[Federal Register Volume 59, Number 44 (Monday, March 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4681]
[[Page Unknown]]
[Federal Register: March 7, 1994]
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Part II
Federal Reserve System
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12 CFR Part 205
Electronic Fund Transfer; Final Rule, Proposed Rule and Proposed
Official Staff Interpretation
FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-0829]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is publishing a final rule to amend Regulation E,
pursuant to its authority under sections 904(c) and (d) of the
Electronic Fund Transfer Act, to cover electronic benefit transfer
(EBT) programs established by federal, state, or local government
agencies. 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 final rule applies Regulation E to EBT
programs but sets forth certain limited modifications under authority
granted to the Board by section 904(c) of the act. In particular,
periodic account statements are not required if account balance
information and written account histories are made available to benefit
recipients by other specified means. This rulemaking directly affects
government agencies that administer EBT programs and indirectly affects
depository institutions and other private-sector entities.
DATES: Effective date: February 28, 1994. Compliance date. To provide
adequate time to prepare for compliance, the Board has delayed
mandatory compliance until March 1, 1997.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell or Mary Jane Seebach,
Staff Attorneys, or John C. Wood, Senior Attorney, Division of Consumer
and Community Affairs, at (202) 452-2412 or (202) 452-3667. For the
hearing impaired only, contact Dorothea Thompson, Telecommunications
Device for the Deaf (TDD), at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
(1) Background
EFT Act and Regulation E
Regulation E implements the Electronic Fund Transfer Act (EFTA).
The act and regulation cover any electronic fund transfer initiated
through an automated teller machine (ATM), point-of-sale (POS)
terminal, automated clearinghouse, telephone bill-payment system, or
home banking program and provide rules that govern these and other
electronic transfers. The regulation sets rules for the issuance of ATM
cards and other access devices; disclosure of terms and conditions of
an EFT service; documentation of electronic fund transfers by means of
terminal receipts and account statements; limitations on consumer
liability for unauthorized transfers; procedures for error resolution;
and certain rights related to preauthorized transfers.
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.
Government Programs Involving Electronic Delivery of Benefits
The federal government, in conjunction with state and local
agencies, is working to expand electronic delivery of government
benefits both for direct federal benefit programs and for federally
funded programs that are state administered. An electronic benefit
transfer (EBT) system functions much like a private-sector EFT program.
Benefit recipients receive plastic magnetic-stripe cards and personal
identification numbers (PINs) and access benefits through electronic
terminals. For cash benefits such as Aid to Families with Dependent
Children (AFDC) or Supplemental Security Income (SSI), the programs may
use existing private-sector ATM networks as well as POS terminals to
disburse benefits. For food stamp purchases, the programs use POS
terminals in grocery stores. In some cases the POS equipment is
dedicated solely to the EBT program, while in others it also is used
for private-sector transactions.
For many state and local agencies, EBT may provide a way to
increase operational efficiency, to reduce costs, and to improve
service to benefit recipients. Federal legislation that took effect
April 1, 1992, provided new impetus for the use of EBT, authorizing the
states to use electronic delivery of food stamp benefits in place of
paper coupons. States previously could seek approval to use EBT for
food stamp benefits only on a demonstration basis. Currently, about 30
states have EBT programs in different stages of operation or
development.
In November 1993, the Clinton administration established a Federal
Electronic Benefits Task Force. The group's assigned task is to develop
and implement a nationwide system for the electronic delivery of
benefits from government programs, pursuant to a recommendation from
the National Performance Review. In December, the EBT Task Force wrote
to the Federal Reserve Board, expressing the federal agencies'
commitment to providing consumer protection for EBT recipients, and
noting at the same time the need for program integrity and
accountability for public funds. The EBT Task Force asked that the
Board provide a three-year delay in the effective date if the Board
should ultimately decide to apply Regulation E to EBT programs. The EBT
Task Force stated that this delay was necessary for implementing EBT in
accordance with Regulation E; among other things, the agencies needed
the time to collect and evaluate comparative loss data at EBT test
sites, data that they could then use as the basis for seeking
legislative authorization and funding to pay for replacing benefits
lost due to unauthorized transfers.
(2) Discussion
Board Authority
The Federal Reserve Board has a broad mandate under the EFTA to
determine coverage when electronic services are offered by other than
traditional financial institutions. Section 904(d) provides that in the
event EFT services are made available to consumers by a person other
than a financial institution holding a consumer's account, the Board
shall ensure that the act's provisions are made applicable to such
persons and services.
The legislative history of the EFTA provides guidance on the
Board's authority to determine if particular services should be covered
by the act, based on whether transfers are initiated electronically,
whether current laws provide adequate consumer safeguards, and whether
coverage is necessary to achieve the act's basic objectives. A Senate
Banking Committee report noted that the statutory delegation of
authority to the Board enables the Board to examine new services on a
case-by-case basis, thereby contributing substantially to the act's
overall effectiveness. The Congress contemplated that, as no one could
foresee EFT developments in the future, regulations would keep pace
with new services and assure that the act's basic protections continue
to apply. See S. Rep. No. 915; S. Rep No. 1273, 95th Cong., 2d Sess.
25-26 (1978).
In February 1993 the Board published a proposal to amend Regulation
E to cover EBT programs, with certain modifications. 58 FR 8714,
February 17, 1993. The Board believes that a number of factors support
Regulation E coverage of EBT programs. EBT recipients use the same
kinds of access devices and electronic terminals in conducting
transactions as do consumers of EFT services in general. Indeed, in EBT
systems that piggyback on existing EFT networks, the terminals used are
one and the same. The transactions themselves, such as cash withdrawals
and purchases, are also similar.
To obtain benefits, recipients insert a magnetic-stripe card into a
terminal that reads the encoded information, and enter a PIN to verify
their identity. The terminal communicates with a database to ascertain
that a recipient is eligible for benefits, that the card has not been
reported lost or stolen, and that benefits are available in an amount
sufficient to cover the requested transaction. In cash benefit
programs, the recipient receives a cash disbursement; in the case of
food stamp benefits, the recipient's allotment is charged and the
merchant's account credited for the amount of the food purchase. From a
recipient's viewpoint, an EBT system functions much the same as if the
recipient had an ordinary checking account with direct deposits of
government benefits and with ATM and POS service available to access
the benefits.
The Board believes that the strong similarity of EBT systems and
other EFT services, the act's legislative history, and the language of
the EFTA and Regulation E support coverage of EBT programs under the
act and regulation. Therefore, the Board has determined that EBT
programs must comply with the requirements of Regulation E as modified
by this final rule, pursuant to its authority under 904(c) and (d) of
the EFTA.
The Board's action, amending the regulation, supersedes an
interpretation in the Official Staff Commentary to Regulation E (12 CFR
part 205, supp. II). The commentary stated that an electronic payment
of government benefits was not a credit or debit to a ``consumer asset
account'' because the account was established by a government agency
rather than the consumer (the recipient). The Board has reexamined that
interpretation, and has concluded that a sufficient basis does not
exist for excluding these accounts from Regulation E's coverage.
The act defines the term ``account'' to mean ``a demand deposit,
savings deposit, or other asset account * * * as described in
regulations of the Board, established primarily for personal, family,
or household purposes * * *.'' Regulation E uses substantially the same
wording, and refers to ``other consumer asset account.'' The reference
to ``consumer'' asset accounts distinguishes them from business-purpose
accounts, which are not subject to the regulation.
The EFTA's coverage is not limited to traditional depository
institutions, but may extend to any person (including a government
agency) ``* * * who issues an access device and agrees with a consumer
to provide electronic fund transfer services.'' In the case of EBT
programs, the Board's action will affect primarily government agencies
that administer EBT programs and issue EBT cards to benefit recipients
for accessing benefits, or that arrange for such services to be
provided. The revised rule will affect only indirectly most depository
institutions and other private-sector entities.
Board's Proposal
While the Board proposed general coverage of EBT under the EFTA,
the proposal published in February 1993 modified certain documentation
requirements, recognizing differences between EBT and EFT systems. A
periodic statement would not be required if information about account
balances and account histories were otherwise made available to
consumers. In addition, modifications were proposed in the rules on the
issuance of access devices, initial disclosures, and the notices on
error resolution procedures, to tailor the requirements to EBT
programs.
The Board received approximately 175 comment letters on its
proposal from a broad range of commenters. About 125 commenters--
including state and local agencies that provide benefits, federal
agencies, financial institutions, and a bank trade association--opposed
the Board's proposal. Many of them requested an exemption for EBT
programs from the Regulation E liability and error resolution rules.
They asserted that full application of Regulation E would increase the
costs of delivering benefits to the point that offering EBT might not
be economically feasible, because EBT programs may be only marginally
cost-effective even without factoring in Regulation E compliance costs.
They expressed the view that the expected advantages of EBT might not
be realized if Regulation E were to apply, and that its application
would hinder the introduction or expansion of EBT programs.
In place of the Board's proposal, the majority of the commenters
supported recommendations given to the Board in May 1992 by an
interagency steering committee established within the federal
government to coordinate EBT efforts among program agencies. Agencies
represented on that group included the Treasury Department's Financial
Management Service, the Agriculture Department's Food and Nutrition
Service, the Health and Human Services Department's Social Security
Administration and Administration for Children and Families, the Office
of Management and Budget, and other federal agencies that have an
interest in planning for EBT systems. The steering committee's proposal
primarily differed from the Board's proposal in that benefit recipients
would be liable for unauthorized transfers subject to certain
conditions, and the error resolution requirements would not apply if an
agency maintained ``efficient, fair, and timely procedures'' for
resolving errors and disputes, including an appeals process.
Anticipating public opposition to Regulation E coverage, the Board
in the proposal indicated that commenters should offer explanations of
why modifications in the regulatory requirements were needed, together
with specifics such as data on costs. Approximately 35 commenters
included estimates of the additional cost they believed would be
imposed by Regulation E. In some cases the estimates were quite
detailed. A few estimates were based on agency experience with the
replacement of lost or stolen cards in EBT programs. Most of the cost
estimates were based on loss and fraud experience under existing paper-
based benefit programs (such as mailed AFDC checks and mailed food
coupons). Nationwide, one group estimated the projected costs due to
Regulation E, in worst-case scenarios, to be between $164 million and
$986 million annually.
Many commenters suggested that private-sector financial
institutions differ from government agencies in ways that relate to how
compliance costs can be borne. For example, financial institutions can
control their costs by selecting the customers to whom they are willing
to offer EFT services, while program agencies must accept all who
qualify for the benefit program. If a customer of a financial
institution is suspected of engaging in fraud, the institution can
terminate the account relationship. In a like situation, an agency
could shift a recipient from EBT back to the paper-based system, but
commenters believe it may not be feasible to operate dual systems.
Similarly, commenters noted, private-sector institutions handle
losses related to the Regulation E customer-liability limitations by
spreading the losses over their entire customer base in the form of
increased fees or reduced interest paid. Agencies cannot do so, and
thus losses would have to be paid out of tax revenues, or, where
permitted, by reducing benefits. If neither method is available, then
the EBT program would be eliminated or cut back.
Approximately 35 commenters supported the Board's proposal. This
group included advocacy groups for benefit recipients, financial
institutions, a bank trade association, and individuals. These
commenters agreed with the premise that the same rules should apply to
both EBT recipients and EFT users in the general public, and that both
government and private-sector organizations offering EFT services
should be subject to the same rules.
Some commenters in this group called for even greater consumer
protection for EBT recipients than would be provided by existing
Regulation E. For example, one advocacy group argued that the
regulation should prohibit mandatory EBT programs. Other commenters
urged the Board to require disputed amounts to be provisionally
credited to the consumer's account within one business day (instead of
10 business days for ATM transactions, or 20 business days for POS
transactions, as allowed by existing Regulation E). A coalition of
consumer groups suggested that the limits on liability for unauthorized
transactions are too high in the EBT context, and that, for example,
the $50 liability that can be imposed even if a recipient promptly
reports a lost or stolen debit card should be reduced or eliminated.
Final Action on Proposal
After a review of the comments, further analysis, and a weighing of
policy considerations, the Board has adopted a final rule pursuant to
its authority under 904 (c) and (d) of the EFTA. The Board's action
requires EBT programs to comply with the requirements of Regulation E
as modified by this final rule. The Board continues to believe that all
consumers using EFT services should receive substantially the same
protection under the EFTA and Regulation E, absent a showing that
compliance costs outweigh the need for consumer protections. The Board
recognizes that benefit program agencies are concerned about the
operational and cost impacts of coverage, specifically in the areas of
liability for unauthorized transfers and error resolution, but believes
that the cost data presented to support exemptions in these areas were
not definitive.
The Board has provided a delayed implementation date, making
compliance optional until March 1, 1997, in keeping with a request
received in December 1993 from the Federal EBT Task Force. As discussed
above, the EBT Task Force, which represents all the major agencies with
large individual benefit programs, asked for the three-year delay so
that agencies could develop and implement a nationwide system for
delivering multiple-program benefits in compliance with Regulation E.
The Board's modified rules for EBT programs are limited to programs
for disbursing welfare and similar government benefits. Some of the
military services, as well as certain private-sector employers, have
installed ATMs through which salary and other payments can be made in a
manner similar to EBT systems. Such systems remain fully covered by
Regulation E.
In bringing EBT accounts within the scope of the EFTA's definition
of ``account,'' the Board does not take a position about the legal
status of the funds for any other purpose. For example, legal ownership
of the funds in EBT accounts (by the recipient or a state, for
instance) is not affected by this rulemaking.
Some commenters asked for clarification on whether the Board viewed
specialized types of programs, such as Medicaid, or programs using
different technology (specifically, smart card programs) as covered by
the EFTA and Regulation E. The Board believes that when a consumer can
access funds in an account using electronic means, Regulation E is
applicable. The Board believes that Medicaid programs do not involve an
account within the meaning of Regulation E, given that benefits under
these programs are not made available to the consumer in terms of a
dollar amount available to be accessed by the consumer, as is the case
in EBT programs such as AFDC, SSI, and food stamps.
With regard to smart card systems, the Board has issued a proposal
to review Regulation E, also published in today's Federal Register,
that solicits comment on the question of coverage of smart card systems
in general (both public and private sector). Any determination made on
coverage of smart cards in the review could apply to EBT smart card
programs.
(3) Explanation of New Sec. 205.15
Section 205.15--Electronic Fund Transfer of Government Benefits
A new section is added to the regulation to specifically address
the rules on the electronic fund transfer of government benefits.
Agencies are generally required to comply with all applicable sections
of the regulation. Section 205.15 contains the modified rules for EBT
programs on the issuance of access devices, periodic statements,
initial disclosures, liability for unauthorized use, and error
resolution notices.
Paragraph (a)--Government Agency Subject to Regulation
Paragraph (a)(1)
The act and regulation define coverage in terms of ``financial
institution.'' Coverage applies to entities that provide EFT services
to consumers whether these entities are banks, other depository
institutions, or other types of organizations entirely. The substance
of paragraph (a)(1), which defines when a government agency is a
financial institution for purposes of the act and regulation, is
unchanged from the proposal. Editorial changes have been made for
clarity.
Paragraph (a)(2)
The term ``account,'' which is defined generally in Sec. 205.2(b),
is defined for purposes of Sec. 205.15 to mean an account established
by a government agency 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
would include 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. For purposes of this
section, government benefits include cash benefits such as AFDC and SSI
and noncash benefits such as benefits under the food stamp program.
Paragraph (b)--Issuance of Access Devices
Under Sec. 205.5, debit cards, PINs, and other access devices may
not be issued except in response to a consumer's request or application
for a device, or to replace a device previously accepted by the
consumer. Financial institutions are permitted to issue unsolicited
access devices in limited circumstances under Sec. 205.5(b). The
general prohibition against unsolicited issuance is intended to protect
a consumer against the issuance of an access device that could be used
to access the consumer's funds without the consumer's knowledge and
approval or without the consumer's being informed of the terms and
conditions applicable to the device.
The Board's final rule makes clear that in the case of EBT, an
agency may issue an access device to a recipient without a specific
request. A recipient of government benefits is deemed to have requested
an access device by applying for benefits that the agency disburses or
will disburse by means of EBT. The Board believes that it is unlikely
that a government agency would issue an access device without the
recipient's being made aware that the way to access benefits is by use
of the device and that to safeguard benefits the device must be
protected. Moreover, given that initial disclosures would be provided
during training, the recipient will be informed of the account's terms
and conditions.
The Board does recognize, however, commenters' concerns about the
need for agencies to verify the identity of the consumer receiving the
device before it is activated. As in the case of the private sector, an
issuing agency will have to verify the identity of the consumer by a
reasonable means before a device is activated. Reasonable means include
methods of identification such as a photograph or signature comparison.
Some commenters expressed concern about the statutory prohibition
against the compulsory use of EFT and its implications for EBT
programs. Section 913 of the EFTA prohibits requiring a consumer to
establish an account at a particular institution for receiving
electronic fund transfers as a condition of employment or receipt of
government benefits. This prohibition does not prevent an agency from
requiring benefits to be delivered electronically.
In EBT programs, agencies do not require recipients to open or
maintain bank accounts at a particular institution for the electronic
receipt of government benefits. This is the case even when an agency
enters into an arrangement with a single financial institution that
then serves as the agency's financial intermediary. Consequently, the
Board believes that the prohibition against compulsory use is not an
impediment to mandatory EBT programs. Nevertheless, pursuant to its
authority under section 904(c) of the EFTA, the Board has determined
that a government agency with a mandatory EBT program should ensure
that recipients of cash benefits have access to other electronic
options (for example, direct deposit of benefits to an existing bank
account or to an account established by the recipient for that
purpose).
Paragraph (c)--Alternative to Periodic Statement
Regulation E requires financial institutions to provide periodic
statements for an account to or from which EFTs can be made. Periodic
statements are a central component of Regulation E's disclosure scheme.
But as long as other means of obtaining account information are
available to benefit recipients, the Board believes that periodic
statements are not absolutely necessary for EBT programs due to the
limited types of transactions involved, particularly given the expense
of routinely mailing monthly statements to all recipients. Moreover,
requiring periodic statements could impede the effort to eliminate
paper and move toward a fully electronic system. Most commenters
supported the Board's proposal to exempt government agencies from the
requirement if the agency furnishes the consumer with other means of
accessing account information.
Under the proposal, agencies were to provide balance information by
means of an electronic terminal, balance inquiry terminal, or a readily
available telephone line, and to make available a written account
history upon request. The final rule contains these alternatives with
modifications that respond to the comments.
To make balance information readily available, the proposal also
would have required that the terminal receipt show the balance
available to the consumer after the transfer. A number of commenters
stated that this requirement would be difficult for some EBT systems to
implement because existing ATM networks may not be capable of providing
current account balances at all times. Commenters suggested that giving
consumers access to balance information by other means (such as
telephone or balance inquiry terminals) would achieve the same purpose.
Accordingly, the final rule does not require that terminal receipts
include the account balance as long as a consumer can access balance
information by the other means set forth in paragraph (c) of this
section.
A number of commenters urged that agencies should not make
telephone access the only method by which a recipient can obtain an
account balance. Taking these comments into consideration, the Board
has modified the final rule. The final rule requires, in addition to a
telephone line, at least one alternative method (such as a balance
inquiry terminal) for access to balance information.
Commenters suggested that the telephone line be toll-free and
available on a 24-hour basis. For EFT systems generally, the Board
interprets a readily available telephone line to mean at least a local
or toll-free line available during standard business hours. The Board
believes that the same interpretation is appropriate for EBT systems,
although an agency may of course choose to provide recipients with a
24-hour line.
Commenters requested that the Board provide certainty by clarifying
how a consumer may request a written account history and the time
period for compliance. The final rule clarifies that a request may be
either written or oral, that the history should cover the 60 calendar
days preceding the request date, and that the history should be
provided promptly upon request. In addition, commenters asked for
clarification about whether an agency could charge for written account
histories or other disclosures required by the regulation. The Board
believes that imposing fees in such instances would be contrary to
public policy.
The Board had solicited comment on whether more complex EBT systems
developed in the future (for example, systems allowing third-party
payments) may necessitate periodic statements or other documentation,
and whether the Board should address this issue at present. Several
commenters encouraged the Board not to address the issue at this time,
but to delay a decision until performance under the final rule can be
assessed. Accordingly, the Board has deferred taking a position at this
time.
Paragraph (d)--Modified Requirements
Paragraph (d)(1)--Initial Disclosures
Section 205.7 requires that written disclosures of the terms and
conditions of an EFT service be given at or before the commencement of
the service. Three disclosures have been modified for EBT programs.
Under paragraph (d)(1)(i), government agencies must disclose the means
by which the consumer may obtain account balance information, including
the telephone number for that purpose. The disclosures will explain the
ways in which balance information will be made available. (See model
disclosure form A(12) below.) Under paragraph (d)(1)(ii), agencies must
disclose that the consumer has the right to receive a written account
history, upon request, and must provide a telephone number for
obtaining the account history. This disclosure substitutes for the
disclosure of a summary of the consumer's right to a periodic statement
under Sec. 205.7(a)(6) of the regulation. Under paragraph (d)(1)(iii),
agencies must provide an error resolution notice substantially similar
to model disclosure form A(13) rather than the notice currently
contained in Sec. 205.7(a)(10).
Paragraph (d)(2)--Annual Error Resolution Notice
Section 205.8(a) of the regulation requires that financial
institutions provide a notice in advance of certain adverse changes to
terms that were disclosed in the initial disclosures. No modification
has been made for EBT programs. Consequently, agencies will have to
provide a notice for certain changes in terms, such as in transaction
limitations. Other changes, such as a decrease in the amount of a
consumer's benefits, continue to be governed only by the agencies'
program rules.
Section 205.8(b) of the regulation requires financial institutions
to provide periodic error resolution notices to consumers, either
annually or with each monthly account statement. In substitution for
these notices, paragraph (d)(2) requires agencies to provide an error
resolution notice substantially similar to model disclosure form A(13).
The notice is to be provided annually.
Paragraph (d)(3)--Limitations on Liability
Section 205.6 of the regulation limits a consumer's liability for
unauthorized transfers. If the consumer notifies the account-holding
institution within two business days after learning of the loss or
theft of a debit card, the consumer's liability is limited to $50. If
notification is not made until after two business days, liability can
rise another $450 for transfers made after two business days, for a
total of $500. If the consumer does not notify the institution until
more than 60 days after a periodic statement is sent showing an
unauthorized transfer, the consumer's liability is unlimited for
unauthorized transfers occurring after the 60th day and before
notification.
The Board believes that the EFTA generally mandates the same degree
of protection for benefit recipients as for the general public. The
Board solicited comment on potential costs associated with implementing
the liability rules for EBT programs and why such implementation would
present a greater burden for government agencies than that experienced
by financial institutions. Commenters submitted data on the expected
cost impact of Regulation E on EBT programs, specifically on costs
related to the limitations on consumer liability for unauthorized
transfers and error resolution requirements; as discussed earlier,
however, the Board believes the data are not definitive. Under the
final rule, therefore, the limits on liability for unauthorized use,
the error resolution requirements, and most other provisions of
Regulation E would apply to EBT.
The Board recognizes the concerns about the potential cost impact
of coverage, especially in regard to unauthorized use because of the
potential for abuse through fraudulent claims. The Board believes,
however, that through the leadership of the Federal Electronic Benefits
Task Force, which has the goal of developing a nationwide system for
delivering government benefits electronically, it should be possible
for the agencies to implement cost-effective procedures that will help
minimize the risk of fraudulent claims and potential abuse of EBT
systems.
The Board notes in particular that Regulation E does not mandate an
automatic replacement when a claim of lost or stolen funds is made. In
the case of EBT as in the private sector, the agency would investigate
the claim, consider the available evidence, and exercise judgment in
making a determination about whether the transfer was unauthorized or
was made by the recipient or by someone to whom the recipient gave
access. The Board does not underestimate the difficulties that these
investigations may pose for EBT program agencies. But the Board also
believes that practical ways can be found, within the scope of
Regulation E, that will enable EBT administrators to control potential
losses.
The operational procedures developed to minimize risk will need to
address some aspects of EBT that are different from the commercial
setting--such as the fact that program agencies, unlike private sector
institutions, may not be able in cases of suspected fraud or abuse
simply to terminate their relationship with the recipient. Some of the
measures that federal agencies have inquired about, which may be
compatible with the special requirements of EBT, relate to aspects of
the relationship that are not addressed by Regulation E. Thus their
implementation would not conflict with regulatory requirements. Some of
these include putting recipients on restricted issuance systems--
requiring, for instance, that the recipient call in advance for
authorization before each access to benefits, or restricting the sites
at which the recipient could obtain benefits, or crediting the
recipient's benefits in weekly increments rather than the full monthly
amounts. Or the agency could appoint a representative payee, or place
the recipient on a backup paper-based benefit payment system. Imposing
these or other limitations may not be desirable from either an agency's
or the recipients' perspective except in circumscribed situations. But
if found to be cost-effective, such measures represent some possible
approaches for dealing with recipients who show themselves to be
irresponsible in their use of the EBT system.
In regard to recurring claims for the replacement of benefits, EBT
agencies may not establish a presumption that, because a recipient has
filed a claim in the past, the recipient's assertion of a second claim
of unauthorized withdrawals can be automatically rejected. On the other
hand, depending on the circumstances, it would not be unreasonable for
the agency, in making its determination about the validity of a claim,
to give weight to the fact that a particular recipient within a certain
period of time has previously filed a claim, or multiple claims, of
stolen funds. The Board believes that these are just some of the areas
in which the Federal EBT Task Force can be helpful in setting operating
guidelines and procedures.
Regulation E provides that a consumer may bear unlimited liability
for failing to report within 60 days any unauthorized transfers that
appear on a periodic statement. Because EBT recipients will not receive
periodic statements, under the Board's proposal the 60 days would have
run from the transmittal of a written account history provided upon the
consumer's request. The final rule differs somewhat in that the 60-day
period also can be triggered when the consumer obtains balance
information via a terminal or telephone or on a terminal receipt.
Paragraph (d)(4)--Error Resolution
Section 205.11 of Regulation E sets certain time limits within
which a consumer must file a notice of an alleged error. Under the
Board's proposal for EBT, government agencies were to comply with the
error resolution procedures in Sec. 205.11 in response to an oral or
written notice of error from the consumer received no later than 60
days after the consumer obtained a terminal receipt or a written
account history on which the alleged error was reflected. The final
rule differs somewhat, in that error resolution procedures can be
triggered by any information provided to the consumer under paragraph
(c).
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 follows:
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.
2. Section 205.15 is added 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 regulation 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. The agency shall comply with all
applicable requirements of the act and regulation, 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.
(b) Issuance of access devices. For purposes of this section, a
consumer is deemed to request an access device when the consumer
applies for government benefits that the agency disburses or will
disburse by means of an electronic fund transfer. The agency shall
verify the identity of the consumer receiving the device by reasonable
means before the device is activated.
(c) Alternative to periodic statement. A government agency need not
furnish the periodic statement required by Sec. 205.9(b) if the agency
makes available to the consumer:
(1) The consumer's account balance, through a readily available
telephone line and at a terminal (which may include providing balance
information at a balance-inquiry terminal or providing it, routinely or
upon request, on a terminal receipt at the time of an electronic fund
transfer); and
(2) A written history of the consumer's account transactions for at
least 60 days preceding the date of a request by the consumer. The
account history shall be provided promptly in response to an oral or
written request.
(d) Modified requirements. A government agency that does not
furnish periodic statements, pursuant to paragraph (c) of this section,
shall comply with the following requirements:
(1) Initial disclosures. The agency shall modify the disclosures
under Sec. 205.7(a) by providing:
(i) Account balance information. The means by which the consumer
may obtain information concerning the account balance, including a
telephone number. This disclosure may be made by providing a notice
substantially similar to the notice contained in section A(12) of
appendix A of this part.
(ii) Written account history. A summary of the consumer's right to
receive a written account history upon request, in substitution for the
periodic statement disclosure required by Sec. 205.7(a)(6), and a
telephone number that can be used to request an account history. This
disclosure may be made by providing a notice substantially similar to
the notice contained in section A(12) of appendix A of this part.
(iii) Error resolution notice. A notice concerning error resolution
that is substantially similar to the notice contained in section A(13)
of appendix A of this part, in substitution for the notice required by
Sec. 205.7(a)(10).
(2) Annual error resolution notice. The agency shall provide an
annual notice concerning error resolution that is substantially similar
to the notice contained in section A(13) of appendix A of this part, in
substitution for the notice required by Sec. 205.8(b).
(3) Limitations on liability. For purposes of Sec. 205.6(b) (2) and
(3), in regard to a consumer's reporting within 60 days any
unauthorized transfer that appears on a periodic statement, the 60-day
period shall begin with the transmittal of a written account history or
other account information provided to the consumer under paragraph (c)
of this section.
(4) Error resolution. The agency shall comply with the requirements
of Sec. 205.11 in response to an oral or written notice of an error
from the consumer that is received no later than 60 days after the
consumer obtains the written account history or other account
information, under paragraph (c) of this section, in which the error is
first reflected.
3. Appendix A to part 205 is revised by adding sections A(12) and
A(13) to read as follows:
Appendix A to Part 205--Model Disclosure Clauses
* * * * *
Section A(12)--Disclosure by Government Agencies of Information About
Obtaining Account Balances and Account Histories (Sec. 205.15(d)(1) (i)
and (ii))
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM)(a POS terminal)][when you make a balance inquiry at
an ATM][when you make a balance inquiry at specified locations].
You also have the right to receive a written summary of
transactions for the 60 days preceding your request by calling
[telephone number]. [Optional: Or you may request the summary by
contacting your caseworker.]
Section A(13)--Disclosure of Error Resolution Procedures for Government
Agencies That Do Not Provide Periodic Statements
(Sec. 205.15(d)(1)(iii) and (d)(2))
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] or Write us at [address] as soon
as you can, if you think an error has occurred in your
[EBT][agency's name for program] account. We must hear from you no
later than 60 days after you learn of the error. You will need to
tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar
amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days. We will
generally complete our investigation within 10 business days and
correct any error promptly. In some cases, an investigation may take
longer, but you will have the use of the funds in question after the
10 business days. If we ask you to put your complaint or question in
writing and we do not receive it within 10 business days, we may not
credit your account during the investigation.
For errors involving transactions at point-of-sale terminals in
food stores, the periods referred to above are 20 business days
instead of 10 business days.
If we decide that there was no error, we will send you a written
explanation within three business days after we finish our
investigation. You may ask for copies of the documents that we used
in our investigation.
If you need more information about our error resolution
procedures, call us at [telephone number][the telephone number shown
above].
By order of the Board of Governors of the Federal Reserve
System, February 24, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-4681 Filed 3-2-94; 12:38 pm]
BILLING CODE 6210-01-P
