5426 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 210

RIN 1510–AA39

Federal Government Participation in

the Automated Clearing House

Editorial Note: Proposed rule document

98–2042 was originally published at 63 FR

5426–5445 in the issue of Monday, February

2, 1998. That publications contained a

typographical error. For the convenience of

the user, this reprint includes the correction

to be published on Thursday, February 5,

1998.

AGENCY: Financial Management Service,

Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Department of the

Treasury, Financial Management

Service, proposes to revise its regulation

governing the use of the Automated

Clearing House (ACH) system by

Federal agencies. Part 210 defines the

rights and liabilities of Federal agencies,

Federal Reserve Banks, financial

institutions, and the public, in

connection with ACH credit entries,

debit entries, and entry data originated

or received by a Federal agency through

the ACH system. As a result of the

enactment of recent legislation, the

Service expects to introduce up to 600

million new transactions into the ACH

system by January 1, 1999. The Service

anticipates that the ACH system will

provide the dominant, though not

exclusive, EFT system used by Federal

agencies. Part 210 will provide the

regulatory foundation for use of the

ACH system by Federal agencies.

DATES: Comments must be received no

later than May 4, 1998.

ADDRESSES: Comments should be

addressed to Cynthia L. Johnson,

Director, Cash Management Policy and

Planning Division, Financial

Management Service, U.S. Department

of the Treasury, Room 420, 401 14th

Street, S.W., Washington, DC 20227. A

copy of the proposed rule is available at

the Service’s web site at: http://

www.fms.treas.gov/ach. Comments on

the proposed rule will be available for

public inspection and downloading on

the Internet and for public inspection

and copying at the Department of the

Treasury Library, Room 5030, 1500

Pennsylvania Avenue, N.W.,

Washington, D.C. To make an

appointment to inspect comments and

transcripts, please call (202) 622–0990.

FOR FURTHER INFORMATION CONTACT:

Diana Shevlin, Financial Program

Specialist, at (202) 874–7032; Donna

Wilson, Financial Program Specialist, at

(202) 874–6799; Christine Ricci, Senior

Analyst, or Cynthia L. Johnson, Director,

Cash Management Policy and Planning

Division, at (202) 874–6590; or Natalie

H. Diana, Attorney-Advisor, at (202)

874–6827.

SUPPLEMENTARY INFORMATION:

I. Background

As the Federal Government’s financial

manager, the Financial Management

Service (the Service) provides

leadership and assistance to Federal

agencies in cash management, payment

policy, debt collection, and financial

systems. The Service also collects and

disburses funds for most Federal

agencies. In fiscal year 1997, the Service

issued over 856 million payments,

totaling in excess of $1.1 trillion, and

collected over $1 trillion on behalf of

Federal agencies, representing a variety

of taxes, duties, fees, and fines.

In fiscal year 1997, approximately

58% percent of Treasury payments were

made through the Automated Clearing

House (ACH) system. In addition, a

growing number of transactions

involving the collection of funds by

Federal agencies are being made

through the ACH system. The ACH

system is a nationwide electronic funds

transfer (EFT) system which provides

for the interbank clearing of credit and

debit transactions and for the exchange

of information among participating

financial institutions. The Federal

Government is the largest single user of

the ACH system, originating and

receiving millions of transactions each

month. In fiscal year 1997, the Service

made 489 million payments through the

ACH system. In addition, in fiscal year

1997, the Service collected over $711

billion in taxes and more than $28

billion in non-tax collections using the

ACH system. Federal agencies primarily use the

ACH system to make recurring

payments, such as salary payments.

Federal agencies also use the ACH

system to make non-recurring payments,

such as travel reimbursements and tax

refunds, as well as payments to vendors

and to grant and program recipients.

The ACH system also is used for nontax collections, international funds

settlement and for cash concentration

from Treasury’s more than 3,500

depositaries. The Service adopted a

policy of accepting ACH credits to

Treasury’s General Account (TGA) in

order to enable Federal agencies to

collect payments such as fines, fees, and

loan payments from the public by EFT. In addition to transactions that are

used by the Federal Government as well

as the private sector, Federal agencies

have worked with financial institutions

and the National Automated Clearing

House Association (NACHA), the

rulemaking body for the ACH system, to

develop two new ACH entries and

formats specifically designed to meet

the needs of Federal agencies: The

Automated Enrollment Entry (ENR)

replaces the paper form used for

enrollment in the Direct Deposit

program. The Death Notification Entry

(DNE) allows a Federal agency, such as

the Social Security Administration

(SSA), to notify a financial institution

promptly of the death of a Social

Security recipient. The DNE has

reduced significantly the total dollar

amount of post-death payments that

SSA seeks to recover annually from

financial institutions.

Two recently enacted laws are

increasing substantially the use of the

ACH system by Federal agencies.

Provisions in the North American Free

Trade Agreement Implementation Act

(NAFTA), Pub. L. No. 103–182, sec. 523

(codified at 26 U.S.C. 6302(h)), and

provisions in the Debt Collection

Improvement Act of 1996 (DCIA),

Chapter 10 of the Omnibus

Consolidated Rescission and

Appropriations Act of 1996, Pub. L.

104–134, mandate the use of EFT for the

collection of certain Federal taxes and

for Federal payments other than

payments under the Internal Revenue

Code of 1986. The DCIA defines EFT as

‘‘any movement of funds, other than a

transaction originated by cash, check, or

similar paper instrument, that is

initiated through an electronic terminal,

telephone, computer, or magnetic tape,

for the purpose of ordering, instructing,

or authorizing a financial institution to

debit or credit an account.’’ DCIA,

section 31001(x). EFT includes ACH,

Fedwire, and transfers made at

automated teller machines (ATMs) and

point-of-sale (POS) terminals.

To meet the NAFTA requirements, the

Service, in conjunction with the Internal

Revenue Service and Federal Reserve

Banks, implemented the Electronic

Federal Tax Payment System (EFTPS)

which enables taxpayers to pay Federal

taxes by EFT. The Service will soon

issue final amendments to 31 CFR part

203—Treasury Tax and Loan

Depositaries. Part 203 addresses the

rights and responsibilities of taxpayers,

financial institutions, and Federal

Reserve Banks in connection with

EFTPS.

Section 31001(x) of the DCIA amends

31 U.S.C. 3332 to require Federal

agencies to convert from checks to EFT

in two phases. During phase one, which

began on July 26, 1996, all recipients of

Federal payments (other than payments

under the Internal Revenue Code of

1986) who become eligible to receive

those payments on or after July 26,

1996, must receive them electronically

unless the recipient certifies that the

recipient does not have an account at a
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5427

1 31 CFR part 240.

financial institution or an authorized

payment agent.

Phase two covers the conversion from

checks to EFT for all Federal payments,

except payments under the Internal

Revenue Code of 1986. The DCIA

provides that, subject to the Secretary of

the Treasury’s authority to grant

waivers, all such payments made after

January 1, 1999, must be made by EFT.

On July 26, 1996, the Service

promulgated an interim rule, 31 CFR

part 208, to implement those provisions

of the DCIA that took effect on that date.

61 FR 39254. On September 16, 1997,

the Service published for comment a

proposed rule implementing the phase

two requirements of the DCIA. 62 FR

48714.

As a result of the enactment of the

DCIA and NAFTA, the Service expects

to introduce up to 600 million new

transactions into the ACH system by

January 1, 1999. The Service anticipates

that the ACH system will provide the

dominant, though not exclusive, EFT

system used by Federal agencies. Part

210 will provide the regulatory

foundation for use of the ACH system by

Federal agencies.

II. The 1994 Notice of Proposed

Rulemaking

On September 30, 1994, the Service

published a Notice of Proposed

Rulemaking (NPRM) with respect to Part

210; that document is referred to herein

as the 1994 NPRM. The purpose of the

1994 NPRM was ‘‘to provide a

regulatory basis for the broader use of

the ACH system to meet the future

payment, collection and information

flow needs of the Government.’’ 59 FR

50112.

The Service received fifty-one

comments from Federal agencies,

financial institutions, NACHA and its

regional affiliates, and private sector

organizations. All commenters

expressed strong support of the

Service’s efforts to provide a regulatory

basis for broader use of the ACH system

and to make the regulations more

consistent with financial industry rules.

Specific comments on the NPRM are

discussed in the section-by-section

analysis below.

III. This Notice of Proposed

Rulemaking

A. Introduction

After considering the comments

received on the 1994 NPRM, and taking

into account developments since the

1994 NPRM was issued, in particular

the enactment of the DCIA and NAFTA,

the Service believes it is appropriate to

issue a new NPRM. While the

organization and wording of this

proposed rule is significantly different

from the 1994 NPRM, the Service has

not deviated from its determination,

expressed in the 1994 NPRM, that the

ACH Rules, which apply to private

entries made through the ACH system,

also should apply to credit and debit

entries and entry data originated or

received by Federal agencies

(Government entries), subject to certain

exceptions necessary to protect the

interests of the Treasury, other Federal

agencies, and the public. The use of

private industry rules reduces the

regulatory burden on financial

institutions which otherwise might have

to comply with conflicting or

duplicative requirements.

Several commenters indicated that the

1994 NPRM did not explain clearly the

relationship between the ACH Rules

and Federal law or identify with

sufficient clarity the ACH Rules which

the Service was preempting with respect

to Government entries. This NPRM

clarifies that the Service proposes to

adopt the ACH Rules as the rules

governing all Government entries, with

twelve exceptions discussed below, for

which the Service proposes to establish

special rules as a matter of Federal law.

Under Federal law, Treasury has the

authority and the duty to disburse and

collect funds on behalf of executive

Federal agencies. See 31 U.S.C.

§§ 321(b)(1), 3301, 3321, 3327 and 3335.

Treasury consistently has taken the

position that state law, such as the

Uniform Commercial Code, is

inapplicable to Federal payments and

collections and that Federal law applies

whenever Treasury engages in its

sovereign function of collecting and

disbursing public funds, regardless of

the method used to carry out the

function. The Supreme Court affirmed

this position in Clearfield Trust Co. v.

United States, 318 U.S. 363, 366 (1943).

In Clearfield Trust, the Supreme Court

found that the rights and duties of the

United States with respect to

commercial paper that it issues are

governed by Federal law, not state law.

Treasury has defended successfully the

Clearfield Trust doctrine in a number of

cases. See, e.g., Alnor Check Cashing

Co. v. Katz, 821 F. Supp. 307, 311 (E.D.

Pa. 1993), aff’d 11 F.3d 27 (3rd Cir.

1993); Alaska National Bank of the

North v. Federal Reserve Bank of San

Francisco, No. A87–156, slip op. at 10

(D. Alaska, Aug. 10, 1987).

In 1942, when the Clearfield case was

decided, the Federal Government

disbursed funds primarily in the form of

Treasury checks. However, the use of an

electronic funds transfer system, such as

the ACH system, instead of paper

checks, does not change the legal

principle that the rights and duties of

the United States are governed by

Federal law.

Part 210, which relies upon and

implements Treasury’s statutory

responsibility to collect and disburse

public funds, regulates the rights and

duties of parties to transactions

originated or received by Federal

agencies through the ACH system, just

as other Treasury rules regulate the

rights of parties to Treasury checks.1

The ACH Rules, which are developed

and updated by NACHA, allocate rights

and liabilities among participants to an

ACH transaction. Financial institutions

agree to be bound by the ACH Rules

when they join an ACH association. The

ACH Rules are structured upon the

premise that five entities participate in

the ACH system. They are: (1) The

originator, which is the person or entity

that agrees to initiate ACH entries in

accordance with an arrangement with a

receiver; (2) the originating depository

financial institution (ODFI), which is

the institution that receives payment

instructions from the originator and

forwards the entries to an ACH

Operator; (3) the ACH Operator, which

is a central clearing facility, operated by

a Federal Reserve Bank or a private

organization, that receives entries from

ODFIs, distributes the entries to

appropriate receiving depository

financial institutions and performs the

settlement function for the affected

financial institutions; (4) the receiving

depository financial institution (RDFI),

which is the institution that receives

ACH entries from the ACH Operator and

posts them to the accounts of its

depositors; and (5) the receiver, which

is a natural person or organization that

has authorized an originator to initiate

an ACH entry to the receiver’s account

with the RDFI.

In initiating and receiving

Government entries, Federal agencies,

Federal Reserve Banks and the Service

operate in unique capacities that differ

from the roles contemplated by the ACH

Rules. These differences are a result of

the statutory authorities that govern

Federal Government payments and

collections and that distinguish Federal

Government payments from commercial

payments involving private parties and

financial institutions.

Because the ACH Rules employ

terminology that is based upon private

industry financial institution-customer

relationships, the definitions used in the

ACH Rules do not address the roles of

Federal agencies, the Service and the

Federal Reserve Banks with respect to
5428 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

the origination or receipt of an ACH

entry. Due to the bifurcation of function

between certifying and disbursing

Federal agencies, Federal Government

operations do not conform to the

definitions in the ACH Rules. From a

functional perspective, the Federal

agency that certifies an ACH entry to the

Service performs a function that is

analogous to that of the originator of the

entry for purposes of the ACH Rules. In

disbursing the payment, the Service is

acting as the ODFI and the Federal

Reserve Bank is the originating ACH

Operator with respect to the entry.

Similarly, a Federal agency that receives

a payment through the ACH system,

functions as the receiver, while the

Service functions as the RDFI, and the

Federal Reserve Bank functions as the

receiving ACH Operator for the entry.

The ACH Rules generally require

ODFIs and RDFIs to assume

responsibility for entries originated and

received by their customers. ODFIs and

RDFIs must make certain warranties

with respect to entries originated and

received by their customers and are

liable to other participants in the ACH

system for breach of those warranties.

The ACH Rules do not impose direct

liability upon originators and receivers;

any losses resulting from an act or

omission by an originator or receiver are

imposed on the ODFI or RDFI. The

ODFI or RDFI can seek recourse against

the originator or receiver if it has the

right to do so under the contract

between the parties and/or applicable

state law.

The Service does not believe that it is

appropriate to assume liability arising

from the acts and omissions of Federal

agencies originating and receiving ACH

entries. Accordingly, although it is the

Service’s view that Federal agencies

operate as originators and receivers and

the Service operates as an ODFI and

RDFI from a functional perspective, the

Service believes it is appropriate to

impose upon Federal agencies that

originate or receive ACH entries the

obligations and liabilities imposed on

ODFIs and RDFIs, respectively, for

purposes of the ACH Rules. Proposed

part 210 therefore is structured on the

premise that Federal agencies are

subject to all of the obligations and

liabilities imposed on ODFIs and RDFIs

under the ACH Rules, except as

otherwise provided in part 210.

The Service has reviewed the ACH

Rules and determined that, given the

special nature of Government entries,

and the importance of protecting public

funds, it is in the best interest of the

public for the Service to preempt in part

or in whole twelve provisions of the

ACH Rules. The twelve provisions that

the Service proposes to preempt in part

or in whole are described briefly below,

and are discussed in more detail in the

section-by-section analysis. There are

five provisions of the ACH Rules that

the Service proposes to preempt

completely. The following five ACH

Rules are preempted entirely and are

excluded specifically from part 210’s

definition of ‘‘applicable ACH Rules’’

(see proposed § 210.2(d)):

1. ACH members. Proposed part 210

preempts the limitation on the

applicability of the ACH Rules to

members of an ACH association.

2. Compensation. Proposed part 210

preempts the compensation rules set

forth in the ACH Rules.

3. Arbitration. Proposed part 210

preempts the requirement under the

ACH Rules that disputes among

participants be settled by arbitration

procedures set forth in the ACH Rules.

4. Reclamation. The reclamation

provisions of Subpart B preempt all

ACH Rules related to the reclamation of

entries and the liability of participants

that otherwise would apply to benefit

payments.

5. Timing of Origination. Proposed

part 210 preempts the requirement set

forth in the ACH Rules that a credit

entry be originated no more than two

banking days before the settlement date

of the entry.

In addition to the foregoing five

provisions of the ACH Rules which

proposed part 210 entirely preempts

through the definition of ‘‘applicable

ACH Rules,’’ seven other provisions of

the ACH Rules are preempted in part by

operation of specific sections of

proposed part 210. Those provisions

are:

1. Verification of identity of recipient

(see proposed §§ 210.4(a), 210.8(c)(2)).

Under the ACH Rules, a receiver must

authorize an entry before the entry may

be originated and the ODFI must

warrant that the authorization is valid.

The ODFI thus bears the ultimate

liability for any loss resulting from a

forged authorization under the ACH

Rules. Proposed part 210 imposes a

different rule for Government entries.

Specifically, under proposed § 210.4(a),

a financial institution that accepts an

authorization from a recipient must

verify the identity of the recipient. The

financial institution is liable to the

Federal Government for all entries made

in reliance on a forged authorization

that the institution has accepted. Thus,

proposed part 210 preempts the ODFI

warranty and liability provisions of the

ACH Rules by allocating liability to the

RDFI if it accepts a forged authorization.

2. Authorization for debit entries to

Federal agencies (see proposed

§§ 210.4(a)(2), 210.8(c)(1)). Proposed

part 210 preempts the ACH Rules with

respect to the form of authorization

required to initiate debit entries to a

Federal agency. The ACH Rules require

that every entry be authorized by the

receiver, but only require that the

authorization be in writing in the case

of debit entries to a consumer account.

Under proposed § 210.4(a), no person or

entity (including any financial

institution) may initiate or transmit a

debit entry to a Federal agency unless

the agency has expressly authorized in

writing (or through a similarly

authenticated authorization) the

origination of the entry by that

particular originator. An ODFI

transmitting an entry in violation of this

requirement would be liable for the

amount of the transaction, plus interest,

under proposed § 210.8(c)(1).

3. Prenotifications (see proposed

§§ 210.6(b), 210.8(a)). The Service is

proposing to preempt the ACH Rules in

two respects in connection with

prenotifications. In order to reduce the

potential for misdirected entries,

proposed § 210.8(a) requires a financial

institution that receives a

prenotification relating to Government

entries to verify the account number and

at least one other identifying data

element in the prenotification. This

requirement supersedes the ACH Rules

which specifically permit financial

institutions to rely on the account

number alone in posting payment to an

account.

Second, the origination of a

prenotification is optional for all entries

under the ACH Rules. Proposed

§ 210.6(b) preempts the ACH Rules by

requiring that a Federal agency originate

a prenotification before initiating a debit

entry to a recipient’s account.

Prenotification is optional for all credit

entries.

4. Liability of the Federal

Government. (a) Amount of damages

(see proposed § 210.6). In general, the

ACH Rules impose liability on an RDFI

or ODFI for all losses, liabilities or

claims incurred by another depository

financial institution (DFI), ACH

Operator or Association as a result of

the RDFI’s or ODFI’s breach of any

warranty. Thus, under the ACH Rules,

a Federal agency that originates

payments, would be liable for all losses

resulting from any breach by it of an

applicable warranty under the ACH

Rules. Similarly, a Federal agency that

receives payments, would be liable for

all losses resulting from any breach by

it of an applicable warranty under the

ACH Rules.

Proposed § 210.6 limits a Federal

agency’s liability to the amount of the
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5429

entry whether it is originating or

receiving ACH entries. Therefore, a

Federal agency would not be liable to a

DFI, ACH Operator or an ACH

association for interest, attorneys’ fees,

or other consequential damages. In

addition, in certain circumstances, a

Federal agency’s liability may be

reduced further by the amount of the

loss caused by the financial institution’s

negligence.

(b) Liability of Federal Reserve Banks

(see proposed § 210.7(a)). Proposed part

210 preempts article 11.5 of the ACH

Rules, which provides that a Federal

Reserve Bank is not the agent of an RDFI

or ODFI. Proposed part 210 provides

that Federal Reserve Banks are Fiscal

Agents of the Treasury and are not liable

to any party other than the Treasury for

their actions under part 210.

5. Liability of financial institutions

(see proposed § 210.8(c)). Proposed part

210 preempts the provisions of the ACH

Rules that would operate to make a

financial institution liable to the Federal

Government for any loss, liability or

claim relating to an entry in an amount

exceeding the entry. As previously

indicated, the ACH Rules impose

liability on an RDFI or ODFI for all

losses, liabilities or claims incurred by

another DFI, ACH Operator or

Association as a result of the RDFI’s or

ODFI’s breach of any warranty. Under

proposed part 210, a financial

institution would not be liable to the

Federal Government for interest,

attorneys’ fees, or other consequential

damages, except in the case of an

unauthorized debit to a Federal agency,

as discussed above.

6. Reversals (see proposed § 210.6(g).

Proposed part 210 requires Federal

agencies initiating reversals to certify

that the reversal does not violate

applicable law or regulations. This

requirement is not imposed under the

ACH Rules. In addition, proposed part

210 applies to the Federal Government

the ACH Rules relating to

indemnification, but limits the extent of

the indemnification to the amount of the

individual entry(ies) being reversed.

7. Account requirements for benefit

payments (see proposed § 210.5).

Proposed part 210 imposes a

requirement with respect to ACH credit

entries representing benefit payments

that is not imposed under the ACH

Rules, i.e., that such payments be

deposited to an account at a financial

institution ‘‘in the name of’’ the

recipient, with two exceptions

discussed in the section-by-section

analysis. The term ‘‘account’’ for

purposes of proposed § 210.5 is

intended to mean a deposit account and

not a loan account or general ledger

account. The Service is aware that

NACHA has approved a change to the

ACH Rules, which will become effective

in March 1999, to permit the crediting

of ACH credits to a financial institution

general ledger account or to a loan

account. The Service does not intend to

accept this ACH Rule with respect to

certain benefit payments.

In addition to preempting the

provisions of the ACH Rules listed

above, Part 210 also establishes, as a

matter of Federal law, certain rights and

obligations that are not addressed in the

ACH Rules. For example, the ACH Rules

generally do not address the rights and

liabilities between receivers and

originators, nor do the ACH Rules

address rights and liabilities between

ODFIs and originators, or between

RDFIs and receivers. Under the ACH

Rules, an ODFI is responsible for entries

originated by its customers. The ODFI

must make certain warranties with

respect to any entry originated by its

customer, and is liable for breach of

those warranties. The ODFI’s ability to

seek recourse against the originator in

the event of a loss for which the ODFI

is liable under the ACH Rules is beyond

the purview of the ACH Rules and

would be governed by the contract

between the ODFI and originator and

applicable state law.

The Service is proposing to establish

some of these rights in part 210 with

respect to Federal agencies vis-a-vis

originators or receivers of Government

entries. For example, proposed Part 210

provides that a Federal agency will be

liable to a recipient for any loss

sustained by the recipient as a result of

the Federal agency’s failure to originate

a credit or debit entry in accordance

with part 210, and limits that liability to

the amount of the entry. Neither the

basis nor the extent of an originator’s

liability to a receiver is addressed in the

ACH Rules. In addition, the ACH Rules

do not address the circumstances in

which an entry, in fact, is ‘‘authorized.’’

The determination of whether a valid

authorization exists ordinarily would

depend on the contract between the

parties and applicable state law.

Proposed part 210 establishes certain

circumstances in which an entry shall

be deemed to be unauthorized.

B. Vendor Payments, Enrollment, and

Relationship to Other Regulations

In this NPRM, the Service is soliciting

comment on two issues of general

interest: vendor payments and

enrollment.

Although the Service has encouraged

companies doing business with Federal

agencies to receive payment through the

ACH system, participation by vendors

has been low. Of the 16 million vendor

payments disbursed by Treasury in

fiscal year 1997, only 27% were made

by EFT.

The Service understands that the

primary reason vendors do not use EFT

is the non-receipt of remittance data

with their payments, i.e., payments are

credited to the vendor’s deposit account

without information indicating the

purpose of the payment. Absent

identifying information, it is difficult for

vendors to reconcile their accounts

receivable. The Service seeks public

comment on this matter and on what

actions could be taken, in particular by

the financial industry, to make

improvements. Specifically, the Service

seeks comment on the following:

• What factors contribute to the nonreceipt of remittance data (e.g., customer

demand, costs)?

• What are the key reasons why

electronic data interchange (EDI) has not

been adopted widely by the financial

industry?

• Does the approved amendment to

the NACHA ACH Rules (effective

September 18, 1998), which requires the

RDFI to provide remittance information

upon request, adequately address

vendors’ concerns?

• What alternative approaches/

solutions are there to remedy this

problem?

With respect to enrollments, the

Federal Government actively is

promoting the use of automated

enrollment for all payments. The

Service has received many comments on

how to improve the current process for

enrolling vendors in EFT. The Service

seeks public comment on how to

expand the use of automated enrollment

and what steps the Federal Government

could take to improve the process.

C. Future Changes to Subpart B

As discussed in greater detail in the

section-by-section analysis below, the

Service proposes in this NPRM to

reorganize and rewrite Subpart B in

order to allow for the increasing use of

automated processes to effect

reclamations, rather than requiring

reclamations to be conducted on the

basis of paper-driven procedures. The

Service also is seeking to clarify in this

NPRM the obligations and liabilities

imposed on financial institutions under

current subpart B. The Service is not

proposing to change significantly those

obligations and liabilities at this time.

However, the Service is actively

considering ways in which the

reclamation process might be

restructured in the future to operate

more efficiently as a fully automated

process. Because the Service recognizes
5430 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

that many Federal agencies are not in a

position to move to an automated

reclamation process at this time,

proposed Subpart B preserves the basic

structure of the current paper-oriented

process.

The current reclamation process is a

cumbersome and labor-intensive

manual process involving a complicated

formula for the allocation of liability. As

the volume of Federal benefit payments

made through the ACH system

increases, the number of reclamations

also will increase, significantly

increasing the processing burden on

both the Federal Government and

financial institutions. The Service

believes it would be in the best interests

of the Federal Government and financial

institutions to develop a more costeffective and efficient reclamation

process by simplifying the formula for

allocating liability and eliminating the

manual processing requirements upon

which the current reclamation process

is based.

In order to begin formulating a

preliminary approach to implementing

an automated reclamation process, the

Service is soliciting comment on the

considerations which financial

institutions and Federal agencies

believe are important with respect to

reclamations. For example, because the

average number of payments involved

in a reclamation is 1.5, the Service

questions whether the protection

afforded to financial institutions by the

limited liability provisions of Subpart B

is outweighed by the processing costs of

handling reclamations. The Service thus

is interested in comment on an

approach in which an RDFI would be

liable for the amount of any post-death

entries received, regardless of whether

the RDFI had actual or constructive

knowledge of the death. This liability

structure would make it possible to

streamline the reclamation process by

eliminating the certification and

informational requirements, thereby

eliminating the need for the Federal

Government and financial institutions

to research and verify the circumstances

of each reclamation. In addition, the

Service welcomes comments on other

possible ways in which the current

reclamation process could be simplified.

D. Section-by-Section Analysis

The Service proposes to change the

title of this Part to ‘‘Federal Government

Participation in the Automated Clearing

House’’ to reflect the broadened scope of

the regulation to cover all types of

activities that are handled, or may in the

future be handled, over the ACH system.

This proposal contains two subparts.

Subpart A sets forth rules applicable to

all ACH credit and debit entries and

entry data originated or received by a

Federal agency which are defined in the

proposed rule as ‘‘Government entries.’’

Subpart B contains the rules for the

reclamation of benefit payments.

Current part 210 contains an additional

subpart, subpart C, dealing with

discretionary salary allotments. In

addition, the 1994 NPRM proposed to

add a new subpart D dealing with

savings allotments. The Service has

determined that subparts C and D are

unnecessary because they are redundant

of rules that appear elsewhere. For

example, regulations issued by the

Office of Personnel Management, at 5

CFR part 550, address the circumstances

under which salary and savings

allotments may be made. Under 31 CFR

part 208, Federal agencies are required

to make all Federal payments, including

allotments, by EFT. Subpart A of Part

210 sets forth the rules governing all

ACH credit entries made by a Federal

agency, including savings and salary

allotment payments. Therefore, subparts

C and D are deleted from proposed part

210.

Section 210.1—Scope; Relation to Other

Regulations

Current part 210 covers only ACH

payments made by the Federal

Government. In the 1994 NPRM, the

Service proposed to broaden the scope

of part 210 to cover all entries and entry

data originated or received by a Federal

agency through the ACH system. Entry

data includes prenotifications, returned

entries, adjustment entries, notifications

of change and other notices or data

transmitted through the ACH system.

Thus, part 210 would apply to

collections and the information entries

which can now be handled through the

ACH system, as well as to Federal

payments made through the ACH

system.

Proposed part 210 establishes the

general legal and operational framework

applicable to all ‘‘Government entries’’

as defined in the proposed rule. Federal

tax payments made by ACH debit or

credit are governed by part 203, which

sets forth the rights and responsibilities

of taxpayers, financial institutions, and

Federal Reserve Banks in connection

with EFTPS. ACH credits and debits

originated by the Bureau of Public Debt

to pay principal or interest on, and to

collect payment for the purchase of,

United States securities are governed by

31 CFR part 370.

Both part 203 and part 370 impose

certain requirements with respect to the

payments subject to those regulations

that are inconsistent with the provisions

of proposed part 210. For example,

under proposed part 210 a Federal

agency is required to originate a

prenotification before originating an

ACH debit entry to an account; in

contrast, under part 370, a

prenotification need not be originated

before originating an ACH debit entry to

an account. In this example, as a result

of the operation of proposed § 210.1, a

prenotification would not be required

before the Federal Government

originates an ACH debit entry to an

account for the purpose of collecting

payment for the purchase of a United

States security.

Section 210.1 of the 1994 NPRM

referenced the relationship of part 210

to the savings allotment provisions of 31

CFR part 209. Effective January 27,

1997, the Service deleted part 209

because it was obsolete. 61 FR 68155.

Therefore, the reference to part 209 has

been deleted from proposed part 210.

Section 210.2—Definitions

The Service proposes to revise this

section to explain that any term not

defined in part 210 shall have the

meaning given to that term in the ACH

Rules. In addition, for clarity and

simplification, the Service proposes to

add, remove, or redesignate certain

other terms, as indicated below.

The Service proposes to delete certain

definitions that appear in current part

210 and in the 1994 NPRM because

proposed part 210 uses these terms in

the same way as the ACH Rules. Thus,

the definitions of the terms ‘‘banking

day,’’ ‘‘business day,’’ ‘‘erroneous

payment,’’ ‘‘prenotification’’ and

‘‘receiver’’ have been deleted.

Other terms defined in current part

210 have been deleted because they are

not used in proposed part 210. The

terms ‘‘allotment’’ and ‘‘allotter,’’ which

are defined both in current part 210 and

the 1994 NPRM, and the terms

‘‘discretionary allotment’’ and

‘‘employee’’ in current part 210, have

been removed because the terms are

used only in Subparts C or D. The terms

‘‘payment’’ and ‘‘payment date’’ in

current part 210 have been replaced by

the ACH terms ‘‘entry’’ or ‘‘credit’’

(rather than ‘‘payment’’) and

‘‘settlement date’’ (rather than ‘‘payment

date’’). The term ‘‘payment instruction’’

has been deleted as unnecessary in

proposed part 210.

The definition of ‘‘Federal Reserve

Bank’’ in current part 210 and the

definition of ‘‘Government’’ in the 1994

NPRM also are deleted as unnecessary.

The Service proposes to add a

definition of ‘‘ACH Rules’’ in proposed

§ 210.2(a). This definition explains that

the ACH Rules consist of the NACHA
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5431

2See 42 U.S.C. 1383(a)(2)(A)(ii)(I); 38 U.S.C.

5502(a)(1); 45 U.S.C. 231k, respectively.

3See 20 CFR Parts 404, 410, 416, 266, and 348;

and 38 CFR Part 13, respectively.

Operating Rules and the NACHA

Operating Guidelines.

The Service also proposes to add a

definition of ‘‘actual or constructive

knowledge’’ at proposed § 210.2(b). This

phrase is used in subpart B in

connection with determining a financial

institution’s liability for post-death and

post-legal incapacity payments. The

addition of this definition is intended to

clarify that in reference to the death or

legal incapacity of a recipient of benefit

payments or the death of a beneficiary,

the RDFI is deemed to have actual

knowledge of the death or legal

incapacity upon the receipt by whatever

means of any information of the death

or legal incapacity. Moreover, if the

RDFI would have discovered the death

or legal incapacity if it had followed

commercially reasonable business

practices, the RDFI will be deemed to

have constructive knowledge of the

death or legal incapacity. For example,

an RDFI would have actual knowledge

of a death or legal incapacity through a

communication with an executor of the

deceased recipient’s or beneficiary’s

estate, a family member, another third

party, or the Federal agency issuing the

benefit payment. On the other hand, if

an RDFI misplaced a letter sent through

the mail containing notice of death or

legal incapacity, or failed to open or

read the letter, the RDFI would be

deemed to have constructive knowledge

of the death even though it did not have

actual knowledge.

Neither current part 210 nor the 1994

NPRM contain a definition of ‘‘actual or

constructive knowledge,’’ but the

reclamation provisions of subpart B of

current part 210 provide that a financial

institution is deemed to have knowledge

of the death or legal incapacity of a

recipient or the death of a beneficiary if

the financial institution would have

discovered the death or legal incapacity

if it had exercised due diligence. The

Service does not intend to change that

standard in this NPRM, but proposes to

add this definition to clarify that the

basis for determining whether a

financial institution has constructive

knowledge of the death or legal

incapacity is whether commercially

reasonable business practices would

have resulted in discovery of the

information.

The Service proposes to add a

definition of ‘‘agency’’ in § 210.2(c) to

mean any department, agency, or

instrumentality of the Federal

Government, or a corporation owned or

controlled by the Federal Government.

Current part 210 uses the term ‘‘program

agency.’’ The proposed change is not

intended to alter the scope of current

part 210. The proposed definition is

identical to the definition of agency in

part 208, which sets forth rules

governing the mandatory use of EFT by

agencies, except that the definition of

agency for purposes of part 210 does not

include a Federal Reserve Bank.

For purposes of subpart B, which

governs reclamations, ‘‘agency’’ means

the agency that certified the benefit

payment(s) being reclaimed.

Section 210.2(d) of proposed part 210

defines the term ‘‘applicable ACH

Rules’’ to mean the ‘‘1997 ACH Rules,’’

including all rule changes published

therein with an effective date on or

before September 19, 1997, which are

made applicable to ‘‘Government

entries’’ pursuant to proposed § 210.3.

Proposed part 210 completely preempts

those ACH Rules that: govern claims for

compensation, arbitration, or

reclamation of benefit payments; limit

the applicability of the ACH Rules to

members of an ACH association; or

require that a credit entry be originated

no more than two banking days before

the settlement date of the entry.

Therefore, these ACH Rules have been

excluded from the term ‘‘applicable

ACH Rules.’’ As discussed above in the

Introduction to this NPRM, proposed

part 210 also preempts certain other

provisions of the ACH Rules through

operation of particular sections of part

210.

It should be noted that any technical

or timing requirements imposed upon

DFIs under the ACH Rules constitute

applicable ACH Rules, and will be

binding on agencies and financial

institutions, unless preempted. Thus,

for example, agencies will be subject to

the timing requirements for notifications

of change and returns. Agencies would

not be subject to the requirement that

credit entries be originated no more

than two banking days before the

settlement date of the entry, since this

requirement is excluded from the

definition of applicable ACH Rules.

The Service proposes to add a

definition of ‘‘authorized payment

agent’’ at § 210.2(e) in connection with

the account requirements for benefit

payments set forth at proposed § 210.5.

The definition is identical to the

definition of ‘‘authorized payment

agent’’ for purposes of part 208. In the

case of a beneficiary who is physically

or mentally incapable of managing his

or her payments, proposed § 210.5

would permit an authorized payment

agent to receive the payments on behalf

of the beneficiary.

The Social Security Act, Veterans’

Benefits Act, and the Railroad

Retirement Act contain provisions

permitting a benefit payment to be made

to an individual or organization other

than the beneficiary when doing so is in

the best interest of the beneficiary.2 SSA

and the Railroad Retirement Board use

the term ‘‘representative payee’’ to refer

to individuals and organizations that

have been selected to receive benefits on

behalf of a beneficiary who is ‘‘legally

incompetent or mentally incapable of

managing benefit payments.’’ The

Department of Veterans Affairs uses the

term ‘‘fiduciary’’ to refer to individuals

or organizations appointed to serve in

similar circumstances. The definition of

the term ‘‘recipient’’ in current § 210.2

refers to representative payees and

fiduciaries.

Other agencies also may provide for

payment to representative payees and

fiduciaries. While not specifically

mentioned by name, the phrase ‘‘or

other agency’’ in the proposed

definition is intended to refer to such

agencies.

In fiscal year 1997, approximately 10

percent of Social Security benefit

payments (61 million payments) were

made to approximately five million

representative payees. SSA, the Railroad

Retirement Board, and the Department

of Veterans Affairs have issued detailed

regulations addressing the qualifications

and duties of representative payees and

fiduciaries.3 The rules governing these

representational relationships are

longstanding and well established.

Therefore, the Service believes that it is

appropriate to rely on existing agency

regulations in defining the term

‘‘authorized payment agent.’’

The Service proposes to add a

definition of ‘‘Automated Clearing

House or ACH’’ in § 210.2(f) to make it

clear that the electronic fund transfers

that are subject to part 210 are limited

to those effected through an electronic

fund transfer system that has adopted

the ACH Rules.

The proposed definition of

‘‘beneficiary’’ in § 210.2(g) has been

reworded slightly from the definition in

current part 210 to reflect the addition

of a definition of benefit payment, but

substantively is unchanged from the

definition in current part 210. Although

the 1994 NPRM did not define

specifically a beneficiary as a person

other than a recipient, the term

beneficiary was used in the 1994 NPRM

as meaning a party other than a

recipient.

The definition of ‘‘benefit payment’’

in proposed § 210.2(h) is similar to the

definition in current part 210. In the
5432 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

1994 NPRM, the Service had proposed

to move the specific classes of benefit

payments enumerated in the definition

to the Green Book. Several commenters

objected to this proposed change and

requested that the specific classes of

benefit payments continue to be

enumerated in the regulation itself. In

light of these comments, the Service

proposes to retain in the regulation a

listing of several types of benefit

payments for purposes of convenience

and illustration. It should be noted,

however, that the term ‘‘benefit

payment’’ includes, but is not limited

to, the specific examples set forth at

proposed § 210.2(h).

The Service proposes to add to part

210 a definition of ‘‘Federal payment.’’

The proposed definition in § 210.2(i) is

identical to the definition of that term

in part 208 except that the definition of

Federal payment in part 208 excludes

payments under the Internal Revenue

Code of 1986, whereas the term

‘‘Federal payment’’ in proposed

§ 210.2(i) includes those payments.

Payments under the Internal Revenue

Code of 1986 are excluded in part 208

because the DCIA expressly provides

that payments under the Internal

Revenue Code of 1986 are not subject to

the DCIA’s mandatory EFT

requirements. However, payments that

the Internal Revenue Service elects to

make using the ACH system would be

subject to part 210 and thus are

included within the definition of

Federal payment at proposed § 210.2(i).

The proposed definition of ‘‘financial

institution’’ in § 210.2(j) is identical to

the definition contained in Part 208

except that the Service proposes to add

a sentence noting that, in proposed part

210, a financial institution may be

referred to as an Originating Depository

Financial Institution (ODFI) or a

Receiving Depository Financial

Institution (RDFI), depending on

whether it is originating or receiving

entries to or from its ACH Operator.

The proposed rule defines ‘‘financial

institution’’ to mean a depository

institution as defined in 12 U.S.C.

461(b)(1)(A), excluding subparagraphs

(v) and (vii), and an agency or branch of

a foreign bank as defined in 12 U.S.C.

3101. Under this definition, banks,

savings banks, credit unions, savings

associations, and United States-based

foreign bank branches would be

considered ‘‘financial institutions.’’ This

definition has been designed to reflect

the class of entities that can participate

directly in the ACH system, i.e.,

financial institutions that are authorized

by law to accept deposits.

The term ‘‘Government entry’’ is

defined in § 210.2(k) as an ACH credit

or debit entry or entry data originated or

received by an agency. As noted above,

current Part 210 applies only to credit

entries originated by an agency for the

purpose of making payments. Proposed

Part 210 has a broader scope; it applies

to all entries originated or received by

an agency, whether made for the

purpose of payments, collections or for

information purposes.

The Service proposes to add a

definition of the Green Book in

§ 210.2(l) to clarify that financial

institutions that originate or receive

Government entries are subject to the

procedures and guidelines which are

published in the Green Book, as

provided at proposed § 210.3(c).

The Service proposes to define the

term ‘‘notice of reclamation’’ at

proposed § 210.2(m) to mean a notice

issued by the Federal Government in a

paper, electronic, or other form in order

to initiate a reclamation. This definition

clarifies that the Federal Government is

not limited to a paper-based means of

communication and opens the way for

an automated reclamation procedure.

The definition of notice of reclamation

is moved to the definition section of

proposed part 210 from § 210.13(a) of

current Part 210.

The Service proposes to preserve the

definition of ‘‘outstanding total’’ in

current Part 210 without substantive

change.

The proposed definition of

‘‘recipient’’ in § 210.2(o) is substantially

similar to the corresponding definition

in Part 208. The term would include an

authorized payment agent that receives

a payment on behalf of a beneficiary.

The Service proposes to add the term

‘‘Service’’ to mean the Financial

Management Service, Department of the

Treasury.

The Service proposes to add a

definition of the Treasury Financial

Manual in § 210.2(q) to clarify that the

Service may publish procedures and

guidelines applicable to Government

entries in the Treasury Financial

Manual. The Treasury Financial Manual

contains procedures to be observed by

all agencies with respect to central

accounting, financial reporting, and

other Federal Government-wide fiscal

responsibilities of the Treasury. The

proposed definition is substantially

unchanged from the definition set forth

in the 1994 NPRM.

Section 210.3—Governing Law

Proposed § 210.3(a) provides that the

rights and obligations of the United

States and the Federal Reserve Banks

with respect to all Government entries

are governed by Part 210, which has the

force and effect of Federal law. As

discussed above, this approach is

consistent with cases such as Clearfield

Trust Co. v. United States, 318 U.S. 363

(1943), and its progeny.

Proposed § 210.3(b) provides that Part

210 incorporates by reference the

applicable ACH Rules in effect on

September 19, 1997, as modified by this

part. Since the publication of the 1994

NPRM, a number of amendments to the

ACH Rules have been adopted. The

Service will be bound by all

amendments adopted since the

publication of the 1994 NPRM up to and

including those which took effect on

September 19, 1997, except the rule that

makes prenotifications optional for all

payment types, which the Service is

proposing to modify. In addition, as

noted above, NACHA has approved an

amendment to the ACH Rules that,

effective March 19, 1999, will permit

the crediting of entries to non-deposit

accounts. The Service does not intend to

accept this amendment for benefit

payments subject to proposed § 210.5.

Proposed § 210.3(b)(2) describes how

subsequent amendments to the ACH

Rules will be handled. The 1994 NPRM

stated that Government entries would be

governed by any amendment to the ACH

Rules that became effective after a

specified date only if the Service

accepted the amendment by publishing

notice to that effect. Twenty-six

members of one ACH association were

among the thirty-six commenters who

urged the Service to change this

position. Several financial institutions

also recommended that the Service

provide that amendments to the ACH

Rules are deemed accepted unless the

Service expressly rejects the amendment

by publishing notice to that effect in the

Federal Register. In contrast, one

agency commented that ‘‘* * * Federal

agencies should be prohibited from

implementing NACHA proposed

amendments until specifically

sanctioned by the Treasury Department

for agency use.’’

Although the Service recognizes that

its proposed policy may impose some

additional burden on financial

institutions that must track the status of

ACH Rule amendments, the Service

believes that the interests of the Federal

Government outweigh these concerns.

Amendments to the ACH Rules could

have a significant effect on individual

agencies and on the Federal

Government as a whole. The Service

believes that in order to assess the

impact of an amendment on agencies,

the Federal Government, and the public,

the Service must review the

amendments and consult with other

agencies. Moreover, Federal regulations

require that any changes to a
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5433

4See 1 CFR § 51.11.

publication incorporated by reference in

a Federal Register.4

For the above reasons, proposed part

210 states that amendments effective

after September 19, 1997, will not apply

to Government entries unless the

Service expressly accepts such

amendments by publishing notice of

acceptance in the Federal Register. In

addition, proposed § 210.3(b)(2)

provides that with respect to any future

amendment that the Service determines

to accept, the date of applicability of the

amendment to Government entries will

be the effective date of the rulemaking

specified by the Service in the Federal

Register document that expressly

accepts the amendment.

The Service proposes to clarify at

§ 210.3(c) of proposed part 210 that any

person or entity that originates or

receives a Government entry must

comply with the instructions and

procedures issued by the Service,

including the Treasury Financial

Manual and the Green Book. As

indicated in various places in this

NPRM, the Service is proposing to

remove to the Green Book and the

Treasury Financial Manual certain

requirements that currently are set forth

in the regulation itself. Particularly in

light of the proposed relocation of these

provisions, the Service believes it is

important to make explicit in the

regulation the Service’s longstanding

policy that the requirements set forth in

the Green Book and the Treasury

Financial Manual are binding upon

financial institutions and agencies to the

same extent as the regulation itself.

Some commenters on the 1994 NPRM

were concerned that the Service would

alter the substantive rights of parties to

a Government entry through

amendments to the Treasury Financial

Manual, the Green Book and other

operating guidelines. The commenters

requested that such changes be made

through amendments to part 210 and be

published for public comment. The

Treasury Financial Manual and the

Green Book, as well as other operating

guidelines published by the Service,

provide specific operational directions

and procedures that implement the

regulatory requirements of part 210. The

requirements set forth in the Green Book

and the Treasury Financial Manual,

including those provisions that the

Service is proposing to relocate from the

regulation to the Green Book or

Treasury Financial Manual, are

procedural, rather than substantive, in

nature. Changes to the substantive rights

and liabilities of parties to a

Government entry will be made through

amendments to part 210 itself in

accordance with administrative

rulemaking requirements. However, as

discussed above, agencies and financial

institutions should be aware that the

Service has the authority to issue

binding procedures and guidance to

implement part 210 and that the Service

will enforce the requirements set forth

in the Treasury Financial Manual and

the Green Book in the same manner that

it enforces regulations.

Section 210.4—Authorizations and

Revocations of Authorizations

Proposed § 210.4(a) provides that each

debit and credit entry subject to

proposed part 210 must be authorized in

accordance with the applicable ACH

Rules and the additional requirements

set forth in this section. The liability of

a financial institution for failing to

comply with the authorization

requirements is set forth at proposed

§ 210.8(c)(2).

Proposed § 210.4(a)(1) provides that

the agency or RDFI that accepts the

recipient’s authorization shall verify the

identity of the recipient and, in the case

of a written authorization that bears the

recipient’s signature, the validity of the

signature. Traditionally, recipients of

benefit payments such as Social

Security and Veterans benefits enrolled

in Direct Deposit by completing a Form

1199A with the assistance of their

financial institution. In order to

encourage recipients to use Direct

Deposit, in recent years, SSA and other

agencies have become directly involved

in the enrollment process by accepting

Direct Deposit authorizations over the

phone with the assistance of trained

customer service representatives.

Proposed part 210 acknowledges that

the enrollment process may be

completed by the recipient’s financial

institution or by the agency. In addition,

proposed § 210.4(a) encourages

automated enrollments by removing the

requirement that the financial

institution sign the authorization form.

Proposed § 210.4(a) recognizes that

signature verification may not be

possible or practical in an automated

enrollment.

The 1994 NPRM required that

financial institutions exercise due

diligence in verifying the identity of

recipients. Commenters requested

clarification of this standard. The

Service proposes to delete the

requirement that financial institutions

exercise due diligence to verify the

recipient’s identity. Instead, proposed

part 210 imposes an absolute

requirement that the RDFI or agency

accepting the authorization verify the

recipient’s identity and, where

appropriate, the recipient’s signature.

The Service proposes to leave to the

discretion of the financial institution or

agency accepting an authorization the

steps it will take to verify the recipient’s

identity. The Service continues to

believe that the authorization process

represents an opportunity to reduce

fraud which could otherwise result in

significant losses to the Federal

Government. Because the party that

accepts the authorization is in the best

position to detect potential fraud, the

Service believes it is appropriate to hold

that party strictly liable for the identity

of the recipient.

Under proposed § 210.4(a)(2), which

is substantially similar to § 210.3(a)(6) of

the 1994 NPRM, an originator and an

ODFI would be prohibited from

initiating a debit entry to an agency

without the express permission, in

writing or similarly authenticated, of the

agency. The Service has conducted pilot

programs to test the initiation of debit

entries to the Federal Government.

These pilots indicate that the use of

debit entries to the Federal Government

is a cost-efficient payment mechanism

that benefits both the Federal

Government and the payee-recipient.

However, in order to protect the

interests of the Federal Government, the

Service believes that it is appropriate to

require the prior written (or similarly

authenticated) authorization, just as the

ACH Rules require prior written

authorization in the case of debits to a

consumer account. In the case of

recurring entries, the agency would give

authorization only once, prior to the

first entry.

Proposed § 210.4(b), which is based

on § 210.3(b) of the 1994 NPRM and

§ 210.4(b) of current part 210, specifies

the terms to which a recipient agrees by

executing an authorization for an agency

to initiate an ACH entry. Under

§ 210.4(b)(1), a recipient agrees to be

bound by part 210 and, under

§ 210.4(b)(2), the recipient agrees to

provide accurate information.

Proposed § 210.4(b)(3) provides that

the recipient agrees to verify the

recipient’s identity to the satisfaction of

the party that accepts the authorization,

whether this is the RDFI or the agency.

The imposition of this requirement on

recipients complements the duty of the

party accepting the authorization to

verify the recipient’s identity.

Proposed § 210.4(b)(4) provides that a

new authorization supersedes any

already existing authorization that is

inconsistent with the new authorization.

This provision is reworded, but

substantively unchanged, from

§ 210.3(b)(4) of the 1994 NPRM.
5434 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

Under proposed § 210.4(b)(5), the

recipient agrees that the Federal

Government may reverse any duplicate

or erroneous entry as provided in

§ 210.6(g).

The 1994 NPRM proposed that an

authorization would be revoked in the

event the RDFI was unable to process an

item properly because of incorrect

transaction instructions. The Service

proposes to delete this provision in light

of comments received indicating that

the common practice by RDFIs that

receive an item that cannot be processed

is to return the item. This affords the

ODFI an opportunity to correct

erroneous information and resubmit the

item. The Service agrees that the return

and resubmission process is an

appropriate mechanism to deal with

such items.

The Service also proposes to

eliminate the provision contained in the

1994 NPRM that an authorization was

revoked upon a determination by the

Federal Government that the conditions

of authorization have changed. Several

commenters questioned the breadth and

vagueness of this provision. The Service

agrees that this provision is not

necessary.

In addition, the Service proposes to

delete the provision in § 210.4(e) of

current part 210 and § 210.3(d) of the

1994 NPRM that states that, except as

authorized by law or other regulations,

part 210 shall not be used to effect an

assignment of a payment. The Service

believes that a prohibition against

assignments is not appropriate in part

210. Other Federal laws, such as the

Social Security Act, govern the

assignment of benefits.

The Service also proposes to delete

the provision in the 1994 NPRM that an

authorization would terminate upon a

failure by the recipient to meet any of

the conditions specified in the terms of

the authorization. This provision was

intended to address circumstances in

which a recipient failed to comply with

a duty imposed on the recipient in the

authorization under any applicable

agency regulation, guideline, or

agreement. Upon further consideration,

the Service does not believe that this

issue needs to be addressed in part 210,

because the circumstances in which a

recipient’s right to receive benefit

payments terminates as a result of

violation of agency requirements are

appropriately addressed by the agency

regulations governing benefit payments.

Proposed § 210.4(c)(1) corresponds to

§ 210.4(c)(2) of current part 210. This

section provides that, in the case of

benefit payments, a change in the

ownership of the account results in the

termination of the authorization. This

provision is an extension to the

authorization requirements relating to

account ownership for recipients of

benefit payments. The purpose of this

provision is to ensure that payments are

not deposited to an account to which a

recipient no longer has access or in

which the recipient’s ownership interest

has changed.

Under proposed § 210.4(c)(2), as

under current part 210, the death or

legal incapacity of a recipient of benefit

payments or the death of a beneficiary

results in the termination of the

authorization.

Proposed § 210.4(c)(3), which

corresponds to §§ 210.4(c)(4) and

210.7(c) of current part 210, provides

that the closing of the recipient’s

account at the RDFI results in

termination of the authorization. In

addition, this section requires the RDFI

to provide 30 days written notice to the

recipient prior to closing the account

except in cases of fraud. Some financial

institutions commented that the thirty

day notice requirement was an improper

interference with their customer

relationships. However, the Service

believes that the notice requirement

protects recipients from being deprived

of timely access to their funds as a result

of an account being closed without

sufficient notice to allow the recipient

to make other arrangements to receive

the funds.

In order to eliminate any unnecessary

interruptions in ACH services to

recipients when any of the events

described in proposed § 210.4(c)(4)

occurs, the Service proposes to add a

provision that states that an

authorization will not terminate upon

the insolvency or closure of the RDFI,

provided that a successor is named for

the institution. If no successor is named,

the Federal Government may transfer

temporarily the authorization to a

consenting financial institution for a

period of no longer than 120 days.

Proposed § 210.4(c)(4) is largely

identical to § 210.3(c)(9) of the 1994

NPRM except that the Service proposes

to add the term ‘‘consenting’’ to clarify

that it will transfer authorizations only

to an RDFI that consents to the transfer.

Section 210.5—Account requirements

for Benefit Payments

Proposed § 210.5 imposes restrictions

on the type of account to which benefit

payments may be deposited. Proposed

§ 210.5(a) sets forth a general rule that

benefit payments must be deposited to

an account at a financial institution in

the name of the recipient. As explained

above in connection with the definition

of ‘‘benefit payment,’’ Federal

retirement payments would not

constitute benefit payments for

purposes of the requirements of

proposed § 210.5. The reason for

excluding Federal retirement payments

from the requirement of proposed

§ 210.5(a) is that in some circumstances

these types of payments are made to

accounts owned by someone other than

the person authorized to receive the

Federal retirement payment, such as a

spouse.

For purposes of proposed § 210.5, the

phrase ‘‘account at a financial

institution’’ is intended to mean a

deposit account. Proposed § 210.5

would not prohibit the use of a joint

account between the recipient and a

spouse or other member of the

recipient’s family.

Proposed § 210.5(b) provides two

exceptions from the general rule set

forth at proposed § 210.5(a) for

situations that involve an authorized

payment agent or an investment account

established through a registered

securities broker or dealer. Proposed

§ 210.5(b)(1) addresses cases in which

an authorized payment agent has been

selected or designated. The term

‘‘authorized payment agent’’ is narrowly

defined for purposes of this NPRM to

mean a person or entity selected under

certain agency regulations to act on

behalf of a beneficiary. In such cases,

the account may be titled in any manner

that satisfies the regulations of the

appropriate agency.

Proposed § 210.5(b)(2) permits an

ACH credit entry representing a benefit

payment to be deposited into an

investment account in the name of a

broker or dealer registered under the

Securities Act of 1934, provided that the

account and related records are

structured so that the beneficiary’s

interest is protected under Federal or

state deposit insurance regulations. The

deposit of a benefit payment into an

account owned by a third party raises

concerns about the protection of the

beneficiary’s interests. The requirement

that the account and related records be

structured so that the beneficiary’s

interest is protected under Federal or

state deposit insurance regulation is

intended to address this concern.

The phrase ‘‘notwithstanding the

applicable ACH Rules’’ indicates that

proposed § 210.5 imposes a requirement

not imposed under the applicable ACH

Rules, i.e., that the account be ‘‘in the

name of’’ the recipient, with the two

exceptions noted above. This

requirement is based on § 210.4(a) of

current part 210 and § 210.3(a) of the

1994 NPRM. Like those provisions, this

proposed section is designed to ensure

that benefit payments reach the

intended recipient by requiring that
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5435

such payments be deposited into an

account in which the recipient has an

ownership interest. Proposed § 210.5(a)

is limited to benefit payments, however,

because the Service is aware that under

current commercial practices many

vendors designate an account in a

general corporate name to receive

payments in the name of a subsidiary or

designate a bank account in the name of

an accountant or other service provider

for the receipt of payments. In light of

these business practices, the Service

does not believe that it is appropriate to

require that non-benefit payments be

deposited into an account in which the

recipient has an ownership interest.

The ACH system in the past has not

supported the transmission of ACH

credit entries to a non-deposit account.

The Service is aware that NACHA has

approved an amendment to the ACH

Rules (effective March 19, 1999), which

permits the crediting of entries to

general ledger accounts and loan

accounts. The Service does not intend to

accept the amendment with respect to

certain benefit payments.

Current part 210 provides that the

title of the account designated by the

recipient must include the recipient’s

name. However, in response to

inquiries, the Service has interpreted

current Part 210 as permitting a master/

subaccount arrangement in which the

benefit payments are deposited into a

master account established, for example,

by a nursing home that is providing care

for a number of Social Security

recipients. Proposed § 210.5 is

consistent with this approach, but also

allows benefit payments to be deposited

into an investment account established

by a registered securities broker or

dealer, provided the recipient’s name

and ownership interest are indicated on

the deposit account records.

Section 210.6—Agencies

The title of this section has been

changed from ‘‘Federal Government’’ to

‘‘Agencies.’’ Proposed § 210.6 sets forth

a number of obligations and liabilities to

which agencies that initiate or receive

Government entries are subject. These

obligations and liabilities are in

addition to, or different from, the

obligations and liabilities that otherwise

would be imposed under the applicable

ACH Rules. For example, the

authorization, prenotification, and

reversal requirements of proposed

§ 210.6(a), (b), and (g) constitute

additional obligations. The liability

provisions of § 210.6(c), (d), (e), and (g)

both expand and limit the liability that

an agency would otherwise be subject to

under the applicable ACH Rules.

Specifically, an agency’s liability is

broader than it would be under the

applicable ACH Rules because an

agency is liable for a failure to act ‘‘in

accordance with this part [210].’’

However, the extent of an agency’s

potential liability is capped by the

amount of the entry(ies), which is a

limitation on the liability generally

provided for under the applicable ACH

Rules.

Proposed § 210.6(a) is based on

§ 210.6(e)(2) and § 210.4(b) of the 1994

NPRM and requires an agency to obtain

prior written authorization from the

Service in order to receive ACH credit

or debit entries. The Service requires

this process in order to make software

and operational changes to permit the

receipt of entries by the agency. The

Service proposes to delete the language

from the 1994 NPRM directing the

Federal Reserve Bank to take

‘‘appropriate action’’ because this

language refers to operational matters

between the Service and the Federal

Reserve Bank, and is not needed in the

regulation. Proposed § 210.6(a) is not

intended to reduce or change the

liability of originators or ODFIs for the

initiation of an unauthorized entry to an

agency; rather, it is an operational

requirement imposed by the Service on

agencies.

Proposed § 210.6(b) addresses

prenotifications. A prenotification is a

non-value informational entry sent

through the ACH system that contains

the same information that will be

carried on subsequent entries (with the

exception of the dollar amount and

transaction code). The purpose of a

prenotification is to verify the accuracy

of the account information to ensure

that when a live entry is received, it can

be posted to the correct account.

Proposed § 210.6(b) is based on

current § 210.8(b) and deals with an

agency’s responsibilities for

prenotifications in the context of both

debits and credits. The duties of a

financial institution with respect to

prenotifications are addressed in

§ 210.8(a).

Under the ACH Rules,

prenotifications are optional for all

entries. Both the 1994 NPRM and

proposed part 210 make prenotification

optional for credit entries, but modify

the ACH Rules by requiring

prenotification for debit entries initiated

by an agency. The Service believes that,

in the case of debits initiated by the

Federal Government, added precautions

need to be taken to ensure that the debit

is applied against the correct account at

the intended financial institution.

In response to questions raised by

commenters, it should be noted that an

agency must follow all operational

requirements relating to prenotifications

required under the ACH Rules when the

agency initiates or receives a

prenotification.

Proposed § 210.6(c)–(e) set forth an

agency’s liability to various parties in

connection with Government entries.

The 1994 NPRM proposed to limit

generally the extent of an agency’s

liability to the amount of the entry(ies)

at issue, but to permit an agency to agree

to be bound by the compensation and

arbitration procedures found in the ACH

Rules, subject to the requirement that

the agency fund any additional amount

of liability and any arbitration costs.

The Service has determined that it is not

in the interest of the Federal

Government to permit agencies to vary

the liability of the Federal Government

on a case-by-case basis. In order to

preserve a uniform set of rules and

liabilities for all Government entries, the

Service has deleted from proposed part

210 the provision permitting agencies to

opt into the ACH compensation and

arbitration rules.

Proposed § 210.6(c) is based on

current § 210.10(a) and provides that an

agency will be liable to the recipient for

any loss sustained as a result of the

agency’s failure to originate a credit or

debit entry in accordance with part 210.

This section further provides that the

agency’s liability will be limited to the

amount of the entry.

The ACH Rules do not address the

basis for, or the extent of, the liability

of an originator or ODFI to a receiver.

A receiver’s rights against an originator

or ODFI for failing to properly originate

an entry ordinarily would be governed

by contract and state law. Proposed

§ 210.6(c) establishes a recipient’s rights

against an agency in these

circumstances as a matter of Federal

law: an agency will be liable for any loss

sustained by a recipient, up to the

amount of the entry, as a result of the

agency’s failure to originate a credit or

debit entry in accordance with part 210.

Proposed § 210.6(d) is new. It

establishes that an agency may be liable

to an originator or an ODFI for any loss

sustained by the originator or ODFI

resulting from the agency’s failure to

credit an ACH entry to the agency’s

account in accordance with part 210.

The agency’s liability would be limited

to the amount of the entry(ies). The

ACH Rules do not address the liability

of an RDFI to an originator. Under the

ACH Rules, if an RDFI fails to properly

credit an ACH entry to the designated

account within the applicable time

limitations, the RDFI will have breached

a warranty to the ACH Operator,

Association, and ODFI, and may be

liable to one of those parties for any
5436 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

losses resulting from the RDFI’s breach.

Whether the originator has any recourse

in such a situation depends on its

contract with its ODFI and state law.

Proposed § 210.6(d) would preempt

the ACH Rules with respect to the

extent of an agency’s liability to an

ODFI by limiting that liability to the

amount of the entry(ies). In addition,

proposed § 210.6(d) establishes, as a

matter of Federal law, that an agency

may be liable directly to an originator in

an amount not exceeding the amount of

the entry(ies).

Proposed § 210.6(e) provides that an

agency’s liability to an RDFI for losses

sustained by the RDFI in processing a

duplicate or erroneous entry will be

limited to the amount of the entry(ies).

The phrase ‘‘[e]xcept as otherwise

provided in this part 210’’ is intended

to preserve the allocation to the RDFI of

liability in connection with the RDFI’s

failure to comply with, for example, the

authorization and prenotification

verification requirements. Under current

part 210 and the 1994 NPRM, an agency

bears responsibility for processing

errors; however, the Service believes

that neither current part 210 nor the

1994 NPRM are clear in describing the

type of errors or the nature of the losses

for which an agency would be liable.

For this reason, this proposal refers

specifically to duplicate and erroneous

entries, which are defined in the ACH

Rules.

Under the ACH Rules, an ODFI is

liable for losses caused by its origination

of duplicate or erroneous entries. This

proposed rule would subject agencies to

the liability for originating erroneous

and duplicate entries imposed on ODFIs

under the ACH Rules, but would

preempt the ACH Rules in three

respects. First, under the proposal, an

agency would not be liable for all costs

incurred by the RDFI, such as attorneys

fees, but would be liable only up to the

amount of the entry. Second, the

proposal uses comparative negligence

and reduces an agency’s liability to the

extent the loss results from the financial

institution’s failure to follow standard

commercial practices and exercise due

diligence. Third, proposed § 210.6(e)

excludes credit entries received by an

RDFI after the death of a recipient of

benefit payments or the death or legal

incapacity of a beneficiary. It should be

noted that liability in connection with

any benefit payment to a deceased

recipient would not be covered under

proposed § 210.6(e), but would be

governed solely by subpart B.

Proposed § 210.6(f) is substantially

unchanged from § 210.10(c) of current

part 210 and § 210.4(i) the 1994 NPRM.

The Service proposes to add a new

§ 210.6(g) to address the Federal

Government’s initiation of reversals. As

discussed in the analysis of proposed

§ 210.4(b) above, a recipient who

executes an authorization agrees, among

other things, that the Federal

Government may reverse duplicate or

erroneous entries or files, as provided in

proposed § 210.6(g).

The ACH Rules permit an originator

to reverse duplicate or erroneous entries

and permit an ODFI, originator, or

originating ACH Operator to reverse

duplicate or erroneous files within five

banking days of the settlement date of

the duplicate or erroneous file or entry.

For purposes of the ACH Rules, and as

used herein, a duplicate entry is an

entry that is a duplicate of an entry

previously initiated by the originator or

ODFI and an erroneous entry is an entry

that orders payment to or from a

receiver not intended to be credited or

debited by the originator or that orders

payment in a dollar amount different

that what was intended by the

originator.

Under the ACH Rules, the ODFI and/

or originating ACH Operator must

indemnify the RDFI against any losses

the RDFI incurs as a result of effecting

a reversal. Consequently, in the event

that the RDFI reverses an entry or file

initiated by the ODFI, but the RDFI

cannot recover the amount of the entry

from the receiver (because, for example,

the receiver has withdrawn the funds

and closed the account), it is the ODFI

or originator who bears the loss.

The Social Security Administration

(SSA) suffers annual losses of between

one and two million dollars due to

misdirected payments. SSA has

expressed concern that, as the number

of Direct Deposit payments dramatically

increases, additional millions could be

misdirected as a result of data entry

errors. The ability to effect reversals is

an important way in which the Federal

Government can reduce losses resulting

from overpayments and misdirected

entries. If a reversal is effected

expeditiously, in many cases the

receiver may not be aware that the

erroneous or duplicate entry occurred,

and thus the funds may be available in

the account for recovery by the RDFI

and, ultimately, the Federal

Government.

With respect to certain types of

payments, however, the Federal

Government’s ability to reverse a

duplicate payment or overpayment to a

recipient may be constrained due to the

existence of various Federal statutory

provisions governing the manner in

which the Federal Government may

recover overpayments. For example, in

the context of Federal benefit payments,

the Federal Government may be

required to provide a notice and hearing

prior to taking action to recover

payments, or may be limited in the

amount, timing or manner in which an

overpayment is recovered. The Service

is not proposing to address the

operation of these requirements in Part

210 because the applicable requirements

may vary depending on the type of the

payment. It is the agency’s

responsibility to determine before

certifying a reversal that the reversal

will not violate any applicable laws or

regulations.

The 1994 NPRM addressed reversals

in the context of recipient

authorizations: By executing an

authorization, a recipient agreed that the

Federal Government reserved the right

to use reversal entries in the event that

it originated duplicate files or entries in

error. Several commenters on the 1994

NPRM requested clarification as to

whether the Federal Government, when

initiating reversals, would be bound by

any ACH Rule requirements that

generally apply with respect to

reversals, such as the five (5) day

reversal deadline. It is the intention of

the Service that all ACH Rule

requirements would apply to Federal

Government-initiated reversals except

that the extent of the Federal

Government’s indemnification would be

limited to the amount of the entry(ies).

The proposed rule has been amended to

clarify this point.

Section 210.7—Federal Reserve Banks

The Service proposes to reorganize

and expand § 210.6 of current part 210

as § 210.7 of proposed part 210 to more

clearly present the role and

responsibilities of the Federal Reserve

Banks. As discussed below, most of

proposed § 210.7 either was previously

proposed at § 210.5 of the 1994 NPRM

or is unchanged from current § 210.6.

However, one change from both the

1994 NPRM and current part 210 relates

to the timing of settlement and funds

availability. In the 1994 NPRM, the

Service had proposed to combine

subsections 210.6(c) and 210.6(e) of

current part 210 and to substitute the

ACH term ‘‘settlement date’’ for

‘‘payment date,’’ to reflect that for credit

entries initiated by an agency, entry

information and funds were to be made

available by the Federal Reserve Bank

no later than the opening of business on

the settlement date.

The settlement of ACH entries is

determined by the ACH Operator which,

in the case of Government entries, is a

Federal Reserve Bank. The Service now

proposes to delete as unnecessary the
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5437

provisions from both part 210 and the

1994 NPRM relating to funds

availability since those requirements are

addressed under the Federal Reserve

Bank Uniform Operating Circular on

ACH items.

It should be noted that some

commenters on the 1994 NPRM were

concerned about the substitution of the

term ‘‘settlement date’’ for the term

‘‘payment date’’ in current part 210.

These commenters argued that the

substitution of the term ‘‘settlement

date’’ for ‘‘payment date’’ could result in

delaying some payments beyond the

statutorily required day on which

payment must be made. The

commenters further argued that payees

who receive payments electronically

would be disadvantaged as compared

with check recipients. For example,

Federal statutes require that certain

annuity payments made by the Railroad

Retirement Board or the Office of

Personnel Management must be made

on the first day of the month. These

agencies pointed out that when the first

day of the month falls on a Saturday,

checks are dated for the first date of the

month and delivered on Saturday. The

commenters did not indicate what

happens when the first of the month

falls on a Sunday. The commenters

pointed out that recipients who receive

their payments by EFT will be at a

disadvantage as compared with check

recipients because check recipients will

receive their payment on Saturday

whereas other recipients will not

receive payment until the ‘‘settlement

date’’, which would be Monday.

Because the mandatory EFT

provisions of the DCIA require all

payments made by an agency, except tax

refunds, to be made electronically, the

equity issues raised by commenters in

1994 should be largely moot. Moreover,

the substitution of the term ‘‘settlement

date’’ for ‘‘payment date’’ will not

change the date on which payment will

be available under current part 210.

Current part 210 defines the payment

date as the date upon which funds are

to be available for withdrawal by the

recipient, and on which the funds are to

be made available to the financial

institution by the Federal Reserve Bank.

Current Part 210 provides that ‘‘if the

payment date is not a business day for

the financial institution receiving a

payment, or for the Federal Reserve

Bank from which it received such

payment, then the next succeeding

business day for both shall be deemed

to be the payment date.’’ Thus, under

the example cited above, where the first

of the months falls on a Saturday,

payment currently would not be made

until Monday. Therefore, this issue is

not related to the use of the term

‘‘settlement date’’ as opposed to

‘‘payment date;’’ rather, this issue is

related to the nature of electronic

payments and the banking industry

generally. The Service recognizes that this issue

will need to be addressed by those

agencies subject to such constraints, and

solicits comment on ways in which this

issue could be addressed. For example,

the Service solicits comment on the

feasibility of initiating certain payments

one or two days early in order to ensure

that the recipient receives the funds on

the day preceding the statutorily

prescribed payment date, rather than

one or two days later. The Service proposes to move current

§ 210.6(a) and § 210.6(f) to proposed

§ 210.7(a). In addition, the Service

proposes to specify in proposed

§ 210.7(a) that each Federal Reserve

Bank, as the Fiscal Agent of the Service,

serves as the Federal Government’s ACH

Operator for Government entries. This

language was previously proposed at

§ 210.5(a) of the 1994 NPRM. Proposed

§ 210.7(a) also incorporates the

exclusion from liability set forth at

§ 210.5(e) of the 1994 NPRM. The

phrase ‘‘notwithstanding the applicable

ACH Rules’’ has been added to clarify

that the Service is preempting the ACH

Rule that provides that a Federal

Reserve Bank is not an agent of an RDFI

or ODFI.

The Service proposes to add

§ 210.7(b) to ensure that the Service is

aware of new ACH applications at an

agency so that proper accounting can

take place and correct credit can be

given in the Treasury investment

program as an agency receives ACH

transactions. This provision was

previously proposed by the Service at

§ 210.5(b) of the 1994 NPRM.

Section 210.8—Financial Institutions

Proposed § 210.8 addresses the

obligations of financial institutions with

respect to Government entries, which

are set forth at current § 210.7. The

Service proposes to remove as

unnecessary many of the provisions of

§ 210.7 of current part 210 because they

are addressed in the ACH Rules. For

example, current § 210.7(e) has been

deleted since the ACH Rules adequately

cover the inability of an RDFI to credit

an account indicated in an entry. In

addition, § 210.7(f), (f)(1), (f)(2), and

(f)(4) of current Part 210 have been

deleted since the ACH Rules address

these provisions. Proposed § 210.8(a) addresses an

RDFI’s obligations with respect to

prenotifications. A prenotification, as

described in the ACH Rules, is a nondollar entry, sent through the ACH

system, which contains the same

information (with the exception of the

dollar amount and Standard Entry Class

Code) that will be carried on subsequent

entries. The purpose of a prenotification

is to verify the accuracy of the account

data. Proposed § 210.8(a) specifies that

if an agency initiates a prenotification

entry, the RDFI has certain obligations

associated with that entry; specifically,

the RDFI must verify that the account

number and one other item of

information in a prenotification entry

both relate to the same account. This

requirement is not imposed on RDFIs

under the ACH Rules, as reflected by the

phrase ‘‘[n]otwithstanding the

applicable ACH Rules.’’ Therefore, the

obligation imposed in this section, and

the corresponding liability to which a

financial institution would be subject

under § 210.8(c) if it failed to verify a

prenotification, would supersede the

ACH Rules with respect to agencyinitiated prenotifications.

The Service proposed to add this

requirement to part 210 in the 1994

NPRM. The 1994 NPRM proposed to

require RDFIs to verify, in the

prenotification, the recipient’s account

number and at least one other

identifying data element. The 1994

NPRM gave the authorizing recipient’s

name as an example of an identifying

data element. A number of financial

institutions objected to this requirement

on the basis that automated systems

now in place at many large financial

institutions cannot perform this

verification and that financial

institutions rely on account numbers

only. Five commenters expressed

specific concern over the recipient’s

name being used as an example of

another identifying data element.

Financial institution commenters

pointed out that manual processing

would be required to verify the

recipient’s name. Conversely, the Social

Security Administration (SSA) suffers

annual losses of between one and two

million dollars due to misdirected

payments. SSA has expressed concern

that, as the number of Direct Deposit

payments dramatically increases,

additional millions could be

misdirected as a result of data entry

errors.

The Service recognizes that the

automated payments processing systems

currently utilized by some financial

institutions may not have the

operational capability to verify

recipients’ names. However, the Service

understands that some financial

institutions are working toward

implementing systems changes that will

permit verification of recipients’ names.

The Service believes that the reduction
5438 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

in misdirected entries that could be

achieved by requiring verification of

prenotifications is significant enough to

warrant the requirement. Therefore, this

proposal retains the additional

‘‘identifying data element’’ requirement.

The Service proposes to redesignate

§ 210.7(g) of current part 210 as

proposed § 210.8(b) without making any

substantive change.

The Service proposes to add a new

§ 210.8(c) to provide that financial

institutions shall be subject to liability

for failing to handle an entry in

accordance with part 210 and that the

amount of that liability will be limited

to the amount of the entry, except as

otherwise specifically provided in

subsections 210.8(c)(1) and (2). The

phrase ‘‘[n]otwithstanding the

applicable ACH Rules’’ indicates the

liabilities imposed on financial

institutions under this section may be in

addition to, or different from, the

liabilities that otherwise would be

imposed under the applicable ACH

Rules. To the extent that part 210

imposes duties on a financial institution

not imposed under the applicable ACH

Rules, proposed § 210.8(c)

correspondingly imposes liabilities on a

financial institution not imposed under

the applicable ACH Rules. However, the

extent of the liability to which a

financial institution would be subject

under the applicable ACH Rules would

not exceed the amount of the entry

(except in the case of unauthorized

debits).

The ACH Rules generally provide that

an RDFI or ODFI is liable for all claims,

losses, liabilities, or expenses, including

attorneys’ fees and costs, resulting

directly or indirectly from the breach by

the RDFI or ODFI of its obligations.

Under Article 4A of the Uniform

Commercial Code, which would apply

to credit entries to non-consumer

accounts, the liability of financial

institutions which fail to handle entries

properly generally does not extend to all

resulting losses, but does include

imputed interest in certain

circumstances. Because the Service, as a

general matter, is proposing to limit the

Federal Government’s liability under

part 210 to the amount of an entry, the

Service believes that as a matter of

equity the liability of financial

institutions similarly should be limited.

Accordingly, proposed § 210.8(c) would

preempt the extent of the liability to

which financial institutions are subject

under both the ACH Rules and Article

4A by limiting that liability to the

amount of the entry. Thus, for example,

if an agency originated a credit entry to

a corporate vendor and the RDFI failed

to credit the entry to the vendor’s

account in a timely manner, § 210.8(c)

would limit the RDFI’s liability to the

Federal Government to the amount of

the entry, thereby preempting the

Article 4A rule that imposes liability on

the financial institution for imputed

interest for the period of the delay.

Proposed § 210.8(c) is not intended to

affect a financial institution’s liability

under subpart B.

Proposed § 210.8(c) represents a

change from the 1994 NPRM, which

provided that a financial institution

would be liable for losses sustained by

the Federal Government ‘‘if the

Government has correctly handled the

entry(ies).’’ Several commenters pointed

out that the language proposed in the

1994 NPRM could have the effect of

imposing liability on a financial

institution even where the financial

institution had complied with its

obligations under part 210. It is not the

intention of the Service to impose

liability on a financial institution under

this section unless the financial

institution has failed to meet an

obligation to which it is subject. Rather,

for any obligation imposed on financial

institutions under part 210, proposed

§ 210.8(c) would impose liability on a

financial institution for a loss to the

Federal Government resulting from the

financial institution’s failure to meet

that obligation. For example, § 210.6(f)

of this NPRM provides that an agency

generally will be liable to an RDFI for

erroneous or duplicate entries

originated by the agency. However,

§ 210.8(a) of this NPRM requires that if

the Federal Government initiates a

prenotification, the RDFI must verify an

entry item in addition to the account

number. Thus, if the Federal

Government initiated an erroneous

entry and the RDFI failed to verify the

prenotification, the RDFI would be

liable for any loss to the Federal

Government, up to the amount of the

entry(ies), if the error would have been

detected by verifying the

prenotification.

The Service proposes to add a new

§ 210.8(c)(1) to make it absolutely clear

that a financial institution may not

originate or transmit a debit entry to an

agency without the prior written

authorization of the Service. As

previously discussed, debit entries to

the Treasury General Account (TGA)

represent a significant security concern

for the Service. By expanding the use of

the ACH system to allow for Federal

Government payments by a debit to the

TGA, the possibility of unauthorized

debits to the TGA arises. In carrying out

its responsibility of protecting the

public trust, the Service believes it is

necessary to take precautions to ensure

that such debits do not occur. Therefore

the Service proposes to require special

security measures not imposed under

the ACH Rules.

The ACH Rules provide that a

receiver must have authorized the

initiation of an entry to the receiver’s

account before the entry is originated

and that the ODFI must warrant that the

authorization is valid. Proposed

§ 210.8(c)(1) goes beyond the ACH Rules

by requiring that an agency authorize

the debit entry, and that the

authorization be in writing or similarly

authenticated.

Under the general rule that the

Service is proposing, a financial

institution would be liable for any

unauthorized debit entries initiated to

an agency in violation of this

requirement. However, the Federal

Government also must be able to recover

the interest that it would have derived

from the use of the debited funds had

they remained in the TGA. Therefore, a

financial institution’s liability for

unauthorized debit entries to the TGA

would include imputed interest under

proposed § 210.8(c)(1). This provision is

an exception to the general limitation of

a financial institution’s liability to the

amount of an entry.

Commenters on the 1994 NPRM

objected to the proposal to permit the

Service, in the case of unauthorized

debits, to instruct the Federal Reserve

Bank to debit the account used by the

financial institution. Such action, if

necessary, represents a last step in

recovering funds that have not

otherwise been recovered. Nevertheless,

the right to debit through the Federal

Reserve Bank is a right that needs to be

retained by Treasury. This NPRM

retains this provision because it is in the

best interest of the Federal Government

and it is protective of public funds.

Section 210.8(c)(2) of this NPRM

restates the third and fourth sentences

of current § 210.11(b). The Service

proposes to expand this section to

address fraud for authorizations of both

debits and credits. Under the ACH

Rules, a receiver must authorize an

entry before the entry may be originated

and the ODFI must warrant that the

authorization is valid. The ODFI or the

originator thus bears the ultimate

liability for any loss resulting from a

forged or invalid authorization.

Similarly, under Article 4A, the ODFI or

originator generally bears the risk of loss

if an entry is originated to a receiver not

entitled to the payment. Proposed

§ 210.8(c)(2) operates to preempt these

ACH and Article 4A rules in situations

where a financial institution accepts the

recipient’s authorization and fails to

verify the identity of the recipient. If the
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5439

financial institution accepts a forged

authorization, the financial institution

rather than the Federal Government will

be liable for the entries effected in

reliance on the forged authorization.

Proposed § 210.8(d) sets forth the

conditions under which a financial

institution’s obligation for the amount of

an entry is acquitted, and is unchanged

from § 210.4(i) of the 1994 NPRM.

Subpart B—Reclamation of Benefit

Payments

The Service proposes to restructure

Subpart B of current Part 210 by adding

a new § 210.9—Parties to the

reclamation. The other five sections

comprising proposed Subpart B

(§§ 210.10 through 210.14) are a

reorganization of the four existing

sections on reclamations in current Part

210. As discussed above, the

reclamation provisions of Subpart B

completely preempt the reclamation

provisions of the ACH Rules with

respect to benefit payments received by

an RDFI after the death or legal

incapacity of a recipient or the death of

a beneficiary. Any provisions of the

ACH Rules dealing with reclamation of

benefit payments are not applicable

ACH Rules as defined in proposed

§ 210.2.

In the 1994 NPRM, the Service

proposed to revise Subpart B in order to

provide a framework for paperless

processing of reclamations. This NPRM

is intended to make Subpart B more

flexible by deleting references that

would tend to limit the reclamation

process to paper reclamations, as the

Service intends to move toward a more

automated environment for

reclamations. In addition, however, in

this NPRM the Service has reorganized

and rewritten current Subpart B in an

attempt to clarify the obligations and

liabilities imposed on financial

institutions under current Subpart B.

The Service is not proposing to change

significantly these obligations and

liabilities at this time.

In order to simplify the regulation and

enhance its flexibility with respect to

automating reclamations, the Service

proposes to move procedure-oriented

provisions from Subpart B to the

Service’s Green Book. Commenters on

the 1994 NPRM requested that any

reclamation procedures differing from

ACH Rules be implemented through

amendments to Part 210 itself rather

than by amending the Green Book. As

discussed above with respect to Subpart

A, the Green Book does not introduce

new rights and obligations that are not

contained in the Code of Federal

Regulations. Instead, the Green Book

provides specific operational directions

and procedures which put the

regulatory requirements into practice.

Therefore, the Service proposes in this

NPRM to remove certain procedures and

guidelines currently set forth in Part 210

to the Green Book or Treasury Financial

Manual, as proposed in the 1994 NPRM.

All regulatory amendments would be

promulgated for public comment in the

Federal Register. It should be noted that

the Service has the authority to enforce

the requirements set forth in the Green

Book and the Treasury Financial

Manual in the same manner that it

enforces regulations.

Section 210.9—Parties to the

Reclamation

The Service proposes to add this new

section to delineate the differing roles of

the financial institution, the Service,

and the agency that certified the benefit

payments in question.

Proposed § 210.9(a) restates

provisions of § 210.7(a) and § 210.14(d)

of current Part 210, which provide that

by accepting and handling benefit

payments, a financial institution agrees

to the provisions of Subpart B,

including the reclamation actions and

the debiting of the financial institution’s

Federal Reserve Bank account for any

reclamation amount for which it is

liable.

The Service proposes to add a new

§ 210.9(b) to clarify that the Service

performs only disbursing and collection

functions on behalf of agencies and does

not make decisions as to the underlying

obligations themselves. For example, if

a financial institution or recipient has a

question about the amount of a

reclamation, the Service will respond

that the amount was determined by the

appropriate agency. In addition, if a

financial institution or recipient

disputes the facts underlying a death or

date of death, that party should discuss

the dispute with the appropriate agency.

After resolution, the Service will carry

out the reclamation in accordance with

the direction of the agency that certified

the payment or directed the Service to

reclaim the funds in question.

Section 210.10—RDFI Liability

In this section the Service proposes to

define more clearly the liability of

RDFIs for benefit payments received

after the death or legal incapacity of the

recipient or death of the beneficiary,

and to limit the extent of that liability.

Proposed § 210.10(a) restates the rule

set forth at § 210.12(a) of current part

210, but moves the limited liability

provisions to the next section to make

it clear that an RDFI is presumed liable

for all benefit payments received after

the death or legal incapacity of the

recipient or death of the beneficiary

unless the RDFI meets the qualifications

for limited liability set forth in § 210.11.

An RDFI has no right to limit its liability

with respect to benefit payments

received after it knows of the death or

incapacity of the recipient or death of

the beneficiary. Accordingly, the RDFI

is instructed to return all benefit

payments received after it learns of the

death or legal incapacity of the recipient

or death of the beneficiary. This

obligation applies whether the RDFI has

received a notice of reclamation or

learned of the death or legal incapacity

on its own.

The Service proposes to restate the

provisions of § 210.13(c) of current part

210 at proposed §§ 210.10(b) and

210.10(c). Current § 210.13(c) contains

provisions governing both an RDFI’s

responsibilities upon its discovery, or

imputed knowledge of, the death or

legal incapacity of a recipient or death

of a beneficiary and an RDFI’s

responsibilities upon receipt of a notice

of reclamation. Dividing these

provisions into two separate subsections

provides a clearer delineation of an

RDFI’s responsibilities.

In the 1994 NPRM, the Service

proposed a six-year limitation on an

RDFI’s liability for post-death and postincapacity payments in order to provide

RDFIs with relief from otherwise

potentially unlimited liability in

situations where an agency is unaware

of the death or legal incapacity of the

recipient or the death of a beneficiary

and continues to make payments to the

account for a number of years. Cases in

which such payments continue for more

than six years are infrequent and

therefore the proposed six-year

limitation, while providing protection to

RDFIs in these relatively rare

circumstances, likely will have a

minimal impact on the overall recovery

of funds by the Federal Government.

Financial institutions that commented

on the 1994 NPRM generally supported

the six-year limitation also supported

requiring financial institutions to

cooperate with the Federal

Government’s reclamation efforts after

the expiration of any applicable time

limitation.

The six-year limitation has been

reworded in proposed § 210.10(d) of this

NPRM to clarify that it is the most

recent six years of payments (rather than

the six years of payments immediately

following the death or incapacity) that

is relevant to determining the amount

that an agency can reclaim. In addition,

the Service is proposing to provide an

exception to the six-year limitation

where the amount in the account at the

time the RDFI receives the notice of
5440 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

reclamation exceeds the six-year

amount for which the RDFI otherwise

would be liable. In such a case, the RDFI

would be liable for the total amount of

all post-death or post-incapacity

payments, up to the amount in the

account. For example, if payments had

been made for twenty years following

the death of a recipient, and the amount

in the account was equal to or exceeded

the total amount of the payments made

during the twenty years, the RDFI

would be liable for the full amount of

all payments made over the twenty-year

period. In the foregoing example, if the

amount in the account when the RDFI

received the notice of reclamation was

equal to the most recent ten years of

payments (less than the full twenty

years of payments but more than the sixyear amount), the RDFI would be liable

for an amount equal to the amount in

the account, i.e., the most recent ten

years of payments.

Proposed § 210.10(d) also

incorporates a requirement proposed in

the 1994 NPRM that an agency must

initiate a reclamation within a certain

period of time after learning of the death

or incapacity of the recipient or death of

the beneficiary. Section 210.10(g) of the

1994 NPRM proposed a 12-month

period following knowledge of the death

or incapcity for initiation of the

reclamation. The Service proposes in

this NPRM to shorten that period to 120

days after the date that the agency

receives notice of the death or

incapacity of the recipient or death of

the beneficiary. This provision is

intended to encourage Federal agencies

to act in a timely manner in initiating

reclamations, and to protect RDFIs from

liability in the event an agency does not

act expeditiously.

Proposed § 210.10(e) restates a rule of

reclamations set forth at § 210.13 (c) and

(d) of current part 210: the Federal

Government has the right to debit the

RDFI’s reserve account at its Federal

Reserve Bank for the full amount of all

post-death or post-incapacity benefit

payments owed to an agency or for a

lesser amount as a result of the RDFI’s

ability to limit its liability. Such action,

if necessary, represents a last step in

reclaiming funds that have not

otherwise been recovered.

The 60-day time period for an RDFI to

return funds, which is set forth at

current § 210.13(c), is a procedural item

that may change with the automation of

reclamations. Therefore, the Service

proposes to relocate this requirement to

the Green Book.

Section 210.11—Limited Liability

The Service does not propose to

change the criteria which an RDFI must

meet in order to limit its liability under

Subpart b. The Service does propose to

reword the provisions setting forth the

criteria to achieve greater clarity.

Proposed § 210.11(a) provides the

basis for calculating an RDFI’s liability

if it is eligible to limit its liability

because it did not have actual or

constructive knowledge of the death or

incapacity of a recipient or the death of

a beneficiary. The formula is taken from

§ 210.12(b) of current part 210 and,

although reworded, does not change

significantly the substantive operation

of the current formula.

Section 210.12(d) of current part 210

sets forth rules addressing the

circumstances in which an RDFI is

‘‘deemed to have knowledge’’ of the

death or incapacity using a standard of

‘‘due diligence.’’ The Service believes

that the description of due diligence is

confusing and difficult to apply.

Therefore, the Service proposes to

utilize the definition of ‘‘actual or

constructive knowledge’’ set forth at

proposed § 210.2.

Under current part 210, one of the

factors relevant to determining the

extent of an RDFI’s limited liability is

the amount in the account. Current

§ 210.13(b)(2)(i) defines the ‘‘amount in

the account’’ to mean the balance in the

account when the RDFI has received a

notice of reclamation and has had a

reasonable time to take action based on

its receipts, plus any additions to the

account balance made before the RDFI

returns the notice of reclamation to the

Federal Government. Current part 210

provides that a reasonable time to take

action is not later than the close of

business on the day following the

receipt of the notice of reclamation. In

§ 210.10(i)(2)(ii) of the 1994 NPRM, the

Service proposed to add that the amount

in the account would not be reduced for

debit card withdrawals, automated

withdrawals, pre-authorized debits,

non-Federal Government reclamations,

and forged checks or other comparable

instruments made after the RDFI had

knowledge of the death or incapacity of

the recipient or death of the beneficiary.

Some commenters on the 1994 NPRM

objected to the proposed change on the

basis that it would shift the risk of

liability to the RDFI for all debits, both

legitimate and fraudulent, made during

this period.

The Service has experienced many

instances in which the ‘‘amount in the

account’’ for reclamation purposes has

been reduced by ATM withdrawals and

the RDFI cannot provide information

regarding the identity of the

withdrawer. Without this information,

the Service cannot pursue recovery from

the withdrawer(s). The Service therefore

believes that the funds recovered

through the reclamation process can be

increased if the Service does not allow

ATM withdrawals and other debits to

reduce the calculation of the amount in

the account. Under proposed Subpart B,

the amount in the account is the

account balance at the time the RDFI

receives the notice of reclamation. The

‘‘reasonable time to take action’’

language in current § 210.13(b)(2)(i) has

been eliminated; therefore, any

withdrawals subsequent to the RDFI’s

receipt of the notice of reclamation will

not reduce the ‘‘amount in the account.’’

RDFIs can take whatever steps may be

permitted under their account

agreements and applicable law to

reduce their exposure, such as blocking

debits to an account upon receipt of a

notice of reclamation.

Proposed § 210.11(b) sets forth the

steps an RDFI must take in order to

qualify for limited liability. By requiring

an RDFI to certify the information

required in proposed § 210.11(b)(1) and

(2), the burden of demonstrating

qualification for limited liability is

placed on the RDFI. Failure to meet this

burden results in the full liability of the

RDFI under proposed § 210.10.

Proposed § 210.11(b)(1) is taken from

§ 210.13(b)(2) of current part 210.

Proposed § 210.11(b)(2) incorporates the

last sentence of current § 210.13(b)(1),

and adds the requirement that the RDFI

certify the date the RDFI first had

information of the death or legal

incapacity of the recipient or death of

the beneficiary even if such information

was obtained first through notice

received from the agency. Requiring

these certifications, in combination with

the authority of the Federal Government

to debit the RDFI’s reserve account as

provided in proposed § 210.10(e),

underscores that the burden is on the

RDFI to demonstrate its qualification for

limited liability.

Section 210.13(b)(2)(ii) of current Part

210 has been relocated to proposed

§ 210.11(b)(3).

Section 210.11(c) provides the

payment and collection procedures

which apply if an RDFI qualifies for

limited liability. After an RDFI returns

the amount specified in proposed

§ 210.11(a)(1), if the agency is unable to

collect the remaining amount of the

outstanding total, the Federal

Government will debit the RDFI’s

reserve account at its Federal Reserve

Bank (or the correspondent account

utilized by the RDFI) for the amount

specified in proposed § 210.11(a)(2).

Proposed § 210.11(d) incorporates the

current § 210.12(e) and broadens the

scope of an RDFI’s forfeiture of its rights

to limit its liability if the RDFI fails to
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5441

comply with any provision of Subpart

B. 210.12—RDFI’s rights of recovery

Proposed § 210.12(a) restates the

principle set forth in current § 210.14(c)

and in § 210.10(d) of the 1994 NPRM

that in reclaiming funds from an RDFI,

the Federal Government is not directing

or authorizing the RDFI to debit the

recipient’s account. Any rights that an

RDFI may have to recover the amount of

reclaimed funds from a recipient are a

matter of applicable state law and the

contract between the RDFI and the

recipient. Subpart B neither limits nor

expands those rights.

Proposed § 210.12(b) restates without

substantive change § 210.14(d) of

current Part 210, which was set forth at

§ 210.10(h) of the 1994 NPRM.

Section 210.13—Notice to Account

Owners

Proposed § 210.13 is based on

§ 210.14(a) of current Part 210, but has

been changed slightly to provide for the

possibility of an automated reclamation

process by the addition of the phrase

‘‘or otherwise provide to the account

owner(s)’’ to the existing requirement

that notice be mailed. In addition, the

phrase ‘‘any notice required by the

Service to be provided to account

owners as specified in the Green Book’’

has been substituted for the specific

reference to the ‘‘Notice to Account

Owners’’ to allow for more flexibility in

changing the format of the required

notice. The Service proposed in the

1994 NPRM to add language to the

regulation indicating that the Federal

Government might require proof that the

RDFI had mailed written notice and that

such proof might include (but would

not be limited to) a file copy of the

notice, a certified mail receipt, or

documentation pertaining to the

standard operating procedure of the

RDFI that such a notice is sent

routinely. The reference to a mailed

written notice and the types of proof

that might be appropriate in connection

with such a notice have been deleted in

this NPRM in keeping with the Service’s

effort to eliminate paper-oriented

requirements from Subpart B.

Section 210.14(b) of current Part 210

requires that RDFIs notify account

owners of any actions to be taken by the

RDFI with respect to the account in

connection with a reclamation action.

The Service believes that this

requirement intrudes unnecessarily into

the relationship between the RDFI and

its customer and conflicts with the

principle that reclamations are actions

between the Federal Government and

the RDFI, and not between the Federal

Government and the recipient. Actions

taken by an RDFI with respect to a

customer account, and any notice to the

customer in connection with those

actions, are a matter of State law or

contract, not Federal law.

Section 210.14—Erroneous Death

Information

This proposed section is based upon

§ 210.15 of current part 210, with

certain additions and deletions. Much of

current § 210.15 is procedural

information which the Service proposes

to move to the Green Book, where it is

more appropriately located. In

particular, the Service proposes to

relocate to the Green Book the

procedures that RDFIs are to follow in

correcting erroneous death information

(codified in current § 210.15(a)(1) and

(2) and § 210.15(c)). The Service

proposes to eliminate from the

regulation and move to the Green Book

the 60-day time limit for the RDFI to

return the completed notice of

reclamation to the Federal Government

in order for the RDFI to limit its liability

for the payments made after the death

or legal incapacity of the recipient or

death of the beneficiary. This 60-day

limit is a requirement for the paperbased reclamation procedure. The

Service is not eliminating this

requirement as part of the paper

reclamation process, but rather is

placing it with other procedures and

operational guidelines in the Green

Book. Any automated reclamation

procedures developed or used by the

Federal Government would not be

bound by the same time limit as the

paper process since an automated

procedure theoretically could be

completed in less time.

The provisions at proposed

§ 210.14(b) that the Service proposes to

add to this section seek to direct

questions and disputes to the agency

issuing directions on reclamations.

These provisions clarify that the Service

only performs disbursing and collection

functions on behalf of the Federal

agencies and does not make decisions as

to the underlying obligations.

Subpart C—Discretionary Salary

Allotments

The Service proposes in this NPRM to

remove subpart C from part 210.

Subpart C of current part 210 provides

that discretionary allotments from

Federal employees’ wage and salary

payments permitted by the issuing

agency may be made through the ACH

system and shall be subject to Part 210.

The Service determined that subpart C

is redundant since the substance of

Subpart C is covered in other

regulations. For example, regulations

issued by the Office of Personnel

Management, at 5 CFR part 550, address

the circumstances under which

discretionary allotments may be made.

Under Part 208, Federal agencies are

required to make all Federal payments,

including allotments, by EFT. Subpart A

of Part 210 sets forth the rules governing

all ACH credit entries made by an

agency, including any savings and

salary allotment payments. For these

reasons, specific provisions for the use

of the ACH system to allow for

discretionary allotments in Part 210 are

unnecessary.

Rulemaking Analysis

Treasury has determined that this

proposed regulation is not a significant

regulatory action as defined in

Executive Order 12866. It is hereby

certified that this rule will not have a

significant economic impact on a

substantial number of small business

entities. The proposed rule does not

require any actions on the part of small

entities. Accordingly, a Regulatory

Flexibility Act analysis is not required.

List of Subjects in 31 CFR Part 210

Automated Clearing House, Electronic

funds transfer, Financial institutions,

Fraud, Incorporation by reference

Authority and Issuance

For the reasons set out in the

preamble, 31 CFR part 210 is proposed

to be revised to read as follows:

PART 210—FEDERAL GOVERNMENT

PARTICIPATION IN THE AUTOMATED

CLEARING HOUSE

Sec.

210.1 Scope; relation to other regulations.

210.2 Definitions.

210.3 Governing law.

Subpart A—General

210.4 Authorizations and revocations of

authorizations.

210.5 Account requirements for benefit

payments.

210.6 Agencies.

210.7 Federal Reserve Banks.

210.8 Financial institutions.

Subpart B—Reclamation of Benefit

Payments

210.9 Parties to the reclamation.

210.10 RDFI liability.

210.11 Limited liability.

210.12 RDFI’s rights of recovery.

210.13 Notice to account owners.

210.14 Erroneous death information.

Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31

U.S.C. 321, 3301, 3302, 3321, 3332, 3335, and

3720.

§ 210.1 Scope; relation to other

regulations.

This part governs all entries and entry

data originated or received by an agency
5442 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

through the Automated Clearing House

(ACH) network, except as provided in

paragraphs (a) and (b) of this section.

This part also governs reclamations of

benefit payments.

(a) Federal tax payments received by

the Federal Government through the

ACH system that are governed by part

203 of this title shall not be subject to

any provision of this part that is

inconsistent with part 203.

(b) ACH credit or debit entries for the

purchase of, or payment of principal

and interest on, United States securities

that are governed by part 370 of this title

shall not be subject to any provision of

this part that is inconsistent with part

370.

§ 210.2 Definitions.

For purposes of this part, the

following definitions apply. Any term

that is not defined in this part shall have

the meaning set forth in the ACH Rules.

(a) ACH Rules means the Operating

Rules and the Operating Guidelines

published by the National Automated

Clearing House Association (NACHA), a

national association of regional member

clearing house associations, ACH

Operators and participating financial

institutions located in the United States.

(b) Actual or constructive knowledge,

when used in reference to an RDFI’s

knowledge of the death or legal

incapacity of a recipient or death of a

beneficiary, means that the RDFI

received information, by whatever

means, of the death or incapacity or that

the RDFI would have discovered the

death or incapacity if it had followed

commercially reasonable business

practices.

(c) Agency means any department,

agency, or instrumentality of the Federal

Government, or a corporation owned or

controlled by the Federal Government.

The term agency does not include a

Federal Reserve Bank.

(d) Applicable ACH Rules means the

ACH Rules published in the ‘‘1997 ACH

Rules,’’ including all rule changes

published therein with an effective date

on or before September 19, 1997, except:

(1) ACH Rule 1.1 (limiting the

applicability of the ACH Rules to

members of an ACH association);

(2) ACH Rule 1.2.2 (governing claims

for compensation);

(3) ACH Rule 1.2.3 (governing the

arbitration of disputes);

(4) ACH Rules 2.2.1.8; 2.6; and 4.7

(governing the reclamation of benefit

payments);

(5) ACH Rule 8.3 and Appendix Two

(requiring that a credit entry be

originated no more than two banking

days before the settlement date of the

entry—see definition of ‘‘Effective Entry

Date’’ in Appendix Two).

(e) Authorized payment agent means

any natural person or entity that is

appointed or otherwise selected as a

representative payee or fiduciary, under

regulations of the Railroad Retirement

Board, the Social Security

Administration, the Department of

Veterans Affairs, or other agency making

benefit payments, to act on behalf of a

beneficiary.

(f) Automated Clearing House or ACH

means a funds transfer system governed

by the ACH Rules which provides for

the interbank clearing of electronic

entries for participating financial

institutions.

(g) Beneficiary means a natural person

other than a recipient who is entitled to

receive the benefit of all or part of a

benefit payment.

(h) Benefit payment is a payment for

a Federal entitlement program or for an

annuity, including, but not limited to,

payments for Social Security,

Supplemental Security Income, Black

Lung, Civil Service Retirement, Railroad

Retirement Board Retirement and

Annuity, Department of Veterans Affairs

Compensation and Pension, and

Worker’s Compensation. For purposes

of § 210.5 of this part, the term ‘‘benefit

payment’’ shall not include a Federal

retirement payment.

(i) Federal payment means any

payment made by an agency. The term

includes, but is not limited to:

(1) Federal wage, salary and

retirement payments;

(2) Vendor and expense

reimbursement payments;

(3) Benefit payments; and

(4) Miscellaneous payments,

including but not limited to, interagency

payments; grants; loans; fees; principal,

interest, and other payments related to

United States marketable and

nonmarketable securities; overpayment

reimbursements; and payments under

Federal insurance or guarantee

programs for loans.

(j)(1) Financial institution means:

(i) An entity described in section

19(b)(1)(A), excluding subparagraphs (v)

and (vii), of the Federal Reserve Act (12

U.S.C. 461(b)(1)(A)). Under section

19(b)(1)(A) of the Federal Reserve Act

and for purposes of this part only, the

term ‘‘depository institution’’ means:

(A) 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 apply to

become an insured bank under section

5 of such Act (12 U.S.C. 1815);

(B) 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 apply

to become an insured bank under

section 5 of such Act (12 U.S.C. 1815);

(C) 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 apply to

become an insured bank under section

5 of such Act (12 U.S.C. 1815);

(D) 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

apply to become an insured credit union

pursuant to section 201 of such Act (12

U.S.C. 1781); or

(E) Any savings association as defined

in section 3 of the Federal Deposit

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

an insured depository institution as

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

seq.) or is eligible to apply to become an

insured depository institution under the

Federal Deposit Insurance Act (12

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

(ii) Any agency or branch of a foreign

bank as defined in section 1(b) of the

International Banking Act, as amended

(12 U.S.C. 3101).

(2) In this part, a financial institution

may be referred to as an Originating

Depository Financial Institution (ODFI)

if it transmits entries to its ACH

Operator for transmittal to a Receiving

Depository Financial Institution (RDFI),

or it may be referred to as an RDFI if it

receives entries from its ACH Operator

for debit or credit to the accounts of its

customers.

(k) Government entry means an ACH

credit or debit entry or entry data

originated or received by an agency.

(l) Green Book means the manual

issued by the Service which provides

financial institutions with procedures

and guidelines for processing

Government entries. The Green Book is

available for downloading at the

Service’s web site at http://

www.fms.treas.gov/ or by calling (202)

874–6540, or writing the Product

Promotion Division, Financial

Management Service, Department of the

Treasury, 401 14th Street, S.W., Room

309, Washington, D.C. 20227.

(m) Notice of reclamation means

notice sent by electronic, paper or other

means by the Federal Government to an

RDFI which identifies the benefit

payments that should have been

returned by the RDFI because of the

death or legal incapacity of the recipient

or death of the beneficiary.

(n) Outstanding total means the sum

of all benefit payments received by an

RDFI from an agency after the death or

legal incapacity of a recipient or the

death of a beneficiary, minus any
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5443

amount returned to, or recovered by, the

Federal Government.

(o) Recipient means a natural person,

corporation, or other public or private

entity that is authorized to receive a

Federal payment from an agency.

(p) Service means the Financial

Management Service, Department of the

Treasury.

(q) Treasury Financial Manual (TFM)

means the manual issued by the Service

containing procedures to be observed by

all agencies and Federal Reserve Banks

with respect to central accounting,

financial reporting, and other Federal

Government-wide fiscal responsibilities

of the Department of the Treasury. The

TFM is available for downloading at the

Service’s web site at http://

www.fms.treas.gov/ or by calling (202)

874–9940, or writing the Directives

Management Branch, Financial

Management Service, Department of the

Treasury, 3700 East West Highway,

Room 500C, Hyattsville, MD 20782.

§ 210.3 Governing Law.

(a) Federal Law. The rights and

obligations of the United States and the

Federal Reserve Banks with respect to

all Government entries, and the rights of

any person or recipient against the

United States and the Federal Reserve

Banks in connection with any

Government entry, are governed by this

part, which has the force and effect of

Federal law.

(b) Incorporation by reference—

applicable ACH Rules. (1) This part

incorporates by reference the applicable

ACH Rules published in the ‘‘1997 ACH

Rules,’’ including all rule changes

published therein with an effective date

on or before September 19, 1997. Copies

of the ‘‘1997 ACH Rules’’ are available

from the National Automated Clearing

House Association, 607 Herndon

parkway, Suite 200, Herndon, Virginia

20170. Copies also are available for

public inspection at the Office of the

Federal Register, 800 North Capitol

Street, N.W., Suite 700, Washington,

D.C. 20001.

(2) Any amendment to the applicable

ACH Rules that takes effect after

September 19, 1997, shall not apply to

Government entries unless the Service

expressly accepts such amendment by

publishing notice of acceptance of the

amendment to this part in the Federal

Register. An amendment to the ACH

Rules that is accepted by the Service

shall apply to Government entries on

the effective date of the rulemaking

specified by the Service in the Federal

Register document expressly accepting

such amendment.

(c) Application of this part. Any

person or entity that originates or

receives a Government entry agrees to

be bound by this part and to comply

with all instructions and procedures

issued by the Service under this part,

including the Treasury Financial

Manual and the Green Book.

Subpart A—General

§ 210.4 Authorizations and revocations of

authorizations.

(a) Requirements for authorization.

Each debit and credit entry subject to

this part shall be authorized in

accordance with the applicable ACH

Rules and the following additional

requirements:

(1) The agency or the RDFI that

accepts the recipient’s authorization

shall verify the identity of the recipient

and, in the case of a written

authorization requiring the recipient’s

signature, the validity of the recipient’s

signature.

(2) Unless authorized in writing by an

agency or similarly authenticated, no

person or entity shall initiate or transmit

a debit entry to that agency.

(b) Terms of authorizations. By

executing an authorization for an agency

to initiate entries, a recipient agrees:

(1) To the provisions of this part;

(2) To provide accurate information;

(3) To verify the recipient’s identity to

the satisfaction of the RDFI or agency,

whichever has accepted the

authorization;

(4) That any new authorization

inconsistent with a previous

authorization shall supersede the

previous authorization; and

(5) That the Federal Government may

reverse any duplicate or erroneous entry

or file as provided in § 210.6(g) of this

part.

(c) Termination and revocation of

authorizations. An authorization shall

remain valid until it is terminated or

revoked by:

(1) With respect to a recipient of

benefit payments, a change in the

ownership of a deposit account as

reflected in the deposit account records,

including the removal or addition of the

name of a recipient, the addition of a

power of attorney, or any action which

alters the interest of the recipient;

(2) The death or legal incapacity of a

recipient of benefit payments or the

death of a beneficiary;

(3) The closing of the recipient’s

account at the RDFI by the recipient or

by the RDFI. If an RDFI closes an

account, it shall provide 30 calendar

days’ written notice to the recipient

prior to closing the account, except in

cases of fraud; or

(4) The RDFI’s insolvency, closure by

any state or Federal regulatory authority

or by corporate action, or the

appointment of a receiver, conservator,

or liquidator for the RDFI. In any such

event, the authorization shall remain

valid if a successor is named. The

Federal Government may temporarily

transfer authorizations to a consenting

RDFI. The transfer is valid until either

a new authorization is executed by the

recipient, or 120 calendar days have

elapsed since the insolvency, closure or

appointment, whichever occurs first.

§ 210.5 Account requirements for benefit

payments.

(a) Notwithstanding ACH Rule 2.1.2,

an ACH credit entry representing a

benefit payment shall be deposited into

an account at a financial institution and,

except as provided in paragraph (b) of

this section, such account shall be in the

name of the recipient.

(b)(1) Where an authorized payment

agent has been selected, the benefit

payment shall be deposited into an

account titled in accordance with the

regulations governing the authorized

payment agent.

(2) Where a benefit payment is to be

deposited into an investment account

established through a securities broker

or dealer registered under the Securities

Act of 1934, such payment may be

deposited into an account in the name

of the broker or dealer, provided the

account and all associated records are

structured so that the beneficiary’s

interest is protected under applicable

Federal or state deposit insurance

regulations.

§ 210.6 Agencies.

Notwithstanding ACH Rules 2.2.3,

2.4.5, 2.5.2, 4.2, and 7.7.2, agencies shall

be subject to the obligations and

liabilities set forth in this section in

connection with Government entries.

(a) Receiving entries. An agency may

receive ACH debit or credit entries only

with the prior written authorization of

the Service.

(b) Prenotifications. An agency, at its

discretion, may send a prenotification

prior to origination of the first credit

entry to a recipient. An agency shall

send a prenotification prior to

origination of the first debit entry to an

account.

(c) Liability to a recipient. An agency

will be liable to the recipient for any

loss sustained by the recipient as a

result of the agency’s failure to originate

a credit or debit entry in accordance

with this part. The agency’s liability

shall be limited to the amount of the

entry(ies).

(d) Liability to an originator. An

agency will be liable to an originator or

an ODFI for any loss sustained by the
5444 Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules

originator or ODFI as a result of the

agency’s failure to credit an ACH entry

to the agency’s account in accordance

with this part. The agency’s liability

shall be limited to the amount of the

entry(ies).

(e) Liability to an RDFI or ACH

Association. Except as otherwise

provided in this part, an agency will be

liable to an RDFI for losses sustained in

processing duplicate or erroneous credit

and debit entries originated by the

agency. An agency’s liability shall be

limited to the amount of the entry(ies),

and shall be reduced by the amount of

the loss resulting from the failure of the

RDFI to exercise due diligence and

follow standard commercial practices in

processing the entry(ies). This section

does not apply to credits received by an

RDFI after the death or legal incapacity

of a recipient of benefit payments or the

death of a beneficiary as governed by

subpart B. An agency shall not be liable

to any ACH association.

(f) Acquittance of the agency. The

crediting of the amount of an entry to

a recipient’s account shall constitute

full acquittance of the Federal

Government.

(g) Reversals. An agency may reverse

any duplicate or erroneous entry, and

the Federal Government may reverse

any duplicate or erroneous file. In

initiating a reversal, an agency shall

certify to the Service that the reversal

complies with applicable law related to

the recovery of the underlying payment.

An agency that reverses an entry shall

indemnify the RDFI as provided in the

applicable ACH Rules, but the agency’s

liability shall be limited to the amount

of the entry. If the Federal Government

reverses a file, the Federal Government

shall indemnify the RDFI as provided in

the applicable ACH Rules, but the

extent of such liability shall be limited

to the amount of the entries comprising

the duplicate or erroneous file.

Reversals under this section shall

comply with the time limitations set

forth in the applicable ACH Rules.

§ 210.7 Federal Reserve Banks.

(a) Fiscal Agents. Each Federal

Reserve Bank serves as Fiscal Agent of

the Treasury in carrying out its duties as

the Federal Government’s ACH Operator

under this part. As Fiscal Agent, each

Federal Reserve Bank shall be

responsible only to the Treasury and not

to any other party for any loss resulting

from the Federal Reserve Bank’s action,

notwithstanding ACH Rule 11.5 and

Article 8 of the ACH Rules. Each

Federal Reserve Bank may issue

operating circulars not inconsistent with

this part which shall be binding on

financial institutions.

(b) Routing Numbers. All routing

numbers issued by a Federal Reserve

Bank to an agency require the prior

approval of the Service.

§ 210.8 Financial institutions.

(a) Prenotifications. Notwithstanding

ACH Rules 2.3 and 4.1.4, upon receipt

of a prenotification originated by an

agency, an RDFI shall verify the

recipient’s account number and at least

one other identifying data element

contained in the entry.

(b) Status as a Treasury depositary.

The origination or receipt of an entry

subject to this part does not render an

RDFI a Treasury depositary. An RDFI

shall not advertise itself as a Treasury

depositary on such basis.

(c) Liability. Notwithstanding ACH

Rules 2.2.3, 2.4.5, 2.5.2, 4.2, and 7.7.2,

if the Federal Government sustains a

loss as a result of a financial

institution’s failure to handle an entry

in accordance with this part, the

financial institution shall be liable to

the Federal Government for the loss, up

to the amount of the entry, except as

otherwise provided in this section.

(1) An ODFI that transmits a debit

entry to an agency without the prior

written or similarly authenticated

authorization of the agency, shall be

liable to the Federal Government for the

amount of the transaction, plus interest.

The Service may collect such funds

using procedures established in the

applicable ACH Rules or by instructing

a Federal Reserve Bank to debit the

ODFI’s reserve account at the Federal

Reserve Bank or the account of its

designated correspondent. The interest

charge shall be at a rate equal to the

Federal funds rate plus two percent, and

shall be assessed for each calendar day,

from the day the Treasury General

Account (TGA) was debited to the day

the TGA is recredited with the full

amount due.

(2) An RDFI that accepts an

authorization in violation of § 210.4(a)

shall be liable to the Federal

Government for all credits or debits

made in reliance on the authorization.

(d) Acquittance of the financial

institution. The crediting of the correct

amount of an entry received and

processed by the Federal Reserve Bank

and posted to the TGA shall constitute

full acquittance of the ODFI for the

amount of the entry. Full acquittance of

the ODFI shall not occur if the entries

do not balance, are incomplete, are

clearly incorrect, or are incapable of

being processed.

Subpart B—Reclamation of Benefit

Payments

§ 210.9 Parties to the reclamation.

(a) Agreement of RDFI. An RDFI’s

acceptance of a benefit payment

pursuant to this part shall constitute its

agreement to this subpart. By accepting

a benefit payment subject to this part,

the RDFI authorizes the debiting of the

Federal Reserve Bank account utilized

by the RDFI in accordance with the

provisions of § 210.10(e).

(b) The Federal Government. In

processing reclamations pursuant to this

subpart, the Service shall act pursuant

to the direction of the agency that

certified the benefit payment(s) being

reclaimed.

§ 210.10 RDFI liability.

(a) Full liability. An RDFI shall be

liable to the Federal Government for the

total amount of all benefit payments

received after the death or legal

incapacity of a recipient or the death of

a beneficiary unless the RDFI has the

right to limit its liability under § 210.11

of this part. An RDFI shall return any

benefit payments received after the

RDFI learns of the death or legal

incapacity of a recipient or the death of

the beneficiary, regardless of the manner

in which the RDFI discovers such

information. If the RDFI learns of the

death or legal incapacity of a recipient

or death of a beneficiary other than from

the agency, the RDFI shall immediately

notify the agency of the death or

incapacity.

(b) Notice of Reclamation. Upon

receipt of a notice of reclamation, an

RDFI shall provide the information

required by the notice of reclamation

and return the amount specified in the

notice of reclamation in a timely

manner.

(c) Exception to liability rule. An RDFI

shall not be liable for post-death benefit

payments sent to a recipient acting as a

representative payee or fiduciary on

behalf of a beneficiary, if the beneficiary

was deceased at the time the

authorization was executed and the

RDFI did not have actual or constructive

knowledge of the death of the

beneficiary.

(d) Time limits. An agency may

initiate a reclamation within 120

calendar days after the date that the

agency receives notice of the death or

legal incapacity of a recipient or death

of a beneficiary. An agency shall not

reclaim any post-death or postincapacity payment(s) made more than

six years prior to the most recent

payment made by the agency to the

recipient’s account; provided, however,

that if the amount in the account at the
Federal Register / Vol. 63, No. 21 / Monday, February 2, 1998 / Proposed Rules 5445

time the RDFI receives the notice of

reclamation exceeds the total amount of

all payments made by the agency during

such six-year period, this limitation

shall not apply and the RDFI shall be

liable for the total amount of all

payments made, up to the amount in the

account at the time the RDFI receives

the notice of reclamation.

(e) Debit of RDFI’s account. If an RDFI

does not return the full amount of the

outstanding total or any other amount

for which the RDFI is liable under this

subpart in a timely manner, the Federal

Government will collect the amount

outstanding by instructing the

appropriate Federal Reserve Bank to

debit the reserve account utilized by the

RDFI. The Federal Reserve Bank will

provide advice of the debit to the RDFI.

§ 210.11 Limited liability.

(a) Right to limit its liability. If an

RDFI does not have actual or

constructive knowledge of the death or

legal incapacity of a recipient or the

death of a beneficiary at the time it

receives one or more benefit payments

on behalf of the recipient, the RDFI’s

liability to the agency for those

payments shall be limited to:

(1) An amount equal to:

(i) The amount in the account at the

time the RDFI receives the notice of

reclamation, plus any additional benefit

payments made to the account by the

agency before the RDFI responds in full

to the notice of reclamation, or

(ii) the outstanding total, whichever is

less; plus

(2) If the agency is unable to collect

the entire outstanding total, an

additional amount equal to:

(i) The benefit payments received by

the RDFI from the agency within 45

days after the death or legal incapacity

of the recipient or death of the

beneficiary, or

(ii) The balance of the outstanding

total, whichever is less.

(b) Qualification for limited liability.

In order to limit its liability as provided

in this section, an RDFI shall:

(1) Certify that at the time the benefit

payments were credited to or

withdrawn from the account, the RDFI

had no actual or constructive knowledge

of the death or legal incapacity of the

recipient or death of the beneficiary;

(2) Certify the date the RDFI first had

information of the death or legal

incapacity of the recipient or death of

the beneficiary, even if such information

was obtained first through notice

received from the agency;

(3)(i) Provide the name, address and

any other relevant information of the

following person(s):

(A) Co-owner(s) of the recipient’s

account;

(B) Other person(s) authorized to

withdraw funds from the recipient’s

account; and

(C) Person(s) who withdrew funds

from the recipient’s account after the

death or legal incapacity of the recipient

or death of the beneficiary.

(ii) If persons are not identified for

any of these subcategories, the RDFI

must certify that no such information is

available and why no such information

is available; and

(4) fully complete all certifications on

the notice of reclamation and comply

with the requirements of this part.

(c) Payment of limited liability

amount. If the RDFI qualifies for limited

liability under this subpart, it shall

immediately return to the Federal

Government the amount specified in

§ 210.11(a)(1). The agency will then

attempt to collect the amount of the

outstanding total not returned by the

RDFI. If the agency is unable to collect

that amount, the Federal Government

will instruct the appropriate Federal

Reserve Bank to debit the reserve

account utilized by the RDFI at that

Federal Reserve Bank for the amount

specified in § 210.11(a)(2).

(d) Forfeiture of rights. An RDFI that

fails to comply with any provision of

this subpart in a timely and accurate

manner, including but not limited to the

certification requirements at § 210.11(b)

and the notice requirements at § 210.13,

shall be deemed to have forfeited its

right to limit its liability under this

subpart and shall be liable to the agency

for the amount of the benefit payments

at issue.

§ 210.12 RDFI’s rights of recovery.

(a) Matters between the RDFI and its

customer. This subpart does not

authorize or direct an RDFI to debit or

otherwise affect the account of a

recipient. Nothing in this subpart shall

be construed to affect the right an RDFI

has under state law or the RDFI’s

contract with a recipient to recover any

amount from the recipient’s account.

(b) Liability unaffected. The liability

of the RDFI under this subpart is not

affected by actions taken by the RDFI to

recover any portion of the outstanding

total from any party.

§ 210.13 Notice to account owners.

Provision of notice by RDFI. Upon

receipt by an RDFI of a notice of

reclamation, the RDFI immediately shall

mail to the last known address of the

account owner(s) or otherwise provide

to the account owner(s) a copy of any

notice required by the Service to be

provided to account owners as specified

in the Green Book. Proof that this notice

was sent may be required by the

Service.

§ 210.14 Erroneous death information.

(a) Notification of error to the agency.

If, after the RDFI responds fully to the

notice of reclamation, the RDFI learns

that the recipient or beneficiary is not

dead or legally incapacitated or that the

date of death is incorrect, the RDFI shall

inform the agency that certified the

underlying payment(s) and directed the

Service to reclaim of the funds in

dispute.

(b) Resolution of dispute. The agency

that certified the underlying payment(s)

and directed the Service to reclaim the

funds will attempt to resolve the dispute

with the RDFI in a timely manner. If the

agency determines that the reclamation

was improper, in whole or in part, the

agency shall notify the RDFI and shall

return the amount of the improperly

reclaimed funds to the RDFI. Upon

certification by the agency of an

improper reclamation, the Service may

instruct the appropriate Federal Reserve

Bank to credit the reserve account

utilized by the RDFI at the Federal

Reserve Bank in the amount of the

improperly reclaimed funds.

Dated: January 23, 1998.

Richard L. Gregg,

Acting Commissioner.

Editorial Note: Proposed rule document

98–2042 was originally published at 63 FR

5426–5445 in the issue of Monday, February

2, 1998. That publications contained a

typographical error. For the convenience of

the user, this reprint includes the correction

to be published on Thursday, February 5,

1998.

[FR Doc. 98–2042 Filed 1–30–98; 8:45 am]

BILLING CODE 4810–35–P