97-21584. Electronic Fund Transfers  

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

Document Information

Effective Date:
9/15/1997
Published:
08/14/1997
Department:
Federal Reserve System
Entry Type:
Rule
Action:
Final rule.
Document Number:
97-21584
Dates:
September 15, 1997.
Pages:
43467-43469 (3 pages)
Docket Numbers:
Regulation E, Docket No. R-0959
PDF File:
97-21584.pdf
CFR: (1)
12 CFR 205.15