[Federal Register Volume 65, Number 129 (Wednesday, July 5, 2000)]
[Rules and Regulations]
[Pages 41321-41326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16944]



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Rules and Regulations
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Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Rules 
and Regulations

[[Page 41321]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272, 273 and 274

[Amdt. No. 378]
RIN 0584-AC61


Food Stamp Program; Electronic Benefit Transfer Benefit 
Adjustments

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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

SUMMARY: This action provides final rulemaking for an interim rule 
published on September 9, 1999. The final rule revises Food Stamp 
Program regulations pertaining to a State agency's ability to make an 
adjustment to a household's account in an Electronic Benefit Transfer 
system. It enables State agencies to make adjustments to correct system 
errors without sending households advance notice of the action but does 
require that households be notified of any such actions. The rule also 
defines the timeframes and other requirements for the adjustments. The 
final rule incorporates several changes in response to a number of 
comments the Department received on the interim rule.
    As a separate action, this regulation also adopts as final the 
requirements for re-presentation in the interim rule. State agencies 
may use re-presentation to recover funds when the host computer is 
inaccessible and there are insufficient funds to cover a manual 
transaction.

DATES: This final rule is effective August 4, 2000. State agencies may 
begin implementing the rule August 4, 2000 but no later than January 2, 
2001.

FOR FURTHER INFORMATION CONTACT: Jeffrey N. Cohen, Chief, Electronic 
Benefit Transfer Branch, Benefit Redemption Division, Food and 
Nutrition Service, USDA, room 718, 3101 Park Center Drive, Alexandria, 
Virginia 22302, or telephone (703) 305-2517.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be non-significant for 
purposes of Executive Order 12866 and therefore was not reviewed by the 
Office of Management and Budget.

Public Law 104-4

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Food and Nutrition Service generally must prepare a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures by State, local or 
tribal governments, in the aggregate, or to the private sector, of $100 
million or more in any one year. When such a statement is needed for a 
rule, Section 205 of the UMRA generally requires the Food and Nutrition 
Service to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, more cost-effective or least 
burdensome alternative that achieves the objectives of the rule.
    This final rule contains no Federal mandates (under the regulatory 
provisions of Title II of UMRA) for State, local and tribal governments 
or the private sector of $100 million or more in any one year. Thus, 
this rule is not subject to the requirements of sections 202 and 205 of 
the UMRA.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule in 7 CFR part 3015, subpart V and related Notice (48 FR 29115), 
this Program is excluded from the scope of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Samuel Chambers, 
Jr., Administrator, Food and Nutrition Service, has certified that this 
final rule will not have a significant economic impact on a substantial 
number of small entities. Food stamp authorized retailers will be 
affected minimally. State and local welfare agencies will be the most 
affected to the extent that they administer the Program.

Paperwork Reduction Act

    This rule does not contain reporting or recordkeeping requirements 
subject to approval by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3507).

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Dates'' paragraph of this preamble. Prior 
to any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted. In the Food Stamp Program, the administrative 
procedures are as follows: (1) For Program benefit recipients--State 
administrative procedures issued pursuant to 7 U.S.C. 2020(e)(1) and 7 
CFR 273.15; (2) for State agencies--administrative procedures issued 
pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 for rules related to 
non-quality control (QC) liabilities or 7 CFR Part 283 for rules 
related to QC liabilities; and (3) for Program retailers and 
wholesalers--administrative procedures issued pursuant to 7 U.S.C. 2023 
set out at 7 CFR 278.8.

Background

    In a State where food stamp benefits are issued using an Electronic 
Benefit Transfer System (EBT), Food Stamp Program (FSP) participants 
purchase food by swiping their EBT card through a point-of-sale (POS) 
machine at an authorized retailer. In the transaction, benefits move 
from the participants' accounts to the retailers' bank accounts. During 
normal EBT transaction processing, settlement of the transaction

[[Page 41322]]

is completed when the transaction acquirer, typically a retail food 
store, has been properly credited for an amount equal to the amount 
debited from the household's benefit allotment. System malfunctions can 
cause an interruption to this process, resulting in a settlement 
condition that does not reflect the original transaction. Proposed 
regulations were published in the Federal Register on May 19, 1998 at 
63 FR 27511 to change the way in which certain EBT error conditions are 
handled. Because of the complex nature of this issue and the 
substantive comments received to the proposed rule, the Department 
published an interim rule rather than a final rule in order to obtain 
further comments. The interim rule, published in the Federal Register 
September 9, 1999 at 64 FR 48933, implemented the proposed rule with 
some substantive changes as a result of comments received on the 
proposed rule.
    The interim rule requires State agencies to make adjustments to 
correct out-of-balance settlement conditions that do not reflect 
original EBT transactions as a result of system malfunctions. In cases 
where a store is not credited for the full transaction amount, the 
interim rule requires State agencies to make an adjustment by debiting 
the client household's account, provided a concurrent notice is sent to 
the household. The interim rule also requires State agencies to debit a 
household's future month's benefits to complete an adjustment.
    Apart and separate from system error adjustments, changes were also 
implemented for handling re-presentations when the system host computer 
cannot be accessed and there are insufficient funds in the household's 
account to cover a manual transaction. Readers should refer to the 
proposed and interim regulations for a more complete understanding of 
this final action.
    This final rule reflects further revisions to the regulations, 
taking into consideration all comments received on the interim rule. 
Comments on the interim rule were solicited through November 8, 1999. 
Seventeen comment letters were received in response. Individual 
comments were received from twelve State agencies. Of the remaining 
letters, 2 were from EBT processors, 1 was from a retailer association, 
1 was from an alliance of States, networks, financial institutions and 
retailers, and 1 was from a credit card company.
    In general, the commenters supported the Department's efforts to 
streamline the adjustment process for certain types of system errors. 
However, the commenters still believe that the Department did not go 
far enough in doing so and that the EBT adjustment policy should be 
further simplified to more closely mirror procedures used to correct 
system errors in the commercial environment. The major comments are 
discussed below.

General

    There is a significant difference between adjustments in an EBT 
environment and adjustments in a commercial environment. Processors 
treat commercial adjustments as routine corrections which do not 
require special notification to customers. However, commercial debit 
card customers do have protections found in Regulation E at 12 CFR part 
205 (hereinafter ``Reg. E''), that food stamp clients do not have. One 
important protection is the requirement that commercial debit card 
users receive monthly statements summarizing their account activities. 
The monthly statement provides the account holder notification after 
the fact that an adjustment was processed to the account. However, food 
stamp EBT users were explicitly exempted from Reg. E with the enactment 
of the Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996, Pub. L. 104-193 (PRWORA).
    Requirements set forth in the Food Stamp Act of 1977, as amended, 7 
U.S.C. 2019(e)(10), (FSA), and in the FSP regulations, require client 
notifications and rights to appeal when negative actions are taken. 
Because debit adjustments against a food stamp client's EBT account can 
be viewed as a type of adverse action, the same notice and appeal 
rights must be applied in these circumstances. The State agencies and 
other stakeholders continue to raise this as a primary concern due to 
the potential costs associated with notification and the fair hearing 
process. However, because of the statutory and regulatory provisions 
set up to protect food stamp households in situations of adverse 
action, and the gap left without the customer protections from Reg. E, 
these requirements remain unchanged in the final regulation.
    Several commenters expressed concern that there needs to be 
sufficient training for retailers and third party processors on how the 
adjustment rule will be implemented, especially those aspects of the 
rule dealing with liabilities and timeframes. Although not addressed in 
the regulation, the Department will work with State agencies to ensure 
that the appropriate level of information is made available to 
retailers and third party processors. We will also work with State 
agencies to determine how best to disseminate that information.

Definitions

    The interim rule defined business days as Automated Clearing House 
(ACH) days. Two commenters requested that instead of ACH days, we 
define business days as calendar days other than Saturdays, Sundays or 
Federal holidays. We have made this change at 7 CFR 274.12 
(f)(4)(ii)(A) to make the rule language more universal. Another 
commenter requested that we clarify all references to ``days'' as 
either ``calendar'' or ``business'' days. Where appropriate, we have 
done so throughout the final rule.

Future Month's Benefits

    The interim rule requires a debit adjustment from a recipient's 
account to be made from a future month's benefit, i.e., benefits that 
are not in the account at the time the initial adjustment is attempted, 
but are issued in subsequent months. This would apply in situations 
where either: (1) No benefits are available in the client account when 
the adjustment is attempted, or (2) only a portion of the benefits 
required for the full adjustment is available at the time the 
adjustment is attempted.
    Two commenters provided general support of collection against 
future month's benefits. One commenter, however, asked for 
clarification on what was meant in the interim rule by requiring State 
agencies to collect from future months in which there has been a break 
in benefits. In the interim rule, State agencies are required to 
complete an outstanding adjustment that exists for a household that 
comes back on to the FSP after being off the Program for a period of 
time. This would require debiting the household's account in a month 
other than when the error occurred, i.e., use their future month's 
benefits.
    Two commenters suggested limiting the number of months processors 
must attempt adjustments against a client's account, e.g., 1 future 
month, before the adjustment debt is canceled. Limiting the number of 
months an adjustment must be carried over until it is satisfied reduces 
the length of time State agencies and processors must track and account 
for an adjustment. Consequently, State agencies will also be relieved 
of tracking adjustments that cannot be collected from a household that 
leaves the FSP, regardless of whether that household returns to the FSP 
at a future date.
    The Department is convinced that limiting the length of time the 
State agency may attempt an adjustment to

[[Page 41323]]

one future month greatly reduces costs and makes this operation much 
more manageable. The Department is further convinced that this change 
will not significantly impact the number of adjustments that can be 
completed for the full amount. This is consistent with data that shows 
the average EBT transaction amount is $20, and therefore, most 
adjustments will be fully satisfied after going against no more than 
one future month's issuance. The final rule reflects this change.
    At 7 CFR 274.12(f)(4)(ii), the interim rule states that, by 
definition, the amount of an adjustment cannot differ from the value of 
the original transaction. In response to three commenters, we are 
removing this language from the rule because it does not account for 
the possibility of partial adjustments in the current month, and again 
in future months. This language becomes more problematic now that we 
are limiting the State agencies' access to one future month's benefits 
to make an adjustment. In some cases, it is possible that the State 
agency will not be able to collect anything from a household, or only a 
portion of a total adjustment because the household has left the FSP, 
or they have a minimal benefit issuance that will not cover the full 
adjustment in the next month.
    However, the Department is clarifying that we are not requiring 
State agencies to settle partial adjustments to retailer accounts. We 
have been informed that many acquirers' systems cannot accept partial 
adjustment amounts that do not match the original error transaction and 
prefer receiving no credit rather than a partial credit. In cases where 
the State agency chooses not to settle a partial adjustment to the 
acquirer, the adjustment amount must be returned to the household 
account.
    Another commenter raised the concern that making a partial 
adjustment in the current month, then another partial adjustment in the 
next month is problematic. This is another example where tracking and 
settling the adjustment becomes complicated by the likelihood of 
multiple transactions to complete a full adjustment. The suggested 
solution from the commenter was to place a hold on a partial adjustment 
available in the current month, then move the funds at one time, as a 
single adjustment, after the next month's benefits are issued. This 
reduces the number of transactions required to make an adjustment when 
going against a future month's benefits. We can see the merit in this 
approach and will allow State agencies to handle the process in this 
way, so long as the notification to households: (1) Is sent at the time 
the initial hold is placed on the current month's remaining available 
funds, if any; (2) clearly states the full adjustment amount; and (3) 
advises the household that any amount still owing is subject to 
collection from the household's next future month's benefits. To reduce 
the possibility of creating a hardship on the household, the processor 
must place a hold on whatever portion of the adjustment is available in 
the current month rather than wait to debit the entire adjustment 
amount from the household's next month's issuance.
    Two commenters suggested dropping the language at 7 CFR 
274.12(f)(4)(ii), which provides that ``[a] State agency shall make 
adjustments to an account after the availability date * * *,'' because 
it implies that adjustments can never be made before the availability 
date. We have re-worded this paragraph to clarify that State agencies 
must make adjustments to correct system errors and that those 
adjustments may be made after the availability date. This distinguishes 
system error adjustments from other types of adjustments to client EBT 
accounts which may not be made after the benefit availability date.
    The Department will require State agencies to amend training 
materials to disclose information to households about adjustments, 
including the possibility that an adjustment can be made against a 
future month's benefit. Training materials must also inform households 
of their right to a fair hearing if they do not feel that the 
adjustment is warranted and their right to receive a credit for the 
adjustment amount pending a fair hearing decision. Although one 
commenter questioned the sense of allowing State agencies a grace 
period to make changes to training materials, we have not changed the 
rule. State agencies may grandfather disclosure information on 
adjustments into their training materials if they have EBT systems that 
have been operational for one year from the date of this publication. 
However, as we discuss below, whenever a household's account is debited 
to make an adjustment, the State agency must provide the household 
concurrent notification of their rights to appeal and to provisional 
credits, including the possibility of adjustment from the next month's 
benefits.

Notice and Fair Hearing Requirement

    When an adjustment will adversely affect the household, the interim 
rule requires State agencies to send a concurrent notice at the time 
the action is taken rather than an advance notice which must be sent 10 
days before an action is taken. The concurrent notice gives households 
the right to a fair hearing and the right to be credited for the 
adjustment amount pending the outcome of the fair hearing. The majority 
of comments received on this subject continue to disagree with the 
notice requirement. However, as mentioned above, such notification is 
mandated by the FSA. Thus, the final rule remains unchanged in 
requiring concurrent notice to households. These notices must contain 
the level of detail described in current regulations at 7 CFR 273.13, 
i.e., State agencies are required to include information about the 
circumstances which resulted in the adverse action. State agencies are 
encouraged to include as much detail about the transaction--date, time 
and location--as possible, since such information could reduce calls to 
the help desk as well as requests for fair hearings and provisional 
credits.
    Several commenters relayed concern that only one notice be 
required, even when partial adjustments are necessary from future 
months to recoup the full adjustment amount. It is the intent of this 
rule that only one notice be sent to a household informing it of the 
error and disclosing the full adjustment amount. The State agency must 
send the notice concurrent to taking initial action on the adjustment. 
Subsequent transactions to move the funds or otherwise complete the 
adjustment do not require additional household notification. It should 
be noted that all actions taken to reduce the household's allotment are 
subject to notice, including the correction of an erroneous adjustment 
that first went in the household's favor. No notice is necessary if an 
adjustment is a credit to the household account.
    The household has 90 days from the date of the notice to request a 
fair hearing. However, if the request is received within 10 days from 
the date of the notice, the household must be granted a provisional 
credit pending the fair hearing decision. Three commenters believe that 
merchants and/or processors need to have input into the fair hearing 
process. There is no prohibition against parties other than the State 
agency and the FSP households having input into the fair hearing 
process. We encourage State agencies to ensure that all parties 
involved in resolving an error have access to the fair hearing process.

Provisional Credits

    Several comments were received relating to provisional credits 
pending fair hearing determination. There continues to be considerable 
confusion

[[Page 41324]]

about how to handle provisional credits, specifically how to handle 
claims of system errors and how provisional credits should be funded. 
Commenters also continue to have questions regarding liabilities for 
provisional credits in various circumstances.
    First, the Department is clarifying that provisional credits are 
not required for denied system error claims initiated by client 
households. For example, a household claims that they are missing 
benefits from the EBT account as a result of a retailer's system 
problem, but the alleged system error cannot be substantiated with 
settlement data. In this case, the State agency may deny the 
adjustment. However, in so doing, they must also inform the household 
of their right to a fair hearing. In such a case, if the household does 
request a fair hearing, the State agency is not required to make a 
provisional credit to the household pending the fair hearing decision.
    Several commenters were also concerned with the complexity of the 
provisional credit process when a retailer requests an adjustment. The 
interim rule states that, when a client responds to a retailer-
initiated adjustment by requesting a fair hearing and provisional 
credit, the State agency must notify the processor to initiate another 
adjustment to credit the recipient's account--presumably coming out of 
the retailer's account. This scenario becomes even further complicated 
in cases where the client's fair hearing is not upheld. At such time, 
the amount of the provisional credit must be debited from the client 
account and credited back to the retailer.
    Many commenters expressed concerns about the problems associated 
with State agencies and their processors having to track adjustments 
back and forth between the retailer and household accounts pending a 
fair hearing decision. There was also concern expressed about the 
likelihood that a household may spend the provisional credit and leave 
the FSP before it could be determined that the adjustment was in error. 
To simplify the process and reduce the risk involved in instances of 
retailer-initiated adjustments, the Department will require State 
agencies to have their processors place a hold on the adjustment amount 
in the client account pending a timely request for a provisional 
credit.
    If the household does not request a provisional credit within the 
10-day timeframe allotted for doing so, the hold on the funds in the 
client account is released and the adjustment is made into the 
retailer's account. As discussed above, if there are insufficient funds 
to cover the full adjustment amount, the State agency may choose to 
maintain the hold until the next month's benefits are issued and settle 
the full adjustment amount. If the household does request the 
provisional credit, the hold is released and the funds remain in the 
client's account. Should the fair hearing decision go against the 
client, the adjustment amount will then be credited to the retailer's 
account.
    Four commenters felt that it was unfair to make retailers liable 
for provisional credits. Three commenters asked that we specify where 
provisional credits are to come from. Three other commenters suggested 
that government sources rather than private sources fund provisional 
credits. We are not changing the source of provisional credits in the 
final rule. However, we believe that, by not requiring provisional 
credits in instances of denied client-initiated adjustments, and by 
requiring State agencies to put a hold on an adjustment until after the 
time when a household can request a provisional credit, we have 
simplified the adjustment process and reduced the retailers' liability 
for unwarranted provisional credits.
    Four commenters supported the Department taking on the liability of 
funding credit adjustments to clients when the responsible retailers 
have left the FSP or otherwise refuse to fund a legitimate adjustment. 
The Department has determined that because these adjustments result 
from the State agency's system errors, the State is ultimately 
responsible for making the client whole in these instances. The number 
of these situations that are likely to occur are quite small given that 
adjustments occur infrequently and the majority of food stamp 
transactions take place in stores with historically low turnover in the 
FSP. Moreover, adjustment amounts as reported by retailers and 
processors are small. If a client household leaves the FSP before a 
credit adjustment has been completed for a retailer, the adjustment is 
discontinued. As was stated in the interim rule, collections made from 
clients that are not credited to retailers because they have left the 
FSP must be returned to the Department.

Timeframes

    The interim rule distinguishes between adjustments generated by 
retailers and recipients. It allows the State agency 10 days from the 
date of the error transaction to complete an adjustment requested by a 
retailer and 5 days from the date a client household notifies the State 
agency or help desk to complete a client-initiated adjustment. Three 
commenters felt the timeframes to complete adjustments were too short; 
three others specified that the 5-day timeframe to complete a client-
initiated adjustment was too short, given the actions that must take 
place and the number of participants inherent in the adjustment 
process. The processes described by the commenters include compilation 
of documentation, research, exchange of information, and making the 
adjustment. The suggestion was to extend the timeframe for client 
initiated adjustments from 5 days to 10 or 15 days.
    We believe that most client-initiated adjustments will result in 
funds owed to the household. In these scenarios, recipients have 
suffered a loss through no fault of their own, ostensibly through a 
verifiable system error. However, we have been convinced that 5 days is 
not enough time to complete an investigation of a client-initiated 
adjustment request. Therefore, the Department is extending the 
timeframe for client-initiated adjustments from 5 days to 10 days, in 
order to provide sufficient time for the State agencies and the 
processors to complete error verification research and handle the 
adjustment properly. This timeframe also applies to circumstances where 
the State agency or other entity besides the household discovers an 
error which must be corrected by crediting the household's account. 
Such a correction must occur within 10 days from the time the error is 
discovered.
    The Department does not believe that a case has been made to 
justify allowing additional time after the 10-day deadline to complete 
retailer-initiated adjustments. In response to three comments, we are 
clarifying the use of the word ``completed'' in the context of 
retailer-initiated adjustments to mean that the initial adjustment 
transaction, which will be a hold placed on the funds available in the 
client account, must be attempted as soon as possible within 10 days of 
the error transaction, and a concurrent notification must be sent to 
the household. The funds will not move until after the time has passed 
for a household to request a provisional credit. We understand that, in 
some cases, all or some portion of the full adjustment will have to be 
made from the next month's allotment. However, the household must be 
notified concurrent with the initial adjustment action. The State 
agency may not take action on any adjustment to debit a household's 
account if more than 10 days have passed since the error transaction 
occurred, except in cases when the action is initiated within the 10-
day timeframe but the funds are not

[[Page 41325]]

available in the current month and must be taken from the next month's 
benefit issuance.
    Another comment was raised regarding the 180 days a client 
household has to notify the State agency of a system error and request 
an adjustment. Indications are that client households do not request 
adjustments this far from the date an alleged error occurred, primarily 
because EBT households do not receive account statements, and 
therefore, keep track of their account balances with their POS 
receipts. As such, it is more likely that they will discover the error 
soon after the transaction takes place.
    Furthermore, many State agencies only keep transaction data on-line 
at the host computer for 90 days. To research an alleged error once the 
data has been moved off-line greatly increases the potential cost and 
administrative burden of the adjustment process. The Department is 
convinced that the 180-day timeframe is longer than necessary for 
households to request an adjustment and has reduced the timeframe to 90 
days.
    One commenter requested that the Department put specific deadlines 
on each participant in the adjustment, e.g., the retailer has a certain 
number of days to request the adjustment, then the processors have 
another specified timeframe to complete the process, and so on. The 
Department believes that such an approach would be difficult to track 
and administratively burdensome. We realize, however, that each of 
these participants has a responsibility to the others to handle their 
portion expeditiously if timeframes are to be met. We would recommend 
and expect that this level of detail be addressed in retailer and third 
party agreements.
    One commenter wanted clarification on the ramifications of not 
meeting timeframes or otherwise complying with this rule. This rule 
will not impose specific penalties for non-compliance. As with other 
regulatory requirements, however, State agencies are required to ensure 
the processor's compliance and failure to do so may result in 
administrative sanctions by the Department against the State agency.

Re-presentations

    The Department received three comments relaying confusion about how 
re-presentation fits into the adjustment process. In fact, re-
presentation regulations are separate and apart from adjustment rules, 
because State agencies now have access to a household's future month's 
benefit issuance to make an adjustment. The only time a State agency 
would need to consider re-presentation is in the event of insufficient 
funds to cover a manual transaction when the system host computer is 
down. Any references to re-presentation are used in the context of 7 
CFR 274.12(e). There are no changes regarding re-presentations in the 
final rule from what was published in the interim rule.

Implementation

    This final rule is effective August 4, 2000. State agencies may 
begin implementing the rule August 4, 2000 but no later than January 2, 
2001. State agencies that have already implemented EBT shall have one 
year in which to grandfather adjustment disclosure into their training 
materials according to 7 CFR 274.12(f)(10)(viii).

List of Subjects

7 CFR Part 272

    Alaska, Civil Rights, Food Stamps, Grant Programs--social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 273

    Administrative practice and procedures, Aliens, Claims, Food 
stamps, Grant programs--social programs, Penalties, Reporting and 
recordkeeping requirements, Social security, Students.

7 CFR Part 274

    Administrative procedures and practices, Food Stamps, Grant 
programs-social programs, Reporting and recordkeeping requirements.


    Accordingly, the interim rule amending 7 CFR Parts 272, 273 and 
274, which was published at 64 FR 48933 on September 9, 1999, is 
adopted as a final rule with the following changes:
    1. The authority citation for 7 CFR Parts 272, 273 and 274 
continues to read as follows:

    Authority: 7 U.S.C. 2011-3036.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    2. In Sec. 272.1, paragraph (g)(154) is revised to read as follows:


Sec. 272.1  General terms and conditions.

* * * * *
    (g) Implementation. * * *
    (154) Amendment No. 386. The provisions of Amendment No.386 are 
effective August 4, 2000. State agencies may begin implementing the 
rule August 4, 2000 but not later than January 2, 2001. State agencies 
that have already implemented EBT shall have one year in which to 
grandfather adjustment disclosure into their training materials 
according to 7 CFR 274.12(f)(10)(viii).

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    3. In Sec. 273.13, paragraph (a)(3)(vii) is redesignated as (a)(4) 
and is revised to read as follows:


Sec. 273.13  Notice of adverse action.

    (a) * * * (4) The State agency shall notify a household that its 
benefits will be reduced if an EBT system-error has occurred during the 
redemption process resulting in an out-of-balance settlement condition. 
This notification shall be made no later than the date the action is 
initiated against the household account. The State agency shall adjust 
the benefit in accordance with Sec. 274.12 of this chapter.
* * * * *

    4. In Sec. 273.15, the fifth and sixth sentences of paragraph 
(k)(1) are revised to read as follows:


Sec. 273.15  Fair hearings.

* * * * *
    (k) Continuation of benefits.
    (1) * * * In the case of an EBT adjustment, as defined in 
Sec. 274.12(f)(4)(ii) of this chapter, once an adverse action is 
upheld, the State agency shall immediately debit the household's 
account for the total amount stated in its original notice. If there 
are no benefits or insufficient benefits remaining in the household's 
account at the time the State agency action is upheld, the State agency 
may only make the adjustment from the next month's benefits, regardless 
of whether this satisfies the full adjustment amount. * * *
* * * * *

PART 274--ISSUANCE AND USE OF COUPONS

    5. In Sec. 274.12, paragraphs (f)(4) and (f)(10)(viii) are revised 
to read as follows:


Sec. 274.12  Electronic Benefit Transfer issuance system approval 
standards.

* * * * *
    (f) Household Participation * * *
    (4) Issuance of Benefits. State agencies shall establish an 
availability date for household access to their benefits and inform 
households of this date.
    (i) The State agency may make adjustments to benefits posted to 
household accounts after the posting process is complete but prior to 
the availability date for household access in the event benefits are 
erroneously posted.

[[Page 41326]]

    (ii) A State agency shall make adjustments to an account to correct 
an auditable, out-of-balance settlement condition that occurs during 
the redemption process as a result of a system error. A system error is 
defined as an error resulting from a malfunction at any point in the 
redemption process: from the system host computer, to the switch, to 
the third party processors, to a store's host computer or point of sale 
(POS) device. These adjustments may occur after the availability date 
and may result in either a debit or credit to the household.
    (A) Client-initiated adjustments. The State agency must act on all 
requests for adjustments made by client households within 90 calendar 
days of the error transaction. The State agency has 10 business days 
from the date the household notifies it of the error to investigate and 
reach a decision on an adjustment and move funds into the client 
account. This timeframe also applies if the State agency or entity 
other than the household discovers a system error that requires a 
credit adjustment to the household. Business days are defined as 
calendar days other than Saturdays, Sundays, and Federal holidays.
    (B) Retailer-initiated adjustments. The State agency must act upon 
all adjustments to debit a household's account no later than 10 
business days from the date the error occurred, by placing a hold on 
the adjustment balance in the household's account. If there are 
insufficient benefits to cover the entire adjustment, a hold shall be 
placed on any remaining balance that exists, with the difference being 
subject to availability only in the next future month. The household 
shall be given, at a minimum, adequate notice in accordance with 
Sec. 273.13 of this chapter. The notice must be sent at the time the 
initial hold is attempted on the household's current month's remaining 
balance, clearly state the full adjustment amount, and advise the 
household that any amount still owing is subject to collection from the 
household's next future month's benefits.
    (1) The household shall have 90 days from the date of the notice to 
request a fair hearing.
    (2) Should the household dispute the adjustment and request a 
hearing within 10 days of the notice, a provisional credit must be made 
to the household's account by releasing the hold on the adjustment 
balance within 48 hours of the request by the household, pending 
resolution of the fair hearing. If no request for a hearing is made 
within 10 days of the notice, the hold is released on the adjustment 
balance, and this amount is credited to the retailer's account. If 
there are insufficient funds available in the current month to cover 
the full adjustment amount, the hold may be maintained and settled at 
one time after the next month's benefits become available.
    (iii) The appropriate management controls and procedures for 
accessing benefit accounts after the posting shall be instituted to 
ensure that no unauthorized adjustments are made in accordance with 
paragraph (f)(7)(iii) of this section.
* * * * *
    (10) * * *
    (viii) Disclosure information regarding adjustments and a 
household's rights to notice, fair hearings, and provisional credits. 
The disclosure must also state where to call to dispute an adjustment 
and request a fair hearing. State agencies that have already 
implemented EBT shall have one year in which to grandfather adjustment 
disclosure into their training materials.
* * * * *

    Dated: June 28, 2000.
Samuel Chambers, Jr.,
Administrator, Food and Nutrition Service.
[FR Doc. 00-16944 Filed 7-3-00; 8:45 am]
BILLING CODE 3410-30-P