[Federal Register Volume 75, Number 245 (Wednesday, December 22, 2010)]
[Rules and Regulations]
[Pages 80315-80335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32117]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 208

RIN 1510-AB26


Management of Federal Agency Disbursements

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (Treasury), Financial 
Management Service (FMS), is amending its regulation to require 
recipients of Federal nontax payments to receive payment by electronic 
funds transfer (EFT), effective May 1, 2011. The effective date is 
delayed until March 1, 2013, for individuals receiving Federal payments 
by check on May 1, 2011; and for individuals who file claims for 
Federal benefits before May 1, 2011, and request check payments when 
they file. Individuals who do not choose direct deposit of their 
payments to an account at a financial institution would be enrolled in 
the Direct Express[supreg] Debit MasterCard[supreg] card program, a 
prepaid card program established pursuant to terms and conditions 
approved by FMS. Treasury waives the EFT requirement for recipients 
born prior to May 1, 1921, who are receiving payments by paper check on 
March 1, 2013; for payments not eligible for deposit to a Direct 
Express[supreg] prepaid card account; and for recipients whose Direct 
Express[supreg] card has been suspended or cancelled. In addition, this 
rule establishes the criteria under which a payment recipient may 
request a waiver if the

[[Page 80316]]

EFT requirement creates a hardship due to his or her mental impairment 
or remote geographic location.

DATES: This rule is effective February 22, 2011.

ADDRESSES: You can download this rule at the following Web site: http://www.fms.treas.gov/eft. You may also inspect and copy this rule at: 
Treasury Department Library, Room 1428, Main Treasury Building, 1500 
Pennsylvania Avenue, NW., Washington, DC 20220. Before visiting, you 
must call (202) 622-0990 for an appointment. In accordance with the 
U.S. government's eRulemaking Initiative, FMS publishes rulemaking 
information on http://www.regulations.gov. Regulations.gov offers the 
public the ability to comment on, search, and view publicly available 
rulemaking materials, including comments received on rules.

FOR FURTHER INFORMATION CONTACT: Walt Henderson, Director, EFT Strategy 
Division; Natalie H. Diana, Senior Counsel; or Ronda Kent, Senior 
Counsel, at <a href="/cdn-cgi/l/email-protection#b8dddecc96dbd7d5d5ddd6cccbf8ded5cb96cccaddd9cb96dfd7ce"><span class="__cf_email__" data-cfemail="620704164c010d0f0f070c161122040f114c16100703114c050d14">[email protected]</span></a> or (202) 874-6619.

SUPPLEMENTARY INFORMATION: On June 17, 2010, the Department of the 
Treasury (Treasury), Financial Management Service (FMS), published a 
notice of proposed rulemaking (NPRM) at 75 FR 34394, requesting comment 
on a proposed amendment to 31 CFR part 208 (Part 208), which implements 
the requirements of 31 U.S.C. 3332. Section 3332, title 31, United 
States Code, as amended by subsection 31001(x)(1) of the Debt 
Collection Improvement Act of 1996 (Pub. L. 104-134) (Section 3332), 
generally requires that all Federal nontax payments be made by 
electronic funds transfer (EFT), unless waived by the Secretary. The 
Secretary must ensure that individuals required to receive Federal 
payments by EFT have access to an account at a financial institution 
``at a reasonable cost'' and with ``the same consumer protections with 
respect to the account as other account holders at the same financial 
institution.'' See 31 U.S.C. 3332(f), (i)(2). Direct deposit is the 
primary method used to make EFT Federal payments.
    The NPRM proposed to amend Part 208 to require all recipients of 
Federal nontax payments to receive payments by EFT, effective March 1, 
2011, with a delayed effective date of March 1, 2013 for individuals 
receiving Federal payments by check on March 1, 2011, and for 
individuals who file claims for Federal benefits before March 1, 2011 
and request check payments when they file. Recipients receiving 
payments by direct deposit prior to March 1, 2011, would continue to do 
so under the proposed rule.
    Treasury's proposed rule stated that a Federal payment recipient 
could choose to have payments directly deposited to his or her own 
account at the recipient's financial institution. The NPRM stated that 
individuals who did not choose direct deposit of their payments to an 
account at a financial institution would be enrolled in the Direct 
Express[supreg] \1\ Debit MasterCard[supreg] card program, a prepaid 
card program established pursuant to terms and conditions approved by 
FMS. The proposed rule contemplated that, beginning on March 1, 2013, 
all recipients of Federal benefit and other non-tax payments would 
receive their payments by direct deposit, either to a bank account or 
to a Direct Express[supreg] card account.
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    \1\ Direct Express[supreg] is a registered service mark of the 
Financial Management Service, U.S. Department of the Treasury. The 
Direct Express[supreg] Debit MasterCard[supreg] card is issued by 
Comerica Bank, pursuant to a license by MasterCard International 
Incorporated. MasterCard[supreg] and the MasterCard[supreg] Brand 
Mark are registered trademarks of MasterCard International 
Incorporated.
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    Treasury sought comment on all aspects of the proposed rule, and 
specifically requested comments regarding (1) exceptional circumstances 
where specific types of individual EFT waivers could be needed, (2) the 
costs to recipients for accessing their benefit payments received by 
paper check compared to those received by EFT, and (3) alternative 
phase-in approaches.
    Treasury is finalizing the proposal in the NPRM to require, in 
general, that all Federal nontax payment recipients receive payments by 
EFT. The March 1, 2011 effective date has been changed to May 1, 2011. 
There remains a delayed effective date of March 1, 2013, for: (1) 
individuals receiving Federal payments by check on May 1, 2011; and (2) 
individuals who file claims for Federal benefits before May 1, 2011 and 
request check payments when they file. In addition, after consideration 
of the comments received, Treasury is modifying its proposed 
elimination of all individual waivers from the EFT requirement. 
Instead, Treasury will automatically waive the EFT requirement for: (1) 
A recipient born prior to May 1, 1921, who is receiving Federal 
payments by check on March 1, 2013; (2) a payment that is not eligible 
for deposit to a Direct Express[supreg] prepaid card account; and (3) a 
recipient whose Direct Express[supreg] card has been suspended or 
cancelled. Also, the final rule establishes the criteria under which a 
payment recipient may request a waiver if the EFT requirement creates a 
hardship due to his or her mental impairment or remote geographic 
location.

I. Background

    Part 208 sets forth the general rule requiring Federal payments to 
be made by EFT and the requirements for accounts to which Federal 
payments may be sent by EFT. ``Federal payment'' means any nontax 
payment made by an agency, including, but not limited to, Federal wage, 
salary, and retirement payments; vendor and expense reimbursement 
payments; benefit payments; and miscellaneous payments. See 31 CFR 
208.2(g). Federal payments include payments made to representative 
payees and other authorized payment agents. See 31 CFR 210.5(b)(1). For 
Part 208 purposes, ``agency'' means any department, agency, or 
instrumentality of the United States Government, or a corporation owned 
or controlled by the Government of the United States. See 31 CFR 
208.2(a).
    As explained in the NPRM, Part 208 provides that any individual who 
receives a Federal benefit, wage, salary, or retirement payment is 
eligible to open an Electronic Transfer Account (ETA) at a financial 
institution that offers such accounts, and establishes the 
responsibilities of Federal agencies and recipients under the 
regulation. Part 208 also sets forth a number of waivers to the general 
requirement that Federal payments be delivered by EFT. See 31 CFR 
208.4. Among the waivers previously included in the regulation were 
waivers for situations in which an individual determined that payment 
by EFT would impose a hardship due to a physical or mental disability 
or a geographic, language or literacy barrier, or would impose a 
financial hardship. See 31 CFR 208.4(a).
    Treasury has reviewed the comments received in response to the 
NPRM, and, as described in more detail below, modified its proposal to 
eliminate all individual waivers from the EFT requirements. The 
Secretary's waiver authority remains unchanged, and Federal agencies 
continue to have the ability to waive payment by direct deposit or 
other EFT method in the circumstances described in paragraphs (b) 
through (g) of Sec.  208.4, namely, for situations where the 
infrastructure in a foreign country does not support EFT, for certain 
disaster or military situations, for situations in which there may be a 
security threat or for valid law enforcement reasons, for non-recurring 
payments, and for unusual and/or urgent situations where the Government 
would be seriously injured unless payment is made by a method other

[[Page 80317]]

than EFT. The final rule revises the criteria for the agency waiver 
related to non-recurring payments, as described below.

II. Summary of NPRM Comments

    Treasury received 33 comment letters and 1,087 comments solicited 
by and sent to a consumer advocate organization via its Web site. Of 
the 33 comment letters, three were from consumer advocate groups. One 
of the groups submitted its comments on behalf of its low-income 
clients, another consumer advocate organization, and 23 national, 
state, and local advocates for low and moderate income recipients of 
Federal benefits. While the consumer advocate groups generally 
acknowledged the benefits of EFT, all three groups opposed the complete 
elimination of waivers for individuals for whom EFT might impose a 
hardship and suggested improvements to the Direct Express[supreg] card 
and changes to the Direct Express[supreg] card terms and conditions. In 
addition, the three groups recommended that Treasury issue consumer 
protection rules for individuals whose benefit payments are delivered 
electronically to prohibit predatory loans, the unlawful freezing or 
garnishing of benefit payments legally exempt from garnishment, and the 
offsetting of overdraft and other bank fees against benefit payments.
    Three comment letters were from associations that represent 
financial institutions. One commenter supported Treasury's proposal, 
provided that payments would be delivered, by default, to a recipient's 
existing bank account and that recipients would be allowed to elect 
direct deposit to reloadable prepaid cards issued by insured depositary 
institutions. Another commenter supported Treasury's proposal, 
including the alternative debit card option, because of the potential 
cost savings to credit unions. The third association commenter also 
supported Treasury's proposal and urged Treasury not to include 
individual waivers in the final rule.
    A national electronic payments association and one financial 
institution submitted comment letters supporting Treasury's proposal. 
The electronic payments association supported the Direct 
Express[supreg] card as a safe, convenient, and reasonably priced 
alternative for unbanked Federal benefit recipients. The financial 
institution urged Treasury to consider expanding its regulations to 
allow direct deposit of Federal payments to general purpose reloadable 
prepaid debit cards.
    Fourteen attorneys and an association that represents Social 
Security claimants' representatives recommended that Treasury waive the 
EFT requirements for attorneys and other representatives who receive 
fee payments for representing Social Security claimants. The 
association and the attorneys stated that, when fee monies are 
electronically deposited into an attorney's account, the attorney does 
not receive adequate information to determine which client the fee 
payment is for. In addition, the association and the attorneys stated 
that many attorneys and other representatives, as associates or 
employees of a firm, are precluded from accepting direct deposit of 
representative fees into their own personal bank account. These fee 
payments must be deposited directly to accounts owned by their firms. 
This is problematic because the Social Security Administration will 
only make representative fee payments to individual attorneys or 
representatives, most of whom are not the owners of their firm's bank 
account, and therefore cannot accept or direct payments to them.
    A national trade association representing neighborhood financial 
service providers, such as check cashers, remittance servicers, short-
term lenders and bill payment providers, did not support Treasury's 
proposal. It viewed the proposal as depriving Americans of the right of 
choice with respect to the delivery of Federal nontax payments, 
disproportionately affecting low- and moderate-income individuals.
    Treasury received six comment letters from individual or 
unidentified commenters with various concerns. One of these commenters, 
a coordinator of a local Volunteer Income Tax Assistance program, 
supported the proposed rule, encouraged Treasury to discontinue the ETA 
program, and suggested modifying the Direct Express[supreg] card 
program to provide at least one surcharge-free automated teller machine 
(ATM) withdrawal at any ATM. Another commenter, a certified public 
accountant, raised concerns about whether the proposed rule would 
create problems if nursing homes are unable to clearly identify the 
resident for whom a benefit payment has been directly deposited to the 
nursing home's trust account. Another individual suggested that 
Treasury clarify that it continues to support the ETA as an option for 
receiving Federal benefit payments by direct deposit. Another 
individual suggested that Treasury require financial institutions to 
allow recipients of Federal funds to obtain the full amount of their 
payment in one transaction with minimal charge. An individual attorney 
raised a concern that direct deposit of Social Security disability or 
SSI benefits could inadvertently lead to disqualification from Medicaid 
whereas an individual receiving a paper check payment can control when 
the payment is deposited into his or her account. An unidentified 
individual opposed the proposed rule primarily because the commenter 
believed that benefit recipients are entitled to choose to receive 
their payments by paper check, and did not agree with Treasury's 
underlying rationale for the proposed rule.
    In addition to its own comment, one consumer advocate organization 
sent Treasury 1,087 comments it solicited and received through its Web 
site. Sixty-three of the Web site commenters expressed support for 
Treasury's proposed rule, but most of the commenters opposed the 
proposal for one or more of the following reasons: (1) 845 of the 
commenters cited a preference for allowing those who wish to continue 
to receive a paper check to do so (more than 140 of the commenters 
already receive their payments electronically, but were concerned for 
others who may choose not to do so); (2) 615 of the commenters cited an 
objection to bank fees, including Direct Express[supreg] card fees, 
with approximately 482 commenters objecting to requiring a benefit 
recipient to pay fees to receive a monthly paper statement; (3) 558 
commenters cited concerns about requiring benefit recipients to bank 
online and/or discomfort with adapting to new payment technologies, 
especially for older benefit recipients; (4) 475 commenters cited 
concerns about whether electronic banking would lead to increased 
identity theft; (5) 410 commenters cited concerns about providing bank 
account information to the Social Security Administration or other 
Federal agencies; and (6) 134 commenters were concerned about the 
ability of elderly benefit recipients to change the way they receive 
their benefit payments. Approximately 125 of the commenters simply 
expressed general opposition to Treasury's proposal. Other 
miscellaneous reasons for opposing Treasury's proposal included 
preference for checks (65 commenters), concerns about EFT processing 
(13 commenters) and improper garnishment (6 commenters), opposition to 
prepaid cards (21 commenters), concerns about access to the banking 
system (35 commenters), need for access to a free account (18 
commenters), and hardship (10 commenters).
    Finally, three Federal government agencies submitted comments for 
Treasury's consideration. One agency

[[Page 80318]]

expressed uncertainty about whether recipients of payments from that 
agency would qualify for the Direct Express[supreg] card. Two agencies 
raised concerns about making payments to recipients who reside in 
geographically remote areas with no access to electronic financial 
services.

III. Treasury's Responses to NPRM Comments

    In developing the final rule, Treasury has attempted to implement 
the requirements of Section 3332 on balance with concerns expressed by 
different commenters. The final rule essentially adopts the core 
provisions of the proposed rule, and also makes available several 
important waivers for individuals in circumstances in which Treasury 
finds that requiring EFT could create a significant hardship for those 
individuals. The final rule reflects the view of the commenters who 
generally agree that receiving payments by EFT is beneficial to 
recipients and taxpayers for the reasons described in the NPRM and this 
final rule. Treasury has addressed the concerns raised by those opposed 
to the EFT requirement, and will continue to monitor carefully whether 
recipients are subject to additional hardships in the future because of 
the requirements of this final rule. Treasury's responses to the NPRM 
comments are as follows.

1. Retain Paper Check as a Payment Option

    Many commenters voiced a preference for Treasury to allow 
recipients the choice of a paper check as a way to receive their 
Federal payments. Treasury recognizes that the paper check has been an 
important Federal payment instrument for at least 150 years. Treasury 
also recognizes that choice, as expressed by many of the commenters, is 
an important American value. While Congress mandated that all non-tax 
payments be made electronically, Part 208 continues to offer payment 
recipients the choice of how to receive their payments in an electronic 
format. Payment recipients have many financial account options 
available to them, and in fiscal year 2010, more than 80% of all non-
tax payment recipients selected their own accounts for the purpose of 
receiving payments by EFT. Further, Congress conditioned its mandate on 
Treasury making available to payment recipients an account at a 
financial institution ``at a reasonable cost'' and with ``the same 
consumer protections with respect to the account as other account 
holders at the same financial institution.'' See 31 U.S.C. 3332(f), 
(i)(2).
    The Direct Express[supreg] card, which is now a nationwide option 
for most Federal benefit recipients, meets these statutory account 
requirements. There are no monthly fees and most services are free, so 
it is possible for an individual to use the Direct Express[supreg] card 
for free. There are no fees for cardholders to sign up for or activate 
the card; receive deposits; make purchases at retail locations, online 
or by telephone; get cash at retail locations and financial 
institutions; or check the card's balance at an ATM, by telephone or 
online. Transaction history and other account information are available 
at no cost online or by telephone, but if desired, a cardholder may 
receive a monthly paper statement for $ .75 per month. There are no 
fees for declined transactions and, in rare instances when overdrafts 
occur, there are no overdraft fees.
    Cardholders can choose to receive free automated text, email or 
telephone ``low balance'' alerts or ``deposit notifications'' when 
money is deposited to their card account. Cardholders may close their 
Direct Express[supreg] card account at any time without a fee. There 
are no inactivity fees and there is no charge for bank teller cash 
withdrawals at MasterCard[supreg] member banks. The free services and 
minimal fees are fully disclosed on the Direct Express[supreg] Web site 
(www.USDirectExpress.com), in materials available to interested 
applicants, and in materials that are sent to new cardholders along 
with the card. Fee and features information are also available by 
calling the Direct Express[supreg] toll-free call center.
    Cardholders may make purchases anywhere Debit MasterCard[supreg] is 
accepted, including millions of retail locations worldwide, online, or 
by telephone. The Direct Express[supreg] card provider does not impose 
any limits on the number of transactions a cardholder may conduct with 
a card. Similarly, cardholders may make cash withdrawals and check 
their account balances at ATMs. A cardholder is allowed one free ATM 
cash withdrawal for every Federal payment the cardholder receives, 
valid until the end of the month following the month of receipt. For 
subsequent ATM cash withdrawals, a cardholder pays a fee to the card 
issuer of $.90 per ATM withdrawal in the United States. ATM owners 
often charge ATM users additional fees, known as ``surcharge fees;'' 
however, a Direct Express[supreg] cardholder may make cash withdrawals 
at more than 53,000 Direct Express[supreg] card surcharge-free network 
ATMs without paying any surcharge fees. The Direct Express[supreg] card 
surcharge-free ATM network consists of ATMs owned by a variety of 
entities who have agreed to offer surcharge-free ATM access to Direct 
Express[supreg] cardholders. Cardholders are provided with information 
on how to recognize the various logos that identify a surcharge-free 
ATM, the Direct Express[supreg] card Web site has an ATM locator 
feature to assist cardholders in finding a surcharge-free ATM, and 
cardholders may call the customer service department with any questions 
on how to locate a surcharge-free ATM. The Direct Express[supreg] card 
provider does not impose a daily limit for ATM withdrawals, although 
many ATM owners do set limits on the maximum amount of cash that may be 
withdrawn by any debit cardholder. ATM owners' daily ATM withdrawal 
limits typically range from $200 to $1,000.
    Direct Express[supreg] cardholders are protected by the Federal 
Reserve Board's Regulation E (12 CFR part 205, which implements the 
Electronic Funds Transfer Act (Regulation E)), which generally provides 
certain protections to a cardholder whose card is lost or stolen, 
subject to reporting requirements. In fact, Direct Express[supreg] 
cardholders have 90 days to report unauthorized transactions rather 
than the typical 60 days offered by most financial institutions. Card 
balances are covered by deposit insurance by the Federal Deposit 
Insurance Corporation (FDIC) to the extent allowed by law and Direct 
Express[supreg] cardholders are not at risk for an improper garnishment 
or the related freezing of funds in the card account. More information 
about the Direct Express[supreg] card, including a list of all fees and 
the terms and conditions of card use, can be found at 
www.USDirectExpress.com.
    In light of the choices available to payment recipients, as well as 
the benefits of electronic payments to recipients and the Government, 
Treasury believes it is appropriate to make all Federal nontax payments 
electronically.

2. Provide Limited Waivers From EFT Requirement

a. Limited Waivers for Hardship Based on Mental Impairment and 
Geographic Barriers
    In its NPRM, Treasury requested comments about ``examples of 
exceptional circumstances where specific types of individual EFT 
waivers could be needed, even with the availability of the Direct 
Express[supreg] card for Federal benefit recipients.'' See 75 FR 34394, 
at 34395. After review and consideration of all of the comments,

[[Page 80319]]

Treasury agrees with those commenters who urged Treasury to reconsider 
its proposed elimination of individual waivers from the EFT requirement 
for claims of hardships due to mental disability or geographic 
barriers. Treasury does not agree, however, that such reconsideration 
should be extended to the elimination of waivers related to physical 
disability, language or literacy barriers, or where payment by EFT 
would impose a financial hardship. None of the commenters provided 
specific examples of how physical disability or language or literacy 
barriers would make receiving payments by EFT more difficult than 
receiving payments by paper check and Treasury does not find any basis 
for maintaining a waiver for such conditions. In addition, although 
several commenters urged Treasury to consider that any fees charged for 
use of the Direct Express[supreg] card could create a financial 
hardship, the Direct Express[supreg] card is structured in such a way 
that it may be used at no cost to the payment recipient, thus 
minimizing a beneficiary's risk of incurring a financial hardship to 
receive and use his or her benefits. Treasury recognizes that more 
education regarding how to use the card for free is needed and is 
expanding its program to provide such information to Direct 
Express[supreg] cardholders in various ways, including direct mail, 
informational pictorial brochures, online videos, and more.
    One consumer advocate organization urged Treasury to retain a paper 
check option for those who articulate a ``legitimate'' reason for 
receiving payments by paper check, including physical or mental 
disability that makes it difficult to use a debit card; difficulty 
accessing funds without incurring fees, costs, or inconvenience; 
availability of a less expensive and more beneficial alternative using 
a paper check; dispute with the participating financial provider of the 
debit card; concerns over privacy or financial security; literacy and 
technology barriers; and need to accommodate assistance provided by a 
representative payee or family member. This commenter proposed that 
Treasury accept individuals' statements about the need for a paper 
check without inquiry or review. Another consumer advocate organization 
similarly urged Treasury to reconsider its proposal to eliminate 
individual waivers with respect to people with mental disabilities, 
emotional disorders, or other disabilities making the use of the Direct 
Express[supreg] card difficult; people who live in rural areas, or even 
inner city areas, where there is not ready access to banks and 
automated teller machines (ATMs); and other hardships that make both a 
bank account and the Direct Express[supreg] card unusable for the 
payment recipient. This organization also suggested that Treasury not 
review waiver requests because the costs of policing a waiver process 
would far outweigh the costs associated with letting recipients who 
would not qualify for a waiver receive a paper check. Another consumer 
advocate organization also objected to the elimination of the provision 
allowing recipients to determine on their own whether they qualify for 
a waiver to obtain their Federal payments by paper check. Unlike the 
other two consumer advocate organizations, this organization urged 
Treasury to offer the broadest waiver possible to allow any individual 
who wants his or her payments by paper check to receive them that way.
    After reviewing the comments, Treasury has reconsidered its 
proposed elimination of the waivers related to mental disability and 
geographic barriers. A consumer advocate organization commented on the 
need to provide a waiver for individuals who have mental or emotional 
disabilities, for example, someone with an anxiety disorder that makes 
it difficult to receive benefits electronically, but not by paper 
check. Another commenter cited his parents with poor memories stating 
that having their payments deposited electronically would simply add to 
their confusion and problems in taking care of their own finances. In 
recognition of individuals within the payment recipient population who 
may have mental impairments that do not hinder their ability to manage 
their financial transactions using checks or cash, but for whom EFT 
would present a significant hardship, Treasury is retaining a waiver 
from the EFT requirement for an individual payment recipient for whom 
EFT would impose a hardship because of his or her inability to manage a 
bank account or prepaid debit card due to a mental impairment. Treasury 
notes that, in those cases where a beneficiary suffers from a mental 
disability necessitating the appointment of a representative payee, the 
representative payee is the ``recipient'' of a Federal payment under 
this rule. In those cases, it is the condition of the representative 
payee and not the beneficiary that is the determining factor as to 
whether a waiver is appropriate.
    Two Federal agencies cited the need to consider the inability of 
payment recipients who live in remote and less developed areas of the 
country to access their payments electronically. For example, according 
to one agency, many recipients of Individual Indian Money payments live 
in remote and less developed areas such as Alaska and on reservations 
throughout Indian Country in an environment lacking many amenities 
including public infrastructure such as roads and convenient access to 
providers of goods and services. The other agency noted that Regional 
Advisory Council members appointed under the Alaska National Interest 
Lands Conservation Act (ANILCA) travel to council meetings held in off-
roadway bush villages where it is highly unusual for most village 
merchants to have the infrastructure to accept charge cards. These 
villages are cash economies with check cashing capabilities, but no 
ability to process electronic financial transactions. In its comment, 
one consumer advocate organization cited the lack of access to banks 
and ATMs in the majority of Montana, rural parts of Alaska, and some 
rural parts of Missouri. The fact that an area is rural or remote does 
not necessarily preclude the use of electronic financial services. As 
these examples demonstrate, it is the combination of being in an area 
that is rural or remote plus being in an area lacking the 
transportation or other infrastructure (for example, access to the 
Internet and online banking) necessary to access electronic financial 
services. Therefore, Treasury is including in the final rule a waiver 
from the EFT requirement for an individual recipient who lives in a 
remote area lacking the infrastructure to support electronic financial 
transactions.
    Under this final rule, to assert one of these two waivers based on 
mental impairment or geographic barrier, a Federal payment recipient is 
required to provide to Treasury a written certification supporting his 
or her request, in such form as Treasury may prescribe. The individual 
is required to sign the certification before a notary public, or 
otherwise file the certification in such form that Treasury may 
prescribe. Treasury will publish guidance describing the waiver 
process.
b. Automatic Waivers for Recipients Born Prior to May 1, 1921 Who Are 
Receiving Federal Payments by Check on March 1, 2013; for Payments Not 
Eligible for the Direct Express[supreg] Card; and for Recipients Whose 
Direct Express[supreg] Card Has Been Suspended or Cancelled
    In addition to the limited waivers from the EFT requirement for 
hardship claims due to mental impairment and geographic barriers, 
Treasury has added automatic waivers for: (1) A recipient

[[Page 80320]]

born prior to May 1, 1921, who is receiving Federal payments by check 
on March 1, 2013; (2) a payment that is not eligible for deposit to a 
Direct Express[supreg] prepaid card account; and (3) a recipient whose 
Direct Express[supreg] card has been suspended or cancelled.
    Many commenters were concerned about the ability of elderly check 
payment recipients to adapt to electronic money technologies. For 
example, one consumer advocate organization explained that ``[p]eople 
who are older are more likely to be unaccustomed to or uncomfortable 
using the technology involved in electronic disbursements.'' An 
individual commenter noted: ``Many of us older people do not understand 
and get confused by this paperless society * * * '' On the other hand, 
another commenter believed that paper checks cause problems for older 
people noting that through her work as a coordinator of a Volunteer 
Income Tax Assistance program in Missouri, she has ``witnessed 
firsthand the hardships that * * * elderly * * * individuals face when 
a Treasury Check is lost or misdirected through the mail.'' Many senior 
citizens receive their benefit payments electronically, and are very 
capable of managing their finances electronically.
    In recognition of the concerns raised by the commenters about the 
elderly, Treasury has established an automatic waiver from the EFT 
requirement for recipients born prior to May 1, 1921, who are receiving 
Federal payments by check on March 1, 2013. According to the Social 
Security Administration, almost 80% of Social Security recipients who 
will turn 80 years old in 2011 receive their payments electronically. 
By comparison, fewer than 72% of Social Security recipients who will 
turn 90 years old in 2011 receive their payments electronically. 
Further, for most of the population of elderly benefit recipients, the 
EFT requirement is not effective until March 2013, giving Treasury, 
Federal agencies, community organizations, and others more than two 
years to educate individuals so they may become comfortable with and 
adapt to the requirement. Between the publication of the final rule and 
the effective date for current check recipients, Treasury will work 
with Federal agencies and various organizations to educate all affected 
individuals, including the elderly and long-time check recipients, 
about how to use direct deposit or the Direct Express[supreg] debit 
card.
    Treasury has also waived the EFT requirement for any payment that 
is not eligible for a Direct Express[supreg] card account and for those 
payment recipients whose Direct Express[supreg] card has been suspended 
or cancelled by the card issuer due to improper, fraudulent, or 
unauthorized use. The Direct Express[supreg] card program currently 
accepts Social Security, SSI, and Veterans compensation and pension 
benefit payments, as well as Railroad Retirement benefit, Black Lung 
benefit, and civil service retirement benefit payments. If a recipient 
receives a payment for which the Direct Express[supreg] card is 
unavailable (for example, an Individual Indian Money payment or a 
pension benefit payment), then the individual is automatically exempt 
from the EFT requirement for that payment type. Once the card becomes 
available for the payment type, then the recipient will be required to 
switch to an EFT payment option. If the individual also receives other 
types of Federal payments that are accepted by the Direct 
Express[supreg] card, those payments remain subject to the EFT 
requirement.
    Further, under the terms and conditions of the Direct 
Express[supreg] card program, the card issuer reserves the right to 
suspend or cancel the Direct Express[supreg] card for reasons such as 
cardholder breach of the account terms and conditions, multiple 
cardholder claims of unauthorized transactions, a card being used for 
an unlawful purpose, or other similar reasons. Treasury agrees that the 
card provider needs to retain the right to suspend or cancel an 
individual's card account in these types of cases, and recognizes that 
in the few instances where suspension or cancellation occurs, the 
payment recipient may have no other way to receive his or her payment 
except by a paper check.
c. Elimination of Waivers Based on Hardship Due to Physical Disability, 
Language or Literacy Barriers, or Where Payment by EFT Would Impose a 
Financial Hardship
    Given the availability of the Direct Express[supreg] card and 
Treasury's expansion of its public education campaign describing how to 
use the Direct Express[supreg] card, physical disability, language or 
literacy barriers, and fees no longer present hardships requiring 
waivers from the EFT requirement.
    i. Physical Disability. As noted above, Treasury requested specific 
examples of the types of hardships that could make it difficult to use 
EFT as compared to a paper check, but none were cited by the many 
commenters. While Treasury recognizes that not all physical disability 
barriers have been eliminated, the Americans With Disabilities Act of 
1990, Public Law101-336 (Jul. 26, 1990), and the advent of many 
services that benefit the physically disabled, such as accessible 
transportation, public accommodations, and online banking, have 
generally rendered receiving benefit payments by EFT no more difficult 
than receiving payments by paper check. In some cases, EFT payments may 
even be easier for the recipient. With the elimination of this waiver, 
Treasury recognizes that for those who are physically disabled, the 
ability to travel in remote and rural areas may be limited, but 
considers this to be more a hardship due to a geographic barrier, 
described above, than solely because of a physical disability. In 
addition, as suggested by two commenters, Treasury is working with the 
Direct Express[supreg] card provider to determine the feasibility of 
providing cardholders with an additional convenience card that could be 
loaded via the Internet or by telephone with a cardholder-determined 
amount of funds for use by a caregiver or relative to make purchases on 
behalf of the cardholder.
    ii. Language Barriers. None of the commenters urged Treasury to 
continue the waiver from the EFT requirements based on hardship due to 
language barriers. All of the Direct Express[supreg] cardholder 
materials are in English and Spanish, and the Direct Express[supreg] 
card provider offers both English and Spanish support through its 
automated telephone service and its customer service representatives. 
Callers may choose to speak with a customer service representative in 
either language. In addition, the Direct Express[supreg] card provider 
offers real-time free interpreter services in virtually any language a 
caller requires. For example, in September 2010, the Direct 
Express[supreg] card provider handled customer service calls in 19 
different languages in addition to English, including languages such as 
Mandarin, Urdu, Tagalog, and Tigrinya.
    iii. Literacy Barriers. None of the commenters specifically urged 
Treasury to continue its waiver based on hardship due to literacy 
barriers, although several commenters alluded to the difficulties 
people have due to a lack of basic literacy skills. For example, one 
commenter noted that the constituents she works with in a poor, rural 
area of Georgia are often barely literate and deal with cash because 
they understand it. Treasury recognizes that lack of basic literacy 
skills hinders many in managing their financial affairs, and 
understands the challenges associated with moving some individuals to 
payment by EFT from payment by paper check. The delayed effective date 
of the rule for those currently receiving paper checks to March 2013, 
gives Treasury

[[Page 80321]]

additional time to expand its public education efforts related to EFT 
options. Among other things, through its Go Direct [supreg] campaign, 
Treasury will work with more than 1,800 partners who know their 
communities best to help educate check recipients about the benefits of 
direct deposit, the options for receiving payments electronically, and 
how to safely and cost-effectively use the Direct Express[supreg] card. 
With the assistance of its partners, Treasury is able to tailor its 
education efforts to meet the differing needs of local communities.
    Treasury especially recognizes the need for and importance of 
expanded cardholder education for existing and new Direct 
Express[supreg] cardholders. While Treasury recognizes that the current 
pool of Direct Express[supreg] cardholders may not resemble future 
Direct Express[supreg] cardholders in either demographic 
characteristics or attitudinal variables, according to research 
conducted in March 2009 (Direct Express--Cardholder Satisfaction and 
Usage Survey, OMB Control No. 1510-0074), 95 percent of Direct 
Express[supreg] cardholders are satisfied with the card.\2\ Eight in 
ten satisfied cardholders cite convenience, safety or immediate access 
to money as reasons for their satisfaction. Eighty-six percent of those 
surveyed said they would recommend the card to a friend or family 
member who receives Federal benefits. Despite this high satisfaction 
rate, Treasury believes that many Direct Express[supreg] cardholders 
may be unaware of important features that promote proper card usage and 
reduce fees, such as the availability of free text message alerts on 
their cell phones when a deposit is made or when their balance is low, 
the surcharge free ATM network, the ability to get cash back at point-
of-sale (POS) locations for free, or even the ability to make purchases 
at retail locations for free. Using its research, including recent 
research conducted with respect to cardholder education materials sent 
to approximately 7,000 newly enrolled Direct Express[supreg] 
cardholders who receive Veterans compensation and pension benefit 
payments, Treasury will develop materials, such as informational 
pictorial brochures, and methods for further educating benefit 
recipients as necessary, and as suggested by several commenters.
---------------------------------------------------------------------------

    \2\ Summaries of all of the surveys conducted by or on behalf of 
Treasury that are cited in this rulemaking may be found at http://www.fms.treas.gov/eft.
---------------------------------------------------------------------------

    In addition, Treasury continues to work with its Go Direct[supreg] 
partners to promote financial education. For example, through its 
partnership with the Federal Deposit Insurance Corporation (FDIC), the 
Go Direct[supreg] campaign is working to raise awareness of the value 
of financial education through the FDIC's award-winning Money Smart 
financial education program. The Money Smart program is a comprehensive 
financial education curriculum designed to help individuals outside the 
financial mainstream enhance their financial skills and create positive 
banking relationships. Many Go Direct[supreg] campaign partners have 
used the Money Smart curriculum in their financial education efforts, 
including banks, credit unions, law enforcement and crime prevention 
organizations, aging and senior organizations, library systems, and 
community and disability organizations.
    iv. Financial Hardship. Many commenters suggested that the cost of 
receiving payments electronically is higher than receiving payments by 
paper check for many benefit recipients, and expressed concern that 
Treasury's EFT requirement will create a financial hardship for many of 
America's most vulnerable population. Treasury's goal is to provide 
Federal beneficiaries and other payment recipients with a low-cost 
option for receipt of Federal payments, which goes beyond the 
requirement in Section 3332 that Treasury make available an account at 
a ``reasonable cost.'' See 31 U.S.C. 3332(i)(2)(a). In addition to low-
cost accounts available from financial institutions and other financial 
service providers around the country, Federal payment recipients have 
at least one low-cost option--the Direct Express[supreg] card--and many 
recipients potentially have a second option--the Electronic Transfer 
Account (ETA), an account developed by Treasury in 1999. Although the 
ETA is not available on a nationwide basis and does not include some of 
the more useful features that have become available with prepaid debit 
cards in recent years (thus making the Direct Express[supreg] card a 
more cost-effective and useful option in most cases), the ETA continues 
to meet the needs of some benefit recipients and will continue to be 
available.
    The Direct Express[supreg] card offers a user-friendly low-cost 
option for Federal benefit payment recipients (see Direct 
Express[supreg] card fee tables below). The account fees are structured 
so that even those cardholders without access to surcharge-free ATMs 
can use their cards for free because they can access their funds 
through free POS purchases either in-store or online, can get cash back 
for free at retail locations, and can get cash for free at any 
MasterCard[supreg] member financial institution. The Direct 
Express[supreg] surcharge-free ATM network has more than 53,000 
surcharge-free ATMs, and the Direct Express[supreg] card program 
provider continues to identify opportunities to expand the network 
further.
    While many commenters expressed concern about having to pay fees to 
the Direct Express[supreg] card provider, or pay fees to receive a 
paper statement, Treasury believes that these fees are generally lower 
than costs that could be imposed for cashing a Treasury check and 
managing financial transactions on a cash basis. The Direct 
Express[supreg] fee tables are as follows:

                                             Standard Free Services
----------------------------------------------------------------------------------------------------------------
                       Service                                                    Fee
----------------------------------------------------------------------------------------------------------------
Purchases at U.S. merchant locations................  FREE
Cashback with purchase..............................  FREE
Cash from bank tellers..............................  FREE
Customer service calls..............................  FREE
Web account access..................................  FREE
Deposit notification................................  FREE
Low balance notification............................  FREE
Card replacement-One free per year..................  FREE
ATM balance inquiry.................................  FREE
ATM denial of service...............................  FREE

[[Page 80322]]

 
ATM cash withdrawal in the U.S. including the         One free withdrawal with each deposit to your Direct
 District of Columbia, Guam, Puerto Rico, and U.S.     Express[supreg] Card Account.*
 Virgin Islands. Surcharge by ATM owner may apply.
----------------------------------------------------------------------------------------------------------------
* For each Federal government deposit to your Card Account, Comerica Bank will waive the fee for one ATM cash
  withdrawal in the U.S. The fee waiver earned for that deposit expires on the last day of the following month
  in which the deposit was credited to the Card Account.


                                        The ONLY Fees You Can Be Charged
----------------------------------------------------------------------------------------------------------------
                  Optional service                                                Fee
----------------------------------------------------------------------------------------------------------------
ATM cash withdrawals after free transactions are      $0.90 each withdrawal (after free transactions are used).
 used in U.S. including the District of Columbia,
 Guam, Puerto Rico, and U.S. Virgin Islands.
 Surcharge by ATM owner may apply.
Monthly paper statement mailed to you...............  $0.75 each month.
Funds transfer to a personal U.S. bank account......  $1.50 each time.
Card replacement after one free each year...........  $4.00 after one (1) free each year.
Overnight delivery of replacement card..............  $13.50 each time.
ATM cash withdrawal outside of U.S. Surcharge by ATM  $3.00 plus 3% of amount withdrawn.
 owner may apply.
Purchase at Merchant Locations outside of U.S.......  3% of purchase amount.
----------------------------------------------------------------------------------------------------------------

    The low fees and nationwide availability of the Direct 
Express[supreg] card more than satisfy the statutory requirement of 31 
U.S.C. 3332 for Treasury to make available an account at a financial 
institution ``at a reasonable cost'' and with ``the same consumer 
protections with respect to the account as other account holders at the 
same financial institution.'' See 31 U.S.C. 3332(f), (i)(2).
    A recent report comparing fees for general purpose reloadable 
prepaid cards helps illustrate the low cost of using a Direct 
Express[supreg] card. A consumer advocate organization conducted a case 
study showing the wide variations in fee structures for four prepaid 
card products. See, ``Prepaid Cards: Second-Tier Bank Account 
Substitutes,'' Consumers Union (September 2010) (http://www.defendyourdollars.org/pdf/2010PrepaidWP.pdf). Using a sample 
consumer scenario,\3\ the report stated that, for the four prepaid card 
products studied, monthly fees ranged from $15.45 to $43.75 for the 
first and second months of card use. In contrast, as shown in Figure 1, 
below, a Direct Express[supreg] cardholder under the same scenario 
would spend no more than $ .90 per month if using surcharge-free ATMs 
(one free ATM withdrawal per deposit, with a $ .90 per ATM withdrawal 
charge after that), and no more than $7.89 per month if no surcharge-
free ATMs were used, assuming the average $2.33 surcharge fee per 
withdrawal cited in the 2010 checking study by bankrate.com (http://www.bankrate.com/finance/checking/banks-taking-a-bigger-bite-with-atm-fees.aspx).\4\ There is no online bill paying service currently offered 
in the Direct Express[supreg] card program, so a cardholder would pay 
his or her own bills directly to the vendor or retailer, with no fee 
being charged by the provider. The Direct Express[supreg] card provider 
does not impose charges for POS purchases, balance inquiries, or for 
receiving a deposit.
---------------------------------------------------------------------------

    \3\ The sample consumer scenario in the cited report consisted 
of a cardholder making the following transactions in a month: Three 
ATM withdrawals, three bill payments (rent, utilities, phone), eight 
point-of-sale purchases (groceries and meals once a week), weekly 
balance inquiry, and two deposits.
    \4\ The consumer scenarios used in the cited report assumed that 
the cardholder did not incur any ATM surcharge fees.

        Fig. 1--Direct Express[supreg] Card Fees: Sample Scenario
------------------------------------------------------------------------
                                                              Fees (with
                                                 Fees (with      ATM
   Direct Express[supreg] Card transactions        no ATM     surcharge
                                                 surcharge)   of $2.33)
------------------------------------------------------------------------
1st ATM withdrawal (free with 1st deposit)....         FREE        $2.33
2nd ATM withdrawal (free with 2nd deposit)....         FREE         2.33
3rd ATM withdrawal............................        $ .90         3.23
Three bill payments...........................         FREE         FREE
Eight POS.....................................         FREE         FREE
Weekly Balance Inquiry........................         FREE         FREE
Two Deposits..................................         FREE         FREE
                                               -------------------------
    Total.....................................          .90         7.89
------------------------------------------------------------------------

    In addition, the Direct Express[supreg] card does not have any 
monthly fees, fees for activating the card, or fees for customer 
service calls, which can drive up costs of other prepaid card products. 
By educating Direct Express[supreg] cardholders to learn how to avoid 
multiple ATM withdrawals, cardholders can quickly learn how to incur no 
monthly fees whatsoever.
    The regulatory impact assessment, below, contains additional 
scenarios describing the Direct Express[supreg] card fees based on card 
usage.
    Costs incurred to use the Direct Express[supreg] card can compare 
favorably to the cost of cashing a check and conducting necessary cash 
transactions. While some individuals may be able to cash government 
checks at no cost, there are often fees of up to $20 or more for 
cashing a check, according to Treasury's research in 2007 (SSA & SSI 
Check Recipient Survey, OMB Control No. 1510-0074). Check recipients 
may also incur money order and postage costs to pay bills that are not 
incurred with the Direct Express[supreg] card.

3. Suggested Changes to Direct Express[supreg] Card Program. Various 
Commenters Suggested a Number of Ways That the Direct Express[supreg] 
Card Should Be Changed

    a. ATM Cash Withdrawal Fees. A few commenters suggested a range of 
ways to maximize a cardholder's ability to access his or her cash from 
an ATM for free. Suggestions ranged from providing cardholders with at 
least one surcharge-free ATM withdrawal to providing free unlimited ATM 
withdrawals and expanding the current surcharge-free network. 
Treasury's current Direct Express[supreg] card offers sufficient 
opportunities for a cardholder to access his or her cash without 
incurring a fee.

[[Page 80323]]

The Direct Express[supreg] card program offers one free ATM withdrawal 
for each deposit received. The free withdrawal is valid until the last 
day of the month following the month of receipt of the deposit. Thus, 
if a cardholder receives two deposits in January 2011, the cardholder 
is entitled to two free ATM cash withdrawals that are good until 
February 28, 2011. In addition, cardholders may obtain cash at retail 
locations and bank tellers without incurring a fee. The Direct 
Express[supreg] card provider does not impose limits on the number of 
cash back or teller transactions a cardholder may conduct, although 
merchants may impose a limit on the amount of cash back a cardholder 
may receive.
    After using available free withdrawals, Direct Express[supreg] 
cardholders who choose to withdraw additional cash from an ATM are 
charged a fee by the Direct Express[supreg] card provider of $ .90 per 
withdrawal. The card provider does not impose any limits on ATM 
withdrawals. If the cardholder withdraws cash from an ATM that is not 
in the Direct Express[supreg] network, the ATM owner may charge the 
cardholder an additional fee, known as a ``surcharge,'' which can range 
from $1.00 to $3.50 or more. If the cardholder uses one of the more 
than 53,000 Direct Express[supreg] surcharge-free ATMs, the cardholder 
can avoid a surcharge fee. The Direct Express[supreg] card provider 
continues to look for ways to expand the network, and Treasury will 
continue to educate current and new cardholders about alternative ways 
to get cash without paying a fee and how to use their card to pay for 
goods and services.
    b. Free Monthly Paper Statements. Several commenters stated a 
preference for paper statements at no cost to the cardholder. 
Currently, Direct Express[supreg] cardholders may obtain transaction 
and balance information for free by calling a customer service number 
or visiting the Direct Express[supreg] secure Web site. Upon request, 
the Direct Express[supreg] card provider will send a cardholder a paper 
transaction history at no cost. In addition, cardholders may sign up 
for free text message, phone call, or email alerts when they receive a 
deposit or reach a low balance amount pre-determined by the cardholder. 
If a cardholder prefers a monthly paper statement, the provider charges 
a fee of $ .75 per month. Because not every cardholder desires or would 
use a paper statement, and because transaction and balance information 
is available via different mechanisms, Treasury has determined that the 
cost of paper statements should be borne by those who want them. While 
other bank accounts may offer free monthly paper statements, as one 
commenter noted, these bank accounts generally also require credit 
checks and minimum balances, and have other requirements that hinder 
the ability of recipients to obtain accounts, none of which are 
required to open a Direct Express[supreg] card account. Two commenters 
suggested that the Direct Express[supreg] card program at a minimum 
offer a free annual paper statement for those who do not elect to 
receive electronic or monthly paper statements. The Direct 
Express[supreg] card provider currently makes available a cardholder's 
complete transaction history, upon request and at no cost. Therefore, 
Treasury believes that it has adequately addressed concerns related to 
free monthly statements.
    c. Encourage Opt In Election at Enrollment Time of Method for 
Receiving Transaction Information. One commenter suggested that 
cardholders who sign up for a Direct Express[supreg] card be given the 
opportunity at enrollment to elect to receive paper statements, text 
messages, or electronic mail messages with transactions and balance 
information. Treasury explored this suggestion, but determined that it 
is not feasible at this time given that many of the Direct 
Express[supreg] card enrollments are handled by the respective Federal 
benefit agency when the beneficiary is applying for his or her benefit. 
Treasury is exploring the use of additional mailings to cardholders to 
ensure that cardholders are aware of their options for receiving 
transaction and balance information.
    d. Provide Additional Convenience Card. Two commenters suggested 
that the Direct Express[supreg] card program provide cardholders with 
the option of allocating a discrete amount of their funds to a second 
convenience card. The cardholder could then give this card to a 
caregiver or relative who could use it to make purchases for the 
cardholder. In this way, the cardholder would not have to turn over his 
or her primary card to the caregiver or relative and trust the 
caregiver or relative not to use all of the funds. Treasury supports 
this suggestion as a way to mitigate a cardholder's risks and is 
working with the Direct Express[supreg] card provider to determine the 
feasibility and cost of providing this option.
    e. Provide Access to Checks. Two commenters suggested that the 
Direct Express[supreg] card program provide cardholders with the 
ability to write checks. Treasury has explored this suggestion, but is 
concerned that adding such an option could potentially increase fraud 
opportunities, add complexity to the card program, and increase costs 
to the cardholder. Instead, Treasury will educate cardholders on how to 
avoid the need to use checks by making purchases with the debit card, 
and if checks are necessary, where to find low-cost money orders. In 
addition, MasterCard has an initiative aimed at increasing acceptance 
of its card products by property managers. As part of this initiative, 
Treasury and MasterCard are working together to emphasize to property 
managers the importance of accepting the Direct Express[supreg] card 
for rent payments.
    f. Ability to Reload Cards With Non-Federal Funds. Two commenters 
suggested that the Direct Express[supreg] card program be expanded to 
allow cardholders to deposit funds other than Federal payments to their 
card account. Treasury does not plan to implement this suggestion at 
this time because of the increased cost to the Direct Express[supreg] 
card program, increased opportunity for fraud, and added complexity for 
cardholders. Treasury has plans to expand the card program to include 
as many Federal payments as possible.
    With respect to the broader need for more safe, low-cost financial 
account options, Treasury is exploring the feasibility of offering 
general purpose accounts to low- and moderate-income tax refund 
recipients and encouraging initiatives for financial products and 
services that are appropriate and accessible for millions of Americans 
who are not fully incorporated into the financial mainstream, as 
authorized by the ``Improving Access to Mainstream Financial 
Institutions Act of 2010,'' enacted as Title XII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Pub. L. 111-203, Jul. 21, 
2010). The FDIC also is encouraging the banking industry to offer safe, 
low-cost transaction and basic savings account products for low- and 
moderate-income customers with its Model Safe Accounts Pilot (http://www.fdic.gov/consumers/template/).
    g. Changes to Terms and Conditions of the Direct Express[supreg] 
Card Program. Three commenters suggested changing some of the terms and 
conditions of the Direct Express[supreg] card program. One suggestion 
was to change the title of the Direct Express[supreg] card program 
provider's terms and conditions document to ``Notice of Rights and 
Obligations.'' Other suggestions were to prohibit terms that waive a 
cardholder's right to a jury trial or to bring a class action lawsuit; 
to allow disputes to be governed by the laws of the state in which the 
cardholder resides, rather than the State of Michigan, which is where 
the Direct Express[supreg] card provider is located; not to require 
that the recipient contact the

[[Page 80324]]

merchant prior to cancelling a preauthorized transfer; to make clearer 
when the time to dispute a charge begins; make clearer that 
garnishments are not permitted, except as authorized by law (for 
example, to collect delinquent taxes or child support); and to improve 
the protections under Regulation E. Treasury will review the terms and 
conditions and, at a minimum, will ask the Direct Express[supreg] card 
provider to clarify the language regarding dispute time frames and 
garnishments. At this time, Treasury does not plan to implement the 
remaining suggestions, which would result in additional costs to the 
Direct Express[supreg] card program, and perhaps even preclude Treasury 
from offering a valuable low-cost account option for those 
beneficiaries who prefer a prepaid debit card over a bank account. For 
example, allowing lawsuits involving the Direct Express[supreg] card 
program to be based on various choice-of-law provisions would increase 
costs for the program to an unacceptable level, leaving a large number 
of Federal benefit recipients without any cost-effective option for 
enjoying the safety and convenience of direct deposit. Requiring the 
Direct Express[supreg] provider to cancel a preauthorized debit before 
the cardholder has contacted the merchant could leave cardholders 
vulnerable to cancellation of needed goods or services because of a 
lack of understanding about the need to make alternative payment 
arrangements for necessary services, such as utilities. The Direct 
Express[supreg] card provider follows standard industry practices, 
except that with respect to the protections afforded under Regulation 
E, the Direct Express[supreg] card provider offers an extended time 
period within which to dispute a transaction from the industry standard 
of 60 days to 90 days. Treasury believes it has obtained the best 
possible terms and conditions for an account that provides the most 
cost-effective, consumer-friendly terms available. Treasury will, 
however, continue to work closely with the Direct Express[supreg] card 
provider to identify and suggest improvements to the program. Even 
though satisfaction with the Direct Express[supreg] card program among 
current cardholders remains very high at 95% (Direct Express[supreg]--
Cardholder Satisfaction and Usage Survey, March 2009, OMB Control No. 
1510-0074), Treasury is committed to taking all feasible and cost-
effective steps to improve the program because the agency recognizes 
that current users may be different than future users in their 
demographic characteristics or attitudes towards the use of prepaid 
debit cards. In addition, it should be noted that, at any time, benefit 
recipients may choose direct deposit to their bank account rather than 
the Direct Express[supreg] card.
    h. Cardholder Education. Several commenters suggested that Treasury 
should do more to educate beneficiaries about their payment options, 
and specifically about the Direct Express[supreg] card features, fees, 
and terms. One commenter suggested that the Direct Express[supreg] card 
program customer service be improved to make it easier to reach an 
operator. Another commenter suggested that cardholders should be 
provided with a wallet size information card, noting that ``[t]hough 
the information on the Direct Express[supreg] card is generally quite 
good, it could be improved.'' As mentioned previously, Treasury will be 
launching its expanded cardholder education campaign immediately to 
ensure that information about the Direct Express[supreg] card and how 
to use it are easily accessible to the beneficiary population for whom 
the card is intended. As part of its education effort, Treasury is in 
the process of working with the Direct Express[supreg] card provider to 
develop a wallet size information card for cardholders and pictorial 
brochure with information on how to use the card. In addition, Treasury 
works continuously with the Direct Express[supreg] card provider to 
maximize and improve customer service. For example, when Treasury and 
the provider learned of the difficulties cardholders were having in 
reaching a live customer service representative, the provider modified 
its telephone system and automated messages to make contact with a live 
representative easier from a cardholder's perspective. Among other 
things, Treasury's plans for cardholder education include direct mail 
and other communications explaining how to use the card to make 
purchases, pay bills, get cash back, as well as information about how 
to check balances and transaction history. As appropriate, Treasury 
will work with its 1,800 Go Direct[supreg] partners to further enhance 
its cardholder education efforts.
    4. Regulation of the Banking Industry and Prepaid Cards. Several 
commenters suggested that Treasury take steps to improve consumer 
protections associated with financial services products. One commenter 
suggested that Section 3332 requires Treasury to take steps to ensure 
that any account established by an individual to comply with the EFT 
requirement is available at a ``reasonable cost'' and stated that 
Treasury is not complying with the statutory mandate by providing 
access to one account at a reasonable cost. Treasury disagrees. The 
statute does not require Treasury to ensure than any account chosen by 
a Federal payment recipient's must comply with the Section 3332(i) 
requirements. The provision requires that Treasury regulations ensure 
that individuals ``required * * * to have an account'' have ``access to 
such an account at a reasonable cost'' and with ``the same consumer 
protections with respect to the account as other account holders at the 
same financial institution'' (emphasis added). The Direct 
Express[supreg] card account is an account that meets the statutory 
requirements.
    Nonetheless, Treasury is committed to taking steps to resolve 
several concerns raised by commenters. With respect to protecting 
Federal beneficiaries from unlawful freezing and garnishment of 
protected benefits, Treasury and the four major benefit paying 
agencies--Office of Personnel Management, Railroad Retirement Board, 
Social Security Administration, and Department of Veterans Affairs--
will soon publish a joint rule. See, Notice of Proposed Rulemaking, 
Garnishment of Accounts Containing Federal Benefit Payments, 75 FR 
20299, Apr. 19, 2010. The rule will help ensure that garnishment-exempt 
benefit payments in an account are not improperly seized, by requiring 
financial institutions to exempt from freezing or seizure a defined 
amount equivalent to benefit payments deposited to an account prior to 
a financial institution's receipt of a garnishment order. This new rule 
will protect benefit recipients where benefit payments are directly 
deposited to an account at a financial institution.
    In response to comments related to allowing Federal payments to be 
delivered to ``safe'' prepaid card accounts, Treasury is publishing, on 
this date, an interim rule amending 31 CFR part 210 (Part 210 Interim 
Rule), which generally requires that a Federal direct deposit payment 
be delivered to a deposit account at a financial institution in the 
name of the recipient, subject to certain exceptions. The Part 210 
Interim Rule allows Federal payments to be deposited to an account 
accessed through a prepaid card or similar card that meets the 
following requirements, as more fully described in the interim rule: 
The account funds are insured by the Federal Deposit Insurance 
Corporation or National Credit Union Share Insurance Fund to the extent 
permitted by law, the account does not have an attached line of credit 
or loan feature that triggers automatic repayment from the card 
account, and

[[Page 80325]]

the issuer of the card account provides the cardholder with the same 
protections under Regulation E required to be provided for payroll card 
accounts (12 CFR 205.18).
    Several other concerns raised by commenters relating to the 
regulation of bank overdraft fees, account advances offered by 
financial institutions, and setoff of fees owed by account holders are 
outside the scope of this rule.
    5. Delay Effective Dates. Two commenters urged Treasury to delay 
the proposed effective dates for EFT payments under the NPRM. One 
consumer advocate organization suggested a delay ``until there is a 
greater confidence that people are prepared to switch to electronic 
disbursements,'' but did not specify a date for implementation. This 
commenter urged more time for education noting that some people 
shifting to electronic payments will need far more education or 
counseling than others. Another commenter suggested a delay to 2020. As 
explained in the NPRM, Treasury has accounted for the unique issues 
raised for converting current check recipients to electronic payments 
by delaying the implementation date for those individuals to March 1, 
2013. Between now and 2013, Treasury plans a robust campaign to educate 
people about the EFT requirement, EFT options and costs, how to use 
EFT, and more. Treasury agrees with commenters who recommend a strong 
education campaign, and as noted above, plans to utilize and expand its 
existing network of Go Direct[supreg] partners in order to provide 
outreach and sufficient information to all affected beneficiaries. 
Therefore, Treasury does not believe that there is a need to further 
extend the effective dates proposed in the NPRM, except that Treasury 
is delaying the initial effective date from March 1 to May 1, 2011.
    6. Provide Waiver for Attorney Fees for Social Security Cases. An 
organization that represents Social Security claimants' representatives 
and a number of attorneys who represent Social Security claimants 
recommended that Treasury exempt attorneys' fee payments from the EFT 
requirements for two main reasons. First, the individual attorneys or 
representatives receiving the fee payment are not the ``owners'' of 
their firm's bank account, and in some cases, are therefore precluded 
from electronically depositing their fee payment to the firm's account. 
This is problematic in these cases because the Social Security 
Administration does not currently make representative fee payments 
directly to the firm's account, nor does it currently recognize firms 
as representatives. Secondly, many attorneys state that their banks are 
unwilling or unable to provide all of the information needed to 
identify the client on whose account the deposit was made. This second 
point is also raised by an individual concerned that nursing homes 
would similarly be unable to identify the resident to whom a direct 
deposit payment belongs.
    The Social Security Administration recently announced that it will 
include an ``addenda record'' to display identifying information with 
all direct deposit fee payments sent to representatives. See, Social 
Security Administration letter at http://fms.treas.gov/greenbook/ssarep.pdf. The Social Security Administration encourages receiving 
financial institutions to pass through to their account holders, as 
quickly as possible, pertinent information. In this way, attorneys and 
other representatives of Social Security claimants will be able to 
identify the purpose of the payments. In addition, the Social Security 
Administration may, in the future, recognize firms which might help 
address the difficulties in using EFT for representative fee payments.
    In order to mitigate these difficulties, and until these issues are 
more fully addressed, Treasury recognizes the need to modify one of the 
waivers that may be exercised by a paying agency, rather than Treasury, 
in Sec.  208.4(f) regarding non-recurring payments. As the commenters 
pointed out, some attorneys and representatives may receive multiple 
payments in a given year for the multiple clients they represent before 
the Social Security Administration, and thus do not meet the technical 
definition of a recipient of a non-recurring payment in Sec.  208.4(f) 
(``Where the agency does not expect to make more than one payment to 
the same recipient within a one-year period, i.e., the payment is non-
recurring''). To address this, Treasury is modifying Sec.  208.4(f) to 
allow Federal paying agencies to waive the EFT requirement for payments 
made to the same recipient in a single year when these payments are not 
made on a regular, recurring basis and remittance data explaining the 
purpose of the payments is not readily available from the recipient's 
financial institution receiving the payment by EFT.
    Treasury encourages paying agencies to contact Treasury, before 
invoking this waiver, to discuss various ways that remittance data can 
be made available to payment recipients, which may negate the need for 
a waiver. Treasury discourages the use of this waiver by agencies, and 
expects the waiver to be employed on an exception basis and only until 
expanded remittance data is more widely available to attorneys and 
other representatives. In addition, Treasury notes that there are many 
options for receipt of remittance data for vendors, and therefore does 
not expect agencies to use this waiver to exempt vendor payments from 
the EFT requirements.
    Treasury is removing the requirement that agencies determine that 
the cost of making an EFT payment exceeds the cost of making a payment 
by check, as it may not be possible for an agency to make this 
determination.
    7. Privacy and Identity Theft Concerns. Many commenters raised 
concerns about electronic banking leading to an increased risk of 
identity theft. Typically, the comments expressed concern about 
identity theft through online banking. This rule does not mandate any 
requirement to bank online. Many financial institutions, including the 
Direct Express[supreg] card provider, offer online banking services as 
a convenience, but account holders are not required to use these 
services.
    None of the comments specifically articulated exactly how this rule 
would increase a payment recipient's risk of identity theft. Based on 
Treasury's experience with paper checks and electronic payments, 
receiving payments by direct deposit decreases rather than increases 
the risk of identity theft. As noted in the NPRM, in fiscal year 2009, 
more than 670,000 Social Security and SSI checks were reported lost or 
stolen. In fiscal year 2010, more than 540,000 checks were reported as 
lost or stolen. In fiscal year 2009, Treasury investigated more than 
70,000 cases of altered or fraudulently endorsed checks, totaling $64 
million in estimated value, and in fiscal year 2010, Treasury 
investigated almost 50,000 cases totaling $93 million in estimated 
value. People intent on committing fraud can use a stolen Treasury 
check, along with other stolen or fake identification documents, to 
open an account in the recipient's name or otherwise impersonate a 
check payee. A Treasury check that has been endorsed, but not cashed, 
offers further opportunities for identity theft.
    In addition to identity theft concerns, many commenters expressed 
concern about their privacy and were opposed to having to disclose 
their banking information to the Federal Government. Federal agencies 
are subject to the Privacy Act of 1972, 5 U.S.C. 552a, which strictly 
governs the collection of personal information from individuals, as 
well as the maintenance and

[[Page 80326]]

disclosure of the information. Among other things, Federal agencies are 
restricted in how they may use personal information, such as bank 
account information, and must ensure that the information is not 
disclosed in an unauthorized way. Except in limited circumstances or 
with proper consent, bank account information provided by individuals 
to agencies for the purpose of receiving payment by direct deposit may 
be used and disclosed only for that purpose. For an example of agency 
regulations implementing the Privacy Act of 1972, see Treasury's 
regulations at 31 CFR part 1, subpart C.
    With respect to customer account information held by a financial 
institution, including Direct Express[supreg] card account information, 
the Government is precluded from receiving any customer-specific 
account information from a financial institution, and the financial 
institution is precluded from providing any customer-specific account 
information to the Government, without the account holder's consent or 
without first following a process that provides the account holder with 
an opportunity to object to any disclosure, generally for law 
enforcement purposes. See, Right to Financial Privacy Act, 12 U.S.C. 
3401, et seq.
    8. Continue to Offer the ETA. A couple of commenters urged Treasury 
to continue to offer the ETA option for those beneficiaries who opt for 
this account to receive their benefit payments by direct deposit. 
Treasury continues to offer the ETA as an alternative to the Direct 
Express[supreg] card. It is also an option for unbanked Federal benefit 
recipient seeking a safe, affordable banking relationship. Currently, 
the ETA is offered by 392 financial institutions with over 53,000 
branch locations. The ETA program has over 121,000 account holders who 
receive Federal benefit payments. Although the ETA is not available on 
a nationwide basis and does not include some of the more useful 
features that have become available with prepaid debit cards in recent 
years, it continues to meet the needs of some benefit recipients in 
certain regions of the country. Treasury has no plans to eliminate the 
ETA option and continues to support the ETA through its call center and 
Web site. It should be noted, however, that Treasury is directing more 
of its resources to educating beneficiaries about the Direct 
Express[supreg] card since the card is available nationwide, provides 
more useful features than the ETA, and may be used more cost-
effectively than an ETA. Information about ETAs may be found at http://www.eta-find.gov.
    9. Require EFT to Existing Bank Accounts. An association that 
represents financial institutions suggested that when a recipient has 
an established banking relationship, the default election should be to 
convert the benefit payment to a direct deposit to that established 
bank account. Through its Go Direct[supreg] campaign, Treasury 
encourages financial institutions to work with their own customers who 
receive Federal benefit and other payments by paper check on converting 
to payment by direct deposit. The Go Direct[supreg] campaign 
communicates the many benefits to financial institutions that encourage 
their customers to convert to direct deposit, which include increasing 
a financial institution's customer base and customer loyalty, 
operational and transaction-based cost savings, and reduction of check 
fraud. See www.godirect.org. Absent clear instructions from a payment 
recipient, Treasury is unable to ascertain with certainty whether a 
payment recipient has a current bank account to which payments should 
be directed. Therefore, Treasury allows each recipient to have payments 
electronically delivered to an account at a financial institution of 
his or her choice since the recipient is in the best position to 
determine the most cost-effective and desirable account option for 
receipt of his or her Federal payments.

IV. Final Rule

    As explained above and in the regulatory impact assessment below, 
Treasury is revising its NPRM proposal to address the comments we 
received regarding elimination of all individual waivers from the EFT 
requirement. Under the final rule, the EFT requirement will not apply 
to (1) payment recipients born prior to May 1, 1921, who are receiving 
Federal payments by check on March 1, 2013; (2) payments that are not 
eligible for deposit to a Direct Express[supreg] prepaid card account 
established pursuant to terms and conditions approved by FMS; and (3) 
payment recipients whose Direct Express[supreg] card has been suspended 
or cancelled. In addition, an individual payment recipient may request 
a waiver from the EFT requirement if the EFT requirement would impose a 
hardship because of the inability of a recipient to manage an account 
at a financial institution or a Direct Express[supreg] card account due 
to a mental impairment or because a recipient lives in a remote 
geographic location lacking the infrastructure to support electronic 
financial transactions. Payment recipients requesting a waiver are 
required to provide to Treasury a written certification supporting 
their request, in such form as Treasury may prescribe. The 
certification requires a recipient to identify the basis for his or her 
request and provide a brief explanation of how the exception applies to 
his or her situation. The recipient shall sign the certification before 
a notary public.

V. Section-by-Section Analysis

    New Sec.  208.2(c) adds a definition for ``Direct Express[supreg] 
card'' as meaning the debit prepaid card issued to recipients of 
Federal benefits by Treasury's financial agent pursuant to requirements 
established by Treasury. The Direct Express[supreg] card features are 
explained in the NPRM, in this rulemaking, and on the Direct 
Express[supreg] card Web site at http://www.USDirectExpress.com.
    Redesignated Sec.  208.2(e) (formerly Sec.  208.2(d)) clarifies 
that the definition of ``electronic benefits transfer'' includes 
disbursement through a Direct Express[supreg] card account. As has been 
the case, ``electronic benefits transfer'' (EBT) continues to include, 
but is not limited to, disbursement through an ETA<SUP>SM</SUP> and a 
Federal/State EBT program.
    Section 208.4(a) is divided into two paragraphs (a)(1) and (a)(2). 
It is noted that, in cases where a representative payee has been 
designated by the benefit paying agency and is receiving payments on 
behalf of a beneficiary, the representative payee is the ``individual'' 
for purposes of Sec.  208.4(a). Redesignated Sec.  208.4(a)(1) is 
revised to allow waivers where an individual:
    (i) Is receiving a Federal payment by check prior to May 1, 2011. 
In such cases, the individual may continue to receive those payments by 
check through February 28, 2013;
    (ii) Files a claim for a Federal payment prior to May 1, 2011, and 
requests payment by check at the time he or she files the claim. In 
such cases, the individual may receive those payments by check through 
February 28, 2013;
    (iii) Was born prior to May 1, 1921, and is receiving Federal 
payments by check on March 1, 2013;
    (iv) Receives payments that are not eligible for deposit to a 
Direct Express[supreg] card account. In such cases, those payments are 
not required to be made by electronic funds transfer, unless and until 
such payments become eligible for deposit to a Direct Express[supreg] 
card account;
    (v) Is ineligible for a Direct Express[supreg] card because of 
suspension or cancellation of the individual's card by the Financial 
Agent;

[[Page 80327]]

    (vi) Has filed a waiver request with Treasury certifying that 
payment by electronic funds transfer would impose a hardship because of 
the individual's inability to manage an account at a financial 
institution or a Direct Express[supreg] card account due to a mental 
impairment, and Treasury has not rejected the request;
    (vii) Has filed a waiver request with Treasury certifying that 
payment by electronic funds transfer would impose a hardship because of 
the individual's inability to manage an account at a financial 
institution or a Direct Express[supreg] card account due to the 
individual living in a remote geographic location lacking the 
infrastructure to support electronic financial transactions, and 
Treasury has not rejected the request.
    New Sec.  208.4(b) requires payment recipients requesting a waiver 
from the EFT requirement because of a mental impairment or remote 
geographic location to provide Treasury with a certification, in 
writing, supporting their request in such form that Treasury may 
prescribe. The individual shall attest to the certification before a 
notary public or otherwise file the certification in such form that 
Treasury may prescribe. A payment recipient requesting these types of 
waivers will be required to provide identifying information, such as 
name, address, and Social Security number, as well as a short statement 
supporting the reason for the waiver request. Unless Treasury rejects 
the request, the recipient will not be required to comply with the EFT 
requirement. As noted above, in cases where a representative payee 
receives payments on behalf of a beneficiary, the representative payee 
is the individual requesting the claim based on the representative 
payee's circumstances. Treasury will be publishing additional guidance 
regarding the waiver process.
    The Secretary's waiver authority remains unchanged, and Federal 
agencies continue to have the flexibility to waive payment by direct 
deposit or other EFT method in the circumstances described in 
redesignated paragraphs (a)(2) through (a)(7) of Sec.  208.4 (formerly 
paragraphs (b) through (g)), namely, for certain payments to payees in 
a foreign country where the infrastructure does not support EFT, for 
certain disaster or military situations, for situations in which there 
may be a security threat or for valid law enforcement reasons, for non-
recurring payments, and for unusual and/or urgent situations where the 
Government would be seriously injured unless payment is made by a 
method other than EFT.
    Treasury is revising redesignated paragraph (a)(6) of Sec.  208.4 
(formerly paragraph (f)) which previously allowed Federal paying 
agencies, rather than Treasury, to waive the EFT requirement for 
payments that are non-recurring, i.e., no more than one payment to the 
same recipient within a one-year period. Under the revised rule, the 
waiver exists for payments made to the same recipient in a single year 
when these payments are not made on a regular, recurring basis and 
remittance data explaining the purpose of the payments is not readily 
available from the recipient's financial institution receiving the 
payment by electronic funds transfer. As mentioned above, agencies 
should make limited use of this waiver and should use this waiver only 
after discussions with Treasury to rule out other ways in which 
remittance data can be made available.
    Section 208.6 is revised to remove the provisions for the general 
account requirements for Federal payments made electronically to an 
account at a financial institution. These requirements are contained in 
31 CFR 210.5 and do not need to be duplicated in Part 208. Revised 
Sec.  208.6 states that any individual who receives a Federal benefit, 
wage, salary, or retirement payment will be eligible for a Direct 
Express[supreg] card account.
    Section 208.7 is revised to state that agencies shall put into 
place procedures that allow recipients to provide the information 
necessary: (i) For the delivery of their payments by EFT to an account 
at a financial institution, or (ii) to enroll for a Direct 
Express[supreg] card account. Agencies no longer need to notify 
individuals about their right to invoke a hardship waiver. FMS will 
provide guidance and work with agencies to ensure that they have the 
information they need to effectively explain the rule, available 
waivers, direct deposit, and features and fees of the Direct 
Express[supreg] card.
    Section 208.8 is revised to state that payment recipients are 
required to provide a Federal agency with the necessary information to 
receive payments electronically. To receive a payment by direct deposit 
to an account at a financial institution, a recipient will need to 
provide his or her account information. To enroll for a Direct 
Express[supreg] card account, a recipient will need to provide 
sufficient demographic information to allow for an account to be 
established, including information needed for identity verification 
purposes.
    Section 208.11 is revised to conform to the technical revision and 
delete the reference to Sec.  208.6.
    Appendices A and B containing Model ETA<SUP>SM</SUP> Disclosure 
Notices are removed because they no longer apply. ETA<SUP>SM</SUP> 
accounts remain available from financial institutions that continue to 
offer them. For more information about ETA<SUP>SM</SUP> accounts, visit 
http://www.eta-find.gov.

VI. Procedural Analysis

Regulatory Planning and Review

    It has been determined that this regulation is a significant 
regulatory action as defined in Executive Order 12866 in that this rule 
would have an annual effect on the economy of $100 million or more, and 
this rule raises novel policy issues arising out of the legal mandate 
in 31 U.S.C. 3332. Accordingly, this final rule has been reviewed by 
the Office of Management and Budget. The Regulatory Impact Assessment 
prepared by Treasury for this regulation is provided below.

                 Summary of Estimated Benefits and Costs
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Benefit.................................  $117 million.
Cost....................................  Not estimated.
Net Benefits............................  Not estimated.
------------------------------------------------------------------------
The analysis used nominal dollars in 2010.

1. Description of Need for the Regulatory Action
a. Statutory and Regulatory History
    As discussed in the Regulatory Impact Assessment in the NPRM, this 
rulemaking is necessary to expand compliance with the electronic funds 
transfer (EFT) provisions of section 3332, title 31 United States Code 
(Section 3332). In 1996, Congress enacted subsection 31001(x)(1) of the 
Debt Collection Improvement Act of 1996 (Pub. L. 104-134) (DCIA), which 
amended Section 3332 to generally require that all nontax Federal 
payments be made by EFT, unless waived by the Secretary of the Treasury 
(Secretary). The Secretary must ensure that individuals required to 
receive Federal payments by EFT have access to an account at a 
financial institution ``at a reasonable cost'' and with ``the same 
consumer protections with respect to the account as other account 
holders at the same financial institution.'' See 31 U.S.C. 3332(f), 
(i)(2).
    To implement Section 3332 as Congress intended, Treasury 
promulgated 31 CFR part 208 (Part 208). Part 208 sets forth 
requirements for accounts to which Federal payments may be sent by EFT; 
provides that any individual who receives a Federal benefit, wage, 
salary, or retirement payment is eligible to open an Electronic 
Transfer Account (ETA) at a financial institution that offers such

[[Page 80328]]

accounts; and establishes the responsibilities of Federal agencies and 
recipients under the regulation. Part 208 also sets forth a number of 
waivers to the general requirement that Federal payments be delivered 
by EFT. See 31 CFR 208.4.
    In conjunction with the initial publication of Part 208, Treasury 
developed the ETA, a low-cost account offered by participating 
financial institutions for those individuals who wish to receive their 
Federal payments by direct deposit. The ETA was established with the 
intention that it would eventually become available nationwide, and 
thereby comply with the statutory mandate that any person required to 
receive payment by EFT have access to an account at a financial 
institution at a reasonable cost and with standard consumer 
protections. However, the ETA is not available nationwide, and, as a 
result, does not meet the statutory requirement related to account 
access.
    Any financial institution that wishes to offer the ETA may do so by 
entering into a financial agency agreement agreeing to offer the ETA in 
accordance with the terms and conditions established by Treasury. See 
Notice of Electronic Transfer Account Features, 64 FR 38510 (July 16, 
1999). A participating financial institution must open an ETA for any 
individual who requests one, with some limited exceptions, provided 
that the individual authorizes the direct deposit of his or her Federal 
benefit, wage, salary or retirement payments. A financial institution 
may charge an account fee of up to $3.00 per month, and may charge 
other account-related fees as usually and customarily charged to other 
retail customers. ETA cardholders must be allowed to withdraw funds at 
least four times per month without incurring fees. Checks are not 
offered with ETAs. Account holders access their funds through online 
debit at ATMs, commonly referred to as ``PIN debit,'' and through POS 
networks. Offline (signature) debit is not permitted. Treasury pays a 
participating financial institution a fee of $12.60 for each ETA 
account established.
    The hardship waivers in Part 208 prior to this rulemaking were 
necessary because the ETA was not (and is not) available to all benefit 
recipients across the country. In addition, because the ETA does not 
permit signature debit and does not include bill payment capability as 
a required feature, the ETA cardholders have limited options in paying 
for goods and services with an ETA. They cannot use the ETA, for 
example, to make online and telephone purchases. The limited payment 
capability of the ETA resulted in a need for hardship exceptions for 
geographic, financial, and physical disability reasons, since 
individuals might not have convenient or feasible access to physical 
POS or ATM locations. Moreover, the ETA allows monthly and other fees 
which, although limited, could still pose a financial hardship for some 
benefit recipients. This meant that a waiver for financial hardship was 
also necessary.
    Since its inception in 1999 through September 2010, only 251,941 
ETA accounts have been opened, and, as of September 2010, there are 
only 121,191 active ETA accounts. Anecdotal evidence suggests that, 
with some exceptions, the ETA is not a cost-effective product for 
financial institutions. According to a 2002 report by the Government 
Accountability Office (GAO), although many financial institutions 
believed that the ETA was a good product for the target market, the 
financial institutions were reluctant to offer the account because they 
did not see the product as profitable. See, ``Electronic Transfers: Use 
by Federal Payment Recipients Has Increased but Obstacles to Greater 
Participation Remain,'' GAO-02-913, page 31 (Sept. 12, 2002) 
(www.gao.gov/new.items/d02913.pdf). From the consumer perspective, 
reasons for lack of interest include the inability to write checks, 
limited availability of ETAs, lack of awareness of ETAs, a difficult 
enrollment process, and a personal preference for doing business 
without a bank account. Id., at 35-36.
    GAO has issued at least two reports on the Federal Government's 
efforts to increase the use of electronic payments rather than checks. 
See, for example, 2002 GAO report cited above, and ``Electronic 
Payments: Many Programs Electronically Disburse Federal Benefits, and 
More Outreach Could Increase Use,'' GAO-08-645 (June 23, 2008) (http://www.gao.gov/new.items/d08645.pdf). In these referenced reports, GAO 
recognizes the advantages of electronic payments, but also recognizes 
the two major historical obstacles to removing the Part 208 individual 
waivers. First, there are a high number of check recipients who do not 
have a bank account or who lack convenient access to an account at a 
reasonable cost with appropriate consumer protections. GAO-02-913, 
pages 16-24 (Sept. 12, 2002); GAO-08-645, pages 19-20, 33 (June 23, 
2008). Second, consumer concerns about the improper freezing and 
seizure of Federal benefit funds typically exempt from garnishment has 
led to resistance to Treasury's efforts to remove the Part 208 
individual waivers to EFT requirements. GAO-08-645, pages 20-22.
b. Technology Changes in the Banking Industry
    As discussed in the Regulatory Impact Assessment in the NPRM, the 
technological developments and widespread acceptance of debit and 
prepaid card products during the last decade have made it feasible and 
advantageous for Treasury to revise its existing implementing 
regulation to expand the scope of individuals subject to the EFT 
requirements. Specifically, the development and implementation of the 
Direct Express[supreg] card, a MasterCard [supreg] prepaid debit card 
developed by Treasury exclusively for Federal benefit recipients, means 
that Treasury can now comply with the requirement of Section 3332 to 
ensure that individuals required to receive Federal payments by EFT 
have access to an account at a financial institution that is reasonably 
priced and subject to standard consumer protections.
    Reloadable prepaid debit cards, which were a small specialty 
product in the 1990s, are now widely available and can be used at a 
vast number of merchant locations across the country, not only to 
purchase goods and services, but also to obtain cash through cashback 
transactions at POS locations. With the expansion of the Internet and 
other technological advances, consumers have the ability to make online 
purchases with a debit card, as well as the ability to pay for goods 
and services over the telephone, resulting in the mitigation of some 
past obstacles to electronic payment acceptance. Even for those without 
access to the Internet, or who buy goods and use services from vendors 
who do not accept debit card payments, debit cards can be used to 
purchase money orders, thereby eliminating the step of having to cash a 
check or carry large amounts of cash to complete necessary financial 
transactions.
    The ``2007 Federal Reserve Payments Study, Noncash Payment Trends 
in the United States: 2003-2006,'' sponsored by the Federal Reserve 
System (released December 10, 2007) (http://www.frbservices.org/files/communications/pdf/research/2007_payments_study.pdf), highlights the 
growing acceptance of debit cards in the United States. According to 
the study, debit cards now surpass credit cards as the most frequently 
used payment type. The Federal Reserve noted that the highest rate of 
growth was in automated clearing house (ACH) payments, which grew about 
19 percent

[[Page 80329]]

per year, followed closely by debit card payments. The annual use of 
debit cards increased by about 10 billion payments over the survey 
period to 25.3 billion payments in 2006, an annual growth rate of 
transactions of 17.5% from 2003 to 2006. Many financial service 
providers offer general prepaid branded reloadable cards intended for 
recipients of wages, incentive or bonus payments, state benefits and 
child support payments, and other types of high volume or regularly 
recurring payments. Many states offer or require the use of electronic 
payment cards for those who receive state benefits, such as temporary 
assistance to needy families.
    Treasury's experience with offering electronic payment card 
products dates back to 1989, and illustrates how Treasury's products 
have evolved and how acceptance of these products has grown. In 1989, 
Treasury offered a debit card product, known as the SecureCard, on a 
pilot basis in Baltimore, Maryland, at no cost to SSI recipients. The 
undeveloped nature of the POS system at that time presented the primary 
challenge in that pilot. To make the card useful, Treasury installed 
POS equipment at various local merchants, at a substantial cost to the 
Government. In 1992, Treasury initiated the Direct Payment Card pilot 
for Social Security and SSI recipients in Texas, which had a better 
developed POS infrastructure, and subsequently extended the pilot to 
Social Security recipients in Argentina. From 1992 through 1997, 
approximately 46,000 recipients enrolled, and the program was well-
received by recipients. Building on the success of the Direct Payment 
Card pilot, in 1996, Treasury joined a Federal-State electronic 
benefits transfer (EBT) program known as the Benefit Security Card 
program. The Benefit Security Card was offered to Federal and/or state 
benefit recipients in eight southeastern states, known as the Southern 
Alliance of States, which included Alabama, Arkansas, Florida, Georgia, 
Kentucky, Missouri, North Carolina, and Tennessee. Treasury's Benefit 
Security Card program allowed benefit recipients to access their 
Federal and/or state benefits via a single debit card. When Treasury 
terminated the card program in January 2003, approximately 51,000 
Federal benefit recipients were enrolled in the program. Although 
customers were pleased with the product, Treasury and most states were 
concerned about cardholder costs, which were scheduled to increase at 
the time Treasury terminated the program. At the end of 2006, Treasury 
initiated a small Direct Express[supreg] card program to gauge the 
market for a branded debit card, reloadable only with Federal benefit 
payments. As part of the pilot, Treasury sent letters to 35,000 Social 
Security and SSI check recipients in Chicago and southern Illinois, 
offering them the opportunity to sign up for a Direct Express[supreg] 
card to receive their Federal benefit payments electronically. In 
addition, Treasury included information about the program in check 
envelopes mailed to all Illinois Social Security and SSI check 
recipients. The card features offered for the pilot program were 
similar to the current Direct Express[supreg] card product, although 
the fees were slightly higher.
2. Provision
    Treasury is implementing this rule in two phases. The first phase 
would require all new benefit recipients to sign up for direct deposit 
to a bank account of the recipients' choice or to a Direct 
Express[supreg] card account, beginning May 1, 2011. The second phase 
would begin on March 1, 2013, at which time all recipients of Federal 
benefit and other nontax payments would receive their payments by 
direct deposit, either to a bank account or to a Direct Express[supreg] 
card account.
    Those receiving their benefit payments by check before May 1, 2011, 
could continue to do so through February 28, 2013, after which those 
recipients would convert to direct deposit. For Federal benefit 
recipients, this means that individuals who file claims for Federal 
benefits before May 1, 2011, and who request check payments when they 
file, would be permitted to receive payments by check through February 
28, 2013. Individuals who file claims for benefits on or after May 1, 
2011, would receive their payments by direct deposit. Individuals 
receiving their payments by direct deposit prior to May 1, 2011, would 
continue to do so.
    In this final rule, Treasury waives the EFT requirement for 
recipients born prior to May 1, 1921 who are receiving Federal payments 
by check on March 1, 2013, for payments that are not eligible for 
deposit to a Direct Express[supreg] card account, and for recipients 
whose Direct Express[supreg] card has been suspended or cancelled. In 
addition, this rule allows a recipient to request a waiver from the EFT 
requirement on the basis that EFT would impose a hardship because of 
the recipient's inability to manage an account at a financial 
institution or a Direct Express[supreg] card account due to a mental 
impairment, or because the recipient lives in a remote geographic 
location lacking the infrastructure to support electronic financial 
transactions. The waiver request is considered effective unless 
Treasury rejects the request.
3. Baseline
a. Amount of Federal Disbursement
    The baseline amount of Federal disbursement described in the NPRM 
is updated as follows. In fiscal year 2010, Treasury disbursed almost 
85% of its nontax payments electronically, or more than 793 million 
payments. Despite the general requirement that Federal payments be made 
electronically, and Treasury's efforts to persuade check recipients to 
convert to direct deposit, Treasury nevertheless continues to print and 
mail many millions of checks each year, at a substantially higher cost 
to the Government than if those payments were delivered by EFT. For 
example, of the approximately 143 million checks disbursed for nontax 
payments, in fiscal year 2010, more than 130 million of them were 
Federal benefit checks mailed to almost 11 million benefit recipients, 
causing avoidable payment-related problems for many check recipients, 
and resulting in extra costs to taxpayers of more than $117 million 
that would not have been incurred had those payments been made by EFT. 
Social Security (retirement, disability, and survivors benefits) and 
SSI payments represent more than 92 percent, or approximately 120 
million, of those benefit check payments. The remaining 10 million 
benefit check payments are made to recipients of civil service 
retirement, railroad retirement, Black Lung, and Veterans benefits. 
Although the direct deposit payments rate has increased since 1996, 
when it was 58%, the rate has climbed only slowly since fiscal year 
2005 when it first reached 80%.
b. Affected Population
    As noted above, in fiscal year 2010, Treasury disbursed 130 million 
checks to almost 11 million benefit recipients. Treasury estimates that 
approximately 4 million of those recipients do not have bank accounts.
    Treasury recognizes the demographic differences between payment 
recipients who are more willing to accept direct deposit and those who 
are not. Treasury also recognizes that there are a variety of reasons 
why check recipients do not switch to direct deposit. Because the 
majority of its check payments are made to Social Security and SSI 
recipients, Treasury's research focuses on this population. During 
implementation of its rule, Treasury will continue its research efforts 
to ensure that the needs of all check recipients are adequately 
addressed and take appropriate action.

[[Page 80330]]

    While recognizing that the results of the study is not 
generalizable to the U.S. population, Treasury's study, ``Understanding 
the Dependence on Paper Checks--A Study of Federal Benefit Check 
Recipients and the Barriers to Boosting Direct Deposit'' (2004), sheds 
some insight on individuals who choose to receive Federal benefits 
through paper checks (OMB Control No. 1510-0074). The average age of a 
Social Security check recipient was 66 years old. Sixty-one percent of 
the Social Security check recipients were female; 39% were male. 
Thirty-five percent of the Social Security check recipients had not 
completed high school, while 26% had some college education or beyond. 
Sixty percent of Social Security recipients were retired; 27% did not 
have bank accounts; 12% received some other form of government 
assistance; and, 27% had a disability.
    Comparatively, the average age of a SSI check recipient was 50. 
Seventy percent of the SSI check recipients were female; 30% were male. 
Fifty-one percent of the SSI recipients had not completed high school, 
while 15% had some college education or beyond. Only 21% of SSI 
recipients were retired; 68% did not have a bank account; 42% received 
some other form of government assistance, and 42% had a disability.
    According to Treasury research in 2007 (SSA & SSI Check Recipient 
Survey, OMB Control No. 1510-0074), the check recipient population 
demographics had not changed significantly. The 2007 survey found that 
28% of Social Security check recipients did not have a bank account, 
but that 9% more SSI recipients had bank accounts than in 2004 (in 
2007, 59% of SSI recipients did not have a bank account).
    The above-referenced Treasury research shows that younger benefit 
recipients convert to direct deposit at a faster rate than older 
benefit recipients. Younger benefit recipients who have had their 
payments for less than a year are signing up for direct deposit at 
rates that far exceed their proportions in the population. Close to 50% 
of those Social Security and SSI check recipients who converted to 
direct deposit had been receiving their benefits for less than one 
year. Conversely, only 16% of Social Security check recipients and 15% 
of SSI recipients who had been receiving their payments nine (9) years 
or longer signed up for direct deposit.
    Treasury and the Social Security Administration found that, in 
fiscal year 2010, 79.1% of new Social Security enrollees signed up for 
direct deposit either to an existing bank account or to a Direct 
Express[supreg] card account. Since September 2008, the Social Security 
Administration has been offering new Social Security and SSI recipients 
the option of signing up for a Direct Express[supreg] card, in addition 
to direct deposit at a financial institution, at the time they enroll 
for benefits. Social Security is also allowing individuals to sign up 
at local offices and by telephone. The Direct Express[supreg] card has 
been a major contributor in the decline of Social Security and SSI 
check payments over the last two years, but has had an especially 
significant impact on the SSI check payment volume. The average monthly 
payment amount for an SSI check recipient is $545, whereas the average 
monthly payment amount for a Social Security check recipient is $808 
for beneficiaries who receive their payment on the third of the month, 
and $915 for all other Social Security check recipients. There has been 
a year-over-year decrease in SSI checks of 6.91% in March 2010, 
compared to March 2009, which is significantly greater than the 3.81% 
decline in March 2009, compared to March 2008. The number of all nontax 
checks decreased from 148 million in fiscal year 2009 to 143 million in 
fiscal year 2010.
4. Assessment of Potential Costs and Benefits
a. Potential Costs
    There are potential short-term costs associated with the 
rulemaking. First, there are intangible emotional costs for individuals 
who are fearful or resistant to direct deposit. In its 2004 research, 
Treasury learned that there are some key differences among Social 
Security check recipients, SSI check recipients, and those that receive 
their benefit payments by direct deposit. Although these differences do 
not necessarily explain why certain individuals are more resistant than 
others to receiving payments by direct deposit, the data helps Treasury 
properly target its public education campaign. For example, because the 
data described below shows that Social Security check recipients are 
more likely than SSI check recipients to have a bank account, Treasury 
can direct its resources to informing Social Security check recipients 
about the benefits of directly depositing payments to an existing bank 
account. For SSI recipients who are less likely to have a bank account, 
Treasury can focus its Direct Express[supreg] card information to that 
population.
    Compared to SSI check recipients, Social Security check recipients 
are older (average age 66), more likely to have a bank account, more 
likely to be male and retired, less likely to have a disability, less 
likely to receive some other form of government assistance, less likely 
to depend on their benefit as their sole source of income, and more 
likely to be Caucasian. SSI recipients are likely to be younger 
(average age 50), less likely to have a bank account, more likely to 
have a representative payee acting on their behalf, more likely to be 
African-American, more likely to be female, more likely to live in a 
city, more likely to receive some other form of benefit payment, and 
more likely to depend on others for assistance with daily chores and 
errands. Direct deposit recipients are more technologically savvy than 
either Social Security or SSI check recipients. They are more likely to 
own a cell phone or to use a personal computer and the Internet. 
Compared with check recipients, direct deposit beneficiaries responding 
to the survey were more likely to have confidence in banks, to believe 
that computers are secure, and to feel that ATMs are safe.
    Despite these demographic differences, Treasury has found that the 
reasons for resistance to direct deposit among check recipients have 
remained fairly constant over the years. Many people express a desire 
to see the physical payment in check form. Others feel a greater sense 
of control when handling checks, and many, especially those receiving 
SSI, believe that receiving checks helps them to better manage their 
money and maintain their standard of living. Barriers that need to be 
overcome can be grouped into four general categories: informational 
(those who do not understand how direct deposit works); emotional 
(those who just prefer to receive checks); inertia (those who are 
receptive to electronic payments, but need to be motivated to sign up); 
and mechanical (those who do not have bank accounts, and in some cases, 
do not want bank accounts).
    Treasury expects most recipients to pay less for EFT payments than 
for check payments. While some individuals may be able to cash 
government checks at no cost, there are often fees of up to $20 or more 
for cashing a check, according to Treasury's research in 2007 (SSA & 
SSI Check Recipient Survey, OMB Control No. 1510-0074). The Direct 
Express[supreg] card program is structured so that there are several 
ways for cardholders to access their funds and use their card without 
paying any fees. The Direct Express[supreg] card account fees compare 
favorably to those charged by financial service providers offering 
general purpose reloadable cards, which often charge fees for sign-up, 
monthly maintenance, ATM withdrawals, balance inquiries,

[[Page 80331]]

and customer service calls. Cardholders may use their card to make 
purchases and get cash back at a POS location without paying a fee; 
obtain cash from any MasterCard[supreg] member bank teller window 
without paying a fee; and make one free ATM cash withdrawal for each 
benefit payment deposited to the card account (the free ATM cash 
withdrawal is available until the end of the month following the month 
of deposit). If the cardholder makes a withdrawal using an ATM within 
the Direct Express[supreg] surcharge-free ATM network, the cardholder 
will not pay a surcharge fee to an ATM owner. In addition, there are 
many other features that cardholders can access without paying a fee, 
including unlimited customer service calls (with or without live 
operators); optional automated low balance alerts or deposit 
notifications; and online or telephone transaction history and other 
account information. There is no fee to sign up for the card, close the 
account, or to obtain one replacement card per year. Importantly, there 
are no overdrafts, minimum balance requirements, or credit requirements 
to sign up for the card. The few fees that are charged for the card 
include $.90 for ATM transactions after free ATM transactions are used, 
$.75 per month for optional paper statements, fees for using the card 
outside the United States, and replacement cards beyond the free 
replacement card. By way of illustration, sample Direct Express[supreg] 
cardholder scenarios follow:
---------------------------------------------------------------------------

    \5\ The bankrate.com 2010 checking study cited an average $2.33 
surcharge fee per withdrawal (http://www.bankrate.com/finance/checking/banks-taking-a-bigger-bite-with-atm-fees.aspx).

       Fig. 2--Direct Express[supreg] Card Fees: Sample Scenario 1
------------------------------------------------------------------------
                                                          Fees (with ATM
    Direct Express[supreg] Card       Fees (with no ATM    surcharge  of
           transactions                  surcharge)         $2.33) \5\
------------------------------------------------------------------------
1st ATM withdrawal (free with 1st   FREE................           $2.33
 deposit).
Three bill payments...............  FREE................            FREE
Eight POS transactions............  FREE................            FREE
Weekly Balance Inquiry............  FREE................            FREE
One Deposit.......................  FREE................            FREE
                                   -------------------------------------
    Total Monthly Fee.............  FREE................            2.33
------------------------------------------------------------------------


       Fig. 3--Direct Express[supreg] Card Fees: Sample Scenario 2
------------------------------------------------------------------------
                                                          Fees (with ATM
Direct Express[supreg] Card transactions   Fees (with no   surcharge of
                                          ATM surcharge)      $2.33)
------------------------------------------------------------------------
1st ATM withdrawal (free with 1st                   FREE           $2.33
 deposit)...............................
2nd ATM withdrawal......................            $.90            3.23
Eight POS transactions..................            FREE            FREE
Weekly Balance Inquiry..................            FREE            FREE
One Deposit.............................            FREE            FREE
                                         -------------------------------
    Total Monthly Fee...................             .90            5.56
------------------------------------------------------------------------


       Fig. 4--Direct Express[supreg] Card Fees: Sample Scenario 3
------------------------------------------------------------------------
                                                          Fees (with ATM
    Direct Express[supreg] Card       Fees (with no ATM    surcharge of
           transactions                  surcharge)           $2.33)
------------------------------------------------------------------------
1st ATM withdrawal (free with 1st   FREE................           $2.33
 deposit).
Bank Teller Cash Withdrawal.......  FREE................            FREE
Eight POS transactions............  FREE................            FREE
Weekly Balance Inquiry............  FREE................            FREE
One Deposit.......................  FREE................            FREE
                                   -------------------------------------
    Total Monthly Fee.............  FREE................            2.33
------------------------------------------------------------------------


       Fig. 5--Direct Express[supreg] Card Fees: Sample Scenario 4
------------------------------------------------------------------------
  Direct Express[supreg] Card   Fees (with no ATM      Fees (with ATM
         transactions               surcharge)       surcharge  $2.33)
------------------------------------------------------------------------
1st ATM withdrawal (free with   FREE.............  $2.33.
 1st deposit).
Purchase Money Order for $700   $1.50 (to USPS)..  1.50 (to USPS).
 at US Post Office (USPS) to
 pay rent.
Eight POS transactions........  FREE.............  FREE.
Weekly Balance Inquiry........  FREE.............  FREE.

[[Page 80332]]

 
One Deposit...................  FREE.............  FREE.
                               -----------------------------------------
    Total Monthly Fee.........  $1.50............  $3.83.
------------------------------------------------------------------------


       Fig. 6--Direct Express[supreg] Card Fees: Sample Scenario 5
------------------------------------------------------------------------
                                                          Fees (with ATM
Direct Express[supreg] Card transactions   Fees (with no   surcharge of
                                          ATM surcharge)      $2.33)
------------------------------------------------------------------------
1st ATM withdrawal (free with 1st                   FREE           $2.33
 deposit)...............................
5 additional ATM withdrawals............           $4.50           16.15
One POS transaction.....................            FREE            FREE
Weekly Balance Inquiry..................            FREE            FREE
One Deposit.............................            FREE            FREE
                                         -------------------------------
    Total Monthly Fee...................            4.50           18.48
------------------------------------------------------------------------

    Even in Scenario 5, which is not the recommended way to use the 
Direct Express[supreg] card, a cardholder incurs less expense than what 
some beneficiaries pay to cash their Treasury checks. Treasury expects 
that, with its expanded cardholder education, fees incurred under 
Scenarios 1 through 4 would be more typical.
    Treasury expects to continue to incur expenditures for the public 
education related to the implementation of the new rule and to 
temporarily expand its telephone and online direct deposit enrollment 
center to accommodate those converting from check payments to direct 
deposit to comply with the new rule, whether the conversion is to an 
account at a financial institution or to a Direct Express[supreg] card 
account. However, such expenditures will taper off after the new rule 
is fully implemented, since direct deposit enrollment in the future 
will occur at the time of benefit enrollment. Federal benefit agencies 
may incur costs to temporarily expand customer service centers to 
accommodate recipients' questions and enrollments until the new rules 
are fully implemented.
    Treasury expects increased costs for its call center and Web site 
used to enroll check recipients into direct deposit, although these 
costs are expected to drop off after 2013, when the rule would be fully 
implemented. The education costs, estimated at $10 million over the 
next three years, are costs that Treasury would have incurred even 
without the rule, and for potentially longer than the next three to 
five years. Similarly, Treasury expects benefit paying agencies to 
incur some initial costs for customer service training for customer 
service representatives responsible for educating new enrollees and 
current check recipients about the new rules, but these costs are 
expected to be more than offset by the cost savings expected once 
customer service centers no longer have to respond to individual 
inquiries related to check problems. The one-time costs to increase 
customer service capacity at the Treasury enrollment center (both 
telephone and online) could total as high as $20 million from the 
effective date of the final rule through 2013. These costs include 
Treasury's costs for processing waiver requests. After 2013, Treasury 
expects these costs to drop off significantly.
    The Go Direct[supreg] campaign, sponsored by Treasury and the 
Federal Reserve Banks, highlights the need for this educational 
program. Despite the success of the campaign with more than five 
million direct deposit enrollments achieved since 2005 as a result of 
the campaign's activities, an estimated 11 million Federal benefit 
recipients still receive checks each month. Treasury research shows 
that the likelihood of current check recipients switching to direct 
deposit remained generally unchanged from 2004 to 2007, with 55% of 
banked Social Security check recipients surveyed in 2007 being very 
unlikely to change to direct deposit, down from 59% in 2004. The 
percentage of banked Social Security check recipients likely to switch 
to direct deposit went from 27% in 2004 to 28% in 2007. Comparatively, 
40% of banked SSI check recipients were likely to switch to direct 
deposit in 2007, up only one percentage point since 2004. While 
Treasury research shows that direct deposit education has a positive 
impact on the likelihood of a check recipient to switch to direct 
deposit, the effort is time consuming, administratively burdensome, 
costly, and resource-intensive. During the period July 2009 through 
June 2010, Treasury spent $4.5 million on its Go Direct[supreg] 
campaign, and expects to spend another $4 million during the period 
July 2010 through June 2011. Prior years' costs have ranged from $5 
million to $10 million for Treasury to establish and sustain its 
presence in target markets to promote and encourage check recipients to 
convert to direct deposit.
    Finally, and less directly, financial institutions may experience 
some costs associated with converting their check recipient customers 
to direct deposit, but Treasury does not expect this to be a 
significant burden since financial institutions already enroll a 
significant number of direct deposit recipients through Treasury's Go 
Direct[supreg] campaign.
b. Potential Benefits
    The potential benefits of the rule to the Government and taxpayers 
are significant. As noted above, in fiscal year 2010, Treasury mailed 
more than 130 million Federal benefit checks to approximately 11 
million benefit recipients, resulting in extra costs to taxpayers of 
more than $117 million that would not have been incurred had those 
payments been made by EFT. Without the rule change and given the 
current trends, the number of checks

[[Page 80333]]

that Treasury prints and mails each year is expected to increase 
significantly over the coming years, primarily as a result of the aging 
of the baby boomer generation. Beginning in 2008, the first wave of 78 
million baby boomers became eligible for Social Security benefits. Even 
as the more technologically-savvy baby boomers enter the rolls, while 
improving, the direct deposit rate for fiscal year 2010 climbed no 
higher than 79.1% for new Social Security enrollees. With the increase 
in retiring baby boomers, Treasury expects to issue approximately 60 
million new payments each year to approximately 5 million newly 
enrolled recipients (based on Social Security Administration actuarial 
data). Of those 60 million payments, an estimated 9 million would be 
made by check based on the current overall direct deposit/check ratio 
(85 percent/15 percent) for Social Security payments. By 2020, the 
Social Security Administration projects there will be 18.6 million more 
Social Security beneficiaries than in fiscal year 2009, which would 
result in more than 223 million additional payments each year. At the 
current direct deposit/check ratio, this would mean 33.5 million 
additional checks each year beginning in 2020, at a cost of $31 million 
each year, leading to a total annual cost of more than $156 million 
more than if those payments were made by direct deposit.
    These projected cost savings do not take into account future 
increased costs in postage, paper, and salaries; the cost of issuing 
benefit checks other than Social Security and SSI; or the costs 
agencies incur in handling inquiries and authorizing replacement 
checks. For example, the Social Security Administration expects 
administrative savings resulting from a drop in non-receipt and lost 
check actions. The Social Security Administration also expects to save 
money by eliminating the ``Payment Delivery Alert System,'' which is a 
joint effort among the Social Security Administration, Treasury, and 
the U.S. Postal Service to locate and deliver delayed Social Security 
and SSI checks.
    Those who receive their payments by direct deposit do not have to 
worry about a lost or stolen check, or carrying around large amounts of 
cash that can be easily lost or stolen. Each year, approximately half a 
million individuals call Treasury to request claims packages related to 
problems with check payments. For example, in fiscal year 2009, more 
than 670,000 Social Security and SSI checks were reported lost or 
stolen, and in fiscal year 2010, more than 540,000 checks were reported 
lost or stolen. In fiscal year 2009, Treasury investigated more than 
70,000 cases of altered or fraudulently endorsed checks, totaling $64 
million, and in fiscal year 2010, Treasury investigated almost 50,000 
cases, totaling $93 million. When checks are misrouted, lost in the 
mail, stolen, or fraudulently signed, Treasury must send replacement 
checks to the recipient. This can result in a delay in payment, 
especially if fraud or counterfeiting is involved, thereby creating a 
hardship for benefit recipients who rely on these payments for basic 
necessities such as food, rent, or medication. In contrast, individuals 
receiving Federal payments electronically rarely have any delays or 
problems with their payments. Nine out of ten problems with Treasury-
disbursed payments are related to paper checks even though checks 
constitute only 19 percent of all Treasury-disbursed payments made by 
the Government.
    These projected savings also do not account for the costs that 
would no longer be incurred by banks and credit unions for cashing 
checks and reimbursing the Government when there are alterations, 
forgeries, or unauthorized indorsements of Federal benefit checks. In 
fiscal year 2009, it cost the banking industry $69.3 million to 
reimburse the Treasury for checks that had been fraudulently altered or 
counterfeited, or contained a forged or unauthorized indorsement. In 
fiscal year 2010, these costs increased to $88 million.
5. Alternative Approaches Considered
    Treasury considered three alternative approaches to achieving the 
benefits of direct deposit other than the approach described in this 
rulemaking notice.
    First, Treasury could have eliminated the individual EFT waivers 
sooner for everyone, i.e., eliminate the waivers for all benefit 
recipients on the same effective date, but Treasury was concerned about 
the impact of such a rule on payment recipients if the amount of time 
to educate the public about the rule's requirements and benefits was 
inadequate. It is important for Treasury and benefit agencies to be 
prepared to respond to recipients' inquiries about the new rules, which 
requires sufficient time to train agency customer service 
representatives, educate those affected by the new rules, and to 
implement any process changes that may be required. Treasury will work 
closely with the agencies to ensure that implementation requirements 
are understood and can be addressed in the time frame in the rule.
    Second, Treasury also considered phasing in the elimination of the 
individual EFT waivers over a longer period of time. Treasury is 
concerned that such a delay results in additional costs to individuals 
who will be delayed in realizing the benefits of direct deposit. 
Treasury intends to begin its public education campaign immediately 
upon the promulgation of this final rule. Treasury will monitor the 
progress of its campaign, and adjust the campaign as necessary to 
ensure maximum effectiveness. In addition, a delayed implementation 
results in additional costs to the Government and taxpayers. For every 
year that Treasury delays full implementation of the EFT rule, the 
Government spends at least $117 million more for check payments than it 
would otherwise spend if recipients were receiving EFT payments.
    Finally, Treasury considered eliminating all EFT waivers, and 
whether to institute a formal application process for individuals 
seeking to invoke a waiver to the EFT requirement. Treasury is 
concerned that such an approach would require the unnecessary 
development of a new bureaucratic infrastructure to process the 
applications, and would impose administrative burdens on both 
Government agencies and benefit recipients. After reviewing comments 
received in response to the NPRM, Treasury retained waivers for 
recipients born prior to May 1, 1921 who are receiving Federal payments 
by check on March 1, 2013, for payments that are not eligible for 
deposit to a Direct Express[supreg] card account, and for recipients 
whose Direct Express[supreg] card has been suspended or cancelled. In 
addition, this rule allows a payment recipient to request a waiver from 
the EFT requirement on the basis that EFT would impose a hardship 
because of the recipient's inability to manage an account at a 
financial institution or a Direct Express[supreg] card account due to a 
mental impairment, or because the recipient lives in a remote 
geographic area lacking the infrastructure to support electronic 
financial transactions. Recipients requesting waivers are required to 
submit a certification with a short statement explaining why they need 
a waiver. The certification will be signed by the individual requesting 
the waiver before a notary public, or in such form that Treasury may 
prescribe. The waiver request is considered effective unless Treasury 
rejects the request.
    The availability of the Direct Express[supreg] card negates the 
need for other individual waivers. Agencies retain the ability to waive 
EFT requirements for

[[Page 80334]]

classes of payments for various reasons. Finally, in an unusual or 
exceptional circumstance, the Secretary has the authority to waive the 
EFT requirement, but Treasury does not anticipate invoking this 
authority except in rare situations.
6. Other Issues
a. Financial Agent
    Building on the ``lessons learned'' in previous programs and the 
Direct Express[supreg] card program pilot, Treasury issued an 
announcement in 2007 seeking a financial institution qualified to act 
as a Treasury-designated financial agent to provide debit card services 
for Federal benefit recipients nationwide, through the Direct 
Express[supreg] card program. Treasury has unique legal authority to 
designate a financial institution as its financial agent to disburse 
Federal benefit payments electronically, which includes the 
establishment of an account meeting certain requirements, maintenance 
of an account, the receipt of Federal payments electronically, and the 
provision of access to funds in the account on the terms specified by 
Treasury. See 12 U.S.C. 90; 31 CFR 208.2. Fifteen financial 
institutions responded, and after careful review of the applications, 
Treasury selected Comerica Bank as its agent based on various criteria, 
including the proposed cardholder fees. Treasury considered, but 
rejected, selecting multiple financial agents (although it has the 
option to do so in the future) primarily to ensure that the selected 
financial agent would be able to maintain a sufficient volume of active 
accounts in order to cost-effectively sustain a program with the lowest 
possible cardholder fees. The financial agent selection process used by 
Treasury enabled Treasury to obtain debit card services with the most 
value for benefit recipients, including, among other things, better 
consumer protections than those offered by most prepaid card products, 
a surcharge-free ATM network of more than 53,000 surcharge-free ATMs, 
free low balance alerts and deposit notification, unlimited free 
customer service calls, and the ability to use the debit card product 
to access Federal benefit payments without incurring a fee. Treasury 
provides oversight to confirm that its financial agent operates the 
Direct Express[supreg] card program to provide maximum value at a 
reasonable cost to cardholders. The card program is now available to 
recipients of Social Security, SSI, Veterans compensation and pension, 
civil service retirement, and railroad retirement benefit payments. 
This allows Federal payment recipients to receive multiple types of 
Federal payments to a single Direct Express[supreg] card account.
b. Garnishment
    Treasury has also addressed the concerns about the improper 
freezing and seizure of benefit funds exempt from garnishment. Treasury 
and the four major benefit paying agencies--Office of Personnel 
Management, Railroad Retirement Board, Social Security Administration, 
and Department of Veterans Affairs--published a notice of proposed 
rulemaking and will soon publish a joint rule. The rule will help 
ensure that garnishment-exempt benefit payments in an account are not 
improperly seized, and will protect benefit recipients where benefit 
payments are directly deposited to an account at a financial 
institution.

Regulatory Flexibility Act Analysis

    It is hereby certified that the rule will not have a significant 
economic impact on a substantial number of small entities. The rule 
applies to individuals who receive Federal payments, and does not 
directly impact small entities. Accordingly, a regulatory flexibility 
analysis under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) is 
not required.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532 (Unfunded Mandates Act), requires that the agency prepare a 
budgetary impact statement before promulgating any rule likely to 
result in a Federal mandate that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more in any one year. If a budgetary 
impact statement is required, section 205 of the Unfunded Mandates Act 
also requires the agency to identify and consider a reasonable number 
of regulatory alternatives before promulgating the rule. We have 
determined that the rule will not result in expenditures by State, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. Accordingly, we have 
not prepared a budgetary impact statement or specifically addressed any 
regulatory alternatives.

List of Subjects in 31 CFR Part 208

    Accounting, Automated Clearing House, Banks, Banking, Electronic 
funds transfer, Financial institutions, Government payments.

0
For the reasons set out in the preamble, 31 CFR part 208 is amended to 
read as follows:

PART 208--MANAGEMENT OF FEDERAL AGENCY DISBURSEMENTS

0
1. The authority citation for part 208 continues to read as follows:

    Authority:  5 U.S.C. 301; 12 U.S.C. 90, 265, 266, 1767, 1789a; 
31 U.S.C. 321, 3122, 3301, 3302, 3303, 3321, 3325, 3327, 3328, 3332, 
3335, 3336, 6503; Pub. L. 104-208, 110 Stat. 3009.


0
2. In Sec.  208.2, redesignate paragraphs (c) through (o) as paragraphs 
(d) through (p), respectively, add new paragraph (c), and revise 
redesignated paragraph (e) to read as follows:


Sec.  208.2  Definitions.

* * * * *
    (c) Direct Express[supreg] card means the prepaid debit card issued 
to recipients of Federal benefits by a Financial Agent pursuant to 
requirements established by Treasury.
* * * * *
    (e) Electronic benefits transfer (EBT) means the provision of 
Federal benefit, wage, salary, and retirement payments electronically, 
through disbursement by a financial institution acting as a Financial 
Agent. For purposes of this part, EBT includes, but is not limited to, 
disbursement through an ETA\sm\, a Federal/State EBT program, or a 
Direct Express[supreg] card account.
* * * * *

0
3. Amend Sec.  208.4 as follows:
0
a. Remove the introductory text;
0
b. Revise paragraph (a);
0
c. Add paragraph (a)(1);
0
d. Redesignate paragraphs (b) through (g) as paragraphs (a)(2) through 
(a)(7).
0
e. In redesignated paragraph (a)(4), further redesignate paragraphs (1) 
and (2) as paragraphs (a)(4)(i) and (ii);
0
f. Revise redesignated paragraph (a)(6); and
0
g. Add new paragraph (b).
    The revisions and additions read as follows:


Sec.  208.4  Waivers.

    (a) Payment by electronic funds transfer is not required in the 
following cases:
    (1) Where an individual:
    (i) Is receiving a Federal payment by check prior to May 1, 2011. 
In such cases, the individual may continue to receive those payments by 
check through February 28, 2013;
    (ii) Files a claim for a Federal payment prior to May 1, 2011, and 
requests payment by check at the time he or she files the claim. In 
such cases, the individual may receive those

[[Page 80335]]

payments by check through February 28, 2013;
    (iii) Was born prior to May 1, 1921, and is receiving payment by 
check on March 1, 2013;
    (iv) Receives a type of payment that is not eligible for deposit to 
a Direct Express[supreg] card account. In such cases, those payments 
are not required to be made by electronic funds transfer, unless and 
until such payments become eligible for deposit to a Direct 
Express[supreg] card account;
    (v) Is ineligible for a Direct Express[supreg] card because of 
suspension or cancellation of the individual's card by the Financial 
Agent;
    (vi) Has filed a waiver request with Treasury certifying that 
payment by electronic funds transfer would impose a hardship because of 
the individual's inability to manage an account at a financial 
institution or a Direct Express[supreg] card account due to a mental 
impairment, and Treasury has not rejected the request; or
    (vii) Has filed a waiver request with Treasury certifying that 
payment by electronic funds transfer would impose a hardship because of 
the individual's inability to manage an account at a financial 
institution or a Direct Express[supreg] card account due to the 
individual living in a remote geographic location lacking the 
infrastructure to support electronic financial transactions, and 
Treasury has not rejected the request.
* * * * *
    (6) Where the agency does not expect to make payments to the same 
recipient within a one-year period on a regular, recurring basis and 
remittance data explaining the purpose of the payment is not readily 
available from the recipient's financial institution receiving the 
payment by electronic funds transfer; and
* * * * *
    (b) An individual who requests a waiver under paragraphs (a)(1)(vi) 
and (vii) of this section shall provide, in writing, to Treasury a 
certification supporting that request, in such form that Treasury may 
prescribe. The individual shall attest to the certification before a 
notary public, or otherwise file the certification in such form that 
Treasury may prescribe.

0
4. Revise Sec.  208.6 to read as follows:


Sec.  208.6  Availability of the Direct Express[supreg] Card.

    An individual who receives a Federal benefit, wage, salary, or 
retirement payment shall be eligible to open a Direct Express[supreg] 
card account. The offering of a Direct Express[supreg] card account 
shall constitute the provision of EBT services within the meaning of 
Public Law 104-208.

0
5. Revise Sec.  208.7 to read as follows:


Sec.  208.7  Agency responsibilities.

    An agency shall put into place procedures that allow recipients to 
provide the information necessary for the delivery of payments to the 
recipient by electronic funds transfer to an account at the recipient's 
financial institution or a Direct Express[supreg] card account.

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6. Revise Sec.  208.8 to read as follows:


Sec.  208.8  Recipient responsibilities.

    Each recipient who is required to receive payment by electronic 
funds transfer shall provide the information necessary to effect 
payment by electronic funds transfer.

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7. Revise the third sentence in Sec.  208.11 to read as follows:


Sec.  208.11  Accounts for disaster victims.

    * * * Treasury may deliver payments to these accounts 
notwithstanding any other payment instructions from the recipient and 
without regard to the requirements of Sec. Sec.  208.4 and 208.7 of 
this part and Sec.  210.5 of this chapter. * * *

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8. Remove Appendix A and Appendix B to Part 208.

    Dated: December 16, 2010.
Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2010-32117 Filed 12-21-10; 8:45 am]
BILLING CODE 4810-35-P


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