99-8873. Federal Government Participation in the Automated Clearing House  

  • [Federal Register Volume 64, Number 68 (Friday, April 9, 1999)]
    [Rules and Regulations]
    [Pages 17472-17491]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-8873]
    
    
    
    [[Page 17471]]
    
    _______________________________________________________________________
    
    Part IV
    
    
    
    
    
    Department of the Treasury
    
    
    
    
    
    _______________________________________________________________________
    Fiscal Service
    _______________________________________________________________________
    
    
    
    31 CFR Part 210
    
    
    
    Federal Government Participation in the Automated Clearing House; Final 
    Rule
    
    Federal Register / Vol. 64, No. 68 / Friday, April 9, 1999 / Rules 
    and Regulations
    
    [[Page 17472]]
    
    
    
    DEPARTMENT OF THE TREASURY
    
    Fiscal Service
    
    31 CFR Part 210
    
    RIN 1510-AA39
    
    
    Federal Government Participation in the Automated Clearing House
    
    AGENCY: Financial Management Service, Fiscal Service, Treasury.
    
    ACTION: Final Rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: The Department of the Treasury, Financial Management Service 
    (Service), is revising its regulation, 31 CFR Part 210 (Part 210), 
    governing the use of the Automated Clearing House (ACH) system by 
    Federal agencies (agencies). The ACH system is the primary electronic 
    funds transfer (EFT) system used by agencies to make payments, and the 
    Service anticipates that agencies increasingly will use the ACH system 
    to collect funds. Part 210 provides the regulatory foundation for use 
    of the ACH system by agencies. It defines the rights and liabilities of 
    agencies, Federal Reserve Banks, financial institutions, and the 
    public, in connection with ACH credit entries, debit entries, and entry 
    data originated or received by an agency through the ACH system.
    
    DATES: This rule is effective May 10, 1999. The incorporation by 
    reference of the publication listed in the rule is approved by the 
    Director of the Federal Register as of May 10, 1999.
    
    ADDRESSES: This rule is available on the Financial Management Service's 
    ACH web site at the following address: http://www.fms.treas.gov/ach/.
    
    FOR FURTHER INFORMATION CONTACT: Walt Henderson, Senior Financial 
    Program Specialist, at (202) 874-6705; Mary Bailey, Financial Program 
    Specialist, at (202) 874-6749; Natalie H. Diana at (202) 874-6590; 
    Cynthia L. Johnson, Director, Cash Management Policy and Planning 
    Division, at (202) 874-6590; or Margaret Marquette, Senior Attorney, at 
    (202) 874-6681.
    
    SUPPLEMENTARY INFORMATION:
    
    I. Background
    
    A. Introduction
    
        The ACH system is a nationwide EFT system which provides for the 
    interbank clearing of credit and debit transactions and for the 
    exchange of information among participating financial institutions. The 
    Federal Government (Government) is the largest single user of the ACH 
    system, originating and receiving millions of transactions each month. 
    As the Government's financial manager, the Service collects and 
    disburses funds for most agencies. In fiscal year 1998, approximately 
    63% of payments made by the Department of the Treasury (Treasury) were 
    made through the ACH system. In addition, a growing number of 
    transactions involving the collection of funds by agencies are being 
    made through the ACH system. In fiscal year 1998, over $1.1 trillion in 
    corporate tax payments was collected electronically.
        Two laws are responsible for the substantial increase in the use of 
    the ACH system by agencies. Provisions in the North American Free Trade 
    Agreement Implementation Act (NAFTA), Pub. L. No. 103-182, sec. 523 
    (codified at 26 U.S.C. 6302(h)) mandate the use of EFT for the 
    collection of certain Federal taxes. Provisions in the Debt Collection 
    Improvement Act of 1996 (DCIA), Pub. L. No. 104-134, require that most 
    Federal payments (other than payments under the Internal Revenue Code 
    of 1986) be made by EFT.
        To meet the NAFTA requirements, the Service, in conjunction with 
    the Internal Revenue Service and Federal Reserve Banks, implemented the 
    Electronic Federal Tax Payment System (EFTPS) which enables taxpayers 
    to pay Federal taxes by EFT. 31 CFR Part 203 (Payment of Federal Taxes 
    and the Treasury Tax and Loan Program) addresses the rights and 
    responsibilities of taxpayers, financial institutions, and Federal 
    Reserve Banks in connection with EFTPS. 63 FR 5644.
        On September 25, 1998, Treasury published a final rule, 31 CFR Part 
    208 (Part 208), implementing the requirement of the DCIA that agencies 
    convert from check to EFT payments, subject to the waiver authority of 
    the Secretary of the Treasury. 63 FR 51490.
        The Service anticipates that the ACH system will be the dominant, 
    though not exclusive, EFT system used by agencies to make payments and 
    to collect funds. Part 210 provides the regulatory foundation for use 
    of the ACH system by agencies.
    
    B. Proposed Rulemakings
    
        On September 30, 1994, the Service published a Notice of Proposed 
    Rulemaking with respect to Part 210. 59 FR 50112. After considering the 
    comments received on the 1994 proposed rule, and taking into account 
    developments since that proposal was issued, the Service issued a new 
    Notice of Proposed Rulemaking on February 2, 1998 (NPRM). 63 FR 5426. 
    The NPRM proposed to adopt the ACH rules developed by the National 
    Automated Clearing House Association (NACHA) (ACH Rules) as the rules 
    governing all Government ACH transactions, with twelve exceptions for 
    which the Service proposed to establish special rules as a matter of 
    Federal law.
        The Service received 26 comment letters on the NPRM. Commenters 
    generally supported the adoption of the ACH Rules as the rules 
    governing Government ACH transactions, but had differing views 
    regarding the twelve proposed exceptions. Some financial institutions 
    commented that Federal payments should be subject to the ACH Rules 
    without variation or exception, commenting that imposing liability on 
    financial institutions for losses resulting from Government errors and 
    omissions will damage efforts to expand the use of the ACH as a vehicle 
    for making Federal payments, and may have pricing implications for 
    recipients of Federal payments. Other financial institutions and 
    agencies commented that certain of the twelve proposed exceptions were 
    not appropriate. Specific comments are discussed in the section-by-
    section analysis below.
    
    C. Final Rule
    
        Part 210, which implements Treasury's statutory responsibility to 
    collect and disburse public funds, establishes the rights and duties of 
    parties to transactions originated or received by agencies through the 
    ACH system, just as other Treasury rules regulate the rights of parties 
    to Treasury checks.1
    ---------------------------------------------------------------------------
    
        \1\ 31 CFR Part 240.
    ---------------------------------------------------------------------------
    
        The ACH Rules, which are developed and updated by NACHA, allocate 
    rights and liabilities among participants to an ACH transaction. 
    Financial institutions agree to be bound by the ACH Rules when they 
    join an ACH association. The ACH Rules are structured upon the premise 
    that five entities participate in the ACH system. They are: (1) The 
    originator, which is the person or entity that agrees to initiate ACH 
    entries in accordance with an arrangement with a receiver; (2) the 
    originating depository financial institution (ODFI), which is the 
    institution that receives payment instructions from the originator and 
    forwards the entries to an ACH Operator; (3) the ACH Operator, which is 
    a central clearing facility, operated by a Federal Reserve Bank or a 
    private organization, that receives entries from ODFIs, distributes the 
    entries to appropriate receiving depository financial institutions 
    (RDFIs), and performs the settlement function for the affected 
    financial institutions; (4) the RDFI, which is the institution that 
    receives ACH entries from the ACH Operator and posts them to the 
    accounts
    
    [[Page 17473]]
    
    of its depositors; and (5) the receiver, which is a natural person or 
    organization that has authorized an originator to initiate an ACH entry 
    to the receiver's account with the RDFI.
        In initiating and receiving Government entries, agencies, Federal 
    Reserve Banks, and the Service operate in unique capacities that differ 
    from the roles contemplated by the ACH Rules. These differences are a 
    result of the statutory authorities that govern Government payments and 
    collections and that distinguish Government payments from commercial 
    payments involving private parties and financial institutions.
        Because the ACH Rules employ terminology that is based upon private 
    industry financial institution-customer relationships, the definitions 
    used in the ACH Rules do not address the roles of agencies, the 
    Service, and the Federal Reserve Banks with respect to the origination 
    or receipt of an ACH entry. Due to the bifurcation of function between 
    certifying and disbursing agencies, Government operations do not 
    conform to the definitions in the ACH Rules. From a functional 
    perspective, the agency that certifies an ACH entry to the Service 
    performs a function that is analogous to that of the originator of the 
    entry for purposes of the ACH Rules. In disbursing the payment, the 
    Service is acting as the ODFI and the Federal Reserve Bank is the 
    originating ACH Operator with respect to the entry. Similarly, an 
    agency that receives a payment through the ACH system functions as the 
    receiver, while the Service functions as the RDFI, and the Federal 
    Reserve Bank functions as the receiving ACH Operator for the entry.
        The ACH Rules generally require ODFIs and RDFIs to assume 
    responsibility for entries originated and received by their customers. 
    ODFIs and RDFIs must make certain warranties with respect to entries 
    originated and received by their customers and are liable to other 
    participants in the ACH system for breach of those warranties. The ACH 
    Rules do not impose direct liability upon originators and receivers; 
    any losses resulting from an act or omission by an originator or 
    receiver are imposed on the ODFI or RDFI. The ODFI or RDFI can seek 
    recourse against the originator or receiver if it has the right to do 
    so under the contract between the parties and/or applicable state law.
        The Service does not believe that it is appropriate to assume 
    liability arising from the acts and omissions of agencies originating 
    and receiving ACH entries. Accordingly, although it is the Service's 
    view that agencies operate as originators and receivers and the Service 
    operates as an ODFI and RDFI from a functional perspective, the Service 
    believes it is appropriate to impose upon agencies that originate or 
    receive ACH entries the obligations and liabilities imposed on ODFIs 
    and RDFIs, respectively, for purposes of the ACH Rules. Part 210 
    therefore is structured on the premise that agencies are subject to all 
    of the obligations and liabilities imposed on ODFIs and RDFIs under the 
    ACH Rules, except as otherwise provided in Part 210.
        After reviewing the comments and further considering the issues 
    raised, the Service has determined to preempt 11 provisions of the ACH 
    Rules.2 In view of the special nature of Government entries, 
    and the importance of protecting public funds, the Service believes 
    that it is in the best interest of the public to preempt the 11 
    provisions of the ACH Rules described briefly below, for reasons 
    discussed in more detail in the section-by-section analysis.
    ---------------------------------------------------------------------------
    
        \2\ The NPRM proposed to preempt 12 provisions of the ACH Rules. 
    As discussed in the section-by-section analysis, the final rule 
    deletes from the listing of provisions to be preempted the provision 
    related to arbitration and replaces it with a provision related to 
    rules enforcement. In addition, the provision related to 
    prenotifications has been deleted, leaving a total of 11 provisions 
    to be preempted.
    ---------------------------------------------------------------------------
    
        The following five ACH Rules are preempted entirely and are 
    excluded specifically from Part 210's definition of ``applicable ACH 
    Rules'' (see Sec. 210.2(d)):
        1. ACH members. Part 210 preempts the limitation on the 
    applicability of the ACH Rules to members of an ACH association.
        2. Compensation. Part 210 preempts the compensation rules set forth 
    in the ACH Rules.
        3. Rules Enforcement. Part 210 preempts the requirement under the 
    ACH Rules that participants agree to be subject to a national system of 
    fines to ensure compliance with the ACH Rules.
        4. Reclamation. The reclamation provisions of Subpart B preempt all 
    ACH Rules related to the reclamation of entries and the liability of 
    participants that otherwise would apply to benefit payments.
        5. Timing of Origination. Part 210 preempts the requirement set 
    forth in the ACH Rules that a credit entry be originated no more than 
    two banking days before the settlement date of the entry.
        In addition to the foregoing five provisions of the ACH Rules which 
    Part 210 entirely preempts through the definition of ``applicable ACH 
    Rules,'' six other provisions of the ACH Rules are preempted in part by 
    operation of specific sections of Part 210. Those provisions are:
        1. Verification of identity of recipient (see Secs. 210.4(a) and 
    210.8(b)(2)). Under the ACH Rules, a receiver must authorize an entry 
    before the entry may be originated and the ODFI must warrant that the 
    authorization is valid. The ODFI thus bears the ultimate liability for 
    any loss resulting from a forged authorization under the ACH Rules. 
    Part 210 imposes a different rule for Government entries. Specifically, 
    under Sec. 210.4(a), a financial institution that accepts an 
    authorization from a recipient must verify the identity of the 
    recipient. The financial institution is liable to the Government for 
    all entries made in reliance on a forged authorization that the 
    institution has accepted. Thus, Part 210 preempts the ODFI warranty and 
    liability provisions of the ACH Rules by allocating liability to the 
    RDFI if it accepts a forged authorization.
        2. Authorization for debit entries to agencies (see 
    Secs. 210.4(a)(2) and 210.8(b)(1)). Part 210 preempts the ACH Rules 
    with respect to the form of authorization required to initiate debit 
    entries to an agency. The ACH Rules require that every entry be 
    authorized by the receiver, but only require that the authorization be 
    in writing in the case of debit entries to a consumer account. Under 
    Sec. 210.4(a), no person or entity (including any financial 
    institution) may initiate or transmit a debit entry to an agency, other 
    than a reversal of a credit entry, unless the agency has expressly 
    authorized in writing (or through a similarly authenticated 
    authorization) the origination of the entry by that particular 
    originator. An ODFI transmitting an entry in violation of this 
    requirement would be liable for the amount of the transaction, plus 
    interest, under Sec. 210.8(b)(1).
        3. Liability of the Government
        (a) Amount of damages (see Sec. 210.6). In general, the ACH Rules 
    impose liability on an RDFI or ODFI for all losses, liabilities, or 
    claims incurred by another depository financial institution (DFI), ACH 
    Operator, or ACH Association as a result of the RDFI's or ODFI's breach 
    of any warranty. Thus, under the ACH Rules, an agency that originates 
    payments would be liable for all losses resulting from any breach by it 
    of an applicable warranty under the ACH Rules. Similarly, an agency 
    that receives payments would be liable for all losses resulting from 
    any breach by it of an applicable warranty under the ACH Rules.
        Section 210.6 limits an agency's liability to the amount of the 
    entry whether it is originating or receiving
    
    [[Page 17474]]
    
    ACH entries. Therefore, an agency would not be liable to a DFI, ACH 
    Operator, or ACH Association for interest, attorneys' fees, or other 
    consequential damages. In addition, in certain circumstances, an 
    agency's liability may be reduced further by the amount of the loss 
    caused by the financial institution's negligence.
        (b) Liability of Federal Reserve Banks (see Sec. 210.7(a)). Part 
    210 preempts section 11.5 of the ACH Rules, which provides that a 
    Federal Reserve Bank is not the agent of an RDFI or ODFI. Part 210 
    provides that Federal Reserve Banks are Fiscal Agents of the Treasury 
    in carrying out their duties as the Government's ACH Operator and are 
    not liable to any party other than the Treasury for their actions under 
    Part 210.
        4. Liability of financial institutions (see Sec. 210.8(b)). Part 
    210 preempts the provisions of the ACH Rules that would operate to make 
    a financial institution liable to the Government for any loss, 
    liability or claim relating to an entry in an amount exceeding the 
    entry. The ACH Rules impose liability on an RDFI or ODFI for all 
    losses, liabilities, or claims incurred by another DFI, ACH Operator, 
    or ACH Association as a result of the RDFI's or ODFI's breach of any 
    warranty. Under Part 210, a financial institution would not be liable 
    to the Government for interest, attorneys' fees, or other consequential 
    damages, except in the case of an unauthorized debit to an agency, as 
    discussed above.
        5. Reversals (see Sec. 210.6(f)). Part 210 requires agencies 
    initiating reversals to certify that the reversal does not violate 
    applicable law or regulations. This requirement is not imposed under 
    the ACH Rules. In addition, Part 210 applies the ACH Rules relating to 
    indemnification to the Government, but limits the extent of the 
    indemnification to the amount of the individual entry(ies) being 
    reversed.
        6. Account requirements for Federal payments (see Sec. 210.5). Part 
    210 imposes a requirement with respect to ACH credit entries 
    representing Federal payments other than vendor payments that is not 
    imposed under the ACH Rules, i.e., that such payments be deposited to 
    an account at a financial institution ``in the name of'' the recipient, 
    with three exceptions discussed in the section-by-section analysis. The 
    term ``account'' for purposes of Sec. 210.5 is intended to mean a 
    deposit account and not a loan account or general ledger account. The 
    Service is aware that NACHA has approved a change to the ACH Rules, 
    which will become effective in September 2000, to permit the crediting 
    of ACH credits to a financial institution general ledger account or to 
    a loan account. Because of the consumer protections associated with the 
    crediting of Federal payments to a deposit account, including those 
    available under Regulation E (12 CFR Part 205) and Regulation DD (12 
    CFR Part 230), as well as the availability of Federal deposit or share 
    insurance, the Service does not intend to accept this ACH Rule with 
    respect to payments other than vendor payments.
        In addition to preempting the provisions of the ACH Rules listed 
    above, Part 210 also establishes, as a matter of Federal law, certain 
    rights and obligations that are not addressed in the ACH Rules. For 
    example, the ACH Rules generally do not address the rights and 
    liabilities between receivers and originators, nor do the ACH Rules 
    address rights and liabilities between ODFIs and originators, or 
    between RDFIs and receivers. Under the ACH Rules, an ODFI is 
    responsible for entries originated by its customers. The ODFI must make 
    certain warranties with respect to any entry originated by its 
    customer, and is liable for breach of those warranties. The ODFI's 
    ability to seek recourse against the originator in the event of a loss 
    for which the ODFI is liable under the ACH Rules is beyond the purview 
    of the ACH Rules and would be governed by the contract between the ODFI 
    and originator and applicable state law.
        The Service is establishing some of these rights in Part 210 with 
    respect to agencies vis-a-vis originators or receivers of Government 
    entries. For example, Part 210 provides that an agency will be liable 
    to a recipient for any loss sustained by the recipient as a result of 
    the agency's failure to originate a credit or debit entry in accordance 
    with Part 210, and limits that liability to the amount of the entry. 
    Neither the basis nor the extent of an originator's liability to a 
    receiver is addressed in the ACH Rules. In addition, the ACH Rules do 
    not address the circumstances in which an entry, in fact, is 
    ``authorized.'' The determination of whether a valid authorization 
    exists ordinarily would depend on the contract between the parties and 
    applicable state law. Part 210 establishes certain circumstances in 
    which an entry shall be deemed to be unauthorized.
    
    D. Future Changes to Subpart B
    
        The NPRM solicited preliminary comment on the reorganization of 
    Subpart B in order to allow for the increasing use of automated 
    processes to effect reclamations, rather than requiring reclamations to 
    be conducted on the basis of paper-driven procedures. In addition, the 
    Service requested comment on ways in which the reclamation process 
    might be restructured in the future to operate more efficiently as a 
    fully automated process.
        In order to begin formulating a preliminary approach to 
    implementing an automated reclamation process, the Service solicited 
    comment on whether the protection afforded to financial institutions by 
    the limited liability provisions of Subpart B is outweighed by the 
    processing costs of handling reclamations. In particular, the Service 
    requested comment on an approach in which an RDFI would be liable for 
    the amount of any post-death entries received, regardless of whether 
    the RDFI had actual or constructive knowledge of the death.
        Although commenters generally expressed conceptual support for 
    increased automation of reclamation processing, most commenters did not 
    favor moving toward an automated reclamation process at this time. One 
    agency questioned the business case for replacing the current paper 
    reclamation process with a form of automated reclamation. That agency 
    indicated that the use of death notification entries (DNEs) has 
    significantly reduced the number of reclamation requests produced and 
    that, at the same time, payment cycling is causing a significant 
    reduction in reclamations because the agency has additional time to 
    receive and act on reports of recipients' deaths. The agency commented 
    that these enhancements reduce the need for a future electronic 
    reclamation process.
        Some financial institutions commented that the approach outlined in 
    the NPRM would substantially increase financial institutions' losses 
    from reclamations without a corresponding reduction in expenses. One 
    financial institution pointed out that it would expect to perform much 
    of the same research under the Service's suggested approach as it 
    currently does in order to pursue reimbursement from the surviving 
    depositor(s) or the estate of the decedent. Another financial 
    institution expressed support for assuming liability for any payments 
    received within a one-year period of the recipient's death, but 
    recommended that the Service continue the existing limitations on 
    financial institution liability for payments received more than one 
    year after the death of the recipient.
    
    [[Page 17475]]
    
    II. Section-by-Section Analysis of Part 210
    
        The title of Part 210 has been changed to ``Federal Government 
    Participation in the Automated Clearing House'' to reflect the 
    broadened scope of the regulation to cover all types of transactions 
    that are handled, or that may in the future be handled, over the ACH 
    system.
        As revised, Part 210 is comprised of two subparts. Subpart A sets 
    forth rules applicable to all ACH credit and debit entries and entry 
    data originated or received by an agency, which are defined in the 
    proposed rule as ``Government entries.'' Subpart B contains the rules 
    for the reclamation of benefit payments. Subpart C, which dealt with 
    discretionary salary allotments, has been deleted as unnecessary 
    because it is redundant of rules that appear elsewhere. For example, 
    regulations issued by the Office of Personnel Management, at 5 CFR Part 
    550, address the circumstances under which salary and savings 
    allotments may be made.
    
    Section 210.1--Scope; Relation to Other Regulations
    
        Part 210 formerly covered only ACH payments made by the Government. 
    In the NPRM, the Service proposed to broaden the scope of Part 210 to 
    cover all entries and entry data originated or received by an agency 
    through the ACH system. Section 210.1 is revised as proposed in the 
    NPRM. Thus, Part 210 as amended applies to collections and the 
    information entries that are handled through the ACH system, as well as 
    to Federal payments made through the ACH system.
        Part 210 establishes the general legal and operational framework 
    applicable to all ``Government entries'' as defined in the rule. 
    Federal tax payments made by ACH debit or credit are governed by 31 CFR 
    Part 203, which sets forth the rights and responsibilities of 
    taxpayers, financial institutions, and Federal Reserve Banks in 
    connection with EFTPS. ACH credits and debits originated by the Bureau 
    of the Public Debt to pay principal or interest on, and to collect 
    payment for the purchase of, United States securities are governed by 
    31 CFR Part 370.
        Both Part 203 and Part 370 impose certain requirements with respect 
    to the payments subject to those regulations that are inconsistent with 
    the provisions of Part 210. Federal tax payments received by the 
    Government through the ACH system that are governed by Part 203 and ACH 
    entries for the purchase of, or payment of principal and interest on, 
    United States securities that are governed by Part 370 are not subject 
    to any provision of Part 210 that is inconsistent with Part 203 or Part 
    370, respectively.
    
    Section 210.2--Definitions
    
        The Service is revising this section, as proposed, to provide that 
    any term not defined in Part 210 shall have the meaning given to that 
    term in the ACH Rules. In addition, for clarity and simplification, the 
    Service is adding, removing, or redesignating certain other terms, as 
    indicated below.
        The Service is deleting certain definitions from Part 210 because 
    Part 210, as revised, uses these terms in the same way as the ACH 
    Rules. Thus, the definitions of the terms ``banking day,'' ``business 
    day,'' and ``prenotification,'' have been deleted. In addition, the 
    term ``payment'' is not defined in revised Part 210 because Part 210 
    uses instead the ACH terms ``entry'' and ``credit.'' Similarly, the 
    term ``payment date'' is not defined because Part 210 uses instead the 
    ACH term ``settlement date.''
        Other terms previously defined in Part 210, such as ``allotment,'' 
    ``allotter,'' ``discretionary allotment,'' ``employee,'' and 
    ``nonbenefit payment'' have been deleted because they are not used in 
    revised Part 210. The terms ``account,'' ``payment instruction,'' and 
    ``Federal Reserve Bank'' have been deleted as unnecessary.
        The Service has added a definition of ``ACH Rules'' at 
    Sec. 210.2(a). This definition explains that the ACH Rules consist of 
    the NACHA Operating Rules and the NACHA Operating Guidelines.
        The Service also has added a definition of ``actual or constructive 
    knowledge'' at Sec. 210.2(b). This phrase is used in Subpart B in 
    connection with determining a financial institution's liability for 
    post-death and post-legal incapacity payments. The addition of this 
    definition is intended to clarify that in reference to the death or 
    legal incapacity of a recipient of benefit payments or the death of a 
    beneficiary, the RDFI is deemed to have actual knowledge of the death 
    or legal incapacity when it has received, by whatever means, any 
    information of the death or incapacity and has had a reasonable 
    opportunity to act upon the information. Moreover, if the RDFI would 
    have discovered the death or legal incapacity if it had followed 
    commercially reasonable business practices, the RDFI will be deemed to 
    have constructive knowledge of the death or incapacity. For example, an 
    RDFI would have actual knowledge of a death or legal incapacity through 
    a communication of that fact by an executor of the deceased recipient's 
    or beneficiary's estate, a family member, another third party, or the 
    agency issuing the benefit payment. On the other hand, if an RDFI 
    misplaced a letter sent through the mail containing notice of death or 
    legal incapacity, or failed to open or read the letter, the RDFI would 
    be deemed to have constructive knowledge of the death even though it 
    did not have actual knowledge.
        Although Part 210 previously did not contain a definition of 
    ``actual or constructive knowledge,'' the reclamation provisions of 
    Subpart B of Part 210 provided that a financial institution is deemed 
    to have knowledge of the death or legal incapacity of a recipient or 
    the death of a beneficiary if the financial institution would have 
    discovered the death or legal incapacity if it had exercised due 
    diligence. The Service is not changing that standard, but is adding 
    this definition to clarify that the basis for determining whether a 
    financial institution has constructive knowledge of the death or legal 
    incapacity is whether commercially reasonable business practices would 
    have resulted in discovery of the information.
        Financial institutions questioned whether the addition of a 
    definition of ``actual or constructive knowledge'' might be viewed to 
    broaden the circumstances under which a financial institution can be 
    liable in reclamation cases. Several commenters asked whether financial 
    institutions would have an obligation to check obituaries, noting that 
    Part 210 previously provided expressly that there is no such 
    obligation. One commenter stated that banks should not be responsible 
    for acting on the basis of unconfirmed information, regardless of its 
    source, and therefore suggested that the definition of actual or 
    constructive knowledge include the concept that the information should 
    come from an official source such as a death certificate, written 
    communication from a decedent's personal representative, or a copy of a 
    court order adjudicating a recipient's incapacity. The same commenter 
    pointed out that under the proposed standard, a bank might be deemed to 
    have knowledge of death prior to the time when the information is, or 
    should have been, brought to the attention of an employee who handles 
    benefit payments. The commenter urged that banks be permitted an 
    opportunity to communicate the information to the responsible 
    individual or department.
        The deletion of the language formerly in Part 210 stating that 
    financial institutions are not required to check obituaries does not 
    mean that financial
    
    [[Page 17476]]
    
    institutions must check obituaries. The standard of constructive 
    knowledge set forth in the final rule, i.e., whether commercially 
    reasonable business practices would have resulted in discovery of the 
    recipient's death or incapacity, is a flexible concept. For example, 
    what is a commercially reasonable practice for a large money center 
    bank may not be commercially reasonable for a small rural bank. 
    Similarly, business practices that are not today technologically 
    feasible or cost-effective may become standard industry practices at 
    some future time. Thus, with regard to whether financial institutions 
    should be responsible for acting on the basis of unconfirmed 
    information, the Service declines to adopt a rule under which a 
    financial institution has knowledge of the death of a recipient only if 
    the information comes from an ``official source.'' Rather, whether a 
    financial institution would be deemed to have knowledge of a 
    recipient's death would depend on whether, given all the facts and 
    circumstances, a similarly situated financial institution would 
    reasonably conclude that the information was reliable.
        The Service agrees that financial institutions need a reasonable 
    period of time to act on information of death or incapacity and, as 
    indicated above, has incorporated a provision to this effect in the 
    final definition. Some commenters indicated that banks utilizing batch 
    processing systems cannot activate a hold on an account following 
    receipt of notice until evening or the following day, depending on the 
    processing schedule. Accordingly, the Service believes that a 
    reasonable period of time will not exceed one business day, i.e., 
    twenty four hours, excluding weekends or holidays.
        The Service has added a definition of ``agency'' at Sec. 210.2(c) 
    to mean any department, agency, or instrumentality of the United States 
    Government, or a corporation owned or controlled by the Government of 
    the United States. Part 210 formerly used the term ``program agency.'' 
    The change is not intended to alter the scope of Part 210. The 
    definition is identical to the definition of agency in Part 208, which 
    sets forth rules governing the mandatory use of EFT by Federal 
    agencies, except that the definition of agency for purposes of Part 210 
    expressly excludes Federal Reserve Banks.
        For purposes of Subpart B, which governs reclamations, ``agency'' 
    means the agency that certified the benefit payment(s) being reclaimed.
        Section 210.2(d) defines the term ``applicable ACH Rules'' to mean 
    the ACH Rules with an effective date on or before September 17, 1999, 
    which are made applicable to ``Government entries'' pursuant to 
    Sec. 210.3. Part 210 completely preempts those ACH Rules that: govern 
    claims for compensation or reclamation of benefit payments; provide for 
    rules enforcement procedures; limit the applicability of the ACH Rules 
    to members of an ACH association; or require that a credit entry be 
    originated no more than two banking days before the settlement date of 
    the entry. Therefore, these ACH Rules have been excluded from the term 
    ``applicable ACH Rules.'' As discussed above in the Introduction, Part 
    210 also preempts certain other provisions of the ACH Rules through 
    operation of particular sections of Part 210.
        In the NPRM, the Service proposed to preempt the requirement under 
    the ACH Rules that disputes among participants be settled by 
    arbitration procedures set forth in the ACH Rules. Since the ACH Rules 
    have been amended, effective March 19, 1999, to make arbitration 
    voluntary rather than mandatory, the Service no longer believes it is 
    necessary to preempt the arbitration provisions of the ACH Rules. 
    However, since publication of the NPRM, NACHA has adopted a rule that 
    became effective on December 18, 1998, establishing a national system 
    of fines applicable to both financial institutions and access 
    participants for violation of the provisions of the ACH Rules. The 
    Service does not believe it is in the public interest to subject the 
    Treasury General Account (TGA) to an unquantified liability based on an 
    untested system of fines; therefore, at this time the Service is not 
    incorporating in Part 210 those provisions of the ACH Rules dealing 
    with enforcement for noncompliance. However, the Service intends to 
    work with agencies to achieve Government-wide compliance with all ACH 
    Rule requirements, including applicable time frames.
        Other than the requirement that credit entries be originated no 
    more than two banking days before the settlement date of the entry, any 
    technical or timing requirements imposed on DFIs under the ACH Rules 
    constitute applicable ACH Rules, and will be binding on agencies and 
    financial institutions, unless preempted. Thus, for example, agencies 
    will be subject to the timing requirements for reversals and returns.
        Many commenters objected to permitting agencies to originate an 
    entry more than two banking days before the settlement date of the 
    entry. Some financial institutions pointed out that production and 
    storage costs are incurred by an RDFI to warehouse ACH entries and that 
    expanding the origination window increases the risk to which the RDFI 
    is exposed. For example, several financial institutions pointed out 
    that a DNE is ineffective to cause the automated return of a benefit 
    payment that has already been received but is being held or warehoused 
    pending settlement. Some agencies also indicated that there is no 
    reason that the Government cannot adhere to the two-day origination 
    deadline eventually, and that it would benefit the Government to do so 
    by allowing agencies more time to process reports that affect 
    continuing payment entitlement. The Service anticipates that in the 
    future agencies will be able to adhere to the two-day window and 
    expects to revise Part 210 accordingly at that time. However, because 
    there is not uniform operational capability to meet the two-day window 
    at this time, the Service has retained this preemption of the ACH Rules 
    in the final rule.
        The Service is adding a definition of ``authorized payment agent'' 
    at Sec. 210.2(e) in connection with the account requirements set forth 
    at Sec. 210.5. The definition has been reworded slightly from the 
    proposed definition in order to correspond to the definition of 
    ``authorized payment agent'' for purposes of Part 208.
        In the case of a beneficiary who is physically or mentally 
    incapable of managing his or her payments, Sec. 210.5 would permit an 
    authorized payment agent to receive the payments on behalf of the 
    beneficiary. The Social Security Act, the Veterans' Benefits Act, and 
    the Railroad Retirement Act contain provisions permitting a benefit 
    payment to be made to an individual or organization other than the 
    beneficiary when doing so is in the best interest of the 
    beneficiary.3 The Social Security Administration (SSA) and 
    the Railroad Retirement Board use the term ``representative payee'' to 
    refer to individuals and organizations that have been selected to 
    receive benefits on behalf of a beneficiary who is ``legally 
    incompetent or mentally incapable of managing benefit payments.'' The 
    Department of Veterans Affairs uses the term ``fiduciary'' to refer to 
    individuals or organizations appointed to serve in similar 
    circumstances. The definition of the term ``recipient'' in former 
    Sec. 210.2 refers to representative payees and fiduciaries. SSA, the 
    Railroad Retirement Board, and the Department of Veterans Affairs have 
    issued detailed regulations addressing the qualifications
    
    [[Page 17477]]
    
    and duties of representative payees and fiduciaries.4 The 
    rules governing these representational relationships are longstanding 
    and well established. Therefore, the Service believes that it is 
    appropriate to rely on existing agency regulations in defining the term 
    ``authorized payment agent.''
    ---------------------------------------------------------------------------
    
        \3\ See 42 U.S.C. 1383(a)(2)(A)(ii)(i); 38 U.S.C. 5502(a)(1); 45 
    U.S.C. 231k, respectively.
        \4\ See 20 CFR Parts 404, 410, 416, 266, and 348; and 38 CFR 
    Part 13, respectively.
    ---------------------------------------------------------------------------
    
        Other agencies also may provide for payment to representative 
    payees and fiduciaries. While not specifically mentioned by name, the 
    phrase ``or other agency'' in the definition is intended to refer to 
    such agencies.
        The Service has added a definition of ``Automated Clearing House or 
    ACH'' in Sec. 210.2(f) to make it clear that the electronic fund 
    transfers that are subject to Part 210 are limited to those effected 
    through an EFT system that has adopted the ACH Rules.
        The definition of ``beneficiary'' in Sec. 210.2(g) has been 
    reworded slightly from the definition previously set forth in Part 210 
    to reflect the addition of a definition of benefit payment, but 
    substantively is unchanged from the previous definition.
        The definition of ``benefit payment'' in Sec. 210.2(h) is similar 
    to the definition previously set forth in Part 210. The regulation 
    lists several types of benefit payments for purposes of convenience and 
    illustration. It should be noted, however, that the term ``benefit 
    payment'' includes, but is not limited to, the specific examples set 
    forth at Sec. 210.2(h).
        The Service has added to Part 210 a definition of ``Federal 
    payment.'' The definition in Sec. 210.2(i) is identical to the 
    definition of that term in Part 208 except that the definition of 
    Federal payment in Part 208 excludes payments under the Internal 
    Revenue Code of 1986, whereas the term ``Federal payment'' in 
    Sec. 210.2(i) includes those payments. Payments under the Internal 
    Revenue Code of 1986 are excluded in Part 208 because the DCIA 
    expressly provides that payments under the Internal Revenue Code of 
    1986 are not subject to the DCIA's mandatory EFT requirements. However, 
    payments that the Internal Revenue Service or a taxpayer elects to make 
    using the ACH system are subject to Part 210 and thus are included 
    within the definition of Federal payment at Sec. 210.2(i).
        The definition of ``financial institution'' in Sec. 210.2(j) is 
    identical to the definition contained in Part 208 except that the 
    Service has added a sentence noting that, in Part 210, a financial 
    institution may be referred to as an Originating Depository Financial 
    Institution (ODFI) or a Receiving Depository Financial Institution 
    (RDFI), depending on whether it is originating or receiving entries to 
    or from its ACH Operator.
        The definition of ``financial institution'' makes specific 
    reference to banks, savings banks, credit unions, savings associations, 
    and United States-based foreign bank branches. The definition has been 
    designed to reflect the class of entities that can participate directly 
    in the ACH system, i.e., financial institutions that are authorized by 
    law to accept deposits.
        The term ``Government entry'' is defined in Sec. 210.2(k) as an ACH 
    credit or debit entry or entry data originated or received by an 
    agency. As noted above, Part 210 previously applied only to credit 
    entries originated by an agency for the purpose of making payments. As 
    amended, Part 210 has a broader scope; it applies to all entries 
    originated or received by an agency, whether made for the purpose of 
    payments or collections or for information purposes.
        The Service has added a definition of the ``Green Book'' in 
    Sec. 210.2(l) to clarify that financial institutions that originate or 
    receive Government entries are subject to the procedures and guidelines 
    published by the Service in the Green Book, as provided at 
    Sec. 210.3(c).
        The term ``notice of reclamation'' at Sec. 210.2(m) means a notice 
    issued by the Government in a paper, electronic, or other form in order 
    to initiate a reclamation. This definition clarifies that the 
    Government is not limited to a paper-based means of communication and 
    opens the way for an automated reclamation procedure. The definition of 
    ``notice of reclamation'' is moved to the definition section of Part 
    210 from Sec. 210.13(a), where it was previously located.
        The Service has preserved the definition of ``outstanding total'' 
    in Part 210 without substantive change.
        The definition of ``recipient'' in Sec. 210.2(o) is substantially 
    similar to the corresponding definition in Part 208. The term includes 
    an authorized payment agent that receives a payment on behalf of a 
    beneficiary.
        The term ``Service'' has been added at Sec. 210.2(p) to mean the 
    Financial Management Service, Department of the Treasury.
        The term ``Treasury'' has been added at Sec. 210.2(q) to mean the 
    United States Department of the Treasury.
        The Service has added a definition of the term ``Treasury Financial 
    Manual'' at Sec. 210.2(r) to clarify that the Service may publish 
    procedures and guidelines applicable to Government entries in the 
    Treasury Financial Manual. The Treasury Financial Manual contains 
    procedures to be observed by all agencies with respect to central 
    accounting, financial reporting, and other Government-wide fiscal 
    responsibilities of the Treasury.
    
    Section 210.3--Governing Law
    
        Section 210.3(a) provides that the rights and obligations of the 
    United States and the Federal Reserve Banks with respect to all 
    Government entries are governed by Part 210, which has the force and 
    effect of Federal law. This approach is consistent with Clearfield 
    Trust Co. v. United States, 318 U.S. 363 (1943), and its progeny, which 
    support the principle that the Government can establish the rules that 
    govern Federal payments and collections and that Federal law applies 
    whenever Treasury engages in its sovereign function of collecting and 
    disbursing public funds, regardless of the method used to carry out 
    this function.
        One commenter requested clarification regarding the extent to which 
    Article 4A of the Uniform Commercial Code (UCC Article 4A) is 
    applicable to Government entries. Treasury consistently has taken the 
    position that under Clearfield Trust, state law, including the Uniform 
    Commercial Code, is inapplicable to Federal payments and collections, 
    except to the extent that the state law is incorporated in Federal law. 
    However, UCC Article 4A is incorporated in the ACH Rules, which the 
    Service is adopting, and, therefore, will apply to Government entries 
    except as preempted in Part 210.
        Section 210.3(b)(1) provides that Part 210 incorporates by 
    reference the applicable ACH Rules published in Parts I, II, and IV of 
    the 1999 NACHA Rule Book (including any rule changes in effect on or 
    before September 17, 1999), as modified by Part 210. NACHA has approved 
    an amendment to the ACH Rules that, effective September 2000, will 
    permit the crediting of entries to non-deposit accounts. The Service 
    does not intend to accept this amendment for payments subject to 
    Sec. 210.5.
        Section 210.3(b)(2) describes how subsequent amendments to the ACH 
    Rules will be handled. The proposed rule provided that Government 
    entries would be governed by any amendment to the ACH Rules that became 
    effective after a specified date only if the Service accepted the 
    amendment by publishing notice to that effect. Many commenters urged 
    the Service to change this position. Several financial institutions and 
    agencies recommended that the Service provide that amendments to the 
    ACH Rules are deemed accepted unless
    
    [[Page 17478]]
    
    the Service expressly rejects the amendment by publishing notice to 
    that effect in the Federal Register.
        Federal regulations require that any changes to a publication 
    incorporated by reference in a Federal regulation be published in the 
    Federal Register.5 Accordingly, the Service may not adopt an 
    approach whereby amendments to the ACH Rules are deemed accepted unless 
    expressly rejected. In order to mitigate the uncertainty and 
    inconvenience to financial institutions that would result from a lag in 
    addressing ACH Rule amendments, the Service intends to work closely 
    with NACHA to track proposed ACH Rule changes and to respond to such 
    changes in a timely manner. The Service anticipates that it will 
    publish a Federal Register notice addressing ACH Rule changes within 90 
    days of NACHA's publication of its rule book, which is published 
    annually.
    ---------------------------------------------------------------------------
    
        \5\ See 1 CFR 51.11.
    ---------------------------------------------------------------------------
    
        For the above reasons, Part 210 states that amendments effective 
    after September 17, 1999, will not apply to Government entries unless 
    the Service expressly accepts such amendments by publishing notice of 
    acceptance in the Federal Register. In addition, Sec. 210.3(b)(2) 
    provides that with respect to any future amendment that the Service 
    determines to accept, the date of applicability of the amendment to 
    Government entries will be the effective date of the rulemaking 
    specified by the Service in the Federal Register notice that expressly 
    accepts the amendment.
        Section 210.3(c) provides that any person or entity that originates 
    or receives a Government entry must comply with the instructions and 
    procedures issued by the Service, including the Treasury Financial 
    Manual and the Green Book. As indicated above, the Service has moved 
    certain requirements that previously were set forth in the regulation 
    itself to the Green Book and the Treasury Financial Manual. In light of 
    the proposed relocation of these provisions, the Service believes it is 
    important to make explicit in the regulation the Service's longstanding 
    policy that the requirements set forth in the Green Book and the 
    Treasury Financial Manual are binding upon financial institutions and 
    agencies to the same extent as the regulation itself.
        The requirements set forth in the Green Book and the Treasury 
    Financial Manual, including those provisions that the Service is 
    relocating from the regulation to the Green Book or Treasury Financial 
    Manual, are procedural, rather than substantive, in nature. Changes to 
    the substantive rights and liabilities of parties to a Government entry 
    will be made through amendments to Part 210 itself in accordance with 
    administrative rulemaking requirements.
    
    Section 210.4--Authorizations and Revocations of Authorizations
    
        Section 210.4(a) provides that each debit and credit entry subject 
    to Part 210 must be authorized in accordance with the applicable ACH 
    Rules and the additional requirements set forth in this section. The 
    liability of a financial institution for failing to comply with the 
    authorization requirements is set forth at Sec. 210.8(b)(2).
        Section 210.4(a)(1) provides that the agency or RDFI that accepts 
    the recipient's authorization shall verify the identity of the 
    recipient and, in the case of a written authorization that bears the 
    recipient's signature, the validity of the signature. Traditionally, 
    recipients of benefit payments, such as Social Security and Veterans 
    benefits, enrolled in Direct Deposit by completing a Form 1199A with 
    the assistance of their financial institution. In recent years, in 
    order to encourage recipients to use Direct Deposit, SSA and other 
    agencies have become directly involved in the enrollment process by 
    accepting Direct Deposit authorizations over the phone with the 
    assistance of trained customer service representatives. Part 210 
    acknowledges that the enrollment process may be completed by the 
    recipient's financial institution or by the agency. In addition, 
    Sec. 210.4(a) encourages automated enrollments by removing the 
    requirement that the financial institution sign the authorization form. 
    Section 210.4(a) recognizes that signature verification may not be 
    possible or practical in an automated enrollment process.
        Part 210 imposes an absolute requirement that the RDFI or agency 
    accepting the authorization verify the recipient's identity and, where 
    appropriate, the recipient's signature. The Service leaves to the 
    discretion of the financial institution or agency accepting an 
    authorization the steps it will take to verify the recipient's 
    identity.
        Some commenters requested that the Service clarify that a financial 
    institution that accepts an authorization is not required to verify 
    that the recipient, in fact, is entitled to receive the payment(s) in 
    question. Financial institutions, in particular, commented that the 
    RDFI is not in a position to determine who is entitled to the payment 
    being authorized. The Service agrees that the financial institution is 
    not in a position to know whether the customer, in fact, is entitled to 
    the payment(s) being authorized. Section 210.4(a) requires only that 
    the identity of the recipient be verified; the financial institution is 
    not liable for determining whether the customer is entitled to the 
    payment.
        Agencies and other commenters supported the requirement that the 
    RDFI verify the identity of the recipient as a means of reducing fraud. 
    Financial institutions and ACH associations generally objected to the 
    imposition of liability on financial institutions that accept and 
    process enrollments, rather than on the ODFI, as provided for in the 
    ACH Rules. Financial institutions further commented that if the ACH 
    Rules are preempted in this respect, financial institutions should not 
    be held to a strict liability standard. These institutions urged the 
    Service to adopt a ``commercially reasonable business practices'' 
    standard of care, or an ``actual or constructive knowledge'' of a fraud 
    standard. Financial institutions argued that they cannot be an insurer 
    against all fraud and that a strict liability standard creates a 
    disincentive for financial institutions to participate in the 
    enrollment process.
        The Service continues to believe that the authorization process 
    represents an opportunity to reduce fraud which could otherwise result 
    in significant losses to the Government. Because a financial 
    institution that accepts an authorization from a customer has an 
    obligation to know the customer and is in a position to verify a 
    written signature, the Service believes it is appropriate to hold the 
    financial institution strictly liable for verifying the identity of the 
    customer.
        Under Sec. 210.4(a)(2), an originator and an ODFI are prohibited 
    from initiating a debit entry to an agency, other than a reversal of a 
    credit entry, without the express permission, in writing or similarly 
    authenticated, of the agency. The Service has conducted pilot programs 
    to test the initiation of debit entries to the Government. These pilots 
    indicate that the use of debit entries to the Government is a cost-
    efficient payment mechanism that benefits both the Government and the 
    payee-recipient. However, in order to protect the interests of the 
    Government, the Service believes that it is appropriate to require the 
    prior written or similarly authenticated authorization, just as the ACH 
    Rules require prior written authorization in the case of debits to a 
    consumer account. In the case of recurring entries, the agency is 
    required to give an authorization only once, prior to the first entry.
    
    [[Page 17479]]
    
        As proposed, Sec. 210.4(a)(2) did not provide an exception from the 
    authorization requirements for a reversal of a credit entry previously 
    sent to an agency. Since a reversal of a credit entry is a debit entry, 
    some commenters questioned whether proposed Sec. 210.4(a)(2) would 
    limit or restrict a financial institution's right to reverse a credit 
    entry. It was not the Service's intention to require a prior written 
    authorization before the initiation of a reversal, and the final rule 
    has been revised to clarify this point.
        Section 210.4(b) specifies the terms to which a recipient agrees by 
    executing an authorization for an agency to initiate an ACH entry. 
    Under Sec. 210.4(b)(1), a recipient agrees to be bound by Part 210 and, 
    under Sec. 210.4(b)(2), the recipient agrees to provide accurate 
    information.
        Section 210.4(b)(3) provides that the recipient agrees to verify 
    the recipient's identity to the satisfaction of the party that accepts 
    the authorization, whether this is the RDFI or the agency. The 
    imposition of this requirement on recipients complements the duty of 
    the party accepting the authorization to verify the recipient's 
    identity.
        Section 210.4(b)(4) provides that a new authorization supersedes 
    any existing authorization that is inconsistent with the new 
    authorization.
        Under Sec. 210.4(b)(5), the recipient agrees that the Government 
    may reverse any duplicate or erroneous entry as provided in 
    Sec. 210.6(f).
        Section 210.4(c)(1) provides that, in the case of a recipient of 
    benefit payments, a change in the recipient's ownership of the account 
    results in the termination of the authorization. The purpose of this 
    provision is to ensure that payments are not deposited to an account to 
    which a recipient no longer has access or in which the recipient's 
    ownership interest has changed.
        Some commenters questioned whether an authorization is revoked as a 
    result of any change in the ownership of an account, even if that 
    change does not affect the recipient's ownership interest in the 
    account. These commenters questioned whether, for example, the addition 
    of a co-signatory on the account would cause the authorization to be 
    revoked. It is not the Service's intent that an authorization be 
    revoked as a result of a change in ownership of an account where the 
    recipient's interest is not adversely affected. The wording of 
    210.4(c)(1) has been changed accordingly.
        Under Sec. 210.4(c)(2), the death or legal incapacity of a 
    recipient of benefit payments or the death of a beneficiary results in 
    the termination of the authorization.
        Section 210.4(c)(3) provides that the closing of the recipient's 
    account at the RDFI results in termination of the authorization. In 
    addition, this section requires the RDFI to provide 30 days written 
    notice to the recipient prior to closing the account to which benefit 
    payments currently are being sent, except in cases of fraud.
        Final Sec. 210.4(c)(3) is unchanged from the NPRM except that the 
    30-day notice requirement is limited in the final rule to accounts to 
    which benefit payments currently are being sent. Most financial 
    institutions commented that the 30-day notice requirement was an 
    improper interference with their customer relationships. Financial 
    institutions pointed out that banks routinely close accounts in cases 
    of excessive overdrafts or in instances of fraud, and noted that the 
    30-day period would require banks to establish a separate account 
    closing process for accounts receiving Federal ACH transactions. Some 
    agencies also questioned whether it was appropriate for the Service to 
    regulate account closing in this fashion, indicating that they had not 
    had a problem with closed accounts. However, the Service believes that 
    the notice requirement protects recipients from being deprived of 
    timely access to their funds as a result of an account being closed 
    without sufficient notice to allow the recipient to make other 
    arrangements to receive the funds. Because the Service is concerned 
    that a recipient of benefit payments may suffer hardship if the account 
    to which his or her benefit payments are being sent is closed, the 
    final rule has been limited to address this class of recipients.
        One agency commenting on the proposed rule requested clarification 
    regarding situations in which payments are sent to an account that has 
    been kept open by a financial institution notwithstanding the 
    recipient's request that the account be closed. The agency stated that, 
    in its view, ``the only criterion that should apply in such a situation 
    is whether the recipient has closed the account at the financial 
    institution. . . . When a recipient can provide proof that an account 
    has been closed, all Federal payments subsequently received by the 
    financial institution must be returned.''
        The effect of 210.4(c) is that payments sent to an account that has 
    been closed must be returned by the financial institution. However, 
    Part 210 does not establish the circumstances in which a financial 
    institution can or must close an account. A financial institution's 
    right or obligation to close a customer's account is established by the 
    terms of the account agreement between the financial institution and 
    the customer and applicable state or Federal laws. Thus, a recipient's 
    assertion that an account has been closed is not necessarily sufficient 
    to require the financial institution to return funds sent to the 
    account. There may be situations in which a recipient wishes to close 
    an account but does not have a legal right to do so. This could occur, 
    for example, when the account has been overdrawn and language in the 
    deposit contract provides that the financial institution may keep the 
    account open until the overdraft is settled. In such a case, a 
    financial institution's obligation to return a payment depends on 
    whether the closing of the account, in fact, has been accomplished, not 
    upon the recipient's desire to close the account or belief that the 
    account has been closed. The Service emphasizes that it is the actual 
    closing of the account as a legal matter, and not the recipient's 
    desire or attempts to close the account, that imposes an obligation on 
    the financial institution to return payments under Sec. 210.4(c).
        In order to eliminate any unnecessary interruptions in ACH services 
    to recipients when any of the events described in Sec. 210.4(c)(4) 
    occurs, Sec. 210.4(c)(4) states that an authorization will not 
    terminate upon the insolvency or closure of the RDFI, provided that a 
    successor is named for the institution. If no successor is named, the 
    Government may transfer temporarily the authorization to a consenting 
    financial institution for a period of no longer than 120 days.
        The Service has deleted the provision formerly contained in 
    Sec. 210.4(e) that stated that, except as authorized by law or other 
    regulations, Part 210 shall not be used to effect an assignment of a 
    payment. The Service believes that a prohibition against assignments is 
    not appropriate in Part 210. Other Federal laws, such as the Social 
    Security Act, govern the assignment of benefits.
    
    Section 210.5--Account Requirements for Federal Payments
    
        Section 210.5 imposes restrictions on the type of account to which 
    Federal payments may be deposited. Section 210.5(a) reiterates the 
    general rule set forth in Part 208 that Federal payments other than 
    vendor payments must be deposited to an account at a financial 
    institution in the name of the recipient. The phrase ``notwithstanding 
    ACH Rule 2.1.2'' indicates that Sec. 210.5 imposes a requirement not 
    imposed under the applicable ACH Rules, i.e., that the account be ``in 
    the name of'' the recipient, with certain exceptions discussed below. 
    This section is designed to ensure that payments reach
    
    [[Page 17480]]
    
    the intended recipient by requiring that such payments be deposited 
    into an account in which the recipient has an ownership interest. 
    Vendor payments are excluded under Sec. 210.5(a) because the Service is 
    aware that under current commercial practices many vendors designate an 
    account in a general corporate name to receive payments in the name of 
    a subsidiary or designate a bank account in the name of an accountant 
    or other service provider for the receipt of payments.
        Proposed Sec. 210.5 would have imposed these restrictions only on 
    benefit payments, which by definition excluded Federal retirement 
    payments. Upon further consideration, the Service has determined that 
    Federal retirement payments need not be excluded from the account 
    restrictions. In the situation most often cited, that in which a 
    surviving spouse is entitled to a deceased recipient's retirement 
    payment, the surviving spouse is considered to be the recipient and, 
    therefore, the payment would be deposited into the surviving spouse's 
    account. The final rule parallels Part 208, which requires that all 
    Federal payments other than vendor payments be deposited to an account 
    in the name of the recipient, with two exceptions.
        The first exception, related to authorized payment agents, is 
    unchanged from the proposed rule. The second exception, related to 
    investment accounts, contains two changes from the proposed rule. 
    First, the exception has been expanded to cover investment accounts 
    established through an investment company registered under the 
    Investment Company Act of 1940, in addition to investment accounts 
    established through a securities broker or dealer registered under the 
    Securities Exchange Act of 1934. Second, the requirement contained in 
    the proposed rule that the investment account and all associated 
    records be structured so that the recipient's interest is protected 
    under applicable Federal or State deposit insurance regulations has 
    been deleted. The reasons for these changes are discussed in detail in 
    the final rulemaking for Part 208. 63 FR 51490, 51500. Additionally, in 
    order to ensure consistency with Part 208, Sec. 210.5(b)(3) has been 
    added. Section 210.5(b)(3) provides that the Secretary of the Treasury 
    may waive the requirements of Sec. 210.5(a) in any case or class of 
    cases.
        A number of commenters requested additional guidance on various 
    aspects of Sec. 210.5. Some commenters questioned whether the account 
    must be solely in the name of the recipient, which would preclude the 
    use of joint accounts, and whether master-subaccounts can be 
    established with limited access by the beneficiary. One agency 
    commented that it has no way of knowing the account title at the 
    financial institution and cannot be expected to monitor industry 
    practices in this regard.
        The part 208 final rulemaking release contains an extensive 
    discussion of the restrictions on accounts to which Federal payments 
    can be sent, and addresses the issues raised by commenters on proposed 
    Sec. 210.5. See 63 FR 51490, 51499. The Service does not believe it is 
    necessary to duplicate that discussion here, and refers readers to the 
    Part 208 rulemaking release. However, in response to the question 
    raised by commenters as to whether Sec. 210.5 would prohibit the use of 
    a joint account between the recipient and a spouse or other member of 
    the recipient's family, the Service emphasizes that Sec. 210.5 does not 
    require that the recipient's name be the only name on the account, and 
    thus would not prohibit the use of such a joint account. In addition, 
    as discussed in the Part 208 rulemaking release, Sec. 210.5 does not 
    prevent recipients of Federal salary payments from making discretionary 
    allotments, as such allotments are made prior to the time the 
    recipient's payment is deposited into an account at a financial 
    institution.
        The Service is aware that NACHA has approved an amendment to the 
    ACH Rules (effective September 2000), which permits the crediting of 
    entries to general ledger accounts and loan accounts. The Service does 
    not intend to accept that amendment with respect to Federal payments 
    other than vendor payments.
    
    Section 210.6--Agencies
    
        The title of this section has been changed from ``The Federal 
    Government'' to ``Agencies.'' Section 210.6 sets forth a number of 
    obligations and liabilities to which agencies that initiate or receive 
    Government entries are subject. These obligations and liabilities are 
    in addition to, or different from, the obligations and liabilities that 
    otherwise would be imposed under the applicable ACH Rules. For example, 
    the authorization and reversal requirements of Secs. 210.6(a) and (f) 
    constitute additional obligations. The liability provisions of 
    Secs. 210.6(b), (c), (d), and (f) expand as well as limit the liability 
    that an agency would otherwise be subject to under the applicable ACH 
    Rules. Specifically, an agency's liability is broader than it would be 
    under the applicable ACH Rules because an agency is liable for a 
    failure to act ``in accordance with this part [210].'' However, the 
    extent of an agency's potential liability is capped by the amount of 
    the entry(ies), which is a limitation on the liability generally 
    provided for under the applicable ACH Rules.
        Section 210.6 is largely unchanged from the NPRM except that 
    Sec. 210.6(b) of the NPRM, relating to prenotifications, has been 
    deleted and the subsections of Sec. 210.6 have been renumbered 
    accordingly. A prenotification is a non-value informational entry sent 
    through the ACH system that contains the same information that will be 
    carried on subsequent entries (with the exception of the dollar amount 
    and transaction code). Under the ACH Rules, prenotifications are 
    optional for all entries. The Service had proposed at Sec. 210.6(b) of 
    the NPRM to modify the ACH Rules by requiring prenotifications for 
    debit entries initiated by an agency. The purpose of the proposed 
    requirement was to ensure that a debit initiated by an agency would be 
    applied against the correct account at the intended financial 
    institution.
        In light of comments received, the Service has deleted this 
    requirement from the final rule. The purpose of a prenotification is to 
    verify the accuracy of the account information to ensure that when a 
    live entry is received, it can be posted to the correct account. 
    However, a prenotification does not provide notice to the owner of the 
    account to be debited, and thus does not serve as a protection against 
    a debit to an incorrect account. Moreover, requiring prenotifications 
    for debit entries may impede the implementation and operation of 
    programs such as point-of-sale check payment capture, in which ACH 
    debits are initiated against a consumer account at the time a purchase 
    of goods or services takes place. Requiring prenotification also would 
    effectively preclude agencies from effecting reversals of credit 
    entries, as a number of commenters pointed out. For these reasons, the 
    Service has deleted from the final rule the requirement that agencies 
    utilize prenotifications before initiating debit entries.
        Section 210.6(a) requires an agency to obtain prior written 
    authorization from the Service in order to receive ACH credit or debit 
    entries. The Service requires this process in order to make software 
    and operational changes to permit the receipt of entries by the agency. 
    Section 210.6(a) is not intended to reduce or change the liability of 
    originators or ODFIs for the initiation of an unauthorized entry to an 
    agency;
    
    [[Page 17481]]
    
    rather, it is an operational requirement imposed by the Service on 
    agencies.
        Sections 210.6(b)-(d) set forth an agency's liability to various 
    parties in connection with Government entries. Section 210.6(b) 
    provides that an agency will be liable to the recipient for any loss 
    sustained as a result of the agency's failure to originate a credit or 
    debit entry in accordance with Part 210. This section further provides 
    that the agency's liability will be limited to the amount of the entry.
        Several financial institutions urged the Service to reconsider this 
    limitation on liability, pointing out that losses resulting from agency 
    errors may be shifted unfairly to the RDFI. One commenter gave an 
    example of an agency's initiation of a duplicate debit entry to a 
    receiver's account, in which case the account might become overdrawn, 
    resulting in returned checks and related charges for which the receiver 
    would attempt to recover compensation. If the receiver's right of 
    recovery from the Government were limited to the amount of the entry, 
    the receiver might seek compensation from the RDFI for a refund of 
    charges and other damages resulting from the return of checks, loss of 
    use of funds, etc.
        To address this concern, Sec. 210.8(b) of the final rule provides 
    that a financial institution will not be liable to any party for any 
    loss resulting from an agency's error or omission in originating an 
    entry. This provision does not affect a financial institution's 
    responsibilities to its customer to resolve errors under the Electronic 
    Fund Transfer Act or Regulation E. Rather, this provision establishes 
    that a financial institution is not liable for consequential damages 
    resulting from an agency's error.
        The ACH Rules do not address the basis for, or the extent of, the 
    liability of an originator or ODFI to a receiver. A receiver's rights 
    against an originator or ODFI for failing to properly originate an 
    entry ordinarily would be governed by contract and state law. Section 
    210.6(b) establishes a recipient's rights against an agency in these 
    circumstances as a matter of Federal law: an agency will be liable for 
    any loss sustained by a recipient, up to the amount of the entry, as a 
    result of the agency's failure to originate a credit or debit entry in 
    accordance with Part 210.
        Section 210.6(c) establishes that an agency may be liable to an 
    originator or an ODFI for any loss sustained by the originator or ODFI 
    resulting from the agency's failure to credit an ACH entry to the 
    agency's account in accordance with part 210. The agency's liability 
    would be limited to the amount of the entry(ies). The ACH Rules do not 
    address the liability of an RDFI to an originator. Under the ACH Rules, 
    if an RDFI fails to properly credit an ACH entry to the designated 
    account within the applicable time limitations, the RDFI will have 
    breached a warranty to the ACH Operator, ACH Association, and ODFI, and 
    may be liable to one of those parties for any losses resulting from the 
    RDFI's breach. Whether the originator has any recourse in such a 
    situation depends on its contract with its ODFI and on state law.
        Section 210.6(c) preempts the ACH Rules with respect to the extent 
    of an agency's liability to an ODFI by limiting that liability to the 
    amount of the entry(ies). In addition, Sec. 210.6(c) establishes, as a 
    matter of Federal law, that an agency may be liable directly to an 
    originator in an amount not exceeding the amount of the entry(ies).
        Section 210.6(d) provides that an agency's liability to an RDFI for 
    losses sustained by the RDFI in processing a duplicate or erroneous 
    entry will be limited to the amount of the entry(ies). The phrase 
    ``[e]xcept as otherwise provided in this Part 210'' is intended to 
    preserve the allocation to the RDFI of liability in connection with the 
    RDFI's failure to comply with, for example, the authorization 
    requirements. While Part 210 previously addressed processing errors by 
    an agency, the final rule refers to duplicate and erroneous entries, as 
    defined in the ACH Rules, in order to describe specifically the type of 
    errors or the nature of the losses for which an agency is liable.
        Under the ACH Rules, an ODFI is liable for losses caused by its 
    origination of duplicate or erroneous entries. Part 210 subjects 
    agencies to the liability imposed on ODFIs under the ACH Rules for 
    originating erroneous and duplicate entries, but preempts the ACH Rules 
    in three respects. First, an agency is not liable for all costs 
    incurred by the RDFI, such as attorneys' fees, but is liable only up to 
    the amount of the entry. Second, Sec. 210.6(d) uses comparative 
    negligence and reduces an agency's liability to the extent the loss 
    results from the financial institution's failure to follow standard 
    commercial practices and exercise due diligence. Third, Sec. 210.6(d) 
    excludes credit entries received by an RDFI after the death or legal 
    incapacity of a recipient of benefit payments or the death of a 
    beneficiary. It should be noted that liability in connection with any 
    benefit payment to a deceased recipient is not covered under 
    Sec. 210.6(d), but is governed solely by Subpart B.
        Several commenters questioned how the comparative negligence 
    standard would be administered and what negligence would consist of in 
    this context. One commenter questioned whether the costs of 
    apportioning negligence might exceed the benefit to the Government of 
    limiting its liability in this fashion.
        What will constitute negligence on the part of a financial 
    institution in a particular context depends on the relevant facts and 
    circumstances. Although the Service recognizes that there may be costs 
    associated with investigating and determining the causes of a 
    particular loss, the Service believes it is important to retain this 
    provision in order to apportion liability appropriately in cases where 
    an agency and a financial institution share responsibility for a loss. 
    For example, if an agency erroneously originated a credit entry to an 
    incorrect account, and the person who received the misdirected funds 
    brought the mistake to the attention of the financial institution, the 
    financial institution could incur liability if it failed to take 
    appropriate action and the agency subsequently was unable to recover 
    the erroneously transmitted funds.
        Section 210.6(e) is unchanged from Sec. 210.6(f) of the proposed 
    rule, except that the word ``final'' has been added in recognition that 
    a Federal Reserve Bank's crediting of an account can be reversed if 
    actual and final funds are not collected in settlement of a credit item 
    at or before 8:30 a.m. Eastern Time on the banking day following the 
    settlement date.
        Section 210.6(f) addresses the Government's initiation of 
    reversals. As discussed in the analysis of Sec. 210.4(b) above, a 
    recipient who executes an authorization agrees, among other things, 
    that the Government may reverse duplicate or erroneous entries or 
    files, as provided in Sec. 210.6(f).
        The ACH Rules permit an originator to reverse duplicate or 
    erroneous entries and permit an ODFI, originator, or originating ACH 
    Operator to reverse duplicate or erroneous files within five banking 
    days of the settlement date of the duplicate or erroneous file or 
    entry. For purposes of the ACH Rules, and as used herein, a duplicate 
    entry is an entry that is a duplicate of an entry previously initiated 
    by the originator or ODFI and an erroneous entry is an entry that 
    orders payment to or from a receiver not intended to be credited or 
    debited by the originator or that orders payment in a dollar amount 
    different than what was intended by the originator.
        Under the ACH Rules, the ODFI and/or originating ACH Operator must 
    indemnify the RDFI against any losses the RDFI incurs as a result of 
    effecting
    
    [[Page 17482]]
    
    a reversal. Consequently, in the event that the RDFI reverses an entry 
    or file initiated by the ODFI, but the RDFI cannot recover the amount 
    of the entry from the receiver (because, for example, the receiver has 
    withdrawn the funds and closed the account), it is the ODFI or 
    originator who bears the loss.
        The ability to effect reversals is an important way for the 
    Government to reduce losses resulting from overpayments and misdirected 
    entries. If a reversal is effected expeditiously, in many cases the 
    receiver may not be aware that the erroneous or duplicate entry 
    occurred, and thus the funds may be available in the account for 
    recovery by the RDFI and, ultimately, the Government.
        With respect to certain types of payments, however, the 
    Government's ability to reverse a duplicate payment or overpayment to a 
    recipient may be constrained due to the existence of various Federal 
    statutory provisions governing the manner in which the Government may 
    recover overpayments. For example, in the context of Federal benefit 
    payments, the Government may be required to provide notice and a 
    hearing prior to taking action to recover payments, or may be limited 
    in the amount, timing, or manner in which an overpayment is recovered. 
    Part 210 does not address the operation of these requirements because 
    the applicable requirements may vary depending on the type of payment. 
    It is the agency's responsibility to determine before certifying a 
    reversal that the reversal will not violate any applicable laws or 
    regulations.
        One commenter requested that the Service clarify how the 
    certification requirement of Sec. 210.6(f) affects the indemnification 
    of the RDFI and other parties to a transaction as provided under ACH 
    Rule 2.4.5. The certification requirement represents an additional 
    obligation of any agency that originates a reversal. The certification 
    requirement is intended to function as an intra-Governmental warranty 
    and is not intended to affect the indemnification of the RDFI or other 
    parties to a transaction under ACH Rule 2.4.5. and Part 210.
        Several commenters requested clarification as to whether the 
    Government, when initiating reversals, would be bound by any ACH Rule 
    requirements that generally apply with respect to reversals, such as 
    the five-day reversal deadline. It is the intention of the Service that 
    all ACH Rule requirements apply to Government-initiated reversals 
    except that the extent of the Government's indemnification would be 
    limited to the amount of the entry(ies). Therefore, an agency that 
    reverses a Government entry must do so within the five-day deadline.
    
    Section 210.7--Federal Reserve Banks
    
        Section 210.7 sets forth the role and responsibilities of the 
    Federal Reserve Banks.
        The settlement of ACH entries is determined by the ACH Operator 
    which, in the case of Government entries, is a Federal Reserve Bank. 
    The Service has deleted as unnecessary the provisions previously in 
    Part 210 relating to funds availability since those requirements are 
    addressed under Federal Reserve Bank Operating Circular No. 4 on ACH 
    Items.
        Some commenters were concerned that a change in the timing of 
    payments would result from the deletion from Sec. 210.7 of language 
    stating that Federal Reserve Banks are to make available to the 
    financial institution the amount specified in a payment instruction, 
    and debit the TGA, on the payment date. Part 210 previously defined the 
    payment date as the date upon which funds are to be available for 
    withdrawal by the recipient, and on which the funds are to be made 
    available to the financial institution by the Federal Reserve Bank, and 
    provided that ``if the payment date is not a business day for the 
    financial institution receiving a payment, or for the Federal Reserve 
    Bank from which it received such payment, then the next succeeding 
    business day for both shall be deemed to be the payment date.'' The 
    Service is not changing the foregoing timing requirements, which are 
    consistent with the Federal Reserve Bank Operating Circular on ACH 
    items.
        Some agencies indicated that the time frame of settlement under the 
    ACH system may conflict with statutory requirements regarding when 
    certain payments must be made. For example, the Office of Personnel 
    Management (OPM) commented that the Civil Service annuity benefit is 
    payable ``on the first business day of the month after the month or 
    period for which it has accrued.'' Therefore, OPM indicated that it 
    cannot legally request another payment date when the first day of the 
    month is on a Saturday, which is a business day for purposes of the 
    relevant statute, but which is not a settlement date under the ACH 
    Rules. The Railroad Retirement Board commented that the Railroad 
    Retirement Act prohibits issuing payments before the first day of the 
    next calendar month.
        The Service recognizes that agencies subject to statutory 
    constraints on payment dates will need to address the interaction of 
    those constraints with the timing of ACH payments. Because different 
    statutes present different issues and limitations, the Service believes 
    that these issues must be addressed on a case-by-case basis. Where 
    statutory payment requirements potentially conflict with the use of the 
    ACH system, the Service urges the paying agency to work with the 
    Service in order to resolve those issues. For example, a statute that 
    requires that payment be made no later than the first business day of 
    the month may allow for the initiation of payments one or two days 
    early in order to ensure that the recipient receives the funds no later 
    than the statutorily prescribed payment date. On the other hand, this 
    approach would not be a viable solution in the context of a statute 
    that requires that payment be made no earlier than the first business 
    day of the month. Because statutes differ, the Service is not in a 
    position to adopt a uniform approach to these issues.
        Section 210.7(a), which is unchanged from the proposed rule, 
    specifies that each Federal Reserve Bank, as the Fiscal Agent of the 
    Treasury, serves as the Government's ACH Operator for Government 
    entries. The phrase ``notwithstanding Section 11.5 and Article 8 of the 
    ACH Rules'' has been added to clarify that the Service is preempting 
    the ACH Rule that provides that a Federal Reserve Bank is not an agent 
    of an RDFI or ODFI.
        Section 210.7(b), also unchanged from the proposed rule, has been 
    added to Part 210 to ensure that the Service is aware of new ACH 
    applications at an agency so that proper accounting can take place and 
    correct credit can be given in the Treasury investment program as an 
    agency receives ACH transactions. Agencies desiring a routing number 
    should obtain approval from the Service prior to requesting a routing 
    number from a Federal Reserve Bank.
    
    Section 210.8--Financial Institutions
    
        Section 210.8 addresses the obligations of financial institutions 
    with respect to Government entries, which were previously set forth at 
    Sec. 210.7. The Service has removed as unnecessary many of the 
    provisions of previous Sec. 210.7 because they are addressed in the ACH 
    Rules. For example, former Sec. 210.7(e) has been deleted since the ACH 
    Rules adequately cover the inability of an RDFI to credit an account 
    indicated in an entry. In addition, former Secs. 210.7(f)(1), (f)(2), 
    and (f)(4) have been deleted since the ACH Rules address these 
    provisions.
        The Service had proposed at Sec. 210.8(a) of the NPRM to require 
    RDFIs to verify that the account number and one other item of 
    information in a prenotification entry both relate to the
    
    [[Page 17483]]
    
    same account. A prenotification, as described in the ACH Rules, is a 
    non-dollar entry, sent through the ACH system, which contains the same 
    information (with the exception of the dollar amount and Standard Entry 
    Class Code) that will be carried on subsequent entries. The ACH Rules 
    do not require that RDFIs verify prenotifications in this manner; thus, 
    the proposed requirement and the corresponding liability to which a 
    financial institution would have been subject for failing to verify a 
    prenotification would have superseded the ACH Rules with respect to 
    agency-initiated prenotifications.
        Several agencies commenting on the proposed rule supported the 
    verification requirement because, in the words of one commenter, 
    ``[t]his will ensure that subsequent Federal direct deposit payments 
    are credited to the intended party, not just into an account that 
    happens to coincide with a valid account number at the RDFI.'' Other 
    agencies indicated that they did not intend to use prenotifications and 
    did not believe the proposed verification requirement was necessary.
        All of the financial institutions commenting on the NPRM objected 
    to the proposed requirement. Financial institutions commented that they 
    rely on account numbers alone in processing entries, as permitted by 
    the ACH Rules and UCC Article 4A, and that they presently cannot 
    perform the proposed verification in an automated processing 
    environment. Therefore, in order to comply with the requirement, 
    financial institutions would be required either to manually process 
    Government entries or to develop and implement new processing systems. 
    Many banks commented that they cannot invest in new processing systems 
    at this time, especially in view of Year 2000 requirements and related 
    systems testing. Some financial institutions indicated that if the 
    verification requirement were imposed, the costs of processing 
    Government entries would increase and they might shift these costs to 
    payment recipients. Some commenters also noted that, in the case of 
    payments made to representative payees, beneficiary information 
    relating to the payment may not be listed on the account in any manner 
    since financial institutions typically have information only on persons 
    who are authorized to sign on the account.
        Financial institutions also argued that shifting losses to banks is 
    inconsistent with basic principles of electronic payment law, pointing 
    out that both UCC Article 4A and the ACH Rules provide that the RDFI 
    may make payment on the basis of account number alone.
        After considering the comments received, the Service has decided 
    not to include in Part 210 a requirement that upon receipt of a 
    prenotification an RDFI verify one other identifying data element in 
    addition to the recipient's account number. The Service does not 
    believe it is in the best interest of the public to implement a 
    requirement that would make it more expensive for financial 
    institutions to receive and process electronic Government payments or 
    that would require manual processing of Government entries. The Service 
    acknowledges the rationale for allowing RDFIs to rely on account number 
    alone, as set forth in the commentary to UCC Article 4A-207(b)(1): ``If 
    the [RDFI] has both the account number and the name of the beneficiary 
    supplied by the originator of the funds transfer, it is possible for 
    the [RDFI] to determine whether the name and number refer to the same 
    person, but if a duty to make that determination is imposed on the 
    [RDFI] the benefits of an automated payment are lost. Manual handling 
    of payment orders is both expensive and subject to human error.''
        Moreover, the Service believes that more data is needed regarding 
    the causes of misdirected Government entries. Without information as to 
    the types of Government entries that are misdirected and the reasons 
    for such mistakes, the Service is concerned that the verification 
    requirement would eliminate any incentive for agencies to follow 
    commercially reasonable standards in initiating payments. The Service 
    does not believe it is appropriate to impose on financial institutions 
    liability for losses resulting from agency errors.
        Although data regarding misdirected entries is not available, the 
    Service has anecdotal information that suggests that many misdirected 
    entries are a result of human error by agency personnel who key in 
    account numbers. The Service is particularly concerned with agency 
    practices in which account information is processed through a single 
    manual key entry, and urges agencies to review their enrollment 
    practices and to consider adopting more stringent key entry procedures 
    such as scanning a voided check or performing a double-key entry, or 
    instituting some other verification procedure to avoid key entry 
    mistakes. The Service encourages agencies to review their enrollment 
    practices and intends to work with agencies to develop data regarding 
    the extent and causes of misdirected ACH entries and to formulate ways 
    of reducing such errors.
        The Service also understands that, in some cases, misdirected 
    entries occur as a result of financial institutions' errors in 
    enrolling recipients or in transmitting notifications of change (NOCs). 
    The Service believes that it is appropriate to hold financial 
    institutions responsible for losses caused by their errors in enrolling 
    recipients and has revised Sec. 210.8(b)(2) accordingly, as discussed 
    below.
        The Service has redesignated former Sec. 210.7(g) of Part 210 as 
    Sec. 210.8(a) without making any substantive change.
        Section 210.8(b) provides that financial institutions shall be 
    subject to liability for failing to handle an entry in accordance with 
    Part 210 and that the amount of that liability will be limited to the 
    amount of the entry, except as otherwise specifically provided in 
    Secs. 210.8(b)(1) and (2). The phrase ``[n]otwithstanding ACH Rules 
    2.2.3, 2.4.5, 2.5.2, 4.2, and 7.7.2'' indicates that the liabilities 
    imposed on financial institutions under this section may be in addition 
    to, or different from, the liabilities that otherwise would be imposed 
    under the applicable ACH Rules. To the extent that Part 210 imposes 
    duties on a financial institution not imposed under the applicable ACH 
    Rules, Sec. 210.8(b) correspondingly imposes liabilities on a financial 
    institution not imposed under the applicable ACH Rules. However, the 
    extent of the liability to which a financial institution would be 
    subject would not exceed the amount of the entry (except in the case of 
    unauthorized debits).
        The ACH Rules generally provide that an RDFI or ODFI is liable for 
    all claims, losses, liabilities, or expenses, including attorneys' fees 
    and costs, resulting directly or indirectly from the breach by the RDFI 
    or ODFI of its obligations. Under UCC Article 4A, which would apply to 
    credit entries to non-consumer accounts, the liability of financial 
    institutions that fail to handle entries properly generally does not 
    extend to all resulting losses, but does include imputed interest in 
    certain circumstances. Because Part 210, as a general matter, limits 
    the Government's liability to the amount of an entry, the Service 
    believes that as a matter of equity the liability of financial 
    institutions similarly should be limited. Accordingly, Sec. 210.8(b) 
    preempts the extent of the liability to which financial institutions 
    are subject under both the ACH Rules and UCC Article 4A by limiting 
    that liability to the amount of the entry. Thus, for example, if an 
    agency originated a credit entry to a corporate vendor and the RDFI 
    failed to credit the entry to the vendor's account
    
    [[Page 17484]]
    
    in a timely manner, Sec. 210.8(b) would limit the RDFI's liability to 
    the Government to the amount of the entry, thereby preempting the UCC 
    Article 4A rule that imposes liability on the financial institution for 
    imputed interest for the period of the delay. Section 210.8(b) does not 
    affect a financial institution's liability under Subpart B.
        Although financial institutions generally objected to changing the 
    liability provisions of the ACH Rules for Government entries, most 
    financial institutions indicated that if the final rule limited the 
    liability of the Government to the amount of an entry, the liability of 
    financial institutions should be correspondingly limited under 
    Sec. 210.8(b).
        Section 210.8(b) of the final rule also provides that a financial 
    institution will not be liable to any third party for any loss 
    resulting from an agency's error or omission in originating an entry. 
    The Service has added this provision to the final rule to address 
    comments by several financial institutions that limiting an agency's 
    liability to the amount of an entry, as set forth at Sec. 210.6, may 
    have the effect of shifting losses resulting from an agency error to 
    the RDFI. As discussed above, one commenter gave an example of an 
    agency's initiation of a duplicate debit entry to a receiver's account, 
    in which case the account might become overdrawn, resulting in returned 
    checks and related charges for which the receiver would attempt to 
    recover compensation. If the receiver's right of recovery from the 
    Government were limited to the amount of the entry, the receiver might 
    seek compensation from the RDFI for a refund of charges and other 
    damages resulting from the return of checks, loss of use of funds, etc. 
    Section 210.8(b) addresses this situation by providing that the 
    receiver cannot recover against the RDFI for these damages.
        Section 210.8(b)(1) is unchanged from the proposed rule except that 
    the reference to ``reserve account'' has been changed to ``account'' in 
    response to comments that Federal Reserve Banks also maintain clearing 
    accounts for financial institutions in some cases. Section 210.8(b)(1) 
    clarifies that a financial institution may not originate or transmit a 
    debit entry to an agency without the prior written authorization of the 
    agency. As previously discussed, debit entries to the TGA represent a 
    significant security concern for the Service. By expanding the use of 
    the ACH system to allow for Government payments by a debit to the TGA, 
    the possibility of unauthorized debits to the TGA arises. In carrying 
    out its fiscal responsibility, the Service believes it is necessary to 
    take precautions to ensure that such debits do not occur. Therefore 
    Part 210 requires special security measures not imposed under the ACH 
    Rules.
        The ACH Rules provide that a receiver must have authorized the 
    initiation of an entry to the receiver's account before the entry is 
    originated and that the ODFI must warrant that the authorization is 
    valid. Section 210.8(b)(1) goes beyond the ACH Rules by requiring that 
    an agency authorize the debit entry, and that the authorization be in 
    writing or similarly authenticated.
        Under Part 210 as amended, a financial institution is liable for 
    any unauthorized debit entries initiated to an agency in violation of 
    this requirement. In connection with this, the Government also must be 
    able to recover the interest that it would have derived from the use of 
    the debited funds had they remained in the TGA. Therefore, a financial 
    institution's liability for unauthorized debit entries to the TGA 
    includes imputed interest under Sec. 210.8(b)(1). This provision is an 
    exception to the general limitation of a financial institution's 
    liability to the amount of an entry. The Service believes it is 
    necessary to impose this additional liability in order to avoid any 
    potential loss of public funds resulting from an unauthorized debit to 
    the TGA.
        Section 210.8(b)(2) restates the third and fourth sentences of 
    former Sec. 210.11(b) and addresses the RDFI's liability in situations 
    where the financial institution accepts a forged authorization. Under 
    the ACH Rules, a receiver must authorize an entry before the entry may 
    be originated and the ODFI must warrant that the authorization is 
    valid. The ODFI or the originator thus bears the ultimate liability for 
    any loss resulting from a forged or invalid authorization. Similarly, 
    under UCC Article 4A, the ODFI or originator generally bears the risk 
    of loss if an entry is originated to a receiver not entitled to the 
    payment. Section 210.8(b)(2) operates to preempt these ACH and UCC 
    Article 4A rules in situations where a financial institution accepts 
    the recipient's authorization and fails to verify the identity of the 
    recipient. If the financial institution accepts a forged authorization, 
    the financial institution rather than the Government will be liable for 
    the entries effected in reliance on the forged authorization.
        The Service has revised Sec. 210.8(b)(2) of the final rule to 
    provide that an RDFI that transmits to an agency an authorization 
    containing an incorrect account number shall be liable for any 
    resulting loss, up to the amount of the payment(s) made on the basis of 
    the incorrect number. With respect to NOCs that contain incorrect 
    account information, the Service believes that the treatment of 
    erroneous NOCs are appropriately addressed under the ACH Rules. The ACH 
    Rules provide that an RDFI that transmits an NOC warrants that the 
    information contained within the NOC is correct, and that the RDFI is 
    liable for any loss or liability resulting from a breach of this 
    warranty. (See ACH Rules, Article Five, Section 5.3) Accordingly, a 
    financial institution that transmits to an agency an NOC containing 
    erroneous information will be liable to the agency for the amount of 
    any resulting misdirected entry.
        In the case of a misdirected entry that an agency believes was the 
    result of an incorrect account number in an authorization or NOC 
    transmitted by an RDFI, the agency shall carry out an investigation to 
    determine the cause of the error. If the agency determines that the 
    loss in fact resulted from an RDFI's transmission of an incorrect 
    account number, the agency may instruct the Service to direct the 
    appropriate Federal Reserve Bank to debit the RDFI's account for the 
    amount of the misdirected payment(s). The agency may not issue such an 
    instruction until it has notified the RDFI of the results of its 
    investigation and provided the RDFI a reasonable opportunity to 
    respond.
        Section 210.8(c) sets forth the conditions under which the 
    obligation for the amount of an entry is acquitted. The word ``final'' 
    has been added to the wording in the proposed rule in recognition that 
    a credit entry may be reversed after crediting by a Federal Reserve 
    Bank if the Reserve Bank does not receive actually and finally 
    collected funds in settlement of the item at or before 8:30 a.m. 
    Eastern Time on the banking day following the settlement date. Section 
    210.8(c) also has been revised from the proposed rule to clarify that 
    the originator's obligation, in addition to any obligation of the ODFI, 
    is discharged upon final crediting. The final rule also provides that, 
    in the case of a debit entry originated by an agency against an 
    account, full acquittance does not occur until the underlying payment 
    is final.
    
    Subpart B--Reclamation of Benefit Payments
    
        The Service has restructured Subpart B of Part 210 by adding a new 
    Sec. 210.9--Parties to the reclamation. The other five sections 
    comprising Subpart B (Secs. 210.10 through 210.14) are a
    
    [[Page 17485]]
    
    reorganization of the four previous sections on reclamations in Part 
    210. As discussed above, the reclamation provisions of Subpart B 
    completely preempt the reclamation provisions of the ACH Rules with 
    respect to benefit payments received by an RDFI after the death or 
    legal incapacity of a recipient or the death of a beneficiary. Any 
    provisions of the ACH Rules dealing with reclamation of benefit 
    payments are not applicable ACH Rules as defined in Sec. 210.2. The 
    Service has not changed significantly the obligations and liabilities 
    of agencies and financial institutions in effect under former Part 210.
        In order to simplify the regulation and enhance its flexibility 
    with respect to automating reclamations, the Service has moved certain 
    procedures and guidelines from Subpart B to the Service's Green Book or 
    Treasury Financial Manual. As discussed above with respect to Subpart 
    A, the Green Book and the Treasury Financial Manual do not introduce 
    new rights and obligations that are not contained in Part 210. Instead, 
    they provide specific operational directions and procedures which put 
    the regulatory requirements into practice. The Service has the 
    authority to enforce the requirements set forth in the Green Book and 
    the Treasury Financial Manual in the same manner that it enforces 
    regulations.
    
    Section 210.9--Parties to the Reclamation
    
        The Service has added this new section to delineate the differing 
    roles of the financial institution, the Service, and the agency that 
    certified the benefit payments in question.
        Section 210.9(a) restates provisions of former Secs. 210.7(a) and 
    210.14(d) of Part 210, which provided that by accepting and handling 
    benefit payments, a financial institution agrees to the provisions of 
    Subpart B, including the reclamation actions and the debiting of the 
    financial institution's Federal Reserve Bank account for any 
    reclamation amount for which it is liable.
        Section 210.9(b) clarifies that the Service performs only 
    disbursing and collection functions on behalf of agencies and does not 
    make decisions as to the underlying obligations themselves. For 
    example, if a financial institution or recipient has a question about 
    the amount of a reclamation, the Service will respond that the amount 
    was determined by the appropriate agency. In addition, if a financial 
    institution or recipient disputes the facts underlying a death or date 
    of death, that party should discuss the dispute with the appropriate 
    agency. After resolution, the Service will carry out the reclamation in 
    accordance with the direction of the agency that certified the payment 
    or directed the Service to reclaim the funds in question.
    
    Section 210.10--RDFI Liability
    
        This section defines the liability of RDFIs for benefit payments 
    received after the death or legal incapacity of a recipient or death of 
    a beneficiary, and limits the extent of that liability.
        Section 210.10(a) restates the rule set forth at Sec. 210.12(a) of 
    previous Part 210, but moves the limited liability provisions to the 
    next section to make it clear that an RDFI is presumed liable for all 
    benefit payments received after the death or legal incapacity of a 
    recipient or death of a beneficiary unless the RDFI meets the 
    qualifications for limited liability set forth in Sec. 210.11. An RDFI 
    has no right to limit its liability with respect to benefit payments 
    received after it knows of the death or incapacity of a recipient or 
    death of a beneficiary and has had a reasonable opportunity to act on 
    that knowledge. Accordingly, the RDFI is required to return all benefit 
    payments received after it learns of the death or legal incapacity of a 
    recipient or death of a beneficiary. This obligation applies whether 
    the RDFI has received a notice of reclamation or learned of the death 
    or legal incapacity on its own.
        In addition, Sec. 210.10(a) requires that the RDFI immediately 
    notify a paying agency if the RDFI learns of the death or legal 
    incapacity of a recipient or death of a beneficiary from a source other 
    than notice from the agency. Some financial institutions, while 
    recognizing that it may be in the institution's best interest to 
    provide agencies with such notice, commented that financial 
    institutions should not incur further liability by failing to provide 
    the notice.
        Under Sec. 210.11(d) as proposed, an RDFI that failed to notify an 
    agency as required by Sec. 210.10(a) would have forfeited its right to 
    limit its liability. The Service agrees that proposed Sec. 210.11(d) 
    could potentially impose a harsh result in some circumstances, 
    particularly where no loss is caused by the RDFI's failure to comply 
    with the notice requirement. Accordingly, the Service has amended 
    Sec. 210.11(d) to provide that an RDFI that fails to comply with any 
    provision of Subpart B in a timely and accurate manner, including the 
    notice requirements at Sec. 210.13, will be liable to the Government 
    for any loss resulting from its act or omission.
        Section 210.10(d) provides that an RDFI's liability for post-death 
    and post-incapacity payments is limited to the most recent six years of 
    payments. Previously, RDFIs were subject under Part 210 to potentially 
    unlimited liability in situations where an agency is unaware of the 
    death or legal incapacity of the recipient or the death of a 
    beneficiary and continues to make payments to the account for a number 
    of years. Financial institutions that commented on the proposed rule 
    supported shortening the time frame for initiating reclamations, 
    although several financial institutions urged the Service to adopt a 
    shorter period than six years. Some agencies supported the proposed 
    time limit, while other agencies objected to it.
        Section 210.10(d) also provides an exception to the six-year 
    limitation where the amount in the account when the RDFI receives the 
    notice of reclamation and has had a reasonable opportunity to act on 
    the notice exceeds the six-year amount for which the RDFI otherwise 
    would be liable. In such a case, the RDFI would be liable for the total 
    amount of all post-death or post-incapacity payments, up to the amount 
    in the account.
        In addition, Sec. 210.10(d) requires that an agency that initiates 
    a reclamation must do so within 120 days after the date that the agency 
    receives notice of the death or incapacity of the recipient or death of 
    the beneficiary. This provision is intended to encourage agencies to 
    act in a timely manner in initiating reclamations, and to protect RDFIs 
    from liability in the event an agency does not act expeditiously. Some 
    agencies commented that the 120-day period was an adequate and 
    appropriate period deadline, whereas other agencies commented that 120 
    days is too short a period in view of exception processing delays on 
    the part of the Service that occur with respect to certain non-
    recurring entries. Financial institutions commenting on this provision 
    supported a shortened deadline for initiating reclamations and 
    generally felt that 120 days was appropriate.
        Section 210.10(e) is unchanged from the proposed rule except that 
    the reference to ``reserve account'' has been changed to ``account'' to 
    reflect the fact that a Federal Reserve Bank may also maintain clearing 
    accounts for financial institutions in some cases. Section 210.10(e) 
    restates a rule of reclamations previously set forth at Secs. 210.13(c) 
    and (d): the Government has the right to debit the RDFI's account at 
    its Federal Reserve Bank for the full amount of all post-death or post-
    incapacity benefit payments owed to an agency or for a lesser amount as 
    a result of the RDFI's ability to limit its liability. Such action,
    
    [[Page 17486]]
    
    if necessary, represents a last step in reclaiming funds that have not 
    otherwise been recovered.
        The 60-day time period for an RDFI to return funds, which was 
    previously set forth at Sec. 210.13(c), is a procedural item that may 
    change with the automation of reclamations. Therefore, the Service has 
    relocated this requirement to the Green Book.
    
    Section 210.11--Limited Liability
    
        The Service has not changed the criteria that an RDFI must meet in 
    order to limit its liability under Subpart B, but has reworded the 
    provisions setting forth the criteria for greater clarity.
        Section 210.11(a) provides the basis for calculating an RDFI's 
    liability if it is eligible to limit its liability because it did not 
    have actual or constructive knowledge of the death or incapacity of a 
    recipient or the death of a beneficiary. The formula is taken from 
    previous Sec. 210.12(b) and, although reworded, does not change 
    significantly the substantive operation of the previous formula.
        Former Sec. 210.12(d) of Part 210 contained rules addressing the 
    circumstances in which an RDFI is ``deemed to have knowledge'' of the 
    death or incapacity using a standard of ``due diligence.'' The Service, 
    believing that the description of due diligence may be confusing or 
    difficult to apply in this context, proposed to utilize a definition of 
    ``actual or constructive knowledge'' set forth at proposed Sec. 210.2.
        Formerly under Part 210, one of the factors relevant to determining 
    the extent of an RDFI's limited liability was the amount in the 
    account. Former Sec. 210.13(b)(2)(i) defined the ``amount in the 
    account'' to mean the balance in the account when the RDFI has received 
    a notice of reclamation and has had a reasonable time to take action 
    based on its receipts, plus any additions to the account balance made 
    before the RDFI returns the notice of reclamation to the Government. 
    Part 210 previously provided that a reasonable time to take action was 
    not later than the close of business on the day following the receipt 
    of the notice of reclamation.
        The Service has experienced many instances in which the ``amount in 
    the account'' for reclamation purposes has been reduced by automated 
    teller machine (ATM) withdrawals and the RDFI cannot provide 
    information regarding the identity of the withdrawer. The Service 
    therefore proposed in the NPRM to define the ``amount in the account'' 
    as the account balance at the time the RDFI receives the notice of 
    reclamation and to eliminate the ``reasonable time to take action'' 
    language formerly at Sec. 210.13(b)(2)(i).
        A number of financial institutions commenting on the proposed rule 
    objected to the calculation of the amount in the account on the basis 
    that they cannot take immediate action to prevent withdrawals upon 
    receipt of a notice of death. One commenter noted that approximately 
    one-half of community banks utilize batch processing systems, in which 
    a hold placed on an account cannot be activated until evening or the 
    following day, depending on the processing schedule. As discussed above 
    with respect to the definition of ``actual and constructive 
    knowledge,'' the Service has revised the definition to provide 
    financial institutions with a reasonable opportunity to take action 
    after receiving notice of death or incapacity. The Service believes 
    that one business day will normally constitute a reasonable opportunity 
    to take action.
        Section 210.11(b) sets forth the steps an RDFI must take in order 
    to qualify for limited liability. By requiring an RDFI to certify the 
    information required in Sec. 210.11(b)(1) and (2), the burden of 
    demonstrating qualification for limited liability is placed on the 
    RDFI. Failure to meet this burden results in the full liability of the 
    RDFI under proposed Sec. 210.10.
        Section 210.11(b)(2) incorporates the last sentence of former 
    Sec. 210.13(b)(1), and adds the requirement that the RDFI certify the 
    date the RDFI first had actual or constructive knowledge of the death 
    or legal incapacity of the recipient or death of the beneficiary even 
    if such knowledge was obtained first through notice received from the 
    agency. As proposed, Sec. 210.11(b)(2) stated that the RDFI must 
    certify the date the RDFI first had ``information'' of the death or 
    incapacity. Some commenters questioned the meaning of the word 
    ``information,'' as opposed to the phrase ``actual or constructive 
    knowledge.'' Because ``information'' was intended to refer to actual or 
    constructive knowledge, Sec. 210.11(b)(2) has been revised to eliminate 
    any apparent inconsistency.
        Requiring these certifications, in combination with the authority 
    of the Government to debit the RDFI's account as provided in 
    Sec. 210.10(e), underscores that the burden is on the RDFI to 
    demonstrate its qualification for limited liability.
        Former Sec. 210.13(b)(2)(ii) has been relocated to 
    Sec. 210.11(b)(3) of the final rule.
        Section 210.11(c) provides the payment and collection procedures 
    which apply if an RDFI qualifies for limited liability. After an RDFI 
    returns the amount specified in Sec. 210.11(a)(1), if the agency is 
    unable to collect the remaining amount of the outstanding total, the 
    Government will debit the RDFI's account at its Federal Reserve Bank 
    (or the correspondent account utilized by the RDFI) for the amount 
    specified in Sec. 210.11(a)(2), which is the lesser of: (i) the benefit 
    payments received by the RDFI from the agency within 45 days after the 
    death or legal incapacity of the recipient or death of the beneficiary, 
    or (ii) the balance of the outstanding total. It should be noted that 
    in no instance will the RDFI be liable for more than the outstanding 
    total because the amount potentially recoverable under 
    Sec. 210.11(a)(2) cannot exceed the balance of the unrecovered 
    outstanding total.
        As proposed in the NPRM, Sec. 210.11(d) would have provided that an 
    RDFI would forfeit its right to limit its liability if the RDFI failed 
    to comply with any provision of Subpart B. One financial institution 
    commented that the proposed expanded liability in Sec. 210.11(d) was 
    inappropriate and unfair, and that only a violation of those provisions 
    that relate directly to the qualifications for limited liability stated 
    in Sec. 210.11(a) and (b) should cause a financial institution to lose 
    its right to limit its liability. The Service has revised 
    Sec. 210.11(d) to provide that a financial institution that violates 
    any provision of Subpart B shall be liable to the Government for any 
    loss resulting from its act or omission, in addition to any amount(s) 
    for which the RDFI is liable under Sec. 210.10 or Sec. 210.11(a).
    
    Section 210.12--RDFI's Rights of Recovery
    
        Section 210.12(a) restates the principle set forth in former 
    Sec. 210.14(c) that in reclaiming funds from an RDFI, the Government is 
    not directing or authorizing the RDFI to debit the recipient's account. 
    Any rights that an RDFI may have to recover the amount of reclaimed 
    funds from a recipient are a matter of applicable state law and the 
    contract between the RDFI and the recipient. Subpart B neither limits 
    nor expands those rights.
        Section 210.12(b) restates without substantive change former 
    Sec. 210.14(d) of Part 210.
    
    Section 210.13--Notice to Account Owners
    
        Section 210.13 is based on former Sec. 210.14(a) of Part 210, but 
    has been changed slightly to provide for the possibility of an 
    automated reclamation process by the addition of the phrase
    
    [[Page 17487]]
    
    ``or otherwise provide to the account owner(s)'' to the existing 
    requirement that notice be mailed. In addition, the phrase ``any notice 
    required by the Service to be provided to account owners as specified 
    in the Green Book'' has been substituted for the specific reference to 
    the ``Notice to Account Owners'' to allow for more flexibility in 
    changing the format of the required notice.
        Part 210 formerly required that RDFIs notify account owners of any 
    actions to be taken by the RDFI with respect to the account in 
    connection with a reclamation action. The Service believes that this 
    requirement may intrude unnecessarily into the relationship between the 
    RDFI and its customer and conflicts with the principle that 
    reclamations are actions between the Government and the RDFI, and not 
    between the Government and the recipient. Actions taken by an RDFI with 
    respect to a customer account, and any notice to the customer in 
    connection with those actions, are a matter of State law or contract, 
    not Federal law.
    
    Section 210.14--Erroneous Death Information
    
        This section is based upon former Sec. 210.15 of Part 210, with 
    certain additions and deletions. Much of former Sec. 210.15 was 
    procedural information which the Service has moved to the Green Book, 
    where it is more appropriately located. In particular, the Service has 
    relocated to the Green Book the procedures that RDFIs are to follow in 
    correcting erroneous death information (previously codified in 
    Sec. 210.15(a)(1) and (2) and Sec. 210.15(c)). The Service also has 
    moved to the Green Book the 60-day time limit for the RDFI to return 
    the completed notice of reclamation to the Government in order for the 
    RDFI to limit its liability for the payments made after the death or 
    legal incapacity of the recipient or death of the beneficiary. This 60-
    day limit is a requirement for the paper-based reclamation procedure. 
    Any automated reclamation procedures developed or used by the 
    Government would not be bound by the same time limit as the paper 
    process since an automated procedure theoretically could be completed 
    in less time.
        The provisions at Sec. 210.14(b) direct questions and disputes to 
    the agency issuing directions on reclamations. These provisions clarify 
    that the Service only performs disbursing and collection functions on 
    behalf of the agencies and does not make decisions as to the underlying 
    obligations.
    
    Subpart C--Discretionary Salary Allotments
    
        The Service has removed Subpart C from Part 210. Subpart C provided 
    that discretionary allotments from Federal employees' wage and salary 
    payments permitted by the issuing agency could be made through the ACH 
    system and were subject to Part 210. The Service determined that 
    Subpart C was redundant since the substance of Subpart C was covered in 
    other regulations. For example, regulations issued by the Office of 
    Personnel Management, at 5 CFR Part 550, address the circumstances 
    under which discretionary allotments may be made. Subpart A of Part 210 
    sets forth the rules governing all ACH credit entries made by an 
    agency, including any savings and salary allotment payments. For these 
    reasons, specific provisions for the use of the ACH system to allow for 
    discretionary allotments in Part 210 are unnecessary.
    
    III. Rulemaking Analysis
    
        Treasury has determined that this regulation is not a significant 
    regulatory action as defined in Executive Order 12866.
        It is hereby certified that this rule will not have a significant 
    economic impact on a substantial number of small entities. Accordingly, 
    a Regulatory Flexibility Act analysis is not required.
        There is no collection of information contained in this rule and, 
    therefore, the Paperwork Reduction Act does not apply.
    
    List of Subjects in 31 CFR Part 210
    
        Automated Clearing House, Electronic funds transfers, Fraud, 
    Incorporation by reference.
    
    Authority and Issuance
    
        For the reasons set out in the preamble, 31 CFR Part 210 is revised 
    to read as follows:
    
    PART 210--FEDERAL GOVERNMENT PARTICIPATION IN THE AUTOMATED 
    CLEARING HOUSE
    
    Sec.
    210.1  Scope; relation to other regulations.
    210.2  Definitions.
    210.3  Governing law.
    
    Subpart A--General
    
    210.4  Authorizations and revocations of authorizations.
    210.5  Account requirements for Federal payments.
    210.6  Agencies.
    210.7  Federal Reserve Banks.
    210.8  Financial institutions.
    
    Subpart B--Reclamation of Benefit Payments
    
    210.9  Parties to the reclamation.
    210.10  RDFI liability.
    210.11  Limited liability.
    210.12  RDFI's rights of recovery.
    210.13  Notice to account owners.
    210.14  Erroneous death information.
    
        Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31 U.S.C. 321, 3301, 
    3302, 3321, 3332, 3335, and 3720.
    
    
    Sec. 210.1  Scope; relation to other regulations.
    
        This part governs all entries and entry data originated or received 
    by an agency through the Automated Clearing House (ACH) network, except 
    as provided in paragraphs (a) and (b) of this section. This part also 
    governs reclamations of benefit payments.
        (a) Federal tax payments received by the Federal Government through 
    the ACH system that are governed by part 203 of this title shall not be 
    subject to any provision of this part that is inconsistent with part 
    203.
        (b) ACH credit or debit entries for the purchase of, or payment of 
    principal and interest on, United States securities that are governed 
    by part 370 of this title shall not be subject to any provision of this 
    part that is inconsistent with part 370.
    
    
    Sec. 210.2  Definitions.
    
        For purposes of this part, the following definitions apply. Any 
    term that is not defined in this part shall have the meaning set forth 
    in the ACH Rules.
        (a) ACH Rules means the Operating Rules and the Operating 
    Guidelines published by the National Automated Clearing House 
    Association (NACHA), a national association of regional member clearing 
    house associations, ACH Operators and participating financial 
    institutions located in the United States.
        (b) Actual or constructive knowledge, when used in reference to an 
    RDFI's knowledge of the death or legal incapacity of a recipient or 
    death of a beneficiary, means that the RDFI received information, by 
    whatever means, of the death or incapacity and has had a reasonable 
    opportunity to act on such information or that the RDFI would have 
    learned of the death or incapacity if it had followed commercially 
    reasonable business practices.
        (c) Agency means any department, agency, or instrumentality of the 
    United States Government, or a corporation owned or controlled by the 
    Government of the United States. The term agency does not include a 
    Federal Reserve Bank.
        (d) Applicable ACH Rules means the ACH Rules with an effective date 
    on or
    
    [[Page 17488]]
    
    before September 17, 1999, as published in Parts I, II, and IV of the 
    ``1999 ACH Rules: A Complete Guide to Rules & Regulations Governing the 
    ACH Network,'' except:
        (1) ACH Rule 1.1 (limiting the applicability of the ACH Rules to 
    members of an ACH association);
        (2) ACH Rule 1.2.2 (governing claims for compensation);
        (3) ACH Rule 1.2.4 and Appendix Eleven (governing the enforcement 
    of the ACH Rules);
        (4) ACH Rules 2.2.1.8; 2.6; and 4.7 (governing the reclamation of 
    benefit payments);
        (5) ACH Rule 8.3 and Appendix Two (requiring that a credit entry be 
    originated no more than two banking days before the settlement date of 
    the entry--see definition of ``Effective Entry Date'' in Appendix Two).
        (e) Authorized payment agent means any individual or entity that is 
    appointed or otherwise selected as a representative payee or fiduciary, 
    under regulations of the Social Security Administration, the Department 
    of Veterans Affairs, the Railroad Retirement Board, or other agency 
    making Federal payments, to act on behalf of an individual entitled to 
    a Federal payment.
        (f) Automated Clearing House or ACH means a funds transfer system 
    governed by the ACH Rules which provides for the interbank clearing of 
    electronic entries for participating financial institutions.
        (g) Beneficiary means a natural person other than a recipient who 
    is entitled to receive the benefit of all or part of a benefit payment.
        (h) Benefit payment is a payment for a Federal entitlement program 
    or for an annuity, including, but not limited to, payments for Social 
    Security, Supplemental Security Income, Black Lung, Civil Service 
    Retirement, Railroad Retirement annuity and Railroad Unemployment and 
    Sickness benefits, Department of Veterans Affairs Compensation and 
    Pension, and Worker's Compensation.
        (i) Federal payment means any payment made by an agency. The term 
    includes, but is not limited to:
        (1) Federal wage, salary, and retirement payments;
        (2) Vendor and expense reimbursement payments;
        (3) Benefit payments; and
        (4) Miscellaneous payments including, but not limited to, 
    interagency payments; grants; loans; fees; principal, interest, and 
    other payments related to United States marketable and nonmarketable 
    securities; overpayment reimbursements; and payments under Federal 
    insurance or guarantee programs for loans.
        (j)(1) Financial 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 which is eligible to apply 
    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 which is eligible to 
    apply 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 which is eligible to 
    apply 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 which is 
    eligible to apply 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) which is an insured depository 
    institution as defined in such Act (12 U.S.C. 1811 et seq.) or is 
    eligible to apply to become an insured depository institution under the 
    Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and
        (vi) 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).
        (2) In this part, a financial institution may be referred to as an 
    Originating Depository Financial Institution (ODFI) if it transmits 
    entries to its ACH Operator for transmittal to a Receiving Depository 
    Financial Institution (RDFI), or it may be referred to as an RDFI if it 
    receives entries from its ACH Operator for debit or credit to the 
    accounts of its customers.
        (k) Government entry means an ACH credit or debit entry or entry 
    data originated or received by an agency.
        (l) Green Book means the manual issued by the Service which 
    provides financial institutions with procedures and guidelines for 
    processing Government entries.
        (m) Notice of reclamation means notice sent by electronic, paper, 
    or other means by the Federal Government to an RDFI which identifies 
    the benefit payments that should have been returned by the RDFI because 
    of the death or legal incapacity of a recipient or death of a 
    beneficiary.
        (n) Outstanding total means the sum of all benefit payments 
    received by an RDFI from an agency after the death or legal incapacity 
    of a recipient or the death of a beneficiary, minus any amount returned 
    to, or recovered by, the Federal Government.
        (o) Recipient means a natural person, corporation, or other public 
    or private entity that is authorized to receive a Federal payment from 
    an agency.
        (p) Service means the Financial Management Service, Department of 
    the Treasury.
        (q) Treasury means the United States Department of the Treasury.
        (r) Treasury Financial Manual means the manual issued by the 
    Service containing procedures to be observed by all agencies and 
    Federal Reserve Banks with respect to central accounting, financial 
    reporting, and other Federal Government-wide fiscal responsibilities of 
    the Treasury.
    
    
    Sec. 210.3  Governing law.
    
        (a) Federal Law. The rights and obligations of the United States 
    and the Federal Reserve Banks with respect to all Government entries, 
    and the rights of any person or recipient against the United States and 
    the Federal Reserve Banks in connection with any Government entry, are 
    governed by this part, which has the force and effect of Federal law.
        (b) Incorporation by reference--applicable ACH Rules.
        (1) This part incorporates by reference the applicable ACH Rules, 
    including rule changes with an effective date on or before September 
    17, 1999, as published in Parts I, II, and IV of the ``1999 ACH Rules: 
    A Complete Guide to Rules & Regulations Governing the ACH Network.'' 
    The Director of the Federal Register approves this incorporation by 
    reference in accordance with 5 U.S.C. 552(a) and 1 CFR Part 51. Copies 
    of the ``1999 ACH Rules'' are available from the National Automated 
    Clearing House Association, 607 Herndon Parkway, Suite 200, Herndon, 
    Virginia 20170. Copies also are available for public inspection at the 
    Office of the Federal Register, 800 North Capitol Street, N.W., Suite 
    700, Washington, D.C. 20001.
        (2) Any amendment to the applicable ACH Rules that takes effect 
    after September 17, 1999, shall not apply to Government entries unless 
    the Service expressly accepts such amendment by publishing notice of 
    acceptance of the amendment to this part in the Federal Register. An 
    amendment to the ACH Rules that is accepted by the Service shall apply 
    to Government entries on the effective date of the rulemaking specified 
    by the Service in the Federal
    
    [[Page 17489]]
    
    Register notice expressly accepting such amendment.
        (c) Application of this part. Any person or entity that originates 
    or receives a Government entry agrees to be bound by this part and to 
    comply with all instructions and procedures issued by the Service under 
    this part, including the Treasury Financial Manual and the Green Book. 
    The Treasury Financial Manual is available for downloading at the 
    Service's web site at http://www.fms.treas.gov/ or by calling (202) 
    874-9940 or writing the Directives Management Branch, Financial 
    Management Service, Department of the Treasury, 3700 East West Highway, 
    Room 500C, Hyattsville, MD 20782. The Green Book is available for 
    downloading at the Service's web site at http://www.fms.treas.gov/
    fmsnews.html or by calling (202) 874-6540 or writing the Product 
    Promotion Division, Financial Management Service, Department of the 
    Treasury, 401 14th Street, S.W., Room 309, Washington, D.C. 20227.
    
    Subpart A--General
    
    
    Sec. 210.4  Authorizations and revocations of authorizations.
    
        (a) Requirements for authorization. Each debit and credit entry 
    subject to this part shall be authorized in accordance with the 
    applicable ACH Rules and the following additional requirements:
        (1) The agency or the RDFI that accepts the recipient's 
    authorization shall verify the identity of the recipient and, in the 
    case of a written authorization requiring the recipient's signature, 
    the validity of the recipient's signature.
        (2) Unless authorized in writing, or similarly authenticated, by an 
    agency, no person or entity shall initiate or transmit a debit entry to 
    that agency, other than a reversal of a credit entry previously sent to 
    the agency.
        (b) Terms of authorizations. By executing an authorization for an 
    agency to initiate entries, a recipient agrees:
        (1) To the provisions of this part;
        (2) To provide accurate information;
        (3) To verify the recipient's identity to the satisfaction of the 
    RDFI or agency, whichever has accepted the authorization;
        (4) That any new authorization inconsistent with a previous 
    authorization shall supersede the previous authorization; and
        (5) That the Federal Government may reverse any duplicate or 
    erroneous entry or file as provided in Sec. 210.6(f) of this part.
        (c) Termination and revocation of authorizations. An authorization 
    shall remain valid until it is terminated or revoked by:
        (1) With respect to a recipient of benefit payments, a change in 
    the recipient's ownership of the deposit account as reflected in the 
    deposit account records, including the removal of the name of the 
    recipient, the addition of a power of attorney, or any action which 
    alters the interest of the recipient;
        (2) The death or legal incapacity of a recipient of benefit 
    payments or the death of a beneficiary;
        (3) The closing of the recipient's account at the RDFI by the 
    recipient or by the RDFI. With respect to a recipient of benefit 
    payments, if an RDFI closes an account to which benefit payments 
    currently are being sent, it shall provide 30 calendar days written 
    notice to the recipient prior to closing the account, except in cases 
    of fraud; or
        (4) The RDFI's insolvency, closure by any state or Federal 
    regulatory authority or by corporate action, or the appointment of a 
    receiver, conservator, or liquidator for the RDFI. In any such event, 
    the authorization shall remain valid if a successor is named. The 
    Federal Government may temporarily transfer authorizations to a 
    consenting RDFI. The transfer is valid until either a new authorization 
    is executed by the recipient, or 120 calendar days have elapsed since 
    the insolvency, closure, or appointment, whichever occurs first.
    
    
    Sec. 210.5  Account requirements for Federal payments.
    
        (a) Notwithstanding ACH Rule 2.1.2, an ACH credit entry 
    representing a Federal payment shall be deposited into an account at a 
    financial institution. For all payments other than vendor payments, the 
    account at the financial institution shall be in the name of the 
    recipient, except as provided in paragraph (b) of this section.
        (b)(1) Where an authorized payment agent has been selected, the 
    Federal payment shall be deposited into an account titled in accordance 
    with the regulations governing the authorized payment agent.
        (2) Where a Federal payment is to be deposited into an investment 
    account established through a securities broker or dealer registered 
    with the Securities and Exchange Commission under the Securities 
    Exchange Act of 1934, or an investment account established through an 
    investment company registered under the Investment Company Act of 1940 
    or its transfer agent, such payment may be deposited into an account 
    designated by such broker or dealer, investment company, or transfer 
    agent.
        (3) The Secretary of the Treasury may waive the requirements of 
    paragraph (a) of this section in any case or class of cases.
    
    
    Sec. 210.6  Agencies.
    
        Notwithstanding ACH Rules 2.2.3, 2.4.5, 2.5.2, 4.2, and 7.7.2, 
    agencies shall be subject to the obligations and liabilities set forth 
    in this section in connection with Government entries.
        (a) Receiving entries. An agency may receive ACH debit or credit 
    entries only with the prior written authorization of the Service.
        (b) Liability to a recipient. An agency will be liable to the 
    recipient for any loss sustained by the recipient as a result of the 
    agency's failure to originate a credit or debit entry in accordance 
    with this part. The agency's liability shall be limited to the amount 
    of the entry(ies).
        (c) Liability to an originator. An agency will be liable to an 
    originator or an ODFI for any loss sustained by the originator or ODFI 
    as a result of the agency's failure to credit an ACH entry to the 
    agency's account in accordance with this part. The agency's liability 
    shall be limited to the amount of the entry(ies).
        (d) Liability to an RDFI or ACH Association. Except as otherwise 
    provided in this part, an agency will be liable to an RDFI for losses 
    sustained in processing duplicate or erroneous credit and debit entries 
    originated by the agency. An agency's liability shall be limited to the 
    amount of the entry(ies), and shall be reduced by the amount of the 
    loss resulting from the failure of the RDFI to exercise due diligence 
    and follow standard commercial practices in processing the entry(ies). 
    This section does not apply to credits received by an RDFI after the 
    death or legal incapacity of a recipient of benefit payments or the 
    death of a beneficiary as governed by Subpart B of this part. An agency 
    shall not be liable to any ACH association.
        (e) Acquittance of the agency. The final crediting of the amount of 
    an entry to a recipient's account shall constitute full acquittance of 
    the Federal Government.
        (f) Reversals. An agency may reverse any duplicate or erroneous 
    entry, and the Federal Government may reverse any duplicate or 
    erroneous file. In initiating a reversal, an agency shall certify to 
    the Service that the reversal complies with applicable law related to 
    the recovery of the underlying payment. An agency that reverses an 
    entry shall indemnify the RDFI as provided in the applicable ACH Rules, 
    but the agency's liability shall be limited to the amount of the entry. 
    If the Federal Government
    
    [[Page 17490]]
    
    reverses a file, the Federal Government shall indemnify the RDFI as 
    provided in the applicable ACH Rules, but the extent of such liability 
    shall be limited to the amount of the entries comprising the duplicate 
    or erroneous file. Reversals under this section shall comply with the 
    time limitations set forth in the applicable ACH Rules.
    
    
    Sec. 210.7  Federal Reserve Banks.
    
        (a) Fiscal Agents. Each Federal Reserve Bank serves as Fiscal Agent 
    of the Treasury in carrying out its duties as the Federal Government's 
    ACH Operator under this part. As Fiscal Agent, each Federal Reserve 
    Bank shall be responsible only to the Treasury and not to any other 
    party for any loss resulting from the Federal Reserve Bank's action, 
    notwithstanding Section 11.5 and Article 8 of the ACH Rules. Each 
    Federal Reserve Bank may issue operating circulars not inconsistent 
    with this part which shall be binding on financial institutions.
        (b) Routing Numbers. All routing numbers issued by a Federal 
    Reserve Bank to an agency require the prior approval of the Service.
    
    
    Sec. 210.8  Financial institutions.
    
        (a) Status as a Treasury depositary. The origination or receipt of 
    an entry subject to this part does not render a financial institution a 
    Treasury depositary. A financial institution shall not advertise itself 
    as a Treasury depositary on such basis.
        (b) Liability. Notwithstanding ACH Rules 2.2.3, 2.4.5, 2.5.2, 4.2, 
    and 7.7.2, if the Federal Government sustains a loss as a result of a 
    financial institution's failure to handle an entry in accordance with 
    this part, the financial institution shall be liable to the Federal 
    Government for the loss, up to the amount of the entry, except as 
    otherwise provided in this section. A financial institution shall not 
    be liable to any third party for any loss or damage resulting directly 
    or indirectly from an agency's error or omission in originating an 
    entry. Nothing in this section shall affect any obligation or liability 
    of a financial institution under Regulation E, 12 CFR part 205, or the 
    Electronic Funds Transfer Act, 12 U.S.C. 1693 et seq.
        (1) An ODFI that transmits a debit entry to an agency without the 
    prior written or similarly authenticated authorization of the agency, 
    shall be liable to the Federal Government for the amount of the 
    transaction, plus interest. The Service may collect such funds using 
    procedures established in the applicable ACH Rules or by instructing a 
    Federal Reserve Bank to debit the ODFI's account at the Federal Reserve 
    Bank or the account of its designated correspondent. The interest 
    charge shall be at a rate equal to the Federal funds rate plus two 
    percent, and shall be assessed for each calendar day, from the day the 
    Treasury General Account (TGA) was debited to the day the TGA is 
    recredited with the full amount due.
        (2) An RDFI that accepts an authorization in violation of 
    Sec. 210.4(a) shall be liable to the Federal Government for all credits 
    or debits made in reliance on the authorization. An RDFI that transmits 
    to an agency an authorization containing an incorrect account number 
    shall be liable to the Federal Government for any resulting loss, up to 
    the amount of the payment(s) made on the basis of the incorrect number. 
    If an agency determines, after appropriate investigation, that a loss 
    has occurred because an RDFI transmitted an authorization or 
    notification of change containing an incorrect account number, the 
    agency may instruct the Service to direct a Federal Reserve Bank to 
    debit the RDFI's account for the amount of the payment(s) made on the 
    basis of the incorrect number. The agency shall notify the RDFI of the 
    results of its investigation and provide the RDFI with a reasonable 
    opportunity to respond before initiating such a debit.
        (c) Acquittance of the financial institution. The final crediting 
    of the correct amount of an entry received and processed by the Federal 
    Reserve Bank and posted to the TGA shall constitute full acquittance of 
    the ODFI and the originator for the amount of the entry. Full 
    acquittance shall not occur if the entries do not balance, are 
    incomplete, are incorrect, or are incapable of being processed. In the 
    case of funds collected by an agency through origination of a debit 
    entry, full acquittance shall not occur until the underlying payment 
    becomes final.
    
    Subpart B--Reclamation of Benefit Payments
    
    
    Sec. 210.9  Parties to the reclamation.
    
        (a) Agreement of RDFI. An RDFI's acceptance of a benefit payment 
    pursuant to this part shall constitute its agreement to this subpart. 
    By accepting a benefit payment subject to this part, the RDFI 
    authorizes the debiting of the Federal Reserve Bank account utilized by 
    the RDFI in accordance with the provisions of Sec. 210.10(e).
        (b) The Federal Government. In processing reclamations pursuant to 
    this subpart, the Service shall act pursuant to the direction of the 
    agency that certified the benefit payment(s) being reclaimed.
    
    
    Sec. 210.10  RDFI liability.
    
        (a) Full liability. An RDFI shall be liable to the Federal 
    Government for the total amount of all benefit payments received after 
    the death or legal incapacity of a recipient or the death of a 
    beneficiary unless the RDFI has the right to limit its liability under 
    Sec. 210.11 of this part. An RDFI shall return any benefit payments 
    received after the RDFI learns of the death or legal incapacity of a 
    recipient or the death of a beneficiary, regardless of the manner in 
    which the RDFI discovers such information. If the RDFI learns of the 
    death or legal incapacity of a recipient or death of a beneficiary from 
    a source other than notice from the agency, the RDFI shall immediately 
    notify the agency of the death or incapacity.
        (b) Notice of Reclamation. Upon receipt of a notice of reclamation, 
    an RDFI shall provide the information required by the notice of 
    reclamation and return the amount specified in the notice of 
    reclamation in a timely manner.
        (c) Exception to liability rule. An RDFI shall not be liable for 
    post-death benefit payments sent to a recipient acting as a 
    representative payee or fiduciary on behalf of a beneficiary, if the 
    beneficiary was deceased at the time the authorization was executed and 
    the RDFI did not have actual or constructive knowledge of the death of 
    the beneficiary.
        (d) Time limits. An agency that initiates a reclamation must do so 
    within 120 calendar days after the date that the agency receives notice 
    of the death or legal incapacity of a recipient or death of a 
    beneficiary. An agency shall not reclaim any post-death or post-
    incapacity payment(s) made more than six years prior to the most recent 
    payment made by the agency to the recipient's account; provided, 
    however, that if the account balance at the time the RDFI receives the 
    notice of reclamation exceeds the total amount of all post-death or 
    post-incapacity payments made by the agency during such six-year 
    period, this limitation shall not apply and the RDFI shall be liable 
    for the total amount of all payments made, up to the amount in the 
    account at the time the RDFI receives the notice of reclamation and has 
    had a reasonable opportunity (not to exceed one business day) to act on 
    the notice.
        (e) Debit of RDFI's account. If an RDFI does not return the full 
    amount of the outstanding total or any other amount for which the RDFI 
    is liable under this subpart in a timely manner, the Federal Government 
    will collect the amount outstanding by instructing the appropriate 
    Federal Reserve Bank to
    
    [[Page 17491]]
    
    debit the account utilized by the RDFI. The Federal Reserve Bank will 
    provide advice of the debit to the RDFI.
    
    
    Sec. 210.11  Limited liability.
    
        (a) Right to limit its liability. If an RDFI does not have actual 
    or constructive knowledge of the death or legal incapacity of a 
    recipient or the death of a beneficiary at the time it receives one or 
    more benefit payments on behalf of the recipient, the RDFI's liability 
    to the agency for those payments shall be limited to:
        (1) An amount equal to: (i) The amount in the account at the time 
    the RDFI receives the notice of reclamation and has had a reasonable 
    opportunity (not to exceed one business day) to act on the notice, plus 
    any additional benefit payments made to the account by the agency 
    before the RDFI responds in full to the notice of reclamation, or
        (ii) The outstanding total, whichever is less; plus
        (2) If the agency is unable to collect the entire outstanding 
    total, an additional amount equal to:
        (i) The benefit payments received by the RDFI from the agency 
    within 45 days after the death or legal incapacity of the recipient or 
    death of the beneficiary, or
        (ii) The balance of the outstanding total, whichever is less.
        (b) Qualification for limited liability. In order to limit its 
    liability as provided in this section, an RDFI shall:
        (1) Certify that at the time the benefit payments were credited to 
    or withdrawn from the account, the RDFI had no actual or constructive 
    knowledge of the death or legal incapacity of the recipient or death of 
    the beneficiary;
        (2) Certify the date the RDFI first had actual or constructive 
    knowledge of the death or legal incapacity of the recipient or death of 
    the beneficiary, regardless of how and where such information was 
    obtained;
        (3)(i) Provide the name, address, and any other relevant 
    information of the following person(s):
        (A) Co-owner(s) of the recipient's account;
        (B) Other person(s) authorized to withdraw funds from the 
    recipient's account; and
        (C) Person(s) who withdrew funds from the recipient's account after 
    the death or legal incapacity of the recipient or death of the 
    beneficiary.
        (ii) If persons are not identified for any of these subcategories, 
    the RDFI must certify that no such information is available and why no 
    such information is available; and
        (4) Fully and accurately complete all certifications on the notice 
    of reclamation and comply with the requirements of this part.
        (c) Payment of limited liability amount. If the RDFI qualifies for 
    limited liability under this subpart, it shall immediately return to 
    the Federal Government the amount specified in Sec. 210.11(a)(1). The 
    agency will then attempt to collect the amount of the outstanding total 
    not returned by the RDFI. If the agency is unable to collect that 
    amount, the Federal Government will instruct the appropriate Federal 
    Reserve Bank to debit the account utilized by the RDFI at that Federal 
    Reserve Bank for the amount specified in Sec. 210.11(a)(2).
        (d) Violation of Subpart B. An RDFI that fails to comply with any 
    provision of this subpart in a timely and accurate manner, including 
    but not limited to the certification requirements at Sec. 210.11(b) and 
    the notice requirements at Sec. 210.13, shall be liable to the Federal 
    Government for any loss resulting from its act or omission. Any such 
    liability shall be in addition to the amount(s) for which the RDFI is 
    liable under Sec. 210.10 or Sec. 210.11, as applicable.
    
    
    Sec. 210.12  RDFI's rights of recovery.
    
        (a) Matters between the RDFI and its customer. This subpart does 
    not authorize or direct an RDFI to debit or otherwise affect the 
    account of a recipient. Nothing in this subpart shall be construed to 
    affect the right an RDFI has under state law or the RDFI's contract 
    with a recipient to recover any amount from the recipient's account.
        (b) Liability unaffected. The liability of the RDFI under this 
    subpart is not affected by actions taken by the RDFI to recover any 
    portion of the outstanding total from any party.
    
    
    Sec. 210.13  Notice to account owners.
    
        Provision of notice by RDFI. Upon receipt by an RDFI of a notice of 
    reclamation, the RDFI immediately shall mail to the last known address 
    of the account owner(s) or otherwise provide to the account owner(s) a 
    copy of any notice required by the Service to be provided to account 
    owners as specified in the Green Book. Proof that this notice was sent 
    may be required by the Service.
    
    
    Sec. 210.14  Erroneous death information.
    
        (a) Notification of error to the agency. If, after the RDFI 
    responds fully to the notice of reclamation, the RDFI learns that the 
    recipient or beneficiary is not dead or legally incapacitated or that 
    the date of death is incorrect, the RDFI shall inform the agency that 
    certified the underlying payment(s) and direct the Service to reclaim 
    the funds in dispute.
        (b) Resolution of dispute. The agency that certified the underlying 
    payment(s) and directed the Service to reclaim the funds will attempt 
    to resolve the dispute with the RDFI in a timely manner. If the agency 
    determines that the reclamation was improper, in whole or in part, the 
    agency shall notify the RDFI and shall return the amount of the 
    improperly reclaimed funds to the RDFI. Upon certification by the 
    agency of an improper reclamation, the Service may instruct the 
    appropriate Federal Reserve Bank to credit the account utilized by the 
    RDFI at the Federal Reserve Bank in the amount of the improperly 
    reclaimed funds.
    
        Dated: April 6, 1999.
    Richard L. Gregg,
    Commissioner.
    [FR Doc. 99-8873 Filed 4-8-99; 8:45 am]
    BILLING CODE 4810-35-P
    
    
    

Document Information

Effective Date:
5/10/1999
Published:
04/09/1999
Department:
Fiscal Service
Entry Type:
Rule
Action:
Final Rule.
Document Number:
99-8873
Dates:
This rule is effective May 10, 1999. The incorporation by reference of the publication listed in the rule is approved by the Director of the Federal Register as of May 10, 1999.
Pages:
17472-17491 (20 pages)
RINs:
1510-AA39
PDF File:
99-8873.pdf
CFR: (36)
31 CFR 210.4(a)
31 CFR 210.2(a)
31 CFR 210.4(a)
31 CFR 210.8(a)
31 CFR 210.15(a)(1)
More ...