Federal Government Participation in the Automated Clearing House, 15715-15721 [2020-04992]

Agencies

• Fiscal Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 85, Number 54 (Thursday, March 19, 2020)]
[Rules and Regulations]
[Pages 15715-15721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04992]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 210

[FISCAL-2019-0001]
RIN 1510-AB32


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 
(Fiscal Service or ``we'') is adopting the changes proposed in its 
Notice of Proposed Rulemaking (NPRM) for its 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 (now known as 
Nacha), as the rules governing the use of the ACH Network by Federal 
agencies. We are issuing this final rule to address changes that Nacha 
has made to the NACHA Operating Rules since the publication of the 2016 
NACHA Operating Rules & Guidelines book. These changes include 
amendments set forth in the 2017, 2018, and 2019

[[Page 15716]]

NACHA Operating Rules & Guidelines books with an effective date on or 
before June 30, 2021.

DATES Effective April 20, 2020. The incorporation by reference of 
certain publications listed in the rule is approved by the Director of 
the Federal Register as of April 20, 2020.

ADDRESSES: You can download this final rule at the following internet 
address: https://www.fiscal.treasury.gov/ach/.

FOR FURTHER INFORMATION CONTACT: Ian Macoy, Director of Settlement 
Services, at (202) 874-6835 or [email protected]; Natalie 
H. Diana, Senior Counsel, at (202) 874-6680 or 
[email protected]; or Caitlin Gehring, Attorney 
Advisor, at (202) 874-5710 or [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    On January 3, 2020, we published a Notice of Proposed Rulemaking at 
85 FR 265, requesting comment on proposed amendments to 31 CFR part 210 
(Part 210), which governs the use of the ACH Network by Federal 
agencies. The ACH Network is a nationwide electronic fund transfer 
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. Rights and 
obligations among participants in the ACH Network are governed by the 
NACHA Operating Rules, which Part 210 incorporates by reference, with 
certain exceptions. From time to time, the Fiscal Service amends Part 
210 in order to address changes that Nacha periodically makes to the 
NACHA Operating Rules or to revise the regulation as otherwise 
appropriate.
    In 2017, Part 210 incorporated the NACHA Operating Rules as set 
forth in the 2016 NACHA Operating Rules & Guidelines book. Nacha has 
adopted a number of changes to the NACHA Operating Rules since the 
publication of the 2016 NACHA Operating Rules & Guidelines book. We are 
incorporating most, but not all, of the rule changes that Nacha adopted 
in 2017 and 2018, as set forth in the 2019 NACHA Operating Rules & 
Guidelines book (2019 Rule Book). We are also adopting one change to 
Part 210, related to reclamations, that does not stem from a change to 
the NACHA Operating Rules, and several non-substantive changes to 
reflect the renumbering of certain NACHA rules and appendices.
    We are adopting as final all of the amendments proposed in the 
NPRM.

II. Public Comment and Fiscal Service Response

    Fiscal Service sought public comment on the proposed rule to assist 
the agency in giving full consideration to the matters discussed in the 
proposed rule. We received comments from two organizations, Nacha and 
the Independent Community Bankers of America (ICBA), and two 
individuals, though one of the individual's comment did not discuss the 
proposed rule and is therefore not addressed. Both Nacha and ICBA 
supported the proposed adoption of the NACHA Rules as set forth in the 
2019 NACHA Operating Rules & Guidelines, as well as our proposed change 
to the provision related to actual or constructive notice of death. We 
appreciate Nacha's and ICBA's support of the changes and Fiscal 
Service's efforts to embrace the ACH operating rules.
    ICBA, Nacha and one individual commenter also supported Fiscal 
Service's proposed adoption of The Supplementing Fraud Detection 
Standards for WEB Debits rule, though both ICBA and Nacha urged Fiscal 
Service to adopt the rule by Nacha's effective date of March 19, 2021. 
The Supplementing Fraud Detection Standards for WEB Debits rule will 
require originators of WEB debit entries to perform account validation 
before originating a WEB debit to an account for the first time and 
upon a change to an account number receiving WEB debit entries. Fraud 
prevention is a top priority of Fiscal Service and we will be actively 
working toward implementing account validation for agency originated 
WEB debits. However, government-wide implementation is not feasible by 
the March 2021 deadline. Implementing this change affects multiple 
systems and requires substantial lead time and additional financial 
resources. We expect some of our systems will be compliant by Nacha's 
deadline but know that government-wide compliance will not be possible 
by March 2021. Therefore, Fiscal Service is delaying the effective date 
of this rule to March 19, 2022.
    One individual commenter opposed the increase, for Same Day ACH 
eligibility, of the maximum per-entry amount from the current $25,000 
to $100,000 (Same Day ACH Dollar Limit Increase) as potentially 
contributing to greater exposure to losses from fraud or error. 
However, we would note that other ACH entries (generally next-day or 
future-day settlement) already have a much higher, system-imposed limit 
of $99,999,999.99. Further, the ACH Network and Part 210 provide 
parties return rights in the event that fraud or an error in the 
valuation of an entry has occurred. We view the benefits of the Same 
Day ACH Dollar Limit Increase to parties paying or receiving funds from 
the federal government, together with existing protections inherent to 
the government's use of the ACH Network, as exceeding any marginal 
increase in risk resulting from a higher Same Day ACH entry limit. 
Accordingly, we are adopting the increase in the Same Day ACH Dollar 
Limit to $100,000.

III. Summary of Final Rule

A. 2017 NACHA Operating Rules & Guidelines Book (2017 Rules Book) 
Changes

    In 2017 Nacha adopted a new rule, the Third-Party Sender Rule, 
which requires every Originating Depository Financial Institution 
(ODFI) either to register its Third-Party Sender customers with Nacha 
or to provide Nacha with a statement that it has no such customers. The 
rule, which became effective on September 29, 2017, establishes 
deadlines for the initial provision and updating of registration 
information, and provides that Nacha may request from an ODFI certain 
additional information regarding a Third-Party Sender.
    A Third-Party Sender is a type of third-party service provider that 
acts as an intermediary in transmitting entries between an Originator 
and an ODFI. Federal agencies and Fiscal Service do not utilize Third-
Party Senders. Although Fiscal Service uses fiscal and financial agents 
(Federal Reserve Banks and certain chartered depository financial 
institutions, respectively) in its ACH payments and collections 
operations, those entities are not providing services in a capacity as 
Third-Party Senders. Accordingly, the rule will not affect the Federal 
government. We are incorporating in Part 210 the Third-Party Sender 
Rule.

B. 2018 NACHA Operating Rules & Guidelines Book (2018 Rules Book) 
Changes

    Nacha did not publish any new rules in the 2018 Rules Book. The 
2018 Rule Book contains revisions related to the implementation of 
Phase 2 of Same Day ACH, which we adopted in 2017 (See 82 FR 42597), 
and the Third-Party Sender Rule discussed in Section A above.

C. 2019 NACHA Operating Rules & Guidelines Book (2019 Rules Book) 
Changes

    The 2019 Rules Book contains changes related to the following 
amendments:

[[Page 15717]]

     Faster Funds Availability;
     Same Day ACH Dollar Limit Increase; and
     New Same Day ACH Processing Window.
    In the Final Rule we are adopting all three of these amendments to 
the 2019 Rules Book in Part 210, as follows:
1. Faster Funds Availability
    The Faster Funds Availability rule will provide faster funds 
availability for many ACH credits. Funds from Same Day ACH credits 
processed in the first Same Day processing window will be made 
available to the Receiver for withdrawal by 1:30 p.m., Receiving 
Depository Financial Institution (RDFI) local time. Funds from all non-
Same Day ACH credits that are made available to the RDFI by 5:00 p.m., 
RDFI local time, on the banking day before Settlement Date will be 
available to the Receiver for withdrawal by 9:00 a.m., RDFI local time, 
on Settlement Date.
    Previously, funds from non-Same Day ACH credits were required to be 
made available to the Receiver for withdrawal by the end of the 
Settlement Date, which could be at any hour before the RDFI's close of 
business or by the end of day at an ATM. One exception was for 
Prearranged Payment and Deposit (PPD) credits made available to the 
RDFI by 5:00 p.m., RDFI local time, on the banking day before 
Settlement Date. The RDFI was required to provide funds availability 
for these credits by the opening of business on Settlement Date. This 
exception is now the standard practice for any ACH credit made 
available to the RDFI by 5:00 p.m., RDFI local time, on the banking day 
before Settlement Date. This rule change also establishes a firm time 
of 9:00 a.m., RDFI local time, for such availability and eliminates 
references to ``opening of business.''
    Receivers will have earlier funds availability for a large portion 
of ACH credits:
     Funds from non-Same Day ACH credits made available to the 
RDFI by 5:00 p.m., RDFI local time, on the banking day before 
settlement will be available to the Receiver for withdrawal on 
Settlement Date by 9:00 a.m., RDFI local time;
     Funds from Same Day credits received in the first Same Day 
ACH processing window will be available to the Receiver for withdrawal 
by 1:30 p.m., RDFI local time; and
     Funds from Same Day credits received in the second Same 
Day ACH processing window will be available to the Receiver for 
withdrawal by 5:00 p.m., RDFI local time.
    This NACHA rule became effective on September 20, 2019. We are 
accepting this amendment. Because the government is not a depository 
institution, the rule will not affect the government's receipt of ACH 
payments, but will mean that some recipients of government Same Day and 
non-Same Day ACH payments will have earlier access to their funds from 
their financial institutions.
2. Same Day ACH Dollar Limit Increase
    The Same Day ACH Dollar Limit Increase rule will increase the per-
transaction dollar limit for Same Day transactions from $25,000 to 
$100,000. At implementation, both Same Day ACH credits and Same Day ACH 
debits will be eligible for Same Day processing up to $100,000 per 
transaction. Nacha's rule is effective on March 20, 2020.
    We are accepting this rule, which will enable individuals and 
entities to make Same Day ACH payments of up to $100,000 to the 
government, and will enable Federal agencies to make Same Day ACH 
payments of up to $100,000.
3. New Same Day ACH Processing Window
    The New Same Day ACH Processing Window rule will create a new 
processing window that will enable ODFIs and their customers to 
originate Same Day transactions for an additional two hours each 
banking day. The new window will allow Same Day ACH files to be 
submitted to the ACH Operators until 4:45 p.m. ET. RDFIs will receive 
files from this third window by 5:30 p.m. ET, with interbank settlement 
occurring at 6:00 p.m. ET. RDFIs will need to make funds available for 
credits processed in the new window by the end of their processing for 
that Settlement Date. All credits and debits, and all returns, will be 
eligible to be processed in the new Same Day ACH window, with the 
exception of International ACH Transactions (IATs), Automated 
Enrollment Entries (ENRs), and forward entries in excess of the per-
transaction dollar limit.
    Currently, ODFIs can submit Same Day ACH files to the ACH Operators 
until 2:45 p.m. ET. ODFI processing arrangements that use payment 
processors and correspondent institutions have earlier deadlines. ACH 
end-users may have even earlier deadlines to submit Same Day ACH files 
to their ODFIs. These timing requirements can make it impractical for 
many ODFIs to offer, or for ACH end-users to adopt, Same Day ACH 
payments. Adding a third, later Same Day ACH processing window will 
provide greater access for all ODFIs and their customers.
    Nacha's rule is effective on March 19, 2021. We are accepting this 
rule, which will give more individuals and entities the opportunity to 
pay the government by Same Day ACH. It will also make it possible for 
the government to originate Same Day ACH payments later in the day than 
is currently possible.

D. Supplement #2-2018 to the NACHA Operating Rules Changes

    On November 2, 2018, the NACHA Voting Membership approved nine 
amendments to the NACHA Operating Rules. Because the nine amendments 
were approved just prior to publication of the 2019 Rules Book, the 
amendments are included in the rule book as a separate supplement 
rather than within the main body of the publication.
1. Return for Questionable Transaction
    Before adoption of this amendment, an RDFI could return an ACH 
entry for any reason, except as otherwise provided in Article Three, 
Subsection 3.8.1 (Restrictions on RDFI's Right to Transmit Return 
Entries) of the NACHA Operating Rules. Defined return reasons included, 
among others, entries that were deemed unauthorized by the Receiver or 
those with an invalid account number or no account at the RDFI. If an 
RDFI wanted to return an entry that did not have a valid account number 
and appeared to be questionable, suspicious, or anomalous in some way, 
the RDFI did not have a defined return reason code to communicate this 
information to the ODFI and Originator. NACHA guidance allowed RDFIs to 
use reason code R17 to return questionable transactions that would 
otherwise be returned using a standard administrative return reason 
(R03--No Account/Unable to Locate Account or R04--Invalid Account 
Number Structure). However, none of these options enabled an ODFI or 
its Originator to differentiate questionable transactions from other 
routine account number errors.
    Under the Return for Questionable Transaction rule, RDFIs are able 
(but not required) to use Return Reason Code R17--File Record Edit 
Criteria to indicate that the RDFI believes the entry containing 
invalid account information was initiated under questionable 
circumstances. This use of R17 is optional at the discretion of the 
RDFI. Those RDFIs that elect to use R17 for this purpose are required 
to use the description ``QUESTIONABLE' in the Addenda Information field 
of the return. This description in an R17 return

[[Page 15718]]

differentiates returns that appear to be suspicious to the RDFI from 
those due to routine account number issues.
    This rule became effective on June 21, 2019. We are accepting this 
amendment, which may give agencies greater insight into transactions 
that are returned because they are suspicious or questionable.
2. Supplementing Fraud Detection Standards for WEB Debits
    Under existing rules, Originators of internet-initiated (WEB) debit 
entries must use a ``commercially reasonable fraudulent transaction 
detection system'' to screen WEB debits for fraud. This requirement is 
intended to help prevent fraudulent payments from being introduced into 
the ACH Network, and to help protect RDFIs from posting fraudulent or 
otherwise incorrect or unauthorized payments.
    With the implementation of the Supplementing Fraud Detection 
Standards for WEB Debits rule, the current screening requirement will 
be enhanced to make it explicit that ``account validation'' is part of 
a ``commercially reasonable fraudulent transaction detection system.'' 
The supplemental requirement applies to the first use of an account 
number, or changes to the account number. For existing WEB debit 
authorizations, the rule will be effective on a going-forward basis. 
Originators will have to perform account validations as there are 
updates to account numbers in existing authorizations.
    NACHA's rule is effective on March 19, 2021. We are accepting this 
rule, which can be expected to reduce unauthorized debits originated by 
agencies and resulting fraud losses to the government. However, the 
implementation of account validation will be costly for the government 
due to the need for systems changes, program changes at originating 
Federal agencies, and transactional fees for validation services 
incurred for the origination of WEB debits. Acceptance of the rule will 
result in significant additional costs to the government in the 
origination of WEB debits but could also have the unintended 
consequence of providing an incentive for agencies to encourage or 
restrict the public to use payment methods other than ACH that 
represent lower cost to the government or offer greater transaction 
certainty at a comparable cost. Given the anticipated costs of 
implementation, we are delaying the effective date of our acceptance of 
this NACHA rule change to March 19, 2022. We will work toward 
implementing this rule in the next two years and expect several of our 
systems to comply prior to the 2022 date.
3. Supplementing Data Security Requirements
    The existing ACH Security Framework requires Financial 
Institutions, Originators, Third-Party Service Providers, and Third-
Party Senders to establish, implement and update security policies, 
procedures and systems related to the initiation, processing and 
storage of ACH entries. These policies, procedures, and systems must 
protect the confidentiality and integrity of protected information; 
protect against anticipated threats or hazards to the security or 
integrity of Protected Information; and protect against unauthorized 
use of Protected Information that could result in substantial harm to a 
natural person.
    The Supplementing Data Security Requirements rule expands the 
existing ACH Security Framework to explicitly require large, non-
financial institution Originators, Third-Party Service Providers, and 
Third-Party Senders to protect account numbers used in the initiation 
of ACH entries by rendering them unreadable when stored electronically. 
The rule aligns with existing language contained in Payment Card 
Industry (PCI) requirements, thus industry participants are expected to 
be reasonably familiar with the manner and intent of the requirement.
    The rule applies only to account numbers collected for or used in 
ACH transactions and does not apply to the storage of paper 
authorizations. The rule also does not apply to depository financial 
institutions when acting as internal Originators, as they are covered 
by existing Federal Financial Institutions Examination Council (FFIEC) 
and similar data security requirements and regulations.
    The amendment has a phased implementation period, with the 
following effective dates:
     Phase 1: NACHA Operating Rules language is effective on 
June 30, 2020. Any Originator, Third-Party Service Provider, or Third-
Party Sender that originates six million or more ACH transactions in 
calendar year 2019 will need to be compliant by June 30, 2020.
     Phase 2: NACHA Operating Rules language will become 
effective on June 30, 2021. Any Originator, Third-Party Service 
Provider, or Third-Party Sender that originates two million or more ACH 
transactions in calendar year 2020 will need to be compliant by June 
30, 2021.
    Going forward after calendar year 2020, any Originator, Third-Party 
Service Provider, or Third-Party Sender that originates two million or 
more ACH transactions in any calendar year will need to be compliant 
with the rule by June 30 of the following calendar year.
    Fiscal Service supports the expansion of existing security 
requirements to require large non-financial institution Originators to 
protect account numbers used to initiate ACH transactions by rendering 
them unreadable while stored electronically. We are accepting this 
amendment.
4. ACH Rules Compliance Audit Requirements
    Effective January 1, 2019 Nacha consolidated all requirements for 
an annual rules compliance audit within one section of the NACHA 
Operating Rules. Prior to the rule change, the general obligation for 
Participating Depository Financial Institutions (and certain Third-
Party Service Providers and Third-Party Senders) to conduct an audit 
was located within Article One, Section 1.2.2 (Audits of Rules 
Compliance). However, the details pertaining to that audit obligation 
were separately located within Appendix Eight (Rules Compliance Audit 
Requirements). This amendment retained and combined the core audit 
obligation with the general administrative requirements for completion 
of such an audit into Article One of the NACHA Operating Rules.
    Under current 31 CFR 210.2(d), the rule enforcement and compliance 
audit requirements are not applicable to Federal agencies. We are 
therefore not adopting this amendment.
5. Minor Rules Topics
    These amendments change five specific areas of the NACHA Operating 
Rules to address minor issues. Minor changes to the NACHA Operating 
Rules have little-to-no impact on ACH participants and no significant 
economic impact. NACHA's minor rule amendments became effective on 
January 1, 2019.
i. ACH Operator Edits
    The ACH Operator Edits amendment modifies edit criteria to permit 
ACH Operators to ``pend'' files as an alternative to rejecting files 
under various error conditions, primarily related to duplicate file 
detection. The rule incorporates language to clarify that ACH Operator 
edits defined within Appendix Two of the NACHA Operating Rules 
represent minimum standards required by the NACHA Operating Rules, and 
that additional edits can be adopted by each ACH Operator as part of 
its service agreement with its customers.
    We are accepting this amendment.

[[Page 15719]]

ii. Clarification of Telephone-Initiated Entry (TEL) Authorization 
Requirements
    This amendment clarifies that the general rules governing the form 
of authorization for all consumer debits apply to the authorization of 
TEL entries, including the obligation to include revocation language. 
Only Accounts Receivable (ARC), Back Office Conversion (BOC), Point-of-
Purchase (POP), and Re-presented Check (RCK) entries are explicitly 
exempted from the requirement to include revocation language in the 
authorization. The Clarification of TEL Authorization Requirements rule 
also incorporates a reference that TEL entries are consumer debits 
only, consistent with the language for other consumer debits.
    We are accepting this amendment.
iii. Clarification of RDFI Obligation To Return Credit Entry Declined 
by Receiver
    This rule change reflects pre-existing practices regarding 
circumstances under which an RDFI is, or is not, obligated to return a 
credit entry that has been declined by a Receiver. The Clarification of 
RDFI Obligation to Return Credit Entry Declined by Receiver rule 
expressly identifies specific conditions under which the RDFI is 
excused from its obligation to return a credit:

--There are insufficient funds available to satisfy the return, 
including due to any third party lien or security interest.
--The return is prohibited by legal requirements.
--The RDFI itself has a claim against the proceeds of the credit entry, 
including by offset, lien, or security interest.

    The rule change also modifies the rule language to refer to an 
entry being ``declined'' (rather than ``refused'') by the Receiver.
    We are accepting this amendment.
iv. Clarification on Reinitiation of Return Entries
    This amendment is an editorial change to the language of the 
general rule on Reinitiated Entries to clarify the intent of the Rules 
that reinitiation is limited to two times.
    We are accepting this amendment.
v. Clarification on RDFI Liability Upon Receipt of a Written Demand for 
Payment
    This amendment contains editorial changes regarding conditions 
under which an RDFI may return a Reclamation Entry or reject a Written 
Demand for Payment. These changes also clarify that an RDFI may reject 
a Written Demand for Payment only if it was not properly originated by 
the ODFI.
    We are accepting this amendment.

E. Differentiating Unauthorized Return Reasons

    On April 12, 2019, NACHA Voting Membership approved Ballot #1-2019: 
Differentiating Unauthorized Return Reasons. The rule repurposes an 
existing, little-used return reason code (R11) that will be used when a 
receiving customer claims that there was an error with an otherwise 
authorized payment. Currently, return reason code R10 is used as a 
catch-all for various types of underlying unauthorized return reasons, 
including some for which a valid authorization exists, such as a debit 
on the wrong date or for the wrong amount. In these types of cases, a 
return of the debit still should be made, but the Originator and its 
customer (the Receiver) might both benefit from a correction of the 
error rather than the termination of the origination authorization. The 
use of a distinct return reason code (R11) enables a return that 
conveys this new meaning of ``error'' rather than ``no authorization.''
    The rule becomes effective in two phases. On April 1, 2020, the re-
purposed return code becomes effective, and financial institutions will 
use it for its new purpose. A year later, on April 1, 2021, the re-
purposed return code will become covered by the existing Unauthorized 
Entry Fee.
    We are accepting this amendment.

F. Actual or Constructive Knowledge of Death

    31 CFR part 210 subpart B governs the reclamation of post-death 
Federal benefit payments from financial institutions. Under Subpart B, 
both agencies and RDFIs have obligations, rights and liabilities that 
are triggered by actual or constructive knowledge of the death or 
incapacity of a recipient or death of a beneficiary. See Sec.  
210.10(c), (d); Sec.  210.11(a). An agency that initiates a request for 
a reclamation must do so within 120 calendar days after the date that 
the agency first has actual or constructive knowledge of the death or 
legal incapacity of a recipient or the death of a beneficiary. However, 
the definition of ``actual or constructive'' knowledge for this purpose 
is not explicitly addressed in the definition at Sec.  210.2(b), which 
refers only to RDFIs.
    Fiscal Service is revising the definition of ``actual or 
constructive knowledge of death'' at 31 CFR 210.2(b) to apply the 
definition to agencies as well as RDFIs. In addition, we are adding a 
sentence to the definition to address a specific situation that has 
arisen in recent years in which agencies sometimes stop recurring 
payments to a recipient and, many months or years after stopping the 
payments, initiate a reclamation. As revised, Sec.  210.2(b) requires 
an agency that stops certifying recurring payments to a recipient 
because it has reason to believe that the recipient is deceased to 
investigate and determine whether to initiate a reclamation within 120 
days following the first missed payment date. An agency may receive 
information or otherwise have reason to believe that a recipient is 
deceased before it takes action to stop payments. However, we believe 
that the first missed recurring payment date preceding the initiation 
of a reclamation is the most apparent indicator that the agency has 
information of a recipient's death that is sufficiently reliable to 
warrant stopping payments. Accordingly, the phrase ``the time [the 
agency] stops certifying recurring payments to a recipient'' refers to 
the first missed payment date.
    The language would not generally apply to or affect situations in 
which agencies stop payments due to fraud or loss of entitlement 
because in most of those cases agencies would not be initiating a 
reclamation. In addition, the language would not generally affect 
situations in which an agency stops payments due to a mistaken belief 
that the recipient was deceased, because those payments would be 
reinitiated upon discovery of the mistake. Moreover, in the event that 
an agency initiates a reclamation more than 120 days after stopping 
payments and can prove that it stopped payments for a reason other than 
actual or constructive knowledge of death, the agency can present 
evidence to rebut the presumption of knowledge, in which case the 120-
day deadline would not be triggered by the date the agency stopped 
payments.
    Agencies have indicated that sometimes they have difficulty 
obtaining definitive proof of death (i.e., a death certificate) within 
120 days of receiving constructive knowledge of death, and that 
therefore they may wait for a protracted period of time before 
initiating a reclamation. However, the legal standard applicable to 
agencies initiating a reclamation is not receipt of a death certificate 
(actual knowledge), but actual or constructive knowledge. We requested 
comment on this revision. Both commenters supported this change, which 
we are adopting in the final rule.

[[Page 15720]]

IV. Section-by-Section Analysis

    In order to incorporate in Part 210 the NACHA Operating Rule 
changes that we are accepting, we are replacing references to the 2016 
NACHA Rules & Guidelines book with references to the 2019 NACHA 
Operating Rules & Guidelines book. The NACHA Operating Rule amendment 
that we are not incorporating is a modification to the audit compliance 
provisions of the NACHA Operating Rules, which are already excluded 
under Part 210. Other than replacing the references to the 2016 NACHA 
Operating Rules & Guidelines book, no change to Part 210 is necessary 
to exclude this amendment.

Sec.  210.2(b)

    We are amending the definition of ``actual or constructive 
knowledge'' in order to clarify that the definition applies to agencies 
as well as to RDFIs. We are also adding a sentence to the definition to 
address situations in which agencies stop recurring payments to a 
recipient and subsequently initiate a reclamation. Under the revised 
definition, an agency is presumed to have constructive knowledge of 
death or incapacity at the time it stops certifying recurring payments 
to a recipient if the agency (1) does not re-initiate payments to the 
recipient and (2) subsequently initiates a reclamation for one or more 
payments made to the recipient. The presumption created under the 
definition is rebuttable in cases where an agency can demonstrate that 
it stopped certifying recurring payments to a recipient for a reason 
other than death.

Sec.  210.2(d)

    We are amending the definition of ``applicable ACH Rules'' at Sec.  
210.2(d) by replacing the reference to NACHA's 2016 Operating Rules & 
Guidelines with a reference to the ACH Rules with an effective date on 
or before June 30, 2021, as published in ``2019 NACHA Operating Rules & 
Guidelines.'' We are deleting the reference to Appendix Ten in 
subparagraph (1) because Appendix Eight is being removed in its 
entirety from the 2019 Rules Book, and Appendices Nine and Ten are 
being renumbered as Appendices Eight and Nine, respectively. We are 
deleting existing paragraph (7), which relates to the government's 
original adoption of Same Day ACH in 2017, because it was in effect 
only until September 15, 2017, and is now obsolete. We are adding a new 
paragraph (7), which exempts the government from the Fraud Detection 
Standards for WEB debits until March 19, 2022.

Sec.  210.3(b)

    We are amending Sec.  210.3(b) by replacing the references to the 
2016 NACHA Operating Rules & Guidelines with references to a 2019 NACHA 
Operating Rules & Guidelines.

Sec.  210.6

    We are amending paragraph (g) by replacing the reference to the 
2016 NACHA Operating Rules & Guidelines with a reference to a 2019 
NACHA Operating Rules & Guidelines.

Sec.  210.10(b)

    We are amending Sec.  210.10(b) to state that an agency is presumed 
to have constructive knowledge of death or incapacity at the time it 
stops certifying recurring payments to a recipient if the agency (1) 
does not re-initiate payments to the recipient and (2) subsequently 
initiates a reclamation for one or more payments made to the recipient.

V. Incorporation by Reference

    The 2019 NACHA Operating Rules & Guidelines are incorporated by 
reference into Part 210 with the approval of the Director of the 
Federal Register under 5 U.S.C. 552(a) and 1 CFR part 51. The Office of 
Federal Register (OFR) regulations require that agencies discuss in the 
preamble of a final rule ways that the materials the agency proposes to 
incorporate by reference are reasonably available to interested parties 
or how it worked to make those materials reasonably available to 
interested parties. In addition, the preamble of the final rule must 
summarize the material. 1 CFR 51.5(a). In accordance with OFR's 
requirements, the discussion in the Supplementary Information section 
summarizes the 2019 NACHA Operating Rules. Financial institutions 
utilizing the ACH Network are bound by the NACHA Operating Rules and 
have access to the NACHA Operating Rules in the course of their 
everyday business. All approved material is available as a bound book 
or in online form from NACHA, 2550 Wasser Terrace, Suite 400, Herndon, 
Virginia 20171, tel. 703-561-1100, [email protected].

VI. Procedural Analysis

Regulatory Planning and Review

    The final 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 final rule will not have a 
significant economic impact on a substantial number of small entities. 
The final rule imposes on the Federal government a number of changes 
that Nacha has already adopted and imposed on private sector entities 
that utilize the ACH Network. The final 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 final 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, Incorporation by reference.

Words of Issuance

0
For the reasons set out in the preamble, amend 31 CFR part 210 to read 
as follows:

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

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

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


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


Sec.  210.2  Definitions.

* * * * *

[[Page 15721]]

    (b) Actual or constructive knowledge, when used in reference to an 
RDFI's or agency's knowledge of the death or incapacity of a recipient 
or death of a beneficiary, means that the RDFI or agency received 
information, by whatever means, of the death or incapacity and has had 
a reasonable opportunity to act on such information or that the RDFI or 
agency would have learned of the death or incapacity if it had followed 
commercially reasonable business practices. For purposes of subpart B 
of this part, an agency is presumed to have constructive knowledge of 
death or incapacity at the time it stops certifying recurring payments 
to a recipient if the agency:
    (1) Does not re-initiate payments to the recipient; and
    (2) Subsequently initiates a reclamation for one or more payments 
made to the recipient.
* * * * *
    (d) Applicable ACH Rules means the ACH Rules with an effective date 
on or before June 30, 2021, as published in the 2019 NACHA Operating 
Rules and Guidelines (incorporated by reference, see Sec.  210.3(b)), 
except:
    (1) Subsections 1.2.2, 1.2.3, 1.2.4, 1.2.5 and 1.2.6; Appendix 
Seven; Appendix Eight; and Appendix Nine (governing the enforcement of 
the ACH Rules 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 2.17.2.2-2.17.2.6 (requiring reduction of high rates of 
entries returned as unauthorized);
    (6) The requirements of Section 2.5.8 (International ACH 
Transactions) shall not apply to entries representing the payment of a 
Federal tax obligation by a taxpayer; and
    (7) Until March 19, 2022, the requirement of section 2.5.17.4(a) 
that the Originator utilize a fraudulent transaction detection system 
that validates an account to be debited for the first use of such 
account number and for any subsequent change(s) to the account number.
* * * * *

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


Sec.  210.3  Governing law.

* * * * *
    (b) Incorporation by reference. Certain material is incorporated by 
reference in this part with the approval of the Direct of the Federal 
Register under 5 U.S.C. 552(a) and 1 CFR part 51. To enforce any 
edition other than that specified in this section the Service must 
publish a document in the Federal Register and the material must be 
available to the public. All approved material is available for 
inspection at the Bureau of the Fiscal Service, 401 14th Street SW, 
Room 400A, Washington, DC 20227, ph. 202 874-6680, and it is available 
from the sources listed below. It is also available for inspection at 
the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, email 
[email protected] or go to www.archives.gov/federal-register/cfr/ibr-locations.html.
    (1) NACHA, 2550 Wasser Terrace, Suite 400, Herndon, Virginia 20171, 
tel. 703-561-1100, [email protected]
    (i) 2019 NACHA Operating Rules & Guidelines: The Guide to the Rules 
Governing the ACH Network, copyright 2019 (2019 NACHA Operating Rules 
and Guidelines).
    (ii) [Reserved]
    (2) [Reserved]
* * * * *

0
4. In Sec.  210.6, revise paragraph (g) to read as follows:


Sec.  210.6  Agencies.

* * * * *
    (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 the 2019 NACHA Operating Rules and Guidelines, incorporated by 
reference, see Sec.  210.3(b), 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.
* * * * *

0
5. In Sec.  210.10, revise paragraph (b) to read as follows:


Sec.  210.10   RDFI liability.

* * * * *
    (b) Actual or Constructive Knowledge of Death. Actual or 
constructive knowledge, when used in reference to an RDFI's or agency's 
knowledge of the death or incapacity of a recipient or death of a 
beneficiary, means that the RDFI or agency received information, by 
whatever means, of the death or incapacity and has had a reasonable 
opportunity to act on such information or that the RDFI or agency would 
have learned of the death or incapacity if it had followed commercially 
reasonable business practices. For purposes of this subpart, an agency 
is presumed to have constructive knowledge of death or incapacity at 
the time it stops certifying recurring payments to a recipient if the 
agency:
    (1) Does not re-initiate payments to the recipient; and
    (2) Subsequently initiates a reclamation for one or more payments 
made to the recipient.
* * * * *

David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2020-04992 Filed 3-18-20; 8:45 am]
 BILLING CODE 4810-AS-P