[Federal Register Volume 69, Number 201 (Tuesday, October 19, 2004)]
[Rules and Regulations]
[Pages 61564-61576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-23279]



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Part III





Department of the Treasury





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Fiscal Service



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31 CFR Part 240



Indorsement and Payment of Checks Drawn on the United States Treasury; 
Interim Rule

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

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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.

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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 
<a href="/cdn-cgi/l/email-protection#3c5f54595f570e0d7c5a514f12484e595d4f125b534a"><span class="__cf_email__" data-cfemail="a8cbc0cdcbc39a99e8cec5db86dcdacdc9db86cfc7de">[email protected]</span></a>. 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 <a href="/cdn-cgi/l/email-protection#1b6974757a777f357969747470685b7d7668356f697e7a68357c746d"><span class="__cf_email__" data-cfemail="fc8e93929d9098d29e8e9393978fbc9a918fd2888e999d8fd29b938a">[email protected]</span></a>; Natalie H. Diana, 
Senior Counsel, at 202 874-6680 or <a href="/cdn-cgi/l/email-protection#620c0316030e0b074c060b030c0322040f114c16100703114c050d14"><span class="__cf_email__" data-cfemail="e7898693868b8e82c9838e868986a7818a94c99395828694c9808891">[email protected]</span></a>; or 
William Erle, Attorney-Advisor, at 202 874-6975 or 
<a href="/cdn-cgi/l/email-protection#5126383d3d38303c7f34233d3411373c227f25233430227f363e27"><span class="__cf_email__" data-cfemail="493e202525202824672c3b252c092f243a673d3b2c283a672e263f">[email protected]</span></a>.

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

[[Page 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-by-
Section analysis discusses substantive changes to the regulation.

Section 240.1 Scope of Regulations

    New paragraph (c) of Sec.  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 one-year 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.

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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 
Sec.  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

[[Page 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 Sec. Sec.  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 Sec.  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 Sec.  240.8(a) or declination 
of the check pursuant to new Sec.  240.6(c).

Section 240.6 Provisional Credit; First Examination; Declination; Final 
Payment

    Existing Sec.  240.5 is redesignated as Sec.  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 Sec.  240.6 is redesignated as Sec.  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 Sec.  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 Sec.  240.6(c)(4).

Section 240.9 Reclamation Procedures; Reclamation Protests

    Existing Sec.  240.8 is redesignated as Sec.  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 Sec.  240.4(e) and (f) relating to double presentment and 
adequacy of image quality. These reclamation protest provisions 
parallel the declination protest provisions at Sec.  240.7(b)(5) and 
(6).

Section 240.12 Processing of Checks

    Existing Sec.  240.11 is redesignated as Sec.  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

[[Page 61568]]

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

0
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


Sec.  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 Sec.  240.8 of this regulation. Treasury will 
reclaim on counterfeit checks that are deemed paid under Sec.  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.


Sec.  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 Sec.  
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 Sec.  240.4 and Sec. Sec.  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 Sec.  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 Sec.  
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 
Sec. Sec.  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.

[[Page 61570]]

    (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.


Sec.  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 Sec.  
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.


Sec.  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.


Sec.  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.


Sec.  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,

[[Page 61571]]

Treasury will promptly refund the amount of the payment.


Sec.  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 Sec.  
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 Sec. Sec.  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 Sec.  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.


Sec.  240.8  Reclamation of amounts of paid checks.

    (a) If, after making final payment in accordance with Sec.  240.6, 
Treasury determines that any guarantor has breached a presentment 
guarantee listed in Sec.  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 Sec.  240.10 and Treasury Check Offset in accordance 
with Sec.  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.


Sec.  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 Sec.  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

[[Page 61572]]

monthly statements to the reclamation debtor. Monthly statements will 
identify any unpaid reclamation debts (as defined at Sec.  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 Sec.  240.10;
    (ii) If the administrative offset is unsuccessful, Treasury intends 
to collect the debt through Treasury Check Offset in accordance with 
Sec.  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 Sec.  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 Sec.  
240.10 and Treasury Check Offset in accordance with Sec.  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 Sec.  
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 Sec. Sec.  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 Sec. Sec.  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 
Sec.  240.8(a) of this part or sending a ``REQUEST FOR REFUND (CHECK 
RECLAMATION)'' under Sec.  240.9(a) of this part.
    (i) Treasury will refrain from the collection activities identified 
in Sec. Sec.  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

[[Page 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 Sec. Sec.  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.


Sec.  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 Sec.  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 Sec.  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 Sec.  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.


Sec.  240.11  Treasury Check Offset.

    (a) If Treasury is unable to effect collection pursuant to 
Sec. Sec.  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.


Sec.  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 Sec.  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 Sec.  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 
Sec. Sec.  240.4, 240.8, and 240.9.
    (2) If a check is to be declined under Sec.  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 Sec.  240.5(a) or Sec.  240.15(c).

[[Page 61574]]

    (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


Sec.  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, Sec. Sec.  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.


Sec.  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 Sec.  240.17. After the end of the six-month 
period provided in Sec. Sec.  240.17(d) and (e), such checks must be 
handled in accordance with paragraph (a)(2) of this section.

[[Page 61575]]

Sec.  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 Sec. Sec.  
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.


Sec.  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.


Sec.  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-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.
    (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

[[Page 61576]]

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-in-fact is indorsing. An example would be: ``John 
Jones by Paul Smith, attorney-in-fact 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.


Sec.  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.


Sec.  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


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