Regulations Governing Agencies for the Issue and Offering of United States Savings Bonds, Including Sales by Electronic Means

SUMMARY: The Department of the Treasury hereby publishes a final rule

governing the issue and offering of United States Savings Bonds. The

final rule creates new categories of savings bond issuing agents and

clarifies and expands the means by which savings bonds may be sold,

including electronic means.

DATES: Effective November 20, 1998.

ADDRESSES: This final rule can be downloaded from the Bureau of the

Public Debt at the following World Wide Web address: http://

www.savingsbonds.gov>. It also is available for public inspection and

copying at the Treasury Department Library, Freedom of Information Act

(FOIA) Collection, Room 5030, Main Treasury Building, 1500 Pennsylvania

Ave. NW, Washington, D.C. 20220. Individuals wishing to visit the

library should call (202) 622-0990 for an appointment.

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

of Staff Services, Savings Bond Operations Office, Bureau of the Public

Debt, at (304) 480-6319 or [email protected]>; Troy D. Martin,

Senior Program Analyst, Savings Bond Operations Office, Bureau of the

Public Debt, Division of Staff Services, at (304) 480-6545 or

[email protected]>; Edward C. Gronseth, Deputy Chief Counsel,

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

[email protected]>; or Gregory J. Till, Attorney-Adviser, Office

of the Chief Counsel, Bureau of the Public Debt, at (202) 219-3320 or

[email protected]>.

SUPPLEMENTARY INFORMATION:

I. Background

The growth of electronic commerce and the World Wide Web have led

to a flourishing of financial service providers and new payment

methods. However, the Bureau of the Public Debt has been unable to take

full advantage of these developments in the sale of United States

Savings Bonds because of apparent restrictions in existing regulations.

On April 30, 1998, the Department of the Treasury published a

proposed rule addressing the issue and offering of United States

Savings Bonds. The publication proposed to create new categories of

savings bond issuing agents and clarify and expand the means by which

savings bonds may be sold, including electronic means. Three written

comment letters were received in response to the proposed rule. The

proposed rule and comments can be downloaded from the Bureau of the

Public Debt at the following World Wide Web address: http://

www.savingsbonds.gov>. Treasury found the comments extremely useful in

making revisions. Although some minor comments are not addressed, all

comments have been considered in the formulation of this final rule.

The comments are addressed below on a section-by-section basis.

The most important aspects of the final rule are directed at four

areas in title 31 of the Code of Federal Regulations. First, changes in

Secs. 317.2 and 317.3 amend the regulations used to determine which

organizations may serve as issuing agents and the procedures used to

qualify these organizations as issuing agents. Second, changes to

Sec. 351.5 expand the means by which issuing agents may sell savings

bonds. Third, a new subpart in part 370 addresses the use of Automated

Clearing House debit entries for the sale of savings bonds issued

through the Bureau of the Public Debt. Fourth, another new subpart in

part 370 addresses the electronic submission of transaction requests

through the Bureau of the Public Debt.

II. Summary of Amendments

A. Regulations Governing Agencies for Issue of Savings Bonds (31 CFR

Part 317)

(1) Definitions (Sec. 317.1)

The revised definition of ``issuing agent'' notes the authority of

the Commissioner of the Public Debt to qualify issuing agents, as

explained in Sec. 317.2. The definition also clarifies that an issuing

agent acts as an agent of the purchaser in handling the remittance. The

language addressing the handling of the remittance is consistent with

current practice. The Secretary of the Treasury collects purchase funds

from issuing agents, not the public. If an issuing agent discovers that

the remittance is uncollectible or must be returned after the issuance

of a savings bond, the Secretary is nonetheless entitled to payment

from the issuing agent. The issuing agent bears the risk of loss for

non-collection or return of the remittance.

(2) Organizations Eligible To Serve as Issuing Agents (Sec. 317.2)

In the past, issuing agent eligibility has been limited to

financial institutions (such as banks and credit unions), agencies of

the United States and state and local governments, and employers

operating payroll savings plans. This final rule expands the types of

organizations that are eligible to serve as issuing agents.

One change, in Sec. 317.2(c), allows organizations that operate

payroll savings plans on behalf of employers to issue bonds and serve

as issuing agents. The change is designed to bolster payroll savings

plan sales from small businesses, which often do not have the resources

to maintain such plans themselves. As is the case with employer

organizations, an organization operating a payroll savings plan on

behalf of an employer organization will be eligible for issuing agent

fees only if it inscribes savings bonds.

Another addition, set out in Sec. 317.2(d), gives the Commissioner

of the Bureau of the Public Debt the authority to qualify issuing

agents when doing so is in the public interest. The Commissioner can

use such process as deemed to be appropriate in selecting the issuing

agent. The selected issuing agent also will be subject to such

conditions as deemed to be appropriate.

The new Sec. 317.2(d) will be used for the selection of entities to

sell savings bonds in unique ways as new methods of sales emerge. In

particular, this provision will facilitate the qualification of issuing

agents to sell savings bonds through electronic methods, such as those

offered by financial services providers through World Wide Web access.

In qualifying issuing agents under this provision, the Commissioner

will balance the convenience and cost-effectiveness of using new

purchase methods against the need to insure the security and

reliability of those methods.

In its comment letter, the American Bankers Association indicated

its general support for most of the changes being proposed but

expressed concern over Section 317.2(d), stating, ``There is no

demonstrable need to add this text given the capabilities and interest

of currently eligible organizations.'' Treasury recognizes the long-

standing service of financial institutions as issuing agents of savings

bonds and the significant contribution that financial institutions have

made toward the success of the savings bond program.

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Treasury also looks forward to cooperating with financial institutions

in selling savings bonds in new ways. In particular, Treasury is

interested in selling savings bonds through home banking packages

offered by financial institutions and exploring other new methods which

may evolve over time. However, changes are taking place rapidly in

other sectors of the savings bonds market place, and in particular, in

portions of the market place not exclusively the domain of financial

institutions which makes necessary the flexibility afforded by section

317.2(d). Therefore, Treasury respectfully disagrees with the position

that the flexibility to be gained through section 317.2(d) would not

benefit the savings bond program, and has decided to retain the

provision in the final rule.

(3) Procedures for Qualifying and Serving as an Issuing Agent

(Sec. 317.3)

In the past, designated Federal Reserve Banks have processed

applications from prospective issuing agents. The section has been

amended to state that an organization that seeks qualification because

of its status as an organization operating a payroll savings plan on

behalf of an employer under Sec. 317.2(c) or under the general ``public

interest'' provision of Sec. 317.2(d) will apply directly to the

Commissioner of the Bureau of the Public Debt. The application shall be

supplemented by such other information as the Bureau of the Public Debt

may request.

(4) Issuance of Bonds (Sec. 317.6)

The issuing agent fee provision has been simplified by removing

unnecessary detail. The section continues to emphasize that fee

schedules are set out not in the regulations, but through a separate

publication in the Federal Register. The changes have no effect on the

current fee structure, though the Bureau of the Public Debt reserves

the right to create new categories of fees as new ways of selling

savings bonds develop.

(5) Appendix to Sec. 317.8--Remittance of Sales Proceeds and

Registration Records, Department of the Treasury Circular, Public Debt

Series No. 4-67 (Third Revision), Fiscal Service, Bureau of the Public

Debt

The appendix has been revised, primarily for changes in

terminology. For instance, the definition of ``issuing agent'' has been

redefined to reflect the changes to that term in Sec. 317.2. The term

``over-the-counter'' has been redefined to reflect the expanded meaning

given to that term in Sec. 351.5 of this chapter. Among other minor

changes, paragraph (3) of subpart B has been removed because that

provision no longer has application.

B. Offering of United States Savings Bonds, Series EE (31 CFR Part 351)

(1) Governing Regulations for Series EE Bonds (Sec. 351.1)

This section has been amended to note that the regulations

governing the transfer of funds by electronic means on account of

United States securities in part 370 of this chapter apply to

transactions for the purchase of savings bonds issued through the

Bureau of the Public Debt. The regulations in part 370 have no

application to transactions for the purchase of savings bonds

accomplished through issuing agents generally, unless and to the extent

otherwise directed by the Commissioner of the Bureau of the Public

Debt. Furthermore, because these regulations are intended to be the

source of the terms and conditions of Series EE bonds, Treasury does

not warrant the correctness of representations that in any way conflict

with these regulations.

(2) Purchase of Bonds (Sec. 351.5)

The categories of savings bond sales provided for in this section

have been revised. The section previously provided for four categories

of sales: (1) ``payroll plans''; (2) ``over-the-counter/mail''; (3)

``bond-a-month plan''; and (4) ``employee thrift, savings, vacation,

and similar plans.'' Because some of these categories are limited and

outdated, they may actually have inhibited rather than facilitated

sales.

Furthermore, a comparison of this section to the appendix to

Sec. 317.8 of this chapter (discussing the remittance of sales proceeds

and registration records by issuing agents) showed a lack of

consistency in the categories and terminology used to define savings

bond sales. In discussing savings bond sales, the appendix did not

mirror Sec. 351.5 but rather combined the four categories of sales

described in Sec. 351.5 into two categories: (1) ``payroll sale''; and

(2) ``over-the-counter sale.'' The term ``payroll sale'' was not used

in Sec. 351.5. Also, the term ``over-the-counter'' had an expanded

meaning in the appendix to Sec. 317.8 as compared to its use in

Sec. 351.5, making the regulations more difficult to understand.

The final rule revises Sec. 351.5 (as well as the appendix to

Sec. 317.8), essentially using the two categories in the appendix to

Sec. 317.8: (1) ``payroll sales''; and (2) ``over-the-counter sales.''

The payroll sales category includes sales through ``payroll savings

plans'' and ``employee thrift, savings, vacation, and similar plans,''

the provisions of which are largely unchanged. The final rule also

states that employers and the organizations operating payroll savings

plans on behalf of employers are allowed to sell savings bonds only

pursuant to payroll savings plans. These types of issuing agents are

not allowed to sell savings bonds over-the-counter.

Over-the-counter sales are all sales that are not payroll sales.

For over-the-counter sales, the section provides that ``the purchase

application and remittance may be submitted to an issuing agent by any

means acceptable to the issuing agent.'' This broad provision ensures

that issuing agents have the flexibility to sell savings bonds through

new channels. For instance, the final rule authorizes issuing agents to

sell savings bonds through electronic means such as the World Wide Web.

Both the application and remittance can be submitted and signed through

electronic methods agreed upon by the parties.

The final rule does not impose limitations on the types of

remittances that an issuing agent may accept. As always, however, the

issuing agent bears the burden of collection and risk of non-collection

for remittances it accepts. The Secretary of the Treasury takes payment

from the issuing agent, not the purchaser. The Secretary of the

Treasury has no obligation to return funds received from an issuing

agent after issuance of a savings bond if the issuing agent cannot

collect or must return the remittance. However, as Treasury qualifies

new types of issuing agents under the revised section 317.2 of this

chapter, Treasury will examine carefully the types of remittances each

new issuing agent will accept and the protections that will be

necessary to insure that a purchaser's funds reach Treasury in proper

fashion.

Finally, although the changes have no effect on the current issuing

agent fee structure, the Bureau of the Public Debt reserves the right

to make changes to the fee structure as new ways of selling savings

bonds develop.

C. Regulations Governing United States Savings Bonds, Series EE and HH

(31 CFR Part 353)

(1) Payment to Judgment Creditors (Sec. 353.21)

This section is amended to state that savings bonds registered in

coownership form may be subject to levy by the Internal Revenue

Service.

[[Page 64546]]

(2) Application for Relief--Non-receipt of Bond (Sec. 353.27)

The regulations have provided little guidance as to the status of

savings bond purchases if the Secretary of the Treasury does not

receive payment. While not likely, an issuing agent may fail after

receiving the remittance from a purchaser but before the Secretary

collects the sales proceeds from the issuing agent.

If an issuing agent has inscribed a savings bond, the Secretary

will honor the savings bond even if the Secretary cannot collect the

sales proceeds from the issuing agent. This policy is consistent with

existing regulations, which note that the registration of an issued

savings bond generally is conclusive of ownership. If a savings bond

has not been inscribed, the final rule states that the Secretary is

authorized to issue savings bonds to preserve the public's confidence

in dealing with issuing agents, even if the Secretary cannot collect

the sales proceeds from the issuing agent.

D. Regulations Governing Electronic Transactions and the Transfer of

Funds by Electronic Means on Account of United States Securities (31

CFR Part 370)

(1) Applicability (Sec. 370.0)

This section is amended to clarify that to the extent the

regulations in part 210 of this title apply to the purchase or payment

of interest and principal on United States securities, the regulations

in this part 370 apply in the event of any inconsistencies.

Furthermore, to the extent that Regulations E (12 CFR part 205) and Z

(12 CFR part 226) of the Board of Governors of the Federal Reserve

System (``Federal Reserve Board'' or ``Board'') apply to transactions

accomplished pursuant to this part, those Federal laws are unaffected

by this part. Regulations E and Z govern consumer rights for electronic

funds transfers and credit card transactions, among other things. This

part 370 is designed to compliment, not preempt, the rights a person

has by recourse to the person's financial institution under Regulation

E, to the extent that Regulation E applies.

A determination of whether Regulation E applies to a transaction

for the purchase of a United States security frequently depends upon

whether the security is held in book-entry or definitive form.

Regulation E excludes from its coverage ``[a]ny transfer of funds the

primary purpose of which is the purchase or sale of a security * * *

[h]eld in book-entry form by a Federal Reserve Bank or federal

agency,'' at 12 CFR 205.3(c)(4)(iii). This exclusion was added by the

Federal Reserve Board in a final rule published in the Federal Register

on May 2, 1996, beginning at page 19661. In discussing this exclusion,

the Board listed as an example transactions involving book-entry

securities held in TREASURY DIRECT. Because savings bonds currently

available for purchase primarily are held in definitive rather than

book-entry form, the strict language of this exclusion does not extend

to most transactions involving savings bonds available for purchase.

(2) Definitions (Sec. 370.1)

Several definitions have been added or changed in this section. The

definition of ``Automated Clearing House (ACH) entry'' refers to

transactions accomplished in accordance with the Operating Rules and

Guidelines of the National Automated Clearing House Association

(``NACHA Rules''), as modified by these and other regulations and law.

The definition of ``deposit account'' principally is taken from

Regulation E. The definition of ``financial institution'' is the same

as that included in a proposed rule to amend part 208 of this title,

``Management of Federal Agency Disbursements,'' published in the

Federal Register on September 16, 1997, beginning at page 48714. The

definitions of ``originator'' and ``person'' are derived from the NACHA

Rules. Also, the definition of ``payment'' has been amended to state

that it applies only to subpart B of this part, which addresses credit

entries. The limited definition of a payment as a deposit from the

Treasury to the account of the owner only has application in subpart B

and may have caused confusion by its application throughout part 370.

The section also lists five definitions that have application

primarily to subpart E of this part, addressing the electronic

submission of transaction requests through the Bureau of the Public

Debt. As noted in the discussion to Sec. 370.50, Treasury has looked to

a number of sources in drafting these provisions. The most fundamental

of these definitions is that of a ``signature.'' A signature is ``any

symbol or method executed or adopted by a party with present intention

to be bound,'' which is a traditional legal definition of a signature.

The definition encompasses a signature manifested through electronic or

similar means, which separately is referred to as an ``electronic

signature.'' Case law on signatures indicates that almost anything can

constitute a signature, from printed and typewritten names to account

numbers, if executed with an intent to be bound. Electronic signatures

are no different from other forms of signatures in this regard.

In addition, the section includes a definition of ``digital

signature,'' which is a type of electronic signature. Treasury will use

digital signatures in its sales of savings bonds over the Internet. A

digital signature uses ``public-key encryption'' and a ``message digest

function'' in transforming an electronic ``record.'' The definitions of

these terms largely are taken from model, proposed, or existing

authorities.

Public-key encryption is a process that relies upon an algorithm to

produce two mathematically related but different keys. If public-key

encryption is implemented securely, it is computationally infeasible to

derive one key from the other. The keys can be used for several

purposes, including the creation and verification of digital

signatures. One key (the private key) is kept private and can be used

to create a digital signature, while the other key (the public key) may

be distributed to anyone and can be used by a relying party to verify a

digital signature. The association of a public key (and by implication,

its corresponding private key) to the identity of a particular person

is accomplished through the use of digital certificates, issued by

certification authorities.

The use of a message digest function (also known as a hash

function) is an essential element in the creation and verification of a

digital signature. A message digest function is an algorithm that

typically provides a shortened, mathematical version of a longer

electronic record. Even a small change to an electronic record can

result in a dramatic change to a message digest, aiding in the

verification of a digital signature and any electronic record to which

the signature is attached. The signer uses the signer's private key to

encrypt the short message digest, rather than the entire electronic

record. This digital signature (the message digest, encrypted by the

signer's private key) is sent to the recipient, along with a copy of

the electronic record.

Upon receipt of the digital signature and electronic record, the

recipient uses the signer's public key to decrypt the digital signature

and recover the message digest. The recipient then runs the received

copy of the electronic record through the same message digest function

used to create the received message digest. If the two results are

identical, the recipient knows that the electronic record was encrypted

by the signer's private key and that the electronic record was not

tampered with

[[Page 64547]]

from the time the signer created the digital signature.

(3) Scope (Sec. 370.30)

This section states that subpart D establishes regulations for

debit entries to a purchaser's account to buy savings bonds issued by

the Bureau of the Public Debt. The subpart also establishes the

exclusive liability of the Bureau of the Public Debt for such entries.

This subpart applies only to transactions for the purchase of savings

bonds issued through the Bureau of the Public Debt. These regulations

do not apply to transactions for the purchase of savings bonds

accomplished through issuing agents generally, unless and to the extent

the Commissioner of the Bureau of the Public Debt deems otherwise.

It is anticipated that purchasers will authorize an entity named on

an approved paper-based authorization form to be an originator for the

debit entries. This entity will forward collected funds to Treasury

(unless the Bureau of the Public Debt chooses to name itself as the

originator). The Bureau of the Public Debt will then issue the savings

bonds through a Federal Reserve Bank acting as a fiscal agent for the

United States.

(4) Authorization (Sec. 370.31)

This section states that all debit authorizations must be

accomplished through an authorization form approved by the Bureau of

the Public Debt. The purchaser must name a deposit account from which

the purchaser is entitled to withdraw funds, and the purchaser (as well

as any other necessary persons named on the deposit account) must sign

the authorization form. Except to the extent required by the Bureau of

the Public Debt, the originator will not be required to verify the

identity of the purchaser or the authenticity of any signatures.

Recurring debits may or must be authorized if the form so provides.

Also, a purchaser's subsequent authorization will cancel a previous

authorization.

The Bureau of the Public Debt retains the right to name a successor

to the originator without additional notice to the purchaser, though it

may ask the successor to provide such notice as a customer service.

This provision is drawn from the official staff interpretation of the

Federal Reserve Board to 12 CFR 205.10(b) (Regulation E), which states

that ``successor institutions'' may assume an originator's role without

notice or a new authorization.

In their comment letters, the Federal Reserve Board and NACHA

speculated that Treasury may eventually allow the submission of debit

authorizations through electronic means. Part 370 could allow for the

submission of debit authorizations through electronic means.

The Board and NACHA referenced provisions in Regulation E and the

NACHA Rules addressing the electronic submission of debit

authorizations. Neither Regulation E nor the NACHA Rules appear to

allow for the electronic signature of debit authorizations. Regulation

E requires that debit ACH authorizations be in a ``writing signed or

similarly authenticated by the consumer,'' at 12 CFR 205.10(b). Section

2.1.2 of the NACHA Rules uses identical language. Under Regulation E

and the NACHA Rules, an electronic debit ACH authorization is not

``signed,'' but rather is ``similarly authenticated.''

Treasury is not inclined to add the words ``similarly

authenticated'' to this final rule. Treasury believes that its

definition of ``signature'' would encompass electronic means which also

would qualify under the ``similarly authenticated'' category of

Regulation E and the NACHA Rules. Treasury recognizes that the Federal

Reserve Board may interpret the definition of ``similarly

authenticated'' more strictly than Treasury in its definition of

``signature.'' To address this concern, Sec. 370.0 of this part has

been amended to note that transactions accomplished under this part are

subject to Regulation E, when applicable. Thus, even if a debit

authorization for the purchase of a definitive savings bond could be

electronically signed under this part, the electronic signature would

have to meet the ``similarly authenticated'' requirements of Regulation

E.

(5) Prenotification (Sec. 370.32)

The section leaves the requirement of a prenotification message to

the discretion of the Bureau of the Public Debt. A financial

institution that fails to respond to a prenotification warrants that

the deposit account number and the type of account contained in the

message is accurate as of the time of receipt of the prenotification.

The proposed rule also would have left the time period in which a

financial institution must respond to a prenotification up the Bureau

of the Public Debt. In its comment letter, NACHA expressed the view

that Treasury should not deviate from the NACHA Rules in setting its

own time frame for a response. Treasury agrees with this suggestion and

has changed this provision in the final rule to state that the time

period for a response shall be that which is set out by NACHA.

(6) Warranties of Financial Institution (Sec. 370.33)

This section states that a financial institution's acceptance and

handling of a debit entry or failure to reject a prenotification made

with respect to a security covered by this subpart shall constitute its

agreement to the provisions of this subpart. Also, a financial

institution that agrees to this subpart warrants that it has the

authority to receive entries and to comply with any requirements

imposed upon Receiving Depository Financial Institutions under the

Operating Rules and Operating Guidelines of the National Automated

Clearing House Association, as modified by these and other regulations

and law.

(7) Responsibilities of Financial Institution (Sec. 370.34)

This section states that a financial institution that receives a

debit entry on behalf of its customer must debit the customer's account

on the settlement date. If the financial institution is unable to debit

the designated account, it shall return the entry by no later than the

next business day after receipt, with an electronic message or other

response explaining the reason for the return.

(8) Termination or Suspension by the Bureau of the Public Debt

(Sec. 370.35)

This section states that the Bureau of the Public Debt can

terminate or suspend the availability of debit entries at any time, and

its decision to do so will be final.

(9) Termination or Suspension by Purchaser or Deposit Account Owner by

Notice to the Originator (Sec. 370.36)

Under this section, a purchaser or deposit account owner will be

able to cancel or suspend debit entries for the purchase of savings

bonds by providing written or oral notice to the originator, which must

be received by the originator within three days of the debit. The

originator may require the person to give written confirmation within

14 days of an oral notice. An oral notice ceases to be effective if the

written confirmation is not received by the end of the 14-day period. A

suspension will remain in effect for the duration specified by the

purchaser, but for no more than six months. As noted in Sec. 370.53 of

this part, a written notice can be accomplished through electronic

means.

The proposed rule was similar, but would have required written

notice in all cases. In its comment letter, the Federal Reserve Board

suggested that Treasury follow the stop-payment provisions in

Regulation E, at 12 CFR

[[Page 64548]]

Sec. 205.10(c). The provision noted by the Federal Reserve Board allows

for the option of oral notice. Treasury finds this approach to be more

flexible and agrees with the Federal Reserve Board recommendation. The

substance of 12 CFR Sec. 205.10(c), including provisions for oral

notice, has been incorporated into the final rule.

(10) Changes and Error Resolution (Sec. 370.37)

This section provides that while responding to an oral or written

notice from a person relating to the propriety of issuance information

or a debit entry involving the person's deposit account, the originator

may suspend further debit entries. In response to an oral notice, the

originator may require the person to give written notice, to be

received by the originator within 10 business days of an oral notice.

The originator promptly will investigate and correct any error, but is

not bound to complete the investigation or correct the error within 10

business days if the person fails to provide the requested written

confirmation. As noted in Sec. 370.53 of this part, a written notice

can be accomplished through electronic means.

In its comment letter, the Federal Reserve Board focused on a

provision of the proposed rule that would have allowed the originator

to ignore an oral notice that was not received within 30 days of a

written notice. The Board expressed the view that this provision varied

from the error resolution procedures in Regulation E, at 12 CFR

Sec. 205.11. Treasury has decided to drop this questioned provision.

Treasury also has changed the time frame for a written confirmation to

10 business days, consistent with Regulation E.

(11) Liability (Sec. 370.38)

This section states that the Bureau of the Public Debt is not

liable in disputes arising out of debit entries, unless the Bureau of

the Public Debt names itself or a fiscal or financial agent as the

originator. Disputes arising out of debit entries are the

responsibility of the originator. Also, unless the Bureau of the Public

Debt designates itself or a fiscal or financial agent as the

originator, the originator serves as the agent of the purchaser in

handling the remittance. At most, liability of the Bureau of the Public

Debt is limited to the amount of the improper debit, less any losses

caused by the failure of a claimant to exercise due diligence.

(12) Scope (Sec. 370.50)

This section states that subpart E establishes provisions for the

electronic submission of transaction requests through the Bureau of the

Public Debt. The subpart also sets out the exclusive liability of the

Bureau of the Public Debt for transactions completed pursuant to this

subpart. These regulations do not apply to transactions requests

accomplished through savings bond issuing agents generally, unless and

to the extent the Commissioner of the Bureau of the Public Debt deems

otherwise.

It is important to note the limited scope and extent of this

subpart E. This subpart only sets out Federal contract law provisions

for electronic dealings with the Bureau of the Public Debt. For

instance, a person who purchases a security from or opens a securities

account with the Bureau of the Public Debt agrees to these provisions.

The subpart does not apply to savings bond sales accomplished through

issuing agents such as banks and employers offering payroll savings

plans. The regulations leave unchanged the right of states to determine

their own rules for electronic and digital signatures and does not

address any issues related to certification authorities. Furthermore,

the regulations are relatively brief, at least in comparison to work

done by the American Bar Association, the National Conference of

Commissioners on Uniform State Laws, the American Law Institute, the

United Nations Commission on International Trade Law, and many states,

among others.

(13) Requirements (Sec. 370.51)

An electronically signed transaction request cannot be accepted by

the Bureau of the Public Debt unless the signature has been

accomplished through a method that has been approved for specific

purposes by the Bureau of the Public Debt.

(14) Time of Acceptance (Sec. 370.52)

Acceptance of a transaction request by the Bureau of the Public

Debt will be effective no earlier than upon receipt of the message by

the Bureau of the Public Debt, and no later than upon the transmittal

of a message of acceptance by the Bureau of the Public Debt.

(15) Point of Transaction (Sec. 370.53)

The point of transaction for a transaction request submitted

electronically under this subpart will be Parkersburg, West Virginia.

(16) Effect of Electronic Signature (Sec. 370.54)

This section states that an electronic signature and any electronic

record to which it is affixed shall not be denied legal effect,

including legal effect as a signature, a writing, or an original,

solely because the signature or record is in electronic form. Some

provisions of law, such as the Statute of Frauds, require evidence of

an agreement to be in writing. Other provisions of law require that an

original record be produced in court, rather than a copy, or require

that a record be signed. However, there seems little reason to use

these doctrines to preclude the admissibility of electronically signed

records. These records are equivalent to signed writings, each copy of

which is identical to the original.

(17) Admissibility of Digital Signature (Sec. 370.55)

This section addresses the legal requirement that an item be

authenticated before being introduced into evidence. ``Authentication''

is a term that has a technical meaning specifically linked to the

security of electronic signatures, but also has a separate meaning in

the law of evidence, at which this section is directed.

Under Rule 901 of the Federal Rules of Evidence, ``The requirement

of authentication * * * as a condition precedent to admissibility is

satisfied by evidence sufficient to support a finding that the matter

in question is what its proponent claims.'' For instance, under Rule

901(b)(2), this evidentiary requirement may be met in regard to a

handwritten record by nonexpert testimony as to the genuineness of

handwriting. Although there have not as yet been any cases on the

matter, the requirement of authentication for digital signatures likely

can be met under Rule 901(b)(9), which allows for the sufficiency of

``[e]vidence describing a process or system used to produce a result

and showing that the process or system produces such a result.''

However, in some situations authentication evidence is not required

as a condition precedent to admissibility. As noted under Rule 902 of

the Federal Rules of Evidence, extrinsic evidence of authenticity is

not necessary for certified birth and death certificates, newspapers

and periodicals, trade inscriptions, commercial paper, and notarized

records, among other things. Because these items are likely to be

authentic, a strict adherence to preliminary authentication procedures

unnecessarily would expend a court's time and resources. Accordingly,

the items are considered to be self-authenticating and--barring other

objections to the evidence--may be admitted into evidence without

additional preliminary review.

The section states a limited self-authentication provision for

digital

[[Page 64549]]

signatures. This section begins by noting that authentication of a

purported digital signature may be accomplished by evidence sufficient

to support a finding that a digital signature exists. However,

extrinsic evidence of authenticity is unnecessary to establish that a

digital signature corresponds to a public key pair, as well as that an

electronic record to which a digital signature is affixed has not been

altered from its original form.

There are several reasons that support the insertion of a limited

self-authentication clause into this final rule. If public-key

encryption has been properly implemented, the risk of a successful

forgery or alteration of a digital signature is extremely remote, and

is significantly less than the risk of forgery or alteration for paper

records. Furthermore, although a legal showing of authenticity in the

absence of a self-authentication provision almost certainly could be

accomplished, such a showing would require considerable time and

resources. Among other things, it would entail extensive scientific

testimony on encryption, leading to an expensive and unproductive

``battle of the experts.'' Use of a self-authentication provision

avoids this wasteful problem.

In almost all cases, the existence of a digital signature should be

beyond reasonable dispute. The most likely challenges to a digital

signature and an electronic record to which it is affixed will turn not

on whether a digital signature exists, but on whether the digital

signature should be attributed to a particular person. These challenges

frequently will focus on the issuance, protection, or revocation of the

digital certificates used to link a digital signature and accompanying

record to a particular person. This section does nothing to prevent

such challenges, for the self-authentication provision does not tie a

digital signature to a particular person. Extrinsic evidence tying the

public key pair used in the creation of a digital signature to a

particular person still will have to be provided before a digital

signature and a record to which it has been affixed could be

admissible. Furthermore, this section would have no application at all

in criminal cases.

Finally, even to the extent that a self-authenticated digital

signature and accompanying record could be introduced into evidence

under this section, this section in no way prevents a party against

whom a digital signature is asserted from contesting the existence or

authenticity of the signature. However, any arguments would go to the

weight of the evidence, not to its admissibility.

(18) Negligence Contributing to Forged Signature (Sec. 370.56)

This section states that a person whose failure to exercise

ordinary care substantially contributes to the creation or submission

of a forged signature is precluded from disavowing the forged

signature. Furthermore, the burdens are on the person against whom a

signature is asserted to produce evidence that ordinary care was

exercised and to persuade a trier of fact that it is more likely than

not that the person exercised ordinary care. However, in asserting a

signature under this section the Bureau of the Public Debt first will

have to establish that it exercised ordinary care in relying upon the

signature.

This section is drawn in part from section 3-406 of the Uniform

Commercial Code (UCC) (``Negligence Contributing to Forged Signature or

Alteration of Instrument.''). The responsibilities imposed upon persons

in regard to the technology used to create and submit electronic

signatures and accompanying electronic records are similar to those

imposed under the UCC in regard to rubber signature stamps used to sign

checks. Official Comment 3 to UCC section 3-406 is enlightening in this

regard. If a person's rubber signature stamp and checks, kept in an

unlocked drawer, are stolen and used by a party to forge a check, a

bank may successfully be able to argue that the person is precluded

from disavowing the forged signature because the person's lack of

ordinary care substantially contributed to the forgery. Similarly,

under the final rule if a person fails to take adequate security

precautions to protect access to electronic signature technology (such

as by not safekeeping a computer password, for instance) and this

failure substantially contributes to the creation or submission of a

forged signature, the person is precluded from disavowing the

signature.

By looking to the UCC provision, this section attempts to find

middle ground between varying approaches in current law as to how

liability should be distributed between the parties for unauthorized

transactions. For instance, a person can be held accountable for all

unauthorized calls from that person's telephone number, without regard

to whether ordinary care was exercised by the person. At the other end

of the spectrum, a person cannot be held accountable beyond $50 in

unauthorized transactions on that person's credit card, regardless of

whether the consumer exercised ordinary care in protecting the card or

in promptly reporting a loss or theft of the card.

Treasury believes that if pursued in these regulations, a provision

that allows the assertion of a forged signature against a person even

if the person exercised ordinary care would unfairly punish consumers

and discourage electronic commerce. At the same time, if a person's

fault has led to the creation of a forged signature, a provision that

limits or precludes the assertion of the signature against the person

does little to encourage the exercise of ordinary care. This section

allows the assertion of a forged signature only if the person's failure

to exercise ordinary care substantially contributed to the creation of

the signature.

This section places the burdens of production and persuasion upon

the person against whom the signature would be asserted to show that

the person exercised ordinary care. Because an electronic signature is

not created in the presence of the person accepting the signature, the

person accepting the signature typically does not have best access to

the evidence needed to establish the forgery and the exercise of

ordinary care. It is appropriate to require the person against whom the

signature would be asserted to make this showing. Also, in asserting a

signature under this section the Bureau of the Public Debt will have to

establish that it exercised ordinary care in relying upon the

signature. The evidence needed to establish that it used ordinary care

will be within the control of the Bureau of the Public Debt and so it

is fair to require the Bureau of the Public Debt to make this showing.

In its comment letter, the Federal Reserve Board expressed concern

that this section might be used to avoid the limitations of Regulation

Z. As alluded to above, Regulation Z caps cardholder liability for

unauthorized credit card use at $50. This section does not seek to

encroach upon Regulation Z. To the extent this section might apply to

unauthorized savings bond purchases involving credit cards, Treasury

would be seeking to recover on a savings bond contract, not a credit

card debt. In any event, Treasury has amended section 370.0 of this

part to emphasize that to the extent Regulation Z applies to

transactions accomplished pursuant to this part, the consumer

protections extended by Regulation Z are unaffected.

(19) Liability (Sec. 370.57)

This section limits the Bureau of the Public Debt's liability for

claims involving this subpart E to the amount

[[Page 64550]]

of the transaction, less any losses caused by the failure of a claimant

to exercise due diligence. For instance, this section could have

application to claims involving errors in the handling of otherwise

properly authorized transactions.

III. Procedural Requirements

This final rule does not meet the criteria for a ``significant

regulatory action,'' as defined in Executive Order 12866. Therefore,

the regulatory review procedures contained therein do not apply.

This final rule relates to matters of public contract and

procedures for United States securities. The notice and public

procedures requirements of the Administrative Procedure Act are

inapplicable, pursuant to 5 U.S.C. 553(a)(2).

As no notice of proposed rulemaking is required, the Regulatory

Flexibility Act (5 U.S.C. 601, et seq.) does not apply.

There are no new collections of information contained in this final

rule. Therefore, the Paperwork Reduction Act (44 U.S.C. 3507) does not

apply.

List of Subjects in 31 CFR Parts 317, 351, 353, and 370

Bonds, Electronic Funds Transfers, Government Securities.

For the reasons set forth in the preamble, 31 CFR parts 317, 351,

353, and 370 are amended as follows:

PART 317--REGULATIONS GOVERNING AGENCIES FOR ISSUE OF UNITED STATES

SAVINGS BONDS

1. The authority citation for part 317 is revised to read as

follows:

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

1767; 31 U.S.C. 3105.

2. Revise Sec. 317.1 to read as follows:

Sec. 317.1 Definitions.

(a) Bond(s) means Series EE United States Savings Bonds and Series

I United States Savings Bonds.

(b) Federal Reserve Bank refers to the Federal Reserve Bank or

Branch providing savings bond services to the district in which the

issuing agent or the applicant organization is located. See

Sec. 317.9(a).

(c) Issuing agent refers to an organization that has been qualified

by a designated Federal Reserve Bank or the Commissioner of the Bureau

of the Public Debt to sell savings bonds. An issuing agent acts as an

agent of the purchaser in handling the remittance. The definition

encompasses:

(1) Each organization that accepts and processes purchase orders

for bonds sold over-the-counter, but does not inscribe bonds, and

(2) Each organization that is authorized to inscribe bonds sold

over-the-counter or through payroll savings plans.

(d) Offering circular refers to Department of the Treasury

Circular, Public Debt Series No. 1-80, current revision, for Series EE

savings bonds, and to Department of the Treasury Circular, Public Debt

Series No. 1-98 for Series I savings bonds.

(e) Organization means an entity, as described in Sec. 317.2, that

may qualify as an issuing agent of bonds.

3. Revise Sec. 317.2 to read as follows:

Sec. 317.2 Organizations authorized to act.

Organizations eligible to apply for qualification and serve as

issuing agents are the following:

(a) Banks, Federal credit unions in good standing, trust companies,

and savings institutions chartered by or incorporated under the laws of

the United States, or those of any State or Territory of the United

States, the District of Columbia, or the Commonwealth of Puerto Rico.

(b) Agencies of the United States and State and local governments.

(c) Employers operating payroll savings plans for the purchase of

United States Savings Bonds, as well as organizations operating payroll

savings plans on behalf of employers.

(d) Other organizations specifically and individually qualified by

the Commissioner of the Bureau of the Public Debt whenever the

Commissioner deems such a qualification to be in the public interest.

In selecting an issuing agent, the Commissioner may use such process

that the Commissioner deems to be appropriate. The selected issuing

agent will be subject to such conditions that the Commissioner deems to

be appropriate.

Sec. 317.3 [Amended]

4. Amend Sec. 317.3 as follows:

A. Revise the introductory text to paragraph (a) to read as

follows:

Sec. 317.3 Procedure for qualifying and serving as issuing agent.

(a) Execution of application agreement. An organization seeking

issuing agent qualification generally shall obtain from and file with a

designated Federal Reserve Bank an application-agreement form. However,

if an organization seeks qualification under Sec. 317.2(d) or because

of its status as an organization operating a payroll savings plan on

behalf of an employer under Sec. 317.2(c), it shall make application

directly to the Bureau of the Public Debt for approval by the

Commissioner of the Bureau of the Public Debt. An application-agreement

sent directly to the Bureau of the Public Debt shall be supplemented by

such other information as the Bureau of the Public Debt may request.

* * * * *

B. Add the words ``or the Bureau of the Public Debt'' after the

words ``Federal Reserve Bank'' in paragraphs (b) and (c).

5. Revise Sec. 317.6(b) to read as follows:

Sec. 317.6 Issuance of bonds.

* * * * *

(b) Fees. Each issuing agent, other than a Federal agency, will be

paid fees. Only issuing agents are eligible to collect fees. With prior

approval, agents that are authorized to inscribe bonds and receive fee

payments will also be paid a bonus for presorting savings bond

mailings. Schedules reflecting the amount of the fees and presort

bonuses, and the basis on which they are computed and paid, will be

published separately in the Federal Register.

* * * * *

6. Amend the appendix to Sec. 317.8 as follows:

A. Revise the section heading to the appendix to read as set out

below;

B. Remove paragraph 3 of subpart B;

C. Revise paragraphs 2(c) and 2(e) of subpart A, all of subpart C,

and paragraphs 2(a)(i) and 2(b) of subpart D to read as follows:

Sec. 317.8 Remittance of sales proceeds and registration records.

* * * * *

Appendix to Sec. 317.8--Remittance of Sales Proceeds and

Registration Records, Department of the Treasury Circular, Public

Debt Series No. 4-67, Third Revision (31 CFR Part 317), Fiscal

Service, Bureau of the Public Debt

Subpart A--General Information

* * * * *

2. Definition of terms. As used in this appendix:

* * * * *

(c) Over-the-counter sale means any sale of savings bonds other

than payroll sales.

* * * * *

(e) Issuing agent, as provided in Sec. 317.1(c) of the Circular,

refers to an organization that has been qualified by a designated

Federal Reserve Bank or the Commissioner of the Bureau of the Public

Debt to sell savings bonds.

* * * * *

[[Page 64551]]

Subpart C--Remittance of Payroll Sales Proceeds

1. Application of requirements. The remittance requirements for

payroll sales apply only to issuing agents. An employer that maintains

a payroll savings plan but does not issue bonds shall be notified by

the servicing issuing agent that it must remit sales proceeds to the

issuing agent in sufficient time to permit compliance with the

requirements.

2. Remittance of payroll sales deductions. Issuing agents shall

remit sales proceeds throughout the month shown in the issue date as

soon as the full amount of the purchase price of the bonds has been

received or accumulated. In no case should such proceeds be remitted

later than the second business day of the month following the month

shown in the issue date. The issuing agent shall ensure that its system

properly accounts for and recognizes when the full purchase price has

been received, or has been accumulated, so that timely remittance can

be made. The issuing agent shall transmit registration records in an

electronically processible format within thirty (30) days following the

month shown on the issue date.

Subpart D--Interest on Late Remittances

* * * * *

2. * * *

(a) Bonds inscribed by issuing agent--(i) Payroll sales. If, during

any three (3) month period, the interest assessed on an issuing agent's

late remittance of proceeds from payroll savings plan sales or thrift,

savings, vacation, or similar plan sales accumulates to less than $50

for each type of sales, the interest assessed for the first month will

be waived. The interest assessed for each type of sales for the

remaining two (2) months will then be carried forward to the next

period of three (3) consecutive months.

* * * * *

(b) Bonds inscribed by the designated Federal Reserve Bank. The

interest assessed on late remittance of all sales proceeds transmitted

during a given month will be waived if it is less than $25.

* * * * *

PART 351--OFFERING OF UNITED STATES SAVINGS BONDS, SERIES EE

1. The authority citation for part 351 continues to read as

follows:

Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 3105.

2. Revise Sec. 351.1 to read as follows:

Sec. 351.1 Governing regulations.

Series EE bonds are subject to the regulations of the Department of

the Treasury, now or hereafter prescribed, governing United States

Savings Bonds of Series EE and HH, contained in Department of the

Treasury Circular, Public Debt Series No. 3-80 (part 353 of this

chapter). Treasury expressly disclaims the effect of, and does not

warranty the correctness of, any representations or warranties

regarding Series EE bonds, wherever made, that in any way conflict with

the terms and conditions of Series EE bonds, as set out in these and

other regulations and other applicable law. The regulations in part 370

of this chapter apply to transactions for the purchase of United States

Savings Bonds issued through the Bureau of the Public Debt. The

regulations in part 370 do not apply to transactions for the purchase

of bonds accomplished through issuing agents generally, unless and to

the extent otherwise directed by the Commissioner of the Bureau of the

Public Debt.

3. Revise Sec. 351.5 to read as follows:

Sec. 351.5 Purchase of bonds.

(a) Payroll sales--(1) Payroll savings plans. Bonds in $100 and

higher denominations may be purchased through deductions from the pay

of employees of organizations that maintain payroll savings plans. The

bonds must be issued by an authorized issuing agent.

(2) Employee thrift, savings, vacation, and similar plans. Bonds

registered in the names of trustees of employee plans may be purchased

in book-entry form in $100 multiples through a designated Federal

Reserve Bank after Bureau of the Public Debt approval of the plan as

eligible for the special limitation under Sec. 353.13 of this chapter,

also published as Sec. 353.13 of Department of the Treasury Circular,

Public Debt Series No. 3-80.

(b) Over-the-counter sales--(1) Eligible issuing agents. Bonds may

be purchased through any issuing agent, except that an organization

serving as an issuing agent because of its status as an employer or an

organization operating an employer's payroll savings plan under

Sec. 317.2(c) of this chapter may sell bonds only through payroll

savings plans.

(2) Manner of sale. An application for the purchase of a bond must

be accompanied by a remittance to cover the issue price. The purchase

application and remittance may be submitted to an issuing agent by any

means acceptable to the issuing agent. An application may authorize

purchases on a recurring basis. The issuing agent bears the burden of

collection and the risk of loss for non-collection or return of the

remittance.

PART 353--REGULATIONS GOVERNING UNITED STATES SAVINGS BONDS, SERIES

EE AND HH

1. The authority citation for part 353 is revised to read as

follows:

Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 3105, 3125.

Sec. 353.6 [Amended]

2. Remove the word ``deduction'' in Sec. 353.6(b)(4), and add, in

its place, the word ``savings.''

Sec. 353.13 [Amended]

3. Add the phrase ``, as amended'' after the word ``1954'' in

Sec. 353.13(c)(3).

4. Revise paragraph (a) of Sec. 353.21 to read as follows:

Sec. 353.21 Payment to judgment creditors.

(a) Purchaser or officer under levy. The Department of the Treasury

will pay (but not reissue) a savings bond to the purchaser at a sale

under a levy or to the officer authorized under appropriate process to

levy upon property of the registered owner or coowner to satisfy a

money judgment. Payment will be made only to the extent necessary to

satisfy the money judgment. The amount paid is limited to the

redemption value 60 days after the termination of the judicial

proceedings. Except in a case of a levy by the Internal Revenue

Service, payment of a bond registered in coownership form pursuant to a

judgment or a levy against only one coowner is limited to the extent of

that coowner's interest in the bond. That interest must be established

by an agreement between the coowners by judgment, decree, or order of a

court in a proceeding to which both coowners are parties. Payment of a

bond registered in coownership form pursuant to levy by the Internal

Revenue Service will be made if the levy is against either coowner on

the bond.

5. Revise Sec. 353.27 to read as follows:

Sec. 353.27 Application for relief--Non-receipt of bond.

If a bond issued on any transaction is not received, the issuing

agent must be notified as promptly as possible and given all

information about the non-receipt. An appropriate form and instructions

will be provided. If the application is approved, relief will be

granted by the issuance of a bond bearing the same issue date as the

bond that was not received. Also, relief is authorized for the issuance

of bonds for

[[Page 64552]]

which the Secretary has not received payment, in order to preserve

public confidence in dealing with issuing agents.

PART 370--REGULATIONS GOVERNING ELECTRONIC TRANSACTIONS AND THE

TRANSFER OF FUNDS BY ELECTRONIC MEANS ON ACCOUNT OF UNITED STATES

SECURITIES

1. The authority citation for part 370 is revised to read as

follows:

Authority: 12 U.S.C. 391; 31 U.S.C. chapter 31.

2. The heading of part 370 is revised to read as set forth above.

3. Revise subpart A to read as follows:

Subpart A--General Information

Sec.

370.0 Applicability.

370.1 Definitions.

Subpart A--General Information

Sec. 370.0 Applicability.

The regulations in this part apply to electronic transactions and

the transfer of funds by electronic means as employed by the Bureau of

the Public Debt in connection with United States securities, except as

varied by agreement or as otherwise provided. To the extent that the

regulations in part 210 of this title apply to the purchase or payment

of interest and principal on United States securities, the regulations

in this part 370 apply in the event of any inconsistencies. Among other

things, the written authorization of the Financial Management Service

is not necessary for the issuance of routing numbers by a Federal

Reserve Bank or for the receipt, origination, or reversal of any credit

or debit entry accomplished pursuant to this part. Finally, to the

extent that Regulation E (12 CFR part 205) and Regulation Z (12 CFR

part 226) of the Board of Governors of the Federal Reserve System may

apply to transactions authorized by this part, those Federal laws are

unaffected by this part.

Sec. 370.1 Definitions.

Automated Clearing House (ACH) entry means a transaction in

accordance with applicable Operating Rules and Operating Guidelines of

the National Automated Clearing House Association, as modified by these

and other regulations and law. The regulations in this part control in

the event of any inconsistencies with the applicable Operating Rules

and Operating Guidelines.

Credit entry means an ACH entry for the deposit of money to a

deposit account.

Debit entry means an ACH entry for the payment of money from a

deposit account.

Deposit account means a demand deposit (checking), savings, or

asset account (other than an occasional or incidental credit balance in

a credit plan) held directly or indirectly by a financial institution.

Digital signature means a type of electronic signature. A digital

signature uses public-key encryption and a message digest function to

transform an electronic record. A person who has the initial electronic

record and the signer's public key can verify:

(1) Whether the transformation was accomplished by the private key

that corresponds to the signer's public key; and

(2) Whether the initial record has been altered since the

transformation was made.

Electronic signature means a signature manifested through

electronic or similar means, including digital and biometric methods.

Financial institution means:

(1) An entity described in section 19(b)(1)(A), excluding

subparagraphs (v) and (vii), of the Federal Reserve Act (12 U.S.C.

461(b)(1)(A)). Under section 19(b)(1)(A) of the Federal Reserve Act and

for purposes of this part only, the term ``depository institution''

means:

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

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

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

U.S.C. 1815);

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

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

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

(12 U.S.C. 1815);

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

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

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

(12 U.S.C. 1815);

(iv) Any insured credit union as defined in section 101 of the

Federal Credit Union Act (12 U.S.C. 1752) or any credit union that is

eligible to make application to become an insured credit union pursuant

to section 201 of such Act (12 U.S.C. 1781);

(v) Any savings association as defined in section 3 of the Federal

Deposit Insurance Act (12 U.S.C. 1813) that 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

(2) 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).

Message digest function means an algorithm mapping or translating

one sequence of bits into another, generally smaller, set such that:

(1) An electronic record yields the same message digest result

every time the algorithm is executed using the same electronic record

as input;

(2) It is computationally infeasible that an electronic record can

be derived or reconstituted from the message digest result produced by

the algorithm; and

(3) It is computationally infeasible that two electronic records

can be found that produce the same message digest using the algorithm.

Originator means an entity authorized by a person to initiate debit

or credit entries to the person's deposit account and that also has an

agreement with a financial institution to transmit the debit or credit

entries to the person's deposit account.

Owner means the person(s) in whose name(s) a security is

registered.

Payment means, for the purpose of subpart B of this chapter, the

deposit of money from the Department of the Treasury to the deposit

account of the owner.

Person means any natural person or organization.

Public-key encryption means a process which generates and employs a

key pair consisting of a private key and its mathematically related

public key, in which one use of the public key is to verify a digital

signature created by the private key.

Record means information that is inscribed on a tangible medium or

that is stored in an electronic or other medium and is retrievable in

perceivable form.

Security means any obligation issued by the United States that, by

the terms of the applicable offering circular, is made subject to this

part.

Settlement date means the date an exchange of funds with respect to

an entry is reflected on the books of the Federal Reserve Bank(s). For

a security held in the TREASURY DIRECT system, the issue date will in

most cases be the same as the settlement date. For United States

Savings Bonds, the issue date will in most cases be the first day of

the month in which settlement takes place.

Signature means any symbol or method executed or adopted by a party

with present intention to be bound.

[[Page 64553]]

4. Revise the heading of subpart C to read as follows:

Subpart C--Debit ACH Entries for the Sale of Securities in TREASURY

DIRECT

* * * * *

Subpart D--Redesignated

5. Redesignate subpart D as subpart F and Secs. 370.30 and 370.31

as Secs. 370.60 and 370.61.

6. Add subparts D and E to read as follows:

Subpart D--Debit ACH Entries for the Sale of United States Savings

Bonds Issued Through the Bureau of the Public Debt

Sec.

370.30 Scope.

370.31 Authorization.

370.32 Prenotification.

370.33 Warranties of financial institution.

370.34 Responsibilities of financial institution.

370.35 Termination or suspension by the Bureau of the Public Debt.

370.36 Termination or suspension by purchaser or deposit account

owner by notice to the originator.

370.37 Changes and error resolution.

370.38 Liability.

Subpart O--Debit ACH Entries for the Sale of United States Savings

Bonds Issued Through the Bureau of the Public Debt

Sec. 370.30 Scope.

This subpart provides regulations for Automated Clearing House

debit entries used for the sale of United States Savings Bonds issued

through the Bureau of the Public Debt. This subpart also establishes

the exclusive liability of the Bureau of the Public Debt for such

entries. This subpart does not apply to transactions for the sale of

United States Savings Bonds accomplished through savings bond issuing

agents generally, unless and to the extent the Commissioner of the

Bureau of the Public Debt directs otherwise.

Sec. 370.31 Authorization.

(a) General. The purchaser of a security shall authorize an

originator to initiate Automated Clearing House debit entries and shall

designate a deposit account at a financial institution to receive such

entries. An authorization shall be accomplished only through a form

approved by the Bureau of the Public Debt.

(b) Persons to sign. The signatures of the purchaser and any other

persons whose signatures ordinarily are required to withdraw funds from

the designated deposit account are necessary for the authorization to

be effective. Except to the extent required by the Bureau of the Public

Debt, the originator will not be required to verify the identity of the

purchaser or the authenticity of the signatures.

(c) Recurring debit entries. A single authorization may allow or

require debit entries to be made to a deposit account on a recurring

basis, if the approved authorization form so provides.

(d) Subsequent authorizations. A purchaser's subsequent

authorization cancels a previous authorization.

(e) Successor originator. The Bureau of the Public Debt reserves

the right to name a successor to the originator named on the debit

authorization form. The designation of a successor shall be effective

without additional notice to the purchaser.

Sec. 370.32 Prenotification.

The requirement of a prenotification prior to the initiation of any

debit entry is left to the discretion of the Bureau of the Public Debt.

If sent, the receiving financial institution must respond within the

time frame for such responses established by the National Automated

Clearing House Association. If a prenotification is sent and the

receiving financial institution does not reject or otherwise respond to

the prenotification message within the specified time period, the

financial institution shall be deemed to have warranted to Treasury and

the originator that the information as to the deposit account number

and the type of account contained in the message is accurate as of the

time of receipt of the prenotification.

Sec. 370.33 Warranties of financial institution.

A financial institution's acceptance and handling of a debit entry

or failure to timely reject a prenotification made with respect to a

security covered by this subpart shall constitute its agreement to the

provisions of this subpart. In addition to warranties referred to in

Sec. 370.32, a financial institution that agrees to this part also

warrants that it has the authority to receive entries and to comply

with any requirements imposed upon Receiving Depository Financial

Institutions under the Operating Rules and Operating Guidelines of the

National Automated Clearing House Association, as modified by these and

other regulations and law.

Sec. 370.34 Responsibilities of financial institution.

A financial institution that receives a debit entry on behalf of

its customer must debit the customer's account on the settlement date.

If the financial institution is unable to debit the designated account,

it shall return the entry by no later than the next business day after

receipt, with an electronic message or other response explaining the

reason for the return.

Sec. 370.35 Termination or suspension by the Bureau of the Public

Debt.

The Bureau of the Public Debt may terminate or suspend the

availability of debit entries as a means of purchase for savings bonds

at any time. A decision to terminate or suspend the availability of

debit entries as a means of purchase is in the sole discretion of the

Bureau of the Public Debt and shall be final.

Sec. 370.36 Termination or suspension by purchaser or deposit account

owner by notice to the originator.

A purchaser of a security or a deposit account owner may terminate

or suspend debits by notifying the originator orally or in writing at

least three business days before the scheduled date of the transfer. In

response to an oral notice, the originator may require the consumer to

give written notice, to be received by the originator within 14 days of

an oral notice. An oral notice ceases to be binding after 14 days if

the purchaser fails to provide the required written confirmation. A

suspension will remain in effect for the duration specified by the

purchaser, but for no more than six months. The termination and

revocation methods need not be recited in the authorization.

Sec. 370.37 Changes and error resolution.

While responding to an oral or written notice from a person

relating to the propriety of security issuance information or a debit

entry involving the person's deposit account, the originator may

suspend further debit entries. In response to an oral notice, the

originator may require the person to give written notice, to be

received by the originator within 10 business days of an oral notice.

The originator promptly will investigate the allegation and provide

relief for any error, but is not bound to complete the investigation or

correct the error within 10 business days if the requested written

confirmation is not provided.

Sec. 370.38 Liability.

(a) Scope of liability. Unless the Bureau of the Public Debt has

designated itself or a fiscal or financial agent as an originator, the

Bureau of the Public Debt shall not be liable for any unauthorized,

erroneous, duplicative, or otherwise improper debit entries, and shall

not be liable for a failure to debit a deposit account. Unless the

Bureau of the Public Debt has designated itself or

[[Page 64554]]

a fiscal or financial agent as the originator, the originator serves as

the agent of the purchaser in handling the remittance. Any claims must

be pursued against the originator. The Bureau of the Public Debt shall

not be liable for its choice of an originator. The Bureau of the Public

Debt shall not be liable to any Automated Clearing House association.

(b) Extent of liability. For any claim involving this subpart that

may proceed against the Bureau of the Public Debt, the Bureau of the

Public Debt's liability is limited to the amount of the improper debit

and does not extend to other damages or costs, including consequential

damages, punitive damages, the costs of litigation, or payment of

attorney fees. The liability of the Bureau of the Public Debt also

shall be reduced by the amount of the loss resulting from a failure of

the claimant to exercise due diligence, including a failure to follow

standard commercial practices.

Subpart E--Electronic Submission of Transaction Requests Through the

Bureau of the Public Debt

Sec.

370.50 Scope.

370.51 Requirements.

370.52 Time of acceptance.

370.53 Point of transaction.

370.54 Effect of electronic signature.

370.55 Admissibility of digital signature.

370.56 Negligence contributing to forged signature.

370.57 Liability.

Subpart E--Electronic Submission of Transaction Requests Through

the Bureau of the Public Debt

Sec. 370.50 Scope.

This subpart provides general regulations for the electronic

submission of transaction requests through the Bureau of the Public

Debt. This subpart also establishes the exclusive liability of the

Bureau of the Public Debt for transactions accomplished under this

subpart. This subpart does not apply to transactions for the sale of

United States Savings Bonds accomplished through savings bond issuing

agents generally, unless and to the extent the Commissioner of the

Bureau of the Public Debt directs otherwise.

Sec. 370.51 Requirements.

An electronically signed transaction request cannot be accepted by

the Bureau of the Public Debt unless the signature has been

accomplished through a method that has been approved for specific

purposes by the Bureau of the Public Debt.

Sec. 370.52 Time of acceptance.

A transaction request submitted electronically, including an offer

to purchase a security, is accepted no earlier than at the moment the

request is received by the Bureau of the Public Debt and no later than

at the moment a message of acceptance is sent by the Bureau of the

Public Debt, regardless of the method used to transmit the message of

acceptance.

Sec. 370.53 Point of transaction.

For jurisdiction and venue purposes, the point of transaction for a

transaction request handled pursuant to this subpart is Parkersburg,

West Virginia, regardless of from where the transaction request is

transmitted or where the transaction request is actually processed.

Sec. 370.54 Effect of electronic signature.

An electronic signature and any electronic record to which it is

affixed or attached may not be denied legal effect, including legal

effect as a signature, a writing, or an original, solely because the

signature or record is in electronic form.

Sec. 370.55 Admissibility of digital signature.

The requirement of authentication or identification as a condition

precedent to admissibility is satisfied by evidence sufficient to

support a finding that a digital signature exists. However, in

asserting a digital signature against a particular person in any civil

litigation or dispute, extrinsic evidence of authenticity as a

condition precedent of admissibility shall not be necessary to

establish that a digital signature corresponds to a specific public key

pair and that an electronic record to which the digital signature is

affixed has not been altered from its original form.

Sec. 370.56 Negligence contributing to forged signature.

A person whose failure to exercise ordinary care substantially

contributes to the creation or submission of a forged signature is

precluded from disavowing the forged signature. The burden of

production and the burden of persuasion is on the person against whom

the signature is asserted to establish the exercise of ordinary care.

However, in asserting a signature under this section, the Bureau of the

Public Debt bears the burden of production and the burden of persuasion

in establishing that it exercised ordinary care in relying upon the

signature.

Sec. 370.57 Liability.

For any claim involving this subpart that may proceed against the

Bureau of the Public Debt, the Bureau of the Public Debt's liability is

limited to the amount of the transaction and does not extend to other

damages or costs, including consequential damages, punitive damages,

the costs of litigation, or payment of attorney fees. The liability of

the Bureau of the Public Debt shall also be reduced by the amount of

the loss resulting from a failure of the claimant to exercise due

diligence, including a failure to follow standard commercial practices.

Dated: November 10, 1998.

Donald V. Hammond,

Fiscal Assistant Secretary.

[FR Doc. 98-31089 Filed 11-19-98; 8:45 am]

BILLING CODE 4810-39-P