Opinion ID: 723739
Heading Depth: 2
Heading Rank: 1

Heading: Does Treasury's current EBT policy conform to its relevant existing practice?

Text: 19 Treasury's demand that the EBT contractor must be able to be a financial agent for the federal government does not follow its established policies. Neither Treasury's EFT rules, its disbursement rules, nor the direct-deposit statute, 31 U.S.C. § 3332, demands that an institution must be a federal financial agent before it may maintain the account of some recipient of federal funds. Compare 31 C.F.R. § 210.2 (defining financial institution as typically used in EFT matters to mean any bank, savings bank, savings and loan association, credit union, or similar institution) with 31 C.F.R. § 202.2 (defining the prerequisites a financial institution has to meet before it may be designated a financial agent); see also 31 C.F.R. § 206.2 (defining EFT, for purposes of all federal disbursement, as any electronic transfer of funds to or from any financial institution, not merely to or from financial agents); 31 U.S.C. § 3332 (also permitting direct deposit to any financial institutions or other authorized payment agents). In fact, the EFT rules specifically note that [a] financial institution to which a payment is sent under this part does not thereby become a Federal Government depositary, 31 C.F.R. § 210.7(g), or, in other words, does not become--and therefore, cannot need to be--a federal financial agent. 20 B. Having established that current EBT policy and existing EFT policies are in conflict, has Treasury justified the differences with reasoned analysis? 21 Faced with this contradiction between its own disbursement and EFT regulations and its claim that EBT must be run by a financial agent in order to operate legally, Treasury has nonetheless maintained that only financial [319 U.S.App.D.C. 434] agents may fulfill its EBT requirements. It explains this discrepancy between its newly-devised EBT policy and its existing practices and policies with regard to disbursement and EFT on two major grounds. As neither is sufficiently reasoned to justify Treasury's departure from its established practice, neither saves Treasury's explanation for using an IEI in this case. 22
23 disburse public funds? 24 Most significantly, Treasury argues that the EBT program requires the institution holding individual EBT accounts to disburse public monies to its EBT recipients. Because Treasury then interprets a series of statutes, including 31 U.S.C. §§ 3321 & 3327, to mean that only the Secretary of the Treasury, disbursing officials, and that set of financial institutions that have been designated Depositaries and Financial Agents of the Government, see 31 C.F.R. § 202.1, may disburse public monies, Treasury concludes that it has no choice but to award the EBT contract only to a party eligible to be a federal financial agent. 25 The flaw in this alleged distinction between EBT and direct deposit is fundamental: according to Treasury's own definitions, disbursement within any EFT system, which must be thought to include EBT, occurs when an electronic transfer from government accounts is initiated. 31 C.F.R. § 206.2. As defined in these disbursement rules, initiation occurs as soon as an electronic order authorizing some financial institution to debit or credit an account leaves Treasury. Id. Under the terms of this regulation, then, disbursement in an EBT system occurs as soon as the electronic order is sent from Treasury, even though the electronic payment may pass through another party en route to its destination, see, e.g., 31 C.F.R. §§ 210.1, 210.6, 210.7, and even though Treasury may bear some liability for the transfer until the funds have actually been credited to the intended recipient's account. See, e.g., 31 C.F.R. § 210.10. 26 Treasury tries to diminish the importance of its own regulation by arguing that we should not think that the definition of disburse for a particular regulatory subpart necessarily articulates Treasury's definition of what constitutes disbursement within the meaning of that regulation's authorizing statute. Treasury offers no persuasive reason, however, for us to dispense with the common-sense assumption that, in the absence of some showing to the contrary, a term used in one aspect of the rules governing a particular subject should have a similar meaning if used in another aspect of those same rules. Cf. Sullivan v. Stroop, 496 U.S. 478, 484, 110 S.Ct. 2499, 2504, 110 L.Ed.2d 438 (1990) (applying the normal rule of statutory construction that identical words used in different parts of the same act are intended to have the same meaning to a single term used in two separate, but related, statutes (internal quotations omitted)). Although a statute may have broader application than a regulatory section it subsequently authorizes, the citizens affected by the resulting scheme should be able to anticipate that a definition for a term stated in the regulatory section bears some relevance to the meaning of that same term in the authorizing statute with regard to matters governed by the regulation. Thus, as this case examines when disbursement in an EBT system occurs, we must think arbitrary Treasury's assertion that a regulatory definition of disburse which expressly identifies when electronic disbursement takes place is unrelated to the meaning of disburse as used in that regulation's authorizing statute. Moreover, the expansive scope of the regulatory section in question, which explicitly applies to all ... monies ... disbursed by federal agencies, only confirms our result. 31 C.F.R. § 206.1. Despite our substantial deference to an agency's interpretation of the scope or application of its own regulations, see, e.g., Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, ---- - ----, 114 S.Ct. 2381, 2386-87, 129 L.Ed.2d 405 (1994), then we cannot allow Treasury to ignore its own regulation in an attempt to save its imperfect/unsatisfactory decision-making in this case. See NLRB v. Washington Star Co., 732 F.2d 974, 977 (D.C.Cir.1984) (citing Cappadora v. Celebrezze, 356 F.2d 1, 6 (2d Cir.1966) (Friendly, J.)); see also Secretary of Labor v. Western Fuels-Utah, [319 U.S.App.D.C. 435] Inc., 900 F.2d 318, 323-24 (D.C.Cir.1990) (Edwards, J., dissenting) (noting that deference cannot require court to endorse a[n agency] construction that finds no support whatsoever in the disputed provision of that agency's regulation). 27 However, even were we somehow able to accept Treasury's assertion that its regulatory definition of disbursement might not necessarily apply to EBT on its face, we could not accept its discrepant and arbitrary treatment of EBT as compared to other forms of EFT. Simply stated, disbursement within the EBT system differs in no significant way from that which occurs in direct deposit. As in direct deposit, Treasury is the party responsible for directing an EBT payment, through the ACH network, to an individual's account. That a bank may play some intermediary role in guiding a digital check to that account does not make the bank the disburser any more than a credit union becomes the disburser if Treasury should transmit a digital paycheck to an individual account maintained by that credit union, see 31 C.F.R. §§ 210.6-.7, or any more than the Postal Service becomes the payor when an individual sends a dollar through the mail. Treasury itself admits at several points in the record that EBT payments will be transferred as are direct deposit payments. The senior director in charge of EBT at Citibank, the party that eventually received the EBT contract, also agreed that there is virtually no difference in terms of accepting deposits between EBT and direct deposit. Because Treasury has not demonstrated some relevant ground by which we may satisfactorily distinguish the mechanics of EBT from the mechanics of direct deposit, Treasury has no foundation on which to base its contradicting claims that an institution that maintains EBT accounts disburses public funds, but an institution that maintains accounts that receive direct deposits does not. See, e.g., Garrett v. FCC, 513 F.2d 1056, 1060 (D.C.Cir.1975) (holding that an agency acts arbitrarily when it treats seemingly similar situations dissimilarly without explaining any relevant factual differences between the situations). 28 Nor does Treasury's observation that public monies remain public monies until put in control of the intended recipient, see Romney v. United States, 167 F.2d 521, 526 (D.C.Cir.), cert. denied, 334 U.S. 847, 68 S.Ct. 1512, 92 L.Ed. 1771 (1948), support its claim that some party other than Treasury disburses public monies in the EBT program. The question in this case is not when the individual actually takes authority over his digital check, but whether the check ever passes from an account held by Treasury to an account in another institution that is held for Treasury. It does not. Similar to other EFT payments made through the ACH method, the institution in which the recipient's EBT account is located at most serves as a waystation for the payment along the EFT superhighway before that payment exits into the proper individual's account. Thus, as this final attempt also does not provide a reasoned explanation for Treasury's belief that the institution that holds an EBT account actually disburses public funds to that account, we conclude that Treasury cannot base its decision to use an IEI on the arbitrary distinction that EBT, unlike direct deposit, involves disbursement by some party other than Treasury. 29
30 establishes individual accounts? 31 Treasury next relies on the raison d'etre for the EBT program: the need to establish electronically-accessible accounts for benefit recipients who do not already have such accounts. Treasury argues that, unlike the direct deposit program, in which the recipient of public monies has already set up his own electronically-accessible account, the nature of the EBT program demands that the EBT contractor establish an individual recipient's account. Because, according to elementary principles of agency law, Treasury cannot create an agency relationship between two other parties, Treasury contends that the EBT contractor must act as the financial agent of Treasury in setting up an individual's account. 32 Treasury, however, mistakes its role in the EBT program. Treasury does not create an agency relationship between the institution and the individual recipient; rather, [319 U.S.App.D.C. 436] Treasury arranges for such a relationship on behalf of the individual EBT recipient. Numerous statements by Treasury in the IEI and elsewhere in the record confirm that Treasury must obtain the consent, either explicitly or implicitly, from an individual recipient before it may seek an EBT account for that recipient at a particular institution. This consent then empowers Treasury to arrange an EBT account for the individual in the institution and at the terms Treasury thinks best. Treasury thus plays the role of an intermediary between the institution and a particular benefits recipient by inducing the institution to provide an EBT account to the recipient. That the institution agrees to provide this service to the individual recipient because of the inducements offered by Treasury does not transform the institution into an agent of Treasury, but rather simply encourages the institution to become an agent of the individual according to the terms of the IEI. 33 The general principles of agency law, when considered in light of Treasury's established practice of not requiring an institution receiving a direct deposit to be a financial agent of the government, verify this result. According to the RESTATEMENT (SECOND) OF AGENCY, [a]n agent may be authorized to appoint another person to perform for the principal an act which the agent is authorized to ... have performed. § 5 cmt. a (1958). Assuming, as seems apparent, that Treasury is an agent of the individual recipient when Treasury selects which institution will create the individual EBT account, see id. at § 1, the issue becomes whether the institution Treasury selects for the individual is to be an agent only of that individual (the original principal) or will also serve as an agent of Treasury. According to the RESTATEMENT, if the institution selected by Treasury is, after being selected, not to be the representative of [Treasury] but is to act solely on account of the principal, then the institution is an agent only of the original principal. Id. at § 5 cmt. a. In this case, two distinct observations illustrate that the institution selected by Treasury to hold the individual's account cannot be deemed Treasury's financial agent as a result of banking services rendered to Treasury. 34 First, the institution must be the financial agent of only the individual because the institution focuses on its relationship with the individual in all financial matters. The institution ascribes the EBT account it creates for the individual to the ownership of that individual, and gives only that individual access to funds in the account. The institution then maintains the account for the individual in response to the individual's withdrawals and deposits. Id. The institution also charges the individual, not Treasury, any monthly or additional fees associated with the EBT account. 35 Second, the institution cannot need to be a financial agent of the government once it has been selected as the party that will administer the individual's EBT account because, as previously discussed, once an EBT account is established, EBT is no different from other forms of EFT. See supra part II.B.1. As Treasury explicitly refuses to treat an institution as a public depositary (or financial agent) simply because, for example, it handles paychecks electronically sent to federal employees through direct deposit, see, e.g., 31 C.F.R. § 210.7(g), we must, in the absence of some reason to think otherwise, similarly conclude that an institution participating in an EBT program does not act as an agent of Treasury when it handles benefit payments to its EBT accounts. 36 Nor does case law compel us to think that an IEI was warranted. Treasury argues that the Federal Circuit's decision in United States v. Citizens & Southern National Bank, 889 F.2d 1067 (Fed.Cir.1989), substantiates Treasury's claim that it may avoid typical procurement rules as long as it does not actually purchase goods or services. In this case, however, Treasury neither acts as a principal to the institution it selects to administer the EBT program nor delegates to this institution some of the sovereign functions that the government itself would otherwise perform, as Citizens & Southern National Bank suggests are characteristics of any proper use of Treasury's power to appoint financial agents. Id. at 1069. Because the EBT contractor does not disburse public funds or engage in some other sovereign [319 U.S.App.D.C. 437] function, we find that the rationale underlying Citizens & Southern National Bank in fact supports our decision that Treasury did not need to appoint a financial agent through an IEI process in this case. Although that court did imply that CICA or FAR applies to Treasury only when it is acting as a commercial purchaser of goods and services, id., that court simply did not foresee a decision by Treasury, such as the one made here, to designate a party a financial agent even though it has expressly declined to name as financial agents others that perform similar tasks. Otherwise, the precedent cited by Treasury is not apposite.