[Federal Register Volume 62, Number 157 (Thursday, August 14, 1997)]
[Rules and Regulations]
[Pages 43467-43469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21584]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-0959]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is publishing amendments to Regulation E (Electronic
Fund Transfers). The revisions implement an amendment to the Electronic
Fund Transfer Act (EFTA), contained in the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996, that exempts certain
electronic benefit transfer (EBT) programs from the EFTA. Generally,
EBT programs involve the issuance of access cards and personal
identification numbers to recipients of government benefits so that
they can obtain their benefits through automated teller machines and
point-of-sale terminals. The Board's amendments to Regulation E exempt
needs-tested EBT programs that are established or administered by state
or local government agencies. Federally administered EBT programs and
state and local employment-related EBT programs (such as state pension
programs) remain covered by Regulation E subject to modified
requirements.
EFFECTIVE DATE: September 15, 1997.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Senior Attorney,
Division of Consumer and Community Affairs, at (202) 452-3667; for
users of Telecommunications Device for the Deaf (TDD) only, contact
Diane Jenkins at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
EFT Act and Regulation E
Regulation E implements the Electronic Fund Transfer Act (EFTA).
The act and regulation cover any consumer electronic fund transfer
(EFT) initiated through an automated teller machine (ATM), point-of-
sale (POS) terminal, automated clearinghouse, telephone bill-payment
system, or home banking program. The act and Regulation E establish
rules that govern these and other EFTs. The rules restrict the
unsolicited issuance of ATM cards and other access devices; require
disclosure of terms and conditions of an EFT service; document EFTs by
means of terminal receipts and periodic account statements; limit
consumer liability for unauthorized transfers; and establish procedures
for error resolution.
The EFTA is not limited to traditional financial institutions
holding consumers' accounts. For EFT services made available by
entities other than an account-holding financial institution, the act
directs the Board to assure, by regulation, that the provisions of the
act are made applicable. The regulation also applies to entities that
issue access devices and enter into agreements with consumers to
provide EFT services.
Electronic Benefit Transfer Programs
Electronic benefit transfer (EBT) programs are designed to deliver
government benefits such as food stamps, supplemental security income
(SSI), and social security. These systems function much like commercial
systems for EFT. Eligible recipients receive magnetic-stripe cards and
personal identification numbers and they access benefits through
electronic terminals. In the case of cash benefits such as SSI, the
terminals may include ATMs that are part of existing commercial
networks; for food stamp benefits, POS terminals in grocery stores are
typically used.
EBT offers numerous advantages over paper-based delivery systems,
both for recipients and for program agencies. For recipients, these
advantages include faster access to benefits, greater convenience in
terms of times and locations for obtaining benefits, improved security
because funds may be accessed as needed, lower costs because recipients
avoid check-cashing fees, and greater privacy and dignity. For
agencies, EBT programs offer a system that can more efficiently deliver
benefits for both state and federal programs by reducing the cost of
benefit delivery, facilitating the management of program funds, and
helping to reduce fraud.
In March 1994, the Board amended Regulation E to bring EBT programs
expressly within its coverage. 59 FR 10678 (March 7, 1994). The special
provisions, contained in Sec. 205.15, apply most of the requirements of
the regulation--including those relating to liability for unauthorized
transactions and to error resolution--with some modifications. The
major exception related to providing periodic statements of account
activity: EBT programs need not provide periodic statements as long as
(1) account balance information is made available to benefit recipients
via telephone and electronic terminals and (2) a written account
history is given upon request.
The basic premise underlying the Board's 1994 amendments to
Regulation E was that all consumers using EFT services should receive
substantially the same protection under the EFTA and Regulation E. To
enable states to test and implement their EBT programs, the Board
delayed the date of mandatory compliance to March 1, 1997.
II. Revised Regulatory Provisions
On August 22, 1996, the Congress enacted amendments to the EFTA as
part of the Personal Responsibility and Work Opportunity Reconciliation
Act of 1996, a comprehensive welfare reform law (Pub. L. 104-193, 110
Stat. 2105). These amendments exempt ``needs-tested'' EBT programs
established or administered under state or local law. (``Needs-tested''
EBT programs generally take a recipient's income or other resources
into account to determine the appropriate level of benefits.) The
exemption was enacted by the Congress at the urging of state and local
officials, who expressed concern about the costs of compliance with the
EFTA and
[[Page 43468]]
Regulation E. In particular, these officials believed that federal
provisions limiting a recipient's liability for unauthorized transfers
could raise serious budgetary problems at the state and local level.
In January, the Board issued a proposal to implement the exemption
(62 FR 3242, January 22, 1997). Fifteen comments were received,
generally in support of the amendments. Some commenters requested
further clarification on certain technical issues. For example,
clarification was requested on the treatment of SSI, a needs-tested
benefit administered by the federal government through the Social
Security Administration. Under the amendments to the EFTA, SSI benefits
remain covered by the EFTA and Regulation E.
For cost efficiencies in the delivery of benefits, EBT programs may
offer both federal and state benefits through the use of a single card.
An EBT service provider requested clarification on how Regulation E
applies when a card accesses benefits under multiple programs, some
covered by and others exempt from Regulation E (for example, the
Benefit Security Card offered by the Southern Alliance of
States). In this program, non-cash benefits (such as food stamps) are
held in one account and cash benefits are held in a separate account.
In the cash account, federally administered and state employment-
related benefits (covered by Regulation E) may be pooled with state
administered or established ``needs-tested'' benefits that are exempt
from the regulation. Program agencies may allocate the withdrawal of a
recipient's benefits from the pooled account in any manner they choose.
All federally administered benefits (and state employment-related
benefits) accessed by the card from the pooled account must receive the
protections provided by Regulation E. Agencies must ensure that the
required disclosures concerning account balances, liability limits,
error resolution procedures, and account histories clearly state how
these protections apply with regard to a single card covering exempt
and non-exempt programs. With regard to liability for unauthorized use,
liability limits apply to the extent that the loss is charged against
covered benefits. Similarly, error resolution procedures apply to the
federally administered benefits (and state employment-related benefits)
covered under Regulation E. This interpretation will be incorporated in
the Official Staff Commentary to Regulation E.
Based on the comments and further analysis, the Board has adopted a
final rule exempting ``needs-tested'' EBT programs established or
administered by state or local government agencies. Federally
administered EBT programs and employment-related programs established
by federal, state, or local governments (such as state pension
programs) remain covered by Regulation E, subject to the modified rules
established by section 205.15.
III. Section-by-Section Analysis of Amendments
Section 205.15--Electronic Fund Transfers of Government Benefits
Section 205.15 contains the rules that apply to EBT programs as
defined by the regulation. It provides modified rules on the issuance
of access devices, periodic statements, initial disclosures, liability
for unauthorized use, and error resolution notices. Employment-related
benefit programs established by federal, state, or local governments
(as well as federally administered programs) remain subject to these
modified rules.
15(a) Government agency subject to regulation
15(a)(1)
The act and regulation define coverage in terms of financial
institution, a term that applies to entities that provide EFT services
to consumers whether these entities are banks, other depository
institutions, or other types of organizations entirely. Paragraph
(a)(1) specifies when a government agency is a financial institution
for purposes of the act and regulation. This provision has been revised
to exclude needs-tested benefits in a program established under state
or local law or administered by a state or local agency, consistent
with the 1996 statutory amendments.
15(a)(2)
The term account is defined generally in Sec. 205.2(b). For
purposes of EBT programs, account is defined in Sec. 205.15(a)(2) to
mean an account established by a government agency (or agencies) for
distributing benefits to a consumer electronically, such as through
ATMs or POS terminals, whether or not the account is directly held by
the agency or a bank or other depository institution. For example, an
account under this section includes the use of a database (containing
the consumer's name and record of benefit transfers) that is accessed
for verification purposes before a particular transaction is approved.
Under the Board's final rule, the definition is revised to exclude
needs-tested benefits in a program established under state or local law
or administered by a state or local agency, consistent with the 1996
amendments to the EFTA. Government benefits that remain covered include
federally administered benefits such as social security and SSI and
state and local benefits that are employment-related such as retirement
and unemployment benefits.
IV. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
(5 U.S.C. 603), the Board's Office of the Secretary has reviewed the
amendments to Regulation E. The amendments, which establish an
exemption for certain EBT programs established or administered by a
state or local agency, are not expected to have a significant impact on
small entities.
V. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the final rule
under the authority delegated to the Board by the Office of Management
and Budget. The amendments provide an exemption for state-administered
or state-established electronic benefit transfer programs; the
amendments are not expected to affect the paperwork burden that the
regulation imposes on state member banks or on other institutions.
An agency may not conduct or sponsor, and an organization is not
required to respond to, this information collection unless it displays
a currently valid OMB control number. The OMB control number is 7100-
0200. The Board has a continuing interest in the public's opinions of
the Federal Reserve's collections of information. At any time, comments
regarding the burden estimate, or any other aspect of this collection
of information, including suggestions for reducing the burden, may be
sent to: Secretary, Board of Governors of the Federal Reserve System,
20th and C Streets, NW., Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0200),
Washington, DC 20503.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board amends 12 CFR
Part 205 as set forth below:
[[Page 43469]]
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for Part 205 is revised to read as
follows:
Authority: 15 U.S.C. 1693-1693r.
2. Section 205.15 is amended by revising paragraph (a) to read as
follows:
Sec. 205.15 Electronic fund transfer of government benefits.
(a) Government agency subject to regulation. (1) A government
agency is deemed to be a financial institution for purposes of the act
and this part if directly or indirectly it issues an access device to a
consumer for use in initiating an electronic fund transfer of
government benefits from an account, other than needs-tested benefits
in a program established under state or local law or administered by a
state or local agency. The agency shall comply with all applicable
requirements of the act and this part, except as provided in this
section.
(2) For purposes of this section, the term account means an account
established by a government agency for distributing government benefits
to a consumer electronically, such as through automated teller machines
or point-of-sale terminals, but does not include an account for
distributing needs-tested benefits in a program established under state
or local law or administered by a state or local agency.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, August 11, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-21584 Filed 8-13-97; 8:45 am]
BILLING CODE 6210-01-P
