Food Stamp Program: Electronic Benefits Transfer Benefit Adjustments

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 273 and 274

RIN 0584-AC61

Food Stamp Program: Electronic Benefits Transfer Benefit

Adjustments

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed Rule.

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SUMMARY: This rule proposes to revise Food Stamp Program regulations

pertaining to State agencies' ability to make adjustments to a

recipient account in an Electronic Benefits Transfer (EBT) system, in

order to correct a system error or an out-of-balance condition. EBT

stakeholders have proposed the changes so that States and their

processors can correct errors when they are identified, rather than 10

days after the advance notice has been sent to the household. The

changes would enable State agencies to correct errors in a more timely

manner, and bring EBT closer in line with current commercial Electronic

Funds Transfer (EFT) practices. This rule also proposes to revise the

formula

[[Page 27512]]

for recovering funds under the re-presentation rule.

DATES: Comments must be received on or before July 20, 1998, to be

assured of consideration.

ADDRESSES: Comments should be submitted to Jeffrey N. Cohen, Chief,

Electronic Benefit Transfer Branch, Benefit Redemption Division, Food

and Nutrition Service, USDA, 3101 Park Center Drive, Alexandria,

Virginia, 22302. Comments may also be datafaxed to the attention of Mr.

Cohen at (703) 605-0232, or by e-mail to [email protected].

Written comments will be open for public inspection at the office of

the Food and Nutrition Service during regular business hours (8:30 a.m.

to 5 p.m., Monday through Friday) at 3101 Park Center Drive,

Alexandria, Virginia, Room 718.

FOR FURTHER INFORMATION CONTACT: Questions regarding this rulemaking

should be addressed to Mr. Cohen at the above address or by telephone

at (703) 305-2517.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This proposed rule has been determined to be non-significant for

purposes of Executive Order 12866 and therefore was not reviewed by the

Office of Management and Budget.

Public Law 104-4

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.

L. 104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on State, local, and tribal

governments and the private sector. Under section 202 of the UMRA, the

Food and Nutrition Service generally must prepare a written statement,

including a cost-benefit analysis, for proposed and final rules with

``Federal mandates'' that may result in expenditures to State, local or

tribal governments, in the aggregrate, or to the private sector, of

$100 million or more in any one year. When such a statement is needed

for a rule, Section 205 of the UMRA generally requires the Food and

Nutrition Service to identify and consider a reasonable number of

regulatory alternatives and adopt the least costly, more cost-effective

or least burdensome alternative that achieves the objectives of the

rule.

This rule contains no Federal mandates (under the regulatory

provisions of Title II of UMRA) for State, local and tribal governments

or the private sector of $100 million or more in any one year. Thus

this rule is not subject to the requirements of sections 202 and 205 of

the UMRA.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance under No. 10.551. For the reasons set forth in the final

rule in 7 CFR part 3015, subpart V and related Notice (48 FR 29115),

this Program is excluded from the scope of Executive Order 12372 which

requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

This rule has been reviewed with regard to the requirements of the

Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley Watkins,

the Under Secretary for Food, Nutrition and Consumer Service, has

certified that this proposed rule will not have a significant economic

impact on a substantial number of small entities. State and local

welfare agencies will be the most affected to the extent that they

administer the Program.

Paperwork Reduction Act

This rule does not contain reporting or recordkeeping requirements

subject to approval by the Office of Management and Budget (OMB) under

the Paperwork Reduction Act of 1980 (44 U.S.C. 3507).

Executive Order 12778

This rule has been reviewed under Executive Order 12778, Civil

Justice Reform. This rule is intended to have preemptive effect with

respect to any State or local laws, regulations or policies which

conflict with its provisions or which would otherwise impede its full

implementation. This rule is not intended to have retroactive effect

unless so specified in the ``Effective Date'' paragraph of this

preamble. Prior to any judicial challenge to the provisions of this

rule or the application of its provisions, all applicable

administrative procedures must be exhausted. In the Food Stamp Program

the administrative procedures are as follows: (1) For Program benefit

recipients--State administrative procedures issued pursuant to 7 U.S.C.

2020(e)(1) and 7 CFR 273.15; (2) for State agencies--administrative

procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 for

rules related to non-quality control (QC) liabilities or Part 283 for

rules related to QC liabilities; (3) for Program retailers and

wholesalers--administrative procedures issued pursuant to 7 U.S.C. 2023

set out at 7 CFR 278.8.

Background

Adjustments

The Food and Nutrition Service (FNS) has been contacted by a number

of State agencies and other interested stakeholders regarding its

policy on making adjustments to EBT-issued benefits when a system error

has resulted in an out-of-balance condition. During normal EBT

processing for an authorized transaction, settlement is completed when

the transaction acquirer has been properly credited for an amount equal

to the amount debited from the household's benefit allotment. System

malfunctions, however, can cause an interruption to this process. For

purposes of this proposed regulation, an out-of-balance settlement

condition exists when system errors or other technical malfunctions

cause an interruption to the end-to-end settlement process from

acquirer back to issuer, resulting in a settlement condition that does

not reflect the authorized transaction. In the commercial EFT

environment, such conditions are routinely corrected via a manual

adjustment to the customer's account without notification to the

account holder. In this proposed rule, an adjustment is defined as a

debit or credit transaction initiated to correct a system error or to

correct an out-of-balance condition identified in the settlement

process. Current food stamp regulations, however, do not allow such

adjustments without prior notification to the food stamp household.

Regulations found at 7 CFR 274.12(f)(4) require that State agencies

establish a date when the household's benefits become available to them

each month. By regulation, State agencies are not allowed to make

adjustments to the food stamp allotment after the availability date.

This is in keeping with the coupon system which has no mechanism to

retrieve benefits after they have been issued to the household.

However, FNS recognizes that EBT provides additional tools that were

not available in the coupon system. Corrections to technical errors can

be made quickly and accurately, where previously, in the paper system,

they could not be made. Commercial operating rules for EFT systems and

the QUEST EBT operating rules have provisions which require adjustments

for system errors. (The QUEST operating rules set forth EBT

requirements for those state agencies that choose to issue benefits

under the QUEST service mark.) This proposed rule would allow

adjustments, after the availability date, to correct a system error.

[[Page 27513]]

Proposing this change leads to the need to propose a second change.

Section 11(e)(10) of the Food Stamp Act of 1977, as amended, gives

households the right to a fair hearing over any action that affects

their participation in the program. This section stipulates that to

exercise this right households must request a fair hearing in a timely

manner following receipt of an individual notice of the agency's

action. Further, households have the right to delay the State agency's

action and receive benefits at the previous level, pending a decision

by the hearing official. Regulations implementing these provisions of

the Act and signifying when a notice of action is necessary are found

in Sec. 273.15.

With some exceptions, which are specified in the regulation,

households must be given an advance notice of 10 days before reduction

in benefits can be put in place. The excepted situations in the

regulation allow for concurrent benefit adjustment and notice--referred

to as adequate notice. That is, State agencies are allowed to notify

households at the same time as an action is taken.

The nature of EBT settlement adjustments makes timeliness critical.

A 10-day advanced notice, as required by current regulation, could have

a negative impact on the State agency's ability to correct the out-of-

balance condition. For example, to provide notice 10 days prior to the

adjustment action could risk benefits no longer being available since,

unlike certification actions, the household has immediate access to the

benefits in question. For this reason, in Sec. 273.13(a)(3)(vii), we

propose that State agencies be allowed to send an adequate notice when

the action is taken. This would allow the error condition to be

corrected expeditiously, while preserving the household's right to

adequate notice and a fair hearing.

In order to ensure that the rights of the household are protected,

this rule proposes to only allow adjustments under the following

conditions:

(1) Adjustments would not be allowed against future month benefits,

i.e, against those benefits that were not in the account at the time of

the original transaction.

(2) In those cases in which a household no longer has benefits

available from the issuance month, this rule proposes that the funds

may be recovered using the re-presentation procedures set forth in 7

CFR 274.12(l). If, however, there are sufficient benefits remaining to

cover only part of the adjustment, the adjustment may be made using the

remaining balance, with the difference being subject to the re-

presentation procedures.

(3) If the household is no longer receiving benefits, the State

agency is under no further obligation to recover the funds.

(4) The household shall be given adequate notice at the time of the

adjustment in accordance with procedures set forth in 7 CFR

273.13(a)(3). An adequate notice includes an explanation of the action

being taken, the reason for the action, the household's right to a fair

hearing, and the household's right to continued benefits.

(5) If the household chooses to have a fair hearing and elects to

have benefits continued pending the fair hearing decision, the State

agency would be required to re-credit the adjusted amount until the

dispute is adjudicated. If the hearing finds in favor of the State

agency, the State agency would re-process the adjustment (debit) for

the full amount credited at the time of the fair hearing request. If

there are no benefits remaining in the household's account at the time

the State agency action is upheld, the State agency shall make the

adjustment from the next month's benefit. If the household is no longer

receiving benefits when the fair hearing decision is rendered, the

State agency would be under no further obligation to recover the funds.

An adjustment would not be made if the affected retailer is no longer

on the EBT system.

(6) Adjustments would only be allowed when auditable documentation

is available to substantiate the out-of-balance condition.

Finally, it has come to the Department's attention that EBT

regulations do not provide time frames by which system errors must be

resolved. The Department, therefore, proposes that all system errors be

corrected within 5 business days. After 5 business days, any recovery

of funds from a recipient's account must be handled through the re-

presentation process. The Department believes that unless the

adjustment is made within a reasonable time, recipients will be unable

to understand the connection between the original transaction and the

adjustment action. The 5-day time frame also ensures that households

negatively impacted by a system error will not have to wait

unreasonably long periods of time for resolution.

Re-presentations

Current regulations give State agencies the option to implement a

re-presentation system to recoup certain losses in instances specified

in 7 CFR 274.12(l). Regulations at 7 CFR 274.12(l)(1)(iii) stipulate

that the rate of re-presentation be $50 for the first month and $10 or

10 percent--whichever is greater--in subsequent months, until the re-

presentation is completely repaid. These amounts were originally

selected so that the electronic system would be consistent with the

claims process in place in the coupon system. Some State agencies have

argued that the variation in the rate of re-presentation for the first

month and subsequent months makes it particularly difficult to

implement an automated re-presentation system. Currently, only one

State agency has implemented re-presentation because of the burden of

programming a system which would meet these requirements. Therefore,

the Department proposes that the required rate differentiation between

the first month and subsequent months be eliminated; the State agency

would have the option to debit the benefit allotment of a household

following the insufficient funds transaction in an amount equal to at

least $10, but no higher than 10 percent of the allotment. This

deduction would be repeated on a monthly basis until the re-

presentation is completely repaid. State agencies may choose to recover

funds at an amount less than 10% of the allotment, but shall apply the

lesser repayment amount to all households.

Implementation

The Department is proposing that the provisions of this rulemaking

be implemented 30 days after publication of the final rule. The

Department also proposes to allow variances resulting from

implementation of the provisions of the final rule to be excluded from

error analysis for 120 days from the required implementation date, in

accordance with 7 CFR 275.12(d)(2)(vii).

List of Subjects

7 CFR Part 273

Administrative practice and procedures, Aliens, Claims, Food

stamps, Grant programs--social programs, Penalties, Reporting and

recordkeeping requirements, Social security, Students.

7 CFR Part 274

Administrative procedures and practices, Food stamps, Grant

programs--social programs, Reporting and recordkeeping requirements.

Accordingly, for the reasons set forth in the preamble, 7 CFR parts

273 and 274 are proposed to be amended as follows:

[[Page 27514]]

1. The authority citation for 7 CFR parts 273 and 274 continues to

read as follows:

Authority: 7 U.S.C. 2011-2032.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

2. In Sec. 273.13, a new paragraph (a)(3)(vii) is added to read as

follows:

Sec. 273.13 Notice of adverse action.

(a) * * *

(3) * * *

(vii) An EBT system-error has occurred during the redemption

process, resulting in an out-of-balance settlement condition. The State

agency shall adjust the benefit in accordance with Sec. 274.12 of this

chapter.

* * * * *

3. In Sec. 273.15, the fourth sentence of paragraph (k)(1) is

revised and three new sentences are added after the fourth sentence to

read as follows:

Sec. 273.15 Fair hearings.

* * * * *

(k) Continuation of benefits.

(1) * * * If the State agency action is upheld by the hearing

decision, a claim against the household shall be established for all

overissuances except in the case of an EBT adjustment, in which case

another adjustment (debit) shall be made immediately to the household's

account for the total amount erroneously credited when the fair hearing

was requested. If there are no benefits remaining in the household's

account at the time the State agency action is upheld, the State agency

shall make the adjustment from the next month's benefits. If the

household is no longer receiving benefits at the time of the fair

hearing decision, the State agency is under no further obligation to

recover the debt. An adjustment shall not be done if the affected

retailer is no longer on the EBT system. * * *

* * * * *

PART 274--ISSUANCE AND USE OF COUPONS

4. In Sec. 274.12:

a. Paragraph (f)(4) is revised;

b. Paragraph (f)(7)(iii) is amended by removing the second

sentence;

c. Paragraph (l) introductory text is redesignated as the first

sentence of paragraph (l)(1) introductory text;

d. Paragraph (l)(1) introductory text is amended by redesignating

the last sentence as the introductory text of paragraph (l);

e. Paragraph (l)(1)(iii) is revised;

f. Paragraphs (l)(2), (l)(3), (l)(4), and (l)(5) are redesignated

as (l)(3), (l)(4), (l)(5), and (l)(6); and

g. A new paragraph (l)(2) is added.

The revisions and additions read as follows:

Sec. 274.12 Electronic Benefit Transfer system issuance approval

standards.

* * * * *

(f) Household participation * * *

(4) Issuance of benefits. State agencies shall establish an

availability date for household access to their benefits and inform

households of this date.

(i) The State agency may make adjustments to benefits posted to

household accounts after the posting process is complete but prior to

the availability date for household access in the event benefits are

erroneously posted.

(ii) A State may make adjustments to an account after the

availability date only to correct an auditable, out-of-balance

settlement condition that occurs during the redemption process as a

result of a system error.

(A) Adjustments shall be made no later than 5 business days after

the out-of-balance condition occurred.

(B) Adjustments shall not be made against a future month's benefit.

If there are sufficient benefits remaining to cover only part of the

adjustment, the adjustment may be made with the remaining balance.

(C) The household must be given, at a minimum, adequate notice in

accordance with Sec. 273.13 of this chapter.

(D) Should the household dispute the adjustment, the benefits must

be re-credited to the household's account pending resolution.

(E) Should a State agency wish to process an adjustment against

future month benefits, such an action shall be in accordance with re-

presentation procedures found in paragraph (l) of this section.

(iii) The appropriate management controls and procedures for

accessing benefit accounts after the posting shall be instituted to

ensure that no unauthorized adjustments are made in accordance with

paragraph (f)(7)(iii) of this section.

* * * * *

(l) Re-presentation. * * *

(1) * * *

(iii) The State agency may debit the benefit allotment of a

household following the insufficient funds transaction in any amount

which equals at least $10 or up to 10% of the transaction. This amount

will be deducted monthly until the total owed is paid. State agencies

may opt to re-present at a level that is less than the 10% maximum,

however, this lesser amount must be applied to all households.

(2) When a system-error has resulted in an out-of-balance condition

at settlement, and the State agency is unable to recover an erroneous

credit as an adjustment, a re-presentation may be made as follows:

(i) the state agency shall debit the benefit allotment of a

household monthly in an amount equal to at least $10 or up to 10% of

the allotment until the re-presentation is completely paid.

(ii) notice shall be provided prior to the month re-presentation

occurs and shall state the amount of the reduction in the benefit

allotment.

* * * * *

Dated: May 12, 1998.

George A. Braley,

Acting Administrator, Food and Nutrition Service.

[FR Doc. 98-13227 Filed 5-18-98; 8:45 am]

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