Electronic Fund Transfers

SUMMARY: The Board is publishing a final rule to amend Regulation E,

pursuant to its authority under sections 904(c) and (d) of the

Electronic Fund Transfer Act, to cover electronic benefit transfer

(EBT) programs established by federal, state, or local government

agencies. EBT programs involve the issuance of access cards and

personal identification numbers to recipients of government benefits so

that they can obtain their benefits through automated teller machines

and point-of-sale terminals. The final rule applies Regulation E to EBT

programs but sets forth certain limited modifications under authority

granted to the Board by section 904(c) of the act. In particular,

periodic account statements are not required if account balance

information and written account histories are made available to benefit

recipients by other specified means. This rulemaking directly affects

government agencies that administer EBT programs and indirectly affects

depository institutions and other private-sector entities.

DATES: Effective date: February 28, 1994. Compliance date. To provide

adequate time to prepare for compliance, the Board has delayed

mandatory compliance until March 1, 1997.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell or Mary Jane Seebach,

Staff Attorneys, or John C. Wood, Senior Attorney, Division of Consumer

and Community Affairs, at (202) 452-2412 or (202) 452-3667. For the

hearing impaired only, contact Dorothea Thompson, Telecommunications

Device for the Deaf (TDD), at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

(1) Background

EFT Act and Regulation E

Regulation E implements the Electronic Fund Transfer Act (EFTA).

The act and regulation cover any electronic fund transfer initiated

through an automated teller machine (ATM), point-of-sale (POS)

terminal, automated clearinghouse, telephone bill-payment system, or

home banking program and provide rules that govern these and other

electronic transfers. The regulation sets rules for the issuance of ATM

cards and other access devices; disclosure of terms and conditions of

an EFT service; documentation of electronic fund transfers by means of

terminal receipts and account statements; limitations on consumer

liability for unauthorized transfers; procedures for error resolution;

and certain rights related to preauthorized transfers.

The EFTA is not limited to traditional financial institutions

holding consumers' accounts. For EFT services made available by

entities other than an account-holding financial institution, the act

directs the Board to assure, by regulation, that the provisions of the

act are made applicable. The regulation also applies to entities that

issue access devices and enter into agreements with consumers to

provide EFT services.

Government Programs Involving Electronic Delivery of Benefits

The federal government, in conjunction with state and local

agencies, is working to expand electronic delivery of government

benefits both for direct federal benefit programs and for federally

funded programs that are state administered. An electronic benefit

transfer (EBT) system functions much like a private-sector EFT program.

Benefit recipients receive plastic magnetic-stripe cards and personal

identification numbers (PINs) and access benefits through electronic

terminals. For cash benefits such as Aid to Families with Dependent

Children (AFDC) or Supplemental Security Income (SSI), the programs may

use existing private-sector ATM networks as well as POS terminals to

disburse benefits. For food stamp purchases, the programs use POS

terminals in grocery stores. In some cases the POS equipment is

dedicated solely to the EBT program, while in others it also is used

for private-sector transactions.

For many state and local agencies, EBT may provide a way to

increase operational efficiency, to reduce costs, and to improve

service to benefit recipients. Federal legislation that took effect

April 1, 1992, provided new impetus for the use of EBT, authorizing the

states to use electronic delivery of food stamp benefits in place of

paper coupons. States previously could seek approval to use EBT for

food stamp benefits only on a demonstration basis. Currently, about 30

states have EBT programs in different stages of operation or

development.

In November 1993, the Clinton administration established a Federal

Electronic Benefits Task Force. The group's assigned task is to develop

and implement a nationwide system for the electronic delivery of

benefits from government programs, pursuant to a recommendation from

the National Performance Review. In December, the EBT Task Force wrote

to the Federal Reserve Board, expressing the federal agencies'

commitment to providing consumer protection for EBT recipients, and

noting at the same time the need for program integrity and

accountability for public funds. The EBT Task Force asked that the

Board provide a three-year delay in the effective date if the Board

should ultimately decide to apply Regulation E to EBT programs. The EBT

Task Force stated that this delay was necessary for implementing EBT in

accordance with Regulation E; among other things, the agencies needed

the time to collect and evaluate comparative loss data at EBT test

sites, data that they could then use as the basis for seeking

legislative authorization and funding to pay for replacing benefits

lost due to unauthorized transfers.

(2) Discussion

Board Authority

The Federal Reserve Board has a broad mandate under the EFTA to

determine coverage when electronic services are offered by other than

traditional financial institutions. Section 904(d) provides that in the

event EFT services are made available to consumers by a person other

than a financial institution holding a consumer's account, the Board

shall ensure that the act's provisions are made applicable to such

persons and services.

The legislative history of the EFTA provides guidance on the

Board's authority to determine if particular services should be covered

by the act, based on whether transfers are initiated electronically,

whether current laws provide adequate consumer safeguards, and whether

coverage is necessary to achieve the act's basic objectives. A Senate

Banking Committee report noted that the statutory delegation of

authority to the Board enables the Board to examine new services on a

case-by-case basis, thereby contributing substantially to the act's

overall effectiveness. The Congress contemplated that, as no one could

foresee EFT developments in the future, regulations would keep pace

with new services and assure that the act's basic protections continue

to apply. See S. Rep. No. 915; S. Rep No. 1273, 95th Cong., 2d Sess.

25-26 (1978).

In February 1993 the Board published a proposal to amend Regulation

E to cover EBT programs, with certain modifications. 58 FR 8714,

February 17, 1993. The Board believes that a number of factors support

Regulation E coverage of EBT programs. EBT recipients use the same

kinds of access devices and electronic terminals in conducting

transactions as do consumers of EFT services in general. Indeed, in EBT

systems that piggyback on existing EFT networks, the terminals used are

one and the same. The transactions themselves, such as cash withdrawals

and purchases, are also similar.

To obtain benefits, recipients insert a magnetic-stripe card into a

terminal that reads the encoded information, and enter a PIN to verify

their identity. The terminal communicates with a database to ascertain

that a recipient is eligible for benefits, that the card has not been

reported lost or stolen, and that benefits are available in an amount

sufficient to cover the requested transaction. In cash benefit

programs, the recipient receives a cash disbursement; in the case of

food stamp benefits, the recipient's allotment is charged and the

merchant's account credited for the amount of the food purchase. From a

recipient's viewpoint, an EBT system functions much the same as if the

recipient had an ordinary checking account with direct deposits of

government benefits and with ATM and POS service available to access

the benefits.

The Board believes that the strong similarity of EBT systems and

other EFT services, the act's legislative history, and the language of

the EFTA and Regulation E support coverage of EBT programs under the

act and regulation. Therefore, the Board has determined that EBT

programs must comply with the requirements of Regulation E as modified

by this final rule, pursuant to its authority under 904(c) and (d) of

the EFTA.

The Board's action, amending the regulation, supersedes an

interpretation in the Official Staff Commentary to Regulation E (12 CFR

part 205, supp. II). The commentary stated that an electronic payment

of government benefits was not a credit or debit to a ``consumer asset

account'' because the account was established by a government agency

rather than the consumer (the recipient). The Board has reexamined that

interpretation, and has concluded that a sufficient basis does not

exist for excluding these accounts from Regulation E's coverage.

The act defines the term ``account'' to mean ``a demand deposit,

savings deposit, or other asset account * * * as described in

regulations of the Board, established primarily for personal, family,

or household purposes * * *.'' Regulation E uses substantially the same

wording, and refers to ``other consumer asset account.'' The reference

to ``consumer'' asset accounts distinguishes them from business-purpose

accounts, which are not subject to the regulation.

The EFTA's coverage is not limited to traditional depository

institutions, but may extend to any person (including a government

agency) ``* * * who issues an access device and agrees with a consumer

to provide electronic fund transfer services.'' In the case of EBT

programs, the Board's action will affect primarily government agencies

that administer EBT programs and issue EBT cards to benefit recipients

for accessing benefits, or that arrange for such services to be

provided. The revised rule will affect only indirectly most depository

institutions and other private-sector entities.

Board's Proposal

While the Board proposed general coverage of EBT under the EFTA,

the proposal published in February 1993 modified certain documentation

requirements, recognizing differences between EBT and EFT systems. A

periodic statement would not be required if information about account

balances and account histories were otherwise made available to

consumers. In addition, modifications were proposed in the rules on the

issuance of access devices, initial disclosures, and the notices on

error resolution procedures, to tailor the requirements to EBT

programs.

The Board received approximately 175 comment letters on its

proposal from a broad range of commenters. About 125 commenters--

including state and local agencies that provide benefits, federal

agencies, financial institutions, and a bank trade association--opposed

the Board's proposal. Many of them requested an exemption for EBT

programs from the Regulation E liability and error resolution rules.

They asserted that full application of Regulation E would increase the

costs of delivering benefits to the point that offering EBT might not

be economically feasible, because EBT programs may be only marginally

cost-effective even without factoring in Regulation E compliance costs.

They expressed the view that the expected advantages of EBT might not

be realized if Regulation E were to apply, and that its application

would hinder the introduction or expansion of EBT programs.

In place of the Board's proposal, the majority of the commenters

supported recommendations given to the Board in May 1992 by an

interagency steering committee established within the federal

government to coordinate EBT efforts among program agencies. Agencies

represented on that group included the Treasury Department's Financial

Management Service, the Agriculture Department's Food and Nutrition

Service, the Health and Human Services Department's Social Security

Administration and Administration for Children and Families, the Office

of Management and Budget, and other federal agencies that have an

interest in planning for EBT systems. The steering committee's proposal

primarily differed from the Board's proposal in that benefit recipients

would be liable for unauthorized transfers subject to certain

conditions, and the error resolution requirements would not apply if an

agency maintained ``efficient, fair, and timely procedures'' for

resolving errors and disputes, including an appeals process.

Anticipating public opposition to Regulation E coverage, the Board

in the proposal indicated that commenters should offer explanations of

why modifications in the regulatory requirements were needed, together

with specifics such as data on costs. Approximately 35 commenters

included estimates of the additional cost they believed would be

imposed by Regulation E. In some cases the estimates were quite

detailed. A few estimates were based on agency experience with the

replacement of lost or stolen cards in EBT programs. Most of the cost

estimates were based on loss and fraud experience under existing paper-

based benefit programs (such as mailed AFDC checks and mailed food

coupons). Nationwide, one group estimated the projected costs due to

Regulation E, in worst-case scenarios, to be between $164 million and

$986 million annually.

Many commenters suggested that private-sector financial

institutions differ from government agencies in ways that relate to how

compliance costs can be borne. For example, financial institutions can

control their costs by selecting the customers to whom they are willing

to offer EFT services, while program agencies must accept all who

qualify for the benefit program. If a customer of a financial

institution is suspected of engaging in fraud, the institution can

terminate the account relationship. In a like situation, an agency

could shift a recipient from EBT back to the paper-based system, but

commenters believe it may not be feasible to operate dual systems.

Similarly, commenters noted, private-sector institutions handle

losses related to the Regulation E customer-liability limitations by

spreading the losses over their entire customer base in the form of

increased fees or reduced interest paid. Agencies cannot do so, and

thus losses would have to be paid out of tax revenues, or, where

permitted, by reducing benefits. If neither method is available, then

the EBT program would be eliminated or cut back.

Approximately 35 commenters supported the Board's proposal. This

group included advocacy groups for benefit recipients, financial

institutions, a bank trade association, and individuals. These

commenters agreed with the premise that the same rules should apply to

both EBT recipients and EFT users in the general public, and that both

government and private-sector organizations offering EFT services

should be subject to the same rules.

Some commenters in this group called for even greater consumer

protection for EBT recipients than would be provided by existing

Regulation E. For example, one advocacy group argued that the

regulation should prohibit mandatory EBT programs. Other commenters

urged the Board to require disputed amounts to be provisionally

credited to the consumer's account within one business day (instead of

10 business days for ATM transactions, or 20 business days for POS

transactions, as allowed by existing Regulation E). A coalition of

consumer groups suggested that the limits on liability for unauthorized

transactions are too high in the EBT context, and that, for example,

the $50 liability that can be imposed even if a recipient promptly

reports a lost or stolen debit card should be reduced or eliminated.

Final Action on Proposal

After a review of the comments, further analysis, and a weighing of

policy considerations, the Board has adopted a final rule pursuant to

its authority under 904 (c) and (d) of the EFTA. The Board's action

requires EBT programs to comply with the requirements of Regulation E

as modified by this final rule. The Board continues to believe that all

consumers using EFT services should receive substantially the same

protection under the EFTA and Regulation E, absent a showing that

compliance costs outweigh the need for consumer protections. The Board

recognizes that benefit program agencies are concerned about the

operational and cost impacts of coverage, specifically in the areas of

liability for unauthorized transfers and error resolution, but believes

that the cost data presented to support exemptions in these areas were

not definitive.

The Board has provided a delayed implementation date, making

compliance optional until March 1, 1997, in keeping with a request

received in December 1993 from the Federal EBT Task Force. As discussed

above, the EBT Task Force, which represents all the major agencies with

large individual benefit programs, asked for the three-year delay so

that agencies could develop and implement a nationwide system for

delivering multiple-program benefits in compliance with Regulation E.

The Board's modified rules for EBT programs are limited to programs

for disbursing welfare and similar government benefits. Some of the

military services, as well as certain private-sector employers, have

installed ATMs through which salary and other payments can be made in a

manner similar to EBT systems. Such systems remain fully covered by

Regulation E.

In bringing EBT accounts within the scope of the EFTA's definition

of ``account,'' the Board does not take a position about the legal

status of the funds for any other purpose. For example, legal ownership

of the funds in EBT accounts (by the recipient or a state, for

instance) is not affected by this rulemaking.

Some commenters asked for clarification on whether the Board viewed

specialized types of programs, such as Medicaid, or programs using

different technology (specifically, smart card programs) as covered by

the EFTA and Regulation E. The Board believes that when a consumer can

access funds in an account using electronic means, Regulation E is

applicable. The Board believes that Medicaid programs do not involve an

account within the meaning of Regulation E, given that benefits under

these programs are not made available to the consumer in terms of a

dollar amount available to be accessed by the consumer, as is the case

in EBT programs such as AFDC, SSI, and food stamps.

With regard to smart card systems, the Board has issued a proposal

to review Regulation E, also published in today's Federal Register,

that solicits comment on the question of coverage of smart card systems

in general (both public and private sector). Any determination made on

coverage of smart cards in the review could apply to EBT smart card

programs.

(3) Explanation of New Sec. 205.15

Section 205.15--Electronic Fund Transfer of Government Benefits

A new section is added to the regulation to specifically address

the rules on the electronic fund transfer of government benefits.

Agencies are generally required to comply with all applicable sections

of the regulation. Section 205.15 contains the modified rules for EBT

programs on the issuance of access devices, periodic statements,

initial disclosures, liability for unauthorized use, and error

resolution notices.

Paragraph (a)--Government Agency Subject to Regulation

Paragraph (a)(1)

The act and regulation define coverage in terms of ``financial

institution.'' Coverage applies to entities that provide EFT services

to consumers whether these entities are banks, other depository

institutions, or other types of organizations entirely. The substance

of paragraph (a)(1), which defines when a government agency is a

financial institution for purposes of the act and regulation, is

unchanged from the proposal. Editorial changes have been made for

clarity.

Paragraph (a)(2)

The term ``account,'' which is defined generally in Sec. 205.2(b),

is defined for purposes of Sec. 205.15 to mean an account established

by a government agency for distributing benefits to a consumer

electronically, such as through ATMs or POS terminals, whether or not

the account is directly held by the agency or a bank or other

depository institution. For example, an ``account'' under this section

would include use of a database containing the consumer's name and

record of benefit transfers that is accessed for verification purposes

before a particular transaction is approved. For purposes of this

section, government benefits include cash benefits such as AFDC and SSI

and noncash benefits such as benefits under the food stamp program.

Paragraph (b)--Issuance of Access Devices

Under Sec. 205.5, debit cards, PINs, and other access devices may

not be issued except in response to a consumer's request or application

for a device, or to replace a device previously accepted by the

consumer. Financial institutions are permitted to issue unsolicited

access devices in limited circumstances under Sec. 205.5(b). The

general prohibition against unsolicited issuance is intended to protect

a consumer against the issuance of an access device that could be used

to access the consumer's funds without the consumer's knowledge and

approval or without the consumer's being informed of the terms and

conditions applicable to the device.

The Board's final rule makes clear that in the case of EBT, an

agency may issue an access device to a recipient without a specific

request. A recipient of government benefits is deemed to have requested

an access device by applying for benefits that the agency disburses or

will disburse by means of EBT. The Board believes that it is unlikely

that a government agency would issue an access device without the

recipient's being made aware that the way to access benefits is by use

of the device and that to safeguard benefits the device must be

protected. Moreover, given that initial disclosures would be provided

during training, the recipient will be informed of the account's terms

and conditions.

The Board does recognize, however, commenters' concerns about the

need for agencies to verify the identity of the consumer receiving the

device before it is activated. As in the case of the private sector, an

issuing agency will have to verify the identity of the consumer by a

reasonable means before a device is activated. Reasonable means include

methods of identification such as a photograph or signature comparison.

Some commenters expressed concern about the statutory prohibition

against the compulsory use of EFT and its implications for EBT

programs. Section 913 of the EFTA prohibits requiring a consumer to

establish an account at a particular institution for receiving

electronic fund transfers as a condition of employment or receipt of

government benefits. This prohibition does not prevent an agency from

requiring benefits to be delivered electronically.

In EBT programs, agencies do not require recipients to open or

maintain bank accounts at a particular institution for the electronic

receipt of government benefits. This is the case even when an agency

enters into an arrangement with a single financial institution that

then serves as the agency's financial intermediary. Consequently, the

Board believes that the prohibition against compulsory use is not an

impediment to mandatory EBT programs. Nevertheless, pursuant to its

authority under section 904(c) of the EFTA, the Board has determined

that a government agency with a mandatory EBT program should ensure

that recipients of cash benefits have access to other electronic

options (for example, direct deposit of benefits to an existing bank

account or to an account established by the recipient for that

purpose).

Paragraph (c)--Alternative to Periodic Statement

Regulation E requires financial institutions to provide periodic

statements for an account to or from which EFTs can be made. Periodic

statements are a central component of Regulation E's disclosure scheme.

But as long as other means of obtaining account information are

available to benefit recipients, the Board believes that periodic

statements are not absolutely necessary for EBT programs due to the

limited types of transactions involved, particularly given the expense

of routinely mailing monthly statements to all recipients. Moreover,

requiring periodic statements could impede the effort to eliminate

paper and move toward a fully electronic system. Most commenters

supported the Board's proposal to exempt government agencies from the

requirement if the agency furnishes the consumer with other means of

accessing account information.

Under the proposal, agencies were to provide balance information by

means of an electronic terminal, balance inquiry terminal, or a readily

available telephone line, and to make available a written account

history upon request. The final rule contains these alternatives with

modifications that respond to the comments.

To make balance information readily available, the proposal also

would have required that the terminal receipt show the balance

available to the consumer after the transfer. A number of commenters

stated that this requirement would be difficult for some EBT systems to

implement because existing ATM networks may not be capable of providing

current account balances at all times. Commenters suggested that giving

consumers access to balance information by other means (such as

telephone or balance inquiry terminals) would achieve the same purpose.

Accordingly, the final rule does not require that terminal receipts

include the account balance as long as a consumer can access balance

information by the other means set forth in paragraph (c) of this

section.

A number of commenters urged that agencies should not make

telephone access the only method by which a recipient can obtain an

account balance. Taking these comments into consideration, the Board

has modified the final rule. The final rule requires, in addition to a

telephone line, at least one alternative method (such as a balance

inquiry terminal) for access to balance information.

Commenters suggested that the telephone line be toll-free and

available on a 24-hour basis. For EFT systems generally, the Board

interprets a readily available telephone line to mean at least a local

or toll-free line available during standard business hours. The Board

believes that the same interpretation is appropriate for EBT systems,

although an agency may of course choose to provide recipients with a

24-hour line.

Commenters requested that the Board provide certainty by clarifying

how a consumer may request a written account history and the time

period for compliance. The final rule clarifies that a request may be

either written or oral, that the history should cover the 60 calendar

days preceding the request date, and that the history should be

provided promptly upon request. In addition, commenters asked for

clarification about whether an agency could charge for written account

histories or other disclosures required by the regulation. The Board

believes that imposing fees in such instances would be contrary to

public policy.

The Board had solicited comment on whether more complex EBT systems

developed in the future (for example, systems allowing third-party

payments) may necessitate periodic statements or other documentation,

and whether the Board should address this issue at present. Several

commenters encouraged the Board not to address the issue at this time,

but to delay a decision until performance under the final rule can be

assessed. Accordingly, the Board has deferred taking a position at this

time.

Paragraph (d)--Modified Requirements

Paragraph (d)(1)--Initial Disclosures

Section 205.7 requires that written disclosures of the terms and

conditions of an EFT service be given at or before the commencement of

the service. Three disclosures have been modified for EBT programs.

Under paragraph (d)(1)(i), government agencies must disclose the means

by which the consumer may obtain account balance information, including

the telephone number for that purpose. The disclosures will explain the

ways in which balance information will be made available. (See model

disclosure form A(12) below.) Under paragraph (d)(1)(ii), agencies must

disclose that the consumer has the right to receive a written account

history, upon request, and must provide a telephone number for

obtaining the account history. This disclosure substitutes for the

disclosure of a summary of the consumer's right to a periodic statement

under Sec. 205.7(a)(6) of the regulation. Under paragraph (d)(1)(iii),

agencies must provide an error resolution notice substantially similar

to model disclosure form A(13) rather than the notice currently

contained in Sec. 205.7(a)(10).

Paragraph (d)(2)--Annual Error Resolution Notice

Section 205.8(a) of the regulation requires that financial

institutions provide a notice in advance of certain adverse changes to

terms that were disclosed in the initial disclosures. No modification

has been made for EBT programs. Consequently, agencies will have to

provide a notice for certain changes in terms, such as in transaction

limitations. Other changes, such as a decrease in the amount of a

consumer's benefits, continue to be governed only by the agencies'

program rules.

Section 205.8(b) of the regulation requires financial institutions

to provide periodic error resolution notices to consumers, either

annually or with each monthly account statement. In substitution for

these notices, paragraph (d)(2) requires agencies to provide an error

resolution notice substantially similar to model disclosure form A(13).

The notice is to be provided annually.

Paragraph (d)(3)--Limitations on Liability

Section 205.6 of the regulation limits a consumer's liability for

unauthorized transfers. If the consumer notifies the account-holding

institution within two business days after learning of the loss or

theft of a debit card, the consumer's liability is limited to $50. If

notification is not made until after two business days, liability can

rise another $450 for transfers made after two business days, for a

total of $500. If the consumer does not notify the institution until

more than 60 days after a periodic statement is sent showing an

unauthorized transfer, the consumer's liability is unlimited for

unauthorized transfers occurring after the 60th day and before

notification.

The Board believes that the EFTA generally mandates the same degree

of protection for benefit recipients as for the general public. The

Board solicited comment on potential costs associated with implementing

the liability rules for EBT programs and why such implementation would

present a greater burden for government agencies than that experienced

by financial institutions. Commenters submitted data on the expected

cost impact of Regulation E on EBT programs, specifically on costs

related to the limitations on consumer liability for unauthorized

transfers and error resolution requirements; as discussed earlier,

however, the Board believes the data are not definitive. Under the

final rule, therefore, the limits on liability for unauthorized use,

the error resolution requirements, and most other provisions of

Regulation E would apply to EBT.

The Board recognizes the concerns about the potential cost impact

of coverage, especially in regard to unauthorized use because of the

potential for abuse through fraudulent claims. The Board believes,

however, that through the leadership of the Federal Electronic Benefits

Task Force, which has the goal of developing a nationwide system for

delivering government benefits electronically, it should be possible

for the agencies to implement cost-effective procedures that will help

minimize the risk of fraudulent claims and potential abuse of EBT

systems.

The Board notes in particular that Regulation E does not mandate an

automatic replacement when a claim of lost or stolen funds is made. In

the case of EBT as in the private sector, the agency would investigate

the claim, consider the available evidence, and exercise judgment in

making a determination about whether the transfer was unauthorized or

was made by the recipient or by someone to whom the recipient gave

access. The Board does not underestimate the difficulties that these

investigations may pose for EBT program agencies. But the Board also

believes that practical ways can be found, within the scope of

Regulation E, that will enable EBT administrators to control potential

losses.

The operational procedures developed to minimize risk will need to

address some aspects of EBT that are different from the commercial

setting--such as the fact that program agencies, unlike private sector

institutions, may not be able in cases of suspected fraud or abuse

simply to terminate their relationship with the recipient. Some of the

measures that federal agencies have inquired about, which may be

compatible with the special requirements of EBT, relate to aspects of

the relationship that are not addressed by Regulation E. Thus their

implementation would not conflict with regulatory requirements. Some of

these include putting recipients on restricted issuance systems--

requiring, for instance, that the recipient call in advance for

authorization before each access to benefits, or restricting the sites

at which the recipient could obtain benefits, or crediting the

recipient's benefits in weekly increments rather than the full monthly

amounts. Or the agency could appoint a representative payee, or place

the recipient on a backup paper-based benefit payment system. Imposing

these or other limitations may not be desirable from either an agency's

or the recipients' perspective except in circumscribed situations. But

if found to be cost-effective, such measures represent some possible

approaches for dealing with recipients who show themselves to be

irresponsible in their use of the EBT system.

In regard to recurring claims for the replacement of benefits, EBT

agencies may not establish a presumption that, because a recipient has

filed a claim in the past, the recipient's assertion of a second claim

of unauthorized withdrawals can be automatically rejected. On the other

hand, depending on the circumstances, it would not be unreasonable for

the agency, in making its determination about the validity of a claim,

to give weight to the fact that a particular recipient within a certain

period of time has previously filed a claim, or multiple claims, of

stolen funds. The Board believes that these are just some of the areas

in which the Federal EBT Task Force can be helpful in setting operating

guidelines and procedures.

Regulation E provides that a consumer may bear unlimited liability

for failing to report within 60 days any unauthorized transfers that

appear on a periodic statement. Because EBT recipients will not receive

periodic statements, under the Board's proposal the 60 days would have

run from the transmittal of a written account history provided upon the

consumer's request. The final rule differs somewhat in that the 60-day

period also can be triggered when the consumer obtains balance

information via a terminal or telephone or on a terminal receipt.

Paragraph (d)(4)--Error Resolution

Section 205.11 of Regulation E sets certain time limits within

which a consumer must file a notice of an alleged error. Under the

Board's proposal for EBT, government agencies were to comply with the

error resolution procedures in Sec. 205.11 in response to an oral or

written notice of error from the consumer received no later than 60

days after the consumer obtained a terminal receipt or a written

account history on which the alleged error was reflected. The final

rule differs somewhat, in that error resolution procedures can be

triggered by any information provided to the consumer under paragraph

(c).

List of Subjects in 12 CFR Part 205

Consumer protection, Electronic fund transfers, Federal Reserve

System, Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, the Board amends 12 CFR

part 205 as follows:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

1. The authority citation for part 205 is revised to read as

follows:

Authority: 15 U.S.C. 1693.

2. Section 205.15 is added to read as follows:

Sec. 205.15 Electronic fund transfer of government benefits.

(a) Government agency subject to regulation. (1) A government

agency is deemed to be a financial institution for purposes of the act

and regulation if directly or indirectly it issues an access device to

a consumer for use in initiating an electronic fund transfer of

government benefits from an account. The agency shall comply with all

applicable requirements of the act and regulation, except as provided

in this section.

(2) For purposes of this section, the term account means an account

established by a government agency for distributing government benefits

to a consumer electronically, such as through automated teller machines

or point-of-sale terminals.

(b) Issuance of access devices. For purposes of this section, a

consumer is deemed to request an access device when the consumer

applies for government benefits that the agency disburses or will

disburse by means of an electronic fund transfer. The agency shall

verify the identity of the consumer receiving the device by reasonable

means before the device is activated.

(c) Alternative to periodic statement. A government agency need not

furnish the periodic statement required by Sec. 205.9(b) if the agency

makes available to the consumer:

(1) The consumer's account balance, through a readily available

telephone line and at a terminal (which may include providing balance

information at a balance-inquiry terminal or providing it, routinely or

upon request, on a terminal receipt at the time of an electronic fund

transfer); and

(2) A written history of the consumer's account transactions for at

least 60 days preceding the date of a request by the consumer. The

account history shall be provided promptly in response to an oral or

written request.

(d) Modified requirements. A government agency that does not

furnish periodic statements, pursuant to paragraph (c) of this section,

shall comply with the following requirements:

(1) Initial disclosures. The agency shall modify the disclosures

under Sec. 205.7(a) by providing:

(i) Account balance information. The means by which the consumer

may obtain information concerning the account balance, including a

telephone number. This disclosure may be made by providing a notice

substantially similar to the notice contained in section A(12) of

appendix A of this part.

(ii) Written account history. A summary of the consumer's right to

receive a written account history upon request, in substitution for the

periodic statement disclosure required by Sec. 205.7(a)(6), and a

telephone number that can be used to request an account history. This

disclosure may be made by providing a notice substantially similar to

the notice contained in section A(12) of appendix A of this part.

(iii) Error resolution notice. A notice concerning error resolution

that is substantially similar to the notice contained in section A(13)

of appendix A of this part, in substitution for the notice required by

Sec. 205.7(a)(10).

(2) Annual error resolution notice. The agency shall provide an

annual notice concerning error resolution that is substantially similar

to the notice contained in section A(13) of appendix A of this part, in

substitution for the notice required by Sec. 205.8(b).

(3) Limitations on liability. For purposes of Sec. 205.6(b) (2) and

(3), in regard to a consumer's reporting within 60 days any

unauthorized transfer that appears on a periodic statement, the 60-day

period shall begin with the transmittal of a written account history or

other account information provided to the consumer under paragraph (c)

of this section.

(4) Error resolution. The agency shall comply with the requirements

of Sec. 205.11 in response to an oral or written notice of an error

from the consumer that is received no later than 60 days after the

consumer obtains the written account history or other account

information, under paragraph (c) of this section, in which the error is

first reflected.

3. Appendix A to part 205 is revised by adding sections A(12) and

A(13) to read as follows:

Appendix A to Part 205--Model Disclosure Clauses

* * * * *

Section A(12)--Disclosure by Government Agencies of Information About

Obtaining Account Balances and Account Histories (Sec. 205.15(d)(1) (i)

and (ii))

You may obtain information about the amount of benefits you have

remaining by calling [telephone number]. That information is also

available [on the receipt you get when you make a transfer with your

card at (an ATM)(a POS terminal)][when you make a balance inquiry at

an ATM][when you make a balance inquiry at specified locations].

You also have the right to receive a written summary of

transactions for the 60 days preceding your request by calling

[telephone number]. [Optional: Or you may request the summary by

contacting your caseworker.]

Section A(13)--Disclosure of Error Resolution Procedures for Government

Agencies That Do Not Provide Periodic Statements

(Sec. 205.15(d)(1)(iii) and (d)(2))

In Case of Errors or Questions About Your Electronic Transfers

Telephone us at [telephone number] or Write us at [address] as soon

as you can, if you think an error has occurred in your

[EBT][agency's name for program] account. We must hear from you no

later than 60 days after you learn of the error. You will need to

tell us:

Your name and [case] [file] number.

Why you believe there is an error, and the dollar

amount involved.

Approximately when the error took place.

If you tell us orally, we may require that you send us your

complaint or question in writing within 10 business days. We will

generally complete our investigation within 10 business days and

correct any error promptly. In some cases, an investigation may take

longer, but you will have the use of the funds in question after the

10 business days. If we ask you to put your complaint or question in

writing and we do not receive it within 10 business days, we may not

credit your account during the investigation.

For errors involving transactions at point-of-sale terminals in

food stores, the periods referred to above are 20 business days

instead of 10 business days.

If we decide that there was no error, we will send you a written

explanation within three business days after we finish our

investigation. You may ask for copies of the documents that we used

in our investigation.

If you need more information about our error resolution

procedures, call us at [telephone number][the telephone number shown

above].

By order of the Board of Governors of the Federal Reserve

System, February 24, 1994.

William W. Wiles,

Secretary of the Board.

[FR Doc. 94-4681 Filed 3-2-94; 12:38 pm]

BILLING CODE 6210-01-P