61564 Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 

DEPARTMENT OF THE TREASURY

Fiscal Service 

31 CFR Part 240

RIN 1510–AA99

Indorsement and Payment of Checks 

Drawn on the United States Treasury

AGENCY: Financial Management Service, 

Fiscal Service, Treasury.

ACTION: Interim rule with request for 

comment. 

SUMMARY: The Financial Management 

Service (FMS) is publishing for 

comment an interim rule amending 31 

CFR part 240 (part 240) in order to 

permit financial institutions to present 

Treasury checks for payment by 

providing an electronic image of the 

check in lieu of a paper check. The rule 

establishes the procedures that the U.S. 

Department of the Treasury (Treasury) 

will follow to invoke an indemnity 

arising under the Check Clearing for the 

21st Century Act for a breach of 

warranty or in situations in which the 

receipt of a substitute Treasury check 

rather than the original check results in 

a loss to the Federal Government. The 

rule also establishes a similar indemnity 

and procedures when an electronic 

image of a Treasury check is utilized. In 

addition, the rule requires that financial 

institutions that create substitute 

Treasury checks or electronic images of 

Treasury checks prevent unauthorized 

access to the underlying paper checks 

until they are destroyed.

DATES: Effective Date: This rule is 

effective October 28, 2004. 

Comment Date: Comments on the 

interim rule are due on or before 

January 18, 2005.

ADDRESSES: You can download the 

interim rule at the following World 

Wide Web address: http://

www.fms.treas.gov/checkclaims/

regulations.html. You may also inspect 

and copy the interim rule at: Treasury 

Department Library, Freedom of 

Information Act (FOIA) Collection, 

Room 1318, Main Treasury Building, 

1500 Pennsylvania Avenue, NW., 

Washington, DC 20220. Before visiting, 

you must call (202) 622–0990 for an 

appointment. 

You may submit comments on the 

interim rule by any of the following 

methods: Government-wide rulemaking 

Web site: Go to http://

www.regulations.gov and follow the 

instructions for sending your comments 

electronically. FMS Web site: Go to 

http://www.fms.treas.gov/checkclaims/

regulations.html and follow the 

instructions for sending your comments 

electronically. Email: You may email 

your comments to 

check21@fms.treas.gov. Mail: You may 

mail your comments to FMS, 3700 East 

West Highway, Attention: Ronald 

Brooks, Room 725–D, Hyattsville, MD 

20782.

FOR FURTHER INFORMATION CONTACT:

Ronald Brooks, Senior Program Analyst, 

at 202 874–7573 or 

ronald.brooks@fms.treas.gov; Natalie H. 

Diana, Senior Counsel, at 202 874–6680 

or natalie.diana@fms.treas.gov; or 

William Erle, Attorney-Advisor, at 202 

874–6975 or william.erle@fms.treas.gov.

SUPPLEMENTARY INFORMATION: 

Background 

On October 28, 2003, Congress 

enacted the Check Clearing for the 21st 

Century Act, 12 U.S.C. 5001–5018, 

applicable portions of which take effect 

on October 28, 2004 (Check 21 Act). The 

Check 21 Act creates a new negotiable 

instrument called a substitute check, 

which is a paper reproduction of an 

original check that contains an image of 

the front and back of the original check 

and is suitable for automated processing 

in the same manner as the original 

check. Under the Check 21 Act, a 

substitute check is the legal equivalent 

of the original check for all purposes 

and all persons. When the Check 21 Act 

takes effect, financial institutions will 

be able to present substitute checks to 

Treasury for payment in lieu of original 

Treasury checks. Although the Check 21 

Act obviates the need for physical 

transfer of original checks, it does not 

make electronic check images legally 

equivalent to original checks. Thus, 

financial institutions will not be able to 

exchange checks electronically and 

eliminate the physical presentment of 

paper items except where they have an 

agreement with the paying bank to do 

so. 

FMS strongly supports the underlying 

goal of the Check 21 Act, which is to 

modernize the U.S. payments system by 

facilitating the electronic exchange of 

images for presentment. FMS believes 

that giving financial institutions the 

option of presenting for payment an 

electronic image of a Treasury check 

rather than the original check or a 

substitute check will enhance the 

efficiency of processing Treasury 

checks. FMS therefore is creating in the 

interim rule a legal framework to 

support the presentment of electronic 

images of Treasury checks without the 

need for subsequent delivery of original 

or substitute checks. The interim rule 

does not require electronic image 

presentment of Treasury checks, but 

makes this option possible for those 

financial institutions that wish to 

present Treasury checks in this manner. 

The interim rule establishes the rights 

and obligations of financial institutions 

that present electronic images to 

Treasury. The legal framework 

established by the rule mirrors the terms 

and conditions established by the Check 

21 Act pursuant to which substitute 

checks are treated as the legal 

equivalent of original checks, and 

follows the Check 21 Act’s general 

principles. For example, the interim 

rule is structured so that a loss 

associated with an electronic image will 

be borne by the financial institution that 

created the image, in keeping with the 

Check 21 Act principle that a loss 

associated with a substitute check is to 

borne by the party that caused the 

problem with the substitute check. 

In contrast to the Check 21 Act, which 

establishes the legal equivalence of 

substitute checks for all persons and all 

purposes, the interim rule establishes 

the legal equivalence of electronic 

checks only as between Treasury and a 

financial institution that presents an 

electronic image of a Treasury check to 

Treasury for payment. The rule does not 

create for financial institutions the right 

to transfer, return or present an 

electronic image of a Treasury check to 

any other person. 

In addition to establishing a 

framework for the presentment of 

electronic images of Treasury checks, 

the interim rule also establishes certain 

procedures relating to the processing of 

substitute Treasury checks created 

pursuant to the Check 21 Act. Under the 

Check 21 Act, a financial institution that 

for consideration transfers, presents or 

returns a substitute check makes certain 

warranties and indemnities with respect 

to the check. The interim rule sets forth 

the procedures that Treasury will follow 

if there is a breach of one of these 

warranties, as well as the procedures 

that apply if the Federal government 

incurs a loss due to the receipt of the 

substitute check rather than the original 

check. 

Finally, the interim rule requires that 

a financial institution that creates a 

substitute Treasury check or electronic 

image of a Treasury check prevent 

unauthorized access to the paper check 

that was truncated if the financial 

institution chooses to retain the check 

rather than to destroy it. The interim 

rule does not dictate the destruction of 

Treasury checks that are truncated, or 

otherwise limit or curtail the discretion 

afforded to banks under the Check 21 

Act to destroy or retain original 

Treasury checks. However, in light of 

the important public interest in 

Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 61565

ensuring that information on Treasury 

checks is not used for fraudulent 

purposes, the rule provides that checks 

that are truncated and retained must be 

stored in a manner consistent with 

federal banking agency guidelines for 

safeguarding customer information. 

FMS specifically requests comment 

on whether this provision of the interim 

rule is necessary. For example, if 

financial institutions expect to routinely 

apply their existing customer 

information security procedures to all 

truncated checks, then a safekeeping 

provision specific to truncated Treasury 

checks may be unnecessary. In addition, 

FMS requests comment on whether this 

requirement will be burdensome for 

financial institutions, or in any way 

interfere with or add costs to the 

creation of substitute checks. 

FMS also requests comment on 

whether, in addition to requiring the 

physical safekeeping of truncated 

checks, FMS should take steps to 

restrict the use of information appearing 

on truncated checks. FMS is concerned 

not only with the potential fraudulent 

use of check information, but also that 

this information could be used by 

financial institutions or other entities in 

ways that FMS believes are 

inappropriate, such as for marketing or 

other commercial purposes. Financial 

privacy laws that generally restrict the 

use and disclosure of consumer 

information by financial institutions 

contain exceptions that may permit the 

use of such information by a financial 

institution or its affiliates for marketing 

or other purposes. FMS is concerned 

that the use of Treasury check 

information in this manner could 

undermine the public’s confidence in 

the integrity and security of Treasury 

check information, or be perceived as 

intrusive. FMS requests comment on 

whether there is a need to prohibit 

financial institutions from making 

truncated paper checks available to 

third parties, and from disclosing or 

using information on the checks for 

commercial or business purposes. 

Section-by-Section Analysis 

A number of sections and paragraphs 

have been revised to reflect 

renumbering, but do not have 

substantive changes. The Section-bySection analysis discusses substantive 

changes to the regulation. 

Section 240.1 Scope of Regulations 

New paragraph (c) of § 240.1 provides 

that nothing in the regulation 

supercedes the rights or obligations of 

Treasury or any other person that are set 

forth in the Federal Reserve’s Regulation 

CC, 12 CFR part 229, with respect to 

substitute checks. The purpose of this 

paragraph is to clarify that provisions of 

part 240 relating to substitute checks do 

not displace any provision of Regulation 

CC or the Check 21 Act. For example, 

the Check 21 Act and Regulation CC 

provide that a warranty claim or 

indemnity claim on a substitute check 

must be brought within one year of the 

date on which the cause of action 

accrues. 12 CFR 229.56(c). A cause of 

action accrues as of the date on which 

the injured party first learns, or 

reasonably should have learned, of the 

facts and circumstances giving rise to 

the cause of action. Id. It is possible that 

Treasury could learn of facts giving rise 

to a substitute check claim after the 

expiration of the reclamation deadline, 

but within the Check 21 deadline, as 

illustrated by the following example: If 

a Treasury substitute check representing 

a benefit payment were presented and 

paid on 1/1/05, and Treasury learned on 

2/2/06 that the payee had died before 

the check was issued, Treasury would 

be unable to institute a reclamation 

action due to the expiration of the oneyear period beginning on the date the 

check was processed for payment. 

However, if the original check were not 

available and it were necessary to 

examine the original check in order, for 

example, to support a legal action to 

recover funds from the payee’s spouse 

by proving that the payee’s spouse had 

forged the payee’s indorsement, 

Treasury would be within the deadline 

for bringing a Check 21 indemnity 

claim, i.e., one year beginning on

2/2/06, when the cause of action 

accrued. Paragraph (c) is intended to 

make it clear that although Treasury 

could not pursue the claim through the 

reclamation process, that deadline does 

not prevent Treasury from pursuing the 

claim outside the reclamation process. 

As another example, Regulation CC 

provides that a loss resulting in whole 

or in part from an indemnified party’s 

negligence shall reduce the amount 

recoverable by the indemnified party. 12 

CFR 229.53(b)(2). Although part 240 

doesn’t address comparative negligence 

for losses arising from substitute checks, 

this defense could be available to a 

financial institution in connection with 

a reclamation or declination of a 

substitute check.

Section 240.2 Definitions 

Paragraph (d) contains a revised 

definition of ‘‘check’’ that makes it clear 

that the term check includes not only an 

original paper check issued by Treasury, 

but also a substitute check or an 

electronic check relating to an original 

check. 

Paragraph (l) is revised to provide a 

definition of ‘‘electronic check.’’ An 

electronic check is defined as an 

electronic image of a Treasury check, 

together with information describing the 

check, that meets the technical 

requirements for sending electronic 

items to a Federal Reserve Bank as set 

forth in the Federal Reserve Banks’

operating circulars. The image need not 

be created directly from the original 

check in order to qualify as an 

electronic check for purposes of part 

240. If an original check is truncated 

and replaced with a substitute check, 

and the substitute check is subsequently 

imaged and the image is presented to 

Treasury for payment, the image will 

constitute an electronic check. 

Paragraph (w) defines an ‘‘original 

check’’ to mean the first paper check 

drawn on the United States Treasury 

with respect to a particular payment 

transaction. 

Paragraph (bb) revises the definition 

of ‘‘reasonable efforts’’ in existing 

paragraph (z) to reflect the fact that the 

Treasury watermark, which appears on 

authentic original checks issued by 

Treasury, may not appear on a 

substitute check or an electronic check. 

Because the watermark may not survive 

truncation, a reclamation debtor’s 

obligation to verify the existence of the 

watermark does not extend to a 

substitute check or electronic check 

presented to the reclamation debtor. 

Paragraph (hh) provides a definition 

of ‘‘substitute check’’ for purposes of 

part 240. The definition is identical to 

the definition of substitute check in 

Regulation CC, except that the part 240 

definition is more narrow in that it 

defines a substitute check as a paper 

reproduction of a Treasury check rather 

than a paper reproduction of any check. 

The term ‘‘substitute check’’ for 

purposes of part 240 has a different 

meaning than the term ‘‘substitute 

check’’ as used in 31 U.S.C. 3331 and 

our regulation at 31 CFR part 248. For 

purposes of 31 U.S.C. 3331 and 31 CFR 

part 248, a substitute check is a check 

issued by Treasury to replace a Treasury 

check that has been lost, stolen, 

destroyed or defaced. The definition of 

‘‘substitute check’’ in paragraph (hh) 

does not apply to the term ‘‘substitute 

check’’ as used in 31 U.S.C. 3331 or 31 

CFR part 248. 

Paragraph (kk) defines ‘‘truncate’’ as 

the removal of a paper check (whether 

the check is an original check or a 

substitute check) from the forward 

collection or return process and the 

replacement of that check with either a 

substitute check or an electronic check. 

61566 Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 

Section 240.3 Electronic Checks and 

Substitute Checks 

Section 240.3 provides that an 

electronic check is the legal equivalent 

of an original check or a substitute 

check for purposes of part 240 if the 

presenting bank provides the guarantees 

described in § 240.4 and if the electronic 

check accurately represents all of the 

information on the front and back of the 

check that the presenting bank 

truncated. Because an electronic check 

is legally equivalent to an original or 

substitute check for purposes of part 

240, a financial institution may effect 

presentment of a Treasury check by 

presenting an electronic check without 

subsequent delivery of the original 

check or a substitute check. Financial 

institutions may decide whether to 

retain or destroy paper checks that are 

truncated to create electronic checks. 

The legal equivalence of electronic 

checks arising under paragraph (a) 

exists only as between Treasury and a 

financial institution that presents an 

electronic image of a Treasury check to 

Treasury for payment. The rule does not 

create for financial institutions the right 

to transfer, return or present an 

electronic image of a Treasury check to 

any other person. For example, Treasury 

may return a check to a presenting bank 

if the one-year limit on payability has 

expired or if the check is not payable 

because it was issued after the payee’s 

death. If that check was presented to 

Treasury in the form of an electronic 

check, Treasury may effect the return by 

using an electronic check. However, 

part 240 does not give the presenting 

bank the right to return the check to the 

depositor using an electronic image. The 

presenting bank will need to return 

either the original check or a substitute 

check to the depositor unless the bank 

has the right, by agreement with the 

depositor, to make the return using an 

electronic image. 

The legal equivalence of substitute 

checks is not addressed in part 240 

because legal equivalence is established 

by the Check 21 Act and addressed in 

Regulation CC. 

Paragraph (b) requires financial 

institutions that create substitute checks 

or electronic checks to prevent 

unauthorized access to paper checks 

that are truncated by storing the checks, 

until their destruction, in a manner 

consistent with federal banking agency 

guidelines for safeguarding customer 

information. The term ‘‘person’’ in this 

context is not intended to include a 

financial institution’s own employees or 

agents who handle the check in the 

normal course of processing or bank 

operations. For example, a financial 

institution is not prohibited from 

making truncated checks available to a 

vendor or contractor hired by a bank to 

shred or store the checks.

The phrase ‘‘federal banking agency 

guidelines for safeguarding customer 

information’’ in paragraph (b) refers to 

guidelines that are issued from time to 

time by the federal banking agencies 

(the Office of the Comptroller of the 

Currency, the Office of Thrift 

Supervision, the Federal Deposit 

Insurance Corporation) and the Board of 

Governors of the Federal Reserve 

System, and the National Credit Union 

Administration (NCUA). In 2001 the 

federal banking agencies and the NCUA 

issued substantively identical 

guidelines establishing standards for 

physical safeguards for customer 

records and information. See

Interagency Guidelines Establishing 

Standards For Safeguarding Information 

(February 1, 2001), 66 FR 8616 and 

Guidelines for Safeguarding Member 

Information (January 30, 2001), 66 FR 

8152–01 (Interagency Guidelines). The 

Interagency Guidelines, among other 

things, establish standards that financial 

institutions must follow to protect 

against unauthorized access to, or use 

of, customer information that could 

result in substantial harm or 

inconvenience to any customer. The 

standards include physical safeguarding 

of customer records. Because the federal 

banking agencies indicated that they 

plan to issue guidance and other 

revisions to applicable regulations in 

order to supplement the Interagency 

Guidelines, paragraph (b) refers 

generically to federal banking agency 

guidelines. See 66 FR 8616, 8618. 

Currently, Treasury checks that have 

been negotiated are stored securely by 

Treasury until their destruction. This 

practice prevents the misappropriation 

of the checks or the misuse of 

information on the checks. Because 

Treasury will not have possession of 

Treasury checks that are truncated, FMS 

is concerned that the checks, or the 

information on them, could be used in 

ways that would raise significant 

concerns for Treasury and check 

recipients. Treasury checks contain not 

only the names and addresses of Federal 

benefit recipients, but also, following 

negotiation, may contain other 

identifying information such as payees’

bank account numbers, driver’s license 

numbers and Social Security numbers. 

FMS is concerned that the failure to 

safeguard this information could lead to 

identity theft. Therefore, FMS believes 

that it is critical that Treasury checks 

that are truncated be stored securely, 

and that access to such checks be 

restricted. 

Although financial institutions are 

subject to statutory and regulatory 

requirements to safeguard customer 

information, FMS does not believe that 

these requirements are adequate to 

protect against potential misuse of 

Treasury checks that are truncated. For 

example, financial institutions that 

create substitute checks may not have a 

‘‘customer’’ relationship with Treasury 

check payees, meaning that the 

procedures that financial institutions 

must follow to protect against 

unauthorized access to, or use of, 

customer information would not apply. 

For purposes of the Interagency 

Guidelines, the definition of ‘‘customer’’

is limited to a consumer who has 

established a continuing relationship 

with a financial institution. Check 

recipients who cash their checks at 

banks where they do not have accounts, 

as well as recipients who cash checks at 

check casher or other non-bank 

locations, may not be viewed to be 

customers for purposes of financial 

institution privacy requirements 

because they may not have a continuing 

relationship with the depository bank. 

In enacting the Check 21 Act, 

Congress expressly recognized the broad 

and long-standing authority of the 

Secretary of the Treasury to establish 

and administer the rules that govern 

payments disbursed by Treasury, 

including Treasury checks. See S. Rep. 

No. 108–79, at 6. The Check 21 Act does 

not affect the Secretary’s authority to 

regulate Treasury checks, to the extent 

such regulations are not inconsistent 

with the Check 21 Act. Id. FMS is 

exercising this authority to ensure the 

continued security of Treasury checks 

in a manner that is consistent with the 

Check 21 Act. 

The Check 21 Act is silent with regard 

to the disposition of original checks that 

are truncated by financial institutions. 

Accordingly, under the Check 21 Act, 

financial institutions that create 

substitute checks may choose whether 

to retain or destroy the original checks. 

Paragraph (b) preserves the discretion of 

financial institutions that create 

substitute checks to destroy or retain the 

original Treasury checks. FMS does not 

believe that requiring financial 

institutions to prevent unauthorized 

access to truncated Treasury checks by 

storing them in a manner consistent 

with their usual procedures for 

safeguarding customer information 

should in any way interfere with, 

burden or add costs to the creation of 

substitute checks. As discussed above, 

financial institutions that create 

substitute checks will be required to 

prevent unauthorized access to most 

original checks that they retain pursuant 

Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 61567

to the Interagency Guidelines. The 

interim rule operates to ensure that 

certain Treasury checks that might 

otherwise be treated as non-customer 

items will be included in each financial 

institution’s usual customer record 

security procedures. 

Section 240.4 Presentment Guarantees 

Paragraph (e) provides that a bank 

that presents an electronic check for 

payment makes certain presentment 

guarantees that parallel the warranty 

and indemnity provisions for substitute 

checks set forth in §§ 229.52 and 229.53 

of Regulation CC.

Paragraph (f) incorporates in part 240, 

as presentment guarantees, the 

substitute check warranty and 

indemnity provisions of Regulation CC 

and thereby establishes, in conjunction 

with reclamation provisions, the process 

by which Treasury will invoke the 

substitute check indemnity provided by 

§ 229.53 of Regulation CC. Paragraph (f) 

does not limit or expand Regulation 

CC’s warranty and indemnity 

provisions, but simply frames those 

provisions as presentment guarantees so 

as to make the procedure for invoking 

a substitute check indemnity part of the 

declination or reclamation process. 

A breach of either of these warranties 

will be a basis for reclamation of the 

check pursuant to new § 240.8(a) or 

declination of the check pursuant to 

new § 240.6(c). 

Section 240.6 Provisional Credit; First 

Examination; Declination; Final 

Payment 

Existing § 240.5 is redesignated as 

§ 240.6, and paragraph (c) of this section 

is revised by the addition of paragraph 

(c)(3), which provides that Treasury 

may decline payment on a check if 

Treasury has already received 

presentment of, and made payment on, 

a substitute check, electronic check or 

original check relating to the check 

being presented, such that Treasury is 

being requested to make payment on a 

check it has already paid. In addition, 

new paragraph 240.6(c)(4) provides that, 

in the case of an electronic check, 

Treasury may decline payment if it 

cannot determine whether the check 

contains a material defect or alteration 

without examining the original check or 

a better quality image of the check and 

if Treasury is on notice of a question of 

law or fact about whether the check is 

properly payable. New paragraph 

240.6(c)(5) allows Treasury to decline 

payment in the case of a substitute 

check as to which Treasury has a 

warranty or indemnity claim arising 

under 12 CFR 229.52 or 229.53. 

FMS does not anticipate that there 

will be many situations in which an 

original check will be required in order 

to determine whether a substitute check 

or an electronic check is properly 

payable. Nevertheless, in our 

experience, there are a small number of 

cases in which the original check must 

be examined in order to assess, for 

example, the pen pressure and other 

signature characteristics that are used to 

determine the authenticity of an 

endorsement. 

Section 240.7 Declination Protest 

Existing § 240.6 is redesignated as 

§ 240.7, and paragraph (b) of this section 

is revised by the addition of paragraphs 

(b)(5) and (b)(6). Paragraph (b)(5) 

provides that a presenting bank may 

offer evidence that the check has not 

already been presented to, and paid by, 

Treasury, following Treasury’s 

declination of the check for this reason. 

Paragraph (b)(6) provides that a 

presenting bank may offer an original 

check or a copy of the check that is 

sufficient to support a determination 

that the check does not contain a 

material defect or alteration where a 

check is declined for this reason. The 

provision of an original check will be 

sufficient to successfully protest a 

declination based on § 240.6(c)(4). If the 

original check is not available, the 

presenting bank can provide a better 

image, if available, but a better image 

may not in all cases be sufficient to 

successfully protest a declination based 

on § 240.6(c)(4). 

Section 240.9 Reclamation Procedures; 

Reclamation Protests 

Existing § 240.8 is redesignated as 

§ 240.9, and paragraph (b)(2) of this 

section is revised by the addition of 

paragraphs (b)(2)(v) and (b)(2)(vi), 

which correspond to the new 

presentment guarantees at § 240.4(e) and 

(f) relating to double presentment and 

adequacy of image quality. These 

reclamation protest provisions parallel 

the declination protest provisions at 

§ 240.7(b)(5) and (6). 

Section 240.12 Processing of Checks 

Existing § 240.11 is redesignated as 

§ 240.12, and paragraph (a)(3)(iii) of this 

section is revised by deleting the word 

‘‘original’’ from the term ‘‘original 

checks.’’ Paragraph (a)(3)(iv) is revised 

by addition of a reference to substitute 

checks. 

Procedural Matters 

Executive Order 12866, Regulatory 

Planning and Review 

It has been determined that this 

interim rule is not a significant 

regulatory action as defined in 

Executive Order 12866. Therefore, a 

Regulatory Assessment is not required. 

Clarity of the Regulations 

Executive Order 12866 and the 

President’s memorandum of June 1, 

1998, require each agency to write all 

rules in plain language. We invite your 

comments on how to make this interim 

rule easier to understand. 

Notice and Comment and Effective Date

We find that good cause exists for 

issuing the interim rule without prior 

notice and comment and for dispensing 

with the delayed effective date required 

by 5 U.S.C. 553. Under the 

Administrative Procedure Act, an 

agency is permitted to issue a rule 

without prior notice and comment when 

the agency for good cause finds that 

notice and public procedure thereon are 

impracticable, unnecessary or contrary 

to the public interest. 5 U.S.C. 553(b)(B). 

An agency also is permitted to publish 

a rule with an effective date of less than 

30 days when the agency finds good 

cause for doing so. 5 U.S.C. 553(d). The 

publication of this rule as an interim 

rule with an effective date of less than 

30 days will ensure that procedures are 

in place to support the operation of the 

Check 21 Act’s warranties and 

indemnities with respect to Treasury 

checks when the Check 21 Act takes 

effect on October 28, 2004. Publishing 

this rule as an interim rule with an 

October 28, 2004 effective date also will 

allow financial institutions the option of 

using electronic checks as an alternative 

to substitute Treasury checks 

immediately upon the effective date of 

the Check 21 Act. 

Regulatory Flexibility Act 

Because no notice of proposed 

rulemaking is required, the provisions 

of the Regulatory Flexibility Act do not 

apply. Nevertheless, to assist small 

business entities in understanding the 

implications of the interim rule, the 

following discussion explains why the 

rule will not have a significant impact 

on a substantial number of small 

business entities. 

The interim rule applies to all 

financial institutions, regardless of their 

size. The revisions to part 240 in this 

interim rule permit, but do not require, 

financial institutions to present 

Treasury checks for payment by 

providing an electronic image of the 

check in lieu of a paper check. Financial 

institutions that choose to create 

electronic images of Treasury checks are 

required to store the paper checks that 

are truncated, until their destruction, in 

a manner consistent with federal 

61568 Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 

banking agency guidelines for 

safeguarding customer information. No 

financial institution is required to create 

or accept electronic images of Treasury 

checks and therefore no cost or burden 

is imposed on any financial institution 

as a result of the electronic check image 

provisions of this rule. 

The rule also should not result in any 

significant costs for financial 

institutions that choose to create 

substitute checks as permitted by the 

Check 21 Act. The interim rule 

establishes the procedures that Treasury 

will follow to invoke an indemnity 

arising from a breach of a substitute 

check warranty or in situations in which 

the receipt of a substitute Treasury 

check rather than the original check 

results in a loss to the Federal 

Government. The rule does not create 

this indemnity, which is a statutory 

right arising under the Check 21 Act. 

The rule simply incorporates a process 

for invoking the indemnity into 

Treasury’s existing declination and 

reclamation procedures. 

Moreover, the requirement that 

financial institutions safeguard 

truncated Treasury checks by storing 

them in accordance with their usual 

procedures should not significantly 

increase the cost of creating substitute 

checks for financial institutions of any 

size. All financial institutions are 

already required to have in place 

customer information security 

programs, and financial institutions that 

choose to create substitute checks will 

be required under existing law and 

regulation to prevent unauthorized 

access to customer checks that they 

truncate. The interim rule requires 

financial institutions to apply their 

existing customer information security 

programs to certain Treasury checks that 

might otherwise fall outside the 

application of those laws and 

regulations. The rule does not require 

that financial institutions modify their 

existing programs, or require financial 

institutions to retain original checks for 

any period of time or in any specified 

manner.

List of Subjects in 31 CFR Part 240

Banks, Banking, Checks, Counterfeit 

checks, Federal Reserve system, 

Forgery, Guarantees.

Authority and Issuance

■ For the reasons stated in the preamble, 

Part 240 of title 31 is revised to read as 

follows:

PART 240—INDORSEMENT AND 

PAYMENT OF CHECKS DRAWN ON 

THE UNITED STATES TREASURY

General Provisions

Sec. 

240.1 Scope of regulations. 

240.2 Definitions. 

240.3 Electronic checks and substitute 

checks. 

240.4 Presentment guarantees. 

240.5 Limitations on payment; cancellation 

and distribution of proceeds of checks. 

240.6 Provisional credit; first examination; 

declination; final payment. 

240.7 Declination protest. 

240.8 Reclamation of amounts of paid 

checks. 

240.9 Reclamation procedures; reclamation 

protests. 

240.10 Offset. 

240.11 Treasury Check Offset. 

240.12 Processing of checks. 

Indorsement of Checks 

240.13 Indorsement by payees. 

240.14 Checks issued to incompetent 

payees. 

240.15 Checks issued to deceased payees. 

240.16 Checks issued to minor payees. 

240.17 Powers of attorney. 

240.18 Lack of authority to shift liability. 

240.19 Reservation of rights. 

Appendix A to Part 240—Optional Forms for 

Powers of Attorney and Their 

Application

Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 

U.S.C. 321, 3327, 3328, 3331, 3334, 3343, 

3711, 3712, 3716, 3717; 332 U.S. 234 (1947); 

318 U.S. 363 (1943). 

General Provisions

§ 240.1 Scope of regulations.

(a) The regulations in this part 

prescribe the requirements for 

indorsement and the conditions for 

payment of checks drawn on the United 

States Treasury. These regulations also 

establish procedures for collection of 

amounts due the United States Treasury 

based on claims arising from the breach 

of presentment guarantees by presenting 

banks and other indorsers of Treasury 

checks when checks bearing material 

defects or alterations or forged 

disbursing officer (drawer) signatures 

are presented for payment and are paid. 

(b) Standards contained in this 

regulation supersede existing Federal 

common law to the extent that they are 

inconsistent with Federal common law 

rules relating to counterfeit checks. 

Under the provisions of this regulation, 

the risk of loss on certain counterfeit 

checks is placed on presenting banks 

and other indorsers unless Treasury 

fails to timely reclaim on a check 

payment in accordance with 31 U.S.C. 

3712(a) and § 240.8 of this regulation. 

Treasury will reclaim on counterfeit 

checks that are deemed paid under 

§ 240.6(d) of this regulation when a 

presenting bank or other indorser fails 

to make all reasonable efforts to ensure 

that a check is an authentic Treasury 

check. 

(c) Nothing in this regulation 

supercedes the rights or obligations of 

Treasury or any other person that are set 

forth in Regulation CC, 12 CFR part 229, 

with respect to substitute checks, as 

defined therein.

§ 240.2 Definitions. 

(a) Administrative offset or offset, for 

purposes of this section, has the same 

meaning as defined in 31 U.S.C. 

3701(a)(1) and 31 CFR part 285. 

(b) Agency means any agency, 

department, instrumentality, office, 

commission, board, service, or other 

establishment of the United States 

authorized to issue Treasury checks or 

for which checks drawn on the United 

States Treasury are issued. 

(c) Certifying agency means an agency 

authorizing the issuance of a payment 

by a disbursing official in accordance 

with 31 U.S.C. 3325. 

(d) Check or checks means an original 

check or checks; an electronic check or 

checks; or a substitute check or checks. 

(e) Check payment means the amount 

paid to a presenting bank by a Federal 

Reserve Bank. 

(f) Counterfeit check means a 

document that purports to be an 

authentic check drawn on the United 

States Treasury, but in fact is not an 

authentic check. 

(g) Days means calendar days. For 

purposes of computation, the last day of 

the period will be included unless it is 

a Saturday, Sunday, or Federal holiday; 

the first day is not included. For 

example, if a reclamation was issued on 

July 1, the 90 day protest period under 

§ 240.9(b) would begin on July 2. If the 

90th day fell on a Saturday, Sunday or 

Federal holiday, the protest would be 

accepted if received on the next 

business day. 

(h) Declination means the process by 

which Treasury refuses to make final 

payment on a check, i.e., declines 

payment, by instructing a Federal 

Reserve Bank to reverse its provisional 

credit to a presenting bank. 

(i) Declination date means the date on 

which the declination is issued by 

Treasury. 

(j) Disbursing official means an 

official, including an official of the 

Department of the Treasury, the 

Department of Defense, any Government 

corporation (as defined in 31 U.S.C. 

9101), or any official of the United 

States designated by the Secretary of the 

Treasury, authorized to disburse public 

money pursuant to 31 U.S.C. 3321 or 

another law. 

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(k) Drawer’s signature means the 

signature of a disbursing official placed 

on the front of a Treasury check as the 

drawer of the check. 

(l) Electronic check means an 

electronic image of a check drawn on 

the United States Treasury, together 

with information describing that check, 

that meets the technical requirements 

for sending electronic items to a Federal 

Reserve Bank as set forth in the Federal 

Reserve Banks’ operating circulars. 

(m) Federal Reserve Bank means a 

Federal Reserve Bank (FRB) or a branch 

of a Federal Reserve Bank. 

(n) Federal Reserve Processing Center

means a Federal Reserve Bank center 

that images Treasury checks for 

archiving check information and 

transmitting such information to 

Treasury. 

(o) Financial institution means: 

(1) Any insured bank as defined in 

section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813) or any 

bank which is eligible to make 

application to become an insured bank 

under section 5 of such Act (12 U.S.C. 

1815); 

(2) Any mutual savings bank as 

defined in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 1813) 

or any bank which is eligible to make 

application to become an insured bank 

under section 5 of such Act (12 U.S.C. 

1815); 

(3) Any savings bank as defined in 

section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813) or any 

bank which is eligible to make 

application to become an insured bank 

under section 5 of such Act (12 U.S.C. 

1815); 

(4) Any insured credit union as 

defined in section 101 of the Federal 

Credit Union Act (12 U.S.C. 1752) or 

any credit union which is eligible to 

make application to become an insured 

credit union under section 201 of such 

Act (12 U.S.C. 1781); 

(5) Any savings association as defined 

in section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813) which is 

an insured depositary institution (as 

defined in such Act) (12 U.S.C. 1811 et 

seq.) or is eligible to apply to become an 

insured depositary institution under the 

Federal Deposit Insurance Act (12 

U.S.C. 1811 et seq.); and 

(6) Any financial institution outside 

of the United States if it has been 

designated by the Secretary of the 

Treasury as a depositary of public 

money and has been permitted to charge 

checks to the General Account of the 

United States Treasury. 

(p) First examination means 

Treasury’s initial review of a check that 

has been presented for payment. The 

initial review procedures, which 

establish the authenticity and integrity 

of a check presented to Treasury for 

payment, may include reconciliation; 

retrieval and inspection of the check or 

the best available image thereof; and 

other procedures Treasury deems 

appropriate to specific circumstances. 

(q) Forged or unauthorized drawer’s 

signature means a drawer’s signature 

that has been placed on the front of a 

Treasury check by a person other than: 

(1) A disbursing official; or 

(2) A person authorized to sign on 

behalf of a disbursing official. 

(r) Forged or unauthorized 

indorsement means: 

(1) An indorsement of the payee’s 

name by another person who is not 

authorized to sign for the payee; or

(2) An indorsement of the payee’s 

name made by another person who has 

been authorized by the payee, but who 

has not indorsed the check in 

accordance with § 240.4 and §§ 240.13 

through 240.17; or 

(3) An indorsement added by a 

financial institution where the financial 

institution had no authority to supply 

the indorsement; or 

(4) A check bearing an altered payee 

name that is indorsed using the payee 

name as altered. 

(s) Guarantor means a financial 

institution that presents a check for 

payment and any prior indorser(s) of a 

check. 

(t) Material defect or alteration means: 

(1) The counterfeiting of a check; or 

(2) Any physical change on a check, 

including, but not limited to, a change 

in the amount, date, payee name, or 

other identifying information printed on 

the front or back of the check (but not 

including a forged or unauthorized 

drawer’s signature); or 

(3) Any forged or unauthorized 

indorsement appearing on the back of 

the check. 

(u) Minor means the term minor as 

defined under applicable State law. 

(v) Monthly statement means a 

statement prepared by Treasury which 

includes the following information 

regarding each outstanding reclamation: 

(1) The reclamation date; 

(2) The reclamation number; 

(3) Check identifying information; and 

(4) The balance due, including 

interest, penalties, and administrative 

costs. 

(w) Original check means the first 

paper check drawn on the United States 

Treasury with respect to a particular 

payment transaction. 

(x) Payee means the person that the 

certifying agency designated to receive 

payment pursuant to 31 U.S.C. 3528. 

(y) Person means an individual, 

institution, including a financial 

institution, or any other type of entity; 

the singular includes the plural. 

(z) Presenting bank means: 

(1) A financial institution which, 

either directly or through a 

correspondent banking relationship, 

presents checks to and receives 

provisional credit from a Federal 

Reserve Bank; or 

(2) A depositary which is authorized 

to charge checks directly to Treasury’s 

General Account and present them to 

Treasury for payment through a 

designated Federal Reserve Bank. 

(aa) Provisional credit means the 

initial credit provided to a presenting 

bank by a Federal Reserve Bank. 

Provisional credit may be reversed by 

Treasury until the completion of first 

examination or final payment is deemed 

made pursuant to § 240.6(d). 

(bb) Reasonable efforts means, at a 

minimum, verifying the existence of the 

Treasury watermark on an original 

check. Based upon the facts at hand, 

including whether a check is an original 

check, a substitute check or an 

electronic check, reasonable efforts may 

require the verification of other security 

features. 

(cc) Reclamation means a demand for 

the amount of a check for which 

Treasury has requested an immediate 

refund. 

(dd) Reclamation date means the date 

on which a reclamation is issued by 

Treasury. Normally, demands are sent to 

presenting banks or other indorsers 

within two business days of the 

reclamation date. 

(ee) Reclamation debt means the 

amount owed as a result of Treasury’s 

demand for refund of a check payment, 

and includes interest, penalties and 

administrative costs assessed in 

accordance with § 240.8. 

(ff) Reclamation debtor means a 

presenting bank or other indorser of a 

check from whom Treasury has 

demanded a refund in accordance with 

§§ 240.8 and 240.9. The reclamation 

debtor does not include a presenting 

bank or other indorser who may be 

liable for a reclamation debt, but from 

which Treasury has not demanded a 

refund. 

(gg) Recurring benefit payment

includes but is not limited to a payment 

of money for any Federal Government 

entitlement program or annuity. 

(hh) Substitute check means a paper 

reproduction of a check drawn on the 

United States Treasury that meets the 

definitional requirements set forth at 12 

CFR 229.2(aaa). 

(ii) Treasury means the United States 

Department of the Treasury, or when 

authorized, an agent designated by the 

Secretary of the Treasury or his delegee. 

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(jj) Treasury Check Offset means the 

collection of an amount owed by a 

presenting bank in accordance with 31 

U.S.C. 3712(e). 

(kk) Truncate means to remove a 

paper check from the forward collection 

or return process and send to a 

recipient, in lieu of such paper check, 

a substitute check or an electronic 

check. 

(ll) U.S. securities means securities of 

the United States and securities of 

Federal agencies and Government 

corporations for which Treasury acts as 

the transfer agent.

(mm) Writing includes electronic 

communications when specifically 

authorized by Treasury in implementing 

instructions.

§ 240.3 Electronic checks and substitute 

checks. 

(a) Legal equivalence of electronic 

checks. An electronic check for which a 

presenting bank has provided the 

guarantees described in § 240.4 is the 

legal equivalent of an original or 

substitute check for purposes of this 

part if the electronic check accurately 

represents all of the information on the 

front and back of the check that the 

presenting bank truncated. If a financial 

institution presents an electronic check 

for payment and the check is subject to 

return, Treasury may effect the return 

using an electronic check, but this part 

does not create any right for the 

presenting bank to return the check to 

the payee or any other person using an 

electronic check. 

(b) Safekeeping of original checks.

Any financial institution that creates a 

substitute check or electronic check 

shall prevent unauthorized access to the 

original or substitute check that was 

truncated by storing the check, until it 

is destroyed, in a manner consistent 

with federal banking agency guidelines 

for safeguarding customer information.

§ 240.4 Presentment guarantees. 

The guarantors of a check presented 

to the Treasury for payment are deemed 

to guarantee to the Treasury all of the 

following: 

(a) Indorsements. That all prior 

indorsements are genuine, whether or 

not an express guarantee is placed on 

the check. When the first indorsement 

has been made by one other than the 

payee personally, the presenting bank 

and the indorsers are deemed to 

guarantee to the Treasury, in addition to 

other guarantees, that the person who so 

indorsed had unqualified capacity and 

authority to indorse the check on behalf 

of the payee. 

(b) Alterations. That the check has not 

been materially altered. 

(c) Drawer’s signature. That the 

guarantors have no knowledge that the 

signature of the drawer is forged or 

unauthorized. 

(d) Authenticity. That the guarantors 

have made all reasonable efforts to 

ensure that a check is an authentic 

Treasury check, not a counterfeit check. 

(e) Electronic check. If the check is an 

electronic check, that—

(1) The check accurately represents all 

of the information on the front and back 

of the original or substitute check that 

was truncated and meets the technical 

requirements for sending electronic 

items to a Federal Reserve Bank as set 

forth in the Federal Reserve Banks’

operating circulars; 

(2) Treasury will not receive 

presentment of, or otherwise be charged 

for, the electronic check, the original 

check, or a substitute check (or a paper 

or electronic reproduction of any of the 

foregoing) such that Treasury will be 

asked to make payment based on a 

check it already has paid; and 

(3) Treasury’s receipt of the electronic 

check instead of the original or 

substitute check will not result in the 

loss of Treasury’s ability to determine 

whether the check contains a material 

defect or alteration. 

(f) Substitute check. If the check is a 

substitute check, that the guarantors 

make the warranties set forth at 12 CFR 

229.52(a)(1) and (2) and the indemnity 

set forth at 12 CFR 229.53.

§ 240.5 Limitations on payment; 

cancellation and distribution of proceeds of 

checks. 

(a) Limitations on payment.

(1) Treasury shall not be required to 

pay any check that is not negotiated to 

a financial institution within 12 months 

after the date on which the check was 

issued. 

(2) All checks shall bear a legend, 

stating ‘‘Void After One Year.’’ The 

legend is notice to payees and indorsers 

of a general limitation on the payment 

of checks. The legend, or the 

inadvertent lack thereof, does not limit, 

or otherwise affect, the rights of 

Treasury under the law. 

(b) Cancellation and distribution of 

proceeds of checks.

(1) Any check that has not been paid 

and remains outstanding for more than 

12 months after the issue date will be 

canceled by Treasury. 

(2) The proceeds from checks 

canceled pursuant to paragraph (b)(1) of 

this section will be returned to the 

payment certifying or authorizing 

agency for ultimate credit to the 

appropriation or fund account initially 

charged for the payment. 

(3) On a monthly basis, Treasury will 

provide to each agency that authorizes 

the issuance of checks a list of those 

checks issued for such agency which 

were canceled during the preceding 

month pursuant to paragraph (b)(1) of 

this section.

§ 240.6 Provisional credit; first 

examination; declination; final payment. 

(a) Any credit issued by a Federal 

Reserve Bank to a financial institution 

shall be a provisional credit until 

Treasury completes first examination of 

the check, or as provided in paragraph 

(d) of this section.

(b) Treasury shall have the right as a 

drawee to complete first examination of 

checks presented for payment, to 

reconcile checks, and, when 

appropriate, to make a declination on 

any check. 

(c) Treasury will decline payment on 

a check when first examination by 

Treasury establishes that: 

(1) The check has a material defect or 

alteration; 

(2) The check bears a forged or 

unauthorized drawer’s signature; 

(3) Treasury has already received 

presentment of, and made payment on, 

a substitute check, electronic check or 

original check relating to the check 

being presented, such that Treasury is 

being requested to make payment on a 

check it has already paid; 

(4) In the case of an electronic check, 

Treasury cannot determine whether the 

check contains a material defect or 

alteration without examining the 

original check or a better quality image 

of the check and Treasury is on notice 

of a question of law or fact about 

whether the check is properly payable; 

or 

(5) In the case of a substitute check, 

Treasury has a warranty or indemnity 

claim arising under 12 CFR 229.52 or 

229.53. 

(d) Treasury shall have a reasonable 

amount of time to complete first 

examination. However, except as 

provided in paragraph (e) of this 

section, if Treasury has not declined 

payment on a check within 60 days after 

the check is presented to a Federal 

Reserve Processing Center for payment, 

Treasury will be deemed to have made 

final payment on the check. 

(e) Notwithstanding the provisions of 

paragraph (d) of this section, in 

accordance with 31 U.S.C. 3328(a)(2), if, 

upon presentment for payment, 

Treasury is on notice of a question of 

law or fact about whether a check is 

properly payable, Treasury may defer 

final payment until the question is 

settled. 

(f) If a Federal Reserve Bank debits a 

financial institution’s reserve account as 

a result of an erroneous declination, 

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Treasury will promptly refund the 

amount of the payment.

§ 240.7 Declination protest. 

(a) Who may protest. Only a 

presenting bank may protest the 

declination of a check that it has 

presented to a Federal Reserve Bank for 

payment. 

(b) Basis for protest. Where Treasury, 

in accordance with § 240.6, has made a 

declination of a check presented for 

payment and a Federal Reserve Bank 

has reversed its provisional credit to the 

presenting bank, the presenting bank 

may file a protest challenging the factual 

basis for such declination. Protests may 

be filed challenging the following 

determinations: 

(1) Counterfeit checks. The presenting 

bank may offer evidence that the check 

is not a counterfeit. 

(2) Altered checks. The presenting 

bank may offer evidence that the check 

is not altered. 

(3) Checks bearing forged or 

unauthorized drawer’s signatures. The 

presenting bank may offer evidence that 

the drawer’s signature was authentic or 

was authorized. 

(4) Checks bearing a forged or 

unauthorized indorsement. The 

presenting bank may offer evidence that 

an indorsement on the back of the check 

was not forged or was otherwise 

authorized in accordance with the 

requirements of §§ 240.13 through 

240.17.

(5) Prior presentment. The presenting 

bank may offer evidence that the check 

or a paper or electronic representation 

thereof has not already been presented 

to, and paid by, Treasury. 

(6) Adequacy of substitute check or 

electronic check. The presenting bank 

may offer an original check or a copy of 

the check that is sufficient to support a 

determination that the check does not 

contain a material defect or alteration. 

(c) Procedures for filing a protest. A 

declination protest must be in writing, 

and must be sent to: Department of the 

Treasury, Financial Management 

Service, Branch Manager, Financial 

Processing Division, Check 

Reconciliation Branch, Room 700–A, 

3700 East-West Highway, Hyattsville, 

MD 20782, or to such other address as 

Treasury may publish in the Treasury 

Financial Manual, which can be found 

at http://www.fms.treas.gov. Treasury 

will not consider any protest unless it 

is received within 90 days from the 

declination date. 

(d) Review of a declination protest.

The Director, Financial Processing 

Division, or an authorized designee, will 

make every effort to decide any protest 

properly submitted under this section 

within 60 days, and will notify the 

presenting bank of Treasury’s decision. 

In those cases where it is not possible 

to render a decision within 60 days, the 

Director, Financial Processing Division, 

or an authorized designee, will notify 

the presenting bank of the delay. 

Neither the Director, Financial 

Processing Division, nor an authorized 

designee, will have any involvement in 

the decision to deny payment of a check 

under § 240.6 of this part. 

(1) If, based on the evidence provided, 

the Director of the Financial Processing 

Division, or an authorized designee, 

finds that the presenting bank has met, 

by a preponderance of the evidence, the 

criteria in paragraph (b) of this section, 

Treasury will reverse its decision to 

decline payment on the check by 

directing a Federal Reserve Bank to 

provide credit in the amount of the 

check to the presenting bank. 

(2) If, based on the evidence provided, 

the Director of the Financial Processing 

Division, or an authorized designee, 

finds that the presenting bank has failed 

to meet, by a preponderance of the 

evidence, the criteria in paragraph (b) of 

this section, the declination will not be 

reversed.

§ 240.8 Reclamation of amounts of paid 

checks. 

(a) If, after making final payment in 

accordance with § 240.6, Treasury 

determines that any guarantor has 

breached a presentment guarantee listed 

in § 240.4, the guarantor shall be liable 

to Treasury for the full amount of the 

check payment. Treasury may reclaim 

the amount of the check payment from 

any such guarantor prior to: 

(1) The end of the 1-year period 

beginning on the date that a check is 

processed for payment by a Federal 

Reserve Processing Center; or 

(2) The expiration of the 180-day 

period beginning on the close of the 

period described in paragraph (a)(1) of 

this section if a timely claim under 31 

U.S.C. 3702 is presented to the 

certifying agency. 

(b) Treasury will not reclaim on a 

check that bears a forged or 

unauthorized drawer’s signature unless 

it has evidence that the reclamation 

debtor had knowledge of the forged or 

unauthorized drawer’s signature. 

(c) Treasury will not reclaim on a 

counterfeit check unless the reclamation 

debtor has failed to make all reasonable 

efforts to ensure that a check is an 

authentic check and not a counterfeit 

check. Guidance on the key security 

features found on U.S. Treasury checks 

is available on the FMS website at: 

http://www.fms.treas.gov/checkclaims/

check_security_new.pdf. Institutions 

may contact the FMS Questioned 

Documents Branch at (202) 874–7640 

for additional information about these 

security features or to request training. 

(d) Reclamation debts are due to be 

paid upon receipt of the reclamation by 

the reclamation debtor. Interest, 

penalties, and administrative costs 

associated with unpaid balances will 

accrue as follows: 

(1) Interest. Treasury will assess 

interest on the unpaid principal of the 

reclamation debt beginning on the 61st 

day following the reclamation date, and 

will calculate interest based on the rate 

published annually by Treasury in 

accordance with 31 U.S.C. 3717. Interest 

will continue to accrue until the full 

amount of the reclamation is paid or 

Treasury determines that payment is not 

required. 

(2) Penalties. Treasury will assess a 

penalty beginning on the 91st day 

following the reclamation date. The 

penalty will be assessed in accordance 

with 31 U.S.C. 3717 on the unpaid 

principal of the reclamation debt, and 

will continue to accrue until the full 

amount of the reclamation debt is paid 

or Treasury determines that payment is 

not required. 

(3) Administrative costs. Treasury will 

assess administrative costs associated 

with the unpaid reclamation debt 

beginning on the 61st day following the 

reclamation date. Administrative costs 

will continue to accrue until the full 

amount of the reclamation debt is paid 

or Treasury determines that payment is 

not required. 

(e) If Treasury is unable to fully 

collect a reclamation debt from a 

reclamation debtor, after pursuing all 

appropriate means of collection 

(including, but not limited to, 

administrative offset in accordance with 

§ 240.10 and Treasury Check Offset in 

accordance with § 240.11), Treasury will 

discharge the unpaid reclamation debt. 

See 31 CFR 903.5 (Discharge of 

indebtedness; reporting requirements). 

Treasury or the certifying agency will 

report the amount of the unpaid 

reclamation debt to the Internal 

Revenue Service in accordance with the 

requirements of 26 U.S.C. 6050P and 26 

CFR 1.6050P–1.

§ 240.9 Reclamation procedures; 

reclamation protests. 

(a) Reclamation procedures. (1) 

Treasury will send a ‘‘REQUEST FOR 

REFUND (CHECK RECLAMATION)’’ to 

the reclamation debtor in accordance 

with § 240.8(a). This request will advise 

the reclamation debtor of the amount 

demanded and the reason for the 

demand. Treasury will make follow-up 

demands by sending at least three 

61572 Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 

monthly statements to the reclamation 

debtor. Monthly statements will identify 

any unpaid reclamation debts (as 

defined at § 240.2) and will contain or 

be accompanied by notice to the 

reclamation debtor that: 

(i) If the reclamation debt is not paid 

within 120 days of the reclamation date, 

Treasury intends to collect the debt 

through administrative offset in 

accordance with § 240.10; 

(ii) If the administrative offset is 

unsuccessful, Treasury intends to 

collect the debt through Treasury Check 

Offset in accordance with § 240.11; 

(iii) The reclamation debtor has an 

opportunity to inspect and copy 

Treasury’s records with respect to the 

reclamation debt;

(iv) The reclamation debtor may, by 

filing a protest in accordance with 

§ 240.9(b), request Treasury to review its 

decision that the reclamation debtor is 

liable for the reclamation debt; and 

(v) The reclamation debtor has an 

opportunity to enter into a written 

agreement with Treasury for the 

repayment of the reclamation debt. A 

request for a repayment agreement must 

be accompanied by documentary proof 

that satisfies Treasury that the 

reclamation debtor is unable to repay 

the entire amount owed when due. 

(2) Requests by a reclamation debtor 

for an appointment to inspect and copy 

Treasury’s records with respect to a 

reclamation debt and requests to enter 

into repayment agreements must be sent 

in writing to: Department of the 

Treasury, Financial Management 

Service, Financial Processing Division, 

Reclamation Branch, Room 700D, PO 

Box 1849, Hyattsville, MD 20788, or to 

such other address as Treasury may 

publish in the Treasury Financial 

Manual, which can be found at http://

www.fms.treas.gov.

(3) If a reclamation debt remains 

unpaid for 90 days after the reclamation 

date and if there is no unresolved 

protest associated with the reclamation 

debt, the monthly statement will be 

annotated with a notice that the 

reclamation debtor has until the next 

billing date to make payment on the 

reclamation debt or Treasury will 

proceed to collect the reclamation debt 

through offset in accordance with 

§ 240.10 and Treasury Check Offset in 

accordance with § 240.11. 

(4) If Treasury determines that a 

reclamation has been made in error, 

Treasury will abandon the reclamation. 

If Treasury already has collected the 

amount of the reclamation from the 

reclamation debtor, Treasury will 

promptly refund to the reclamation 

debtor the amount of its payment. 

Treasury may refund the amount either 

by applying the amount to another 

reclamation debt owed by the 

reclamation debtor in accordance with 

this Part or other applicable law, or by 

returning the amount to the reclamation 

debtor. 

(b) Reclamation protests. (1) Who may 

protest. Only a reclamation debtor may 

protest a reclamation. 

(2) Basis for protest. Where Treasury, 

in accordance with § 240.8 and 

paragraph (a) of this section, reclaims 

the amount of a check payment, the 

reclamation debtor may file a protest 

challenging such reclamation. Protests 

may be filed challenging the following 

determinations: 

(i) Counterfeit checks. The 

reclamation debtor may offer evidence 

that it made all reasonable efforts to 

ensure that a check is authentic. The 

reclamation debtor must include 

evidence that the check was examined 

for a watermark as required under 

§§ 240.2(bb) and 240.4. Depending on 

the circumstances, FMS may require 

evidence that the reclamation debtor 

also examined the check for evidence of 

additional security features as described 

in guidance provided by Treasury or on 

Treasury’s behalf. 

(ii) Altered checks. The reclamation 

debtor may offer evidence that the check 

is not altered. 

(iii) Checks bearing forged or 

unauthorized drawer’s signatures. The 

reclamation debtor may offer evidence 

that the reclamation debtor did not have 

knowledge of the forged or 

unauthorized drawer’s signature.

(iv) Checks bearing a forged or 

unauthorized indorsement. The 

reclamation debtor may offer evidence 

that the indorsement was not forged or 

was otherwise authorized in accordance 

with the requirements of §§ 240.13 

through 240.17. 

(v) Prior presentment. The presenting 

bank may offer evidence that the check 

or a paper or electronic representation 

thereof has not already been presented 

to, and paid by, Treasury. 

(vi) Adequacy of substitute check or 

electronic check. The presenting bank 

may offer an original check or a copy of 

the check that is sufficient to support a 

determination that the check does not 

contain a material defect or alteration. 

(3) Procedures for filing a protest. A 

reclamation protest must be in writing, 

and must be sent to: Department of the 

Treasury, Financial Management 

Service, Financial Processing Division, 

Reclamation Branch, Room 700D, P.O. 

Box 1849, Hyattsville, MD 20788, or to 

such other address as Treasury may 

publish in the Treasury Financial 

Manual, which can be found at http://

www.fms.treas.gov.

(i) The reclamation protest must 

include supporting documentation 

(including, but not limited to, affidavits, 

account agreements, and signature 

cards) for the purpose of establishing 

that the reclamation debtor is not liable 

for the reclamation debt. 

(ii) Treasury will not consider 

reclamation protests received more than 

90 days after the reclamation date. 

(iii) Treasury may, at its discretion, 

consider information received from a 

guarantor other than the reclamation 

debtor. However, in so doing, Treasury 

does not waive any of its rights under 

this part, nor does Treasury grant rights 

to any guarantor that are not otherwise 

provided in this part. 

(4) Review of a reclamation protest.

The Director, Financial Processing 

Division, or an authorized designee, will 

make every effort to decide any protest 

properly submitted under this section 

within 60 days, and will notify the 

reclamation debtor of Treasury’s 

decision. In those cases where it is not 

possible to render a decision within 60 

days, the Director, Financial Processing 

Division, or an authorized designee, will 

notify the reclamation debtor of the 

delay. Neither the Director, Financial 

Processing Division, nor an authorized 

designee, will have any involvement in 

the process of making determinations 

under § 240.8(a) of this part or sending 

a ‘‘REQUEST FOR REFUND (CHECK 

RECLAMATION)’’ under § 240.9(a) of 

this part. 

(i) Treasury will refrain from the 

collection activities identified in 

§§ 240.10 and 240.11 while a timely 

protest is being considered. However, 

interest, penalties, and administrative 

costs will continue to accrue and will be 

added to the reclamation debt until a 

final determination on the protest has 

been made. 

(ii) If, based on the evidence 

provided, the Director of the Financial 

Processing Division, or an authorized 

designee, finds that the reclamation 

debtor has met, by a preponderance of 

the evidence, the criteria in paragraph 

(b)(2) of this section, Treasury will 

notify the reclamation debtor, in 

writing, of his or her decision to 

terminate collection and will refund any 

amounts previously collected for the 

reclamation debt. Treasury may refund 

the amount either by applying the 

amount to another reclamation debt 

owed by the reclamation debtor in 

accordance with this Part or other 

applicable law, or by returning the 

amount to the reclamation debtor. 

(iii) If the Director, Financial 

Processing Division, or an authorized 

designee, finds, by a preponderance of 

the evidence, that the reclamation 

Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 61573

debtor is liable for the reclamation debt, 

Treasury will notify the reclamation 

debtor, in writing, of his or her decision. 

If the reclamation debtor has not paid 

the reclamation in full, the reclamation 

debtor must pay any outstanding 

amounts in full within 30 days from the 

date of Treasury’s decision. If the 

reclamation debtor fails to pay the 

reclamation debt in full within that time 

frame, Treasury will proceed to collect 

the reclamation debt through offset in 

accordance with §§ 240.10 and 240.11. 

(5) Effect of protest decision. The 

notice provided to the reclamation 

debtor under paragraph (b)(4)(iii) of this 

section shall serve as the final agency 

determination under the Administrative 

Procedure Act (5 U.S.C. 701, et seq.). No 

civil suit may be filed until the 

reclamation debtor has filed a protest 

under this section, and Treasury has 

provided notice of its final 

determination.

§ 240.10 Offset. 

(a) If a reclamation debt remains 

unpaid for 120 days after the 

reclamation date, Treasury will refer the 

reclamation debt, if eligible, to 

Treasury’s centralized offset program 

(see 31 CFR part 285) or another Federal 

agency for offset in accordance with 31 

U.S.C. 3716. Prior to making a referral 

for offset, Treasury, in accordance with 

§ 240.9(a)(3), will send at least one 

monthly statement to the reclamation 

debtor informing the reclamation debtor 

that Treasury intends to collect the 

reclamation debt by administrative 

offset and Treasury Check Offset. 

(b) If a reclamation debtor wishes to 

make payment on a reclamation debt 

referred for offset, the reclamation 

debtor should contact Treasury at the 

address listed in § 240.9(b) to resolve 

the debt and avoid offset. 

(c) If Treasury is unable to collect a 

reclamation debt by use of the offset 

described in paragraph (a) of this 

section, Treasury shall take such action 

against the reclamation debtor as may be 

necessary to protect the interests of the 

United States, including, but not limited 

to, Treasury Check Offset in accordance 

with § 240.11, or referral to the 

Department of Justice. 

(d) If Treasury effects offset under this 

section and it is later determined that 

the reclamation debtor already had paid 

the amount of the reclamation debt, or 

that a reclamation debtor which had 

timely filed a protest was not liable for 

the amount of the reclamation, Treasury 

will promptly refund to the reclamation 

debtor the amount of its payment. 

Treasury may refund the amount either 

by applying the amount to another 

reclamation debt owed by the 

reclamation debtor in accordance with 

this Part or other applicable law, or by 

returning the amount to the reclamation 

debtor.

§ 240.11 Treasury Check Offset. 

(a) If Treasury is unable to effect 

collection pursuant to §§ 240.8, 240.9, 

or 240.10, of this part, Treasury will 

collect the amount of the reclamation 

debt through Treasury Check Offset. 

Treasury Check Offset occurs when, at 

the direction of the Treasury, a Federal 

Reserve Bank withholds, that is, offsets, 

credit from a presenting bank. The 

amount of credit offset is applied to the 

reclamation debt owed by the 

presenting bank. By presenting Treasury 

checks for payment, the presenting bank 

is deemed to authorize Treasury Check 

Offset. 

(b) If Treasury effects offset under this 

section and it is later determined that 

the presenting bank paid the 

reclamation debt in full, or that a 

presenting bank was not liable for the 

amount of the reclamation debt, 

Treasury will promptly refund to the 

presenting bank the amount of its 

overpayment. Treasury may refund the 

amount either by applying the amount 

to another reclamation debt in 

accordance with this part or other 

applicable law, or by returning the 

amount to the presenting bank. 

(c) Treasury Check Offset is used for 

the purpose of collecting debt owed by 

a presenting bank to the Federal 

Government. As a consequence, 

presenting banks shall not be able to use 

the fact that Treasury checks have not 

been paid as the basis for a claim against 

Treasury, a Federal Reserve Bank, or 

other persons or entities, including 

payees or other indorsers of checks, for 

the amount of the credit offset pursuant 

to 31 U.S.C. 3712(e) and this section. 

(d) This section does not apply to a 

claim based upon a reclamation that has 

been outstanding for more than 10 years 

from the date of delinquency.

§ 240.12 Processing of checks. 

(a) Federal Reserve Banks. (1) Federal 

Reserve Banks must cash checks for 

Government disbursing officials when 

such checks are drawn by the disbursing 

officials to their own order, except that 

payment of such checks must be refused 

if: 

(i) A check bears a material defect or 

alteration;

(ii) A check was issued more than one 

year prior to the date of presentment; or 

(iii) The Federal Reserve Bank has 

been notified by Treasury, in 

accordance with § 240.15(c), that a 

check was issued to a deceased payee. 

(2) Federal Reserve Banks are not 

required to cash checks presented 

directly to them by the general public. 

(3) As a depositary of public funds, 

each Federal Reserve Bank shall: 

(i) Receive checks from its member 

banks, nonmember clearing banks, or 

other depositors, when indorsed by 

such banks or depositors who guarantee 

all prior indorsements thereon; 

(ii) Give immediate provisional credit 

therefore in accordance with their 

current Time Schedules and charge the 

amount of the checks cashed or 

otherwise received to the General 

Account of the United States Treasury, 

subject to first examination and 

payment by Treasury; 

(iii) Forward payment records and 

requested checks to Treasury; and 

(iv) Release the original checks and 

substitute checks to a designated 

Regional Records Services Facility upon 

notification from Treasury. 

(4) If a check is to be declined under 

§ 240.6, Treasury will provide the 

Federal Reserve Bank with notice of 

declination upon the completion of first 

examination. Federal Reserve Banks 

must give immediate credit therefor to 

Treasury’s General Account, thereby 

reversing the previous charge to the 

General Account for such check. 

(5) Treasury authorizes each Federal 

Reserve Bank to release a copy of the 

check to the presenting bank when 

payment is declined. 

(b) Treasury General Account (TGA) 

designated depositaries outside the 

United States. (1) Financial institutions 

outside the United States designated by 

Treasury as depositaries of public 

money in accordance with 31 U.S.C. 

3303 and permitted to charge checks to 

the General Account of the United 

States Treasury in accordance with 

Treasury implementing instructions 

shall be governed by the operating 

instructions contained in the letter of 

authorization to them from Treasury 

and are, as presenting banks, subject to 

the provisions of §§ 240.4, 240.8, and 

240.9. 

(2) If a check is to be declined under 

§ 240.6, Treasury will provide the 

presenting bank with notice of 

declination upon the completion of first 

examination and will provide the 

presenting bank with a copy or image of 

the check. Such presenting bank must 

give immediate credit therefore to the 

General Account of the United States 

Treasury, thereby reversing the previous 

charge to the Account for such check. 

Treasury authorizes the designated 

Federal Reserve Bank to return to such 

presenting bank the original check when 

payment is declined in accordance with 

§ 240.5(a) or § 240.15(c). 

61574 Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 

(3) To ensure complete recovery of the 

amount due, reclamation refunds 

require payment in United States dollars 

with checks drawn on or payable 

through United States financial 

institutions located in the United States. 

Reclamation refunds initiated by 

financial institutions outside of the 

United States must be sent through their 

headquarters or U.S. correspondent 

financial institution only. The payments 

should be accompanied by 

documentation identifying the check 

that was the subject of the reclamation 

(such as a copy of the reclamation 

notice or the current monthly 

statement). Reclamation refunds shall 

not be deposited to Treasury’s General 

Account.

(4) Additional information relating to 

designated depositaries outside the 

United States may be found in Volume 

VI, Chapter 2000, of the Treasury 

Financial Manual, which can be found 

at http://www.fms.treas.gov.

Indorsement of Checks

§ 240.13 Indorsement by payees. 

(a) General requirements. Checks shall 

be indorsed by the named payee or by 

another on behalf of such named payee 

as set forth in this part. 

(b) Acceptable indorsements. (1) A 

check is properly indorsed when: 

(i) The check is indorsed by the payee 

in a form recognized by general 

principles of law and commercial usage 

for negotiation, transfer or collection of 

negotiable instruments. 

(ii) The check is indorsed by another 

on behalf of the named payee, and 

sufficiently indicates that the indorser 

has indorsed the check on behalf of the 

payee pursuant to authority expressly 

conferred by or under law or other 

regulation. An example would be: ‘‘John 

Jones by Mary Jones.’’ This example 

states the minimum indication 

acceptable. However, §§ 240.14, 240.15, 

and 240.17(f) specify the addition of an 

indication in specified situations of the 

actual capacity in which the person 

other than the named payee is 

indorsing. 

(iii) Absent a signature, the check is 

indorsed ‘‘for collection’’ or ‘‘for deposit 

only to the credit of the within named 

payee or payees.’’ The presenting bank 

shall be deemed to guarantee good title 

to checks without signatures to all 

subsequent indorsers and to Treasury. 

(iv) The check is indorsed by a 

financial institution under the payee’s 

authorization. 

(2) Indorsement of checks by a duly 

authorized fiduciary or representative.

The individual or institution accepting 

a check from a person other than the 

named payee is responsible for 

determining whether such person is 

authorized and has the capacity to 

indorse and negotiate the check. 

Evidence of the basis for such a 

determination may be required by 

Treasury in the event of a dispute. 

(3) Indorsement of checks by a 

financial institution under the payee’s 

authorization. When a check is credited 

by a financial institution to the payee’s 

account under the payee’s 

authorization, the financial institution 

may use an indorsement substantially as 

follows: ‘‘Credit to the account of the 

within-named payee in accordance with 

the payee’s instructions. XYZ [Name of 

financial institution].’’ A financial 

institution using this form of 

indorsement will be deemed to 

guarantee to all subsequent indorsers 

and to the Treasury that it is acting as 

an attorney-in-fact for the payee, under 

the payee’s authorization, and that this 

authority is currently in force and has 

neither lapsed nor been revoked either 

in fact or by the death or incapacity of 

the payee. 

(4) Indorsement of checks drawn in 

favor of financial institutions. All 

checks drawn in favor of a financial 

institution, for credit to the account of 

a person designating payment so to be 

made, must be indorsed in the name of 

the financial institution as payee in the 

usual manner. However, no check 

drawn in favor of a financial institution 

for credit to the account of a payee may 

be negotiated by the financial institution 

after the death of the payee. 

(c) Unacceptable indorsements. (1) A 

check is not properly indorsed when the 

check is signed or otherwise is indorsed 

by a person without the payee’s consent 

or authorization. 

(2) Failure to include the signature of 

the person signing the check as required 

by paragraph (b)(1)(ii) of this section 

will create a rebuttable presumption 

that the indorsement is a forgery and is 

unacceptable. 

(3) Failure to include sufficient 

indication of the indorser’s authority to 

act on behalf of the payee as required by 

paragraph (b)(1)(ii) of this section will 

create a rebuttable presumption that the 

indorsing person is not authorized to 

indorse a check for the payee.

§ 240.14 Checks issued to incompetent 

payees. 

(a) Handling of checks when a 

guardian or other fiduciary has been 

appointed. (1) A guardian appointed in 

accordance with applicable State law, or 

a fiduciary appointed in accordance 

with other applicable law, may indorse 

checks issued for the following classes 

of payments the right to which under 

law does not terminate with the death 

of the payee: payments for the 

redemption of currencies or for 

principal and/or interest on U.S. 

securities; payments for tax refunds; and 

payments for goods and services. 

(i) A guardian or other fiduciary 

indorsing any such check on behalf of 

an incompetent payee, must include, as 

part of the indorsement, an indication of 

the capacity in which the guardian or 

fiduciary is indorsing. An example 

would be: ‘‘John Jones by Mary Jones, 

guardian of John Jones.’’

(ii) When a check indorsed in this 

fashion is presented for payment by a 

financial institution, it will be paid by 

Treasury without submission of 

documentary proof of the authority of 

the guardian or other fiduciary, with the 

understanding that evidence of such 

claimed authority to indorse may be 

required by Treasury in the event of a 

dispute. 

(2) A guardian or other fiduciary may 

not indorse a check issued for any class 

of payment other than one specified in 

paragraph (a)(1) of this section. When a 

check other than one specified in 

paragraph (a)(1) of this section is 

received by a guardian or other 

fiduciary, the check must be returned to 

the certifying agency with information 

as to the incompetence of the payee and 

documentary evidence showing the 

appointment of the guardian or other 

fiduciary in order that a replacement 

check, and future checks, may be drawn 

in favor of the guardian or other 

fiduciary. 

(b) Handling of checks when a 

guardian or other fiduciary has not been 

appointed. If a guardian or other 

fiduciary has not been appointed, all 

checks issued to an incompetent payee 

must be returned to the certifying 

agency for determination as to whether, 

under applicable law, payment is due 

and to whom it may be made. 

(c) Handling of certain checks by an 

attorney-in-fact. Notwithstanding 

paragraph (a)(2) of this section, if a 

check was issued for a class of payments 

the right to which under law terminates 

upon the death of the beneficiary, such 

as a recurring benefit payment or 

annuity, the check may be negotiated 

under a durable special power of 

attorney or springing durable special 

power of attorney subject to the 

restrictions enumerated in § 240.17. 

After the end of the six-month period 

provided in §§ 240.17(d) and (e), such 

checks must be handled in accordance 

with paragraph (a)(2) of this section.

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§ 240.15 Checks issued to deceased 

payees. 

(a) Handling of checks when an 

executor or administrator has been 

appointed.

(1) An executor or administrator of an 

estate that has been appointed in 

accordance with applicable State law 

may indorse checks issued for the 

following classes of payments the right 

to which under law does not terminate 

with the death of the payee: payments 

for the redemption of currencies or for 

principal and/or interest on U.S. 

securities; payments for tax refunds; and 

payments for goods and services. 

(i) An executor or administrator 

indorsing any such check must include, 

as part of the indorsement, an indication 

of the capacity in which the executor or 

administrator is indorsing. An example 

would be: ‘‘John Jones by Mary Jones, 

executor of the estate of John Jones.’’

(ii) When a check indorsed in this 

fashion is presented for payment by a 

financial institution, it will be paid by 

Treasury without the submission of 

documentary proof of the authority of 

the executor or administrator, with the 

understanding that evidence of such 

claimed authority to indorse may be 

required by Treasury in the event of a 

dispute. 

(2) An executor or administrator of an 

estate may not indorse a check issued 

for any class of payment other than one 

specified in paragraph (a)(1) of this 

section. Other checks, such as recurring 

benefit payments and annuity 

payments, may not be negotiated after 

the death of the payee. Such checks 

must be returned to the certifying 

agency for determination as to whether, 

under applicable law, payment is due 

and to whom it may be made. 

(b) Handling of checks when an 

executor or administrator has not been 

appointed. If an executor or 

administrator has not been appointed, 

all checks issued to a deceased payee 

must be returned to the certifying 

agency for determination as to whether, 

under applicable law, payment is due 

and to whom it may be made. 

(c) Handling of checks when a 

certifying agency learns, after the 

issuance of a recurring benefit payment 

check, that the payee died prior to the 

date of issuance. (1) A recurring benefit 

payment check, issued after a payee’s 

death, is not payable. As a consequence, 

when a certifying agency learns that a 

payee has died, the certifying agency 

must give immediate notice to Treasury, 

as prescribed at Volume I, Part 4, 

Chapter 7000 of the Treasury Financial 

Manual, which can be found at http://

www.fms.treas.gov. Upon receipt of 

such notice from a certifying agency, 

Treasury will instruct the Federal 

Reserve Bank to refuse payment of the 

check upon presentment. Upon receipt 

of such instruction from Treasury, the 

Federal Reserve Bank will make every 

appropriate effort to intercept the check. 

If the check is successfully intercepted, 

the Federal Reserve Bank will refuse 

payment, and will return the check 

unpaid to the presenting bank with an 

annotation that the payee is deceased. If 

a financial institution learns that a date 

of death triggering action under this 

section is erroneous, the financial 

institution must advise the payee to 

contact the payment certifying agency. 

(2) Nothing in this section shall limit 

the right of Treasury to institute 

reclamation proceedings under the 

provisions of §§ 240.8 and 240.9 with 

respect to a check issued to a deceased 

payee that has been negotiated and paid 

over a forged or unauthorized 

indorsement.

§ 240.16 Checks issued to minor payees. 

(a) Checks in payment of principal 

and/or interest on U.S. securities that 

are issued to minors may be indorsed 

by: 

(1) Either parent with whom the 

minor resides; or 

(2) If the minor does not reside with 

either parent, by the person who 

furnishes the minor’s chief support. 

(b) The parent or other person 

indorsing on behalf of the minor must 

present with the check the indorser’s 

signed statement giving the minor’s age, 

and stating that the payee either resides 

with the parent or receives his or her 

chief support from the person indorsing 

on the minor’s behalf and that the 

proceeds of the check will be used for 

the minor’s benefit.

§ 240.17 Powers of attorney. 

(a) Specific powers of attorney. Any 

check may be negotiated under a 

specific power of attorney executed in 

accordance with applicable State or 

Federal law after the issuance of the 

check and describing the check in full 

(check serial and symbol numbers, date 

of issue, amount, and name of payee). 

(b) General powers of attorney.

Checks may be negotiated under a 

general power of attorney executed, in 

accordance with applicable State or 

Federal law, in favor of a person for the 

following classes of payments: 

(1) Payments for the redemption of 

currencies or for principal and/or 

interest on U.S. securities;

(2) Payments for tax refunds, but 

subject to the limitations concerning the 

mailing of Internal Revenue refund 

checks contained in 26 CFR 601.506(c); 

and 

(3) Payments for goods and services. 

(c) Special powers of attorney. Checks 

issued for classes of payments other 

than those specified in paragraph (b) of 

this section, such as a recurring benefit 

payment, may be negotiated under a 

special power of attorney executed in 

accordance with applicable State or 

Federal law, which describes the 

purpose for which the checks are 

issued, names a person as attorney-infact, and recites that the special power 

of attorney is not given to carry into 

effect an assignment of the right to 

receive such payment, either to the 

attorney-in-fact or to any other person. 

(d) Durable special powers of 

attorney. A durable special power of 

attorney is a special power of attorney 

that continues despite the principal’s 

later incompetency, and is created by 

the principal’s use of words explicitly 

stating such intent. Classes of checks 

other than those specified in paragraph 

(b) of this section may be negotiated 

under a durable special power of 

attorney executed in accordance with 

applicable State or Federal law, which 

describes the purpose for which the 

checks are issued, names a person as 

attorney-in-fact, and recites that the 

special power of attorney is not given to 

carry into effect an assignment of the 

right to receive such payment, either to 

the attorney-in-fact or to any other 

person. For the purpose of negotiating 

Treasury checks, durable special powers 

of attorney are effective only during the 

six-month period following a 

determination that the named payee is 

incompetent. 

(e) Springing durable special powers 

of attorney. A springing durable special 

power of attorney is similar to a durable 

power of attorney except that its terms 

do not become effective until the 

principal’s subsequent incompetence. 

As with a durable special power of 

attorney, a springing durable special 

power of attorney is created by the 

principal’s use of language explicitly 

stating that its terms become effective at 

such time as the principal is determined 

to be incompetent. Classes of checks 

other than those specified in paragraph 

(b) of this section may be negotiated 

under a springing durable special power 

of attorney executed in accordance with 

applicable State or Federal law, which 

describes the purpose for which the 

checks are issued, names a person as 

attorney-in-fact, and recites that the 

springing durable special power of 

attorney is not given to carry into effect 

an assignment of the right to receive 

payment, either to the attorney-in-fact or 

to any other person. For the purpose of 

negotiating Treasury checks, springing 

durable special powers of attorney are 

61576 Federal Register / Vol. 69, No. 201 / Tuesday, October 19, 2004 / Rules and Regulations 

effective only during the six-month 

period following a determination that 

the named payee is incompetent. 

(f) Proof of authority. Checks indorsed 

by an attorney-in-fact must include, as 

part of the indorsement, an indication of 

the capacity in which the attorney-infact is indorsing. An example would be: 

‘‘John Jones by Paul Smith, attorney-infact for John Jones.’’ Such checks when 

presented for payment by a financial 

institution, will be paid by Treasury 

without the submission of documentary 

proof of the claimed authority, with the 

understanding that evidence of such 

claimed authority to indorse may be 

required by Treasury in the event of a 

dispute. 

(g) Revocation of powers of attorney.

Notwithstanding any other law, for 

purposes of negotiating Treasury 

checks, all powers of attorney are 

deemed revoked by the death of the 

principal and may also be deemed 

revoked by notice from the principal to 

the parties known, or reasonably 

expected, to be acting on the power of 

attorney.

(h) Optional use forms. Optional use 

power of attorney forms are listed in the 

appendix to this part. These forms are 

available on the FMS website at:

http://www.fms.treas.gov/ checkclaims/ 

regulations.html.

§ 240.18 Lack of authority to shift liability. 

(a) This part neither authorizes nor 

directs a financial institution to debit 

the account of any person or to deposit 

any funds from any account into a 

suspense account or escrow account or 

the equivalent. Nothing in this part shall 

be construed to affect a financial 

institution’s contract with its 

depositor(s) under authority of state 

law. 

(b) A financial institution’s liability 

under this part is not affected by any 

action taken by it to recover from any 

person the amount of the financial 

institution’s liability to the Treasury.

§ 240.19 Reservation of rights. 

The Secretary of the Treasury reserves 

the right, in the Secretary’s discretion, 

to waive any provision(s) of this 

regulation not otherwise required by 

law.

Appendix A to Part 240—Optional 

Forms for Powers of Attorney and Their 

Application 

FMS Form 231—General Power of 

Attorney (Individual). This general power of 

attorney form may be executed by an 

individual, unincorporated partnership, or 

sole owner, for checks drawn on the United 

States Treasury, in payment: (1) For 

redemption of currencies or for principal or 

interest on U.S. securities; (2) for tax refunds; 

and (3) for goods and services. 

FMS Form 232—Specific Power of 

Attorney (Individual). This specific power of 

attorney form may be executed by an 

individual, unincorporated partnership, or 

sole owner to authorize the indorsement of 

any class of check drawn on the United 

States Treasury. To be valid, the form must 

be executed after the issuance of the check 

and must describe the check in full, 

including the check serial and symbol 

numbers, date of issue, amount, and name of 

the payee. 

FMS Form 233—Special Power of Attorney 

(Individual). This special power of attorney 

form may be executed by an individual, 

unincorporated partnership, or sole owner, to 

authorize the indorsement of payments other 

than those listed under FMS Form 231, such 

as recurring benefit payments. It may name 

any person (as the term person is defined in 

31 CFR part 240) as attorney-in-fact, but must 

describe the purpose for which the checks 

are issued and recite that it is not given to 

carry into effect an assignment of the right to 

receive payment, either to the attorney-in-fact 

or to any other person. A special power of 

attorney is not effective for purposes of 

negotiating checks issued after the payee is 

determined to be incompetent, unless the 

payee has indicated that the special power of 

attorney is to: (1) Remain effective following 

a determination that the principal is 

incompetent (a durable special power of 

attorney); or (2) become effective following a 

determination that the principal is 

incompetent (a springing durable special 

power of attorney). In no instance may a 

special power of attorney be used as the basis 

for negotiation of a check drawn on the 

United States Treasury more than six months 

after a determination that the principal is 

incompetent. 

FMS Form 234—Specific Power of 

Attorney (Corporation). This general power 

of attorney form may be executed by a 

corporation to authorize the indorsement by 

an attorney-in-fact for the classes of 

payments listed under FMS Form 231. When 

authority is given to an officer of the 

corporation to execute a power of attorney 

authorizing a third person to indorse and 

collect checks drawn on the United States 

Treasury in the name of the corporation, the 

power of attorney on FMS Form 234 should 

be accompanied by FMS Form 235 

(Resolution by Corporation Conferring 

Authority Upon an Officer to Execute a 

Power of Attorney for the Collection of 

Checks Drawn on the Treasurer of the United 

States), executed by the officer authorized 

herein to execute such a power. 

FMS Form 236—Specific Power of 

Attorney (Corporation). This specific power 

of attorney form may be executed by a 

corporation to authorize the indorsement by 

an attorney-in-fact of any class of check 

drawn on the United States Treasury. To be 

valid, the form must be executed after the 

issuance of the check and must describe the 

check in full, including the check serial and 

symbol numbers, date of issue, amount, and 

name of the payee. When authority is given 

to an officer of the corporation to execute a 

power of attorney authorizing a third person 

to indorse and collect checks drawn on the 

United States Treasury in the name of the 

corporation, the power of attorney on FMS 

Form 236 should be accompanied by FMS 

Form 235 (Resolution by Corporation 

Conferring Authority Upon an Officer to 

Execute a Power of Attorney for the 

Collection of Checks Drawn on the Treasurer 

of the United States), executed by the officer 

authorized herein to execute such a power.

Dated: October 12, 2004. 

Richard L. Gregg, 

Commissioner.

[FR Doc. 04–23279 Filed 10–18–04; 8:45 am] 

BILLING CODE 4810–35–P