Regulations Governing Payments by Banks and Other Financial Institutions of United States Savings Bonds and United States Savings Notes (Freedom Shares)

SUMMARY: The Department of the Treasury hereby publishes, for comment,

a proposed rule amending the regulations to update procedures used by

the Bureau of the Public Debt for collecting debts owed by paying

agents of United States Savings Bonds and Savings Notes (collectively

referred to herein as savings bonds or bonds). These collection

procedures are used when a paying agent cannot be relieved of liability

for a savings bond transaction and the paying agent fails to reimburse

Public Debt in a timely manner. Accounts designated or utilized by

paying agents at Federal Reserve Banks for receiving settlements for

savings bond redemptions are immediately credited upon the receipt of

paid bonds with cash letters by Federal Reserve Banks or Branches

through the EZ CLEAR system. These immediate settlements occur with the

understanding that adjustments to correct errors may later be

necessary.

This system has expedited the process of crediting the accounts

paying agents have designated or utilized for receiving savings bond

transaction settlements. However, the system has also made it more

cumbersome for Public Debt to collect monies from paying agents, not

relieved of liability, that fail to reimburse Public Debt in a timely

manner. This amendment will correct this problem by providing that

paying agents are deemed to have authorized the debit of any overdue

amount, interest, administrative cost, and penalty assessed, directly

from the agents' Reserve, correspondent, or clearing accounts

designated or utilized at Federal Reserve Banks or Branches for

settlement of redeemed savings bonds.

DATES: Comments must be received on or before May 1, 1996.

ADDRESSES: Comments should be sent to: Department of the Treasury,

Bureau of the Public Debt, P. O. Box 1328, Parkersburg, West Virginia

26106-1328, Attention Debit Reg. Group, Room 507, Division of Staff

Services. Comments received will be available for public inspection and

copying at the Treasury Department Library, FOIA Collection, Room 5030,

Main Treasury Building, 1500 Pennsylvania Avenue, NW., Washington, DC

20220. Persons wishing to visit the library should call (202) 622-0990

for an appointment.

FOR FURTHER INFORMATION CONTACT: Wallace L. Earnest, Division Director,

Division of Staff Services, Bureau of the Public Debt, (304) 480-6319,

or Edward Gronseth, Deputy Chief Counsel, Office of the Chief Counsel,

Bureau of the Public Debt, (304) 480-5192.

SUPPLEMENTARY INFORMATION:

I. Background

The Proposed Rule will update the debt collection process used by

the Bureau of the Public Debt. This update is necessitated by the

automated processing of redeemed savings bonds through EZ CLEAR.

The collection procedures will apply when a paying agent cannot be

relieved of liability under 31 U.S.C. 3126(a) for a loss resulting from

a payment of a savings bond pursuant to 31 CFR Part 321. No change is

being made in the procedure for assessing liability under 31 U.S.C.

3126(a), or in the regulations with respect to such liability

determinations.

Relief of a paying agent from liability for a loss related to the

redemption of a savings bond is a determination made under authority of

31 U.S.C. 3126(a).

When a depository financial institution qualifies as a savings bond

paying agent, it agrees in writing to be bound by all of the provisions

set out in 31 CFR Part 321 and the Appendix, as revised and amended,

including any instructions promulgated by Treasury and its fiscal

agents.

Paying agents receive settlements for the value of savings bonds

redeemed via credits to Reserve, correspondent, and clearing accounts

with Federal Reserve Banks, or their Branches.

II. Summary of Amendments

Section 321.21 will refer to collection procedures outlined in

Paragraph 21 of the Appendix to this Part.

Paragraph 21 of the Appendix to this Part, will provide a detailed

explanation of the consequences of a paying agent's failure to make

reimbursement within 30 days of Public Debt's mailing the first demand

letter, provided the paying agent cannot be relieved of liability under

31 U.S.C. 3126(a) for an erroneous payment.

A paying agent receiving settlement for the redemption value of

redeemed savings bonds via credits to a Reserve, correspondent, or

clearing account is deemed to have authorized the Federal Reserve Bank

or Branch to debit the amount due from that account. Such debits shall

be made if the paying agent fails to make timely reimbursement or

submit new evidence sufficient for Public Debt to change a

determination of liability within 120 days of the mailing of the first

demand letter. The amount due from the redemption of a security for

which the paying agent is not relieved of liability, under 31 U.S.C.

3126(a), shall include the amount of the final loss resulting from the

erroneous payment, interest, administrative costs, and penalty charges.

A financial institution designated by a paying agent to receive

settlement for redeemed savings bonds on behalf of that paying agent

via a credit to a Reserve, correspondent, or clearing account with a

Federal Reserve Bank or Branch is deemed to have authorized a debit

from such account to collect an amount due from the paying agent. The

consequences of a paying agent's failure to make timely reimbursement

include the paying agent's being required to pay:

(a) Interest charges accruing from the date the first demand letter

is mailed to the date of reimbursement, at the current value of funds

rate published by the Secretary of the Treasury annually or quarterly

in the Federal Register;

(b) Administrative costs (currently processing costs of $6.00) will

be assessed, if reimbursement is not made within 30 days of the date

the first demand letter is mailed;

(c) Penalty charges in accordance with 31 U.S.C. 3717(e), if

reimbursement is not made within 120 days of the date the first demand

letter is mailed. When assessed, the penalty charge will accrue and be

calculated from 30 days after the date the first demand letter is

mailed to the date of reimbursement.

Procedural Requirements

It has been determined that this Proposed Rule is not a

``significant regulatory action,'' pursuant to Executive Order 12866.

Although this rule is being issued in proposed form to secure the

benefit of public comment, the rule relates to matters of public

contract, as well as the borrowing power and fiscal authority of the

United States. The notice and public procedures requirements of the

Administrative Procedure Act are inapplicable, pursuant to 5 U.S.C.

553(a)(2). As no notice of proposed rulemaking is required, the

provisions

[[Page 14445]]

of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.

There are no collections of information required by this Proposed

Rule, therefore, the Paperwork Reduction Act does not apply.

Comments: Consideration will be given to any written comments that

are submitted to the Bureau of the Public Debt. All comments will be

available for public inspection and copying.

List of Subjects in 31 CFR Part 321

Banks, Banking, Bonds, Government securities.

Dated: March 26, 1996.

Gerald Murphy,

Fiscal Assistant Secretary.

For the reasons set forth in the preamble, Part 321 of Title 31 of

the Code of Federal Regulations is proposed to be amended as follows:

PART 321--PAYMENTS BY BANKS AND OTHER FINANCIAL INSTITUTIONS OF

UNITED STATES SAVINGS BONDS AND UNITED STATES SAVINGS NOTES

(FREEDOM SHARES)

1. The authority citation for Part 321 is proposed to be revised as

follows:

Authority: 2 U.S.C. 901, 5 U.S.C. 301, 12 U.S.C. 391, 31 U.S.C.

3105, 31 U.S.C. 3126.

2. Section 321.21 is proposed to be revised to read as follows:

Sec. 321.21 Replacement and recovery of losses.

(a) If a final loss results from the redemption of a security, and

the paying agent redeeming the security is not relieved of liability

for such loss under 31 U.S.C. 3126(a), the Bureau of the Public Debt

will demand that the paying agent promptly reimburse the United States

in the amount of the final loss and will take such other action as may

be necessary to collect such amount as set out in the procedure

described in Paragraph 21 of the Appendix to this Part.

(b) If a final loss has resulted from the redemption of a security,

and no reimbursement has been or will be made, the loss shall be

subject to replacement out of the fund established by the Government

Losses in Shipment Act, as amended.

3. Subpart E, Paragraph 21 of the Appendix to this Part is proposed

to be revised to read as follows:

Appendix to Department of the Treasury Circular No. 750, Fourth

Addition

* * * * *

21. Determination of liability. [Sec. 321.18 and Sec. 321.21]

(a) Upon completing the investigation, the Bureau of the Public

Debt will examine the available information and determine whether a

paying agent may be relieved of liability for any loss resulting

from a payment. If the paying agent cannot be relieved of liability,

demand will be made upon the paying agent to reimburse the Treasury

promptly. Any amount not paid within 30 days following the mailing

of the first demand letter is subject to the following charges.

(1) Interest shall accrue from the date the first demand letter

is mailed to the date reimbursement is made. The rate of interest to

be used will be the current value of funds rate published annually

or quarterly in the Federal Register and in effect during the entire

period in which the remittance is late.

(2) Administrative costs shall be assessed as set out in the

first demand letter, if reimbursement is not made within 30 days of

the date the first demand letter is mailed.

(3) Penalty charges shall be assessed, in accordance with 31

U.S.C. 3717(e), if reimbursement is not made within 120 days of the

date the first demand letter is mailed. The penalty charge will

accrue and be calculated from 30 days after the date the first

demand letter is mailed to the date of reimbursement.

(b) When a paying agent fails, within 120 days of the date the

first demand letter is mailed, to make such reimbursement or to

submit new evidence sufficient for Public Debt to change the

determination of liability; by virtue of the paying agent's

acceptance of settlement via credits to a Reserve, correspondent, or

clearing account with a Federal Reserve Bank or Branch, the agent is

deemed to have authorized the Federal Reserve Bank to debit the

amount due from that account designated or utilized by the agent at

the Federal Reserve Bank or Branch. An institution, designated by a

paying agent to receive settlement on its behalf, in authorizing

such paying agent to utilize its Reserve, correspondent, or clearing

account on the books at the Federal Reserve Bank shall similarly be

deemed to authorize such debits from that account.

(c) Reconsideration of a determination of liability will be made

in any case when a paying agent so requests and presents additional

evidence and information regarding the transaction.

[FR Doc. 96-7880 Filed 3-29-96; 8:45 am]

BILLING CODE 4810-39-P