Federal Government Participation in the Automated Clearing House, 42974-42981 [2014-17296]

Agencies

• Fiscal Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 79, Number 142 (Thursday, July 24, 2014)]
[Rules and Regulations]
[Pages 42974-42981]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17296]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 210

RIN 1530-AA05


Federal Government Participation in the Automated Clearing House

AGENCY: Bureau of the Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury, Bureau of the Fiscal Service 
(Service) is issuing this final rule to amend our regulation governing 
the use of the Automated Clearing House (ACH) network by Federal 
agencies. Our regulation adopts, with some exceptions, the NACHA 
Operating Rules developed by NACHA--The Electronic Payments Association 
(NACHA) as the rules governing the use of the ACH Network by Federal 
agencies. We are issuing this rule to address changes that NACHA has 
made to the NACHA Operating Rules since the publication of NACHA's 2009 
ACH Rules book. These changes include amendments set forth in NACHA's 
2010, 2011, 2012, and 2013 Operating Rules books.

DATES: Effective August 25, 2014. The incorporation by reference of 
certain publications listed in the rule is approved by the Director of 
the Federal Register as of August 25, 2014.

FOR FURTHER INFORMATION CONTACT: Ian Macoy, Supervisory Financial 
Program Specialist, at (202) 874-6835 or ian.macoy@fiscal.treasury.gov 
or Natalie H. Diana, Senior Counsel, at (202) 874-6680 or natalie.diana@fiscal.treasury.gov.

SUPPLEMENTARY INFORMATION: 

I. Proposed Rulemaking and Comments Received

    We published a Notice of Proposed Rulemaking (NPRM) on December 12, 
2013, requesting comment on a number of proposed amendments to title 31 
CFR part 210 (Part 210). 78 FR 75528. Part 210 governs the use of the 
ACH Network by Federal agencies. The ACH Network is a nationwide 
electronic fund transfer (EFT) system that provides for the inter-bank 
clearing of electronic credit and debit transactions and for the 
exchange of payment-related information among participating financial 
institutions. Part 210 incorporates the ACH Rules adopted by NACHA, 
with certain exceptions. From time to time we amend Part 210 in order 
to address changes that NACHA periodically makes to the ACH Rules or to 
revise the regulation as otherwise appropriate.

[[Page 42975]]

    Currently, Part 210 incorporates the NACHA Operating Rules as set 
forth in the 2009 NACHA Operating Rules book. NACHA has adopted a 
number of changes to the NACHA Operating Rules since the publication of 
the 2009 NACHA Operating Rules book. We proposed to incorporate in Part 
210 most, but not all, of the changes published in the 2010, 2011, 2012 
and 2013 NACHA Operating Rules books.
    We received one comment letter on the proposed rule, from NACHA. 
NACHA commented that it supports the proposed adoption of NACHA 
Operating Rules changes since publication of the 2009 NACHA ACH Rules 
book (with effective dates through 2013), including our proposed 
exemptions/exceptions. More specifically, NACHA's response addressed 
our proposed adoption by year in which the corresponding NACHA 
Operating Rules changes were effective. A summary of this response 
follows:
     2010 NACHA Rules--Support for adoption as proposed, 
including the proposed exception of NACHA rules governing risk 
management, due diligence and Originator monitoring practices with the 
acknowledgement that Federal ACH transactions and origination practices 
do not pose the same risk as commercial originations.
     2011 NACHA Rules--Support for adoption as proposed.
     2012 NACHA Rules--Support for adoption as proposed, 
including (a) the continued exemption from NACHA rules governing 
international ACH transactions (IATs) that involve Federal tax payments 
and (b) the exception from the audit deadline extension since NACHA's 
compliance and audit requirements do not apply under 31 CFR Part 210.
     2013 NACHA Rules--Support for adoption as proposed, 
including the continued exemption from the NACHA Operating Rules' Risk 
Management enforcement provisions. NACHA did note that ``formal 
adoption of the Security Framework . . . promotes consistent 
implementation of data security across the ACH Network. . .'' but 
acknowledged that it is a ``longstanding FMS practice to exempt Federal 
agencies'' from NACHA enforcement provisions ``as this exemption is 
consistent with the Federal government's inability to enter into 
arrangements that may result in unfunded liabilities.''

II. Final Rule

Summary

    In the final rule, we are adopting all of the amendments to Part 
210 that were proposed in the NPRM, as follows:
A. 2010 NACHA Operating Rules Book Changes
1. Authorization and Returns
    This NACHA Operating Rules amendment revised the requirements for 
obtaining a Receiver's authorization for an ACH payment and modified 
the processes by which Receiving Depository Financial Institutions 
(RDFIs) handle Receivers' claims of unauthorized debits. Specifically, 
the amendment (1) clarified the requirements for authorization of ACH 
entries, adopting the language of Regulation E that an authorization 
must be ``clear and readily understandable;'' (2) clarified that a 
purported authorization that is not clear and readily understandable is 
not considered a valid authorization; (3) eliminated the requirement 
that Receiver's written statement regarding an unauthorized debit be 
made under penalty of perjury; (4) established minimum information 
requirements for and revised timing requirements related to the written 
statement; and (5) expanded the use of Return Reason Code R39 (Improper 
Source Document) for duplicate check/check conversion payments. We are 
accepting this amendment.
2. Stop Payments and Regulation E
    This amendment revised specific language within the NACHA Operating 
Rules regarding the application and expiration of a stop payment order 
so as to re-align the NACHA Operating Rules with the requirements of 
Regulation E. The amendment (1) eliminated the six-month time period 
after which a stop payment order placed by a consumer lapses; (2) 
provided that, where the stop payment order applies to more than one 
debit entry, the order remains in effect until all such entries have 
been stopped; (3) provided that RDFIs may require, in cases where the 
Receiver desires to block all future payments related to a specific 
authorization/Originator, that the Receiver confirm in writing that the 
Receiver revoked the authorization; and (4) simplified the description 
of Return Reason Code R08 (Payment Stopped). We are accepting this 
amendment.
3. Direct Access Registration
    This amendment modified the NACHA Operating Rules to require 
Originating Depository Financial Institutions (ODFIs) to register their 
Direct Access status with NACHA and imposed certain requirements in 
connection with registration of Direct Access status. We are accepting 
this amendment.
4. Risk Management and Assessment
    This amendment updated the NACHA Operating Rules to codify 
additional risk management, due diligence and monitoring practices that 
ODFIs must follow with respect to Originators and Third-Party Senders. 
We are not incorporating this amendment in Part 210, since the Federal 
government's origination of entries through the ACH Network does not 
involve the conventional roles of Originator/ODFI and does not present 
the risks that this amendment seeks to address.
B. 2011 NACHA Operating Rules Book Changes
1. Mobile ACH Payments
    This rule established a framework for mobile-initiated ACH debit 
entries. It expanded the definition of Internet-Initiated Entries (WEB) 
to include ACH debits authorized or initiated via wireless networks. In 
addition, it applied all the provisions of the WEB SEC Code to mobile 
debit entries. The purpose of the rule was to provide clear information 
on how the NACHA Operating Rules apply to mobile payments and to create 
a more stable environment within which to develop payment products and 
services. We are accepting this rule.
2. Elimination of the Opt Out Requirements of ARC and BOC Entries
    This amendment eliminated the requirement that Originators of 
Accounts Receivable Entries (ARC) and Back Office Conversion Entries 
(BOC) establish and maintain procedures to enable Receivers to opt out 
of check conversion activity. The amendment reflected the fact that opt 
out rates were generally 0.1 percent or lower, indicating that consumer 
concern about check conversion either did not exist or had dissipated 
over time. We are accepting this amendment.
3. Collection of Return Fees
    This rule amendment established a Return Fee Entry as a specific 
type of ACH entry, to be used only for the purpose of collecting return 
fees for certain ACH debits to consumer accounts that are returned for 
insufficient funds or other qualifying checks that are returned NSF/
UCF. The rule allows Originators to obtain authorization for a Return 
Fee Entry by providing the Receiver/check writer

[[Page 42976]]

with notice that conforms to the requirements of Regulation E.
    Part 210 currently provides that agencies with authority to collect 
returned item services fees may do so by originating an ACH debit entry 
following notice to the Receiver. We are accepting this rule change, 
which will enable agencies with authority to collect returned item fees 
by utilizing the Return Fee Entry.
4. Expanded Use of the XCK Application
    This amendment expanded the scope of the Destroyed Check Entry 
(XCK) application to permit its use for certain damaged checks that 
cannot be imaged, or for other check images that cannot be processed. 
The expanded scope allows use of XCK for (1) a check that is missing 
part of the MICR line but that can be sufficiently repaired to create 
an ACH debit; (2) a check that, in whole or in part, is unreadable, 
obscured or mutilated in a manner that prevents automated check 
processing or creating of an image that may be used to produce a 
``substitute check'' under the Check 21 Act, but has an intact MICR 
line; and (3) a check that does not pass standard quality tests for 
creation of an image that may be used to produce a substitute check 
under Check 21. We are accepting this rule change.
5. Recurring TEL
    This amendment revised the definition of, and the general rule for, 
TEL Entries to allow both one-time (Single Entry) and recurring debit 
Entries authorized orally via the telephone. Prior to the amendment, 
only Single Entries were permitted to be authorized via the telephone. 
The amendment expanded the specific authorization language to address 
authorization requirements for recurring TEL Entries in conformance to 
the requirements of Regulation E. Under the amendment, authorizations 
for recurring TEL Entries must meet the writing and signature 
requirements of Regulation E for preauthorized transfers, which can be 
done by conforming to the e-Sign Act. We are accepting this rule 
change.
C. 2012 NACHA Operating Rules Book Changes
1. IAT Modifications and Refinements
    Effective September 18, 2009, the NACHA Operating Rules were 
amended to require ODFIs and Gateway Operators to identify all 
international payment transactions transmitted via the ACH Network for 
any portion of the money trail as International ACH Transactions using 
a new Standard Entry Class Code (IAT). IAT transactions must include 
the specific data elements defined within the Bank Secrecy Act's (BSA) 
``Travel Rule'' so that all parties to the transaction have the 
information necessary to comply with U.S. law, including the laws 
administered by the Office of Foreign Assets Control (OFAC). We 
accepted the IAT rule for Federal payments, except that we delayed the 
effective date for certain government transactions and excluded tax 
payments from the IAT rule.
    Since that time, NACHA has made a number of changes to clarify and 
enhance the Rules where appropriate to support more efficient 
processing of IAT Entries. We are accepting, except as to tax payments, 
all of these changes, which include the following:
 Minimum Description Standards for IAT Entries
    Under the original IAT rule, the RDFI of an inbound IAT Entry to a 
consumer account was required to provide the consumer with certain 
descriptive information in accordance with the requirements of the 
NACHA Operating Rules and Regulation E. With the implementation of IAT, 
however, the minimum description standards within the NACHA Operating 
Rules were not modified to explicitly state that IAT Entries also 
contain information related to terminal city, terminal state, terminal 
identification code/location, and check serial number for certain types 
of payments, and that, when such information is present in an IAT 
Entry, it must be included on the consumer's bank statement. This 
amendment codified these expectations regarding IAT statement 
requirements within the NACHA Operating Rules.
 Gateway Notification of Rejected Inbound International Payment
    This amendment established a requirement that a Gateway notify the 
intended RDFI when an inbound international payment has been blocked 
and/or rejected because the origination of an IAT Entry for such a 
transaction would violate U.S. law. The amendment requires a Gateway 
that rejects an inbound payment transaction to provide the intended 
RDFI with the names and complete addresses of both the Originator and 
the Receiver, the date of the payment transaction, and the dollar 
amount of the intended payment. The Gateway must provide such 
information to the RDFI within five Banking Days of blocking or 
rejecting the payment.
 Transaction Type Code To Identify Remittances
    This amendment expanded the list of code values for use within the 
Transaction Type Code field in the First IAT Addenda Record to identify 
international payments originated by a natural person through a 
remittance product or service. The amendment added a new code for 
remittances initiated by a natural person to facilitate the 
identification and tracking of such payments.
 IAT Entries and the Effect of Illegality
    This amendment clarified that a Participating Depository Financial 
Institution (DFI) must process each IAT Entry in accordance with all 
requirements of the NACHA Operating Rules. A DFI is excused from its 
obligation to comply with specific requirements under the NACHA 
Operating Rules only when the processing of an IAT Entry would cause 
the DFI to be in violation of U.S. law. The DFI must, therefore, comply 
with its obligations under the NACHA Operating Rules unless it 
identifies an IAT as a suspect transaction. For domestic RDFIs that 
receive inbound IATs, these obligations include the timely provision of 
funds and the timely transmission of returns.
 Clarification of Rules Exceptions for IAT Entries
    This amendment clarified the conditions and circumstances under 
which specific provisions of the NACHA Operating Rules do not apply to 
certain IAT Entries. These changes were not substantive in nature, but 
rather more accurately reflect the application of the provisions to 
actual IAT processing.
    Exceptions for Outbound IAT Entries: This amendment revised, as 
appropriate, the list of provisions that do not apply to Outbound IAT 
Entries and clarified that certain functional processes (e.g., 
Prenotifications, NOCs, reversals, etc.) apply to Outbound IAT Entries 
only to the extent that they are supported by the laws and payment 
system rules of the foreign receiving country.
    This amendment also incorporated clearer Originator/ODFI 
obligations with respect to authorization requirements for the 
origination of Outbound IAT Entries, noting that, while such payments 
must be authorized under the Rules, the form and content of such an 
authorization are governed by the laws and payment system rules of the 
foreign receiving country. The amendment also clarified that the 
Gateway for an Outbound IAT Entry assumes specific responsibilities and 
warranties of an RDFI, but that the Rules do not govern the Gateway's 
rights and obligations

[[Page 42977]]

with respect to the foreign Receiver of the Outbound IAT Entry.
    Exceptions for Inbound IAT Entries: This amendment incorporated a 
new subsection that identifies exceptions to the NACHA Operating Rules 
for Inbound IAT Entries, listing NOCs as applicable to Inbound IAT 
Entries only to the extent that NOCs are supported by the laws and 
payment system rules of the foreign originating country. However, 
because accurate payment information is critical to the successful 
processing of any ACH Entry (including any IAT Entry), this amendment 
also requires a Gateway that receives an NOC related to an Inbound IAT 
to pass the correct payment information to its contact in the foreign 
country (i.e., the Foreign Gateway or the Originator in the foreign 
country). Unlike the domestic NOC process, the Gateway (as ODFI) would 
have no obligation to ensure that future Inbound IAT Entries bear the 
corrected information.
 Required Gateway Agreements and Authorizations for Outbound 
IAT Entries
    This amendment requires a Gateway to have an agreement in place 
with either the ODFI or its own customer (i.e., its own account holder 
or another party) before transmitting Outbound IAT Entries 
internationally. Similarly, this amendment also requires the Gateway to 
obtain authorization from either the ODFI or its own customer 
(whichever has the agreement with the Gateway) to (i) transmit outbound 
IAT Entries, (ii) arrange for settlement of such Entries with the 
Foreign Gateway, and (iii) arrange for further transmission of such 
Entries to the foreign receiving financial institution and settlement 
of such payments to the foreign Receiver's account. The rule also 
expands the scope of Return Reason Code R81 (Non-Participant in IAT 
Program) to facilitate the return of an IAT Entry where these required 
agreements/authorizations are not in place.
    Prior to this amendment, the requirements for these specific 
agreements and authorizations by a Gateway did not address alternative 
international payments models in which the Gateway's own account holder 
or customer (rather than the ODFI) has established an arrangement and 
entered into an agreement with the Gateway to move funds out of the 
U.S. for further credit to a foreign account.
 Return of Outbound IAT Entry by Foreign Gateway--Transmission 
of ACH Return by Gateway to ODFI
    This amendment clarified the timeframe for a Gateway to transmit an 
ACH Return Entry for any Outbound IAT Entry that was properly returned 
to it by a Foreign Gateway.
 Identification of the Foreign Funding Financial Institution 
Within an IAT Entry
    This amendment revised the descriptions of several fields in the 
Fourth IAT Addenda Record to clarify that this information, when 
contained in an Inbound IAT Entry, must identify the foreign financial 
institution that provides the funding for the transaction.
 Clarification of Originator Identification Field
    This amendment revised the description of the Originator 
Identification Field to address how the field must be populated in 
various circumstances. Three specific conditions addressed by this 
change are:
    Originators Not Established Under the Laws of a State or the United 
States: The NACHA Operating Rules require the Originator Identification 
field to contain an identification number defined by Section 326 of the 
USA PATRIOT Act for any Originator that is not a natural person and is 
not established or organized under the laws of a State or the United 
States. However, the U.S. Treasury has not defined such a numbering 
scheme, leaving a gap within the Rules as to how to identify a foreign 
Originator within the ACH record. To close this gap, this amendment 
established the same methodology used in the wire transfer system, 
which defines the DDA account number at the foreign financial 
institution as the Originator Identification Number.
    Use of Leading Characters as Part of the Originator Identification 
Number: This change explicitly permits Originators and ODFIs to include 
a one-digit alphameric code in the first position of the Originator 
Identification Field to allow for further identification and handling 
of the payment by the ODFI.
    Identification of Third-Party Senders in IAT Entries: This 
amendment broadened the definition of the Originator Identification 
Field to permit inclusion of the tax identification number of either 
the Originator or the Third-Party Sender when the ODFI has the 
contractual relationship with the Third-Party Sender rather than the 
Originator of the Entry.
 Return Reason Codes R80-R84: Clarification of Use for Outbound 
IAT Entries Only
    This amendment revised the descriptions of Return Reason Codes R80-
R84 (which are used solely by a Gateway) to clarify that these codes 
are applicable only to Outbound IAT Entries.
 Expansion of Return Reason Code R84 (Entry Not Processed by 
Gateway Operator)
    This amendment broadened the scope of Return Reason Code R84 (Entry 
Not Processed by Gateway) to accommodate a Gateway's return of an 
Outbound IAT Entry when it is unable to process the transaction because 
the payment system in the foreign receiving country does not support a 
particular rule or function defined as part of the domestic ACH 
Network.
2. Minor Impact Issues
    These NACHA Operating Rule changes include editorial changes to 
grammar, clarifications of intent, changes that involve minor software 
modifications, and so forth, including the following:

 Modification of the Definition of XCK Ineligible Items
 Clarification of Recurring TEL Authorization Retention 
Requirements
 Correction to payment Type Code for TEL Entries
 Correction to Definition of Improper ARC and BOC Debit Entries
    We are accepting all the foregoing minor impact changes.
3. Risk Management Enhancements
    This amendment extended the deadline by which an audit of 
compliance with the NACHA Operating Rules must be completed. We are not 
accepting this amendment because the compliance and audit requirements 
of the NACHA Operating Rules are not incorporated in Part 210.
4. Pain Points in the Rules--Phase Two
     Elimination of WEB Exposure Limits. This amendment removed 
the requirement that ODFIs establish separate WEB exposure limits for 
Originators and Third-Party Senders. This amendment does not affect 
Federal agencies because the WEB exposure limits are not incorporated 
in Part 210.
     Modification of Accounts Receivable Conversion (ARC) 
Entries to Permit the Conversion of Checks Tendered in Person for the 
Payment of a Bill at a Manned Location. This amendment modified the 
scope of the ARC application to permit the conversion of checks 
tendered in person for the payment of a bill at a manned location. The 
rule also requires Originators accepting bill payments in this in-
person environment to provide a copy of the authorization notice to the

[[Page 42978]]

Receiver at the time of the transaction. We are accepting this rule 
change.
D. 2013 NACHA Operating Rules Book Changes
1. IAT Modifications
    Several amendments to the IAT rule were enacted in the 2013 NACHA 
Operating Rules book. We are accepting all the amendments, as follows:
 Use of Return Reason Code R16 To Identify OFAC-Related Returns
    This amendment expanded the title and description of Return Reason 
Code R16 (Account Frozen) to accommodate this code's use for an RDFI's 
return of an Entry based on an instruction from OFAC.
 Return Reason Code and Change Code for Gateway Use With 
Incorrectly-Coded International Payments
    This amendment established two new codes--one Return Reason Code 
and one Change Code--for use by Gateways to advise ODFIs and 
Originators that funds related to a domestically-coded Entry (i.e., 
PPD, CCD, etc.) are being moved out of the country and that the Entry 
should have been formatted as an IAT Entry. The new codes enable the 
Gateway to process or return the payment, depending on its risk 
tolerance, while conveying critical payment information back to the 
ODFI.
 Corrected Data for IAT Entries--NOC Code Descriptions
    This amendment corrected the descriptions of Change Codes C04 
(Incorrect Individual Name/Receiving Company Name) and C09 (Incorrect 
Individual Identification Number) as they relate to IAT Entries.
 ODFI Warranties--Compliance With Foreign Payment System Rules
    This amendment narrowed the scope of the ODFI warranty of 
compliance with foreign payment system rules for outbound IAT entries 
to focus only on authorization of the entry when such authorization is 
required by the laws or payment system rules of the receiving country.
2. Stop Payments
    Effective September 20, 2013, the NACHA Operating Rules were 
amended to incorporate two additional conditions under which a stop 
order relating to a debit entry to a non-Consumer account would lapse. 
Under the amendment, a stop order expires if withdrawn by the Receiver 
or if the debit entry to which the order relates is returned. The 
amendment, which we are accepting, incorporates current industry 
practice into the NACHA Operating Rules.
3. Originator Obligations With Respect to Notifications of Change for 
Single Entries
    Effective September 20, 2013, the NACHA Operating Rules were 
amended to make optional the Originator's response to Notifications of 
Change for Single Entry payments. Specifically, Originators are no 
longer required to make changes requested within Notifications of 
Change identified as Single Entry items. We are accepting this 
amendment.
4. Health Care Payments Via ACH
    Effective September 20, 2013, the NACHA Operating Rules were 
amended to support health plans' and health care providers' use of the 
ACH Network by adopting processing enhancements that address requests 
made by the health care industry, as well as specific transaction 
identification and formatting requirements for health care claim 
payments. The amendments operate in combination with health care 
industry operating rules for electronic funds transfers (EFT) and 
electronic remittance advice (ERA) developed by the Council on 
Affordable Quality Healthcare (CAQH) Committee on Operating Rules for 
Information Exchange (CORE), in collaboration with NACHA, and the 
designation by the Department of Health and Human Services (HHS) of the 
Cash Concentration or Disbursement CCD entry as the health care EFT 
standard transaction. Taken together, these sets of rules provide for 
the efficient and standardized electronic payment of health care 
claims, and the reassociation of the payments with health care 
remittance information (``reassociation''), resulting in administrative 
simplification by health plans and health care providers. The NACHA 
Rule amendments enable financial institutions to be ready to send and 
receive health care CCD entries for health plans and health care 
providers.
    The five major components of the Health Care EFT rule changes are 
as follows:

 Unique Identification of Health Care EFTs
 Additional Formatting Requirements for Health Care EFT 
Transactions
 Delivery of Payment Related Information (Reassociation Number)
 Addition of New Electronic Data Interchange EDI Data Segment 
Terminator
 Health Care Terminology within the NACHA Operating Rules

    We are accepting all of the NACHA Operating Rules changes related 
to Health Care EFTs.
5. ACH Security Framework
    This amendment to the NACHA Operating Rules created a Security 
Framework aimed at protecting the security and integrity of certain ACH 
data throughout its lifecycle. The Security Framework establishes 
minimum data security obligations for ACH Network participants to 
protect ACH data within their purview by:
     Requiring non-consumer Originators, Participating DFIs, 
Third Party Service Providers, and Third-Party Senders to establish, 
implement, and, as appropriate, update security policies, procedures, 
and systems related to the initiation, processing, and storage of 
Entries.
     Requiring each Participating DFI, Third-Party Service 
Provider, and Third-Party Sender to verify, as part of its annual ACH 
Rules Compliance Audit, that it has established, implemented, and 
updated the data security policies, procedures, and systems required by 
the Security Requirements rules.
     Requiring ODFIs to use a commercially reasonable method to 
establish the identity of each non-Consumer Originator or Third-Party 
Sender with which the ODFI enters into an Origination Agreement.
    We are not accepting the Security Framework requirements in Part 
210 because Part 210 does not incorporate the rules compliance and 
audit requirements that the Security Framework expands. Federal 
agencies are subject to various Federal requirements governing data 
security, systems security, and the protection of sensitive information 
such that additional NACHA Operating Rules requirements would be unduly 
burdensome and unnecessary.
6. Data Passing (Risk Management)
    This amendment prohibited sharing of certain customer information 
by Originators, Third-Party Service Providers, and ODFIs for the 
purpose of initiating debit Entries that are not covered by the 
original authorization. We are accepting this amendment.
7. ODFI Return Rate Reporting (Risk Management)
    This amendment reduced the ODFI Return Rate Reporting period from 
60 days to 30 days for reducing return rates below the return rate 
threshold before initiation of a NACHA Operating Rules enforcement 
proceeding. This amendment does not affect Federal

[[Page 42979]]

agencies because Part 210 does not incorporate the NACHA Operating 
Rules enforcement provisions.
8. Incomplete Transactions (Risk Management)
    This amendment allows the return of a debit Entry to a Consumer 
Account within 60 days of the Settlement Date for an ``Incomplete 
Transaction,'' which is defined as a transaction for which a Third 
Party Sender debits a consumer's account to collect funds, but does not 
complete the corresponding payment to the party to which payment is 
owed. We are accepting this amendment.

Section-by-Section Analysis

    In order to incorporate in Part 210 the NACHA Rule changes that we 
are accepting, we are replacing references to the 2009 ACH Rules book 
with references to the 2013 NACHA Operating Rules and Guidelines book. 
For those NACHA Rule changes that we are not incorporating 
(specifically, amendments to the rules enforcement provisions), Part 
210 already provides that the rules enforcement provisions of Appendix 
11 of the NACHA Operating Rules do not apply to Federal agency ACH 
transactions. See Sec.  210.2(d)(3). The reference to Appendix 11 is 
being replaced with a reference to Appendix 10 to reflect numbering 
changes to the rule.
Sec. 210.2
    We are amending the definition of ``applicable ACH Rules'' at Sec.  
210.2(d) to reference the rules published in NACHA's 2013 Rules book 
rather than the rules published in NACHA's 2009 Rules book. The 
definition has been updated to reflect the reorganization and 
renumbering of the NACHA Operating Rules. The changes to the definition 
are not substantive except:
    (1) The deletion of the reference to ACH Rule 2.11.2.3, which 
required ODFIs to establish exposure limits for Originators of 
Internet-initiated debit entries. That requirement has been eliminated 
by NACHA;
    (2) The exclusion from the definition of Section 2.2, which 
generally requires ODFIs to enter into agreements with Originators and 
Third-Party Senders and perform certain due diligence with respect to 
those entities; and
    (3) The elimination of a temporary exclusion from the IAT rules for 
debit entries originated by agencies and for certain entries delivered 
to Mexico, Canada, and Panama through the FedGlobal\sm\ ACH Payment 
Service. Those references have been deleted because the temporary 
exclusion has now expired.
    We are amending the definition of ``Service'' at Sec.  210.2(p) to 
reflect the renaming of the Financial Management Service to the Bureau 
of the Fiscal Service.
Sec. 210.3(b)
    We are amending Sec.  210.3(b) by replacing the references to the 
ACH Rules as published in the 2009 Rules book with references to the 
ACH Rules as published in the 2013 NACHA Operating Rules and Guidelines 
book.
Sec. 210.6
    References to ACH Rules 2.2.3, 2.4.5, 2.5.2, 4.2, and 8.7.2 have 
been replaced by references to Subsections 2.4.4, 2.8.4, 4.3.5, 2.92, 
3.2.2, and 3.13.3 to reflect re-numbering of the NACHA Operating Rules.
    In subsection (g), references to ACH Rules 2.1.2 and 3.12 have been 
replaced by references to Subsections 2.3.2.2 and 2.5.10.1 to reflect 
re-numbering of the NACHA Operating Rules.
    Subsection (h), which addressed return item service fees, has been 
revised. This subsection currently provides that an agency that had 
authority to collect returned item service fees can do so by 
originating an ACH debit entry to collect a one-time service fee in 
connection with an ARC, POP, or BOC entry that is returned due to 
insufficient funds, provided a notice was given to the receiver. Prior 
to 2011, the NACHA Operating Rules did not permit return item fees to 
be collected without the receiver's written authorization. In 2011, the 
NACHA Operating Rules were amended to include a new Entry type, Return 
Fee Entry, that may be used to collect return fees for certain ACH 
debits and qualifying checks that are returned NSF, subject to the 
provision of notice to the Receiver [ACH Rule 2.14]. Subsection (h) is 
revised to reflect this change.
Sec. 210.8
    The references to ACH Rules 2.2.3, 2.4.5, 2.5.2, 4.2, and 8.7.2 
have been replaced with references to ACH Rules Subsections 2.4.4, 
2.8.4, 4.8.5, 2.9.2, 3.2.2, and 3.13.3 to reflect re-numbering of the 
ACH Rules. In addition, the regulatory citation to Regulation E has 
been updated to reflect its re-codification at 12 CFR Part 1005.

III. Procedural Requirements

Regulatory Planning and Review

    Executive Orders 13563 and 12866 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. The 
rule does not meet the criteria for a ``significant regulatory action'' 
as defined in Executive Order 12866. Therefore, the regulatory review 
procedures contained therein do not apply.

Regulatory Flexibility Act Analysis

    It is hereby certified that the rule will not have a significant 
economic impact on a substantial number of small entities. The rule 
imposes on the Federal government a number of changes that NACHA, The 
Electronic Payments Association, has already adopted and imposed on 
private sector entities that utilize the ACH. The rule does not impose 
any additional burdens, costs, or impacts on any private sector 
entities, including any small entities. Accordingly, a regulatory 
flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. 601 
et seq) is not required.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532 (Unfunded Mandates Act), requires that the agency prepare a 
budgetary impact statement before promulgating any rule likely to 
result in a Federal mandate that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more in any one year. If a budgetary 
impact statement is required, section 205 of the Unfunded Mandates Act 
also requires the agency to identify and consider a reasonable number 
of regulatory alternatives before promulgating the rule. We have 
determined that the rule will not result in expenditures by State, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. Accordingly, we have 
not prepared a budgetary impact statement or specifically addressed any 
regulatory alternatives.

List of Subjects in 31 CFR Part 210

    Automated Clearing House, Electronic funds transfer, Financial 
institutions, Fraud, and Incorporation by reference.

Words of Issuance

    For the reasons set out in the preamble, 31 CFR part 210 is amended 
as follows:

[[Page 42980]]

PART 210--FEDERAL GOVERNMENT PARTICIPATION IN THE AUTOMATED 
CLEARING HOUSE

0
1. The authority citation for part 210 continues to read as follows:

    Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31 U.S.C. 321, 3301, 
3302, 3321, 3332, 3335, and 3720.


0
2. In Sec.  210.2, revise paragraphs (d) and (p) to read as follows:


Sec.  210.2  Definitions.

* * * * *
    (d) Applicable ACH Rules means the ACH Rules with an effective date 
on or before September 21, 2013, as published in ``2013 NACHA Operating 
Rules and Guidelines: A Complete Guide to Rules Governing the ACH 
Network'' (incorporated by reference, see Sec.  210.3), except:
    (1) ACH Rules 1.2.2, 1.2.3, 1.2.4, 1.2.5, and 1.2.6; Appendix 
Seven; Appendix Eight; Appendix Nine; and Appendix Ten (governing the 
enforcement of the ACH Rules, including self-audit requirements, and 
claims for compensation);
    (2) Section 2.10 and Section 3.6 (governing the reclamation of 
benefit payments);
    (3) The requirement in Appendix Three that the Effective Entry Date 
of a credit entry be no more than two Banking Days following the date 
of processing by the Originating ACH Operator (see definition of 
``Effective Entry Date'' in Appendix Three);
    (4) Section 2.2 (setting forth ODFI obligations to enter into 
agreements with, and perform risk management relating to, Originators 
and Third-Party Senders) and Section 1.6 (Security Requirements);
    (5) Section 2.17 (requiring reporting and reduction of high rates 
of entries returned as unauthorized); and
    (6) The requirements of ACH Rule 2.11 (International ACH 
Transactions) shall not apply to entries representing the payment of a 
Federal tax obligation by a taxpayer.
* * * * *
    (p) Service means the Bureau of the Fiscal Service, Department of 
the Treasury.
* * * * *

0
3. In Sec.  210.3, revise paragraph (b) to read as follows:


Sec.  210.3  Governing law.

* * * * *
    (b) Incorporation by reference--applicable ACH Rules. (1) This part 
incorporates by reference the applicable ACH Rules, including rule 
changes with an effective date on or before September 21, 2013, as 
published in the ``2013 NACHA Operating Rules and Guidelines: A 
Complete Guide to Rules Governing the ACH Network.'' The Director of 
the Federal Register approves this incorporation by reference in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of the ``2013 
NACHA Operating Rules and Guidelines'' are available from NACHA--The 
Electronic Payments Association, 13450 Sunrise Valley Drive, Suite 100, 
Herndon, Virginia 20171. Copies also are available for public 
inspection at the Bureau of the Fiscal Service, 401 14th Street SW., 
Room 400B, Washington, DC 20227, tel. 202-874-6680 and at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, visit https://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html or 
call 202-741-6030.
    (2) Any amendment to the applicable ACH Rules that is approved by 
NACHA--The Electronic Payments Association after September 21, 2013 
shall not apply to Government entries unless the Service expressly 
accepts such amendment by publishing notice of acceptance of the 
amendment to this part in the Federal Register. An amendment to the ACH 
Rules that is accepted by the Service shall apply to Government entries 
on the effective date of the rulemaking specified by the Service in the 
Federal Register notice expressly accepting such amendment.
* * * * *
0
4. Revise Sec.  210.6 to read as follows:


Sec.  210.6  Agencies.

    Notwithstanding any provision of the ACH Rules, including 2.4.4, 
2.8.4, 4.3.5, 2.92, 3.2.2, and 3.13.3, agencies shall be subject to the 
obligations and liabilities set forth in this section in connection 
with Government entries.
    (a) Receiving entries. An agency may receive ACH debit or credit 
entries only with the prior written authorization of the Service.
    (b) Liability to a recipient. An agency will be liable to the 
recipient for any loss sustained by the recipient as a result of the 
agency's failure to originate a credit or debit entry in accordance 
with this part. The agency's liability shall be limited to the amount 
of the entry(ies).
    (c) Liability to an originator. An agency will be liable to an 
originator or an ODFI for any loss sustained by the originator or ODFI 
as a result of the agency's failure to credit an ACH entry to the 
agency's account in accordance with this part. The agency's liability 
shall be limited to the amount of the entry(ies).
    (d) Liability to an RDFI or ACH association. Except as otherwise 
provided in this part, an agency will be liable to an RDFI for losses 
sustained in processing duplicate or erroneous credit and debit entries 
originated by the agency. An agency's liability shall be limited to the 
amount of the entry(ies) and shall be reduced by the amount of the loss 
resulting from the failure of the RDFI to exercise due diligence and 
follow standard commercial practices in processing the entry(ies). This 
section does not apply to credits received by an RDFI after the death 
or legal incapacity of a recipient of benefit payments or the death of 
a beneficiary as governed by subpart B of this part. An agency shall 
not be liable to any ACH association.
    (e) Acquittance of the agency. The final crediting of the amount of 
an entry to a recipient's account shall constitute full acquittance of 
the Federal Government.
    (f) Reversals. An agency may reverse any duplicate or erroneous 
entry, and the Federal Government may reverse any duplicate or 
erroneous file. In initiating a reversal, an agency shall certify to 
the Service that the reversal complies with applicable law related to 
the recovery of the underlying payment. An agency that reverses an 
entry shall indemnify the RDFI as provided in the applicable ACH Rules, 
but the agency's liability shall be limited to the amount of the entry. 
If the Federal Government reverses a file, the Federal Government shall 
indemnify the RDFI as provided in the applicable ACH Rules, but the 
extent of such liability shall be limited to the amount of the entries 
comprising the duplicate or erroneous file. Reversals under this 
section shall comply with the time limitations set forth in the 
applicable ACH Rules.
    (g) Point-of-purchase debit entries. An agency may originate a 
Point-of-Purchase (POP) entry using a check drawn on a consumer or 
business account and presented at a point-of-purchase. The requirements 
of ACH Rules 2.3.2.2 and 2.5.10.1 shall be met for such an entry if the 
Receiver presents the check at a location where the agency has posted 
the notice required by the ACH Rules and has provided the Receiver with 
a copy of the notice.
    (h) Return Fee Entry. An agency that has authority to collect 
returned item service fees may do so by originating a Return Fee Entry 
if the agency provides notice to the Receiver in accordance with the 
ACH Rules.''

[[Page 42981]]


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5. Amend Sec.  210.8 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  210.8  Financial institutions.

    (a) Status as a Treasury depositary. The origination or receipt of 
an entry subject to this part does not render a financial institution a 
Treasury depositary. A financial institution shall not advertise itself 
as a Treasury depositary on such basis.
    (b) Liability. Notwithstanding ACH Rules 2.4.4, 2.8.4, 4.8.5, 
2.9.2, 3.2.2, and 3.13.3, if the Federal Government sustains a loss as 
a result of a financial institution's failure to handle an entry in 
accordance with this part, the financial institution shall be liable to 
the Federal Government for the loss, up to the amount of the entry, 
except as otherwise provided in this section. A financial institution 
shall not be liable to any third party for any loss or damage resulting 
directly or indirectly from an agency's error or omission in 
originating an entry. Nothing in this section shall affect any 
obligation or liability of a financial institution under Regulation E, 
12 CFR part 1005, or the Electronic Funds Transfer Act, 12 U.S.C. 1693 
et seq.
* * * * *

    Dated: July 18, 2014.
David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2014-17296 Filed 7-23-14; 8:45 am]
BILLING CODE 4810-35-P