=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 210
RIN 1510-AB24
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
(FMS) is issuing this final rule which amends our regulation governing
the use of the Automated Clearing House (ACH) network by Federal
agencies. The rule adopts, with some exceptions, the 2009 ACH Rules
published by NACHA--The Electronic Payments Association (NACHA) as the
rules governing the use of the ACH Network by Federal agencies. Among
other things, the final rule includes new requirements to identify all
international payment transactions using a new Standard Entry Class
Code and to include certain information in the ACH record sufficient to
allow the receiving financial institution to identify the parties to
the transaction and to allow screening to comply with requirements
administered by the Office of Foreign Assets Control (OFAC). In
addition, the rule requires financial institutions to provide limited
account-related customer information related to the reclamation of
post-death benefit payments as permitted under the Payment Transactions
Integrity Act of 2008. It also allows Federal payments to be delivered
to pooled or master accounts established by nursing facilities for
residents of those facilities or held by religious orders whose members
have taken vows of poverty.
DATES: October 24, 2011. The incorporation by reference of certain
publications listed in the rule is approved by the Director of the
Federal Register as of October 24, 2011.
FOR FURTHER INFORMATION CONTACT: Bill Brushwood, Director of the
Settlement Services Division, at (202) 874-1251 or
bill.brushwood@fms.treas.gov; Natalie H. Diana, Senior Counsel, at
(202) 874-6680 or natalie.diana@fms.treas.gov; or Frank Supik, Senior
Counsel, at (202) 874-6638 or frank.supik@fms.treas.gov.
SUPPLEMENTARY INFORMATION:
I. Proposed Rulemaking
We issued a Notice of Proposed Rulemaking (NPRM) on May 14, 2010,
requesting comment on a number of proposed amendments to title 31 CFR
part 210 (Part 210). 75 FR 27239. Part 210 governs the use of the ACH
Network by Federal agencies. The ACH Network is a nationwide electronic
fund transfer (EFT) system that provides for the inter-bank clearing of
electronic credit and debit transactions and for the exchange of
payment-related information among participating financial institutions.
Part 210 incorporates the ACH Rules adopted by NACHA, with certain
exceptions. From time to time we amend Part 210 in order to address
changes that NACHA periodically makes to the ACH Rules or to revise the
regulation as otherwise appropriate.
International ACH Transactions
In the NPRM, we proposed to incorporate in Part 210 some, but not
all, of the changes that NACHA adopted in 2007 and 2008, as reflected
in the 2009 ACH Rules book. Those changes include requirements to
identify all international payment transactions using a new Standard
Entry Class Code and to include in the ACH record certain information
sufficient to allow the receiving financial institution to identify the
parties to the transaction and the path of the transaction. Effective
September 18, 2009, the ACH Rules required Originating Depository
Financial Institutions (ODFIs) and Gateway Operators to identify all
international payment transactions transmitted via the ACH Network for
any portion of the money trail with a new Standard Entry Class Code for
International ACH Transactions (IAT). IAT transactions must include the
specific data elements defined within the Bank Secrecy Act's (BSA)
``Travel Rule'' so that all parties to the transaction have the
information necessary to comply with U.S. law, including the laws
administered by OFAC.
Previously, many payments that are international in nature were
being introduced as domestic transactions into the U.S. ACH Network
through correspondent banking relationships, making it difficult for
processing depository financial institutions to identify them for
purposes of complying with U.S. law. NACHA's IAT Standard Entry Class
Code classifies international payments based on the geographical
location of the financial institutions or
[[Page 59025]]
money transmitting businesses involved in the transaction, instead of
the location of the originator or receiver. As defined in the 2009 ACH
Rules, an International ACH Transaction (IAT) entry is:
A debit or credit Entry that is part of a payment transaction
involving a financial agency's office that is not located in the
territorial jurisdiction of the United States. For purposes of this
definition, a financial agency means an entity that is authorized by
applicable law to accept deposits or is in the business of issuing
money orders or transferring funds. An office of a financial agency
is involved in the payment transaction if it (1) holds an account
that is credited or debited as part of the payment transaction; (2)
receives payment directly from a Person or makes payment directly to
a Person as part of the payment transaction; or (3) serves as an
intermediary in the settlement of any part of the payment
transaction.
See 2009 ACH Rules, Subsection 14.1.36. The 2009 Operating Guidelines
provide various examples of transactions that would be classified as
IAT entries. One example deals with pension or Social Security benefit
payments delivered to the U.S. bank accounts of retirees residing
offshore. If the U.S. bank to which such a payment is delivered further
credits the payment to an offshore bank with which it has a
correspondent relationship, the entry is to be classified by the ODFI
as IAT. In other words, despite being destined to U.S. bank accounts,
the transactions would be IATs because the ultimate destinations of the
payments are accounts held with offshore banks or financial agencies.
The 2009 Operating Guidelines indicate that it is the Originator's
obligation to understand the legal domicile of its retirees and inquire
whether they hold accounts in U.S. banks or with offshore financial
institutions. See 2009 Operating Guidelines, Section IV, Chapter XI,
Scenario F, p. 209. As applied to Federal payments, this would mean
that an agency certifying a payment to a recipient residing overseas
must inquire whether the payment, although directed to a domestic bank,
will be further credited to a foreign correspondent bank. If so, the
agency must classify the payment as IAT.
In the NPRM, we proposed to accept the IAT rule for Federal
payments. For Federal benefit payments delivered to overseas recipients
in Mexico, Canada and Panama through the FedGlobal ACH Payment
Services, we have already implemented the requirements of the IAT rule.
For other payments, however, we proposed an effective date of January
1, 2012 in order to allow for the system and operational changes
necessary to implement the IAT requirements. We further indicated that
we planned to phase in IAT requirements in stages, based on the type of
payment and the agency issuing the payment, as expediently as
operationally possible. The January 1, 2012 effective date does not
affect agencies' obligation to comply to the full extent of their
authority with OFAC-administered sanctions programs when certifying
payments to Treasury for disbursement.
Lastly, we stated that in implementing the IAT requirements, we
anticipated that some agencies will format as an IAT entry any payment
to an individual or entity with an address outside the territorial
jurisdiction of the U.S. This may result in the identification of some
transactions as IATs even though funds do not ultimately leave the
United States. However, taking an ``over-inclusive'' approach to
implementing IAT greatly eases the administrative burden that Federal
agencies would otherwise face. We requested comment from agencies and
financial institutions on this over-inclusive approach.
NACHA Rules Enforcement
Effective December 21, 2007, NACHA modified its rules to broaden
the scope of Appendix Eleven (The National System of Fines). The
Appendix was revised to (1) Allow NACHA to request data from ODFIs for
an Originator or Third-Party Sender that appears to exceed a rate of
one percent for debit entries returned as unauthorized; and (2) define
the circumstances under which NACHA may submit violations related to
the ODFI reporting requirement to the National System of Fines. Several
other provisions of the National System of Fines were also modified.
Part 210 currently does not incorporate Appendix 11 of the NACHA
Rules. See 31 CFR 210.2(d)(3). The Federal government is constrained
from entering into arrangements that may result in unfunded
liabilities. Moreover, we do not believe that subjecting Federal
agencies to the System of Fines is necessary or appropriate in light of
its underlying purpose. Accordingly, we proposed not to adopt the
modifications to Appendix 11. In the event that a Federal agency were
to experience a high rate of debit entries returned as unauthorized, we
would work with the agency and coordinate with NACHA to address the
situation.
ODFI Reporting Requirements
Effective March 20, 2009, NACHA amended its rules to incorporate
new reporting requirements for ODFIs within Article Two (Origination of
Entries). These reporting requirements require ODFIs to provide, when
requested by NACHA, certain information about specific Originators or
Third-Party Senders believed to have a return rate for unauthorized
debit entries in excess of 1 percent. The rule also requires ODFIs to
reduce the return rate for any such Originator or Third-Party Sender to
a rate below 1% within 60 days. The amendment replaced a reporting
requirement for Telephone-Initiated (TEL) entries that was previously
in the ACH Rules.
We proposed not to adopt these reporting requirements. When NACHA
adopted the TEL reporting requirement in 2003, we did not adopt it, in
part because we did not believe that agencies were likely to experience
excessive rates of returned entries, which has proved to be true.
Similarly, we do not believe that it is necessary or appropriate to
subject Federal agencies to a formal reporting process for unauthorized
entries.
Automated Reclamations Process
In addition to addressing ACH Rule changes, we proposed to amend
Part 210 to streamline the reclamation process for post-death benefit
payments. We requested comment on a proposal to replace the current
manual, paper-based reclamation process with a process in which
Treasury would proceed with an automatic debit to the financial
institution's reserve account in cases where a reclamation is limited
to payments received within 45 days after the recipient's death. In the
current reclamation process, Treasury sends out a paper Notice of
Reclamation to the financial institution. The financial institution
must complete, certify and return the paper Notice of Reclamation to
Treasury. We requested comment on an approach in which Treasury would
proceed with an automatic debit to the financial institution's reserve
account, following advance notice to the financial institution of the
debit with a right to challenge. We proposed that the automated process
apply to situations in which a notice of reclamation is limited to
payments received within 45 days after the recipient's death, which
constitutes 85% of all reclamations.
Payment Transactions Integrity Act of 2008 Changes
We proposed in the NPRM to require financial institutions to
provide certain withdrawer information for all types of benefit
payments being reclaimed. Prior to the enactment of the Payment
Transactions Integrity Act of 2008, account-related information could
be shared only for certain types of benefit
[[Page 59026]]
payments. Accordingly, Part 210 currently requires banks to provide
only the name and address (not the phone number) of account owners and
withdrawers, and only in connection with the reclamation of Social
Security Federal Old-Age, survivors, and Disability Insurance benefit
payments or benefit payments certified by the Railroad Retirement Board
or the Department of Veterans' Affairs. We proposed to require
Receiving Depository Financial Institutions (RDFIs) to provide the name
and last-known address and phone number for account owners and others
who have withdrawn, or were authorized to withdraw, funds subject to a
reclamation.
``In the Name of the Recipient'' Requirements
Finally, we proposed to add three exceptions to our long-standing
requirement in Part 210 that non-vendor payments be delivered to a
deposit account at a financial institution in the name of the
recipient. Specifically, we proposed to allow the delivery of Federal
payments to resident trust or patient fund accounts held by nursing
homes; to accounts held by religious orders for members who have taken
a vow of poverty; and to prepaid and stored value card accounts
provided that the cardholder's balance is FDIC insured and covered by
the consumer protections of the Federal Reserve's Regulation E. This
final rule does not address the proposal relating to prepaid cards. We
have addressed that proposal in a separate rulemaking published on
December 22, 2010.\1\ See 75 FR 80335.
---------------------------------------------------------------------------
\1\ On December 22, 2010 we published an interim final rule that
allows the delivery of Federal payments to a prepaid card or access
device, provided the account is not attached to a line of credit or
loan agreement under which repayment from the account is triggered
upon delivery of the Federal payments; and the account is set up to
meet the requirements for pass-through deposit or share insurance
such that the funds accessible through the card or access device are
insured for the benefit of the recipient by the Federal Deposit
Insurance Corporation or the National Credit Union Share Insurance
Fund; and the issuer of the card or access device provides the
holder of the card with all of the consumer protections that apply
to a payroll card account under the rules implementing the
Electronic Funds Transfer Act.
---------------------------------------------------------------------------
Title 31 CFR 210.5(a) provides that, notwithstanding ACH rules
2.1.2, 4.1.3, and Appendix Two, section 2.2 (listing general ledger and
loan accounts as permissible transaction codes), an ACH credit entry
representing a Federal payment other than a vendor payment shall be
deposited into a deposit account at a financial institution. For all
payments other than vendor payments, the account at the financial
institution must be in the name of the recipient, subject to certain
exceptions. Our long-standing interpretation of the words ``in the name
of the recipient,'' has been that the payment recipient's name must
appear in the account title. See, e.g., 64 FR 17480, referring to
discussion at 63 FR 51490, 51499. The requirement is not met if the
recipient has an ownership interest in a pooled account and that
individual's interest is reflected only in a subacccount record. The
``in the name of the recipient'' requirement is, in essence, a consumer
protection policy designed to ensure that a payment reaches the
intended recipient. See discussion at 63 FR 51490, 51499. We have had
concerns in the past that a Federal benefit payment recipient could
enter into, or otherwise be subject to, a master/sub account
relationship in which the intended recipient has little control (if
any) over the account to which their benefit payments is directed.
1. Accounts Held by Nursing Facilities
On April 21, 2008, the Social Security Administration (SSA)
published a Federal Register notice requesting comments on arrangements
in which Social Security benefit payments are deposited into a third-
party's ``master'' account when the third party maintains separate
``sub'' accounts for individual beneficiaries. See 73 FR 21403. SSA
specifically asked if nursing homes would be able to receive and manage
benefits for their residents without the use of master/sub accounts.
The comments received by SSA indicated that the use of master/sub
account arrangements by residents of nursing facilities is widespread,
and that these arrangements are beneficial for recipients. Based on the
comments received, SSA's view is that master/sub accounts held by
nursing facilities serve useful purposes and do not present concerns.
After consulting with SSA and upon review of the comments submitted to
SSA, we proposed in the NPRM an exception to the ``in the name of the
recipient'' requirement which would allow payments to be deposited to
pooled accounts held by nursing homes.
In the NPRM, we described the specific requirements to which
resident trust or patient fund accounts held by nursing facilities are
subject under Federal statute and regulation, including the Federal
Nursing Home Reform Act. For example, upon written authorization of a
resident, facilities must ``hold, safeguard, manage and account for''
the personal funds of the resident deposited with the facility. 42
U.S.C. 1396r(c)(1)(B); 42 CFR 483.10(c)(2). The statute requires that
residents be provided a written description of their legal rights that
includes a description of the protection of personal funds and a
statement that a resident may file a complaint with a state survey and
certification agency respecting resident abuse and neglect and
misappropriation of resident property in the facility. 42 U.S.C.
1396r(c)(1)(B); 42 CFR 483.10(b)(7)(i). Other statutory provisions
address the management of personal funds, including requirements for
maintaining separate accounts, the provision of a complete separate
accounting of each resident's personal funds, and the maintenance of a
written record of all financial transactions involving the personal
funds of a resident deposited with the facility. 42 U.S.C.
1396r(c)(6)(B)(i); 42 U.S.C. 1396r(c)(6)(B)(ii). To protect personal
funds of residents deposited with a nursing facility, the nursing
facility must purchase a security bond to assure the security of all
personal funds. 42 U.S.C. 1396r(c)(6)(C). Lastly, nursing facilities
may not charge anything for these services. A facility may not impose a
charge against the personal funds of a resident for any item or service
for which payment is made under Medicare or Medicaid. 42 U.S.C.
1396r(c)(6)(D).
In light of the extensive protections provided to residents of
nursing facilities whose funds are maintained in resident trust or
patient fund accounts, we proposed to establish an exception to the
``in the name of the recipient'' requirement in order to permit
payments to be deposited into resident trust or patient fund accounts
established by nursing facilities.
2. Accounts for Members of Religious Orders Who Have Taken Vows of
Poverty
We also proposed in the NPRM to allow payments disbursed to a
member of a religious order who has taken a vow of poverty to be
deposited to an account established by the religious order. SSA's
Federal Register notice regarding master/sub accounts specifically
requested comment on accounts established by religious orders for
members of such orders who have taken vows of poverty. The comments
received did not indicate that there are any problems associated with
these accounts, and commenters recommended that they be permitted.
For purposes of defining who is a ``member of a religious order who
has taken a vow of poverty,'' we proposed to utilize existing guidance
issued by the Internal Revenue Service (IRS). The
[[Page 59027]]
treatment for Federal tax purposes of services performed by a member of
a religious order who has taken a vow of poverty is addressed in IRS
Publication 517 (2008). We requested comment on whether it is
appropriate to define the phrase ``member of a religious order who has
taken a vow of poverty'' in the same way that the phrase would be
defined by IRS for Federal tax purposes.
II. Comments and Analysis
We received 12 comments in response to the NPRM. The commenters
represented a variety of perspectives. Comments were submitted by
financial institutions, consumer advocacy groups, industry
associations, the Senate Committee on Finance, and the House Committee
on Ways and Means.
International ACH Transactions
Several entities commented upon the proposal to amend Part 210 to
accept NACHA's international ACH transaction (IAT) rule for Federal
payments. Most of the commenters supported the application of the IAT
rule to Federal payments, including the proposed effective date of
January 1, 2012. However, the commenters generally opposed the use by
Federal agencies of an ``over-inclusive'' approach to compliance with
the IAT requirements in which, as discussed above, Federal agencies
would use the IAT Standard Entry Class Code for all payments to
individuals or entities with an address outside the territorial
jurisdiction of the U.S. Commenters stated that Federal agencies should
be expected to comply with the IAT rules in the same manner as the
private sector. One commenter stated that the use of an over-inclusive
approach ``would result in a shift of the government's compliance costs
to receiving depository financial institutions (RDFIs), which would be
overly burdensome on and unfair to RDFIs.''
Commenters indicated that IAT transactions are typically viewed as
riskier than other transactions and are therefore subject to additional
scrutiny, which may increase the time, effort and cost of processing
the payments, and potentially may delay the delivery of funds to the
recipient. Commenters argued that by overclassifying payments as IATs,
the Federal government would be increasing the volume of IAT
transactions that financial institutions must handle, which would
result in needlessly excessive OFAC screening and other processing
costs for financial institutions. Commenters also stated that the
overclassification of payments as IATs may result in the delay of
delivery of funds to the recipients in some cases, due to the time
required to investigate and clear any payments that potentially match
the OFAC Specially Designated Nationals (SDN) List.
In view of commenters' concerns regarding the burdens to financial
institutions that would result from agencies' use of an overinclusive
approach, we have conducted research to quantify the anticipated
burden. Based on our research, the burden to financial institutions
appears to be minimal. SSA, which is the primary agency interested in
pursuing an overinclusive approach, has identified approximately
170,000 benefit payments for recipients with a foreign address that are
sent each month to domestic correspondent banks. We believe that most
of these 170,000 would be properly classified as IAT entries if SSA
undertook to query each payment recipient regarding the ultimate
destination of the funds. The payments are generally being delivered to
retirees who reside overseas and who, like other retirees, presumably
use these benefits for their daily living expenses. SSA and FMS believe
that many of these payments are likely to be further credited by U.S.
financial institutions to accounts outside the U.S. through
correspondent relationships. Therefore, it appears reasonable to assume
that many of these 170,000 payments would be properly classified as IAT
entries, meaning that the actual number of payments that are improperly
classified -and that thus present an unnecessary processing burden for
banks--is likely to be relatively insignificant.
Moreover, these 170,000 monthly payments are delivered to over
4,600 domestic financial institutions. Over 3,800 financial
institutions receive fewer than 10 of these payments per month, which
is a relatively inconsequential number for any particular financial
institution. Only thirteen very large financial institutions receive
more than 1,000 of these foreign benefit payments monthly. Accordingly,
the potential burden to the vast majority of potentially affected
financial institutions does not appear to be significant.
Finally, it's important to note that FMS will conduct OFAC
screening of all 170,000 payments prior to their origination into the
ACH network. FMS's service provider that conducts the OFAC screening
will have information that may be used to assist financial institutions
that are seeking to clear any of the payments that match the OFAC list.
For these reasons, we believe that it is reasonable for agencies to
classify payments made to individuals with foreign addresses as IAT
entries.
In the NPRM, we discussed the IAT requirements from the perspective
of payments made by the Federal government. The IAT requirements also
affect collections made by the Federal government, including systems by
which individuals or entities authorize the government to originate ACH
debits to their domestic accounts for the collection amounts owed.
After the effective date of the NACHA IAT rule changes, FMS learned
that a few entries were being returned by domestic financial
institutions based upon customer instructions to fund a Federal ACH
collection debit from a foreign source of funds.
Generally, the IAT requirements will impact two collection systems
operated by FMS: Pay.gov, which both originates ACH WEB entries online
and ACH PPD, TEL and CCD entries received individually or in files from
agencies; and FMS's Debit Gateway, through which ACH debit entries are
presented and settled. We have determined that it will take a
significant effort over an extended period to implement the changes
necessary to process IAT entries. This effort will require that FMS
coordinate with affected agencies and reallocate resources.
Accordingly, we are establishing a new date of June 30, 2013, as of
which the IAT requirements will be implemented into Pay.gov and the
Debit Gateway. After June 30, 2013, FMS will work with agencies to
transition them into compliance based upon the readiness of the systems
involved and the business need of the agency. In an effort to continue
progressing forward with implementing the IAT requirements, we expect
to implement a limited IAT pilot in Pay.Gov and the Debit Gateway in
late 2012.
Finally, we are exempting entries representing Federal tax payments
made to the IRS from the IAT classification requirements due to their
extremely low risk, and the need for taxpayers to receive timely credit
for their payments made as a result of tax liabilities. IRS rules
require receipt of funds on exact tax due dates, with substantial
penalties and interest charged to individuals and corporations for late
payments received. Millions of taxpayers authorize payment entries for
tax payments using FMS's Electronic Federal Tax Payment System (EFTPS)
with an enrollment process through which the taxpayer can authorize the
origination of a debit entry to his or her bank account. The accounts
from which EFTPS transactions are funded are accounts confirmed to be
at domestic depository institutions as determined by the bank's routing
number, and these accounts are
[[Page 59028]]
monitored for OFAC compliance by the account-holding financial
institutions. In light of these facts and the unique nature of tax
payments, as opposed to transactions involving the purchase of goods or
services or other government fees, we believe the risk associated with
tax payments processed through EFTPS is very low. We have consulted
with OFAC staff regarding this matter and they have concurred that our
approach toward tax payments is reasonable from a risk-based compliance
perspective.
In the NPRM FMS proposed to adopt the IAT rule for Federal benefit
payments delivered to Mexico, Canada and Panama through the FedGlobal
ACH Payment Service, effective immediately. For all other Federal
payments, we proposed an effective date of January 1, 2012. We are
finalizing this proposal for ACH credit entries originated by Federal
agencies. For ACH debit entries originated by Federal agencies, we are
establishing a later effective date of June 30, 2013.
NACHA Rules Enforcement
Two commenters provided comments regarding the proposed continued
exclusion from NACHA's national system of fines. One commenter
expressed a preference that the Federal government be subject to the
NACHA National System of Fines (Appendix Eleven of the NACHA Operating
Rules). The other commenter recognized that FMS has consistently
excluded the Federal government from the national system of fines
because the Federal government is prohibited from entering into
agreements for contingent liabilities that might result in unfunded
liabilities. The commenters did not identify any problems that have
resulted from FMS's prior decisions to exempt the Federal government
from Appendix Eleven.
We believe that modifying Part 210 to subject the Federal
government to Appendix Eleven could contravene the government's
obligation to avoid unfunded liabilities. Moreover, none of the
commenters indicated that this position has caused undue hardship in
the past. If an agency experiences a high rate of debit entries that
are returned as unauthorized, or if an agency or FMS identifies an ACH
rule issue, FMS remains willing to coordinate with NACHA and the agency
to address the issue. Therefore, we are adopting this proposal without
modification.
ODFI Reporting Requirements
Two commenters provided comments regarding FMS's proposal not to
adopt NACHA's new reporting requirements for ODFIs when certain
Originators or Third-Party Senders are believed to have a return rate
for unauthorized debit entries in excess of one percent. One commenter
expressed a preference that the Federal government be subject to the
reporting requirements, whereas the other commenter recognized that FMS
has consistently excluded the Federal government from the reporting
requirements when those requirements may unduly burden the Federal
government without yielding countervailing benefits. Neither commenter
identified specific problems that would result from continuing to
exempt the Federal government from these reporting requirements.
We are adopting this proposal without modification. We remain
willing to coordinate with NACHA to address issues that may arise if an
agency experiences an excessive unauthorized return rate.
Automated Reclamations Process
Several commenters submitted comments regarding our proposal for
automating reclamations. Commenters were generally supportive of the
objectives of achieving cost savings and efficiencies in the
reclamations process. Some commenters acknowledged that the current
paper-based process can be burdensome for FMS and financial
institutions, and that an updated process could benefit both parties.
However, commenters generally expressed significant concerns that the
proposed process was not sufficiently developed or clear, would be
burdensome for financial institutions and would add complexity to the
current reclamation procedures, thereby negating efforts to streamline
the process and reduce the amount of paper produced. Several commenters
suggested that FMS work with affected financial institutions to further
refine and test any proposed process before final implementation.
In light of commenters' concerns, which we agree are generally
valid, and our desire to identify the most effective solution to
respond to the issues identified by commenters, we are not finalizing
the proposal to automate the reclamations process at this time.
Instead, we will work to develop an approach that addresses the
concerns raised by commenters, which we may publish for comment in a
future notice of proposed rulemaking. During this period of further
study, we plan to continue to expand and refine the use of the
Centralized Reclamation Application currently in use.
Payment Transactions Integrity Act of 2008 Changes
Several commenters provided input on FMS's proposal to require
RDFIs to provide the name, last-known address and phone number for
account owners and others who have withdrawn, or were authorized to
withdraw, funds subject to reclamation. The commenters stated that
financial institutions may not have telephone numbers for all deposit
account owners and authorized signers, or that financial institutions
may not have accurate or current information. The commenters expressed
concern that financial institutions would be held accountable for the
accuracy of the information in their records or might even be required
to obtain that information.
We are finalizing the requirement to provide the proposed
information. To clarify that a financial institution is only required
to provide information in its records, and would have no liability for
the accuracy of that information, we have modified the wording of the
regulation text to state that the RDFI must provide the name, last
known address and phone number ``as reflected on the RDFI's records.''
``In the Name of the Recipient'' Requirements
1. Accounts Held by Nursing Facilities
The comments we received generally supported the proposed
exception, which would allow a Federal payment that is disbursed to a
resident of a qualifying nursing facility to be deposited into a
resident trust or patient fund account established by the nursing
facility. One commenter stated its belief that this change will assist
nursing home residents. Another commenter suggested that the final rule
further clarify that eligible nursing homes should be subject to
certain types of oversight. Some financial institutions that commented
expressed some concern that financial institutions could be held liable
if funds are misapplied and suggested that the final rule either: (1)
Specify that the payment be deposited into an account that is
designated as a resident trust or patient fund account; or (2) allow
the payment to be deposited into a deposit account established by the
nursing facility.
We are finalizing the exception for accounts held by nursing
facilities as proposed, with one change. We have revised the wording of
the exception to provide that where a Federal payment is disbursed to a
resident of a nursing facility, as defined in 42 U.S.C. 1396r, the
payment may be deposited into a resident trust or patient fund account
[[Page 59029]]
established by the nursing facility ``pursuant to requirements under
Federal law relating to the protection of such funds.'' We believe that
this wording addresses commenters' concerns by making clear that an
eligible account is restricted to ``a resident trust or patient fund
account'' established by ``a nursing facility as defined in 42 U.S.C.
1396r'' and that the account is subject to all of the requirements
governing the protection of funds held in resident trust or patient
fund accounts.
2. Accounts for Members of Religious Orders Who Have Taken Vows of
Poverty
Commenters generally supported this proposal and none of the
commenters criticized or voiced concerns regarding this proposal. In
light of the comments and the reasons discussed above, we are
finalizing this exception as proposed.
III. Final Rule
Summary
In the final rule, we are adopting all of the proposed amendments
to Part 210 set forth in the NPRM, except as follows:
1. International ACH Transactions: We are finalizing the effective
date of the IAT rule as proposed in the NPRM for credit entries
originated by Federal agencies. We are extending the effective date for
the application of the IAT rule to debit entries originated by Federal
agencies in Pay.gov and the Debit Gateway until June 30, 2013. We plan
to implement a limited IAT pilot in late 2012, and then transition
agencies into compliance after June 30, 2013, based upon the readiness
of the systems involved and the business need of the agency.
2. Automated Reclamations Process: We are not finalizing the
proposal to automate the reclamations process at this time. FMS plans
to expand the use of the Centralized Reclamation Application to
additional financial institutions and work with the financial industry
to further streamline the reclamation process. We will continue to
evaluate solutions to respond to commenters' concerns about automating
the reclamation process. If we decide to pursue changes to the
reclamation process that require an amendment to Part 210, we will
publish a new notice of proposed rulemaking with request for comment.
3. Payment Transactions Integrity Act of 2008 Changes: We are
finalizing the requirement that RDFIs provide certain information in
connection with a reclamation, but have added language to make it clear
that the financial institution's obligation to provide the information
is limited to information contained in its records and that the
financial institution is not liable if that information is inaccurate.
4. Prepaid Card Exception: The final rule does not address the
proposed exception to the ``in the name of the recipient'' requirement
for prepaid cards. That proposal was addressed in a separate rulemaking
published on December 22, 2010. See 75 FR 80335.
Section-by-Section Analysis
In order to incorporate in Part 210 the ACH rule changes that we
are accepting, we are replacing references to the 2007 ACH Rules book
with references to the 2009 ACH Rules book. No change to Part 210 is
necessary in order to exclude the amendments to the rules enforcement
provisions, since Part 210 already provides that the rules enforcement
provisions of Appendix 11 of the ACH Rules do not apply to Federal
agency ACH transactions. See Sec. 210.2(d).
Sec. 210.2(d)
The definition of applicable ACH Rules at Sec. 210.2(d) is amended
to refer to the rules published in NACHA's 2009 Rules book. Section
210.2(d)(6) is revised to reflect a numbering change to the ACH Rules
pursuant to which former ACH Rule 2.11.2.3 is now ACH Rule 2.12.2.3.
Section 210.2(d)(7) is revised to remove a reference to former ACH Rule
2.13.3, which required reporting regarding unauthorized Telephone-
Initiated entries. NACHA has replaced that reporting requirement with a
broader reporting requirement (ACH Rule 2.18). Section Sec.
210.2(d)(7) sets forth the broader reporting requirement, which we are
not adopting.
Section 210.2(d)(8) has been added in order to exclude debit
entries originated by agencies from ACH Rule 2.11 (International ACH
Transactions) until June 30, 2013. Credit entries originated by
agencies, other than Federal benefit payments delivered to Mexico,
Canada and Panama through the FedGlobal(SM) ACH Payment Service, are
excluded from ACH Rule 2.11 until January 1, 2012. In addition, entries
representing the payment of a Federal tax obligation are entirely
excluded from ACH Rule 2.11.
Sec. 210.3(b)
We are amending Sec. 210.3(b) by replacing the references to the
ACH Rules as published in the 2007 Rules book with references to the
ACH Rules as published in the 2009 Rules book.
Sec. 210.5(b)
New paragraphs (b)(6) and (b)(7) create additional exceptions to
the requirement in paragraph (a) that all payments other than vendor
payments be delivered to an account in the name of the recipient.
Paragraph (b)(6) allows payments disbursed to a resident of a nursing
facility, as defined in 42 U.S.C. 1396r, to be deposited into a
resident trust or patient fund account established by the nursing
facility. Paragraph (b)(7) allows payments disbursed to a member of a
religious order who has taken a vow of poverty, as defined for purposes
of IRS regulations, to be deposited to an account established by the
religious order.
Sec. 210.11
Section 210.11(b)(3)(i) requires RDFIs to provide the name, last-
known address and phone number for account owners and others who have
withdrawn, or were authorized to withdraw, funds from the account, as
permitted by the Payment Transactions Integrity Act of 2008. The RDFI
is only obligated to provide information shown on its records, and is
not liable to the government if the information is inaccurate.
IV. Procedural Requirements
Regulatory Planning and Review
Executive Orders 13563 and 12866 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits, of
reducing costs, of harmonizing rules, and of promoting flexibility.
This rule has been designated a ``significant regulatory action''
although not economically significant, under section 3(f) of Executive
Order 12866. Accordingly, the rule has been reviewed by the Office of
Management and Budget.
Regulatory Flexibility Act Analysis
It is hereby certified that the rule will not have a significant
economic impact on a substantial number of small entities. We believe
the rule will affect only a limited number of small entities and that
any economic impact will be minimal. The rule requires financial
institutions that hold accounts to which post-death benefit payments
have been delivered to provide the government
[[Page 59030]]
with the name, address and phone number for account owners and others
who have withdrawn funds. Financial institutions are already required
to provide detailed information to the government in connection with
such accounts by completing and returning Form FMS-133. In most cases
financial institutions are already required to provide names and
addresses on Form FMS-133 and the only additional information required
will be a phone number. Financial institutions that commented on the
rule did not indicate that the requirement would be burdensome or have
any economic effect if they are only required to provide information
contained in their records, which the final rule expressly provides.
The Burden Estimate Statement on FMS-133 states that the estimated
average time associated with filling out the form is 12 minutes. FMS
does not believe that the requirement to provide a phone number or, in
limited cases, the name and address of a withdrawer, will affect the 12
minute estimate.
The final rule will allow, but not require, the delivery of Federal
non-vendor payments to certain types of pooled accounts held by nursing
homes and religious orders, regardless of size. For nursing homes that
do not wish to receive Federal payments on behalf of residents, there
will be no economic impact. For nursing homes that wish to receive
Federal payments to established patient funds accounts, there should be
no economic impact because there is no cost to receive a direct deposit
payment. For nursing homes that wish to receive Federal payments for
patients but that have not already established patient fund accounts
for the management of other patient funds, the costs would include the
fees, if any, charged by a financial institution to maintain the
account and the cost of obtaining a surety bond. The average monthly
payment amount for a Supplemental Security Income (SSI) check recipient
is $545 and the average monthly payment amount for a Social Security
(SSA) check recipient ranges from $808-$915. For small nursing homes
that have, by definition, a small number of residents, the cost of a
bond to insure against defalcation of these modest monthly payments
should be insignificant. Any economic impact for these entities
therefore is not expected to be significant. Accordingly, a regulatory
flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. 601
et seq.) is not required.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act), requires that the agency prepare a
budgetary impact statement before promulgating any rule likely to
result in a Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more in any one year. If a budgetary
impact statement is required, section 205 of the Unfunded Mandates Act
also requires the agency to identify and consider a reasonable number
of regulatory alternatives before promulgating the rule. We have
determined that the rule will not result in expenditures by State,
local, and tribal governments, in the aggregate, or by the private
sector, of $100 million or more in any one year. Accordingly, we have
not prepared a budgetary impact statement or specifically addressed any
regulatory alternatives.
List of Subjects in 31 CFR Part 210
Automated Clearing House, Electronic funds transfer, Financial
institutions, Fraud, and Incorporation by reference.
For the reasons set forth in the preamble, 31 CFR part 210 is
amended as follows:
PART 210--FEDERAL GOVERNMENT PARTICIPATION IN THE AUTOMATED
CLEARING HOUSE
0
1. The authority citation for part 210 continues to read as follows:
Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31 U.S.C. 321, 3301,
3302, 3321, 3332, 3335, and 3720.
0
2. In Sec. 210.2, revise paragraph (d) to read as follows:
Sec. 210.2 Definitions.
* * * * *
(d) Applicable ACH Rules means the ACH Rules with an effective date
on or before September 18, 2009, as published in Parts IV, V and VII of
the ``2009 ACH Rules: A Complete Guide to Rules & Regulations Governing
the ACH Network'' (incorporated by reference, Sec. 210.3) 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 Rules 1.2.4 and 2.2.1.12; Appendix Eight; and Appendix
Eleven (governing the enforcement of the ACH Rules, including self-
audit requirements);
(4) ACH Rules 2.2.1.10; 2.6; and 4.8 (governing the reclamation of
benefit payments);
(5) ACH Rule 9.3 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);
(6) ACH Rule 2.12.2.3 (requiring that originating depository
financial institutions (ODFIs) establish exposure limits for
Originators of Internet-initiated debit entries);
(7) ACH Rule 2.18 (requiring reporting and reduction of high rates
of entries returned as unauthorized); and
(8) ACH Rule 2.11 (International ACH Transactions), which shall not
apply (i) until January 1, 2012 to credit entries other than Federal
benefit payments delivered to Mexico, Canada and Panama through the
FedGlobal ACH Payment System; (ii) until June 30, 2013 for debit
entries originated by agencies; and (iii) to entries representing the
payment of a Federal tax obligation by a taxpayer.
* * * * *
0
3. In Sec. 210.3, revise paragraph (b) to read as follows:
Sec. 210.3 Governing 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 18, 2009, as
published in Parts IV, V, and VII of the ``2009 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 ``ACH
Rules'' are available from NACHA--The Electronic Payments Association,
13450 Sunrise Valley Drive, Suite 100, Herndon, Virginia 20171. You may
inspect a copy at the Financial Management Service, 401 14th Street,
SW., Room 400A, Washington, DC 20227 or at the National Archives and
Records Administration (NARA). For information on the availability of
this material at NARA, visit http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html or call 202-741-
6030.
(2) Any amendment to the applicable ACH Rules that is approved by
NACHA--The Electronic Payments Association after January 1, 2009, shall
not apply to Government entries unless the Service expressly accepts
such
[[Page 59031]]
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 Register notice expressly accepting such amendment.
* * * * *
0
4. In Sec. 210.5, redesignate paragraph (b)(6) as (b)(8) and add new
paragraphs (b)(6) and (b)(7) to read as follows:
Sec. 210.5 Account requirements for Federal payments.
* * * * *
(b) * * *
(6) Where a Federal payment is disbursed to a resident of a nursing
facility, as defined in 42 U.S.C. 1396r, the payment may be deposited
into a resident trust or patient fund account established by the
nursing facility pursuant to requirements under Federal law relating to
the protection of such funds.
(7) Where a Federal payment is disbursed to a member of a religious
order who has taken a vow of poverty, the payment may be deposited to
an account established by the religious order. As used in this
paragraph, the phrase ``member of a religious order who has taken a vow
of poverty'' is defined as it would be by the Internal Revenue Service
for Federal tax purposes.
* * * * *
0
5. In Sec. 210.11, revise paragraph (b)(3)(i) to read as follows:
Sec. 210.11 Limited liability.
* * * * *
(b) * * *
(3)(i) Provide the name, last known address and phone number, as
shown on the RDFI's records, of the following person(s):
(A) The recipient and any co-owner(s) of the recipient's account;
(B) All other person(s) authorized to withdraw funds from the
recipient's account; and
(C) All person(s) who withdrew funds from the recipient's account
after the death or legal incapacity of the recipient or death of the
beneficiary.
* * * * *
Dated: September 12, 2011.
Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2011-23898 Filed 9-22-11; 8:45 am]
BILLING CODE 4810-35-P