Management of Federal Agency Disbursements

SUMMARY: This regulation implements the provisions of section 31001(x)

of the Debt Collection Improvement Act of 1996 (Act) that require that,

subject to the authority of the Secretary of the Treasury (Secretary)

to grant waivers, all Federal payments (other than payments under the

Internal Revenue Code of 1986) made after January 1, 1999, must be made

by electronic funds transfer (EFT). This regulation establishes the

circumstances under which waivers are available; sets forth

requirements for accounts to which Federal payments may be sent by EFT;

provides that any individual who receives a Federal benefit, wage,

salary, or retirement payment shall be eligible to open a low-cost

Treasury-designated account at a financial institution that offers such

accounts; and sets forth the responsibilities of Federal agencies and

recipients under the regulation.

In addition, this regulation provides for the designation of

financial institutions as Financial Agents for purposes of implementing

electronic benefits transfer (EBT) programs. EBT is the provision of

Federal benefit, wage, salary, and retirement payments electronically,

through disbursement by a Financial Agent. EBT includes payment through

an electronic transfer account (ETASM) as well as payment

through a Federal/State program.

DATES: This rule is effective January 2, 1999.

ADDRESSES: This rule is available on the Financial Management Service's

EFT web site at the following address: http://www.fms.treas.gov/eft/.

FOR FURTHER INFORMATION CONTACT: Diana Shevlin, Financial Program

Specialist, at (202) 874-7032; Donna Wilson, Financial Program

Specialist, at (202) 874-6799; Sally Phillips, Senior Financial Program

Specialist, at (202) 874-6749; Natalie H. Diana at (202) 874-6950;

Cynthia L. Johnson, Director, Cash Management Policy and Planning

Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor,

at (202) 874-6681.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

Section 31001(x) of the Act amends 31 U.S.C. 3332 to require that

agencies convert from paper-based payment methods to EFT under

regulations issued by the Secretary. The Act, which exempts only

payments under the Internal Revenue Code of 1986, provides that the

conversion from checks to EFT be made in two phases. During the first

phase, recipients who became eligible to receive Federal payments on or

after July 26, 1996, are required to receive such payments by EFT

unless they certify in writing that they do not have an account with a

financial institution or an authorized payment agent. Treasury issued

an interim rule on July 26, 1996, to implement these requirements. 61

FR 39254. The interim rule will remain in effect through January 1,

1999.

The second phase begins January 2, 1999. Beginning on that date,

all Federal payments, except payments under the Internal Revenue Code,

must be made by EFT unless waived by the Secretary. This regulation

(Part 208), which was published for comment on September 16, 1997 (62

FR 48714)(208 NPRM), implements the second phase requirements.

Part 208 provides guidance to agencies and recipients regarding

compliance with the Act's requirements. In developing this rule,

Treasury followed four principles: (1) The transition to EFT should be

accomplished with the interests of recipients being of paramount

importance; (2) Treasury's policies should maximize private sector

competition for the business of handling Federal payments, so that

recipients not only have a broad range of payment options, but also

receive their payments at a reasonable cost, with substantial consumer

protections, and with the greatest possible convenience, efficiency,

and security; (3) recipients, especially those having special needs,

should not be disadvantaged by the transition to EFT; and (4)

recipients without accounts at financial institutions should be brought

into the mainstream of the financial system to the extent possible.

Proposed 31 CFR Part 207

Part 208 also incorporates selected provisions from the proposed

rule 31 CFR Part 207, Electronic Benefits Transfer; Selection and

Designation of Financial Institutions as Financial Agents (207 NPRM)

published for comment on May 9, 1997. 62 FR 25572. As described below,

the EBT system is a system for making certain types of Federal payments

available electronically (by EFT) to recipients. In EBT, the payments

are disbursed to the recipient by a financial institution acting as

Treasury's Financial Agent. Legislation enacted in 1996 authorized the

Secretary of the Treasury to designate financial institutions as

Financial Agents to provide EBT services. Section 664, Omnibus

Consolidated Appropriations Act, 1997, Pub. L. 104-208.

At the time the 207 NPRM was published, Treasury contemplated

fulfilling the mandate in the Act that it assure that individuals

required to have an account in order to receive electronic payments

have access to an account at a reasonable cost and with the same

consumer protections as other account holders at the same financial

institution, by establishing one or more EBT systems through a

competitive selection process, and thus provide for the electronic

delivery of payments to those individuals who did not have an account

with a financial institution. The 207 NPRM proposed to establish a

legal framework for obtaining the services of financial institutions as

Financial Agents to perform the disbursement of public funds that is

central to the Federal EBT program.

As indicated below in the discussion on Sec. 208.5, Treasury has

determined that the statutory mandate to assure recipients access to

accounts is better implemented by designing an ETASM that

may be offered by any Federally-insured financial institution that

enters into an ETASM Financial Agency Agreement with

Treasury. It has also determined that the ETASM should be

made available to any individual who receives a Federal benefit, wage,

salary, or retirement payment. Under Part 208, an ETASM

falls within the definition of ``EBT.''

Also within the definition of EBT are Federal/State programs under

which a recipient who receives benefit payments from both the Federal

government and a State government can receive his or her payments

through the same system. This is consistent with the National

Performance Review implementation plan for nationwide EBT encouraging

Federal agencies, in partnership with State and local governments, to

develop a nationwide integrated EBT system utilizing the existing

commercial infrastructure to provide combined access to Federal

payments and State-administered benefits for a recipient on a single

card. As discussed below in the analysis of Sec. 208.5, Treasury

intends, where requested by States to do so, to work with States in

implementing joint

[[Page 51491]]

Federal/State EBT programs. Individuals who are in States with a

Federal/State program and who receive both Federal and State benefit

payments will have the option of participating in the program.

Based on the shift in focus from a competitive selection process

for obtaining EBT services to the development of an ETASM to

be offered at the option of Federally-insured financial institutions,

as well as on comments to the 207 NPRM indicating some confusion over

the relationship of the 207 NPRM to Part 208 and other related

documents, Treasury believes that a separate Part 207 rulemaking is no

longer necessary or desirable. Instead, those portions of the 207 NPRM

that relate to the statutory authority of the Secretary to designate

financial institutions to provide EBT services, including the offering

of ETAsSM, as Treasury's Financial Agents, have been

modified and incorporated in Part 208. Those portions of the 207 NPRM

that outline the duties of financial institutions designated as

Financial Agents, some of which may vary depending on a specific EBT

program, will be included in the Financial Agency Agreement for that

particular program, e.g., the ETASM Financial Agency

Agreement or the Financial Agency Agreement governing the disbursement

of Federal benefits in a Federal/State EBT program. Selected duties,

e.g., the duty related to complying with Regulation E, 12 CFR Part 205,

will also be reflected in the notice of ETASM attributes to

be published at a later date in the Federal Register.

B. Participation in Rulemaking Process

As part of the rulemaking process for Part 208, Treasury has

provided multiple forums for public comment and discussion. Since the

publication of the 208 NPRM, Treasury has actively solicited the views

of interested parties, including consumer and community-based

organizations, most of which are advocates for Federal recipients

likely to be most affected by the rule. For example, focus groups were

held nationwide to understand better the needs of Federal payment

recipients and to test public education messages and materials

developed to explain EFT to recipients. Also, the public was invited to

attend four Treasury-sponsored public hearings in the cities of

Baltimore, Dallas, Los Angeles, and New York. Over 50 interested

parties testified as to their views and concerns regarding EFT. In

addition, representatives from consumer and community-based

organizations and from financial institutions, financial institution

trade associations, and ATM networks were invited to participate in two

public meetings to discuss the account to be made available pursuant to

Sec. 208.5.

Finally, through an EFT Interagency Policy Workgroup, Treasury has

worked with Federal agencies to solicit input on EFT conversion as well

as to understand better agency implementation concerns. Agency feedback

has been essential to formulating a final rule that meets both Federal

agency and recipient needs.

II. Comments

A. 208 NPRM

Treasury received 212 comment letters in response to the 208 NPRM

that was published on September 16, 1997. Copies of the comments are

available on the Financial Management Service's (Service's) web site at

http://www.fms.treas.gov/eft/. Comments were received from consumer and

community-based organizations, recipients, financial institutions, non-

financial institutions, Federal agencies, and other interested parties.

In addition, comments were received in the form of testimony at the

four public hearings on EFT.

In general, commenters supported the use of EFT for Federal

payments. Although comments were received on a multitude of issues, the

principal issues addressed in the comment letters were the expansion of

hardship waivers; the availability and features of the ETASM

to be made available by Treasury pursuant to Sec. 208.5 of the 208

NPRM; and the regulation of accounts other than the ETASM to

which Federal payments may be sent.

These issues are discussed below in the section-by-section

analysis.

B. 207 NPRM

Treasury received 33 comment letters on the 207 NPRM that was

published on May 9, 1997. Copies of the comments are available on the

Service's web site at http://www.fms.treas.gov/eft/. Comments were

received from consumer organizations, financial institutions, financial

trade associations, a representative of non-bank financial service

providers, State government organizations, and a software development

company. The comment letters generally supported the use of EBT to make

Federal payments.

Some of the comments on the 207 NPRM related to issues that were

the subject of Part 208, in particular Sec. 208.5, Availability of the

ETASM. Those comments have been addressed below in the

section-by-section analysis of Part 208.

Other comments related to issues that will be the subject of a

notice of proposed ETASM features to be published in the

Federal Register and, therefore, will be addressed in that document.

Comments related to the attributes of the ETASM include

comments on provisions in proposed Sec. 207.3 that an account

established by a Financial Agent may be closed only at the direction of

Treasury; that Financial Agents must comply with Regulation E; and that

recipients must be provided debit card access to the account.

Still other comments, related to the duties and compensation of

Financial Agents, will be reflected in the Financial Agency Agreement

between Treasury and any financial institution that elects to provide

EBT services, e.g., ETAsSM, as Treasury's Financial Agent.

The characteristics and requirements of EBT programs, including the

duties of the Financial Agent for a particular program, may vary

according to the program. Therefore, Treasury believes that these

duties are best incorporated in the Financial Agency Agreement for the

particular program.

III. Section-by-Section Analysis of Part 208

A. Section 208.1--Scope and Application

Final Sec. 208.1, which is unchanged from proposed Sec. 208.1,

states that this rule applies to all Federal payments made by an agency

and, except as waived by the Secretary, requires that such payments be

made by EFT. This part does not apply to payments under the Internal

Revenue Code of 1986.

B. Section 208.2--Definitions

All definitions contained in the 208 NPRM are substantively

unchanged in the final Part 208 rule. Definitions for the terms

``ETASM,'' ``Federal/State EBT program,'' and ``Federally-

insured financial institution'' have been added to the rule. In

addition, definitions from the 207 NPRM for ``Direct Federal electronic

benefits transfer (EBT)'' and ``disburse'' have been modified and

incorporated into Part 208 as ``electronic benefits transfer (EBT)''

and ``disbursement.'' The definitions of ``eligible financial

institution'' and ``Financial Agent'' have been combined as ``Financial

Agent.'' Comments were received on the 208 NPRM definitions of

``authorized payment agent'' and ``Federal payment.'' For the reasons

discussed below, Treasury has left these two definitions unchanged in

the final rule.

[[Page 51492]]

Disbursement

The final rule includes a definition for ``disbursement.'' This

definition is similar to that for ``disburse'' in the 207 NPRM. The

term ``disbursement'' is used in the definition of ``electronic

benefits transfer (EBT)'' as meaning the performance of a series of

functions by a financial institution that has been designated by

Treasury as a Financial Agent. The functions are: the establishment of

an account that meets the requirements of the Federal Deposit Insurance

Corporation or the National Credit Union Administration Board for

deposit or share insurance; the maintenance of the account; the receipt

and crediting of Federal payments to the account; and the provision of

access to the account on terms specified by Treasury.

The broad definition of ``disbursement'' in Part 208 reflects

Treasury's determination that all of the functions must be performed in

order to accomplish Treasury's goal of providing recipients access to

their payments through an ETASM or a Federal/State EBT

program. By contrast, the term ``disburse'' is used in a narrower sense

in 31 CFR Part 206, Treasury's regulation dealing with the management

of Federal agency receipts and collections. ``Disburse'' is defined in

31 CFR 206.2 as the initiation of an EFT because, in the context of

agency cash management where all the parties have accounts at financial

institutions, the only function that needs to be performed in order to

deliver public money by EFT to the intended recipient is the initiation

of the EFT.

The definition of ``disburse'' in proposed Sec. 207.3(a)(1)

required that the Financial Agent establish an account in the name of

each unbanked recipient. Part 208 deletes the requirement that the

account be ``in the name of'' the recipient because this requirement,

and certain exceptions, are already set forth in Sec. 208.6 of the

final rule.

However, the reference in the definition of ``disbursement'' to the

establishment of an EBT account ``for the recipient'' is intended to

clarify that the account is established on behalf of the recipient and

that the recipient has an ownership interest in the account. While

Treasury controls the nature of the account and imposes certain

obligations on the Financial Agent, the account itself, once

established, is the recipient's account. Accordingly, when Treasury

sends a Federal payment to the account, the funds transferred to the

account cease to be public monies and become the property of the

recipient. In addition, it is the recipient's account for deposit or

share insurance purposes. Also, the recipient is entitled to any

available protection under Regulation E and other consumer protection

laws with respect to the account. Just as with any other account to

which Federal payments are sent, Treasury's liability to the recipient

is extinguished upon final crediting of the transfer of the funds to

the recipient's account.

The final rule adds the phrase ``or other electronic means'' to the

definition of ``disbursement'' to clarify that EBT may not necessarily

be effected through the Automated Clearing House (ACH) system. In

addition, the final definition incorporates, with minor modifications,

the requirement in proposed Sec. 207.3, Duties of the Financial Agent,

that the account established by the Financial Agent be eligible for

Federal deposit insurance.

Electronic Benefits Transfer (EBT)

The final rule includes a definition for ``electronic benefits

transfer (EBT)'' to make clear that certain types of Federal payments

disbursed by a Financial Agent through an ETAsm or a

Federal/State EBT program are considered to be EBT payments. ``EBT'' is

defined specifically as the provision of Federal benefit, wage, salary,

and retirement payments electronically, through disbursement by a

Financial Agent. This definition has been modified from the definition

of ``direct Federal electronic benefits transfer (EBT)'' that appeared

in the 207 NPRM. For reasons discussed below in the section-by-section

analysis of Sec. 208.5, the definition of ``EBT'' is no longer limited

to the disbursement of payments to recipients who do not have an

account at a financial institution.

In 1996, Congress amended the Federal laws that govern Treasury's

designation of financial institutions as Financial Agents. The

amendments clarify the broad authority of the Secretary to define EBT

and to utilize any process deemed appropriate to select Financial

Agents to provide EBT services:

Notwithstanding the Federal Property and Administrative Services

Act of 1949, as amended, the Secretary may select [financial

institutions] as financial agents in accordance with any process the

Secretary deems appropriate and their reasonable duties may include

the provision of electronic benefit transfer services (including

State-administered benefits with the consent of the States), as

defined by the Secretary.

Section 664, Omnibus Consolidated Appropriations Act, 1997, Pub. L.

104-208 amending 12 U.S.C. 90. Conforming amendments were made to 12

U.S.C. 265, 266, 391, 1452(d), 1767, 1789a, 2013, 2122 and to 31 U.S.C.

3122 and 3303.

Part 208 defines the term ``EBT'' for purposes of Pub. L. 104-208

as the provision of certain types of Federal payments electronically,

through disbursement by a financial institution acting as a Financial

Agent. As indicated above, the term ``EBT'' includes disbursement

through ETAsSM and Federal/State EBT programs.

EBT is distinguished from Direct Deposit, the program used by

agencies, at the request of the payment recipient, to send funds

through the ACH system to an account established by the recipient at a

financial institution. Although Direct Deposit and EBT are similar in

that both involve the movement of funds by EFT to an account at a

financial institution, there are significant distinctions between them.

In Direct Deposit, Treasury initiates an electronic payment to a

recipient's account, but has no responsibilities with respect to the

account or the nature or quality of the account services provided. In

contrast, in an EBT program, the attributes of the account to which the

Federal payments are sent are determined by Treasury, and the financial

institution provides recipients access to their payments in the manner

and on terms specified by Treasury. The financial institution holding

the EBT account acts as Treasury's Financial Agent in establishing and

maintaining the account for the recipient, and thus has a legal

relationship with Treasury with respect to the account.

In addition, as mentioned above, although both Direct Deposit and

EBT involve the disbursement of public funds, what is involved in

accomplishing the disbursement differs. In Direct Deposit, Treasury

disburses public funds by originating an ACH credit to the financial

institution designated by the recipient as the financial institution

that holds the recipient's account. In EBT, disbursement is a multi-

step process that includes, in addition to the origination of an ACH

credit, the establishment of an account for the recipient by Treasury's

Financial Agent and the provision of access to that account by the

Financial Agent in accordance with the terms specified by Treasury.

ETASM

The final rule includes a definition for ``ETASM. The

208 NPRM did not use the term ``ETASM and, therefore, did

not define the term. Since the final rule uses the term in Sec. 208.5

as well as selected other sections, a definition has been

[[Page 51493]]

added to facilitate the referencing of the Treasury-designated account

to which Federal payments may be made electronically. The definition

states that an ETASM is a Treasury-designated account, i.e.,

Treasury will determine the features of the account. In addition, the

definition makes clear that a financial institution offering an

ETASM does so as Treasury's Financial Agent. As indicated

above in the discussion on ``EBT,'' an ETASM falls within

the definition of ``EBT.''

Federal/State EBT Program

The final rule includes a definition for ``Federal/State EBT

program'' to distinguish an account offered through this type of

program from an ETASM. As defined, a Federal/State EBT

program is a program that provides access to Federal payments and

State-administered benefits through a single delivery system and in

which Treasury designates the Financial Agent to disburse the Federal

payments.

Federally-Insured Financial Institution

The final rule includes a definition for ``Federally-insured

financial institution. This definition was added because of the

requirement in Sec. 208.5 that all financial institutions that offer an

ETASM must be Federally insured.

Financial Agent

The final rule includes a definition for ``Financial Agent.''

``Financial Agent'' is defined as a financial institution that has been

designated by Treasury as a Financial Agent for EBT pursuant to any

statutory Financial Agent designation authority. The definition makes

reference to certain selected United States Code sections, amended by

Pub. L. 104-208, that authorize the designation of financial

institutions as Financial Agents.

As indicated in the discussion on ``EBT,'' Pub. L. 104-208

clarifies the Secretary's authority to designate financial institutions

as Financial Agents to provide EBT services. As also indicated, for

purposes of Part 208, EBT services include disbursement of Federal

payments through ETAsSM as well as through Federal/State EBT

programs, where applicable.

The Part 208 definition of ``Financial Agent'' combines the 207

NPRM definitions of ``eligible financial institution'' and ``Financial

Agent.'' The substance of the definition remains the same.

Financial Agent--Designation

A number of financial institutions and financial trade associations

commenting on the 207 NPRM requested clarification as to whether a

financial institution could be designated as a Financial Agent and

compelled to provide EBT services even if the institution did not wish

to do so. These entities urged Treasury to allow financial institutions

to decide whether or not they wish to act as Financial Agents for the

provision of EBT services and to clarify in the rule that participation

is voluntary. Treasury does not intend to designate as Financial Agents

financial institutions that do not wish to provide EBT services. To

clarify this point, Sec. 208.5 has been modified to read, ``Any

Federally-insured financial institution shall be eligible, but not

required, to offer ETAsSM as Treasury's Financial Agent.''

Financial Agent--Liability

A number of commenters on the 207 NPRM requested clarification

regarding the responsibilities and liabilities of financial

institutions that are designated as Financial Agents for the provision

of EBT services. Some financial institutions and financial trade

associations were concerned about the potential liabilities that

financial institutions would face in serving as Financial Agents.

Several of these organizations commented that, in particular, the

regulations should be more specific regarding the potential liability

of a Financial Agent for erroneous payments. Other financial

institutions commented that since Financial Agents will be required to

accept recipients as customers and will not have the discretionary

right to freeze or close an EBT account, the risk of loss associated

with such accounts may be significantly higher than for regular

customer accounts. For example, losses could be incurred if the

Financial Agent is required, pursuant to Regulation E, to provide

provisional funds as a result of an account dispute and the funds are

subsequently withdrawn. In light of the higher risk that commenters

believe EBT accounts might involve, Treasury was urged to indemnify

Financial Agents against all losses associated with providing EBT

services.

With respect to the issue of erroneous payments, Federal payments

made pursuant to an EBT program through the ACH system will be governed

by 31 CFR Part 210, Treasury's regulation establishing the rights and

liabilities of parties in connection with ACH credit entries, debit

entries, and entry data originated or received by a Federal agency

through the ACH system. A Notice of Proposed Rulemaking to revise Part

210 was published for public comment on February 2, 1998. 63 FR 5426.

Treasury has not included in Part 208 any reference to the closing

of accounts. Rather, Treasury will include in the Financial Agency

Agreement a provision that the account may only be closed in

circumstances that have been approved by Treasury. It is not Treasury's

intent to restrict a Financial Agent's ability to prevent losses

arising from fraudulent or abusive activity in the account. However,

Treasury is concerned that the closure of EBT accounts could pose a

significant hardship to recipients who are relying on the availability

of such accounts in order to receive their Federal payments. Treasury

believes that the hardship to recipients that could result from the

closing of EBT accounts must be balanced against the need to detect and

limit fraudulent activity on the accounts. Treasury also believes that

the bases upon which it is appropriate to permit a Financial Agent to

close an account may vary among EBT programs, depending on the nature

and features of the accounts. The Financial Agency Agreement will

include program-specific criteria for the closing of accounts, i.e.,

will establish the circumstances under which a Financial Agent may

close an account. The Financial Agency Agreement will also address the

allocation of any resulting losses.

With respect to losses to Financial Agents resulting from

recipients' abuse of EBT accounts, Treasury's legal authority to

indemnify Financial Agents must be determined on a case-by-case basis.

Treasury does not believe that, as a general matter, it is necessary or

appropriate to indemnify Financial Agents for all losses associated

with providing the EBT services. Any unusual risks that might be

presented by the structure of a particular EBT program will be

evaluated and addressed on a program-specific basis.

Financial Agent--Compliance With Regulation E

Several financial trade associations and financial institutions

requested clarification on the responsibilities of Financial Agents

regarding Regulation E. Section 207.3(a)(2) of the 207 NPRM proposed to

require all Financial Agents to comply with Regulation E. At the same

time, Sec. 207.3(b) of the 207 NPRM proposed that the Financial Agent

``be accountable only to the Treasury,'' which appeared to some

commenters to conflict with the obligations that a financial

institution would have to recipients under Regulation E. In addition,

several State government entities requested clarification on how

Regulation E claims would be handled

[[Page 51494]]

in cases where both State and Federal funds are included in the same

account. Two financial trade associations commented that the Regulation

E exemption for small financial institutions should be available for

such institutions. Another financial institution trade association

commented that Financial Agents should be allowed to delegate

Regulation E compliance requirements to a third party, such as a

corporate credit union (in the case of credit unions).

The rule language of Part 208 does not incorporate the 207 NPRM

provision on Regulation E. The extent to which Regulation E applies to

an account established under a particular EBT program will be addressed

on a program-by-program basis, including in the context of a Federal/

State EBT program. The Board of Governors of the Federal Reserve System

is responsible for the implementation and interpretation of Regulation

E. See 15 U.S.C. 1693b. Accordingly, Treasury does not believe it is

appropriate for Treasury to address the availability of the exemption

for small financial institutions or the ability of financial

institutions to delegate Regulation E requirements. For purposes of the

ETASM, requirements related to Regulation E will be included

in the notice of proposed ETASM attributes and in the

ETASM Financial Agency Agreement.

Treasury has not included in Part 208 the accountability language

of Sec. 207.3(b) of the 207 NPRM. Treasury notes, however, that a

Financial Agent will be accountable to Treasury for any failure of the

Financial Agent to comply with its obligations under the agreement

between Treasury and the Financial Agent.

Authorized Payment Agent

The 208 NPRM defined ``authorized payment agent'' as any individual

or entity that is appointed or otherwise selected as a representative

payee or fiduciary, under regulations of the Social Security

Administration, the Department of Veterans Affairs, the Railroad

Retirement Board, or other agency making Federal payments, to act on

behalf of an individual entitled to a Federal payment. The final rule

makes no change in this definition.

Treasury received comments from non-financial institutions

requesting Treasury to expand the definition of an authorized payment

agent to include non-financial institutions. Commenters stated that the

current financial infrastructure is not sufficiently extensive to reach

all Federal recipients required to receive payments electronically.

Many of these entities stressed their extensive network of agents in

locations in rural areas and low and moderate income neighborhoods.

These locations include convenience stores, supermarkets, pharmacies,

travel agents, gas stations, and other retail outlets. In their

comments, money transmitters, currency exchanges, and check cashers

stressed their current role in providing financial services in

locations where there are few bank branches.

Treasury has considered the role of non-financial institutions in

two contexts in the rule: Sec. 208.5 related to the ETASM

and Sec. 208.6 related to account requirements. A discussion of

comments received and Treasury's response is included in the section-

by-section analysis of the respective sections.

Federal Payment

The definition of ``Federal payment'' in the final rule is

identical to the definition of that term in the proposed rule.

Treasury received many comments from agencies seeking clarification

on whether payments made to recipients through third parties are

required to be made by EFT. For example, the Department of Health and

Human Services requested that Treasury clarify whether payments made by

third-party contractors to doctors and hospitals for Medicare claims

are required to be made by EFT. Typically, when an agency relies on a

third-party contractor for payment services, the contractor makes a

payment to a Federal payment recipient on behalf of the Government and

the Government either (1) funds the payment by sending the funds to the

contractor before the contractor makes the payment, or (2) reimburses

the contractor for amounts already paid on the Government's behalf.

Treasury will consider on a case-by-case basis situations in which

an agency makes an EFT payment to a third-party contractor for purposes

of funding a paper payment issued by that third party to a recipient.

Treasury believes that some of these arrangements comply with this

part. For example, in light of certain specific statutory provisions

governing the issuance of Medicare payments, as well as the overall

structure of the program, the issuance of paper Medicare payments by

intermediaries and carriers would be in compliance with this part.

However, Treasury does not believe that other arrangements in which a

Federal agency reimburses a contractor by EFT for the contractor's

issuance of checks to the agency's payees necessarily comply with this

part.

Several agencies also requested clarification on whether third-

party drafts and certain other paper-based instruments such as credit

card convenience checks utilized by some agencies are considered to be

in compliance with the Act. Under current third-party draft and

convenience check arrangements, agencies make payments using drafts and

checks drawn against an account held by a third party. After the draft

or check has been presented to and paid by the third party's bank, the

third party bills the agency and the agency reimburses the third party

by EFT. Several agencies commented that the issuance of a check or

draft in these circumstances is only a component of the overall

transaction which, viewed in its entirety, should be considered to be a

Federal payment made by EFT because the agency is reimbursing the third

party by EFT.

It is Treasury's view that a payment made by a third-party draft or

convenience check in this manner is a Federal payment, and therefore

must be made by EFT unless a waiver is available. The fact that third-

party drafts and convenience checks are not drawn against an account of

the United States Government does not exclude them from the category of

Federal payments. The essential nature of such arrangements is simply

the issuance of a paper check, with the added step of utilizing an

account owned by a third party. One goal of the Act is to save the

Government money by eliminating checks and the incremental costs

associated with them and converting all payments to less costly EFT.

Third-party draft arrangements involve all the costs associated with

paper instruments, plus the additional expense of reimbursing the third

party for the agency's use of the account. Accordingly, third-party

drafts, credit card convenience checks, and similar arrangements

utilizing paper-based instruments may only be used when the requirement

to make payment by EFT is waived under the waiver categories found at

Sec. 208.4.

C. Section 208.3--Payment by Electronic Funds Transfer

This section, which is unchanged from Sec. 208.3 of the 208 NPRM,

implements 31 U.S.C. 3332(f)(1) and provides that, subject to

Sec. 208.4 and notwithstanding any other provision of law, effective

January 2, 1999, all Federal payments made by an agency shall be made

by EFT. Pursuant to the definition of Federal payment, payments made

under the Internal

[[Page 51495]]

Revenue Code of 1986 are not required to be made by EFT.

D. Section 208.4--Waivers

Waiver Standards

Section 208.4 lists waivers from the requirement that Federal

payment be made by EFT. As explained in the preamble to the 208 NPRM,

the waiver categories are based on the following four standards

developed by the Secretary: (1) Hardship on the recipient; (2)

impossibility; (3) cost-benefit; and (4) law enforcement and national

security. The 208 NPRM provided eight waiver categories; for the

reasons described below, the final rule provides seven waiver

categories.

The waivers contained in the 208 NPRM related to standards two

through four named above remain the same, except for a minor change in

wording in proposed Sec. 208.4(e) from ``armed forces'' to ``uniformed

services'' to reflect the use of that term in 10 U.S.C. 101(1)(13)

defining contingency operations. Those waivers, contained in the 208

NPRM as Secs. 208.4(c) through (h), appear in the final rule as

Secs. 208.4(b) through (g).

Hardship Waivers

Sections 208.4(a) and (b) of the 208 NPRM, related to standard one

(hardship on the recipient), have been revised and combined into

Sec. 208.4(a) in the final rule. As with Secs. 208.4(a) and (b) of the

208 NPRM, the hardship waivers referenced in final Sec. 208.4(a) apply

only to recipients who are individuals as defined under Sec. 208.2.

Hardship Waivers--Recipients With and Without Accounts

Final Sec. 208.4(a) broadens the hardship waivers available to

individuals. The final rule does not distinguish between recipients who

have an account with a financial institution and those who do not.

Rather, it simply refers to individuals who determine that payment by

EFT would impose a hardship.

Treasury received a number of comments from consumer organizations,

recipients, and Government agencies stating that the hardship waivers

should apply to all Federal payment recipients, regardless of whether

they have an account at a financial institution. Commenters stated that

by limiting the financial hardship provision in the 208 NPRM to

individuals who do not have an account at a financial institution, no

accommodation is made for recipients who may have an account but, for

whatever reason, may not be able to afford keeping such an account.

This could happen if, for example, account fees or charges increase to

what becomes an unaffordable amount for the recipient. It could also

happen if the recipient's overall financial situation were to change

for the worse for some reason beyond the recipient's control, such as a

job loss, a serious illness of a dependent, or the death of an income

provider.

Commenters also noted that, as proposed, the financial hardship

provision would not be available to those recipients who opened

accounts because of the fear of losing or interrupting their benefits.

A number of consumer organizations stated that some of their

constituents had enrolled in high cost programs with financial and non-

financial institutions in the mistaken belief that they needed to have

an account in order to continue to receive Federal benefit payments. In

response to these comments, Treasury has deleted from the hardship

waiver category any reference to persons having or not having an

account at a financial institution.

Hardship Waivers--Date of Eligibility

The final rule does not distinguish between recipients who became

eligible for a Federal payment before July 26, 1996, and those who

became eligible on or after that date. Final Sec. 208.4(a) provides

that certain hardship waivers are available to individuals, regardless

of when they became eligible to receive their Federal payments.

The majority of consumer organizations, recipients, and Government

agencies commenting on the 208 NPRM objected to the ``date of

eligibility'' distinction in the NPRM. As proposed, there were no

hardship waivers for recipients who had an account with a financial

institution and who became eligible for a Federal payment on or after

July 26, 1996. Commenters stated that a recipient's physical condition

and geographic location have no direct relationship to the recipient's

date of eligibility for his or her Federal payments. For example,

recipients who are physically disabled may need a hardship waiver,

regardless of when they began receiving their benefits. In addition,

commenters pointed out that the date of eligibility distinction makes

no allowance for future changes in the circumstances of a recipient.

For example, a recipient who was receiving payment by EFT and then

becomes physically disabled should be eligible for a physical hardship

waiver.

Benefit agencies presented other reasons for removing the ``date of

eligibility'' distinction from the hardship waiver provisions. Several

agencies expressed concern about the complexity of implementing a

system to track waivers where a hardship waiver would be available for

one type of payment for which an individual became eligible prior to

July 26, 1996, and not available for another type of payment for which

the same individual became eligible after that date.

Several other agencies, however, defended the ``date of

eligibility'' distinction in the NPRM, based on their past experiences

in enrolling Federal payment recipients in EFT. These agencies stated

that even though there is no direct relationship between a recipient's

ability to receive an EFT payment and his or her date of eligibility

for Federal benefits, this policy makes sense from an operational

perspective, since the majority of new payment recipients voluntarily

enroll in EFT. For example, the Social Security Administration is

currently enrolling 85% of its new benefit recipients in EFT. In

addition, these agencies expressed concern that Treasury would diminish

the effectiveness of the EFT mandate by providing liberal waiver

policies. However, even though there is clear evidence that the

majority of new Federal payment recipients voluntarily enroll in EFT,

it is not clear that those for whom EFT would impose a hardship are

proportionately represented. Based on this and on the comments

received, Treasury has determined that there is not sufficient

justification to distinguish between recipients based on their date of

eligibility for payment.

Expansion of Hardship Waivers

Final Sec. 208.4(a) expands the hardship waiver provisions to

accommodate recipients with mental disabilities or language or literacy

barriers. Comments on the 208 NPRM from consumer and community-based

organizations and payment recipients presented reasons as to why EFT

may not be a viable option for recipients with such disabilities and

barriers. A recurring argument heard for each of these categories was

that there are factors specific to EFT payments that present greater

challenges to recipients than do check payments. For example, a

recipient with a mental disability or a language or literacy barrier

may be able to sign his or her name on a check but may not be able to

navigate through the information on ATM screens.

Consumer and community-based organizations also took issue with the

position taken in the 208 NPRM that agencies currently accommodate

recipients with mental disabilities by allowing for representative

payees to manage the recipients' benefit payments, and that the method

by

[[Page 51496]]

which payment is made to the representative payee has no effect on the

actual recipient. These commenters stated that many recipients with

mental disabilities are able to perform tasks necessary to negotiate a

check payment on their own and do not need to rely on a representative

payee to do so. However, this is not usually the case with EFT

payments, since an electronic system is more difficult to

conceptualize. As a result, the EFT requirement can drastically reduce

a recipient's financial independence and subject him or her to the

inherent risks associated with relying on a third party to access a

payment.

Broadening the hardship waivers available to recipients is

consistent with the legislative history of the Act which refers

specifically to ``individuals who have geographical, physical, mental,

educational, or language barriers'' and a concern that these

individuals may not be able to receive their benefits if payment is

required to be made by EFT. See 142 Cong. Rec. H4090 (April 25, 1996).

Waiver Process

In addition to broadening the hardship waivers available to

individuals, the final rule makes clear Treasury's intent that the

waiver process will be based on an individual's self-determination that

a hardship exists. By changing the language from ``certifies'' to

``determines'' and adding the phrase ``in his or her sole discretion,''

Treasury is indicating that an individual has the right to determine

whether he or she qualifies for a waiver. As discussed below in the

section-by-section analysis of Sec. 208.7, an agency may request that

the individual inform the agency of his or her election to rely upon a

waiver. However, the agency may not require evidence of any condition

underlying the recipient's election of a waiver. In addition, if the

agency receives no response from a recipient, the agency must continue

to make payment by check.

The change from ``certifies'' to ``determines'' also addresses a

concern raised by the Social Security Administration and other agencies

that collecting and documenting written waiver certifications would

impose a heavy administrative burden on those agencies. Under the final

rule, there is no requirement that written certifications be obtained.

In contrast to Sec. 208.4(a), the availability of a waiver under

Secs. 208.4(b) through (g) is to be determined in the first instance by

the agency responsible for making the payment. Under the regulation,

there is no requirement that Treasury approve or certify the

applicability of a waiver under circumstances described in

Secs. 208.4(b) through (g). Treasury believes that, as a general

matter, agencies are in the best position to determine whether the

criteria set forth at Secs. 208.4(b) through (g) are met in a

particular set of circumstances. Treasury does not intend to review

routinely agency decisions to make payment by check or cash in

circumstances addressed in Secs. 208.4(b) through (g). However,

Treasury may consider the appropriateness of check or cash payments in

reliance on Secs. 208.4(b) through (g) on a case-by-case basis.

Automatic Waiver

In addition to the changes mentioned above, the final rule contains

three changes in the automatic waiver provision for individuals who do

not have an account with a financial institution. In the 208 NPRM, this

waiver was until the earlier of January 2, 2000, or the date as of

which the Secretary determines that the ETASM is available.

First, the final rule adds the phrase ``who are eligible to open an

ETASM'' to reflect the change made in final Sec. 208.5

limiting eligibility for an ETASM to individuals who receive

a Federal benefit, wage, salary, or retirement payment. Second, the

final rule deletes the phrase ``who certify'' to emphasize that

individuals who do not have an account with a financial institution do

not need to take any action in order to invoke the automatic waiver.

Third, the final rule deletes the reference to January 2, 2000, and

states that an automatic waiver is granted until such date as the

Secretary determines that the ETASM is available. Agencies

stated that they will need six to nine months after the

ETASM becomes operationally available to enroll recipients

who elect to have access to their payment through this account. In

order to ensure that agencies have the necessary lead time, Treasury

has deleted the January 2, 2000, date reference.

Waiver for Non-Recurring Payments

Agency comments were received on proposed Sec. 208.4(g), which

provides a waiver for payment by EFT where the agency does not expect

to make more than one payment to the same recipient within a one-year

period, i.e., the payment is non-recurring, and the cost of making the

payment via EFT exceeds the cost of making the payment by check. This

waiver was intended to address those situations in which payment by

check might be more cost-effective than payment by EFT given the

administrative cost of enrolling a recipient for an EFT payment.

One agency requested clarification as to who would be responsible

for the cost/benefit analysis. Another agency requested clarification

as to whether a cost/benefit analysis must be documented to support an

agency's decision to issue a check. While the cost/benefit of making an

EFT payment over a check payment is generally known, the cost to each

agency of enrolling a recipient for EFT payment is best determined by

that agency. Therefore, Treasury is leaving it to the agency to

determine if it is more cost-effective to make a non-recurring payment

by check rather than electronically. Agencies will not be expected to

document a cost/benefit analysis for every non-recurring payment, but

should establish internal procedures for determining when such payments

are to be made by check.

As pointed out in the preamble to the 208 NPRM, this waiver

category was not meant to suggest that the dollar amount of the payment

is at any time a determining factor for the application of the waiver.

Rather, the determining factor is whether the payment is a one-time

payment as opposed to a recurring payment.

No Waiver for Vendor Payments

As with the 208 NPRM, the final rule contains no specific waiver

for vendor payments. Treasury received several comments from agencies

and Federal Government vendors citing a need for a waiver in those

circumstances where remittance data, i.e., information that identifies

the payment, is not available to the vendor. This may happen because a

financial institution is not capable operationally of delivering the

data to the vendor in human readable form or because the cost to the

vendor of obtaining the data is determined to be unacceptably high.

Vendors require this payment-related information to reconcile payments

against outstanding invoices.

Since the publication of the 208 NPRM, much progress has been made

in the effort to provide vendors with access to remittance data. As of

September 1998, the National Automated Clearing House Association rules

require that upon request of a recipient, a financial institution

receiving a payment to be credited to the recipient's account through

the ACH must provide all payment-related information sent with the

payment. To assist in this effort, the Board of Governors of the

Federal Reserve System has acquired low-cost software that will enable

financial institutions to capture payment

[[Page 51497]]

information and present it to the vendor in readable form. This

software, expected to be released in the fourth quarter of 1998, will

be made available to approximately 12,000 financial institutions

through Fedline, the Federal Reserve's telecommunication service.

Also, the Service's Austin Financial Center has developed an online

internet site where vendors can use a password to access information

about a Federal payment. This service currently is available to all

Federal agencies and their vendors. Other ongoing efforts include

training for agencies on correctly formatting the addenda record in

which payment information is contained and outreach through literature

and local ACH association workshops for financial institutions and

their customers. In addition, Treasury has developed a standard check

insert, which agencies are encouraged to use, to assist in enrolling

vendors in Direct Deposit.

Treasury expects that these efforts will result in readily

available solutions to this problem by the January 2, 1999, deadline.

Treasury will continue to monitor the development of these solutions to

determine if some modification is needed.

E. Section 208.5--Availability of the ETASM

Proposed Sec. 208.5 provided that where the requirement to pay by

EFT is not waived and an individual either certifies that he or she

does not have an account with a financial institution or fails to

provide information necessary to send the payment by EFT, Treasury

would provide the individual with access to an account at a Federally-

insured financial institution selected by Treasury.

In response to comments and as a result of further research and

analysis, Treasury has taken a different approach to account access in

the final rule. Final Sec. 208.5 states that an individual who receives

a Federal benefit, wage, salary, or retirement payment shall be

eligible to open an ETASM at a financial institution that

offers ETAsSM. Any Federally-insured financial institution

will be permitted (but not required) to offer ETAsSM as

Treasury's Financial Agent upon entering into an ETASM

Financial Agency Agreement. (The designation of the financial

institution as Treasury's Financial Agent is authorized under Pub. L.

104-208.) The final regulation provides that Treasury shall publish

required attributes for ETAsSM and that any ETASM

offered by a financial institution must comply with those requirements.

Further, it clarifies that the offering of an ETASM

constitutes the provision of EBT services within the meaning of Pub. L.

104-208.

Eligibility for an ETASM

The final rule limits eligibility for an ETASM to

individuals who receive a Federal benefit, wage, salary, or retirement

payment. The comments received indicate that it is this group of

recipients of Federal payments--rather than recipients of vendor or

miscellaneous payments--who most need, and would benefit from, a low-

cost account such as the ETASM. It is Treasury's objective

to encourage this group of individuals to move into the financial

mainstream through access to ETAsSM.

The 208 NPRM stated that Treasury would provide access to an

account ``where the requirement to pay by electronic funds transfer is

not waived'' and ``an individual either certifies that he or she does

not have an account with a financial institution, or fails to provide

information pursuant to Sec. 208.8.'' All of these conditions have been

removed in the final rule. Under final Sec. 208.5, any recipient of a

Federal benefit, salary, wage, or retirement payment is eligible to

open an ETASM. However, if a recipient does not

affirmatively elect electronic deposit to an ETASM or

another account at a financial institution, the recipient will receive

payment by check.

Comments received from consumer and community-based organizations

urged Treasury to allow recipients to receive their Federal payments

through an ETASM even if the recipient has another account

at a financial institution. Several commenters expressed the concern

that some recipients are opening accounts which are too costly because

of the fear that their payments would be stopped or interrupted if an

account was not opened. Some commenters were concerned that financial

institutions' fee structures are confusing for some recipients and that

account-related fees may increase, with the result that recipients can

no longer afford to maintain an account that was affordable when

opened. Other commenters expressed a concern that a recipient's

financial circumstances can change, so that the recipient can no longer

afford to maintain an account at a financial institution. Some consumer

and community-based organizations also commented that individuals may

have established accounts for certain limited uses, such as a savings

account set up for a special purpose, which they do not wish to use to

access their Federal payment.

The final rule addresses all of these concerns by making any

individual who receives a Federal benefit, wage, salary, or retirement

payment eligible for an ETASM, regardless of whether the

individual has an account at a financial institution.

Regulation of Non-ETASM Accounts

Treasury believes that expanding eligibility for the

ETASM mitigates the concern expressed by several consumer

organizations that the provision of the ETASM as

contemplated in the 208 NPRM would not fully satisfy the Act's

``reasonable cost'' and ``same consumer protections'' requirements.

Specifically, the Act provides:

Regulations under this subsection shall ensure that individuals

required under subsection (g) 1 to have an account at a

financial institution because of the application of subsection (f)(1)

2--

---------------------------------------------------------------------------

\1\ Subsection (g) requires each recipient of Federal payments

required to be made by EFT to designate a financial institution or

other authorized agent to which payments shall be made and to

provide the paying agency with the information necessary for the

recipient to receive EFT payments through the institution or agent.

\2\ Subsection (f)(1) requires that, with certain exceptions,

all Federal payments made after January 1, 1999, be made by EFT.

---------------------------------------------------------------------------

(A) Will have access to such an account at a reasonable cost; and

(B) Are given the same consumer protections with respect to the

account as other account holders at the same financial institution. 31

U.S.C. 3332(i).

As discussed in the preamble to the 208 NPRM, the requirement that

Treasury ensure access to an account could be read very broadly to

refer to all individual recipients who are required to receive their

Federal payments by EFT, whether or not they already have an account.

62 FR 48714, 48723. The Act also could be read more narrowly as

referring to those individuals who have not voluntarily selected or

opened an account at a financial institution, who are not eligible for

a waiver, and who will need access to an account in order to receive a

Federal payment by EFT. Several commenters urged Treasury to read the

requirement in the broader fashion and to regulate the pricing and

terms of all accounts at financial institutions to which Federal

payments may be sent by EFT. Consumer and community-based organizations

in favor of such regulation stated that some financial institutions

charge fees for basic banking services that are excessive or

inadequately disclosed. These groups were particularly concerned with

the development of arrangements between financial institutions and non-

financial institution payment service providers in

[[Page 51498]]

which individuals may have access to their Federal payments only

through the service provider under terms and conditions that the

individuals may not understand. Consumer and community-based

organizations stated that the fees charged in connection with accessing

payments through these types of arrangements may be both substantial

and complicated.

In contrast to comments received from consumer and community-based

organizations, financial institutions commented that Treasury should

not regulate banking fees and services because such regulation would

interfere with the efficient operation of the free market. Both

financial institutions and other providers of financial services,

including check cashers, urged Treasury not to regulate arrangements in

which recipients establish and access accounts at financial

institutions through check cashers, stating that check cashers provide

convenient hours and locations and a variety of services not otherwise

available to recipients.

Treasury has decided in this rulemaking not to engage in a broad

regulation of accounts, other than ETAsSM, offered directly

by financial institutions. By providing that all recipients of Federal

benefit, wage, salary, and retirement payments are eligible for an

ETASM, Treasury believes that many of the concerns expressed

by consumer organizations should be allayed. Regulating all accounts

opened voluntarily by Federal payment recipients would create a

significant burden on bank regulatory agencies and the banking industry

and would interfere with the functioning of the market for financial

services. Treasury believes that the emphasis of the Act is on ensuring

that individuals required to have an account in order to receive

Federal payments will not be disadvantaged by establishing an account

for receipt of their payments. To this end, the Act requires that these

individuals be afforded access to an account at a reasonable cost and

with the same consumer protections made available to other individuals

who maintain accounts at the same financial institution.

Non-Financial Institution Payment Service Providers

Treasury believes that a majority of Federal payment recipients

receiving electronic Federal payments have chosen or will choose an

account that best suits their needs and resources. However, Treasury is

very concerned with the nature of certain arrangements that some

financial institutions have entered into with non-financial institution

providers of payment services, such as check cashers, currency

exchanges, or money transmitters. Such arrangements may involve giving

recipients access to EFT deposits in their insured accounts through the

uninsured service provider. Some commenters stated that non-financial

institutions provide payment services in rural areas and low and

moderate income neighborhoods not served by banks and other financial

institutions. While arrangements between financial institutions and

non-financial institution payment service providers could provide

recipients with an expanded range of alternatives for payment services,

they also raise the possibility that recipients would not be clearly

informed of the fee structures involved, the legal nature of the

relationship, the application of deposit insurance, or the other

options available under the Act. At present, there is no comprehensive

Federal regulation of non-financial institution payment service

providers and, except in limited cases, no Federal oversight of

arrangements between financial institutions and non-financial

institution service providers.

Treasury has advised the Federal bank regulatory agencies that

supervise financial institutions that an insured financial institution

should provide appropriate disclosures to customers when it

participates in arrangements with non-financial institution providers

of payment services. Such disclosures should fully and fairly convey

information about the fees and costs imposed by all of the parties to

the arrangement, as well as the legal relationships involved, and

should explain the applicability of federal deposit insurance insofar

as it is relevant to the arrangement. In addition, disclosures should

be framed so as not to mislead recipients as to the requirements of the

Act.

Treasury is monitoring the development of arrangements between

financial institutions and uninsured non-financial institution payment

service providers and may propose a regulation covering these

arrangements. Any such action would be undertaken as a new regulatory

action and will be published for public comment.

Notice of ETASM Attributes

With respect to the particular features and structure of the

ETASM, the preamble to the 208 NPRM requested comment on

several questions related to the ETASM, including the role

of non-financial institutions in providing access to the

ETASM. Treasury expects to publish shortly in the Federal

Register a notice of proposed ETASM features with a request

for comment. Following the comment period, Treasury will publish a

notice setting forth the required attributes for ETAsSM.

Access to an ETASM

In formulating a final rule that allows, but does not require, any

Federally-insured financial institution to offer ETAsSM,

Treasury's goal is to provide maximum convenient access for recipients.

However, Treasury is aware that not all financial institutions may opt

to offer ETAsSM and that some recipients may not have

convenient access to an ETASM. In such cases, the recipient

will have the option of relying on a geographic, financial, or other

hardship waiver in order to continue receiving payment by check.

Participation by Credit Unions

Treasury received comments from a number of credit unions

expressing an interest in providing ETAsSM. Credit unions

emphasized their long tradition of providing low-cost banking services

and financial education to their members. Credit unions were concerned,

however, that the common bond and field of membership limitations

contained in the Federal Credit Union Act (FCUA) would limit their

ability to provide ETAsSM to non-members.

Treasury recognizes that credit unions' current common bond and

field of membership requirements may limit their ability to offer

accounts to non-members, and is aware of recent legislation that

broadens the common bond requirements of the FCUA. Treasury encourages

credit unions to participate in making low-cost accounts available to

recipients, subject to any applicable constraints on their legal

authority to do so.

Federal/State EBT Programs

Several States submitted comments requesting clarification of the

relationship between the ETASM and State EBT programs. One

State sought reassurance that the development of the ETASM

would not conflict with the ongoing development of joint Federal/State

EBT programs. Another State requested clarification of whether the use

of existing account structures for Federal/State EBT programs would be

in compliance with this regulation. Two States raised concerns about

the relationship between a Financial Agent designated for the Federal/

State EBT program and a Financial Agent designated for the

ETASM. One State expressed the concern that different

requirements for Regulation E coverage

[[Page 51499]]

for State-administered benefits and for Federal benefits would hinder

efforts to have both State and Federal benefits on a single card. One

State commented that States should be allowed to participate in the

selection of a Financial Agent in situations in which the State wishes

to credit payments to an account opened by Treasury on behalf of a

recipient. A financial institution providing State EBT services urged

Treasury to make Federal benefit card services available through a

State EBT program on a voluntary basis and regardless of whether or not

a recipient was receiving State EBT services.

It is Treasury's intention to continue working with States in

designing and implementing Federal/State EBT programs. States will play

an active role in developing the linkage between State and Federal EBT

programs and will have an opportunity to provide input on many of the

duties and qualifications of the Financial Agents designated by

Treasury in connection with Federal/State EBT programs.

Treasury anticipates that many individuals who receive both Federal

and State benefit payments may elect to participate in a Federal/State

EBT program in light of the convenience of receiving both Federal and

State payments through a single delivery system. Those individuals will

also have the option of receiving their State payments through a State

EBT program, if available, and their Federal payments through Direct

Deposit or an ETASM.

F. Section 208.6--General Account Requirements

Section 208.6 provides requirements for accounts held by recipients

at a financial institution and designated by the recipient for deposit

of a Federal payment. These accounts include ETAsSM as well

as accounts other than ETAsSM to which a Federal payment is

sent.

Proposed Sec. 208.6 required that all Federal payments made by EFT

be deposited into an account at a financial institution. It further

required that the account at the financial institution be in the name

of the recipient with two exceptions: (1) where an authorized payment

agent has been selected and (2) where payment is to be deposited into

an investment account established through a registered broker/dealer,

provided the account and associated records are structured so that the

recipient's interest is protected under applicable Federal or State

deposit insurance regulations.

Account Title Requirement

Treasury received numerous comments regarding the requirement that

the account be in the name of the recipient. Several vendors pointed

out that, for operational reasons, it may be advantageous for vendor

payments to be deposited into an account other than one in the name of

the vendor. For example, to avoid a proliferation of bank accounts, a

vendor that is a subsidiary of a corporation may designate that payment

be made to an account in the general corporate name rather than one in

the name of the subsidiary. Other vendors, especially small businesses,

commented that they routinely designate a bank account in the name of

an accountant or other service provider to receive payments on behalf

of the business.

Other commenters explained that Federal wage, salary, and

retirement payments are sometimes deposited into savings, debt

repayment, and other accounts that may not be in the recipient's name.

In the case of Federal wage and salary payments, recipients may request

that their payment be directed to a third party's account for a variety

of reasons including those related to child support and payments to

designated charities. For retirement payments, it is common for a

surviving spouse to be entitled to a portion of a deceased recipient's

retirement payment. In these cases, the payment may be deposited into

an account in the name of the surviving spouse.

The requirement that an account be in the name of the recipient is

designed to ensure that a payment reaches the intended recipient.

Treasury acknowledges, however, that there may be valid reasons for

allowing payments to be made to accounts in names other than those of

the payment recipient. In the case of vendor payments, Treasury

believes that the benefits of allowing payments to be deposited into an

account in a name other than that of the vendor outweigh the risks of

doing so. Therefore, Treasury has modified the ``in the name of the

recipient'' requirement in Sec. 208.6 to exclude vendor payments.

Treasury has not made any changes to final Sec. 208.6 with respect

to wage, salary, and retirement payments. Treasury has considered the

concerns expressed in the comment letters and believes that such

concerns are in most, if not all, cases already addressed by existing

rules. For example, where a recipient's payment is garnished for child

support purposes or where a recipient has designated a discretionary

allotment for a charity, such garnishment or allotment is made prior to

the time the recipient's payment is deposited into an account at a

financial institution and, therefore, would not fall within the ``in

the name of the recipient'' requirement. Where a surviving spouse is

entitled to a deceased recipient's retirement payment, the surviving

spouse is considered to be the recipient and, therefore, the payment

would be deposited into the surviving spouse's account.

Exceptions to Account Title Requirements

As with the 208 NPRM, final Sec. 208.6 contains two exceptions to

the ``in the name of the recipient'' requirement. The first exception

related to authorized payment agents is unchanged from the 208 NPRM.

The second exception related to investment accounts contains two

changes from the 208 NPRM.3 First, the exception has been

expanded to cover investment accounts established through an investment

company registered under the Investment Company Act of 1940 in addition

to investment accounts established through a securities broker or

dealer registered under the Securities Exchange Act of 1934. Second,

the requirement contained in the 208 NPRM that the investment account

and all associated records be structured so that the recipient's

interest is protected under applicable Federal or State deposit

insurance regulations has been deleted.

---------------------------------------------------------------------------

\3\ This exception from the requirement that the account be ``in

the name of the recipient'' would not be available for an ETA

SM since ETAsSM will not be investment

accounts established through a securities broker or dealer or

through an investment company.

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Authorized Payment Agent Exception

Numerous comments were received on the two exceptions to the ``in

the name of the recipient'' requirement contained in proposed

Sec. 208.6(b). Some commenters argued for expanding the first exception

related to authorized payment agent. As discussed above in the section-

by-section analysis of Sec. 208.2, these commenters believed that the

definition of ``authorized payment agent'' should be expanded beyond

its present definition of an authorized payment agent as representative

payee or fiduciary under payment agency regulations.

Two types of entities that requested either an expansion of the

definition or another exception to the requirement that the account be

in the name of the recipient were nursing homes and non-financial

institutions. According to the

[[Page 51500]]

comments received from nursing homes, many nursing home residents sign

their monthly benefit checks over to the nursing home for payment of

services rendered and funds maintenance. To comply with EFT, these

check recipients would be required to establish individual bank

accounts to receive their Federal benefit payments unless a

representative payee or fiduciary is designated. According to one

nursing home, many of their residents are not able to designate the

nursing home as representative payee or fiduciary because the residents

in question do not satisfy the required qualifications issued by

benefit agencies. Comments from nursing homes indicate that by allowing

Federal payments to be deposited into a trust account held by the

nursing home, not only would the cost to the recipient decrease, since

one account would replace a myriad of accounts, but this would allow

for more efficient and convenient service to recipients.

In the 208 NPRM, Treasury noted that the determination of who can

act on behalf of a payment recipient is addressed under the rules of

the various agencies, e.g., the Railroad Retirement Board, the Social

Security Administration, and the Department of Veterans Affairs. The

rules governing these representational relationships are longstanding

and well established. In the 208 NPRM, Treasury deferred to the

administrating agencies in determining who is authorized to receive

payment on behalf of a beneficiary and, therefore, left any questions

regarding who is or who may be considered a representative payee or

fiduciary to the agency making the payment.4 While

recognizing that there may be specific circumstances not addressed in

the current regulations, Treasury believes that these issues are better

left to the payment agencies. Therefore, Treasury has left unchanged

the exception related to authorized payment agent.

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\4\ Several nursing homes requested clarification on whether a

trust account could be established to receive benefit payments on

behalf of all residents that had designated the nursing home as

representative payee. Treasury's regulations require only that the

account be titled in accordance with the regulations governing the

representative payee or fiduciary, i.e., the account may be titled

in any manner that satisfies the regulations of the payment agency.

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Numerous comments were also received from non-financial

institutions requesting an exception to the requirement that the

account be in the name of the recipient. According to non-financial

institutions, an exception would streamline the process by which non-

financial institutions would have access to Federal payments. Instead

of the funds being deposited into an account in the name of the

recipient and then swept into a master account held by the non-

financial institution, the funds could be directly deposited to the

master account. In its comments to the 208 NPRM, one money transmitter

pointed out that it is far more efficient and cost-effective to

maintain one master account than a multitude of individual transaction

accounts. According to the money transmitter, a reduction in the costs

incurred to set up the accounts would result in a reduction in the cost

passed on to the recipient.

Treasury acknowledges that allowing payments to be deposited into a

master account in the name of a non-financial institution could

potentially be a cost savings to a recipient. However, as discussed in

the preamble to the 208 NPRM, Treasury is concerned that such

arrangements might not provide the same level of consumer protection as

do the arrangements otherwise provided for in Sec. 208.6. Specifically,

Treasury is concerned about the potential failure of entities to honor

their obligations, especially since there is no comprehensive Federal

regulation of non-financial institution service providers and, except

in limited cases, no Federal oversight of arrangements such as were

proposed in the comment letters. Therefore, permitting Federal payments

to be deposited into accounts controlled by a wide range of entities

may expose recipients to the credit risk associated with the failure of

such entities. For the above reasons, Treasury has decided not to

extend the authorized payment agent exception to non-financial

institutions or provide an additional exception for such institutions.

Investment Account Exception

In addition to comments on the authorized payment agent exception

contained in proposed Sec. 208.6(b), Treasury also received comments on

the investment account exception. Investment advisors and investment

management companies generally commented that limiting the exception to

investment accounts established through a broker or dealer registered

under the Securities Exchange Act of 1934 was too restrictive and

requested that the exception be broadened. Commenters stated that, as

proposed, this exception would not permit the deposit of Federal

payments directly into money market mutual funds. Rather, a recipient

would be required to have the payment first deposited into his or her

own account or into a brokerage account and then transferred to the

mutual fund account.

In support of their request, commenters emphasized that registered

investment companies, like registered brokers and dealers, are highly

regulated entities. The Investment Company Act of 1940 imposes

comprehensive requirements on the organization and operation of

investment companies. Before making a public offering, an investment

company must register under the Investment Company Act, and it must

register its securities under the Securities Act of 1933. Among other

things, the Investment Company Act imposes requirements regarding

custody of assets, capital structure, investment activities, valuation

of assets, and conflicts of interest.

Treasury has carefully considered these comments and has consulted

with the Securities and Exchange Commission regarding the regulation of

registered investment companies. Based on the information received,

Treasury believes it is appropriate to expand the ``investment

account'' exception to include investment accounts established through

an investment company registered under the Investment Company Act of

1940, and has modified proposed Sec. 208.6(b)(2) accordingly.

Another provision in proposed Sec. 208.6(b)(2) that received

comment was the requirement that, for an account in the name of the

broker or dealer, the account and all associated records be structured

so that the recipient's interest is protected under applicable Federal

or State deposit insurance regulations. Commenters urged Treasury to

reconsider this requirement. They stated that the costs and burden of

restructuring operations to establish and maintain a system that would

provide individual deposit insurance coverage would far outweigh any

possible benefit to payment recipients.

According to commenters, funds deposited into an account in the

name of a broker or dealer generally remain in the account for a very

short period of time. In most cases, the funds, once deposited, are

transferred immediately to an investment vehicle. Therefore, the

required deposit insurance would only apply for the short period of

time that the funds remained in the account. Commenters also stated

that any recipient depositing a payment into a broker or dealer account

would have already established an account with the broker or dealer and

therefore would be aware of the uninsured nature of an investment and

the associated risks.

Based on these comments and after consultation with the Securities

Investor Protection Corporation and the Federal Deposit Insurance

Corporation, Treasury has determined that the nature of

[[Page 51501]]

investment accounts makes it impractical to require that deposit

insurance apply to such accounts. Treasury has, therefore, deleted in

the final rule the requirement that any account in the name of the

broker or dealer and all associated records be structured so that the

recipient's interest is protected under applicable Federal or State

deposit insurance regulations.

G. Section 208.7--Agency Responsibilities

Final Sec. 208.7 requires agencies to notify check recipients and

newly-eligible payment recipients of options available to them and to

establish procedures that allow recipients to indicate that they elect

to have payment deposited by EFT to an account held by them.

Requirement To Make Disclosures

Final Sec. 208.7(a) requires agencies to notify each individual who

is eligible to receive a Federal benefit, wage, salary, or retirement

payment and who is not already receiving payment by EFT, of the

individual's rights and obligations under Secs. 208.3, 208.4(a), and

208.5. The agency disclosure requirement does not extend to individuals

to whom the agency is not required to make payments electronically

pursuant to a waiver provided in Secs. 208.4(b) through 208.4(g).

Treasury received comments from consumer and community-based

organizations urging Treasury to fully inform Federal benefit payment

recipients of all options available to them so that these recipients

would not enter into costly or otherwise inappropriate account

arrangements. Some community-based organizations asked that Treasury's

public education efforts be stopped until the features of the

ETASM and waiver categories are established. One benefit

agency requested that it be exempted from the January 2, 1999, deadline

for all payments and instead be allowed to begin its enrollment for all

recipients after the features of the ETASM have been

established.

Treasury agrees that fully informing recipients of all options is a

critical component of EFT implementation. Treasury sees no benefit to

stopping the public education effort or delaying implementation of EFT

but will instead focus on ensuring that recipients are aware of

available waiver categories and options concerning the

ETASM. As of the effective date of this regulation, agencies

are required to begin providing such disclosures to all individuals

eligible to receive a Federal benefit, wage, salary, or retirement

payment and who are not already receiving payment by EFT. In addition,

once the ETASM is available, agencies will be expected to

notify all eligible individuals who are not receiving payment by EFT,

including those who may have received a prior disclosure, of the

availability of the ETASM and other options.

Agencies must provide the required disclosure to newly eligible

recipients and those currently receiving checks, but not to those

currently receiving their payments by EFT. Requiring agencies to notify

recipients who currently receive payments by EFT would place a heavy

administrative and financial burden on agencies. However, to ensure

that all recipients are aware of their options, including those

recipients who currently receive their payments electronically, it is

Treasury's intent to provide, through the public education effort,

ongoing disclosure and notification.

Model Disclosure Language

To facilitate compliance with Sec. 208.7(a), Appendices A and B set

forth model language for agency use. Appendix A is for use until the

date the Secretary determines the ETASM is available.

Appendix B is for use on and after the date the Secretary determines

the ETASM is available. The phrase ``substantially similar''

in Sec. 208.7 gives an agency the flexibility to tailor the model

disclosure to its recipients. For example, the Social Security

Administration might prefer to use the phrase ``Social Security

payment'' instead of ``Federal payment'' in communicating with its

recipients.

Requirement To Establish Procedures

In addition to requiring disclosure, the final rule requires

agencies to establish procedures that allow recipients to indicate that

the recipient elects to have payment deposited by EFT to an account

held by the recipient. Proposed Sec. 208.7 required that the agency

``obtain'' either 1) information to make an EFT payment if the

recipient had an account at a financial institution or 2) a written

certification that the recipient did not have an account or that

receiving an EFT payment would impose a hardship on the recipient. The

word ``obtain'' implied that a written response was necessary and also

implied that the recipient must respond in all cases.

The requirement in final Sec. 208.7(b) that agencies ``put into

place procedures that allow recipients to indicate that the recipient

elects to have payment deposited by electronic funds transfer to an

account held by the recipient'' replaces the requirement in the 208

NPRM that agencies ``obtain'' account information or written waiver

certifications from recipients. The word ``indicate'' is used to make

it clear that the communication need not be in writing, as was implied

by the use of the term ``certification'' in the 208 NPRM. The term

``elect'' is used to clarify that individuals have a range of options.

Under final Part 208, agencies are not required to obtain written

waiver determinations, and in the case of the automatic waiver,

recipients need not respond at all. The language in final Sec. 208.7(b)

makes it clear that although the agency must have a procedure in place

for collecting account information if the recipient elects to receive

payment electronically, the agency is not required to gather waiver

information from the recipient. Rather, the agency may decide, at its

discretion, whether or not to request information from the recipient,

in writing or orally, indicating that a hardship waiver has been

invoked. However, if the recipient does not respond to such a request,

the agency must presume that the recipient has invoked a waiver until

further communication is received and may not delay or withhold the

recipient's payment.

H. Section 208.8--Recipient Responsibilities

The wording of final Sec. 208.8 is identical to that in proposed

Sec. 208.8(a). In the 208 NPRM, however, the phrase ``an account with a

financial institution'' referred only to non-ETASM accounts.

In the final rule ``an account with a financial institution'' refers to

ETAsSM as well other accounts held by recipients at

financial institutions. As with the 208 NPRM, the phrase ``who is

required to receive payment by electronic funds transfer'' is an

acknowledgment that waivers will apply in some cases.

Under proposed Sec. 208.8(b), any individual required to receive

payment by EFT who does not have an account with a financial

institution would have been required to certify in writing that he or

she does not have an account, and would have been provided with an

ETASM. As discussed in connection with Sec. 208.5, the final

rule provides that the ETASM is available to all individuals

who are eligible to receive a Federal benefit, wage, salary, or

retirement payment and who request an ETASM, whether or not

they already have an account at a financial institution. Therefore,

final Sec. 208.8 removes this provision.

Proposed Sec. 208.8(c) required that each individual who qualifies

for, and wishes to apply for, a waiver must certify that

[[Page 51502]]

election in writing. As discussed above in connection with

Sec. 208.4(a), the recipient has the sole discretion to determine

whether he or she qualifies for a waiver. There is no longer an

application and written certification requirement. Therefore, proposed

Sec. 208.8(c) is removed from the final rule.

I. Section 208.9--Compliance

Monitoring Compliance

Final Sec. 208.9 is unchanged from proposed Sec. 208.9 except that

the 208 NPRM stated that Treasury may require agencies to provide

information about ``the methods by which they make payments,'' whereas

the final regulation provides that Treasury may require agencies to

provide information about ``their progress in converting payments to

electronic funds transfer.'' This change was made to clarify that

Treasury intends to monitor agencies' progress in converting payments

to EFT. If Treasury has reason to believe that sufficient progress is

not being made, notwithstanding payments made by check as a result of

waivers, an agency may be required to furnish to Treasury information

concerning their conversion efforts.

Documentation of Waivers

Comments were received from several agencies requesting guidance on

documenting compliance with this section. Agencies requested

clarification as to what information they must provide to Treasury to

document compliance, particularly with respect to the documentation of

waivers. One agency asked if Treasury would ever challenge a waiver.

Another agency urged Treasury to clearly state that check payments that

result from the invocation of a waiver will not result in the

assessment of a charge pursuant to 31 U.S.C. 3335.

Treasury does not intend to challenge, or to permit agencies to

challenge, the bases upon which individuals invoke waivers. As

discussed in connection with Sec. 208.8, individuals are given

discretion to determine their eligibility for waivers under

Sec. 208.4(a). Check payments made by an agency on the basis of such a

waiver will not result in the assessment of a charge. Moreover,

Treasury does not intend to review routinely agency decisions to make

payment by check or cash in circumstances addressed in Secs. 208.4(b)

through (g). However, Treasury may consider the appropriateness of

check or cash payments by agencies in reliance on Secs. 208.4(b)

through (g) on a case-by-case basis.

Treasury expects that agencies will document their policies and

procedures regarding the use of waivers (including any presumption that

a waiver has been invoked where a recipient has not responded to the

agency). If Treasury finds such documentation to be sufficient for

determining compliance, Treasury will not assess a charge to the agency

pursuant to 31 U.S.C. 3335. If there is no documentation for a waived

payment or classes of payments, Treasury may determine whether those

payments are in compliance with this part on a case-by-case basis.

J. Section 208.10--Reservation of Rights

This section states that the Secretary reserves the right to waive

any provision(s) of this regulation in any case or class of cases.

Treasury received a comment on this section from a consumer advocacy

organization concerned that the Secretary's discretion in waiving any

provision(s) of Part 208 was overly broad and potentially harmful to

those recipients currently protected from hardship by waiver provisions

set forth in Sec. 208.4(a). Treasury has no intention of withdrawing

any hardship waivers set forth in this rule. The intent of this section

is to give Treasury flexibility to grant waivers, without amending the

rule, for any unforseen situation where an EFT payment is impossible or

impracticable and for which no waivers set forth in Sec. 208.4 may be

relied upon.

IV. Special Analysis

Although it has been determined that this regulation is a

significant regulatory action for purposes of Sec. 3(f)(4) of Executive

Order 12866, the Office of Management and Budget (``OMB'') has waived

the preparation of a Regulatory Assessment.

Pursuant to the Regulatory Flexibility Act, it is hereby certified

that the regulation will not have a significant economic impact on a

substantial number of small entities. Treasury has included seven

categories of waivers in the final rule. Further, the rule does not

restrict small entities who are currently participating in the delivery

of services to recipients who receive their Federal payments by EFT

from continuing to do so in the future. Therefore, Treasury believes

the rule does not have a significant economic impact on a substantial

number of small entities and that a regulatory flexibility analysis is

not required.

The collection of information contained in the final rule has been

reviewed and approved by the Office of Management and Budget under

section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.

Chapter 35) under Control Number 1510-0066. Under the Paperwork

Reduction Act, an agency may not conduct or sponsor, and a person is

not required to respond to, a collection of information unless it

displays a valid OMB control number.

The collection of information in this regulation is contained in

Sec. 208.8. The information (name of financial institution, routing

number, and account number) is required to enable an agency to pay a

recipient of a Federal payment by EFT. The collection of information is

mandatory. 31 U.S.C. 3332(g), as amended, requires recipients of

Federal payments to ``provide to the Federal agency that makes or

authorizes the payments information necessary for the recipient to

receive electronic funds transfer payments.'' The likely respondents

vary depending on the agency making the payment. For the Service, the

likely respondents are employees of the Service who currently receive

payments, such as payments for salary, travel reimbursement, or

retirement, by check; and individuals and vendors that currently

receive vendor payments by check.

The estimated total annual reporting burden is 46 hours. The

estimated burden hours per respondent is 0.25 hours. The estimated

number of respondents is 183. These figures represent the burden

imposed by the Service. The reporting burden imposed by other agencies

will be addressed by those agencies.

Comments on the accuracy of the estimate for this collection of

information or suggestions to reduce the burden should be sent to the

Office of Information and Regulatory Affairs of the Office of

Management and Budget, Attention: Desk Officer for Department of the

Treasury, Financial Management Service, Washington, D.C., 20503, with

copies to Jacqueline Perry, Public Reports Clearance Officer, Financial

Management Service, 3361 75th Avenue, Landover, MD, 20785.

List of Subjects in 31 CFR Part 208

Accounting, Automated Clearing House, Banks, Banking, Electronic

funds transfer, Financial institutions, Government payments.

Authority and Issuance

For the reasons set out in the preamble, 31 CFR Part 208 is revised

to read as follows:

PART 208--MANAGEMENT OF FEDERAL AGENCY DISBURSEMENTS

Sec.

208.1 Scope and application.

208.2 Definitions.

[[Page 51503]]

208.3 Payment by electronic funds transfer.

208.4 Waivers.

208.5 Availability of the ETASM.

208.6 General account requirements.

208.7 Agency responsibilities.

208.8 Recipient responsibilities.

208.9 Compliance.

208.10 Reservation of rights.

Appendix A--Model Disclosure for Use Until ETASM Becomes

Available

Appendix B--Model Disclosure for Use After ETASM Becomes

Available

Authority: 5 U.S.C. 301; 12 U.S.C. 90, 265, 266, 1767, 1789a; 31

U.S.C. 321, 3122, 3301, 3302, 3303, 3321, 3325, 3327, 3328, 3332,

3335, 3336, 6503; Pub. L. 104-208, 110 Stat. 3009.

Sec. 208.1 Scope and application.

This part applies to all Federal payments made by an agency and,

except as specified in Sec. 208.4, requires such payments to be made by

electronic funds transfer. This part does not apply to payments under

the Internal Revenue Code of 1986 (26 U.S.C.).

Sec. 208.2 Definitions.

(a) Agency means any department, agency, or instrumentality of the

United States Government, or a corporation owned or controlled by the

Government of the United States.

(b) Authorized payment agent means any individual or entity that is

appointed or otherwise selected as a representative payee or fiduciary,

under regulations of the Social Security Administration, the Department

of Veterans Affairs, the Railroad Retirement Board, or other agency

making Federal payments, to act on behalf of an individual entitled to

a Federal payment.

(c) Disbursement means, in the context of electronic benefits

transfer, the performance of the following duties by a Financial Agent

acting as agent of the United States:

(1) The establishment of an account for the recipient that meets

the requirements of the Federal Deposit Insurance Corporation or the

National Credit Union Administration Board for deposit or share

insurance;

(2) The maintenance of such an account;

(3) The receipt of Federal payments through the Automated Clearing

House system or other electronic means and crediting of Federal

payments to the account; and (4) The provision of access to funds in

the account on the terms specified by Treasury.

(d) Electronic benefits transfer (EBT) means the provision of

Federal benefit, wage, salary, and retirement payments electronically,

through disbursement by a financial institution acting as a Financial

Agent. For purposes of this part, EBT includes disbursement through an

ETASM and through a Federal/State EBT program.

(e) Electronic funds transfer means any transfer of funds, other

than a transaction originated by cash, check, or similar paper

instrument, that is initiated through an electronic terminal,

telephone, computer, or magnetic tape, for the purpose of ordering,

instructing, or authorizing a financial institution to debit or credit

an account. The term includes, but is not limited to, Automated

Clearing House transfers, Fedwire transfers, and transfers made at

automated teller machines and point-of-sale terminals. For purposes of

this part only, the term electronic funds transfer includes a credit

card transaction.

(f) ETASM means the Treasury-designated electronic

transfer account made available by a Federally-insured financial

institution acting as a Financial Agent in accordance with Sec. 208.5

of this part.

(g) Federal payment means any payment made by an agency.

(1) The term includes, but is not limited to:

(i) Federal wage, salary, and retirement payments;

(ii) Vendor and expense reimbursement payments;

(iii) Benefit payments; and

(iv) Miscellaneous payments including, but not limited to:

interagency payments; grants; loans; fees; principal, interest, and

other payments related to U.S. marketable and nonmarketable securities;

overpayment reimbursements; and payments under Federal insurance or

guarantee programs for loans.

(2) For purposes of this part only, the term ``Federal payment''

does not apply to payments under the Internal Revenue Code of 1986 (26

U.S.C.).

(h) Federal/State EBT program means any program that provides

access to Federal benefit, wage, salary, and retirement payments and to

State-administered benefits through a single delivery system and in

which Treasury designates a Financial Agent to disburse the Federal

payments.

(i) Federally-insured financial institution means any financial

institution, the deposits of which are insured by the Federal Deposit

Insurance Corporation under 12 U.S.C. Chapter 16 or, in the case of a

credit union, the member accounts of which are insured by the National

Credit Union Share Insurance Fund under 12 U.S.C. Chapter 14,

Subchapter II.

(j) Financial Agent means a financial institution that has been

designated by Treasury as a Financial Agent for the provision of EBT

services under any provision of Federal law, including 12 U.S.C. 90,

265, 266, 1767, and 1789a, and 31 U.S.C. 3122 and 3303, as amended by

the Omnibus Consolidated Appropriations Act, 1997, Section 664, Public

Law 104-208.

(k) Financial institution means:

(1) Any insured bank as defined in section 3 of the Federal Deposit

Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make

application to become an insured bank under section 5 of such Act (12

U.S.C. 1815);

(2) Any mutual savings bank as defined in section 3 of the Federal

Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible to

make application to become an insured bank under section 5 of such Act

(12 U.S.C. 1815);

(3) Any savings bank as defined in section 3 of the Federal Deposit

Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make

application to become an insured bank under section 5 of such Act (12

U.S.C. 1815);

(4) Any insured credit union as defined in section 101 of the

Federal Credit Union Act (12 U.S.C. 1752) or any credit union which is

eligible to make application to become an insured credit union under

section 201 of such Act (12 U.S.C. 1781);

(5) Any savings association as defined in section 3 of the Federal

Deposit Insurance Act (12 U.S.C. 1813) which is an insured depository

institution (as defined in such Act) (12 U.S.C. 1811 et seq.) or is

eligible to apply to become an insured depository institution under the

Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and

(6) Any agency or branch of a foreign bank as defined in section

1(b) of the International Banking Act, as amended (12 U.S.C. 3101).

(l) Individual means a natural person.

(m) Recipient means an individual, corporation, or other public or

private entity that is authorized to receive a Federal payment from an

agency.

(n) Secretary means Secretary of the Treasury.

(o) Treasury means the United States Department of the Treasury.

Sec. 208.3 Payment by electronic funds transfer.

Subject to Sec. 208.4, and notwithstanding any other provision of

law, effective January 2, 1999, all Federal payments made by an agency

shall be made by electronic funds transfer.

[[Page 51504]]

Sec. 208.4 Waivers.

Payment by electronic funds transfer is not required in the

following cases:

(a) Where an individual determines, in his or her sole discretion,

that payment by electronic funds transfer would impose a hardship due

to a physical or mental disability or a geographic, language, or

literacy barrier, or would impose a financial hardship. In addition,

the requirement to receive payment by electronic funds transfer is

automatically waived for all individuals who do not have an account

with a financial institution and who are eligible to open an

ETASM under Sec. 208.5, until such date as the Secretary

determines that the ETASM is available;

(b) Where the political, financial, or communications

infrastructure in a foreign country does not support payment by

electronic funds transfer;

(c) Where the payment is to a recipient within an area designated

by the President or an authorized agency administrator as a disaster

area. This waiver is limited to payments made within 120 days after the

disaster is declared;

(d) Where either:

(1) A military operation is designated by the Secretary of Defense

in which uniformed services undertake military actions against an

enemy, or

(2) A call or order to, or retention on, active duty of members of

the uniformed services is made during a war or national emergency

declared by the President or Congress;

(e) Where a threat may be posed to national security, the life or

physical safety of any individual may be endangered, or a law

enforcement action may be compromised;

(f) Where the agency does not expect to make more than one payment

to the same recipient within a one-year period, i.e., the payment is

non-recurring, and the cost of making the payment via electronic funds

transfer exceeds the cost of making the payment by check; and

(g) Where an agency's need for goods and services is of such

unusual and compelling urgency that the Government would be seriously

injured unless payment is made by a method other than electronic funds

transfer; or, where there is only one source for goods or services and

the Government would be seriously injured unless payment is made by a

method other than electronic funds transfer.

Sec. 208.5 Availability of the ETASM.

An individual who receives a Federal benefit, wage, salary, or

retirement payment shall be eligible to open an ETASM at any

Federally-insured financial institution that offers ETAsSM.

Any Federally-insured financial institution shall be eligible, but not

required, to offer ETAsSM as Treasury's Financial Agent. A

Federally-insured financial institution that elects to offer

ETAsSM shall, upon entering into an ETASM

Financial Agency Agreement with the Treasury, be designated as

Treasury's Financial Agent for the offering of the account pursuant to

Public Law 104-208. Treasury shall make publicly available required

attributes for ETAsSM and any ETASM offered by a

Federally-insured financial institution shall comply with such

requirements. The offering of an ETASM shall constitute the

provision of EBT services within the meaning of Public Law 104-208.

Sec. 208.6 General account requirements.

(a) All Federal payments made by electronic funds transfer,

including those made through an ETASM, shall be deposited

into an account at a financial institution. For all payments other than

vendor payments, the account at the financial institution shall be in

the name of the recipient, except as provided in paragraph (b) of this

section.

(b)(1) Where an authorized payment agent has been selected, the

Federal payment shall be deposited into an account titled in accordance

with the regulations governing the authorized payment agent.

(2) Where a Federal payment is to be deposited into an investment

account established through a securities broker or dealer registered

with the Securities and Exchange Commission under the Securities

Exchange Act of 1934, or an investment account established through an

investment company registered under the Investment Company Act of 1940

or its transfer agent, such payment may be deposited into an account

designated by such broker or dealer, investment company, or transfer

agent.

Sec. 208.7 Agency responsibilities.

(a) An agency shall disclose to each individual who is eligible to

receive a Federal benefit, wage, salary, or retirement payment and who

is not already receiving payment by electronic funds transfer the

individual's rights and obligations under Secs. 208.3, 208.4(a) and

208.5 of this part, unless payment by electronic funds transfer is not

required pursuant to any provision of subsections (b) through (g) of

Sec. 208.4.

(1) Prior to the date the ETASM becomes available, the

disclosure shall be in a form substantially similar to the model

disclosure set forth in appendix A of this part.

(2) On and after the date the ETASM becomes available,

the disclosure shall be in a form substantially similar to the model

disclosure set forth in appendix B of this part.

(b) An agency shall put into place procedures that allow recipients

to indicate that the recipient elects to have payment deposited by

electronic funds transfer to an account held by the recipient at a

financial institution. In addition, an agency may put into place

procedures to request that individuals who are invoking a hardship

waiver under Sec. 208.4(a) indicate, in writing or orally, that a

hardship waiver has been invoked. However, an agency may not delay or

withhold payment if a recipient does not respond to such a request.

Sec. 208.8 Recipient responsibilities.

Each recipient who is required to receive payment by electronic

funds transfer and who has an account with a financial institution

must, within the time frame specified by the agency making the payment,

designate a financial institution through which the payment may be made

and provide the agency with the information requested by the agency in

order to effect payment by electronic funds transfer.

Sec. 208.9 Compliance.

(a) Treasury will monitor agencies' compliance with this part.

Treasury may require agencies to provide information about their

progress in converting payments to electronic funds transfer.

(b) If an agency fails to make payment by electronic funds

transfer, as prescribed under this part, Treasury may assess a charge

to the agency pursuant to 31 U.S.C. 3335.

Sec. 208.10 Reservation of rights.

The Secretary reserves the right, in the Secretary's discretion, to

waive any provision(s) of this regulation in any case or class of

cases.

Appendix A to Part 208--Model Disclosure for Use Until

ETASM Becomes Available

The Debt Collection Improvement Act of 1996 requires that most

Federal payments be made by electronic funds transfer after January

2, 1999.

If you are currently receiving your Federal payment by check or

you have just become eligible to begin receiving a Federal payment,

you have several choices:

(1) Receive your payment by Direct Deposit through the financial

institution of your choice.

The Government makes payments electronically through a program

called Direct Deposit. Direct Deposit is a safe, convenient, and

reliable way to receive your Federal payment through a financial

institution. (A financial institution can be a

[[Page 51505]]

bank, credit union, savings bank, or thrift.) Many financial

institutions offer basic, low-cost accounts in addition to full-

service checking or savings accounts.

(2) Do nothing now and wait for a basic, low-cost account,

called an ETASM, to become available.

If you do not have an account with a financial institution, you

do not need to do anything now. In the future a low-cost account,

called an ETASM, will be available at many financial

institutions. Like Direct Deposit, the ETASM (which

stands for electronic transfer account) is a safe, convenient, and

reliable way to receive your Federal payment through a financial

institution. You are eligible to open this account, at a low monthly

fee, if you receive a Federal benefit, wage, salary, or retirement

payment. [Agency name] will contact you and let you know when the

ETASM is available and which financial institutions in

your area offer the account.

(3) Continue to receive a check.

If receiving your payment electronically would cause you a

hardship because you have a physical or mental disability, or

because of a geographic, language, or literacy barrier, you may

receive your payment by check. In addition, if receiving your

payment electronically would cause you a financial hardship because

it would cost you more than receiving your payment by check, you may

receive your payment by check.

Please call [agency name] at [agency customer service number] if

you would like more information on Direct Deposit, the

ETASM, or hardship waivers.

Appendix B to Part 208--Model Disclosure for Use After

ETASM Becomes Available

The Debt Collection Improvement Act of 1996 requires that most

Federal payments be made by electronic funds transfer after January

2, 1999.

If you are currently receiving your Federal payment by check or

you have just become eligible to begin receiving a Federal payment,

you have several choices:

(1) Receive your payment by Direct Deposit through the financial

institution of your choice.

The Government makes payments electronically through a program

called Direct Deposit. Direct Deposit is a safe, convenient, and

reliable way to receive your Federal payment through a financial

institution. (A financial institution can be a bank, credit union,

savings bank, or thrift.) Many financial institutions offer basic,

low-cost accounts in addition to full-service checking or savings

accounts.

(2) Receive your payment through a basic, low-cost account

called an ETASM.

If you receive a Federal benefit, wage, salary, or retirement

payment, you are eligible to open an ETASM. This account

is available for a low monthly fee at many financial institutions.

Like Direct Deposit, the ETASM (which stands for

electronic transfer account) is a safe, convenient, and reliable way

to receive your Federal payment through a financial institution.

Please call the customer service number listed below to find out

which financial institutions in your area offer the

ETASM.

(3) Continue to receive a check.

If receiving your payment electronically would cause you a

hardship because you have a physical or mental disability, or

because of a geographic, language, or literacy barrier, you may

receive your payment by check. In addition, if receiving your

payment electronically would cause you a financial hardship because

it would cost you more than receiving your payment by check, you may

receive your payment by check.

Please call [agency name] at [agency customer service number] if

you would like more information on Direct Deposit, the

ETASM, or hardship waivers.

Dated: September 21, 1998.

Richard L. Gregg,

Commissioner.

[FR Doc. 98-25667 Filed 9-24-98; 8:45 am]

BILLING CODE 4810-35-P