[Federal Register Volume 61, Number 114 (Wednesday, June 12, 1996)]
[Rules and Regulations]
[Pages 29638-29641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14688]



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FEDERAL RESERVE SYSTEM

12 CFR Part 219

[Regulation S; Docket No. R-0906]


Reimbursement for Providing Financial Records; Recordkeeping 
Requirements for Certain Financial Records

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
has approved amendments to Subpart A of Regulation S, which implements 
the requirement under the Right to Financial Privacy Act (RFPA) that 
the Board establish the rates and conditions under which payment shall 
be made by a government authority to a financial institution for 
assembling or providing financial records pursuant to RFPA. These 
amendments update the fees to be charged and streamline the subpart 
generally.

EFFECTIVE DATE: July 12, 1996.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boutilier, Senior Counsel 
(202/452-2418), Legal Division, Board of Governors of the Federal 
Reserve System, Washington, DC 20551. For users of the 
Telecommunication Device for the Deaf (TDD), please contact Dorothea 
Thompson (202/452-3544).

SUPPLEMENTARY INFORMATION:

Background

    Section 1115 of the RFPA (12 U.S.C. 3415) requires the Board to 
establish, by regulation, the rates and conditions under which payment 
is made by a Government authority to a financial institution for 
searching for, reproducing, or transporting data required or requested 
under the RFPA. Shortly after the RFPA was adopted, the Board issued 
Regulation S (12 CFR 219) to implement this provision (44 FR 55812, 
September 28, 1979). In January 1995, the Board adopted a new Subpart B 
of Regulation S <SUP>1 and designated this part of Regulation S as 
Subpart A (60 FR 231, January 3, 1995). No substantive changes were 
made in that rulemaking to the newly designated Subpart A.
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    \1\ In a rulemaking issued on April 1, 1996 (61 FR 14382), the 
effective date of Subpart B was delayed until May 28, 1996.
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    Pursuant to section 303 of the Riegle Community Development and 
Regulatory Improvement Act of 1994, Pub. L. 103-325 (12 U.S.C. 4803), 
the Board reviewed Subpart A of Regulation S and issued for comment 
proposed amendments to update it (60 FR 65599, December 20, 1995). The 
proposed amendments eliminated unnecessary provisions and updated the 
rates to be paid and the exceptions to the provisions of this Subpart.
    Summary of comments: The Board received 21 comments on the proposed 
revisions--19 from banks or bank holding companies, one from a trade 
association, and one from a Federal Reserve Bank. All comments 
supported updating and streamlining the provisions of the regulation. 
Several comments, however, requested further changes in the proposed 
regulation. These requests for additional changes covered two 
categories--the proposed fee structure, and the exemptions from the 
fees.
    Fees. Ten of the 21 comments requested further changes in the fee 
schedule. The current fees are $10.00 per hour for search and 
processing time, and $.15 per page for reproduction. The proposed fees 
provided for two levels of reimbursement for search and processing 
time: clerical time at $11.00 per hour, and managerial time at $17.00 
per hour. Proposed fees for reproduction were left at $.15 per page. Of 
the nine comments that specifically discussed the reimbursement rate 
for search and processing, six supported the proposed fees and three 
requested increased fees. Of the ten comments that focused on the 
proposed reproduction fees, two supported the proposed fees and eight 
requested that they be raised. The suggested reproduction fees ranged 
from $.25 to $3.00 per page for paper copies, and $.25 to $3.00 for 
microfiche copies.
    Other miscellaneous comments on the fee schedule included two 
comments requesting that fees be periodically adjusted to account for 
inflation, a request for a definition of the terms ``clerical/
technical'' and ``manager/supervisory'', a request that a new category 
be added for reimbursement for legal advice, and a request that the 
regulation specify that search/processing time should be billed in 15-
minute increments.
    Exceptions. The proposed regulation updated the list of statutory 
exceptions wherein a financial institution is not entitled to 
reimbursement under the RFPA. Eight of the 21 commenters objected to 
these exceptions, stating that they cover the vast majority of the 
searches required. These objections focused primarily on the exception 
for requests from the IRS, and requests for a corporation's banking 
records. The American Bankers Association, while acknowledging that the 
exceptions are set by statute, not the Board, stated that these 
exceptions ``effectively exclude

[[Page 29639]]

98% of all situations in which banks gather such records.''
    Based upon the comments received, the Board has made some 
adjustments to the reimbursement schedule.

I. Definitions

    The definitions in Subpart A reiterate the statutory definitions 
from the RFPA for the applicable terms of this Subpart. The definition 
for ``directly incurred costs'' has been removed and incorporated into 
the section concerning cost reimbursement.

II. Cost Reimbursement

    This section has been streamlined and reorganized to place the 
rates in a separate Appendix A for clarity and ease of amendment when 
updating the rates. The amendments also recognize that courts issuing 
orders or subpoenas in connection with grand jury proceedings must pay 
the rates set by Subpart A.

III. Rates

    The Board has established uniform rates for all depository 
institutions, regardless of size or location, in the belief that 
administration of a complex fee schedule would be difficult.

A. Reproduction

    The rates for reproduction set forth in Appendix A to Sec. 219.3 
have been increased based upon the comments received. Eight out of ten 
comments on the duplication rates stated that they were too low. There 
was not a consensus, however, among the commenters on the appropriate 
amount of the increase: two suggested $.25 per page, two suggested $.50 
per page, two suggested $1.00 or more per page, and two just requested 
a minimal increase in the rate. The comments recommending significantly 
higher fees did not provide supporting information on the direct costs 
of duplication, and the statute provides for reimbursement of ``costs * 
* * directly incurred in * * * reproducing * * *.'' A plurality of the 
comments, however, recommended a minimal increase in the fees, and some 
provided supporting information on costs. Therefore, the Board has 
raised the reimbursement rate for photocopying to $.25 per page. Other 
commenters suggested that the reimbursement rate for duplication of 
microfiche also was inadequate, based upon the costs to the bank. 
Accordingly, the Board modified the reimbursement schedule to increase 
the rate for reproduction of paper copies of microfiche from $.15 to 
$.25 to match the photocopying rate, and increase the rate for 
duplication of microfiche from $.30 to $.50 per microfiche.

B. Search and Processing

    The fees for search and processing have not been changed from those 
issued for comment. These rates are separated into two categories--
clerical/technical and manager/supervisory. Any search for sensitive 
customer records is likely to involve both clerical staff and 
managerial staff, who are paid at different levels. The rates set for 
this reimbursement were calculated using the 1994 Bank Cash 
Compensation Survey done by the Bank Administration Institute (BAI). 
Based upon the job descriptions in the Cash Compensation Survey, the 
position of Supervisor, Bookkeeping <SUP>2 was used to calculate the 
managerial rate. The calculation was made based upon the total 
compensation (with bonus) for all banks on a national average ($27,600) 
divided by 2080 hours, adjusted up by 25% to cover benefits, and 
further adjusted by 3% for inflation since 1994. The clerical rate was 
calculated in the same way, but using an average of the two job 
positions of Clerk II <SUP>3 (Bookkeeping and Operations @ $18,100) and 
Clerk I <SUP>4 (Bookkeeping and Operations @ $15,100).
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    \2\ BAI describes this position as follows: ``Direct supervision 
of assigned nonexempt staff in the bookkeeping area with particular 
emphasis on work flow to meet time deadlines. Includes training 
staff, planning work schedules, recommending and implementing staff 
needs, pay raises, etc. Coordinates the section's activities with 
other areas of the bank. Handles the more involved problems and 
calls from dissatisfied customers.''
    \3\ BAI describes this position as follows: ``Performs a variety 
of clerical duties in the bookkeeping department. Duties may include 
filing checks, overdrafts and stop payments, reconciling, 
computerized operations, preparing statements and reports, etc. May 
do exclusively DDA, adjustments, reconciling, etc. or a combination 
of activities. Handles more complex and difficult customer problems; 
requires minimal supervision.''
    \4\ BAI describes this position as follows: ``Performs the same 
duties of a Bookkeeping and Operations Clerk II only may have less 
experience. Requires direct supervision.''
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IV. Exceptions

    This section has been updated to reflect changes in the exceptions 
listed by the RFPA. Although many comments were critical of the listed 
exceptions, the Board cannot change or eliminate them, because they are 
set by statute. They are merely set forth in the regulation to assist 
depository institutions in correctly applying the reimbursement 
schedule.

V. Conditions for Payment and Payment Procedures

    One commenter suggested that the rule require time to be billed in 
15-minute increments, as the existing regulation does. Accordingly, the 
Board has amended the section on itemized billing to state that the 
time should be billed in 15-minute increments. No other changes have 
been made to these two sections.

Regulatory Flexibility Act

    Pursuant to 5 U.S.C. 605, the Board certifies that this rule will 
not have a significant economic impact on a substantial number of small 
entities. The final rule confers a benefit on financial institutions, 
including small financial institutions, by providing for reimbursement 
of certain costs incurred in complying with a requirement to assemble 
and produce financial records.

Paperwork Reduction Act

    In accordance with section 3506 of the Paperwork Reduction Act of 
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed 
the rule under the authority delegated to the Board by the Office of 
Management and Budget.
    The Right to Financial Privacy Act mandates that each financial 
institution maintain a record of instances in which it releases a 
consumer's financial information to a government agency. Generally, the 
institution may not release records until the government agency has 
notified the consumer of its intent to request the record, together 
with the reason for the request. Normally, the agency may not obtain 
records unless it has a subpoena, a search warrant, or an authorization 
from the consumer.
    The Federal Reserve may not conduct or sponsor, and an organization 
is not required to respond to, this information collection unless it 
displays a currently valid OMB control number. The OMB control number 
for the Recordkeeping and Disclosure Requirements in Connection with 
the Right to Financial Privacy Act is 7100-0203.
    Because the records would be maintained at banks, no issue of 
confidentiality under the Freedom of Information Act arises.
    This final regulation, 12 CFR part 219, has no effect upon the 
paperwork burden associated with the Recordkeeping and Disclosure 
Requirements in Connection with the Right to Financial Privacy Act. 
That hour burden is estimated to be 22 minutes per response. It is 
estimated that the frequency of response at state member banks is 30 
responses per year. Thus the annual hour burden across the 1,042 state 
member banks is estimated to be 11,462 hours. Based on an hourly cost 
of $20, the annual cost to the public is estimated to be $229,240.

[[Page 29640]]

    Send comments regarding the burden estimate, or any other aspect of 
this collection, including suggestions for reducing the burden, to Mary 
M. McLaughlin, Federal Reserve Board Clearance Officer, Division of 
Research and Statistics, Mail Stop 97, Board of Governors of the 
Federal Reserve System, Washington, DC 20551 and to the Office of 
Management and Budget, Paperwork Project (7100-0203), Washington, DC 
20503.

List of Subjects in 12 CFR Part 219

    Banks, banking, Currency, Federal Reserve System, Reporting and 
recordkeeping requirements.

    For the reasons set out in the preamble, 12 CFR Part 219, as 
amended at 60 FR 231 and 44144, and 61 FR 14382, effective May 28, 
1996, is amended as set forth below.

PART 219--REIMBURSEMENT FOR PROVIDING FINANCIAL RECORDS; 
RECORDKEEPING REQUIREMENTS FOR CERTAIN FINANCIAL RECORDS 
(REGULATION S)

Subpart A--Reimbursement to Financial Institutions for Providing 
Financial Records

    1. The authority citation for Subpart A continues to read as 
follows:

    Authority: 12 U.S.C. 3415.

    2. Subpart A is amended by revising Secs. 219.2 through 219.6 to 
read as follows:


Sec. 219.2  Definitions.

    For the purposes of this subpart, the following definitions shall 
apply:
    Customer means any person or authorized representative of that 
person who uses any service of a financial institution, or for whom a 
financial institution acts or has acted as a fiduciary in relation to 
an account maintained in the person's name. Customer does not include 
corporations or partnerships comprised of more than five persons.
    Financial institution means any office of a bank, savings bank, 
card issuer as defined in section 103 of the Consumers Credit 
Protection Act (15 U.S.C. 1602(n)), industrial loan company, trust 
company, savings association, building and loan, or homestead 
association (including cooperative banks), credit union, or consumer 
finance institution, located in any State or territory of the United 
States, the District of Columbia, Puerto Rico, Guam, American Samoa, or 
the Virgin Islands.
    Financial record means an original or copy of, or information known 
to have been derived from, any record held by a financial institution 
pertaining to a customer's relationship with the financial institution.
    Government authority means any agency or department of the United 
States, or any officer, employee or agent thereof.
    Person means an individual or a partnership of five or fewer 
individuals.


Sec. 219.3  Cost reimbursement.

    (a) Fees payable. Except as provided in Sec. 219.4, a government 
authority, or a court issuing an order or subpoena in connection with 
grand jury proceedings, seeking access to financial records pertaining 
to a customer shall reimburse the financial institution for reasonably 
necessary costs directly incurred in searching for, reproducing or 
transporting books, papers, records, or other data as set forth in this 
section. The reimbursement schedule for a financial institution is set 
forth in Appendix A to this section. If a financial institution has 
financial records that are stored at an independent storage facility 
that charges a fee to search for, reproduce, or transport particular 
records requested, these costs are considered to be directly incurred 
by the financial institution and may be included in the reimbursement.
    (b) Search and processing costs. (1) Reimbursement of search and 
processing costs shall cover the total amount of personnel time spent 
in locating, retrieving, reproducing, and preparing financial records 
for shipment. Search and processing costs shall not cover analysis of 
material or legal advice.
    (2) If itemized separately, search and processing costs may include 
the actual cost of extracting information stored by computer in the 
format in which it is normally produced, based on computer time and 
necessary supplies; however, personnel time for computer search may be 
paid for only at the rates specified in Appendix A to this section.
    (c) Reproduction costs. The reimbursement rates for reproduction 
costs for requested documents are set forth in Appendix A to this 
section. Copies of photographs, films, computer tapes, and other 
materials not listed in Appendix A to this section are reimbursed at 
actual cost.
    (d) Transportation costs. Reimbursement for transportation costs 
shall be for the reasonably necessary costs directly incurred to 
transport personnel to locate and retrieve the requested information, 
and to convey such material to the place of examination.

Appendix A to Sec. 219.3--Reimbursement Schedule

Reproduction:
    Photocopy, per page--$.25
    Paper copies of microfiche, per frame--$.25
    Duplicate microfiche, per microfiche--$.50
    Computer diskette--$5.00
Search and Processing:
    Clerical/Technical, hourly rate--$11.00
    Manager/Supervisory, hourly rate--$17.00


Sec. 219.4  Exceptions.

    A financial institution is not entitled to reimbursement under this 
subpart for costs incurred in assembling or providing financial records 
or information related to:
    (a) Security interests, bankruptcy claims, debt collection. Any 
financial records provided as an incident to perfecting a security 
interest, proving a claim in bankruptcy, or otherwise collecting on a 
debt owing either to the financial institution itself or in its role as 
a fiduciary.
    (b) Government loan programs. Financial records that are necessary 
to permit the appropriate government authority to carry out its 
responsibilities under a government loan, loan guaranty or loan 
insurance program.
    (c) Nonidentifiable information. Financial records that are not 
identified with or identifiable as being derived from the financial 
records of a particular customer.
    (d) Financial supervisory agencies. Financial records disclosed to 
a financial supervisory agency in the exercise of its supervisory, 
regulatory, or monetary functions with respect to a financial 
institution.
    (e) Internal Revenue summons. Financial records disclosed in 
accordance with procedures authorized by the Internal Revenue Code.
    (f) Federally required reports. Financial records required to be 
reported in accordance with any federal statute or rule promulgated 
thereunder.
    (g) Government civil or criminal litigation. Financial records 
sought by a government authority under the Federal Rules of Civil or 
Criminal Procedure or comparable rules of other courts in connection 
with litigation to which the government authority and the customer are 
parties.
    (h) Administrative agency subpoenas. Financial records sought by a 
government authority pursuant to an administrative subpoena issued by 
an administrative law judge in an adjudicatory proceeding subject to 5 
U.S.C. 554, and to which the government authority and the customer are 
parties.
    (i) Investigation of financial institution or its noncustomer. 
Financial

[[Page 29641]]

records sought by a government authority in connection with a lawful 
proceeding, investigation, examination, or inspection directed at the 
financial institution in possession of such records, or at an entity 
that is not a customer as defined in Sec. 219.2 of this part.
    (j) General Accounting Office requests. Financial records sought by 
the General Accounting Office pursuant to an authorized proceeding, 
investigation, examination, or audit directed at a government 
authority.
    (k) Federal Housing Finance Board requests. Financial records or 
information sought by the Federal Housing Finance Board (FHFB) or any 
of the Federal home loan banks in the exercise of the FHFB's authority 
to extend credit to financial institutions or others.
    (l) Department of Veterans Affairs. The disclosure of the name and 
address of any customer to the Department of Veterans Affairs where 
such disclosure is necessary to, and used solely for, the proper 
administration of benefits programs under laws administered by that 
Department.


Sec. 219.5   Conditions for payment.

    (a) Direct costs. Payment shall be made only for costs that are 
both directly incurred and reasonably necessary to provide requested 
material. Search and processing, reproduction, and transportation costs 
shall be considered separately when determining whether the costs are 
reasonably necessary.
    (b) Compliance with legal process, request, or authorization. No 
payment may be made to a financial institution until it satisfactorily 
complies with the legal process, the formal written request, or the 
customer authorization. When the legal process or formal written 
request is withdrawn, or the customer authorization is revoked, or 
where the customer successfully challenges disclosure to a grand jury 
or government authority, the financial institution shall be reimbursed 
for the reasonably necessary costs incurred in assembling the requested 
financial records prior to the time the financial institution is 
notified of such event.
    (c) Itemized bill or invoice. No reimbursement is required unless a 
financial institution submits an itemized bill or invoice specifically 
detailing its search and processing, reproduction, and transportation 
costs. Search and processing time should be billed in 15-minute 
increments.


Sec. 219.6  Payment procedures.

    (a) Notice to submit invoice. Promptly following a service of legal 
process or request, the court or government authority shall notify the 
financial institution that it must submit an itemized bill or invoice 
in order to obtain payment and shall furnish an address for this 
purpose.
    (b) Special notice. If a grand jury or government authority 
withdraws the legal process or formal written request, or if the 
customer revokes the authorization, or if the legal process or request 
has been successfully challenged by the customer, the grand jury or 
government authority shall promptly notify the financial institution of 
these facts, and shall also notify the financial institution that it 
must submit an itemized bill or invoice in order to obtain payment of 
costs incurred prior to the time of the notice to the financial 
institution receives this notice.


Sec. 219.7  [Removed]

    3. Section 219.7 is removed.

    By order of the Board of Governors of the Federal Reserve 
System, June 5, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-14688 Filed 6-11-96; 8:45 am]
BILLING CODE 6210-01-P