[Federal Register Volume 88, Number 210 (Wednesday, November 1, 2023)]
[Rules and Regulations]
[Pages 74884-74890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24039]


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DEPARTMENT OF THE TREASURY

Bureau of the Fiscal Service

31 CFR Part 240

RIN 1530-AA22


Indorsement and Payment of Checks Drawn on the United States 
Treasury

AGENCY: Bureau of the Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: The Bureau of the Fiscal Service (Fiscal Service) of the 
Department of the Treasury (Treasury) is amending its regulations that 
govern the payment of checks drawn on the United States Treasury 
(Treasury checks). The amendments coincide with the development of 
Fiscal Service's enhanced check post payment processing system, which 
will provide Treasury check return information to financial 
institutions more quickly than today. Financial institutions will 
receive this information through their existing communication channels 
with the Federal Reserve Banks (FRBs), generally prior to the 
expiration of the time periods in which financial institutions must 
make Treasury check deposits available for withdrawal as prescribed by 
Regulation CC, Availability of Funds and Collection of Checks. 
Accordingly, Fiscal Service is amending its regulations so that, with 
certain exceptions, a financial institution will be liable if it pays a 
canceled Treasury check, also known as a payment over cancellation 
(POC), without waiting to receive the return information that would 
enable the financial institution to know the check has been canceled.

DATES: Effective December 1, 2023.

FOR FURTHER INFORMATION CONTACT: Gary Swasey, Director, Post Payment 
Division at (215) 816-8230 or <a href="/cdn-cgi/l/email-protection#c2a5a3b0bbecb1b5a3b1a7bb82a4abb1a1a3aeecb6b0a7a3b1b7b0bbeca5adb4"><span class="__cf_email__" data-cfemail="f79096858ed984809684928eb7919e8494969bd9838592968482858ed9909881">[email protected]</span></a>; or 
Thomas Kearns, Senior Counsel, at (202) 874-6680 or 
<a href="/cdn-cgi/l/email-protection#ec988483818d9fc287898d9e829fac8a859f8f8d80c2989e898d9f999e95c28b839a"><span class="__cf_email__" data-cfemail="1c687473717d6f3277797d6e726f5c7a756f7f7d7032686e797d6f696e65327b736a">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

    Currently, when either Fiscal Service or a payment certifying 
agency puts a ``stop payment'' (also known as a ``check stop'') on a 
Treasury check to cancel it, there is a possibility that the canceled 
check may still be paid. Fiscal Service or an agency may put a ``stop 
payment'' on a check payment because the payee submitted a check claim 
(i.e., claimed that the check was either lost or stolen), because the 
certifying agency realized the payment was incorrect, or because it was 
otherwise improper. When a canceled or ``stopped'' check is 
subsequently paid, this leads to what is known as a payment over 
cancellation (POC). POCs are improper payments, which can amount to 
$100 million or more each year.
    Fiscal Service is developing enhancements to its post payment 
processing system that will result in Treasury check return information 
being made available to financial institutions sooner than is the case 
today. With Fiscal Service's current post payment processing system, 
several days often pass before Fiscal Service can provide information 
on Treasury check returns that the Federal Reserve Banks (FRBs) 
transmit to financial institutions through existing communication 
channels. The system enhancements will enable Fiscal Service to provide 
check return information to financial institutions through these 
existing channels within the time periods prescribed by Regulation CC, 
Availability of Funds and Collection of Checks (12 CFR part 229), for 
when a financial institution must make funds deposited by Treasury 
check available for withdrawal.
    Under the current regulations at 31 CFR part 240, a financial 
institution generally is not liable for a POC if the institution has 
taken ``reasonable efforts'' to ensure the check is authentic.\1\ The 
final rule amends the definition of ``reasonable efforts'' found at 31 
CFR 240.2 to include a requirement that financial institutions wait for 
check return information within the time periods set out by Regulation 
CC to help verify that a Treasury check is valid \2\ and authentic. It 
is also making conforming changes to 31 CFR part 240 to require that 
financial institutions ensure a Treasury check has not been canceled 
before making the funds associated with that check available for 
withdrawal.
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    \1\ ``Authenticity'' is a presentment guaranty, as described by 
31 CFR 240.4.
    \2\ ``Validity'' and ``valid check'' are defined in the final 
rule. See section III.B., below.
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    In those instances where a financial institution has taken 
reasonable efforts but check return information for a POC on a properly 
presented check is not transmitted to the financial institution prior 
the funds availability timeframe specified in Regulation CC, the 
financial institution would not be liable for releasing the funds 
associated with the Treasury check. While Fiscal Service expects this 
circumstance to be uncommon, it understands that compliance with 
Regulation CC requires the release of the funds within certain 
timeframes, and thus under the final rule a financial institution will 
not be liable for a POC due to complying with Regulation CC. (Note, 
however, that this does not affect the presentment guarantees found in 
31 CFR 240.4. As is currently the case, if Fiscal Service declines a 
check due to improper presentment and reverses the provisional credit, 
the presenting financial institution may still be liable for payment on 
the check regardless of Regulation CC's requirements.)
    After enhancements to Treasury's post payment processing system 
have been implemented and the final rule's requirements become 
effective (no sooner than 30 days after publication of the final rule), 
the system and rule changes should greatly reduce payment issues 
involving Treasury checks and more closely align the treatment of 
canceled Treasury checks with industry practices for other canceled 
checks in the banking system. The changes will eliminate many POCs, 
because they will allow a certifying agency to place a ``true stop'' on 
a Treasury check. The system changes will also help reduce instances 
where a Treasury check (or an item purporting to be a Treasury check) 
may be charged back to the financial institution, because they will 
allow the financial institution to verify that the check is not 
counterfeit, that the amount has not been altered, that the check is 
not stale-dated, and that the check has not been previously negotiated. 
For these non-POC circumstances, financial institutions are already 
liable for accepting such instruments. While the final rule does not 
impact a financial institution's liability in these other 
circumstances, Fiscal Service's enhanced post payment processing

[[Page 74885]]

system will help financial institutions avoid the liability. 
Furthermore, in those instances where a financial institution does 
release the funds associated with a Treasury check prior to receiving 
the check return information, that financial institution has an 
increased likelihood of being able to recover those funds, because the 
return information will be available a short time after the funds are 
released (typically no more than a few days, as opposed to up to 18 
months later if a reclamation following a check claim were to occur).
    In addition to receiving check return information through existing 
channels, a financial institution may choose to obtain early notice 
regarding the validity and authenticity of Treasury checks by using the 
Fiscal Service's Treasury Check Verification System (TCVS). While 
financial institutions will not be required to use TCVS, the use of 
TCVS may allow financial institutions to catch canceled, duplicate, or 
other problematic checks at the time of presentment, as opposed to 
after presentment but before the financial institution makes deposited 
funds available for withdrawal. TCVS, in conjunction with the enhanced 
post payment system, will help financial institutions avoid accepting 
duplicate presentations, thus avoiding the associated liability. The 
enhancements to Treasury's post payment processing system will not 
eliminate acceptance of duplicate presentations entirely, but in those 
instances where the subsequent presentation of a Treasury check occurs 
after Treasury's records have been updated, TCVS will allow a financial 
institution to avoid liability by declining the previously negotiated 
Treasury check when presented again. TCVS will similarly be of 
assistance to financial institutions in identifying Treasury checks 
where the payment amount has been altered, as well as for counterfeit 
instruments purporting to be Treasury checks.

II. Response to Comments

    During the comment period, Fiscal Service received nine comments on 
the notice of proposed rulemaking (NPRM) that was published on February 
1, 2023 (88 FR 6674), from individuals and from the banking industry. 
The industry commenters supported Fiscal Service's effort to combat 
check fraud and to reduce POCs. However, some commenters also expressed 
concerns with aspects of the NPRM. As many of these comments addressed 
the same or similar issues, below we respond to these comments in the 
following categories:
    <bullet> Required Use of TCVS,
    <bullet> Financial Institution Liability for POCs,
    <bullet> Presentment to Non-Financial Institutions,
    <bullet> Communicate Check Cancellation Information to Federal 
Reserve Banks, and
    <bullet> Reduce the Number of Treasury Checks.

A. Required Use of TCVS

    A majority of the comments expressed concerns over the proposed 
requirement to use TCVS to verify that a Treasury check has not been 
canceled for a financial institution to avoid liability for a POC. 
Issues raised related to the required use of TCVS included: concerns 
regarding what would happen if TCVS is out of service when a financial 
institution attempts to verify a Treasury check; the amount of time 
required for tellers to manually verify a Treasury check using TCVS; 
unavailability of TCVS when Treasury checks are deposited remotely or 
by ATM; and the expense and time for financial institutions to 
implement technological upgrades or alterations of their systems to 
integrate the use of TCVS.
    The final rule addresses these concerns by removing the requirement 
that a financial institution use TCVS to verify that a Treasury check 
has not been canceled to avoid liability for a POC. Instead, to avoid 
liability for a POC, and in alignment with comments received, the final 
rule allows a financial institution to rely on the check return 
information that it already receives through the FRBs' established 
channels of communication. Fiscal Service's enhanced post payment 
processing system will enable the FRBs to provide check return 
information on a properly presented Treasury check to the financial 
institution within the timeframes prescribed by Regulation CC for 
making funds from a deposited Treasury check available for withdrawal. 
The financial institution will not be required to make changes to its 
check processing system to receive the check return information from 
the FRBs because the information will move through existing 
communication channels.
    Although the use of TCVS is not required under the final rule, TCVS 
will still be available for financial institutions to voluntarily 
obtain information regarding the status of a Treasury check. In 
addition to giving financial institutions early notice of check 
cancellation information, TCVS may assist financial institutions in 
reducing the risk of liability for counterfeit instruments and 
duplicate presentations of Treasury checks.

B. Financial Institution Liability for POCs

    Several commenters expressed concern over the shift in liability to 
financial institutions for POCs on Treasury checks. Some of these 
concerns were tied to issues arising from the requirement to use TCVS 
to avoid liability and, thus, have been resolved because the final rule 
does not contain such a requirement (see preceding section 2.A.). The 
approach under the final rule to avoid liability for a POC on a 
Treasury check instead relies on the FRBs' existing channels of 
communication for check return information. The onus is on Fiscal 
Service's post payment processing system to provide the check return 
information to the FRBs in an accelerated fashion, so that financial 
institutions may receive this information from the FRBs within the 
timeframes prescribed by Regulation CC for making funds deposited by 
Treasury check available for withdrawal.
    However, other commenters expressed concerns regarding the shift in 
liability for POCs that were not related to the use of TCVS. Fiscal 
Service believes that because (1) the enhanced post payment system will 
make check return information available on an accelerated basis 
compared to today, and (2) financial institutions will receive 
information confirming that a Treasury check has been canceled through 
existing communication channels, it is not unreasonable for financial 
institutions to accept liability for POCs. Further, this shift in 
liability will bring the processing of Treasury checks more in 
alignment with the processing of checks generally, where the liability 
for releasing funds on a canceled non-Treasury check falls on the 
financial institution accepting the check. A financial institution may 
avoid this liability by not making the funds associated with a Treasury 
check available for withdrawal until the financial institution receives 
the check return information from an FRB, provided that it receives 
notice of a POC prior to the expiration of the Regulation CC funds 
availability time periods. Additionally, in those instances where the 
return information is unavailable for the financial institution to 
verify the status of a properly presented Treasury check before the 
financial institution is required to release the funds under Regulation 
CC, the financial institution will not be liable if the release of 
funds necessary to comply with Regulation CC results in a POC.

[[Page 74886]]

C. Presentment to Non-Financial Institutions

    A few commenters raised the issue of how the proposed rule and its 
shift in liability for POCs would operate in conjunction with Treasury 
checks presented to businesses that cash checks that are not financial 
institutions, and the financial institutions that service them. One 
commenter pointed out that the NPRM did not address whether the 
agreements between these businesses and financial institutions could 
continue to address how the liability for POCs would be assigned. The 
final rule is silent on that issue and is not intended to alter the 
ability of entities entering into such agreements to assign liability 
for POCs or otherwise declined checks. To the extent that such 
assignment of liability is allowable by other applicable laws and 
rules, the final rule does not affect these entities' ability to 
negotiate such agreements. However, such agreements will have no impact 
on financial institutions' liability due to POCs on Treasury checks 
with regard to the Federal Government, as described by the final rule.
    To the extent that commenters identified concerns with the 
unavailability of TCVS in situations where businesses that are not 
financial institutions cash Treasury checks, the final rule addresses 
those concerns by removing the requirement to use TCVS to avoid 
liability for a POC on a Treasury check.

D. Communicate Check Cancellation Information to Federal Reserve Banks

    A few commenters suggested that a better method for addressing 
POCs, rather than require the use of TCVS by financial institutions, 
would be to communicate the check cancellation information to the FRBs' 
check processing system and have the system communicate this 
information to financial institutions with the FRBs' check return 
information. These commenters pointed out this approach would not 
require financial institutions to modify their check processing systems 
to accommodate the required use of TCVS, would work with the financial 
institutions' current systems, and would entail little or no cost to 
the financial institutions.
    Consistent with these comments, under the final rule, financial 
institutions will continue to receive check return information from the 
FRB check processing system's existing channels of communication, as 
they currently do. The enhancements to Fiscal Service's post payment 
processing system will enable Fiscal Service to communicate check 
information to the FRBs more quickly, including the information that a 
Treasury check has been canceled. Financial institutions do not need to 
make any changes to continue receiving this information from the FRB's 
check processing system; the information will simply be available more 
rapidly through the channels already in use.
    Two commenters suggested that the FRBs should provide this check 
cancellation information to the financial institution of first deposit, 
rather than the presenting financial institution. This suggestion is 
out of scope and nonviable at this time because of the changes that 
would be required of the FRBs' check processing system (and possibly of 
the financial institutions receiving the cancellation information). 
However, Fiscal Service is receptive to considering this possibility at 
a later date. In the meantime, although not required, financial 
institutions of first deposit can use TCVS to help reduce their risk of 
liability for POCs prior to receiving the check return information 
through existing communication channels.

E. Reduce the Number of Treasury Checks

    One commenter pointed out that an effective method of reducing POCs 
is to reduce the number of Treasury checks issued in the first place 
and that Fiscal Service should educate payment-issuing agencies 
regarding the benefits of electronic payments. Fiscal Service agrees 
that reducing the number of checks issued for Federal payments is a 
worthy objective. Fiscal Service has long worked with Federal agencies 
to reduce the number of checks they issue and to make payments 
electronically. For more than a decade, the number of Treasury checks 
issued each year has generally declined, from approximately 170 million 
in 2012, for example, to approximately 45 million in fiscal year 2023.
    Despite the effort to reduce the number of Treasury checks issued, 
Treasury checks will continue to be issued for the foreseeable future 
(although in reduced numbers). Additionally, although 31 U.S.C. 3332 
requires most Federal payments to be made electronically, this 
provision does not apply to payments made pursuant to the Internal 
Revenue Code. Within these limitations, Fiscal Service fully supports 
and actively works to promote the continued decrease in the number of 
Treasury checks issued each year.

III. Summary of Proposed Rule Changes

A. Amendment to the Definition of, and Guarantee Regarding, 
``Reasonable Efforts''

    Part 240 currently includes a presentment guarantee, made by the 
guarantor of a check presented to Treasury for payment, that the 
guarantor has made all reasonable efforts to ensure that the check is 
an authentic Treasury check and not a counterfeit check. The existing 
definition of ``reasonable efforts'' focuses on the watermark or other 
security features of a security check, to ensure that the Treasury 
check is authentic and not counterfeit. The final rule amends the 
definition of ``reasonable efforts'' to add the requirement of 
verifying not only the Treasury check's authenticity, but also the 
check's validity, by requiring a financial institution to receive the 
check return information before making funds from a Treasury check 
available for withdrawal to ensure that the check has not been 
canceled. An exception to this requirement will apply if the check's 
return information is not transmitted to the financial institution 
prior the appropriate funds availability timeframe specified in 
Regulation CC, and the financial institution must make the funds 
available for withdrawal in order to remain in compliance with 
Regulation CC. In such cases, the financial institution would not be 
held liable for releasing the funds associated with the Treasury check 
if it results in a POC (unless the financial institution is otherwise 
subject to liability under the presentment guarantees found in Sec.  
240.4).
    A corresponding amendment to the presentment guarantees found in 
current regulations would change the guarantee of Treasury check's 
authenticity to include a presentment guarantee regarding the check's 
validity as well, as described below.

B. Adding a Definition of ``Validity''

    Part 240 had not previously included a definition of ``validity.'' 
The final rule adds a definition of ``validity'' or ``valid check'' as 
proposed.
    The definition describes a valid Treasury check as a payable 
instrument (i.e., not a counterfeit check, as defined in the existing 
regulations) that has not been previously negotiated or canceled (i.e., 
meets the criteria for negotiability). A corresponding amendment to the 
presentment guarantees would add a new presentment guarantee regarding 
the check's validity.

[[Page 74887]]

C. Adding a Definition of ``Cancellation'' or ``Canceled''

    Part 240 had not previously defined ``cancellation'' or 
``canceled'' with regard to a Treasury check. The final rule adds a 
definition of ``cancellation'' or ``canceled'' as proposed.
    This definition describes a canceled Treasury check as one that was 
once a valid and negotiable instrument, but is no longer due to a 
reason other than the Treasury check's negotiation. A Treasury check 
may be canceled because it has limited payability (i.e., it is older 
than one year past its issuance date, and thus stale-dated), or because 
Treasury or the certifying agency has placed a ``stop payment'' (as 
defined below) on it.

D. Adding a Definition of ``Stop Payment''

    The regulations had not previously defined a ``stop payment'' with 
regard to a Treasury check. The final rule adds a definition of this 
term as proposed.
    This definition describes the situation where Treasury or the 
certifying agency has indicated in its systems that an authentic 
Treasury check should not be paid. Reasons for issuing a stop payment 
on a Treasury check include that the Treasury check has been reported 
lost or stolen, it has been issued to a deceased payee, or it was 
discovered to be improper. Once a stop payment has been placed on a 
Treasury check, the check has been canceled and is no longer a valid 
Treasury check (even though it is an authentic Treasury check).

E. Amendment to the Processing of Checks, Declination, and the Reasons 
for Refusal

    Current Treasury regulations require that an FRB cash a Treasury 
check presented to it, except in certain circumstances where the FRB 
must instead refuse to pay the Treasury check. The check must be 
refused if (1) the check bears a material defect or alteration, (2) the 
check was presented more than one year later than the check's date of 
issuance, or (3) the FRB has been notified by Treasury, pursuant to 
Treasury regulations, that a check was issued to a deceased payee. As 
proposed, the final rule adds a fourth circumstance in which an FRB 
must refuse to pay a Treasury check: when Treasury has notified the FRB 
that a Treasury check is not valid.
    As noted above, under this definition, a Treasury check is invalid 
if the Treasury check is counterfeit, previously negotiated, or 
canceled.
    A corresponding amendment to the regulation regarding Treasury's 
right of first refusal is the instruction for Treasury to decline 
payment of a Treasury check when Treasury is being requested to make 
payment on a check that is not valid.

IV. Section-by-Section Analysis

A. Section 240.2--Definitions

    The final rule amends the definitions section of part 240, found at 
31 CFR 240.2, by removing the lettering within that section (the list 
letters (a), (b), (c), etc.), and simply listing the terms in 
alphabetical order within the section. This comports with the Office of 
the Federal Register's recommendation for a list of definitions found 
in regulations, as stated in section 2-13 of the Document Drafting 
Handbook. This change also removes the need to re-letter the list of 
definitions when new definitions are added to the list.
    For the reasons set forth above, the final rule amends Sec.  240.2 
to revise the definition of ``reasonable efforts''; add the definition 
of ``cancellation'' or ``canceled''; add the definition of ``stop 
payment'' or ``check stop'' or ``stop''; and add the definition of 
``validity'' or ``valid check.'' Except for these four definitions, 
none of the definitions in Sec.  240.2 are being substantively changed. 
These other definitions are listed herein only to reflect the removal 
of the list lettering schema and a few minor changes made for clarity.

B. Section 240.4--Presentment Guarantees

    The final rule amends the presentment guarantees to include a 
guarantee that the guarantor has made reasonable efforts to ensure that 
the check is an authentic Treasury check and that it is valid at the 
time of acceptance.

C. Section 240.6--Provisional Credit; First Examination; Declination; 
Final Payment

    The final rule amends the reasons that Treasury will decline a 
Treasury check upon first examination to include the fact that the 
check has been canceled, in addition to when the check has already been 
paid.

D. Section 240.12--Processing of Checks

    The final rule amends the reasons that an FRB must refuse payment 
of a Treasury check to include circumstances where the FRB has been 
notified that the Treasury check has been canceled or is otherwise not 
valid.

V. Procedural Analysis

Regulatory Planning and Review

    The rule does not meet the criteria for a ``significant regulatory 
action'' as defined in Executive Order 12866, as amended. Therefore, 
the regulatory review procedures contained therein do not apply.

Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that 
agencies review proposed and final rules for their potential economic 
impact on small entities, including small businesses, and identify 
alternatives that may reduce such impact, unless the agency certifies 
that the rule will not, if promulgated, have a significant economic 
impact on a substantial number of small entities. In the NPRM published 
on February 1, 2023, Fiscal Service certified that the final rule will 
not have a significant economic impact on a substantial number of small 
entities.
    Fiscal Service received some comments from the entities in the 
banking industry stating that requiring financial institutions to use 
TCVS prior to negotiating a Treasury check would place burdens on these 
entities by necessitating changes and upgrades to their check 
processing systems. In the final rule, the requirement in the NPRM to 
use TCVS has been eliminated. Instead, financial institutions will 
receive check return information for a properly presented Treasury 
check from the FRBs, through existing communication channels. Due to 
enhancements to Fiscal Service's post payment processing system, this 
check return information typically will be provided to financial 
institutions within the time periods for making funds available 
prescribed by Regulation CC. In the uncommon instances where a 
financial institution does not receive the return information within 
the appropriate time period, and must release the funds to comply with 
Regulation CC, the financial institution will not be held liable if 
that results in a POC (unless the financial institution would otherwise 
be subject to liability due to the presentment guarantees in Sec.  
240.4).

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 an 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

[[Page 74888]]

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. Fiscal Service 
has determined that this final 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 240

    Authenticity, Canceled, Cancellation, Check, Check return, Check 
return information, Check stop, Declination, Financial institutions, 
Presentment, Presentment guarantees, Processing, Reasonable efforts, 
Stop, Treasury check, Valid check, Validity, Verification.

    For the reasons set out in the preamble, we amend 31 CFR part 240 
as follows:

PART 240--INDORSEMENT AND PAYMENT OF CHECKS DRAWN UPON THE UNITED 
STATES TREASURY

0
1. The authority citation for part 240 continues to read as follows:

    Authority:  5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 321, 3327, 
3328, 3331, 3334, 3343, 3711, 3712, 3716, 3717; 332 U.S. 234 (1947); 
318 U.S. 363 (1943).


0
2. Revise Sec.  240.2 to read as follows:


Sec.  240.2  Definitions.

    Administrative offset or offset, for purposes of this part, has the 
same meaning as defined in 31 U.S.C. 3701(a)(1) and 31 CFR part 285.
    Agency means any agency, department, instrumentality, office, 
commission, board, service, or other establishment of the United States 
authorized to issue Treasury checks or for which checks drawn on the 
United States Treasury are issued.
    Cancellation or canceled means that a Treasury check is no longer a 
valid instrument, due to the one-year limitation on negotiability and 
payment described in Sec.  240.5(a), or the placement of a stop payment 
on the check by Treasury or the certifying agency.
    Certifying agency means an agency authorizing the issuance of a 
payment by a disbursing official in accordance with 31 U.S.C. 3325.
    Check or checks means an original check or checks; an electronic 
check or checks; or a substitute check or checks.
    Check payment means the amount paid to a presenting bank by a 
Federal Reserve Bank.
    Counterfeit check means a document that purports to be an authentic 
check drawn on the United States Treasury, but in fact is not an 
authentic check.
    Days means calendar days. For purposes of computation, the last day 
of the period will be included unless it is a Saturday, Sunday, or 
Federal holiday; the first day is not included. For example, if a 
reclamation was issued on July 1, the 90-day protest period under Sec.  
240.9(b) would begin on July 2. If the 90th day fell on a Saturday, 
Sunday, or Federal holiday, the protest would be accepted if received 
on the next business day.
    Declination means the process by which Treasury refuses to make 
final payment on a check, i.e., declines payment, by instructing a 
Federal Reserve Bank to reverse its provisional credit to a presenting 
bank.
    Declination date means the date on which Treasury issues the 
declination.
    Disbursing official means an official, including an official of the 
Department of the Treasury, the Department of Defense, any Government 
corporation (as defined in 31 U.S.C. 9101), or any official of the 
United States designated by the Secretary of the Treasury, authorized 
to disburse public money pursuant to 31 U.S.C. 3321 or another law.
    Drawer's signature means the signature of a disbursing official 
placed on the front of a Treasury check as the drawer of the check.
    Electronic check means an electronic image of a check drawn on the 
United States Treasury, together with information describing that 
check, that meets the technical requirements for sending electronic 
items to a Federal Reserve Bank as set forth in the Federal Reserve 
Banks' operating circulars.
    Federal Reserve Bank means a Federal Reserve Bank or a branch of a 
Federal Reserve Bank.
    Federal Reserve Processing Center means a Federal Reserve Bank 
center that images Treasury checks for archiving check information and 
transmitting such information to Treasury.
    Financial institution means:
    (1) Any insured bank as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make 
application to become an insured bank under section 5 of such Act (12 
U.S.C. 1815);
    (2) Any mutual savings bank as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible to 
make application to become an insured bank under section 5 of such Act 
(12 U.S.C. 1815);
    (3) Any savings bank as defined in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make 
application to become an insured bank under section 5 of such Act (12 
U.S.C. 1815);
    (4) Any insured credit union as defined in section 101 of the 
Federal Credit Union Act (12 U.S.C. 1752) or any credit union which is 
eligible to make application to become an insured credit union under 
section 201 of such Act (12 U.S.C. 1781);
    (5) Any savings association as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) which is an insured depositary 
institution (as defined in such Act) (12 U.S.C. 1811 et seq.) or is 
eligible to apply to become an insured depositary institution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and
    (6) Any financial institution outside of the United States if it 
has been designated by the Secretary of the Treasury as a depositary of 
public money and has been permitted to charge checks to the General 
Account of the United States Treasury.
    First examination means Treasury's initial review of a check that 
has been presented for payment. The initial review procedures, which 
establish the authenticity and integrity of a check presented to 
Treasury for payment, may include reconciliation; retrieval and 
inspection of the check or the best available image thereof; and other 
procedures Treasury deems appropriate to specific circumstances.
    Forged or unauthorized drawer's signature means a drawer's 
signature that has been placed on the front of a Treasury check by a 
person other than:
    (1) A disbursing official; or
    (2) A person authorized to sign on behalf of a disbursing official.
    Forged or unauthorized indorsement means:
    (1) An indorsement of the payee's name by another person who is not 
authorized to sign for the payee; or
    (2) An indorsement of the payee's name made by another person who 
has been authorized by the payee, but who has not indorsed the check in 
accordance with Sec. Sec.  240.4 and 240.13 through 240.17; or
    (3) An indorsement added by a financial institution where the 
financial institution had no authority to supply the indorsement; or

[[Page 74889]]

    (4) A check bearing an altered payee name that is indorsed using 
the payee name as altered.
    Guarantor means a financial institution that presents a check for 
payment and any prior indorser(s) of a check.
    Master Account means the record of financial rights and obligations 
of an account holder and the Federal Reserve Bank with respect to each 
other, where opening, intraday, and closing balances are determined.
    Material defect or alteration means:
    (1) The counterfeiting of a check; or
    (2) Any physical change on a check, including, but not limited to, 
a change in the amount, date, payee name, or other identifying 
information printed on the front or back of the check (but not 
including a forged or unauthorized drawer's signature); or
    (3) Any forged or unauthorized indorsement appearing on the back of 
the check.
    Minor means the term minor as defined under applicable State law.
    Monthly statement means a statement prepared by Treasury that 
includes the following information regarding each outstanding 
reclamation:
    (1) The reclamation date;
    (2) The reclamation number;
    (3) Check identifying information; and
    (4) The balance due, including interest, penalties, and 
administrative costs.
    Original check means the first paper check drawn on the United 
States Treasury with respect to a particular payment transaction.
    Payee means the person that the certifying agency designated to 
receive payment pursuant to 31 U.S.C. 3528.
    Person means an individual, institution, including a financial 
institution, or any other type of entity; the singular includes the 
plural.
    Presenting bank means:
    (1) A financial institution which, either directly or through a 
correspondent banking relationship, presents checks to and receives 
provisional credit from a Federal Reserve Bank; or
    (2) A depositary which is authorized to charge checks directly to 
Treasury's General Account and present them to Treasury for payment 
through a designated Federal Reserve Bank.
    Provisional credit means the initial credit provided to a 
presenting bank by a Federal Reserve Bank. Treasury may reverse a 
provisional credit until Treasury deems completion of first examination 
or final payment made pursuant to Sec.  240.6(d).
    Reasonable efforts means, at a minimum:
    (1) Confirming the validity of a check by obtaining the check 
return information prior to making the funds from the check available 
for withdrawal (except when the check return information has not been 
provided within the applicable timeframe prescribed by Regulation CC, 
and making funds available for withdrawal is necessary to comply with 
Regulation CC; however, this exception does not apply if the presenting 
bank is otherwise subject to liability due to the presentment 
guarantees found in Sec.  240.4); and
    (2) Confirming the authenticity of the check such as by verifying 
the existence of the Treasury watermark on an original check.
    (3) Acceptance of a check by electronic image or other non-physical 
means does not impact reasonable efforts requirements. Based upon the 
facts at hand, including whether a check is an original check, a 
substitute check, or an electronic check, reasonable efforts may 
require the verification of other security features.
    Reclamation means a demand for the amount of a check for which 
Treasury has requested an immediate refund.
    Reclamation date means the date on which Treasury issues a 
reclamation. Normally, Treasury sends demands to presenting banks or 
other indorsers within two business days of the reclamation date.
    Reclamation debt means the amount owed as a result of Treasury's 
demand for refund of a check payment, and includes interest, penalties 
and administrative costs assessed in accordance with Sec.  240.8.
    Reclamation debtor means a presenting bank or other indorser of a 
check from whom Treasury has demanded a refund in accordance with 
Sec. Sec.  240.8 and 240.9. The reclamation debtor does not include a 
presenting bank or other indorser who may be liable for a reclamation 
debt, but from which Treasury has not demanded a refund.
    Recurring benefit payment includes but is not limited to a payment 
of money for any Federal Government entitlement program or annuity.
    Stop payment means that Treasury or a certifying agency has 
indicated that a Treasury check should not be paid and instead should 
be canceled. A stop payment could be placed on a Treasury check for 
reasons including that the check was reported lost or stolen; the check 
was determined to have been issued improperly; the payee was deceased 
prior to the issuance of the check; or any other allowable reason.
    Substitute check means a paper reproduction of a check drawn on the 
United States Treasury that meets the definitional requirements set 
forth at 12 CFR 229.2(aaa).
    Treasury means the United States Department of the Treasury, or 
when authorized, an agent designated by the Secretary of the Treasury 
or his or her delegee.
    Treasury Check Offset means the collection of an amount owed by a 
presenting bank in accordance with 31 U.S.C. 3712(e).
    Truncate means to remove a paper check from the forward collection 
or return process and send to a recipient, in lieu of such paper check, 
a substitute check or an electronic check.
    U.S. securities means securities of the United States and 
securities of Federal agencies and Government corporations for which 
Treasury acts as the transfer agent.
    Validity or valid check means an authentic Treasury check that is a 
payable instrument and has not been previously negotiated or canceled.
    Writing includes electronic communications when specifically 
authorized by Treasury in implementing instructions.

0
3. Amend Sec.  240.4 by revising paragraph (d) to read as follows:


Sec.  240.4  Presentment guarantees.

* * * * *
    (d) Authenticity and validity. That the guarantors have made all 
reasonable efforts to ensure that a check is both an authentic Treasury 
check (i.e., it is not a counterfeit check) and a valid Treasury check 
(i.e., it has not been previously negotiated or canceled).
* * * * *

0
4. Amend Sec.  240.6 by revising paragraph (c)(3) to read as follows:


Sec.  240.6  Provisional credit; first examination; declination; final 
payment.

* * * * *
    (c) * * *
    (3) Treasury has already received presentment of a substitute 
check, electronic check, or original check relating to the check being 
presented, such that Treasury is being requested to make payment on a 
check it has already paid; or Treasury is being requested to make 
payment on a check that is not valid due to a stop payment or other 
cancellation.
* * * * *

0
5. Amend Sec.  240.12 by revising paragraphs (a)(1)(ii) and (iii) and 
adding paragraph (a)(1)(iv) to read as follows:


Sec.  240.12  Processing of checks.

    (a) * * *

[[Page 74890]]

    (1) * * *
    (ii) A check was issued more than one year prior to the date of 
presentment;
    (iii) The Federal Reservice Bank has been notified by Treasury, in 
accordance with Sec.  240.15(c), that a check was issued to a deceased 
payee; or
    (iv) The Federal Reserve Bank has been notified by Treasury that a 
check is not valid.
* * * * *

David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2023-24039 Filed 10-31-23; 8:45 am]
BILLING CODE 4810-AS-P


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