Special Supplemental Nutrition Program for Women, Infants and Children (WIC): Implementation of the Electronic Benefit Transfer-Related Provisions of Public Law 111-296, 13549-13563 [2013-04216]

Agencies

• DEPARTMENT OF AGRICULTURE
• Food and Nutrition Service

[Federal Register Volume 78, Number 40 (Thursday, February 28, 2013)]
[Proposed Rules]
[Pages 13549-13563]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04216]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 78, No. 40 / Thursday, February 28, 2013 / 
Proposed Rules

[[Page 13549]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 246

RIN 0584-AE21


Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC): Implementation of the Electronic Benefit Transfer-
Related Provisions of Public Law 111-296

AGENCY: Food and Nutrition Service (FNS), USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would revise regulations governing the WIC 
Program, incorporating the provisions set forth in the Healthy, Hunger-
Free Kids Act of 2010 (HHFKA) related to Electronic Benefit Transfer 
(EBT) for the WIC Program. The HHFKA was signed into law by President 
Obama on December 13, 2010.

DATES: To be assured of consideration, comments must be postmarked on 
or before May 29, 2013.

ADDRESSES: FNS invites interested persons to submit comments on this 
proposed rule. Comments may be submitted by any of the following 
methods:
     Mail: Send comments to Debra R. Whitford, Director, 
Supplemental Food Programs Division, Food and Nutrition Service, USDA, 
3101 Park Center Drive, Room 520, Alexandria, Virginia 22302, (703) 
305-2746.
     Web site: Go to https://www.fns.usda.gov/wic. Follow the 
online instructions for submitting comments through the link at the 
Supplemental Food Programs Division Web site.
     Federal eRulemaking Portal: Go to https://www.regulations.gov. Follow the online instructions for submitting 
comments.
    All comments submitted in response to this proposed rule will be 
included in the record and will be made available to the public. Please 
be advised that the substance of the comments and the identities of the 
individuals or entities submitting the comments will be subject to 
public disclosure. All written submissions will be available for public 
inspection at the address above during regular business hours (8:30 
a.m. to 5:00 p.m.), Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Debra R. Whitford, Director, 
Supplemental Food Programs Division, Food and Nutrition Service, USDA, 
3101 Park Center Drive, Room 528, Alexandria, Virginia 22302, (703) 
305-2746.

SUPPLEMENTARY INFORMATION: 

I. Overview

    This proposed rule would amend the WIC regulations to implement 
provisions related to EBT in the WIC Program included in Public Law 
111-296, the Healthy, Hunger-Free Kids Act of 2010 (HHFKA), signed into 
law on December 13, 2010. FNS issued policy and guidance to WIC State 
agencies on the implementation of the legislative requirements 
addressed in this rulemaking that were effective on October 1, 2010. 
However, selected areas of the law are discretionary and therefore, FNS 
is seeking public comment on several of the requirements contained in 
this proposed rule.

II. Background

    Providing WIC participants a specific prescription of supplemental 
nutritious foods based on their nutritional needs is a cornerstone of 
WIC's mission. Currently, the majority of WIC participants receive 
paper food instruments (FIs) that contain their food prescription. 
These FIs are then transacted at an authorized retail vendor enabling 
the participant to receive Program food benefits. However, issuing 
paper benefits is cumbersome and inefficient. Specifically, FIs present 
several limitations to Program stakeholders. For example, FIs restrict 
the number of participant shopping trips because foods contained on a 
FI must usually be purchased in totality. In addition, FIs do not yield 
data on the type, amount, and cost of foods purchased.
    In line with current trends and overall public expectation of doing 
business and receiving services electronically, the WIC Program has 
been slowly transitioning the benefit issuance methodology over the 
past several years from paper FIs to EBT. The use of EBT in the WIC 
Program allows both the WIC Program and its participants to use 
advanced technologies in the delivery of benefits, and helps support 
WIC's mission to improve client services.
    In 2003, the WIC Program released a strategic plan outlining its 
technology vision to modernize and/or replace antiquated clinic 
certification systems in an effort to improve client services and to 
move all State agencies toward delivering WIC food benefits through the 
use of EBT. State agencies must evaluate the cost of these upgrades in 
relation to the cost of total system replacements. Replacing older 
systems to prepare for EBT implementation is not a requirement, but 
could be necessary in some State agencies if the current clinic system 
is outdated and is unable to support EBT functionality.
    It is well recognized and accepted that EBT is by far the preferred 
method of benefit delivery for the WIC Program, and is supported by WIC 
participants, authorized vendors, and State WIC administrators. 
Benefits of EBT include:
    1. Allowing participants to purchase the complete food package 
items at their convenience and with discretion during the in-store 
transaction.
    2. Helping to ensure that participants are only able to purchase 
WIC authorized foods and that foods are not improperly purchased or 
substituted due to human error, thereby decreasing opportunity for 
fraud and abuse of Program benefits.
    3. Providing the WIC Program with data useful to improve program 
management and integrity. This includes data on the type, brand and 
cost of each food item so State agencies can better control food costs 
through informed food package decisions and improved rebate billing for 
infant formula and other foods.
    4. Enabling the vendor to complete the WIC transaction efficiently 
and properly in the checkout lane.
    5. Substantially reducing back office accounting time and cost 
necessary for handling and accounting for food instruments; including 
allowing for the vendor to file claims and be paid more promptly.
    Over the past 15 years, FNS has continued to support and promote 
WIC EBT through collaborative efforts with WIC State agencies, retail 
vendor

[[Page 13550]]

groups, the banking industry, EBT processors, and a variety of other 
EBT stakeholders. With limited funding, progress has been slow but 
steady. The provisions in the HHFKA support this progress and address 
many important aspects of WIC EBT implementation. As State agencies 
move forward with WIC EBT, it is critical that standard business 
practices, policies, and requirements are followed to collaboratively 
expedite EBT implementation and maximize resource utilization. FNS 
recognizes that State agencies currently have some latitude in 
implementing Program requirements; however, as the Program moves toward 
national technical standards and systems, standardization will become 
increasingly important for all stakeholders to facilitate EBT 
implementation.
    Building on the experience of current State WIC EBT projects, FNS 
continues to support and facilitate the expansion and transfer of those 
State EBT systems that are affordable. Currently, two EBT technologies 
are successfully in use in the WIC Program and both technologies have 
proven to be affordable. However, much debate continues to exist in the 
WIC community over EBT card technologies. The two technologies in use 
today are: (1) Offline, smart card technology that has an embedded 
microchip that stores the participant's food benefit prescription 
information on the chip; and (2) online, magnetic stripe technology 
similar to a traditional debit card that accesses an online database 
where the participant's benefit account is maintained. As part of the 
planning process that State agencies must follow, they must conduct a 
thorough analysis assessing the technology alternatives, which includes 
a feasibility study and cost analysis of implementing each technology 
solution, and an analysis of which technology would be the best fit 
given a State agency's business practices and operational requirements. 
As each State agency has unique requirements and resources that must be 
fully evaluated in order to choose the most appropriate technology 
platform, FNS remains technology neutral in supporting current and 
future WIC EBT initiatives. The provisions in this proposed rule apply 
to all available EBT technologies.
    WIC benefits are not associated with a specific dollar amount as 
are benefits in other programs such as the Supplemental Nutrition 
Assistance Program (SNAP), but rather are provided in the form of a 
prescribed food package in which the participant may only purchase 
specific food items, package sizes, and quantities. For example, a WIC 
participant may be issued a food package that contains 2 dozen eggs and 
3 gallons of milk for purchase. Conversely, a SNAP participant is 
issued a specific dollar amount to purchase any food or food products 
prepared for human consumption, except alcoholic beverages and tobacco, 
hot foods, or foods prepared for immediate consumption. Since SNAP 
benefits are authorized for a specific dollar amount, benefit 
redemption transactions at the retail point of sale (POS) are 
essentially a financial transaction settled in a manner similar to 
other electronic payment types such as debit. WIC benefits, on the 
other hand, are limited to the food items specified on the EBT card and 
the foods authorized for purchase by each WIC State agency. Due to the 
restrictive nature of WIC benefit issuance, a WIC EBT transaction is 
often considered one of the most complex transactions at the retail 
POS.
    Given the challenges of the complex food benefit and technology 
needed to support those complexities, and the nationwide WIC EBT 
implementation requirement of October 1, 2020, the provisions in this 
proposed rule are critical for WIC State agencies, retailers, system 
developers and EBT processors to effectively implement the mandate. 
Establishment of these provisions will promote consistency, save 
resources and streamline EBT implementations, which will ultimately 
reduce barriers as WIC moves ahead with EBT implementation. FNS will 
continue to provide technical assistance to support WIC EBT expansion 
efforts. While these regulations and associated policies are necessary, 
it must be noted that dedicated and sustained funding is also critical 
to help WIC State agencies implement this important technological 
advancement that will fundamentally change and improve the delivery of 
WIC food benefits.
    The following is a discussion of each proposed WIC EBT provision.

1. Definitions

    Electronic Benefit Transfer. Pursuant to section 17(h)(12)(A)(i) of 
the CNA, the term ``electronic benefit transfer'' means a food delivery 
system that provides benefits using a card or other access device 
approved by the Secretary that permits electronic access to WIC Program 
benefits. This proposed rule would amend Sec.  246.2 to add the 
definition of EBT.
    Cash-Value Voucher/Cash-Value Benefit. Federal WIC regulations 
(Sec.  246.2) provide definitions for cash-value vouchers (CVV) and 
food instruments, and within those definitions, refer to an EBT card as 
a means to obtain WIC food benefits. However, as EBT cards are not 
technically considered vouchers in an EBT environment, the Department 
seeks to lessen confusion by proposing to amend the current definition 
by clarifying that a cash-value voucher is also a cash-value benefit 
(CVB) in an EBT environment.
    Participant Violation. Federal WIC regulations (Sec.  246.2) 
identifies the sale of WIC benefits (cash-value vouchers, food 
instruments, EBT cards, and/or supplemental foods) by participants as a 
participant violation, but does not specifically address the offer of 
or intent to sell WIC benefits. In addition, as technology has 
advanced, opportunities to sell items have expanded from print to 
online through various social media. Protecting the integrity of the 
program has always been a primary objective of the Department and State 
agencies. Therefore, this proposed rule would expand the definition of 
participant violation in Sec.  246.2 to include the offer or intent to 
sell WIC benefits. The revision would also make it clear that the list 
of participant violations that appears in the definition is not 
exhaustive, thus giving WIC State agencies greater ability to develop 
policies and procedures to address emerging issues relating to 
participant abuse and program integrity. This change also clarifies 
that any form of fraud and abuse, such as using WIC benefits in any way 
other than the method for which they were intended, is a violation of 
Program regulations. Further, consistent with Sec.  246.23(c)(1), State 
agencies are expected to sanction and issue claims against participants 
for all program violations.

2. Statewide Implementation of EBT by October 1, 2020, and Exemptions

    Pursuant to section 17(h)(12)(B) of the CNA, each State agency must 
implement an EBT system throughout the State by October 1, 2020, unless 
the Secretary grants a temporary exemption. The law also requires State 
agencies be responsible for the coordination and implementation of 
their WIC EBT system. This proposed rule outlines these requirements. 
It would amend Sec.  246.12(a) to add the statewide implementation 
requirement of EBT by October 1, 2020, and provide information on 
allowable exemption criteria at Sec.  246.12(w)(2).
    Federal WIC regulations (Sec.  246.12(b)) currently allow WIC State 
agencies to implement any of the three types of food delivery systems--
retail, home delivery, or direct distribution. The HHFKA defined EBT as 
a ``food delivery system.'' Therefore, this proposed rule

[[Page 13551]]

would add EBT as a fourth type of food delivery system that a State 
agency may operate under its jurisdiction. At this writing, the 
Department acknowledges that EBT is merely an electronic means by which 
the food benefits are accessed in a retail delivery system, rather than 
as a separate food delivery system as stated by law. Nonetheless, the 
Department is cognizant that further technological advances may allow 
the use of EBT as a means by which the food benefits are accessed in 
other types of food delivery systems. To address the significant 
differences in an EBT food delivery system versus the other food 
delivery systems currently defined in the regulations, and to provide 
clarity on the requirements specific to the EBT food delivery system, 
this proposed rule would add paragraphs Sec.  246.12(w) through (cc). 
Other requirements for retail operations that are more general in 
nature that are still applicable in any EBT retail environment 
(paragraphs Sec.  246.12(g) through (l)) would remain unchanged and 
would be cross-referenced in the proposed rule in Sec.  246.12 (z)(1).
    Section 17(h)(12)(C) of the CNA authorizes the Secretary to grant 
temporary exemptions to the statewide EBT requirement if the State 
agency can demonstrate one or more of the following: (1) There are 
unusual technological barriers to implementation; (2) operational costs 
are not affordable within the nutrition services and administration 
(NSA) grant of the State agency; or (3) it is in the best interest of 
the WIC Program. Any State agency that requests a temporary exemption 
must specify a date by which it anticipates statewide implementation. 
Further clarification and discussion of the process to determine if an 
exemption is warranted follows.
    Currently FNS requires each State agency to complete a cost 
analysis and feasibility study as part of their planning efforts prior 
to expending resources (both staffing and funding) on EBT. The 
following components must be assessed: WIC management information 
system capability; WIC business capacity; retailer technical 
capabilities; retailer equipage; financial considerations; 
infrastructure considerations; and electronic card options. A State 
agency's planning efforts will usually result in a 2-5 year plan for 
the State to implement WIC EBT. To ensure progress is made towards the 
goal of nationwide EBT implementation by October 1, 2020, Sec.  
246.12(y)(3) of this proposed rule would require each State agency to 
have an active WIC EBT project by October 1, 2015. An active EBT 
project is defined as a formal process of planning, design, pilot 
testing, or statewide implementation of WIC EBT. If, at the time of 
this publication, a State agency does not have an active EBT project, 
the State agency would be required to submit for FNS review and 
approval a Planning Advance Planning Document (PAPD) prior to October 
1, 2015, to ensure FNS has at least 60 days for review, as required by 
FNS Handbook 901. The development and implementation of EBT in the WIC 
Program is a complex process and requires dedicated staff and 
resources. The magnitude of carrying out a WIC EBT project should not 
be underestimated and, therefore, it is vital that State agencies begin 
planning for EBT at least five years prior to the mandated statewide 
EBT implementation date of this proposed rule.
    As each State agency conducts their EBT planning activities and 
chooses which EBT technology is most feasible to implement in their 
individual State, they must also examine any unusual technological 
barriers that could jeopardize or interfere with their ability to 
implement WIC EBT. The Department is aware that some State agencies may 
not have the infrastructure necessary to implement EBT by the October 
1, 2020, implementation deadline requirement. Section 246.12(w)(2)(i) 
of the proposed regulation would allow for an exemption to implement 
EBT should the State agency encounter technological barriers that would 
prevent implementation. Nonetheless, the Department recognizes that 
identified barriers may be reduced over time due to technological 
advances and therefore would require, as part of the State agency's 
annual update, a periodic reassessment of these barriers to 
implementation.
    As noted, all WIC State agencies must conduct a cost analysis 
during their EBT planning process in order to ensure EBT operational 
costs after implementation are affordable within their NSA grant. At 
this writing, all WIC State agencies that have implemented EBT 
statewide have determined that EBT is affordable using their individual 
NSA grants, but the Department recognizes this may not be the case for 
all State agencies in the future. Therefore, Sec.  246.12(w)(2)(ii) of 
the proposed regulation would allow for an exemption to EBT 
implementation should EBT be determined, after a thorough cost 
analysis, to be unaffordable within a State agency's NSA grant. WIC 
does not have the requirement that EBT be cost neutral to its paper 
food instrument costs.
    Although EBT implementation by October 1, 2020 is mandated by law, 
the Department remains cognizant of the impact of EBT systems on State 
agencies, vendors, and WIC participants. There may be unusual 
circumstances within the State agency which may indicate EBT would not 
improve benefit delivery or would negatively affect WIC participants. 
The Department proposes at Sec.  246.12(w)(2)(iii) that an exemption to 
implement EBT be allowed if a State agency determines that such an 
exemption would be in the best interest of the WIC Program.
    FNS supports the vision of improving the integrity and operational 
efficiency of the Program through nationwide EBT implementation, while 
acknowledging the exemptions allowed by the HHFKA. Section 246.12(w)(3) 
proposes any such approved exemption not exceed three years, as FNS 
believes this is a reasonable timeframe for a State agency's situation 
to change relative to the ability to implement EBT. Further, if 
exemptions are granted, it will not relieve a WIC State agency of the 
annual EBT status reporting requirement, as proposed in Sec.  246.4(a), 
as the State agency must still demonstrate its progress toward EBT 
statewide implementation.

3. EBT Status Reporting

    Pursuant to Section 17(h)(12)(D) of the CNA, each WIC State agency 
must submit to FNS an EBT project status report to demonstrate the 
progress of the State agency toward statewide implementation. The HHFKA 
requires that if the State agency plans to incorporate additional 
programs in the WIC EBT system of the State, it must consult with the 
State agency officials responsible for administering those additional 
programs prior to submitting the WIC EBT planning documents to FNS for 
approval.
    Each WIC State agency submitted an initial EBT implementation plan 
to FNS in April 2011, outlining when it would implement an EBT system, 
with October 1, 2020, being the latest date permitted for 
implementation. This proposed rule at Sec. Sec.  246.4(a) and 
246.12(y)(4) would require that an annual update of the State agency's 
goals and objectives regarding EBT implementation be submitted as part 
of the State agency's State Plan of Operations. The annual update would 
document the State agency's progress toward accomplishing EBT 
implementation by the mandated deadline. Information submitted would 
include, but not be limited to, information on changes to the 
implementation plan that alters the

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implementation date, project scope or description, risks to the 
project, challenges or barriers anticipated or encountered, projected 
and actual costs, and actions taken to mitigate project risks. As 
proposed in Sec.  246.12(y)(4)(i), State agencies that have been 
approved by FNS through the Advance Planning Document (APD) process to 
conduct EBT planning or EBT implementation activities, but are not yet 
implemented statewide, would be exempt from the annual update 
requirement, as this information would already be contained in the APD. 
State agencies that have already implemented EBT statewide would be 
required, as proposed in Sec.  246.12(y)(4)(ii), to annually address 
any updated information for future EBT activities, plans for system 
updates, re-procurements, or other major activities impacting its EBT 
system.
    The Department recognizes the significant time and effort currently 
put forth by State agencies in gathering information and submitting 
reports as requested or required by FNS. As such, the Department 
proposes that the required EBT status reports be incorporated into the 
State agency's annual State Plan of Operations submission in an effort 
to reduce burden and potential duplicative reporting efforts. The 
Department also recognizes that while it may be difficult for some 
State agencies to predict accurate implementation dates, a thorough 
effort must be made regarding the annual status reports so that FNS can 
ascertain, with some level of assurance, that State agencies are on 
track to meet the goal of statewide EBT implementation by October 1, 
2020. EBT status report submissions are essential and imperative to the 
Department as a means for planning the budget, staffing, and other 
resources that may be required to facilitate successful nationwide EBT 
implementation.

4. EBT Cost Impositions on Vendors

    Current WIC regulations at Sec.  246.12(g)(5) restrict State 
agencies from imposing costs for equipment, systems, or processing 
required for EBT on any retail store authorized to transact food 
instruments, as a condition for authorization or participation in the 
WIC Program. The State agency may, however, allow retail vendors to 
contribute to such costs on a voluntary basis, as a number of retailers 
have already done. Since WIC EBT has demonstrated improved vendor 
operations and efficiency, retailers may make a business decision to 
share the costs of WIC EBT during EBT implementation.
    Section 17(h)(12)(E)(i) of the CNA retains the present prohibition 
of cost impositions on retail stores of EBT equipment and systems. 
However, as amended, the prohibition of cost impositions exclusively 
applies to retail stores using equipment solely for program support. 
Moreover, the prohibition of imposing costs on retail vendors is 
eliminated at Section 17(h)(12)(E)(iv) of the CNA for those State 
agencies which have completed statewide expansion of WIC EBT. 
Therefore, State agencies that have implemented EBT statewide would 
require a retail vendor applying for authorization to become a WIC 
vendor to demonstrate the capability to accept WIC EBT benefits prior 
to authorization by the State agency, unless the State agency 
determines the vendor is necessary for participant access.
    Further, the new provision provides State agencies that have 
implemented EBT statewide, discretion as to whether it will incur the 
cost of ongoing maintenance of EBT multi-function systems and 
equipment. FNS proposes at Sec.  246.12(aa)(4) to disallow all costs 
for maintenance fees, including the maintenance costs for stand-beside 
WIC-only equipment, for those State agencies that have implemented EBT 
statewide. FNS considers this a necessary step for the viability and 
affordability of WIC EBT in the future.
    Statewide Implementation Cost Impositions. Prior to the HHFKA, WIC 
EBT State agencies could not impose any EBT costs on its authorized 
retail vendors, even if EBT was implemented statewide. To date, several 
WIC State agencies have supplemented the vendor's cost to purchase WIC 
EBT capable commercial equipment and software that has been certified 
by the State agency. The certified cash register system cost has 
typically included up to three years of maintenance costs. Ongoing 
maintenance costs are typically charged by the system provider as a 
monthly fee to ensure that the software and hardware are fully-
functional and updated. The HHFKA specifies that State agencies may not 
be required to pay maintenance costs for multi-function equipment once 
the WIC EBT system is implemented statewide.
    This proposed rule would preclude a statewide EBT State agency from 
incurring maintenance costs essential to, and directly attributable to, 
an EBT system whether the equipment is multi-functional or used solely 
for the WIC Program; all such costs would be considered unallowable 
costs. Disallowing these costs supports the promotion of the use of 
multi-function equipment which streamlines the transaction for both the 
participant and vendor; prevents the unintentional incentive to retail 
vendors to use fully-funded government equipment solely used to support 
the program; eliminates the risk of State agencies being obligated to 
fund maintenance costs of equipment purchased by the retail vendor at 
its time of application in order to meet the requirement to demonstrate 
its capability to accept EBT benefits; and reduces the risk of State 
agencies requesting exemptions from the October 1, 2020 EBT 
implementation mandate on the basis of determining maintenance costs 
are not affordable.
    To ensure that WIC EBT implementation builds on the prior 
initiatives and successes of EBT implementation in SNAP and other 
federal-state administered assistance programs, FNS seeks to accelerate 
the ongoing improvement efforts of the electronic delivery of benefits 
and promote leveraging existing commercial infrastructure in retail 
vendors and integrating EBT into a single multi-function system. This 
solution provides EBT transaction capability in all lanes; supports all 
current forms of SNAP, the Temporary Assistance for Needy Families 
program (TANF), Social Security, and other cash benefit programs; and 
does not require a specialized, government-supplied EBT terminal. The 
multi-function solution only requires a single scan to verify the 
participant's eligibility and register the item purchase at the POS 
terminal. In addition, participants have the added convenience and 
positive shopping experience by no longer having to separate the WIC-
eligible food items from the non-WIC item, allowing them to complete 
their purchase faster and essentially in the same manner as any other 
customer in the store. Integrated systems are also beneficial to the 
store because it reduces cashier training time, errors and misuse, and 
reduces time in-lane. Relying on stand-beside WIC-only EBT equipment 
requires a double scan, which requires each WIC item to be scanned 
first to verify the participant benefits and then a second scan to 
register the item purchase at the POS terminal.
    Criteria for Cost Sharing. Section 17(h)(12)(E)(ii) of the CNA 
requires that the Secretary establish cost sharing criteria to be used 
by WIC State agencies and retail vendors as it applies to equipment or 
systems that are not solely dedicated to transacting EBT for the WIC 
Program. This provision would apply to not only EBT equipment, but to 
system software necessary to complete WIC EBT transactions. To date, 
the Department has approved

[[Page 13553]]

various cost sharing strategies used by State agencies implementing WIC 
EBT systems to fund acquisitions of commercial cash register systems, 
each with separate strategies and formulas that were appropriate to 
their particular situation. The current practice for funding commercial 
WIC functionality has been to encourage and negotiate cost sharing for 
EBT equipment and systems with vendors as much as possible, as WIC EBT 
is mutually beneficial to both vendors and the State WIC Program. When 
this proves unfeasible, and/or Federal WIC funding has been available 
and it has been in the best interest of the WIC Program, FNS has 
typically funded WIC costs of retailer systems and equipment in 
totality. Where possible, funding was provided to retail vendors that 
operated in more than one State that would therefore have a regional or 
national benefit. In these cases, it is assumed that once a retail 
vendor has programmed its system for WIC EBT, that system can be used 
in another State without further costs incurred; i.e., pay once but use 
multiple times. This approach is congruent with current regulations and 
Section 17(h)(12)(E)(i) of the HHFKA that prohibits imposing costs of 
EBT to retail vendors during EBT implementation.
    As noted, the HHFKA requires the establishment of criteria for 
cost-sharing by State agencies and vendors of costs associated with any 
equipment or system not solely dedicated to transacting EBT for the WIC 
Program. These costs include, but are not limited to: phone lines, 
internet connection, hardware, software updates associated with the 
equipment, and processing fees. Shared costs must be allocated, or 
fairly distributed, among all benefiting parties. As such, proposed 
Sec.  246.12(aa)(2) would require State agencies use the Federal cost 
principles set out at 2 CFR part 225 (Cost Principles for State, Local, 
and Indian Tribal Governments) in allocating costs. The criteria would 
not only apply to shared purchased costs, but also applicable shared 
credits and recoveries. Compliance with these principles provides 
reasonable assurance that the Federal Government and the State agency 
bear their respective fair shares of costs incurred by the State agency 
to administer Federal assistance programs. When a cost benefits 
multiple programs or entities, each party's fair share is a portion 
commensurate with the benefit the program received from the State 
agency having incurred the cost. Determining fair share requires an 
objective methodology, documented and consistently applied, for 
allocating costs to benefiting parties. The State agency's allocation 
methodology would have to generate a reasonable measurement of the 
benefit each party receives from shared costs.
    To date, FNS has remained flexible in defining cost sharing 
criteria and has found that what may work for one State agency may not 
work as well with another State. Regardless of the approach, however, 
each State agency's initiatives in this area would need to be fairly 
employed across their retailer base. The cost sharing criteria 
established for equipment and other associated costs that are not 
solely dedicated to transacting EBT for the WIC Program will follow the 
Federal guidance established for cost allocation principles as set 
forth in 2 CFR part 225. To provide reasonable assurance that these 
principles are being followed and that the approach is applied fairly 
to all retail vendors, the State agency must furnish its allocation 
and/or cost sharing methodology to FNS for review and approval before 
incurring costs.
    Processing Fees. In general, the term ``processing fee'' refers to 
an elective charge to compensate for additional consumer services. In 
the WIC EBT environment, processing fees are incurred by a WIC 
authorized vendor from an outside service provider (called an acquirer 
or third party processor) who electronically ``processes'' each card 
purchase from the vendor to the appropriate bank or EBT processor. It 
is common for processing fees to be a negotiated flat fee of a range 
between $0.02 and $0.10 per transaction (or more) depending on the 
volume of transactions.
    As provided in Section 17(h)(12)(E)(iii)(I) of the CNA, authorized 
WIC retail vendors would be required to pay commercial processing costs 
and fees if equipment is utilized for WIC and other transactions. A 
retail vendor that elects to accept EBT using multi-function equipment 
would pay commercial transaction processing costs and fees imposed by a 
third-party processor that the retail vendor elects to use to connect 
to the State's EBT system. While the Department understands that 
processing fees are not customarily charged to retail vendors who 
accept WIC EBT equipment from a State agency or its contracted EBT 
provider if the equipment is used solely for the WIC Program, this 
proposed rule would permit such fees after statewide implementation. 
This is consistent with our proposal prohibiting the cost of 
maintenance fees in order to encourage the adoption of multi-function 
equipment. The processing fees may be per transaction fees charged in 
lieu of ongoing maintenance fees or in some combination consistent with 
industry practice for commercial multi-function equipment. Processing 
fees would not be charged to retail vendors after statewide 
implementation who are needed for participant access and who accept WIC 
EBT equipment from a State agency or its contracted EBT provider used 
solely for the WIC Program. Section 246.12(aa)(3)(i) and section 
246.12(aa)(4) of this rule address processing fees.
    Interchange Fees. The CNA at Section 17(h)(12)(E)(iii)(II) 
prohibits interchange fees on WIC EBT transactions. Section 
246.12(aa)(3)(ii) of this proposed rule reflects this prohibition. An 
interchange fee is the term used in the payment card industry to 
describe a fee paid between banks for the acceptance of card based 
transactions. Interchange fees are currently paid for credit and debit 
card transactions in the commercial environment, but not for WIC or 
SNAP EBT transactions. Interchange fees are paid by retailers to card 
issuers (the banks that sponsor the credit or debit cards). The rates 
are set by the card association, such as MasterCard or VISA, and are 
based on a combination of factors including the transaction amount, 
total volume, and type of business. Issuers then pay fees to the card 
associations.
    Capability to Accept EBT Benefits. In accordance with section 
17(h)(12)(E) of the CNA, proposed regulations at Sec.  
246.12(aa)(4)(ii) state that once a State agency has implemented EBT 
statewide, the State agency would require any prospective retail grocer 
seeking to become a WIC authorized vendor to demonstrate the capability 
to accept an EBT benefit prior to authorization. In essence, the 
applying retail vendor would be required to be ``EBT ready'' at the 
time they apply, and there would be no obligation for the State agency 
to provide funds to cover EBT costs in order for the retail vendor to 
participate in the Program. As previously mentioned, maintenance costs 
of EBT systems and equipment after EBT statewide implementation would 
be considered unallowable, thereby precluding the State agency from 
incurring these costs. However, a State agency may elect to fund any 
expense, with USDA approval, of an applicant retail vendor's costs to 
obtain an EBT capable cash register system in the event there is a need 
to ensure WIC participant access to their food benefits.
    As WIC State agencies implement EBT, each WIC retail vendor chooses 
to either build WIC EBT functionality into their existing electronic 
cash register

[[Page 13554]]

(ECR) and commercial POS system, or purchase a separate system, or 
stand-beside EBT equipment, in order to have the capability to accept 
EBT benefits. As these systems are developed, State agencies have the 
responsibility to ensure they maintain the integrity of the WIC Program 
benefit delivery system and that Program participants have access to 
their benefits. State agencies currently use an extensive review, 
testing and certification process to help ensure WIC retail vendor's 
EBT systems comply with WIC EBT development guidance and WIC Program 
requirements. As the current retailer certification process has been 
found to be quite cumbersome, FNS and State agencies are currently 
seeking ways to improve this process while still ensuring benefits are 
accurately deducted from WIC participant EBT cards or accounts.
    FNS plans to establish procedures and guidance in the Operating 
Rules for the certification of retail vendor electronic cash registers 
and associated payment devices, to include the development of common 
test scripts and testing criteria. FNS is especially interested in 
reader comment on the proposed certification requirements that would be 
used to determine retail systems as ``EBT capable'' once a State agency 
has implemented EBT statewide. Further discussion on certification 
requirements follows in the Technical Standards section of this 
rulemaking.

5. Minimum Lane Coverage Guidelines

    Section 17(h)(12)(F) of the CNA requires that the Department 
establish a minimum standard for installing WIC EBT equipment, or 
terminals, in vendor locations. This proposed rule at Sec.  
246.12(z)(2) provides a national WIC EBT vendor equipment coverage 
formula that would be consistent from state-to-state and establishes a 
minimum level of equipage for POS terminals used to support the WIC 
Program. This is consistent with the legislative requirement to 
establish national standards for implementation of WIC EBT systems, 
including standards for lane coverage for terminals to accept WIC EBT 
transactions. These minimum standards apply to all systems and 
equipment used to support WIC EBT, whether the equipment is multi-
functional or used solely for the WIC program.
    The proposed regulations at Sec.  246.12(z)(2)(i)-(ii) requires an 
EBT equipment installation formula similar to the SNAP equipment 
installation requirements. Installation of one terminal for every 
$11,000 in monthly WIC sales would be required for superstores and 
supermarkets, and installation of one terminal for every $8,000 in 
monthly WIC sales would be required for all other vendors. Given the 
variety of farmers and farmers markets, and the variety of electronic 
solutions available that permit a device to be shared by several 
farmers, State agencies would be permitted to determine the equipment 
to be installed to support farmers or farmers markets authorized to 
accept a cash value benefit. POS devices would be installed up to a 
maximum of four lanes but not more than the number of lanes in a store 
location. This formula, contrary to SNAP regulations, does not require 
all lanes to be equipped for stores earning 15 percent or more of their 
food sales in WIC business; the HHFKA does not require such a threshold 
as is required in the Food and Nutrition Act of 2008 (Pub. L. 111-296). 
Additionally, the percentage threshold for all lanes is not necessary 
because most WIC-only stand-beside POS devices will be needed in 
locations that have fewer than three lanes. State agencies would have 
authority under this proposed regulation to allow for alternative 
installation formulas, upon FNS approval.
    Because electronic payments are already prevalent in many 
independent grocer and supermarket lanes today, the need to install 
separate WIC EBT terminals should primarily apply to smaller WIC 
grocers rather than multi-State supermarkets that will, in most cases, 
use their own electronic cash registers. FNS fully expects that most 
situations requiring a State agency or its contractor to install WIC-
only stand-beside equipment will involve smaller vendors who: (1) may 
not be able to afford the cost to add WIC capability to their existing 
cash register system; or (2) may not have an electronic cash register 
at all. FNS also anticipates that some multi-lane retail vendors will 
be equipped temporarily with WIC-only stand-beside equipment during 
statewide EBT expansion because some may be unable to integrate WIC EBT 
into their cash register systems within the State agency's 
implementation schedule. In these instances, the lane coverage 
installation formula will ensure a basic level of service to WIC 
participants.
    In order to develop a WIC EBT lane coverage installation formula, 
FNS considered the current minimum lane coverage formula required by 
the SNAP EBT regulations. This formula establishes a threshold for food 
retailers (hereafter referred to as retail vendors) based on their 
level of SNAP business each month. The SNAP installation formula 
specifies that retail vendors redeeming 15 percent or more of their 
total food sales in SNAP benefits must have all lanes equipped. For 
stores below the 15 percent threshold, SNAP retailers classified as 
superstores and supermarkets receive one EBT terminal for every $11,000 
in monthly SNAP sales. All other SNAP retailer types receive one EBT 
terminal for every $8,000 in monthly SNAP sales.
    The two goals of the lane coverage installation formula for SNAP 
were to: (1) Ensure adequate access for SNAP recipients; and (2) ensure 
that the SNAP EBT shopping did not adversely affect time required to 
complete EBT purchases in the checkout lane. Actual experience has 
generally shown the larger supermarkets and independent stores with 
three or more checkout lanes utilizing their own integrated cash 
register equipment rather than installing separate EBT equipment under 
the installation formula required by SNAP regulations. This was largely 
the result of the adoption of electronic payment systems adopted by the 
grocery industry that began in the late 1980's and continued throughout 
the 1990's. Consequently, the vast majority of SNAP EBT-only terminals 
deployed by State agencies have been installed in smaller retail vendor 
locations with less than three lanes.
    Over the years, WIC State agencies have used a variety of lane 
coverage installation formulas. A variant of the SNAP installation 
formula was used by the Texas and New Mexico WIC State agencies, both 
utilizing the smart card technology solution, in devising their WIC EBT 
equipment reimbursement formula. Both Texas and New Mexico provided 
funding to allow the WIC vendors to purchase their own certified 
commercial cash registers with WIC EBT functionality. The reimbursement 
formula, in essence, determined a minimum lane coverage installation 
formula. This reimbursement formula mirrors the SNAP EBT formula by 
classifying supermarket retail vendors (those with annual gross food 
sales of $1 million or higher) and non-supermarket retail vendors 
(those with annual gross food sales below $1 million). The Texas and 
New Mexico WIC State agencies also included a formula to specifically 
address the above fifty percent vendors, as defined at Sec.  246.2 of 
WIC regulations, since their gross food sales reflect a higher 
percentage of WIC food purchases, and therefore, must be considered 
separately for lane coverage determinations. Lastly, these two State 
agencies allowed for one lane to be reimbursed for any newly authorized 
WIC vendor with no prior sales history available.

[[Page 13555]]

    Additional WIC EBT State agencies each established their own lane 
coverage installation formulas as well, but based their formulas on 
either the transaction activity for paper vouchers or the availability 
of funding. For example, the Michigan State agency provided devices 
based on the following annual WIC redemption criteria: one device for 
redemption below $70,000; two devices for redemption between $70,000 
and $200,000; three devices for redemption between $200,000 and 
$300,000; and four devices for redemption above $300,000. In some 
instances, the State agency also installed devices that were capable of 
providing access to WIC benefits, SNAP benefits, and cash EBT. The 
Kentucky WIC State agency took a similar approach equipping vendors 
with one device with up to $22,000 in annual WIC sales, and an 
additional device for every $11,000 in additional WIC sales; not to 
exceed a total of four devices. The Chickasaw Nation WIC State agency 
adopted a similar formula, but used lower thresholds in increments of 
$5,850 for up to four lanes. Conversely, funding constraints had to be 
taken in consideration for the Nevada WIC State agency, which provided 
equipment for two lanes per each authorized WIC vendor location, 
regardless of annual WIC redemption volume. The Wyoming WIC State 
agency also established a reimbursement formula based upon the 
availability of funding at the time.
    Given the WIC EBT State agencies' lane coverage experiences to 
date, FNS believes the SNAP equipment formula represents a reasonable 
and consistent basis to allow WIC participants to purchase their WIC 
foods in the same manner as all other non-program customers. Therefore, 
FNS is proposing a similar lane coverage formula as the SNAP 
installation formula. This proposed solution will also help better 
align equipment in stores and streamline the number of devices 
installed if a store location is authorized for both the WIC and SNAP 
programs.
    FNS proposes at Sec.  246.12(z)(2) that during initial EBT 
implementation, State agencies be required to equip no more than four 
lanes with WIC EBT terminals at no cost to the WIC vendor in accordance 
with the guidelines noted above. (Vendors can agree to incur some of 
these costs voluntarily). State agencies would not be required to 
provide more devices than the number of lanes in the location. For 
example, if a vendor qualifies for three lanes based upon their level 
of WIC redemptions, but only has two checkout lanes, only two devices 
will be provided by the State agency. However, a State agency may elect 
to provide an additional device to be used at the customer service 
counter, or nearby, in order to allow WIC participants to obtain their 
current WIC food balance without being limited to only obtaining the 
information in a checkout lane. Newly authorized vendors would be 
provided one device initially unless the State agency is aware of prior 
WIC redemption levels in that location that would justify additional 
terminals to ensure adequate participant shopping access.
    Once a State agency has implemented WIC EBT statewide, the State 
would continue to provide a single terminal for newly authorized 
vendors the State agency has determined are necessary for WIC 
participant shopping access. However, if participant access is not an 
issue, the State agency would require vendors applying for WIC 
authorization to obtain their own WIC EBT capable register system in 
order to accept WIC benefits. Please refer to the section related to 
imposition of costs on WIC vendors for further information on this 
issue.
    In some instances, WIC State agencies have worked with their SNAP 
agencies to acquire WIC and SNAP EBT services through a single 
contract, which would permit a single POS terminal device to be 
installed in authorized vendor locations that accept both WIC and SNAP 
benefits. The Michigan and Nevada WIC State agencies have done this, 
although through different processes. FNS takes no position relative to 
the advantages or disadvantages of such an approach. It is also very 
likely a WIC State agency will encounter retail vendor locations with a 
SNAP EBT-only device. We encourage State agencies to work with their 
SNAP counterparts to avoid situations where installation of two 
government devices in the same retail vendor check-out lane is 
necessary. Where there is a common contractor providing EBT services 
for both WIC and SNAP EBT to the State, it has been customary to 
replace the SNAP EBT-only device with a combination device capable of 
accepting both WIC and SNAP benefits. FNS would be interested in 
comments from State agencies and industry on ways a single device may 
be utilized when there is not a common contractor shared between the 
WIC and SNAP agencies. If the WIC State agency has determined that a 
joint WIC and SNAP/Cash EBT terminal is necessary, an alternate lane 
coverage formula may be proposed for FNS approval that takes into 
account use of the same terminal device for access by WIC, SNAP and any 
cash benefit Program participants. The appropriate allocation of the 
costs for these shared devices must be included in the Implementation 
Advance Planning Documents provided for FNS approval.

6. Technical Standards and Operating Rules

    Background. FNS has long recognized that standards and common 
business rules are needed for successful WIC EBT implementation. In the 
early smart card WIC EBT implementations, common file formats were 
defined so vendors could easily accept the electronic lists of approved 
WIC foods from multiple State agencies. Vendors and State agencies also 
identified the need to use standard file formats for the daily payment 
claim and hot card files exchanged in the smart card EBT systems and 
Approved Product List (APL) files that all EBT systems exchange with 
vendors. Similarly, in the online WIC EBT environment, efforts were 
made to add WIC components to the standard online messages used to 
approve each purchase. The American National Standard Institute (ANSI) 
developed the X9.93 standards for WIC systems as a result of these 
needs. X9.93 standards addressed message standards for online WIC EBT 
and file formats for both online and smart card WIC EBT.
    Early implementers of WIC EBT were required to comply with the ANSI 
standard but had some flexibility in their implementations to do what 
was best for them in order to successfully implement their projects. In 
the smart card/offline environment, Texas and New Mexico WIC Programs 
agreed to implement the technical standards, although Texas implemented 
a more complex settlement server solution compared to New Mexico, which 
resulted in some differences in file handling. Similarly, in the online 
EBT environment the X9.93 standard allowed for two different purchase 
processes which resulted in differences between the Michigan and 
Kentucky WIC EBT online systems compared to the Nevada WIC EBT online 
system. After some discussions, it was determined that the online 
approach taken by Michigan and Kentucky would prevail for purchases 
involving integrated vendors in their online environment.
    Efforts are now underway to further refine and expand technical 
standards and operating rules applicable to WIC EBT. The goal of these 
efforts is to have rules and standards that will promote a single smart 
card implementation process and a single online implementation process 
that results in faster and less costly EBT adoption by

[[Page 13556]]

State agencies and other stakeholders. As additional State agencies 
implement WIC EBT, they will be able to take advantage of the 
integrated retail cash register systems and other components of the 
payments system that comply with the common specifications. Other 
standards related to EBT are also being developed, such as Management 
Information System (MIS) to EBT system interface specifications and 
standard retailer certification processes, which will further simplify 
and streamline future EBT implementations for WIC State agencies, 
allowing them to capitalize and benefit from earlier implementation 
efforts.
    Operating Rules and Technical Implementation Guide (TIG) 
Development. Section 17(h)(12)(G) (ii) of the CNA requires that State 
agencies, contractors and authorized WIC vendors participating in the 
Program demonstrate compliance with established technical standards and 
operating rules. Failure to comply with the Operating Rules would 
result in actions consistent with violations outlined in the vendor 
agreement found at section 246.12(h)(3) that apply to authorized retail 
vendors. Two of the most comprehensive compilations of standards and 
rules established for WIC EBT are the EBT Operating Rules and the TIG. 
The Operating Rules spell out the basic business rules for each 
function in an EBT system so that implementations will be consistent 
among each of the stakeholders participating in the WIC EBT payment 
network. The TIG, which is based on the ANSI X9.93 standard, 
supplements the Operating Rules with more specific technical 
information and guidance on what food vendors must do to support WIC 
EBT.
    Given that technology is continually advancing, it is recognized 
that these standards and rules may not contain all necessary standards 
and rules that may be identified as we continue to expand WIC EBT, and 
that current and future standards will evolve over time. Therefore, the 
proposed rule at Sec.  246.12(bb)(1)(i), which addresses the Operating 
Rules and technical standards, is written broadly and allows for 
updating in the future as technology advances.
    As noted, FNS feels strongly that in order to implement WIC EBT 
nationwide, a common set of technical standards and operating rules 
must be followed to facilitate EBT expansion efficiently and 
consistently from state to state. To respond to this need, the EBT 
Operating Rules and TIG were created that address, respectively, the 
``what'' and ``how'' of EBT implementations. FNS, State agencies, and 
industry stakeholders collaboratively developed the EBT Operating Rules 
and TIG to help guide State agencies and industry in implementing WIC 
EBT systems. This collaborative effort has enabled the Operating Rules 
and TIG to be accepted and implemented among EBT State agencies, their 
authorized vendors, processors and other stakeholders. The Operating 
Rules establish national practices consistent with FNS and state 
policies that affect the WIC EBT payment process, and follow the card 
payment models in use by the credit, debit and EBT SNAP/Cash payment 
networks.
    The Operating Rules and TIG impact retailers, acquirers, third 
party processors and EBT host systems (state or contractor). For 
vendors and their cash register software, a national set of Operating 
Rules enables them to update their cash registers to handle WIC 
purchases, discounts, receipts, security and exception handling in all 
states where they conduct business. Acquirers, the companies that 
provide software, hardware and other payment services to authorized WIC 
vendors, will also be able to update their systems once and provide 
service to the many vendors they conduct business with. A single set of 
Operating Rules facilitates EBT implementation by allowing authorized 
vendors and their acquirers to provide service in multiple State 
agencies using one set of ``business rules,'' thus saving significant 
time and money to support WIC EBT. These Operating Rules and technical 
guidelines make WIC EBT cost effective for vendors to support their 
integrated cash register systems.
    Third party processors, the companies that move electronic 
transactions to card issuers (EBT hosts for WIC) for payment and 
provide reimbursement to their WIC authorized vendors for all purchases 
approved electronically, use the Operating Rules to standardize 
processing and to establish common liability provisions in the multiple 
contracts they enter into with authorized WIC retail vendors and others 
in the payment process. For EBT host providers, either an EBT processor 
or a State agency, the Operating Rules and TIG permit consistent 
processing of all transactions among State agencies. The TIG 
requirements are crucial to host EBT providers because they define how 
the technical data in each purchase must be included in an online WIC 
EBT purchase message response that must be received and processed by a 
retail vendor cash register system. For a smart card system, the 
purchase details identified in the TIG are written to a claim file that 
is later sent to the State agency for payment.
    The present Operating Rules are divided into several sections that 
outline requirements for acquirers, WIC vendors, issuers (states) and 
card holders (WIC participants). The TIG provides technical guidance on 
the use of the ANSI X9.93 messages and files to ensure consistency in 
WIC State agency EBT implementations. There are also sections that 
discuss the card requirements such as the location of the magnetic 
stripe or smart card chip, the card numbering system and applicable 
technical standards. Because WIC EBT requires the exchange of unique 
files with authorized vendors that are not necessary for other payment 
tender types, the business rules are defined for the various files that 
are exchanged daily with authorized WIC vendors. For example, an 
Authorized Product List (APL) file is one of the files that are 
exchanged with vendors daily. The APL file contains all of the 
Universal Product Codes (UPC) and Price Look-Up (PLU) codes approved 
for use within a State agency. UPCs are 12 digit numbers embedded in a 
bar code printed on a product label that can be read by scanners in a 
checkout register. PLUs are 4 or 5 digit numbers associated with 
specific fruits or vegetables (e.g. bananas have a PLU of 4011). The 
APL file is stored at the electronic cash register to allow the WIC 
retail vendor to identify food items scanned at the checkout counter as 
WIC or non-WIC items. The APL file section in the TIG specifies the 
technical information on the file structure and specific data elements 
in each State agency's APL file. To illustrate the need for flexibility 
to allow for updates and changes, a future change request might allow 
for a farmers market application on a smart phone to use an abbreviated 
APL file and provide a balance receipt that contains only the CVB 
balance rather than all food balances associated with the participant's 
EBT card.
    As a second example, the Operating Rules define business rules for 
payment/reimbursement to vendors. Current WIC regulations require WIC 
State agencies to pay vendors within 60 days after valid paper food 
instruments have been submitted for redemption by vendors. Although 60 
days is a realistic and necessary timeframe in the paper environment, 
established industry standards in the EBT environment require the 
exchange for payment in a much shorter timeframe. All stakeholders 
concurred through collaborative efforts in defining the Operating Rules 
that State agencies should pay vendors, farmers and home

[[Page 13557]]

food delivery contractors within two days of submitting a valid 
electronic claim for payment to mirror industry standards. To allow for 
the greatest flexibility in this area, Sec.  246.12(z)(3) proposes to 
require payments be made to vendors, farmers and home food delivery 
contractors in accordance with established rules and technical 
requirements. This broad language will also allow for future electronic 
benefit delivery systems beyond the retail vendor environment.
    The Operating Rules and TIG also include specific requirements and 
technical information on CVB transactions, to include split tender. 
Split tender is defined as purchasing a single WIC food item with two 
or more tender types. For example, when WIC participants purchase 
fruits and vegetables using their CVB, they are allowed to pay from 
their own funds using other tender types (e.g. SNAP benefits, credit 
card or cash) if the CVB balance is insufficient. This type of 
transaction at the register can become quite complex and the retail 
vendor must ensure the correct purchase information is correctly 
applied to each tender type. Electronic cash registers can support a 
split tender purchase but functionality to support this for smart cards 
is limited at the present time. The WIC EBT Operating Rules address 
what is allowed for split tender and the TIG provides additional 
technical guidance.
    The Operating Rules and TIG also specify what data is required for 
the purchase receipt. This is important because WIC benefit 
prescriptions are time-limited; they are available for a 30 day period 
and then expire. Purchase receipts contain the date when the electronic 
benefit will expire so the WIC shopper will know how much time they 
have to purchase the remaining foods on their electronic benefit. These 
types of standards are very important to retail vendors and their 
system developers because they are able to program their software to 
the TIG requirements once for use in any State agency where they are 
authorized, thereby eliminating the need for separate software 
development for each State agency WIC EBT implementation.
    WIC vendor requirements are also defined in the Operating Rules and 
TIG. For example, a participant's EBT card must be presented at the 
time of sale to be accepted by the WIC authorized vendor as a fraud 
prevention requirement. The Operating Rules also require the vendor to 
support a manually key-entered card number if a magnetic stripe EBT 
card is presented for payment to the checkout clerk. This key-entry 
capability is a back-up procedure that enables the purchase to occur if 
the card is damaged or unreadable for some reason. Currently, a key-
entered card number will not work for smart cards because the card chip 
must be physically in contact with the card reader in order to read the 
card balance before the rest of the purchase can be completed. Should 
contactless smart cards become prevalent in the United States payment 
systems, the Operating Rules and TIG may need to be amended. Future 
updates to the Operating Rules and/or TIG may include details on 
standard messages that must be sent between a retail system card reader 
and a smart card. FNS expects that this will be necessary to ensure 
that new card and card reader technologies remain compatible with WIC 
requirements. Technical security requirements may also be addressed in 
future standardization efforts.
    After thorough examination, FNS has determined that because the WIC 
EBT Operating Rules and TIG will be evolving documents, the actual 
contents of these documents will not be promulgated. Rather, FNS 
believes that to ensure the Operating Rules and TIG remain viable, 
current, and accurate, we must remain flexible in our ability to 
address changes and updates as they are needed. As such, the Operating 
Rules and TIG will be maintained in a manner similar to how the Quest 
EBT Operating Rules are maintained in the SNAP EBT environment. Unlike 
SNAP EBT, however, FNS has taken on the WIC EBT document maintenance 
responsibility, at least initially, because some State agencies 
expressed concern that they would have insufficient input into the 
Operating Rules and TIG if they are maintained by an industry 
organization.
    The authority to maintain and update these standards and rules 
outside of the regulations is granted under Sec.  246.3(b) of current 
WIC Program regulations, which state that State agencies must 
administer the Program in accordance with the requirements set forth in 
FNS guidelines and instructions. Therefore, FNS has the authority to 
require State agencies to comply with program guidelines such as these 
Operating Rules, the TIG and other standards established for the 
implementation of EBT. As a result, FNS will maintain them as required 
guidance rather than include them in current regulations.
    FNS intends to treat the Operating Rules and TIG as required 
guidance that will be, at a minimum, updated annually. FNS has 
established a maintenance process that allows all stakeholders the 
opportunity to submit change requests necessary to clarify, change or 
add to the rules that are prompted by implementation activity. This 
process, consistent with how credit and debit network operating rules 
are updated, permits stakeholders to submit a change request to FNS for 
consideration. Once received, reviewed and analyzed for potential 
impact, the change request will be published on a Web site for comment. 
Additionally, an opportunity to discuss the proposed changes will be 
provided and a final version of the change request will be published 
for a minimum 30 day time period. Once this comment period is 
completed, a schedule for implementation will be identified in the 
final change request. Updates will be issued as technical bulletins and 
then incorporated into the annual update for each document. As some 
change requests may require more extensive upgrades, the schedule for 
implementation will vary accordingly. A copy of the Operating Rules and 
Technical Implementation Guide is available on the FNS web site at: 
https://www.fns.usda.gov/wic/EBT/operatingrules-implemguide.htm.
    Retail Vendor Certification Procedures for `WIC EBT Capability.' As 
discussed previously in the section on statewide cost sharing, FNS 
plans to establish procedures and guidance for the certification of 
retail vendor electronic cash registers and associated payment devices, 
to include the development of common test scripts and testing criteria. 
These standardized processes will assist State agencies when seeking 
assurances from a retail vendor that applies to become a WIC authorized 
vendor that their electronic cash register system meets the criteria 
for being `EBT capable'. These standardized processes will also help to 
assure that retail vendors are being consistently treated nationwide. 
Under the HHFKA at Section 17(h)(12)(E)(iv) and reflected in the 
proposed regulation at Sec.  246.12(aa)(4)(ii), once a State agency is 
operating WIC EBT statewide, the State agency must require that a 
retail vendor applicant demonstrate it is WIC `EBT capable' prior to 
the State agency authorizing the vendor to participate in the Program, 
unless the State agency determines that the vendor is necessary for 
participant access.
    To facilitate standardized processes and assist State agencies when 
seeking assurances that authorized vendors meet the criteria for being 
`EBT capable,' FNS intends to provide guidance that would require 
retail vendors to demonstrate their capability to accept EBT benefits 
by: (1) Using an abbreviated testing and certification process if the 
retail vendor is using a pre-certified system that is

[[Page 13558]]

already in operation in other EBT State agencies; or (2) using an 
extensive certification process if the retail vendor is using a new 
system or has made substantial customization changes to a pre-certified 
system to meet specific business requirements. The retailer would bear 
all expenses and responsibility to ensure the system is certified by 
the State agency. The retailer would also be expected to work with the 
State agency to determine how they would be required to demonstrate 
their EBT solution is capable to accept EBT benefits.
    FNS is interested in ensuring that integrated cash register systems 
and other system components complete WIC purchases accurately and 
result in proper payment of WIC funds. WIC participants should be 
protected from errors in payment software that incorrectly deduct the 
wrong quantities of benefits from their WIC EBT food balances. 
Likewise, State agencies have a fiduciary responsibility to ensure that 
payments made to WIC retail vendors are accurate and do not result in a 
liability for paying for benefits that were not authorized to be 
purchased by a WIC card holder. Therefore, improving the current 
certification process should be a collaborative effort among WIC EBT 
stakeholders to ensure all affected entities are involved in defining a 
new process for retailer certification.
    As we have approached other technical standards and operating rules 
related to various aspects of EBT implementation, we will ultimately 
include retailer certification standards and processes in the Operating 
Rules and TIG, as appropriate, after consultation and collaboration 
with WIC EBT stakeholders. Therefore, the discussion included in this 
preamble is for information purposes only. FNS welcomes comments in 
this area, particularly from State agencies, EBT processors, and retail 
vendors, as this will help to inform us on how we might approach retail 
certifications in the future.
    Universal Interface Standard. FNS is currently working with State 
agencies and industry to develop a WIC Universal MIS-EBT interface 
document, which will define how data is exchanged between the two 
systems to support WIC EBT and to recommend where EBT-related data 
should be housed/maintained. All WIC State agencies use and maintain an 
MIS certification system that is used to enroll and certify WIC 
participants and perform other necessary functions related to WIC 
Program operations. Once a WIC participant is certified, the MIS 
calculates the food prescription that is written to a WIC EBT smart 
card or recorded in the online EBT account. The Universal Interface is 
designed to standardize the data and functions each system must support 
to operate a WIC EBT system. Some of the Universal Interface functions 
include setting up participant demographics, issuing a WIC electronic 
benefit prescription and exchanging data related to benefit updates and 
EBT redemption in files.
    The Universal Interface will ultimately help reduce the effort and 
cost of EBT implementations by allowing the various MIS systems to 
``connect to'' the various EBT systems in a common or standardized way. 
MIS systems are typically transferred from state to state, and if the 
EBT services are procured outside the state, the Universal Interface 
will help reduce the effort and cost to implement EBT in multiple State 
agencies and enables an `even playing field' whenever a State agency 
contract for EBT service is re-procured. This type of standardization 
opens up competition and reduces the cost for conversion to different 
MIS and EBT providers.
    Unlike the TIG, which applies to systems outside the State agency 
MIS, the Universal Interface standard governs the interaction between a 
state MIS and an EBT system. The Universal Interface specifies how a 
participant's information and electronic benefits will be sent 
automatically from a clinic computer to the EBT host system. It also 
involves exchanges of information on authorized WIC vendors, to include 
data on retail vendors that is necessary to permit the EBT system to 
approve any purchases made at a retail vendor's location. Another 
example is the exchange of data related to the specific cost 
containment peer group to which a newly authorized WIC retail vendor is 
assigned. The EBT host system tracks this information and edits prices 
submitted against the peer group price provided by the State agency.
    Other Standards and Requirements. As mentioned previously, other 
standards may be necessary over time, and FNS must be able to establish 
these standards and/or incorporate these changes into the existing 
technical standards and guidelines. WIC State agencies must also 
accommodate and implement changes in the technical standards, operating 
rules or other established guidelines. One example of this is the 
announcement by the VISA card network to introduce smart cards into the 
U.S. payment system, which may include contactless options that could 
be on a smart phone. WIC may need to put forth technical standards in 
order to allow similar contactless acceptance. Other examples of 
standards that may need to be addressed in the future include system 
security standards for Personal Identification Numbers (PINs), as well 
as other security aspects of an EBT system. Section 246.12(bb)(1)(ii) 
of the proposed regulations would require compliance to such standards 
established and approved by the Secretary that relate to WIC EBT.
    Transitioning from a paper-based food instrument system to an EBT 
system offers an opportunity for enhanced customer service to WIC 
participants. As such, this proposed rule would require at Sec.  
246.12(bb)(2) a State agency to replace participant benefits within 
five business days following notice by the household. The State agency 
would be required, at a minimum, to replace benefits one time in a 
three-month benefit issuance period. The replacement process would 
enable the remaining balances on an account to be temporarily put on 
hold until the benefits could be transferred to a new account. 
Currently there is no regulatory requirement for the replacement of WIC 
benefits reported lost or stolen, but rather is a State agency option. 
At the time of this writing, all WIC EBT State agencies have opted to 
replace EBT benefits reported lost or stolen, with the maximum wait 
time of five business days. Online EBT technology offers real-time 
participant benefit data, affording the opportunity for benefits to be 
replaced immediately. Since participant benefit data is located 
directly on the smart card in the offline environment, more time must 
be provided to allow for store purchase data to be settled in order to 
receive an accurate balance of remaining benefits. To date, the maximum 
timeframe required for electronic benefit replacement by an EBT State 
agency is five business days; therefore, current EBT business practice 
is congruent with this proposal.
    To leverage additional opportunities to enhance customer service 
for WIC participants, Sec.  246.12(bb)(3) of this proposed rule would 
also require a State agency to provide a toll-free, 24-hour hotline 
number for EBT cardholder assistance. Customer service can be provided 
via an automated system and/or live representatives and internet 
account access. This hotline number could provide a variety of services 
such as enabling participants to report a lost or stolen card through a 
single, toll-free phone call at any time, and request a replacement. At 
this time of writing, only a limited number of EBT State agencies 
provide this service to WIC participants, none of which are offline EBT 
State agencies. However, the Wyoming WIC Program had provided

[[Page 13559]]

24-hour participant support via contracted services in their offline 
system environment in the past, but determined the cost to provide such 
a service exceeded the benefits and ultimately terminated this service 
in 2008.
    While FNS supports the potential for enhanced business practices 
and customer service that EBT may provide, we also recognize the 
potential affordability impact and management of resources with such 
proposed requirements for all EBT State agencies and, therefore, 
welcome and encourage reader comment.

7. National Universal Product Code (NUPC) Database

    Each WIC State agency is required to authorize eligible foods and 
develop a list of those food items that are available to WIC 
participants to purchase. In a WIC EBT environment, authorized vendors 
are provided an electronic file containing the State agency's current 
list of authorized foods. This list of individual products is commonly 
referred to as the WIC State agency's APL. The APL includes the UPC or 
PLU code for each approved item. As products are scanned at the 
checkout lane, the UPC or PLU is matched to the state specific APL. 
Food items that match the APL, and which are presented in quantities 
less than or equal to the remaining benefit balance associated with the 
participant's WIC EBT card, are approved for purchase. Unmatched items, 
or items in excess of the available account balance, are not allowed 
for purchase with WIC benefits.
    The NUPC database will serve as a national central repository for 
information about WIC authorized foods from all WIC State agencies 
operating an EBT system, and will provide State agencies with the 
ability to share information and eliminate duplication of effort when 
creating or maintaining a list of individual products which are 
eligible for purchase using WIC benefits.
    Congress first noted the importance of creating the NUPC database 
with the passage of the Child Nutrition and WIC Reauthorization Act in 
2004. This legislation directed the Secretary of Agriculture to: (1) 
establish a national Universal Product Code database for use by all 
State agencies; and (2) make available from appropriated funds such 
sums as are required for hosting, hardware and software configuration, 
and support of the database. It was on this basis that FNS initially 
developed a database and user interface which allows State agencies to 
store and retrieve specific information on foods found to be eligible 
for purchase using WIC benefits. The HHFKA reinforced Congress' 
original intent, stating that the Secretary shall establish a NUPC 
database to be used by all State agencies, and that it be made 
available by December 10, 2012.
    While the provisional requirement to establish a NUPC database has 
been met and the current version of the NUPC database is available for 
use in both the test and production environments, FNS recognizes that 
the current version of the NUPC database is difficult to use, requires 
a significant time commitment to add products, and does not capture 
data in a consistent format. As a result, several WIC State agencies 
have developed UPC databases for individual State agency use. These 
individual UPC databases are not interconnected and do not serve as a 
central repository of information which can be freely shared between 
all WIC State agencies. FNS is, therefore, moving forward with several 
enhancements to the NUPC database which will: simplify the data input 
process; expand the database to include nutrition information and 
ingredients for each product; and provide for an independent third 
party to assume responsibility for populating the NUPC database while 
ensuring that the information housed in the database is accurate, 
complete, and consistent.
    Several national and regional grocery chains have requested a 
single point of connection for WIC EBT file transfers to reduce the 
number of connections each retailer must establish or maintain while 
operating EBT systems. In response to that request, FNS intends to 
develop a centralized file transfer capability, or ``clearinghouse,'' 
to facilitate the transfer of APL's between State agencies and their 
authorized vendors. In support of this objective, FNS proposes at Sec.  
246.12(cc) to require WIC State agencies to submit an electronic copy 
of their current APL prior to the APL becoming effective or making it 
available to the State agency's authorized vendors. The current APL 
will be used for subsequent distribution to authorized vendors via the 
``clearinghouse.'' A national food category/subcategory table standard, 
which plays a critical role in EBT food package issuance and redemption 
processes, has been established but is currently not required for use. 
While a national standard format for a category/subcategory table and 
APL file are both important and desirable as WIC EBT expands, FNS 
recognizes that mandating such a requirement may create a burden on 
State agencies. As such, FNS welcomes reader comment on the potential 
barriers, obstacles, and benefits State agencies would incur if 
conformity of a national standard APL was required by FNS. FNS also 
invites reader comment on how conformity could be effectively 
instituted.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
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 proposed rule has been determined to be ``Not Significant'' 
under section 3(f) of Executive Order 12866; therefore, no OMB review 
is required.

Procedural Matters

Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-
612). Pursuant to that review, Administrator of the Food and Nutrition 
Service, Audrey Rowe, has determined that this rule will not have a 
significant economic impact on a substantial number of small entities. 
State and local agencies and WIC recipients will be most affected by 
the rule, and WIC authorized vendors and the food industry may be 
indirectly affected. The proposed rule would provide State and local 
agencies with increased flexibility in food delivery services for the 
Program. Vendors and the food industry would realize increased sales of 
some foods and decreases in other foods, with an overall neutral effect 
on sales nationally.

Public Law 104-4, Unfunded Mandates Reform Act of 1995 (UMRA)

    Title II of the UMRA establishes requirements for Federal agencies 
to assess the effects of their regulatory actions on State, local, and 
tribal governments and the private sector. Under Section 202 of the 
UMRA, the Department generally must prepare a written statement, 
including a cost/benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures to State, local, 
or tribal governments, in the aggregate, or to the private sector of 
$100 million or more in any one year. When such a statement is needed 
for a rule, section 205 of the UMRA generally

[[Page 13560]]

requires the Department to identify and consider a reasonable number of 
regulatory alternatives and adopt the least costly, more cost-effective 
or least burdensome alternative that achieves the objectives of the 
rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) that impose costs on 
State, local, or tribal governments or to the private sector of $100 
million or more in any one year. This rule is, therefore, not subject 
to the requirements of sections 202 and 205 of the UMRA.

Executive Order 12372

    WIC is listed in the Catalog of Federal Domestic Assistance under 
No. 10.557. For the reasons set forth in the final rule at 7 CFR part 
3015, Subpart V and related Notice (48 FR 29115, June 24, 1983), this 
program is included in the scope of Executive Order 12372 that requires 
intergovernmental consultation with State and local officials.

Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under section (6)(b)(2)(B) of Executive Order 13132.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the DATES paragraph of the preamble of the 
proposed rule. Prior to any judicial challenge to the provisions of 
this rule or the application of its provisions, all applicable 
administrative procedures must be exhausted.
    In WIC, the administrative procedures are as follows: (1) State and 
local agencies, farmers, farmers' markets, and roadside stands--State 
agency hearing procedures issued pursuant to 7 CFR 246.18; (2) 
Applicants and participants--State agency hearing procedures pursuant 
to 7 CFR 246.18; (3) sanctions against State agencies (but not claims 
for repayment assessed against a State agency) pursuant to 7 CFR 
246.19--administrative appeal in accordance with 7 CFR 246.16, and (4) 
procurement by State or local agencies--administrative appeal to the 
extent required by 7 CFR 3016.36.

Civil Rights Impact Analysis

    FNS has reviewed this rule in accordance with Departmental 
Regulations 4300-4, ``Civil Rights Impact Analysis,'' and 1512-1, 
``Regulatory Decision Making Requirements.'' After a careful review of 
the rule's intent and provisions, FNS has determined that this rule is 
not intended to limit or reduce in any way the ability of protected 
classes of individuals to receive benefits in the WIC Program. Federal 
WIC regulations specifically prohibit State agencies that administer 
the WIC Program, and their cooperators, from engaging in actions that 
discriminate against any individual in any of the protected classes 
(see 7 CFR 246.8 for the nondiscrimination policy in the WIC Program). 
Where State agencies have options, and they choose to implement a 
certain provision, they must implement it in such a way that it 
complies with the WIC Program regulations set forth at Sec.  246.8.

Executive Order 13175--Consultation and Coordination With Indian Tribal 
Governments

    E.O. 13175 requires Federal agencies to consult and coordinate with 
tribes on a government-to-government basis on policies that have tribal 
implications, including regulations, legislative comments or proposed 
legislation, and other policy statements or actions that have 
substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes. USDA will respond in a timely and 
meaningful manner to all Tribal government requests for consultation 
concerning this rule and will provide additional venues, such as 
webinars and teleconferences, to host periodic collaborative 
conversations with Tribal officials or their designees concerning ways 
to improve this rule in Indian country. The policies contained in this 
rule would not have Tribal implications that preempt Tribal law.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
part 1320) requires that the Office of Management and Budget (OMB) 
approve all collections of information by a Federal agency from the 
public before they can be implemented. Respondents are not required to 
respond to any collection of information unless it displays a current 
valid OMB control number. This proposed rule contains no new 
information collection requirements that are subject to OMB approval. 
Section 246.12(y) would require each State agency to have an active EBT 
project by October 1, 2015. The Advance Planning Document (APD) is used 
to initiate the EBT planning process. Under the existing collection 
(0584-0043), it is estimated that 15 APDs would be submitted each year. 
Currently, only 32 State agencies have not begun any EBT activity. As a 
result, the current estimate of 15 submissions per year is unchanged. 
The existing recordkeeping and reporting requirements, which were 
approved under OMB control number 0584-0043, will not change as a 
result of this rule.

E-Government Act Compliance

    The Food and Nutrition Service is committed to complying with the 
E-Government Act of 2002 to promote the use of the internet and other 
information technologies to provide increased opportunities to provide 
for citizen access to government information and services, and for 
other purpose. State Plan amendments regarding the implementation of 
the provisions contained in this rule, as is the case with the entire 
State Plan, may be transmitted electronically by the State agency to 
FNS. Also, State agencies may provide WIC Program information, as well 
as their financial reports, to FNS electronically.

List of Subjects in 7 CFR Part 246

    WIC, Administrative practice and procedure, Food assistance 
programs, Grant programs--health, Grant programs--social programs, 
Indians, Infants and children, Maternal and child health, Nutrition, 
Penalties, Reporting and recordkeeping requirements, Women.
    Accordingly, for reasons set forth in the preamble, 7 CFR part 246 
is proposed to be amended as follows:

PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS 
AND CHILDREN (WIC)

0
1. The authority citation for part 246 continues to read as follows:

    Authority:  42 U.S.C. 1786.

0
2. In Sec.  246.2:
0
a. Amend the definition of ``Cash-value voucher'' by adding a second 
sentence, ``Cash-value voucher is also known as cash-value benefit 
(CVB) in an EBT environment'';

[[Page 13561]]

0
b. Add the definition of ``Electronic Benefit Transfer (EBT)'' in 
alphabetical order; and
0
c. Revise the definition of ``Participant Violation''.
    The addition and revision read as follows:


Sec.  246.2  Definitions.

* * * * *
    Electronic Benefit Transfer (EBT) means a food delivery system that 
provides benefits using a card or other access device approved by the 
Secretary that permits electronic access to program benefits.
* * * * *
    Participant violation means any intentional action of a 
participant, parent or caretaker of an infant or child participant, or 
proxy that violates Federal or State statutes, regulations, policies, 
or procedures governing the Program. Participant violations include, 
but are not limited to, intentionally making false or misleading 
statements or intentionally misrepresenting, concealing, or withholding 
facts to obtain benefits; selling or offering to sell cash-value 
vouchers, food instruments, EBT cards, or supplemental foods in person, 
in print, or online; exchanging or attempting to exchange cash-value 
vouchers, food instruments, EBT cards, or supplemental foods for cash, 
credit, services, non-food items, or unauthorized food items, including 
supplemental foods in excess of those listed on the participant's food 
instrument; threatening to harm or physically harming clinic, farmer, 
or vendor staff; and dual participation.
* * * * *


Sec.  246.4  [Amended]

0
3. In Sec.  246.4, amend paragraph (a)(1) by removing the period at the 
end of the paragraph and adding in its place a comma followed by the 
words ``to include EBT and/or EBT implementation.''.
0
4. Sec.  246.12 is amended as follows:
0
a. Paragraph (a) introductory text is amended by removing the ``s'' 
from the word ``benefits'' and by adding a new sentence at the end of 
the paragraph.
0
b. Paragraph (b) by removing the word ``three'' and adding in its place 
``four''; and by removing the text ``or direct distribution.'' at the 
end of the first sentence and replacing it with ``direct distribution, 
or EBT.''
0
c. Remove paragraph (g)(5).
0
d. Redesignate paragraphs (g)(6) through (g)(11) as (g)(5) through 
(g)(10), respectively.
0
e. Add new paragraphs (h)(3)(xxvi) through (h)(3)(xxx).
0
f. Add new paragraphs (w) through (cc).
    The additions read as follows:


Sec.  246.12  Food delivery systems.

    (a) * * * By October 1, 2020, each State agency shall implement an 
EBT system statewide, unless FNS grants an exemption under paragraph 
(w)(2) of this section.
* * * * *
    (h) * * *
    (3) * * *
    (xxvi) EBT minimum lane coverage. Point of Sale (POS) terminals 
used to support the WIC Program shall be deployed in accordance with 
the minimum lane coverage provisions of paragraph (z)(2) of this 
section. The State agency may remove excess terminals if actual 
redemption activity warrants a reduction consistent with the redemption 
levels outlined in paragraphs (z)(2)(i) and (z)(2)(ii) of this section.
    (xxvii) EBT third-party processing costs and fees. The vendor shall 
not charge to the State agency any third-party processing costs and 
fees incurred by the vendor from EBT multi-function equipment. 
Commercial transaction processing costs and fees imposed by a third-
party processor that the vendor elects to use to connect to the EBT 
system of the State shall be borne by the vendor.
    (xxviii) EBT interchange fees. The vendor shall not charge 
interchange fees related to WIC EBT to the State agency.
    (xxix) EBT operational maintenance and operational costs. The State 
agency shall not pay ongoing maintenance, processing fees or 
operational costs for vendor systems and equipment used to support WIC 
EBT after the State agency has implemented WIC EBT statewide, unless 
the State agency determines that the vendor is needed for participant 
access.
    (xxx) Compliance with EBT operating rules, standards and technical 
requirements. The vendor must comply with the Operating rules, 
standards and technical requirements established by the State agency.
* * * * *
    (w) EBT food delivery systems (1) General. EBT systems are food 
delivery systems in which participants, parents or caretakers of infant 
and child participants, and proxies obtain authorized supplemental 
foods by using a card or other access device approved by the Secretary 
that permits electronic access to program benefits. All State agencies 
shall implement EBT statewide in accordance with paragraph (a) of this 
section.
    (2) EBT exemptions. The Secretary may grant an exemption to the 
October 1, 2020 statewide implementation requirement. To be eligible 
for an exemption, a State agency shall demonstrate to the satisfaction 
of the Secretary one or more of the following:
    (i) There are unusual technological barriers to implementation;
    (ii) Operational costs are not affordable within the nutrition 
services and administration grant of the State agency; or
    (iii) It is in the best interest of the program to grant the 
exemption.
    (3) Implementation date. A State agency requesting an exemption 
under paragraph (w)(2) of this section shall specify a date by which it 
anticipates statewide implementation. If a State agency is granted an 
exemption, such exemption would remain in effect until the State agency 
no longer meets the conditions on which the exemption was based, until 
the Secretary revokes the exemption, or for three years, whichever 
occurs first.
    (x) EBT food delivery systems: Electronic benefit requirements--(1) 
General. State agencies using EBT food delivery systems shall issue an 
electronic benefit that complies with the requirements of paragraph 
(x)(2) of this section.
    (2) Electronic benefits. Each electronic benefit must contain the 
following information:
    (i) Authorized supplemental foods. The supplemental foods 
authorized by food category, subcategory, and benefit quantity, to 
include the CVB;
    (ii) First date of use. The first date of use on which the 
electronic benefit may be used to obtain authorized supplemental foods;
    (iii) Last date of use. The last date on which the electronic 
benefit may be used to obtain authorized supplemental foods. This date 
must be a minimum of 30 days from the first date on which it may be 
used to obtain authorized supplemental foods except for the 
participant's first month of issuance, when it may be the end of the 
month or cycle for which the electronic benefit is valid; and
    (iv) Benefit issuance identifier. A unique and sequential number. 
This number enables the identification of each benefit change 
(addition, subtraction or update) made to the participant account.
    (3) Vendor identification. The State agency shall ensure that each 
EBT purchase submitted for electronic payment is matched to an 
authorized vendor or farmer prior to authorizing payment. Each vendor 
operated by a

[[Page 13562]]

single business entity must be identified separately.
    (y) EBT food delivery systems: EBT systems management and 
reporting. (1) The State agency shall follow FNS Advance Planning 
Document (APD) requirements and submit Planning and Implementation 
APD's, and appropriate updates, for FNS approval for planning, 
development and implementation of initial and subsequent EBT systems.
    (2) If a State agency plans to incorporate additional programs in 
the EBT system of the State, the State agency shall consult with State 
agency officials responsible for administering the programs prior to 
submitting the planning APD (PAPD) document, and include the outcome of 
those discussions in the PAPD submission to FNS for approval.
    (3) Each State agency shall have an active EBT project by October 
1, 2015. Active EBT project is defined as a formal process of planning, 
design, pilot testing, or statewide implementation of WIC EBT.
    (4) Annually as part of the State plan, the State agency shall 
submit EBT project status reports. At a minimum, the annual status 
report shall contain:
    (i) Until operating EBT statewide, an outline of the EBT 
implementation goals and objectives as part of the goals and objectives 
in 246.4(a)(1) to demonstrate the State agency's progress toward 
statewide EBT implementation; and
    (ii) If operating EBT statewide, any information on future EBT 
system changes and procurement updates that would affect present 
operations; and
    (iii) Such other information the Secretary may require.
    (5) The State agency shall be responsible for the coordination and 
management of its EBT system.
    (z) EBT food delivery systems: Vendor requirements--(1) General. 
State agencies using EBT food delivery systems shall comply with the 
vendor requirements in paragraphs (g) through (l) of this section. In 
addition, State agencies shall comply with the following requirements 
of this section specific to EBT.
    (2) Minimum lane coverage. FNS encourages WIC EBT transactions to 
be integrated into the authorized vendor's electronic cash register 
system to promote efficiencies and improve WIC benefit delivery. If 
this is not possible, the State agency shall provide Point of Sale 
(POS) terminals solely used to support the WIC Program. All POS 
terminals, whether multi-functional or used solely to support the WIC 
Program, shall be deployed as follows:
    (i) Superstores and supermarkets. One POS terminal for every 
$11,000 in monthly WIC redemption up to a total of four POS terminals, 
or the number of lanes in the location; whichever is less. At a 
minimum, terminals shall be installed in monthly WIC redemption 
threshold increments as follows: one terminal for $0 to $11,000; two 
terminals for $11,001 to $22,000; three terminals for $22,001 to 
$33,000; and four terminals for $33,001 and above. A State agency may 
utilize an alternative installation formula with FNS approval. The 
monthly redemption levels used for the installation formula shall be 
the average redemptions based on a period of up to 12 months of prior 
redemption;
    (ii) All other vendors. One POS terminal for every $8,000 in 
monthly redemption up to a total of four POS terminals, or the number 
of lanes in the location; whichever is less. At a minimum, terminals 
shall be installed in monthly WIC redemption thresholds as follows: one 
terminal for $0 to $8,000; two terminals for $8,001 to $16,000; three 
terminals for $16,001 to $24,000; and four terminals for $24,001 and 
above. A State agency may utilize an alternative installation formula 
with FNS approval;
    (iii) The State agency shall determine the number of appropriate 
devices for authorized farmers and farmers markets;
    (iv) For newly authorized WIC vendors deemed necessary for 
participant access by the State agency, the vendor shall be provided 
one terminal unless the State agency determines that other factors in 
that location warrant additional terminals;
    (v) Any authorized vendor who has been equipped with a terminal by 
the State agency may submit evidence that additional terminals are 
necessary after the initial POS terminals are installed;
    (vi) The State agency may provide authorized vendors with 
additional terminals above the minimum number required by this 
paragraph in order to permit WIC participants to obtain a shopping list 
or benefit balance, as long as the number of terminals provided does 
not exceed the number of lanes in the vendor location; and
    (vii) The State agency may remove excess terminals if actual 
redemption activity warrants a reduction consistent with the redemption 
levels outlined in paragraph (z)(2)(i) through (ii) of this paragraph.
    (3) Payment to vendors, farmers and home food delivery contractors. 
The State agency shall ensure that vendors, farmers and home food 
delivery contractors are paid promptly. Payment must be made in 
accordance with the established Operating Rules and technical 
requirements after the vendor, farmer, or home delivery contractor has 
submitted a valid electronic claim for payment.
    (aa) EBT food delivery systems: Imposition of costs on vendors. (1) 
Cost prohibition. Except as otherwise provided in this section, a State 
agency shall not impose the costs of any equipment or system required 
for EBT on any authorized vendor in order to transact EBT if the vendor 
equipment or system is used solely for the WIC Program.
    (2) Cost sharing. If WIC program equipment is not solely dedicated 
to transacting EBT for the WIC program, State agencies shall establish 
cost sharing criteria with their authorized WIC vendors for costs 
associated with such equipment in accordance with established criteria 
as set forth in 2 CFR part 225.
    (3) Fees. (i) Third-party processor costs and fees. A State agency 
shall not pay third-party processing costs and fees for vendors that 
elect to accept EBT using multi-function equipment. Commercial 
transaction processing costs and fees imposed by a third-party 
processor that the vendor elects to use to connect to the EBT system of 
the State shall be borne by the vendor.
    (ii) Interchange fees. Interchange fees shall not apply to WIC EBT.
    (4) Statewide operations. After completion of statewide 
implementation of an EBT system:
    (i) A State agency shall not pay ongoing maintenance, processing 
fees or operational costs for vendor systems and equipment used to 
support EBT, unless the State agency determines that the vendor is 
needed for participant access;
    (ii) Any vendor applicant in the State that applies for 
authorization to become an authorized vendor shall be required to 
demonstrate the capability to accept WIC benefits electronically prior 
to authorization in accordance with State agency requirements, unless 
the State agency determines that the vendor is necessary for 
participant access.
    (bb) EBT food delivery systems: Technical standards and 
requirements. (1) Each State agency, contractor, and authorized vendor 
participating in the program shall follow and demonstrate compliance 
with:
    (i) Operating rules, standards and technical requirements as 
established by the Secretary; and
    (ii) Other industry standards identified by the Secretary.
    (2) A State agency shall establish policy permitting the 
replacement of participant benefits within five business days following 
notice by the household to the State agency, at least one time in a 
consecutive three-month period.

[[Page 13563]]

    (3) A State agency shall provide a toll free 24 hour hotline number 
for EBT cardholder assistance.
    (cc) National universal product codes (UPC) database. The national 
UPC database is to be used by all State agencies operating a WIC EBT 
food delivery system. Each WIC State agency shall submit a copy of its 
current authorized product list (APL) for inclusion in the national UPC 
database prior to the APL becoming effective or making it available to 
its authorized vendors.

    Dated: February 4, 2013.
Audrey Rowe,
Administrator, Food and Nutrition Service.
[FR Doc. 2013-04216 Filed 2-27-13; 8:45 am]
BILLING CODE 3410-30-P