
application; within 5 years preceding submission of the application,
the applicant violated any standard for the care or use of a meter that
resulted in the revocation of that applicant's meter license; or there
is sufficient reason to believe that the meter is to be used in
violation of the applicable standards. When an application for a
license to lease and use meters is refused, the USPS sends the licensee
written notice of the reason. If the license application is
electronically transmitted to the USPS by a manufacturer on behalf of
the applicant, the USPS notifies the manufacturer of the refusal. An
applicant refused a meter license may appeal the decision under 2.5.
2.4  Revocation of License
    The USPS notifies the licensee in writing of the reasons why the
meter license is to be revoked. The USPS also notifies the licensee's
meter manufacturer of the revocation so that the manufacturer can
cancel the lease agreement and remove the meter from service.
Revocation takes 10 days thereafter unless, within that time, the
licensee appeals the decision under 2.5. A license is subject to
revocation for any of these reasons:
    a. A meter is used for any illegal scheme or enterprise.
    b. The license or licensee's meter is not used for 12 consecutive
months.
    c. Sufficient control of a meter is not exercised or the standards
for its care or use are not followed.
    d. The meter is kept or used outside the boundaries of the United
States or those U.S. territories and possessions where the USPS
operates (except as specified in 2.2).
    e. Metered mail is deposited at other than the licensing post
office (except as permitted by 5.0 or D072).
2.5  Appeals
    An applicant who has been refused a meter license, or a licensee
who has had a license revoked, may file a written appeal with the
manager of Retail Systems and Equipment (RSE), USPS Headquarters,
within 10 calendar days of receipt of the decision. A licensee
appealing decisions on postage adjustments may file the appeal with the
same official within 60 days of the date that the manufacturer
submitted the postage recommendation to the USPS.
2.6  Licensee Responsibilities
    The meter licensee's responsibilities for the care and use of a
meter include the following:
    a. After a meter is delivered to a licensee, the licensee must keep
the meter in the licensee's custody until it is returned to the
authorized manufacturer or the licensing post office.
    b. Each day of operation, the licensee may record the readings of
the ascending and descending registers on Form 3602-A (except that
licensees using metering systems that record these readings
electronically may use system-generated printed records of the
preceding 12 months of meter activity as a substitute for manual entry
of daily readings on Form 3602-A). The licensee may bring Form 3602-A
to the post office when the meter is reset or examined.
    c. The licensee must make meters in the licensee's custody and
records on meter transactions immediately available for review and
audit on request by the USPS or the meter manufacturer.
    d. The licensee must present meters not reset within a 3-month
period to the licensing post office for examination. Remote-set meters
that are reset at least once every 3 months need be presented for
examination only annually. Failure to present a meter for examination
as required following notification can result in revocation of the
licensee's authorization to lease and use meters.
    e. The licensee must immediately notify the licensing post office
and manufacturer's representative of any change in the licensee's name,
address, or telephone number, or the location of the meters, or any
other information contained on the original Form 3601-A. The USPS
thereafter issues a modified meter license reflecting the updated
information. The licensee must verify and update license information on
a periodic basis as well as following any event that indicates the need
to update this information immediately (e.g., billings returned to a
meter manufacturer or failure of a manufacturer to locate a meter for
inspection). [[Page 30725]]
    f. The licensee must report a misregistering or otherwise defective
meter to the manufacturer according to 2.8 and must ensure that the
meter is not used.
    g. The licensee must ensure that the cautionary and barcode labels
placed onto each meter before its being checked into service are not
removed while the meter is in the licensee's possession. The cautionary
label contains basic reminders on leasing, meter movement, and misuse.
The barcode label contains a barcoded representation of the meter
serial number. Meters without these labels may not be checked into
service.
2.7  Custody of Suspect Meters
    Postal inspectors are authorized to conduct unannounced on-site
examinations of meters reasonably suspected of being manipulated or
otherwise defective. An inspector may also immediately withdraw a
suspect meter from service for physical and/or laboratory examination.
The inspector issues the licensee a receipt for the meter, forwards a
copy to the manufacturer, and, if necessary, assists in obtaining a
replacement meter from the meter manufacturer. Where possible, the
Inspection Service provides the manufacturer with advance notice that a
meter is to be inspected. Unless there is reason to believe that the
meter has been fraudulently set with postage, existing postage in the
meter to be examined is transferred to the replacement meter.
2.8  Defective Meters
    The licensee must immediately report any defective meter to the
licensing postmaster and the manufacturer. The manufacturer must pick
up any defective meter and take it to the licensing post office to be
checked out of service within 3 business days of being notified by the
licensee. A faulty meter may not be used under any circumstance, and it
must be removed from service when taken to the licensing post office.
The manufacturer provides the licensee with a replacement meter.
2.9  Missing Meters
    The licensee must immediately report to the licensing postmaster
and the manufacturer the loss or theft of any meter or the recovery of
any missing meter. Reports must include the meter model and serial
number; the date, location, and details of the loss, theft, or
recovery; and a copy of any police report.
2.10  Returning Meters
    After a meter is delivered to a licensee, the meter must be kept in
the licensee's custody until returned to the authorized manufacturer or
licensing post office. A licensee with a faulty or misregistering meter
or no longer wanting to retain a meter must notify the meter
manufacturer's representative of any meter to be returned to the
licensing post office to be checked out of service. Meters must be
shipped by registered mail unless the manager of RSE, USPS
Headquarters, gives written permission to ship meters otherwise.
3.0  SETTING METERS

3.1  Initial Setting
    Before delivering a meter to the licensee, the meter manufacturer
must take the meter to be set, sealed (if applicable), and checked into
service by the post office where it is to be regularly set or examined,
unless the meter is serviced through the on-site meter-setting program
described in 3.5. The manufacturer must present the postal
representative with the meter and a completed Form 3601-C when checking
a meter into service.
3.2  Licensee Relocation
    If a licensee changes the post office where metered mail is to be
deposited, the meter must be checked out of service by the licensing
post office. That meter or another meter must be licensed at the new
post office before it is reset or initial settings are made. For this
standard, a post office includes all subordinate branches and stations
of the licensing post office.
3.3  Location of Setting
    Except under 3.4 or 3.5, meters must be set at the licensing post
office, not at contract stations or branches. Remote-set meters are
subject to 3.9 through 3.13 and related standards.
3.4  Alternative Meter Setting Location
    The postmaster serving a licensee's location may set a meter used
to pay postage on mail presented at another post office, subject to
these conditions:
    a. The licensee must obtain a meter license from the post office
where the mailing is to be deposited and must present the license to
the licensee's local post office with the meter for setting and Form
3602-A, if maintained (or its electronic equivalent).
    b. The postmark die must show the name of the post office of
mailing (licensing post office).
    c. A separate meter must be used for mailings made at each post
office.
    d. Mail matter sent to another post office for mailing must be
shipped on private transportation, to be deposited at the time and
place designated by the postmaster. Such matter may not be consigned to
the USPS in bulk by freight, express, or other carrier. The USPS has no
responsibility for the metered matter before it is accepted in the
mail.
    e. When a meter is no longer used, the licensee must return the
meter to the manufacturer's representative or licensing post office to
have it checked out of service.
3.5  On-Site Meter-Setting Program
    The on-site meter-setting program allows USPS employees to set or
examine meters at a licensee's place of business within the area served
by the licensing post office. Only the licensee's meters participating
in the program may be set or examined at that location. The program
also provides for checking meters into or out of service at the meter
manufacturer's branch offices, including meters set for use at another
post office. A fee is charged for each meter set, examined, or checked
into or out of service at a licensee's place of business or at a
manufacturer's office, unless a USPS employee (qualified to set meters)
is regularly assigned to that licensee's location for postal
administrative duties. The licensee must pay on-site setting or
examination fees (shown in R900) and postage by check or advance
deposit account at the time of the setting or examination.
3.6  Payment for Postage
    Payment must be made for postage when the meter is set. Payment may
be in cash or by check, money order, or withdrawal from an advance
deposit account established with the post office. (Advance deposit
accounts may be established when the licensee's monthly metered postage
is $500 or more.) Payment by check or advance deposit account is
subject to USPS standards and procedures.
3.7  Postage Transfers and Refunds
    Upon USPS verification, unused postage in a meter being checked out
of service may be transferred to another of the licensee's meters
licensed at the same post office, or the licensee may request a refund,
which may include a refund for unused meter stamps according to
applicable standards. The meter must be examined by the USPS before a
refund or credit is initiated for unused postage or additional postage
is collected, based on what is found. The licensee may also submit Form
3602-A, if maintained, or a system-generated register as supporting
documentation.
3.8  Postage Adjustments, Misregistering Meters
    To request a postage adjustment for a faulty or misregistering
meter, the [[Page 30726]] licensee must present to the manufacturer the
meter and the licensee's Form 3602-A, if maintained. After examining a
meter checked out of service for apparent faulty operation affecting
registration, the manufacturer must provide the licensing post office
with a report of the malfunction. The report must contain all
applicable meter documentation (including a copy of the licensee's Form
3602-A, if maintained, and the licensee's Form 3610 provided by the
USPS) and a recommendation about the appropriate postage adjustment. If
the electronic redundant memory data, as examined by the manufacturer,
is inconclusive about the appropriate postage adjustment, the
manufacturer must include an analysis of the licensee's recent mailing
history supporting the recommended postage adjustment. (In the absence
of a completed Form 3602-A, the licensee may submit some other reliable
evidence showing that a postage adjustment is warranted.) A licensee
may appeal a postage adjustment under 2.5.
3.9  Computerized Meter Resetting
    The Computerized Remote Postage Meter Resetting System (CMRS)
allows certain meters to be reset electronically at the licensee's
place of business. CMRS meters must be set at the licensee's place of
business, except under 3.11. Before delivering a meter to the licensee,
the manufacturer must take the meter and a completed Form 3601-C to the
licensing post office to have the meter checked into service, unless
the meter is initially checked into service at the manufacturer's
office under 3.5.
3.10  Postage Transfer for CMRS Meters
    No postage is set by the licensing post office unless a CMRS meter
is checked out of service and the unused postage in it is transferred
to another CMRS meter leased by the same licensee for use at the same
post office.
3.11  Periodic Examination of CMRS Meters
    CMRS meters must be reset or examined every 3 months. CMRS meters
set at least once every 3 months require examination by a USPS employee
only annually. The licensee must take a CMRS meter and applicable Form
3602-A, if maintained, to the licensing post office when notified by
the manufacturer of a required examination. A licensee who does not
comply with examination requirements may not reset meters via CMRS.
Failure to have a meter examined on notification can result in
revocation of the licensee's meter license.
3.12  Resetting CMRS Meters
    The following conditions must be met for resetting a CMRS meter:
    a. The licensee's account must have sufficient funds to cover the
desired postage increment, or the manufacturer must agree to advance
funds to the licensee. The licensee may deposit funds by check,
electronic funds, or automated clearinghouse transfer.
    b. The licensee must provide the manufacturer or designated meter
resetting company with the meter serial number, licensee's account
number, and the meter's ascending and descending registers.
    c. After a meter is reset, the manufacturer must provide the
licensee with documentation of the transaction and the balance
remaining in the licensee's account, unless the manufacturer provides a
monthly statement documenting all transactions for the period and the
balance after each transaction.
3.13  CMRS Refunds
    The USPS issues a refund to a licensee for any unused postage in a
meter. Refunds of licensee balances maintained by the USPS in the USPS
fund are made to the licensee by the USPS lockbox bank within 48 hours
after receipt of a licensee's request.

4.0  METER STAMPS

4.1  Designs
    Meter stamp designs (types, sizes, and styles) must be those
specified when a meter is approved by the USPS for manufacture (see
Exhibit 4.1).
* * * * *

6.0  METER MANUFACTURE AND DISTRIBUTION

    Title 39, Code of Federal Regulations, part 501, contains
information about the authorization to manufacture and distribute
meters; the suspension and revocation of such authorization;
performance standards required in meters, test plans, testing, and
approval of meters; required manufacturing security measures; and
standards for the distribution and maintenance of meters. Further
information may be obtained from Retail Systems and Equipment, USPS
Headquarters.

List of Subjects in 39 CFR Part 501

    Administrative practice and procedure, Postal Service.

    3. Add subchapter G, Postage Meters, consisting of part 501 to read
as set forth below:

PART 501--AUTHORIZATION TO MANUFACTURE AND DISTRIBUTE POSTAGE
METERS

Sec.
501.1  Manufacturer authorization.
501.2  Manufacturer qualification.
501.3  Changes in ownership or control.
501.4  Burden of proof standard.
501.5  Suspension and revocation of authorization.
501.6  Specifications.
501.7  Test plans.
501.8  Submission of each model.
501.9  Security testing.
501.10  Meter approval.
501.11  Conditions for approval.
501.12  Suspension and revocation of approval.
501.13  Reporting.
501.14  Administrative sanction on reporting.
501.15  Materials and workmanship.
501.16  Breakdown and endurance testing.
501.17  Protection of printing dies and keys.
501.18  Destruction of meter stamps.
501.19  Inspection of new and rebuilt meters.
501.20  Keys and setting equipment.
501.21  Distribution facilities.
501.22  Distribution controls.
501.23  Administrative sanction.
501.24  Meter replacement.
501.25  Inspection of meters in use.
501.26  Meters not located.
501.27  Repair of internal mechanism.
501.28  Computerized remote postage meter resetting.

    Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 410,
2601, 2605; Inspector General Act of 1978, as amended (Pub. L. 95-
452, as amended), 5 U.S.C. App. 3.

Sec. 501.1  Manufacturer authorization.

    Any person or concern seeking authorization to manufacture and
distribute postage meters must submit a request to the Postal Service
in person or in writing. Upon qualification and approval, the applicant
is authorized in writing to manufacture meters and to lease them to
persons licensed accordingly by the Postal Service. The Postal Service
may specify the functional area charged with processing the application
and administering its meter program.

Sec. 501.2  Manufacturer qualification.

    Any concern wanting authorization to manufacture and/or lease
postage meters for use by licensees under Domestic Mail Manual P030.1.2
must:
    (a) Satisfy the Postal Service of its integrity and financial
responsibility;
    (b) Obtain approval of at least one meter model incorporating all
the features and safeguards specified in Sec. 501.6;
    (c) Have, or establish, and keep under its supervision and control
adequate manufacturing facilities suitable to carry out the provisions
of Secs. 501.15 through [[Page 30727]] 501.20 to the satisfaction of
the Postal Service (such facilities must be subject to unannounced
inspection by representatives of the Postal Service); and
    (d) Have, or establish, and keep adequate facilities for the
control, distribution, and maintenance of meters and their replacement
when necessary.

Sec. 501.3  Changes in ownership or control.

    Any person or concern wanting to acquire ownership or control of an
authorized postage meter manufacturer must provide the Postal Service
with satisfactory evidence of that person's or concern's integrity and
financial responsibility.

Sec. 501.4  Burden of proof standard.

    The burden of proof is on the Postal Service in adjudications of
suspension and revocation under Secs. 501.5 and 501.12 and
administrative sanctions under Secs. 501.14 and 501.23. Except as
otherwise indicated in those sections, the standard of proof shall be
the preponderance-of-evidence standard.

Sec. 501.5  Suspension and revocation of authorization.

    (a) The Postal Service may suspend and/or revoke authorization to
manufacture and/or distribute any or all of a manufacturer's postage
meters if the manufacturer engages in any unlawful scheme or
enterprise, fails to comply with any provision in this part 501, or
fails to implement instructions issued in accordance with any final
decision issued by the Postal Service within its authority over the
meter program.
    (b) The decision to suspend or revoke a manufacturer's
authorization shall be based on the nature and circumstances of the
violation (whether the violation was willful, whether the manufacturer
voluntarily admitted to the violation, whether the manufacturer
cooperated with the Postal Service, whether the manufacturer
implemented successful remedial measures) and on the manufacturer's
performance history. Before determining whether a manufacturer's
authorization to manufacture and/or distribute meters should be
revoked, the procedures in paragraph (c) of this section shall be
followed.
    (c) Suspension in all cases shall be as follows:
    (1) Upon determination by the Postal Service that a manufacturer is
in violation of the provisions in this part 501, the Postal Service
shall issue a written notice of proposed suspension citing deficiencies
for which suspension of authorization to manufacture and/or distribute
a specific meter or class of meters may be imposed under paragraph
(c)(2) of this section. Except in cases of willful violation, the
manufacturer shall be given an opportunity to correct deficiencies and
achieve compliance with all requirements within a time limit
corresponding to the potential risk to postal revenue.
    (2) In cases of willful violation, or if the Postal Service
determines that the manufacturer has failed to correct cited
deficiencies within the specified time limit, the Postal Service shall
issue a written notice setting forth the facts and reasons for the
decision to suspend and the effective date if a written defense is not
presented as provided in paragraph (d) of this section.
    (3) If, upon consideration of the defense as provided in paragraph
(e) of this section, the Postal Service deems that the suspension is
warranted, the suspension shall remain in effect for up to 90 days
unless withdrawn by the Postal Service, as provided in paragraph
(c)(4)(iii) of this section.
    (4) At the end of the 90-day suspension, the Postal Service may:
    (i) Extend the suspension in order to allow more time for
investigation or to allow the manufacturer to correct the problem;
    (ii) Make a determination to revoke authorization to manufacture
and/or distribute the manufacturer's meters in part or in whole; or
    (iii) Withdraw the suspension based on identification and
implementation of a satisfactory solution to the problem. Manufacturer
suspensions may be withdrawn  before the end of the 90-day period if
the Postal Service determines that the manufacturer's solution and
implementation are satisfactory.
    (d) The manufacturer may present the Postal Service with a written
defense to any suspension or revocation determination within 30
calendar days of receiving the written notice (unless a shorter period
is deemed necessary). The defense must include all supporting evidence
and state with specificity the reasons for which the order should not
be imposed.
    (e) After receipt and consideration of the defense, the Postal
Service shall advise the manufacturer of the decision and the facts and
reasons for it. The decision shall be effective on receipt unless it
provides otherwise. The decision shall also advise the manufacturer
that it may appeal that determination within 30 calendar days of
receiving written notice (unless a shorter time frame is deemed
necessary), as specified therein. The appeal must include all
supporting evidence and state with specificity the reasons the
manufacturer believes that the decision is erroneous.
    (f) An order or final decision under this section does not preclude
any other criminal or civil statutory, common law, or administrative
remedy that is available by law to the Postal Service, the United
States, or any other person or concern.
Sec. 501.6  Specifications.

    Postage meters must incorporate all the following features and
safeguards:
    (a) A postage meter is the postage printing die and postage
registering mechanism of a mailing machine. It may be integral with the
mailing machine or separable. In either case, the licensee must be able
to take the meter to the post office for setting or examination.
    (b) A meter may be capable of printing one denomination of postage
and registering the number of such impressions made (single
denomination), or it may be capable of printing varying denominations
and registering either multiples of the smallest unit printed
(multidenomination) or the currency value of the impressions made
(omnidenomination). The printing die or dies, counters, and
counteractuating mechanism must be inseparable from the meter, except
by the manufacturer.
    (c) In each meter, there must be two accurate and dependable
counting devices: one ascending and registering the total imprinted,
the other descending and registering the unused postage balance. The
descending register must actuate a locking mechanism that prevents
further operation of the meter after the register descends to zero or
an amount less than the largest denomination printable in one
operation. In electronic meters, the locking device must prevent
printing if the amount to be printed reduces the descending register to
less than zero. The construction of the descending register must allow
the post office to set any amount of postage or number of impressions
within its capacity, prepaid by the licensee.
    (d) The entire meter must be encased in a substantial housing to
which unauthorized access cannot be gained without creating obvious
damage. The descending register must be accessible to the post office
by a door equipped with a suitable lock and with provision for a post
office seal. The requirement that accessibility to the descending
register be restricted does not apply to Computerized Remote Postage
Meter Resetting System electronic meters that have no access to the
descending register of the meter. Descending [[Page 30728]] registers
on this type of meter are reset electronically by coded input only. The
ascending register and all other components must be so shielded as not
to be accessible even when the door is open. The readings of both
registers must be easily obtainable at any time between operations, by
visibility through closed windows, by imprint on tape or card, or by a
combination of the two methods. The construction of the housing must
make it impossible to alter the readings of the ascending register
except by normal operation or impossible to gain access to the internal
components, except for setting the descending register under
Sec. 501.20(c), without mutilation.
    (e) The printing die must either conform in design to one already
in use or be approved by the Postal Service. The die must include the
serial number of the meter and identification of the manufacturer, and
the die must be so constructed or shielded that it is not practically
possible without proper registration in the ascending and descending
register to obtain imprints fraudulently. The die must be attached to
the meter in a manner (such as with breakoff screws) that it is not
practicable to remove or replace the die fraudulently.
    (f) The meter die must include a postmark to print the name of the
city and state from which mail is dispatched and the date of mailing,
except as specified by the Postal Service. Information that must appear
in the meter postmark and the location of that postmark must be as
specified by the Postal Service.
    (g) A meter may be designed to print a meter slogan or ad plate to
the left of, and next to, the postmark. The size and position of a
meter slogan or ad plate must not interfere with or obscure the meter
stamp or postmark, and it must be possible to install the plate easily
without exposing the meter stamp die. Plates must be made of suitable,
durable material that does not soften or disintegrate while in use.
Plates must be well-fitted and so securely fastened to the printing
mechanism that they do not become loose or detached or otherwise
interfere with proper operation of a meter.
    (h) The entire meter must be of sufficiently solid, substantial,
and dependable construction that protects the Postal Service amply
against loss of revenue from fraud, manipulation, misoperation, or
breakdown.
    (i) In addition to the features and safeguards above, electronic
meters must:
    (1) Have either nonvolatile ascending and descending registers or a
solid-state memory that stores the data for the ascending and
descending registers. Solid-state memories that rely on applied voltage
for memory retention must be powered by batteries with a minimum
support life of 5 years from the date of battery renewal with no
external power applied and with sufficient redundancy to be self-
checking.
    (2) Be able to display the amounts in both the ascending and the
descending registers (not necessarily at the same time).
    (3) Be able to display, free from accidental changes, the next
amount of postage to be printed.
    (4) Be resettable by Postal Service employees, preferably without
customized equipment.
    (5) Contain a fault-detection device for computational security
that automatically locks out the meter and prevents printing of
additional postage in the event of malfunction.
    (6) Meet Postal Service test specifications in United States Postal
Service Specification, Postage Meters, Electronic, Postal Service-M-942
(RDC). Persons wanting to manufacture electronic meters may obtain a
copy of this Postal Service test specification from Postal Service
Headquarters.
    (j) Auxiliary equipment required for the operation of the meters
must be part of the final production models submitted for Postal
Service approval. Failure of the auxiliary equipment, which could cause
malfunction in meter operation, is considered the same as a meter
failure.

Sec. 501.7  Test plans.

    To receive Postal Service approval, a postage meter must be tested.
Manufacturers of electronic meters must submit a detailed test plan to
the Postal Service for approval at least 60 days before conducting the
tests. The test plan must include tests that, if passed by a meter,
prove compliance by the meter with all postal requirements. The test
plan must list the parameters to be tested, test equipment, procedures,
test sample sizes, and test data formats. Also, the plan must include
detailed descriptions, specifications, design drawings, schematic
diagrams, and explanations of the purposes of all special test
equipment and nonstandard or noncommercial instrumentation.
Sec. 501.8  Submission of each model.

    Each meter model proposed for manufacture must be approved by the
Postal Service after testing at the manufacturer's expense. A
preliminary working model that meets the specifications in Sec. 501.6
may be submitted for tentative approval. No meter of any model may be
distributed or used for postage payment until a complete unit made to
production drawings and specifications is submitted, tested, and
approved, unless authorized for preliminary field testing.

Sec. 501.9  Security testing.

    The Postal Service reserves the right to require or conduct
additional examination and testing at any time, without cause, of any
meter submitted to the Postal Service for approval or approved by the
Postal Service for manufacture and distribution.

Sec. 501.10  Meter approval.

    As provided in Sec. 501.13, the manufacturer has a duty to report
security weaknesses to the Postal Service to ensure that each meter
model and every meter in service protects the Postal Service against
loss of revenue at all times. A grant of approval of a model does not
constitute an irrevocable determination that the Postal Service is
satisfied with the revenue-protection capabilities of the model. After
approval is granted to manufacture and distribute a meter, no change
affecting the basic features or safeguards of a meter may be made
except as authorized or ordered by the Postal Service in writing.

Sec. 501.11  Conditions for approval.

    (a) The Postal Service may require, and reserves future rights to
require, that production models of approved meters be deposited with
the Postal Service.
    (b) The manufacturer must provide copies of resetting and
inspection media to each licensing post office before distribution. The
contents of the media must explain how the meter is reset and describe
any special or unique features of the meter. The manufacturer must also
provide a training video for any new metering product that includes an
explanation of how the device is reset as well as recommended methods
for detecting evidence of tampering.
    (c) As a condition of approval, the manufacturer has a continuing
obligation to provide the Postal Service with copies of service manuals
and updates to setting instructions. The manufacturer must also
promptly provide Retail Systems and Equipment, Postal Service
Headquarters, with any additional documentation on request.
    (d) On request by the Postal Service, additional meters must be
submitted to the Postal Service for testing, at the expense of the
manufacturer. [[Page 30729]]

Sec. 501.12  Suspension and revocation of approval.

    (a) The Postal Service may suspend meter approval under Sec. 501.10
if the Postal Service has probable cause to believe that a
manufacturer's meter or class of meters poses an unreasonable risk to
postal revenue. Suspension of approval to manufacture or distribute a
meter or class of meters in whole or in part shall be based on the
potential risk to postal revenue. Before determining whether approval
of a meter or class of meters should be revoked, the procedures in
paragraph (b) of this section shall be followed.
    (b) Suspension in all cases shall be as follows:
    (1) Upon determination by the Postal Service that a meter poses an
unreasonable risk to postal revenue, the Postal Service shall issue a
written notice of proposed suspension citing deficiencies for which
suspension may be imposed under paragraph (b)(2) of this section. The
manufacturer shall be given an opportunity to correct deficiencies and
achieve compliance with all requirements within a time limit
corresponding to the potential risk to postal revenue.
    (2) If the Postal Service determines that the manufacturer has
failed to correct cited deficiencies within the specified time limit,
the Postal Service shall issue a written notice setting forth the facts
and reasons for the decision to suspend and the effective date if a
written defense is not presented as provided in paragraph (c) of this
section.
    (3) If, upon consideration of the defense as provided in paragraph
(d) of this section, the Postal Service deems that the suspension is
warranted, the suspension shall remain in effect for up to 90 days
unless withdrawn by the Postal Service, as provided in paragraph
(b)(4)(iii) of this section.
    (4) At the end of the 90-day suspension, the Postal Service may:
    (i) Extend the suspension in order to allow more time for
investigation or to allow the manufacturer to correct the problem;
    (ii) Make a determination to revoke the approval of the
manufacturer's meter or class of meters; or
    (iii) Withdraw the suspension based on identification and
implementation of a satisfactory solution to the problem. Manufacturer
suspensions may be withdrawn before the end of the 90-day period if the
Postal Service determines that the manufacturer's solution and
implementation are satisfactory.
    (c) The manufacturer may present the Postal Service with a written
defense to any suspension or revocation determination within 30
calendar days of receiving the written notice (unless a shorter period
is deemed necessary). The defense must include all supporting evidence
and state with specificity the reasons for which the order should not
be imposed.
    (d) After receipt and consideration of the written defense, the
Postal Service shall advise the manufacturer of the decision and the
facts and reasons for it. The decision shall be effective on receipt
unless it provides otherwise. The decision shall also advise the
manufacturer that it may appeal that determination within 30 calendar
days of receiving written notice (unless a shorter period is deemed
necessary), as specified therein. The appeal must include all
supporting evidence and state with specificity the reasons that the
manufacturer believes that the decision is erroneous.
    (e) An order or final decision under this section does not preclude
any other criminal or civil statutory, common law, or administrative
remedy that is available by law to the Postal Service, the United
States, or any other person or concern.

Sec. 501.13  Reporting.

    (a) For purposes of this section, ``manufacturer'' refers to the
authorized postage meter manufacturer in Sec. 501.1 and its foreign
affiliates, subsidiaries, assigns, dealers, independent dealers,
employees, and parent corporations.
    (b) Each authorized meter manufacturer in Sec. 501.1 must submit a
preliminary report to notify the Postal Service promptly (in no event
more than 21 calendar days of discovery or 21 calendar days from June
30, 1995) of the following:
    (1) All findings or results of any testing known to the
manufacturer concerning the security or revenue protection features,
capabilities, or failings of any meters sold, leased, or distributed by
the manufacturer that have been approved for sale, lease, or
distribution by the Postal Service or any foreign postal
administration; or have been submitted for approval by the manufacturer
to the Postal Service or other foreign postal administration(s).
    (2) All potential security weaknesses or methods of meter tampering
of the meters that the manufacturer distributes of which the
manufacturer knows or should know, and the meter or model subject to
each method. These potential security weaknesses include but are not
limited to suspected equipment defects, suspected abuse by a meter
licensee or manufacturer employee, suspected security breaches of the
Computerized Remote Postage Meter Resetting System, occurrences outside
normal performance, or any repeatable deviation from normal meter
performance (within the same model family and/or by the same licensee).
    (c) Within 45 days of the preliminary notification of the Postal
Service under Sec. 501.13(b), the manufacturer must submit a written
report to the Postal Service. The report must include the
circumstances, proposed investigative procedure, and the anticipated
completion date of the investigation. The manufacturer must also
provide periodic status reports to the Postal Service during subsequent
investigation and, on completion, must submit a summary of the
investigative findings.
    (d) The manufacturer must establish and adhere to timely and
efficient procedures for internal reporting of potential security
weaknesses. The manufacturer is required to submit a copy of internal
reporting procedures and instructions to the Postal Service for review.

Sec. 501.14  Administrative sanction on reporting.

    (a) Notwithstanding any act, admission, or omission by the Postal
Service before June 30, 1995, an authorized postage meter manufacturer
may be subject to an administrative sanction for failing to comply with
Sec. 501.13.
    (b) The Postal Service shall determine all costs and revenue losses
measured from the date that the manufacturer knew, or should have
known, of a potential security weakness, including, but not limited to,
administrative and investigative costs and documented revenue losses
that result from any meter for which the manufacturer failed to comply
with any provision in Sec. 501.13. The Postal Service shall recover any
and all such costs and losses (net of any amount collected by the
Postal Service from the licensees or meter users) with interest by
issuing a written notice to the manufacturer setting forth the facts
and reasons on which the determination to impose the sanction is based.
The notice shall advise the manufacturer of the date that the action
takes effect if a written defense is not presented within 30 calendar
days of receipt of the notice.
    (c) The manufacturer may present the Postal Service with a written
defense to the proposed action within 30 calendar days of receipt. The
defense must include all supporting evidence and state with specificity
the reasons for which the sanction should not be imposed.
    (d) After receipt and consideration of the defense, the Postal
Service shall [[Page 30730]] advise the manufacturer of the decision
and the facts and reasons for it; the decision shall be effective on
receipt unless it provides otherwise. The decision shall also advise
the manufacturer that it may, within 30 calendar days of receiving
written notice, appeal that determination as specified therein.
    (e) The manufacturer may submit a written appeal to the Postal
Service within 30 calendar days of receipt of the decision. The appeal
must include all supporting evidence and state with specificity the
reasons that the manufacturer believes that the administrative sanction
was erroneously imposed. The submission of an appeal stays the
effectiveness of the sanction.
    (f) The imposition of an administrative sanction under this section
does not preclude any other criminal or civil statutory, common law, or
administrative remedy that is available by law to the Postal Service,
the United States, or any other person or concern.

Sec. 501.15  Materials and workmanship.

    All meters must adhere to the quality in materials and workmanship
of the approved production model and must be manufactured with suitable
jigs, dies, tools, etc., to ensure proper maintenance and
interchangeability of parts.

Sec. 501.16  Breakdown and endurance testing.

    Each meter model proposed for manufacturing must pass without error
or breakdown the following described printing cycle endurance test,
which includes operation of the printing mechanism with proper
registration of the selected postage value in both the ascending and
descending registers. At reasonably frequent intervals, the
manufacturer must take meters at random from production and subject
them to breakdown tests to make certain that quality and performance
standards are maintained.
    (a) For meters that operate at 100 or more printing cycles per
minute--4 million cycles. For meters that operate at less than 100
printing cycles per minute (and cannot be used interchangeably on
power-base machines that operate at 100 or more printing cycles per
minute)--2 million cycles.
    (b) For multidenomination and omnidenomination meters, postage
value selection elements must be tested for one-half million
operations. A complete operation includes selection of a value and
return to zero.
    (c) Balance register lockout operation must be done at the start
of, at intervals during, and after the printing cycle test.

Sec. 501.17  Protection of printing dies and keys.

    During the process of fabricating parts and assembling postage
meters, the manufacturer must exercise due care to prevent loss or
theft of keys or of serially numbered postage-printing dies or
component parts (such as denomination-printing dies, or auxiliary power
supply and meter-setting equipment for electronic meters) that might be
used in some manner to defraud the Postal Service of revenue. All
serially numbered printing dies produced should be accounted for by
assembly into meters or by evidence of mutilation or destruction.
Postage printing dies removed from meters and not suitable for
reassembly must also be mutilated so that the dies cannot be used or
they must be completely destroyed.

Sec. 501.18  Destruction of meter stamps.

    All meter stamps printed in the process of testing dies or meters
must be collected and destroyed daily.

Sec. 501.19  Inspection of new and rebuilt meters.

    All new and rebuilt meters must be inspected carefully before
leaving the manufacturer's meter service station.
Sec. 501.20  Keys and setting equipment.

    The meter manufacturer must furnish keys and other essential
equipment for setting the meters to all post offices under whose
jurisdiction its meters are licensed for use. These items must be
protected and must not be furnished to persons not authorized by the
Postal Service to possess them. The Postal Service shall maintain
control over the procurement, manufacture, and distribution of meter
security seals. Manufacturers must reimburse the Postal Service
promptly for the cost of the seals. All costs associated with meter
security seals are apportioned twice annually to the meter
manufacturers by the installed base of each manufacturer.

Sec. 501.21  Distribution facilities.

    Authorized manufacturers must keep adequate facilities for and
records of the distribution, control, and maintenance of postage
meters. All such facilities and records are subject to inspection by
Postal Service representatives.

Sec. 501.22  Distribution controls.

    Each authorized postage meter manufacturer must do the following:
    (a) Hold title permanently to all meters of its manufacture except
those purchased by the Postal Service.
    (b) On behalf of applicants, transmit electronically copies of
completed PS Forms 3601-A, Application for a License to Lease and Use
Postage Meters, to the designated Postal Service central processing
facility.
    (c) Lease meters only to parties that have valid licenses issued by
the Postal Service.
    (d) Supply only those meter slogan or ad plates that meet the
Postal Service requirements for suitable quality and content.
    (e) (1) Have all meters set, sealed (if applicable), and checked
into service by the appropriate Postal Service representative before
delivering them to licensees. Meters must be checked into service at
the licensing post office, unless the meter is serviced under the on-
site meter-setting program.
    (2) The meter manufacturer must present the meter and a completed
PS Form 3601-C, Postage Meter Installation, Withdrawal, or Replacement,
to the appropriate Postal Service representative when checking a meter
into service.
    (3) A meter should show a zero in the descending register before
being checked into service. If a zero is not shown, the initial payment
must include the residual amount the locked-out meter could not
imprint.
    (f) Notify Computerized Remote Postage Meter Resetting System
licensees of the dates on which meter examinations are due, and notify
the licensing post offices of CMRS meters that have not been reset
during the previous 3 months and/or are due for an annual examination.
Resetting transactions must not be completed by the manufacturer if the
meters are not taken to the post office for examination by the due
date. Licensees who do not bring in their meters after the initial
manufacturer notification must be approached again within 15 days,
preferably by personal contact. If a response is not received within
another 15 days, the Postal Service shall notify the licensee that the
meter is to be removed from service and the meter license revoked,
following the procedures for revocation specified by regulation. The
Postal Service shall notify the manufacturer to remove the meter from
the licensee's location and present it to the licensing post office to
be checked out of service within 15 days.
    (g) Present meters to the licensing post office to be checked out
of service if the licensee no longer wants the meter or if the meter is
to be removed from [[Page 30731]] service for any other reason. Take
the meter to the licensing post office for withdrawal, with a completed
PS Form 3601-C, Postage Meter Installation, Withdrawal, or Replacement,
and copy of the applicable PS Form 3602-A, Record of Meter Register
Readings, or equivalent.
    (h) Retrieve any misregistering, faulty, or defective meter and
present it to the licensing post office to have the meter checked out
of service within 3 business days of being notified by the licensee of
the defect. After examining a meter withdrawn for apparent faulty
operation affecting registration, the manufacturer must furnish a
report explaining the malfunction to the licensing post office. That
report must include all applicable meter documentation and a
recommendation for the appropriate postage adjustment, if applicable,
as follows:
    (1) Mechanical meters. The manufacturer's postage adjustment
recommendation for a misregistering mechanical meter must be
accompanied by a refund request; a copy of the licensee's PS Form 3610,
Record of Postage Meter Settings, and PS Form 3602-A, Record of Meter
Register Readings, or equivalent, and the manufacturer's analysis of
the licensee's recent mailing history supporting the recommended
postage adjustment.
    (2) Electronic meters. The manufacturer's postage adjustment
recommendation for a misregistering electronic meter must be
accompanied by a manufacturer-generated summary report of the
appropriate redundant electronic register memory readouts for the
meter, clearly indicating the register readings; a letter of
instruction explaining the summary report; a copy of the licensee's PS
Form 3610, PS Form 3602-A, if maintained, and applicable system-
generated register documentation (if maintained in lieu of PS Form
3602-A); and an explanation of the meter malfunction that resulted in
inaccurate registration, if determined. If a summary report of the
appropriate redundant electronic register memory readouts cannot be
retrieved, the manufacturer's recommendation must be accompanied by a
refund request; a copy of the licensee's PS Form 3610, PS Form 3602-A,
and applicable system-generated register documentation (if the PS Form
3602-A is not maintained); and the manufacturer's analysis of the
licensee's recent mailing history supporting the recommended postage
adjustment.
    (i) Report promptly the loss or theft of any meter or the recovery
of any lost or stolen meter. The manufacturer must provide notification
by the Postal Service with completing a standardized lost and stolen
meter incident report notifying within 30 calendar days of the
manufacturer's determination of a meter loss, theft, or recovery. The
manufacturer must complete all preliminary location activities
specified in Sec. 501.26 before submitting this report to the Postal
Service.
    (j) Provide the designated Postal Service Information Systems
Service Center (ISSC) with a compatible computer magnetic tape,
computer diskette, or electronic transmission, listing all licensee
meters in service, at the close of business each postal quarter.
Include in each file record the meter serial number, model number, the
user's name and address, the date that the meter was placed in service,
and the ZIP Code or finance number of the licensing post office.
Manufacturers are responsible for reconciling differences and keeping
accurate records. This reporting includes reconciliation of differences
with licensing post offices by the manufacturer's branches or dealers,
which results from meters that are not in Postal Service or
manufacturer records.
    (k) Keep at manufacturer's headquarters a complete record by serial
number of all meters manufactured, showing all movements of each from
the time that the meter is produced until it is scrapped, and the
reading of the ascending register each time the meter is checked into
or out of service through a post office. These records must be
available for inspection by Postal Service officials at any time during
business hours. These records must be destroyed 3 years after the meter
is scrapped.
    (l) Cancel a lease agreement with any lessee whose meter license is
revoked by the Postal Service, remove the meter within 15 calendar
days, and have the meter checked out of service.
    (m) Promptly remove from service any meter that the Postal Service
indicates should be removed from service. When a meter license is
canceled, all meters in use by the licensee must be removed from
service.
    (n) Keep a permanent record by serial number of all meter keys
issued to postmasters, as well as those sections of the manufacturer's
establishment in which their use of the keys is essential, preferably
in the form of signed receipt cards. The record must include the date,
location, and details of any loss, theft, or recovery of such keys.
    (o) Examine each meter withdrawn from service for failure to record
its operations correctly and accurately, and report to the Postal
Service the mechanical condition or fault that caused the failure.
    (p) Provide monthly the designated ISSC with a compatible computer
tape of lost or stolen meters. The file is due on the first of each
month (for the preceding month's activity).
    (q) Take reasonable precautions in the transportation and storage
of meters to prevent use by unauthorized individuals. Manufacturers
must ship all meters by Postal Service registered mail unless given
written permission by the Postal Service to use another carrier. The
manufacturer must demonstrate that the alternative delivery carrier
employs security procedures equivalent to those for registered mail.
    (r) Affix to all meters both a cautionary label providing the meter
user with basic reminders on leasing, meter movement, and misuse and a
barcoded label containing a barcoded representation of the meter serial
number.
    (1) The cautionary label must be placed on all meters in a
conspicuous and highly visible location. Words printed in capital
letters should be emphasized, preferably printed in red. The minimum
width of the label should be 3.25 inches, and the minimum height should
be 1.75 inches. The label should read as follows:
-----------------------------------------------------------------------

POSTAL SERVICE
RENTED POSTAGE MEMBER--NOT FOR SALE

PROPERTY OF [NAME OF MANUFACTURER]

Use of this meter is permissible only under U.S. Postal Service
license. Call [Name of Manufacturer] at (800) ###-#### to relocate/
return this meter.

WARNING! METER TAMPERING IS A FEDERAL OFFENSE.

IF YOU SUSPECT METER TAMPERING,

CALL POSTAL INSPECTORS AT 1-800-654-8896 OR (202) 484-5480.

REWARD UP TO $50,000 for information leading to the conviction of
any person who misuses postage meters resulting in the Postal
Service not receiving correct postage payments.
-----------------------------------------------------------------------

POSTAL SERVICE
    (2) The barcode label must be placed near the stamped serial number
and must meet these specifications: Code 3 of 9, ten digits long, with
the first two digits being the manufacturer code (01--Ascom Hasler,
02--Pitney Bowes, 03--Francotyp-Postalia, 04--Friden Neopost) and the
next eight digits being the meter serial number, zero-filled, right-
justified. Additional barcode digits may be used for manufacturer
purposes if the Postal Service is notified of the information to be
encoded thereby. [[Page 30732]]
    (3) Exceptions to the formatting of required labeling are
determined on a case-by-case basis. Any deviation from standardized
meter labeling requirements must be approved in writing by the Postal
Service.

Sec. 501.23  Administrative sanction.

    (a) ``Meter'' for purposes of this section means any postage meter
manufactured by an authorized postage meter manufacturer under
Sec. 501.1 that is not owned or leased by the Postal Service.
    (b) An authorized manufacturer that, without just cause, fails to
conduct or perform adequately any of the controls in Sec. 501.22, to
follow standardized lost and stolen meter incident reporting in
Sec. 501.26, or to conduct any of the inspections required by
Sec. 501.25 in a timely fashion is subject to an administrative
sanction based on the investigative and administrative costs and
documented revenue losses (net of any amount collected by the Postal
Service from the licensee or meter user) with interest per occurrence
measured from the date on which the cost and/or loss occurred, as
determined by the Postal Service. Sanctions shall be based on the costs
and revenue losses that result from the manufacturer's failure to
comply with these requirements.
    (c) The Postal Service may impose an administrative sanction under
this section by issuing a written notice to the manufacturer setting
forth the facts and reasons on which the determination to impose the
sanction is based. The Postal Service shall determine all costs and
losses. The notice shall advise the manufacturer of the date that the
action shall take effect if a written defense is not presented within
30 calendar days of receipt of the notice.
    (d) The manufacturer may present to the Postal Service a written
defense to the proposed action within 30 calendar days of receipt of
the notice. The defense must include all supporting evidence and state
with specificity the reasons for which the sanction should not be
imposed.
    (e) After receipt and consideration of the written defense, the
Postal Service shall advise the manufacturer of the decision and the
facts and reasons for it. The decision shall be effective on receipt
unless it provides otherwise.
    (f) The manufacturer may submit a written appeal of the decision
within 30 calendar days of receiving the decision, addressed to the
manager of Retail and Customer Service, Postal Service Headquarters.
The appeal must include all supporting evidence and state with
specificity the reasons that the manufacturer believes that the
administrative sanction was erroneously imposed. The submission of an
appeal stays the effectiveness of the sanction.
    (g) The imposition of an administrative sanction under this section
does not preclude any other criminal or civil statutory, common law, or
administrative remedy that is available by law to the Postal Service,
the United States, or any other person or concern.

Sec. 501.24  Meter replacement.

    The manufacturer must keep its postage meters in proper operating
condition for licensees by replacing them when necessary or desirable
to prevent mechanical breakdown.

Sec. 501.25  Inspection of meters in use.

    (a) The manufacturer must have all its meters in service with
licensees inspected according to the following schedule. A high-volume
mailer is defined as one who has annual metered postage in excess of
$12,000.

BILLING CODE 7710-12-P
<GRAPHIC><TIFF>TR09JN95.008

BILLING CODE 7710-12-C

    (b) Manufacturer inspections must be sufficiently thorough to
determine that each meter is clean, in proper operating condition, and
recording its operations correctly and accurately. The manufacturers
must:
    (1) Compare the meter serial number on the meter with the serial
number on the source document (manufacturer's records).
    (2) Record the ascending and descending register readings and
calculate the total readings. Record the locking-seal identification
number.
    (3) Obtain the licensee's PS Form 3602-A, Record of Meter Register
Readings, or equivalent, and a copy of the most recent PS Form 3603,
Receipt for Postage Meter Setting, and verify the control total after
the last setting with the control total calculated during the proof-of-
register procedure.
    (4) Verify the accuracy of postage selection, denomination
indicator wheels or electronic display, and denomination printing
wheels following the proof of registers by printing a .00 meter stamp
and then comparing the register readings with the recorded register
readings.
    (5) Check to determine that the post office locking seal is in
place and properly sealed and that the seal wire is properly wound and
tightly gripped by the seal-locking mechanism, and tightly pulled up to
the lock cover or post. Ensure that the locking-seal identification
number matches the seal number recorded at the time of the last meter
resetting.
    (6) Check to determine that the lock cover properly protects the
lock and has not been loosened, bent, or tampered with.
    (7) Complete the following, as applicable to the specific meter
model:
    (i) Check to ensure that the meter fits properly on the meter base.
    (ii) Check all breakoff screws to determine that no screw is
missing or loose or shows signs of removal.
    (iii) Operate the dater and meter ad selector dials to test the
dater, postmark die, and meter ad plate.
    (iv) Check the alignment and condition of engraving on the
denomination printing wheels, when visible.
    (v) Check the descending register door for damage, pry marks, or
scarring. [[Page 30733]] Make certain that the door cannot be opened
without unlocking it.
    (vi) Examine the meter drum for damage, pry marks, or scarring.
    (vii) Examine the meter cover for pry marks or scarring near the
post office lock or breakoff screws, any drilled holes, or any signs of
attempted entry into the internal mechanism of the meter.
    (viii) Examine the meter stamp die for excessive wear, damage,
breakage, or scars from prying, and the postage die retaining screws
for signs of wear to ensure that none is missing or shows signs of
removal.
    (ix) Check the register, counter, and display windows for breakage
or cloudiness.
    (x) Obtain the signature of the licensee to show that a meter
inspection has taken place.
    (8) Report immediately to the licensee's licensing postmaster any
irregularity in the operation of the meter or sign of improper use, and
take steps to replace or remove the meter.

Sec. 501.26  Meters not located.

    Upon learning that one or more of its postage meters in service
cannot be located, the manufacturer must undertake reasonable efforts
to locate the meters by following a series of Postal Service-specified
actions designed to locate the meters. If these efforts are
unsuccessful and a meter is determined to be lost or stolen, the
manufacturer must notify the Postal Service within 30 days by
submitting a Lost and Stolen Meter Incident Report.
    (a) If a licensee cannot be located, the manufacturer must, at a
minimum, complete the following actions:
    (1) Call the licensee's last known telephone number.
    (2) Call directory assistance for the licensee's new telephone
number.
    (3) Contact the licensee's local post office for current change of
address information.
    (4) Contact the local post office for a copy of the applicable PS
Form 3610 and PS Form 3601-C. Verify the location of the meter or
licensee currently maintained in those meter records.
    (5) Contact the rental agency responsible for the property where
the licensee was located, if applicable.
    (6) Visit the licensee's last known address to see whether the
building superintendent or a neighbor knows the meter licensee's new
address.
    (7) Check the centralized meter inspection file for change of
address notation.
    (8) Mail a certified letter with return receipt to the licensee at
the last known address with the notation ``Forwarding and Address
Correction Requested.''
    (9) If new address information is obtained during these steps, any
scheduled meter inspections must be completed promptly.
    (b) If a meter is reported to be lost or stolen by the licensee,
the manufacturer must, at a minimum, complete the following actions:
    (1) Ensure that the meter licensee has filed a police report and
that copies have been provided to the appropriate Inspection Service
Contraband Postage Identification Program (CPIP) specialist.
    (2) Withhold issuance of a replacement meter until the missing
meter has been properly reported to the police and to the appropriate
Inspection Service CPIP specialist.
    (c) If the manufacturer later learns that the meter has been
located and/or recovered, the manufacturer must update lost and stolen
meter activity records, inspect the meter promptly, initiate a postage
adjustment or transfer if appropriate, and check the meter out of
service if a replacement meter has been supplied to the meter licensee.
    (d) If a meter reported to the Postal Service as lost or stolen is
later located, the manufacturer is responsible for submitting a new
Lost and Stolen Meter Incident Report that references the initial
report and outlines the details of how the meter was recovered. This
report must be submitted to the Postal Service within 30 days of
recovery of the meter. The meter manufacturer is also responsible for
purging lost and stolen meter reports that are provided on a periodic
basis to the Postal Service ISSC for those meters that have been
recovered.
    (e) Any authorized manufacturer that fails to comply with
standardized lost and stolen reporting procedures and instructions is
subject to an administrative sanction under Sec. 501.23, as determined
by the Postal Service.

Sec. 501.27  Repair of internal mechanism.

    Repair or reconditioning of meters involving access to internal
mechanisms must be done only within a factory or suitable meter repair
department under the manufacturer's direct control and supervision.
Meters must be checked out of service by the post office of setting
before they are opened or internal repairs are undertaken.

Sec. 501.28  Computerized remote postage meter resetting.

    (a) Description. The Computerized Remote Postage Meter Resetting
System (CMRS) permits postal licensees using specially designed postage
meters to reset their meters at their places of business via telephonic
communications. Authorized meter manufacturers that offer CMRS services
are known as meter resetting companies (MRCs). To reset a meter, the
licensee telephones the MRC and provides identifying data. Before
proceeding with the setting transaction, the MRC must verify the data
and ascertain from its own files whether the licensee has sufficient
funds on deposit with the Postal Service. If the funds are available or
the manufacturer opts to provide a funds advance in accordance with
paragraph (b)(5) of this section, the MRC may complete the setting
transaction.
    (b) Deposits with the Postal Service. (1) Deposits in the Postal
Service Fund at Treasury are backed in full faith and credit by the U.
S. Treasury.
    (2) A CMRS licensee is required to have funds available on deposit
with the Postal Service before resetting a meter or the manufacturer
may opt to provide a funds advance in accordance with paragraph (b)(4)
of this section. The details of this deposit requirement are covered
within the Acknowledgment of Deposit Requirement document. By signing
this document, the licensee agrees to transfer funds to the Postal
Service through a lockbox bank, as specified by the MRC, for the
purpose of prepayment of postage. The MRC representative must provide
all new CMRS licensees with this document when a new account is
established. The document must be completed and signed by the licensee
and sent to the licensing post office by the MRC.
    (3) The MRC is required to incorporate the following language into
its meter rental agreements:

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

Acknowledgment of Deposit Requirement

By signing this meter rental agreement, you represent that you have
read the Acknowledgment of Deposit Requirement and are familiar with
its terms. You agree that, upon execution of this Agreement with
[the MRC], you will also be bound by all terms and conditions of the
Acknowledgment of Deposit Requirement, as it may be amended from
time to time.

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

    (4) The licensee is permitted to make deposits in one of three
ways: check, electronic funds transfer (or wire transfer), or automated
clearinghouse (ACH) transfer. These deposits are to be processed by the
lockbox bank. The lockbox bank must wire daily all available balances
to the Postal Service.
    (5) If the MRC chooses to offer advancement of funds to licensees,
the MRC is required to maintain a deposit with the Postal Service equal
to at least 1 day's average funds advanced. The total amount of funds
advanced to [[Page 30734]] licensees on any given day may not exceed
the amount the manufacturer has on deposit with the Postal Service. The
MRC is not authorized to perform settings in excess of the licensee's
balance in any other circumstance. The Postal Service shall not be
liable for any payment made by the MRC on behalf of a licensee that is
not reimbursed by the licensee because the MRC is solely responsible
for the collection of advances.
    (c) Revenue protection. The Postal Service shall conduct periodic
assessments of the revenue protection safeguards of each MRC system and
shall reserve the right to revoke an MRC's authorization if the CMRS
system does not meet all requirements set forth by the Postal Service.
In addition, the Postal Service shall reserve the right to suspend the
operation of the MRC for any serious operational deficiency that is
likely to result in the loss of funds to the Postal Service as provided
in Sec. 501.12.
    (d) Equipment. The meters used in the computerized resetting system
must conform to the specifications in Sec. 501.6. They must be tested
under Sec. 501.7 and conform to the safeguards, distribution, and
maintenance requirements of Secs. 501.15 through 501.23 to protect the
Postal Service against loss of revenue from fraud, manipulation,
misoperation, or breakdown.
    (e) Financial operation. (1) Before the Postal Service's selection
of a lockbox provider, the MRC must establish a lockbox account in the
name of the Postal Service at a bank or banks approved by the Postal
Service to handle the deposits of licensees. The MRC must make
arrangements with such banks under which the banks are to inform the
manufacturer of the amounts of licensee funds received each banking
day.
    (2) The Postal Service lockbox bank processes the CMRS deposits
daily, consolidates the data, and performs a direct file transmission
to each MRC. The daily deposit processing cutoff times and the
automated file transmission times are coordinated independently with
each of the MRCs. Manufacturers must ensure that their data center
computers are programmed to reflect each licensee deposit and track all
licensee activity.
    (3) The MRC must require each licensee that requests meter
resetting to provide the meter serial number, the licensee account
number, and the meter's ascending and descending register readings. The
manufacturer must verify that the information provided to the licensee
is consistent with its records. The MRC must also verify that there are
sufficient funds in the licensee's account to cover the postage setting
requested before proceeding with the setting transaction (unless the
manufacturer opts to provide the licensee a funds advance). Immediately
following each such resetting, the MRC must charge the licensee's
account for the amount of the postage reset. After the completion of
each transaction, the manufacturer must promptly provide the licensee
with a statement documenting the transaction and the balance remaining
in the licensee's account. As an alternative, the manufacturer may
provide a statement monthly that documents all transactions for the
period and that shows the balance in the licensee's account after each
transaction.
    (4) Each banking day, the lockbox bank is to transfer, by 10 a.m.
local time, amounts payable to the Postal Service from the transactions
during the previous day to a designated Federal Reserve Bank. The MRC
must maintain licensee service activity data to accept and respond to
inquiries from licensees concerning the status of their payments. The
lockbox bank must provide the MRCs with a nationwide, toll-free
telephone number for licensee service. The Postal Service lockbox bank
must assign a dedicated senior level licensee service representative to
handle all inquiries and investigations.
    (5) The Postal Service requires that the MRCs publicize to all CMRS
licensees the following payment options (listed in order of
preference):
    (i) Automated clearinghouse (ACH) debits/credits.
    (ii) Electronic funds transfers (wire transfers).
    (iii) Checks.
    (6) Licensee check deposits must be mailed to a predetermined post
office box address specified by the lockbox bank and accompanied by a
preencoded deposit ticket. The Postal Service provides CMRS customers
with deposit tickets for inclusion with check payments. At the time a
new account is opened, a licensee not possessing a preencoded deposit
slip must present the initial payment to the MRC representative who in
turn assigns the licensee a new account number and manually prepares a
deposit ticket to be mailed to the lockbox bank for processing.
    (7) If a licensee prefers to use a payment form other than a check,
the licensee must contact the MRC representative for instructions, and
the MRC must provide the licensee with the appropriate information
regarding the use of ACH debits/credits and electronic funds transfers
(wire transfers).
    (8) Returned checks and ACH debits are the responsibility of the
Postal Service. In the case of a returned check, the Postal Service
lockbox bank, after an automatic second presentment, advises the MRC of
the account in question so that the MRC data file can be locked. The
MRC must lock the licensee account immediately so that the licensee is
unable to reset the meter until the Postal Service receives payment in
full for the check returned. The lockbox bank provides collection
services for returned checks on behalf of the Postal Service. The
Postal Service lockbox bank notifies the MRC once this item is paid.
The MRC then releases the account for activity.
    (f) Refunds. The Postal Service issues a refund to a licensee for
any unused postage in a meter. Refunds of licensee balances maintained
by the Postal Service in the Postal Service fund are intended to be
made directly to the licensee by the lockbox bank within 48 hours after
receipt of a licensee's request.
    (g) Reports. The manufacturer must provide reports according to the
following schedule:

 [[Page 30735]]
------------------------------------------------------------------------
Report
description       Content           Frequency        Medium
------------------------------------------------------------------------
MRC CMRS Daily    Summary of        Daily..........  Paper (facsimile).
 Activity Report.  Business
                   Activity.
Revenue           ZIP Code of       Postal           Electronic.
 Allocation        Licensing Post    Accounting
 Report.           Office; Amount    Period.
                   of Resettings.
Postage Refunds   Customer ID; ZIP  Daily (by
 Report.           Code; Amount of   request only).  Paper.
                   Refund.
Funds Advanced    Customer ID; ZIP  Daily (by
 Report.           Code; Amount of   request only).  Paper.
                   Funds Advanced.
------------------------------------------------------------------------

  (h) Inspection of records and facilities. The manufacturer must
make its facilities that handle the operation of the computerized
resetting system and all records about the operation of the system
available for inspection by representatives of the Postal Service at
all reasonable times.
Stanley F. Mires,
Chief Counsel, Legislative.

    Note: The following report and Postal Service forms are
published for information only and will not be codified in the Code
of Federal Regulations.

BILLING CODE 7710-12-P

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[FR Doc. 95-14137 Filed 6-8-95; 8:45 am]
BILLING CODE 7710-12-C