Federal Government Participation in the Automated Clearing House, 59024-59031 [2011-23898]

Agencies

• Fiscal Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 76, Number 185 (Friday, September 23, 2011)]
[Rules and Regulations]
[Pages 59024-59031]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23898]


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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.

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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.
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    \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.
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    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 https://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