Indorsement and Payment of Checks Drawn on the United States Treasury, 6674-6679 [2023-01024]
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Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / Proposed Rules
the matters raised by the NPR. As such,
the FDIC is extending the comment
period for the NPR from February 21,
2023, to April 7, 2023.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, on January 27,
2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023–02114 Filed 1–31–23; 8:45 am]
BILLING CODE 6714–01–P
DEPARTMENT OF THE TREASURY
Bureau of the Fiscal Service
31 CFR Part 240
RIN 1530–AA22
Indorsement and Payment of Checks
Drawn on the United States Treasury
Bureau of the Fiscal Service,
Treasury.
ACTION: Notice of proposed rulemaking
with request for comment.
AGENCY:
The Bureau of the Fiscal
Service (Fiscal Service) at the
Department of the Treasury (Treasury) is
proposing to amend its regulations
governing the payment of checks drawn
on the United States Treasury.
Specifically, to prevent Treasury checks
from being negotiated after cancellation
by Treasury or a payment certifying
agency—also known as payments over
cancellation (POCs)—Fiscal Service is
proposing amendments that would
require financial institutions use the
Treasury Check Verification System
(TCVS), or other similar authorized
system, to verify that Treasury checks
are both authentic and valid. This
proposal also contains conforming
amendments, including the addition of
a definition of ‘‘cancellation’’ or
‘‘canceled.’’ Finally, the proposal would
amend the reasons for which a Federal
Reserve Bank must decline payment of
a Treasury check to include prior
cancellation of the check, so that Fiscal
Service may place what is commonly
referred to as a ‘‘true stop’’ on a
Treasury check and avoid a POC.
DATES: Comments on the proposed rule
must be received by April 3, 2023.
ADDRESSES: Comments on this proposed
rule, identified by docket FISCAL–
2021–0001, should only be submitted
using the following methods:
• Federal eRulemaking Portal:
www.regulations.gov. Follow the
instructions on the website for
submitting comments.
• Mail: Department of the Treasury,
Bureau of the Fiscal Service, Attn: Gary
lotter on DSK11XQN23PROD with PROPOSALS1
SUMMARY:
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Swasey, Director, Post Payment
Modernization Division, 13000
Townsend Rd., Philadelphia, PA 19154.
The fax and email methods of
submitting comments on rules to Fiscal
Service have been decommissioned.
Instructions: All submissions received
must include the agency name (Bureau
of the Fiscal Service) and docket
number FISCAL–2021–0001 for this
rulemaking. In general, comments
received will be published on
regulations.gov without change,
including any business or personal
information provided. Comments
received, including attachments and
other supporting materials, are part of
the public record and subject to public
disclosure. Do not include any
information in your comment or
supporting materials that you consider
confidential or inappropriate for public
disclosure. In accordance with the U.S.
government’s eRulemaking Initiative,
Fiscal Service publishes rulemaking
information on www.regulations.gov.
Regulations.gov offers the public the
ability to comment on, search, and view
publicly available rulemaking materials,
including comments received on rules.
FOR FURTHER INFORMATION CONTACT: Gary
Swasey, Director, Post Payment
Modernization Division, at (215) 516–
8145 or gary.swasey@fiscal.treasury.gov;
or Thomas Kearns, Senior Counsel, at
(202) 874–6680 or thomas.kearns@
fiscal.treasury.gov.
SUPPLEMENTARY INFORMATION:
I. Background
Currently, when either Treasury or a
payment certifying agency puts a ‘‘stop
payment’’ (or ‘‘check stop’’) on a
Treasury check to cancel it, the canceled
check may still be negotiated, which
leads to a POC. POCs are improper
payments that amount to approximately
$98 million each year. Resolving POCs
also costs the Federal Government
approximately $1.3 million each year.
Financial institutions often have
access to real-time or same-day check
verification information to ensure that
non-Treasury checks have not been
canceled, and soon this will be the case
for Treasury checks as well. Fiscal
Service’s Treasury Check Verification
System (TCVS) provides verification
information for Treasury checks, but
currently TCVS has a one-day lag.
However, Fiscal Service expects to
complete enhancements to TCVS that
will allow same-day verification by mid2023.
TCVS is available at no cost to
financial institutions, either for singleitem use via a free online web portal or
for bulk verification of Treasury checks
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via an Application Programming
Interface (API). TCVS verifies the
authenticity of a Treasury check using
the check symbol and serial number
(i.e., the 4-digit and 8-digit components,
respectively, that together comprise a
unique Treasury check number), check
date, and payment amount.
Use of TCVS is currently optional. At
present, Treasury procedures charge
back POCs to the certifying agency, so
banks have little incentive to use TCVS
to avoid POCs. Only approximately 40%
of all Treasury checks are run through
TCVS before being negotiated.
After enhancements to Treasury’s
systems have been implemented and
same-day Treasury check verification is
functional, Fiscal Service proposes
requiring that a financial institution use
its check verification system when
negotiating a Treasury check if the
financial institution is to avoid liability
for accepting a Treasury check that has
been canceled. Financial institutions
will be notified via a communication
from the Federal Reserve’s Customer
Relations Support Office, Federal
Register notice, and/or other
appropriate means at least 30 days prior
to the date that enhanced TCVS will
become available for use and this
requirement becomes effective.
Under existing rules, financial
institutions are required to use
‘‘reasonable efforts’’ to ensure that a
Treasury check is authentic (i.e., not
counterfeit) and also are responsible if
they accept a Treasury check that has
been previously negotiated, but they are
not required to ensure that a Treasury
check has not been canceled. The
definition of ‘‘reasonable efforts’’ found
in 31 CFR 240.2 does not currently
include a requirement to use Treasury’s
check verification system to ensure that
a Treasury check is valid (i.e., a payable
instrument that has not been canceled
and meets the criteria for negotiability).
Fiscal Service proposes revising the
definition of ‘‘reasonable efforts’’ to
include this verification process.
Requiring a financial institution to
use TCVS (or a subsequent check
verification system built to carry out the
same function) has several benefits. It
will greatly reduce POCs, as it will
allow certifying agencies to place a
‘‘true stop’’ on a Treasury check. It will
also help financial institutions reduce
instances where a Treasury check (or an
item purporting to be a Treasury check)
is charged back to the financial
institution, by allowing the financial
institution to verify that the Treasury
check is not counterfeit, that the amount
has not been altered, and that the check
is not stale-dated (i.e., more than twelve
months past the date of issuance and
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thus no longer negotiable). Use of
Treasury’s check verification system
will also help financial institutions
avoid liability by reducing instances
where a financial institution accepts a
Treasury check that has been previously
negotiated. However, because Treasury
often is not informed immediately that
a Treasury check has been negotiated,
the enhanced check verification system
will not eliminate acceptance of
duplicate presentations entirely. (The
enhancements to TCVS expected in
mid-2023 will allow TCVS to provide
information on negotiated Treasury
checks on the same day Fiscal Service
receives that information, but will not
speed up Treasury’s receipt of that
information.) In some cases, TCVS may
not have information to provide before
the financial institution that accepted
the duplicate presentation makes funds
available, which it typically does no
later than the next business day. As a
practical matter, though, often the
second presentation of a Treasury check
does not occur until after Treasury’s
records have been updated. In this
instance, use of TCVS will allow the
financial institution to avoid liability by
declining the previously negotiated
Treasury check when it is presented.
Additionally, although the required
usage of Treasury’s check verification
system will be limited to verifying the
check symbol and check serial numbers,
the payment amount, and the
negotiation status of the check (e.g.,
valid, cashed, canceled), the enhanced
system may eventually allow for the
optional verification of other check
information, such as the payee name
and ZIP code. These capabilities will
better enable financial institutions to
identify Treasury checks that have been
altered, or counterfeit checks that
purport to be Treasury checks, and thus
help financial institutions avoid liability
for accepting such checks that are not
valid.
lotter on DSK11XQN23PROD with PROPOSALS1
II. Summary of Proposed Rule Changes
A. Amendment to the Definition of, and
Guarantee Regarding, ‘‘Reasonable
Efforts’’
Part 240 currently includes a
presentment guarantee, made by the
guarantor of a check presented to
Treasury for payment, that the guarantor
has made all reasonable efforts to ensure
that the check is an authentic Treasury
check and not a counterfeit check. The
current definition of ‘‘reasonable
efforts’’ focuses on the watermark and/
or other security features of a security
check, to ensure that the Treasury check
is authentic and not counterfeit. We
propose to amend the definition of
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‘‘reasonable efforts’’ to include verifying
not only the Treasury check’s
authenticity, but also the check’s
validity, by requiring use of Treasury’s
check verification system to ensure that
the check has not been canceled.
Exceptions to this requirement would
exist where Treasury’s check
verification system is not operating and
is thus unavailable.
A corresponding amendment to the
presentment guarantees found in the
regulations would change the guarantee
of Treasury check’s authenticity to
include a presentment guarantee
regarding the check’s validity as well, as
described below.
B. Adding a Definition of ‘‘Validity’’
Currently, part 240 does not define
‘‘validity.’’ We propose adding a
definition of ‘‘validity’’ or ‘‘valid
check.’’
The proposed definition describes a
valid Treasury check as a payable
instrument (i.e., not a counterfeit check,
as defined in the existing regulations)
that meets the criteria for negotiability
(i.e., it has not been previously
negotiated or canceled). A
corresponding amendment to the
presentment guarantees would add a
new presentment guarantee regarding
the check’s validity.
C. Adding a Definition of
‘‘Cancellation’’ or ‘‘Canceled’’
Currently, part 240 does not define
‘‘cancellation’’ or ‘‘canceled’’ with
regard to a Treasury check. We propose
adding a definition of ‘‘cancellation’’ or
‘‘canceled.’’
This definition describes a canceled
Treasury check as one that was once a
valid and negotiable instrument, but is
no longer due to a reason other than the
Treasury check’s negotiation. A
Treasury check may be canceled
because it has limited payability (i.e., it
is older than one year past its issuance
date and thus stale-dated), or because
Treasury or the certifying agency has
placed a ‘‘stop payment’’ (as defined
below) on it.
D. Adding a Definition of ‘‘Stop
Payment’’
Currently, the regulations do not
define a ‘‘stop payment’’ with regard to
a Treasury check. We propose adding a
definition of this term.
This proposed definition describes
the situation where Treasury or the
certifying agency has indicated in its
systems that an authentic Treasury
check should not be paid. Reasons for
issuing a stop payment on a Treasury
check include that the Treasury check
has been reported lost or stolen, it has
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been issued to a deceased payee, or it
was discovered to be improper. Once a
stop payment has been placed on a
Treasury check, the check has been
canceled and is no longer a valid
Treasury check (even though it is an
authentic Treasury check).
E. Amendment to the Processing of
Checks, Declination, and the Reasons
for Refusal
Current Treasury regulations require
that a Federal Reserve Bank cash a
Treasury check presented to it, except in
certain circumstances where the Federal
Reserve Bank must instead refuse to pay
the Treasury check. The check must be
refused if (1) the check bears a material
defect or alteration, (2) the check was
presented more than one year later than
the check’s date of issuance, or (3) the
Federal Reserve Bank has been notified
by Treasury, pursuant to Treasury
regulations, that a check was issued to
a deceased payee. We propose adding a
fourth circumstance in which a Federal
Reserve Bank must refuse to pay a
Treasury check: if the Federal Reserve
Bank has been notified by Treasury that
a Treasury check is not valid.
As noted above, under the proposed
definition, a Treasury check is not valid
if the Treasury check is counterfeit,
previously negotiated, or canceled.
A corresponding amendment to the
regulation regarding Treasury’s right of
first refusal will include the instruction
for Treasury to decline payment of a
Treasury check when Treasury is being
requested to make payment on a check
that is not valid.
The Fiscal Service invites comments
on the proposed regulation to require
financial institutions to verify that a
Treasury check has not been canceled,
to prevent payments over cancellation
(POCs). We invite commenters’ views
on all aspects of the proposed rule,
which would permit Treasury to place
a ‘‘true stop’’ on Treasury checks to
avoid POCs, including whether the
proposed definitions (e.g., ‘‘reasonable
efforts’’ ‘‘cancellation’’ ‘‘canceled’’
‘‘valid’’) are reasonable and appropriate.
III. Section-by-Section Analysis
A. Section 240.2—Definitions
We propose to amend the definitions
section of part 240, found at 31 CFR
240.2, by removing the lettering within
that section (the list letters (a), (b), (c),
etc.), and simply listing the terms in
alphabetical order within the section.
This comports with the Office of the
Federal Register’s recommendation for a
list of definitions found in regulations,
as stated in Section 2–13 of the
Document Drafting Handbook. This
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change also removes the need to reletter the list of definitions when new
definitions are added to the list.
For the reasons set forth above, we
propose amending § 240.2 to revise the
definition of ‘‘reasonable efforts’’; add
the definition of ‘‘cancellation’’ or
‘‘canceled’’; add the definition of ‘‘stop
payment’’ or ‘‘check stop’’ or ‘‘stop’’;
and add the definition of ‘‘validity’’ or
‘‘valid check.’’ These four definitions
are the only substantive changes to the
rule’s definitions section; the other
terms are listed without substantive
change, for purposes of removing the
lettering system only, as described
above.
These proposed new definitions and
amendments to existing definitions will
help effectuate and clarify the
requirement for financial institutions to
use Treasury’s check verification system
when negotiating Treasury checks in
order to avoid liability for accepting a
Treasury check that is not valid due to
cancellation. They will allow help
effectuate and clarify that the use of
Treasury’s check verification system
will assist financial institutions in
avoiding liability for accepting Treasury
checks that have already been
negotiated or have been altered, as well
as for accepting counterfeit checks that
purport to be Treasury checks.
B. Section 240.4—Presentment
Guarantees
We propose amending the
presentment guarantees to include a
guarantee that the guarantor has made
reasonable efforts to ensure that the
check is an authentic Treasury check
and that it is valid at the time of
acceptance.
lotter on DSK11XQN23PROD with PROPOSALS1
C. Section 240.6—Provisional Credit;
First Examination; Declination; Final
Payment
We propose amending the reasons
that Treasury will decline a Treasury
check upon first examination to include
the fact that the check has been
canceled, in addition to when the check
has already been paid.
D. Section 240.12—Processing of Checks
We propose amending the reasons
that a Federal Reserve Bank must refuse
payment of a Treasury check to include
circumstances where the Federal
Reserve Bank has been notified that the
Treasury check has been canceled or is
otherwise not valid.
IV. Procedural Analysis
Request for Comment on Plain Language
Executive Order 12866 requires each
agency in the Executive branch to write
regulations that are simple and easy to
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understand. We invite comment on how
to make the proposed rule clearer. For
example, you may wish to discuss: (1)
whether we have organized the material
to suit your needs; (2) whether the
requirements of the rule are clear; or (3)
whether there is something else we
could do to make the rule easier to
understand.
Regulatory Planning and Review
The proposed 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 proposed
rule will not have a significant
economic impact on a substantial
number of small entities. The proposed
rule could potentially impose a
significant additional burden or cost on
three to seven small entities, out of a
total of approximately 8,000 financial
institutions that qualify as small
entities.
The proposed rule only adds a simple
query to the list of reasonable steps that
banks take when determining the
validity of a Treasury check. Treasury
offers a free verification tool for bulk
verification of Treasury checks via an
Application Programming Interface
(API) or for single-item use via a free
online web portal. Use of the web portal
requires no purchase of special
equipment by financial institutions and
requires only a standard internet
connection. Banks should be able to
complete a single-check search using
this free web portal in approximately 30
seconds to one minute per search. An
analysis of the 100 largest FDIC-insured
institutions under $600 million in assets
and the 100 largest federally insured
credit unions under $600 million in
assets shows that all but one of these
financial institutions accepted fewer
than 9,500 Treasury checks in 2020. The
median for these 200 institutions was
approximately 2,974 Treasury checks
cashed in 2020, and the average was
approximately 3,105. At an estimated 30
seconds per verification, 3,105 items
would amount to approximately 26 staff
hours per year. Congress has stated, by
means of example, that additional
recordkeeping requirements of 175 staff
hours per year would constitute a
significant impact on a small business
entity. See 126 Cong. Rec. part 16,
S10,938 (Aug. 6, 1980). Even assuming
a full minute for the use of the TCVS
web portal to query an individual
Treasury check, these figures are well
below the 10,500 checks that it would
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take to constitute 175 staff hours in a
year (and the 21,000 checks needed
with 30-second searches).
Additionally, an analysis of all the
approximately 9,000 financial
institutions that negotiated Treasury
checks in 2020 shows that only 325 of
them negotiated over 21,000 Treasury
checks. Of those 325, only three are
identifiable as small businesses with
assets under $600 million. Even using
the one-minute allotment for each use of
the Treasury web portal, which
translates into 10,500 negotiated
Treasury checks, this figure increases to
just seven small financial institutions
(i.e., those with assets under $600
million) receiving more than that
number of Treasury checks.
Finally, it is worth noting that at
approximately 90.3 million checks,
Treasury check volume in 2020 was
considerably higher than for other
recent years, largely due to an increased
quantity of check payments made under
the Coronavirus Aid, Relief, and
Economic Security (CARES) Act. By
means of comparison, in the previous
three calendar years (2019, 2018, and
2017), Treasury issued 54.2 million,
55.9 million, and 58.4 million Treasury
checks, respectively. In years with fewer
Treasury checks issued, it is reasonable
to expect that financial institutions will
be presented with a correspondingly
lower Treasury check volume. Treasury
estimates that with the possible
exception of three to seven entities as
mentioned above, financial institutions
considered small entities will spend
substantially fewer than 175 staff hours
per year verifying the validity of
Treasury checks through the manual use
of TCVS; smaller financial institutions
that receive fewer Treasury checks
would likely spend significantly less
time. Additionally, any financial
institution manually processing a large
enough quantity of Treasury checks that
it might experience a significant
economic impact, due to the staff-hours
required for such manual processing,
would have the option instead to use an
API to access Treasury’s check
verification system for use with bulk
files. As with manual access, bulk
access to the verification tool is free of
charge to financial institutions.
Treasury anticipates that no more
than three to seven small financial
institutions, out of approximately 8,000
such entities, may potentially be subject
to a significant impact as a result of this
proposed rule. This translates into
substantially less than 1% of all small
financial institutions (between 0.04%
and 0.1%). Thus, the proposed rule will
not have a significant impact on a
substantial number of small financial
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institutions. Accordingly, a regulatory
flexibility analysis under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.) is
not required. Treasury invites comments
on the potential impacts this proposed
rule would have on small entities.
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
proposed 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 240
Authenticity, Canceled, Cancellation,
Check, Check stop, Declination,
Financial institutions, Presentment,
Presentment guarantees, Processing,
Reasonable efforts, Stop, Treasury
check, Treasury check verification
system, Valid check, Validity,
Verification.
For the reasons set out in the
preamble, the Bureau of the Fiscal
Service proposes to amend 31 CFR part
240 as follows:
PART 240—INDORSEMENT AND
PAYMENT OF CHECKS DRAWN ON
THE UNITED STATES TREASURY
1. The authority citation for part 240
continues to read as follows:
■
Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31
U.S.C. 321, 3327, 3328, 3331, 3334, 3343,
3711, 3712, 3716, 3717; 332 U.S. 234 (1947);
318 U.S. 363 (1943).
■
2. Revise § 240.2 to read as follows:
lotter on DSK11XQN23PROD with PROPOSALS1
§ 240.2
Definitions.
Administrative offset or offset, for
purposes of this section, has the same
meaning as defined in 31 U.S.C.
3701(a)(1) and 31 CFR part 285.
Agency means any agency,
department, instrumentality, office,
commission, board, service, or other
establishment of the United States
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authorized to issue Treasury checks or
for which checks drawn on the United
States Treasury are issued.
Cancellation or canceled means that a
Treasury check is no longer a valid
instrument, due to the one-year
limitation on negotiability and payment
described in § 240.5(a), or the placement
of a stop payment on the check by
Treasury or the certifying agency.
Certifying agency means an agency
authorizing the issuance of a payment
by a disbursing official in accordance
with 31 U.S.C. 3325.
Check or checks means an original
check or checks; an electronic check or
checks; or a substitute check or checks.
Check payment means the amount
paid to a presenting bank by a Federal
Reserve Bank.
Counterfeit check means a document
that purports to be an authentic check
drawn on the United States Treasury,
but in fact is not an authentic check.
Days means calendar days. For
purposes of computation, the last day of
the period will be included unless it is
a Saturday, Sunday, or Federal holiday;
the first day is not included. For
example, if a reclamation was issued on
July 1, the 90-day protest period under
§ 240.9(b) would begin on July 2. If the
90th day fell on a Saturday, Sunday or
Federal holiday, the protest would be
accepted if received on the next
business day.
Declination means the process by
which Treasury refuses to make final
payment on a check, i.e., declines
payment, by instructing a Federal
Reserve Bank to reverse its provisional
credit to a presenting bank.
Declination date means the date on
which the declination is issued by
Treasury.
Disbursing official means an official,
including an official of the Department
of the Treasury, the Department of
Defense, any Government corporation
(as defined in 31 U.S.C. 9101), or any
official of the United States designated
by the Secretary of the Treasury,
authorized to disburse public money
pursuant to 31 U.S.C. 3321 or another
law.
Drawer’s signature means the
signature of a disbursing official placed
on the front of a Treasury check as the
drawer of the check.
Electronic check means an electronic
image of a check drawn on the United
States Treasury, together with
information describing that check, that
meets the technical requirements for
sending electronic items to a Federal
Reserve Bank as set forth in the Federal
Reserve Banks’ operating circulars.
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Federal Reserve Bank means a Federal
Reserve Bank or a branch of a Federal
Reserve Bank.
Federal Reserve Processing Center
means a Federal Reserve Bank center
that images Treasury checks for
archiving check information and
transmitting such information to
Treasury.
Financial institution means:
(1) Any insured bank as defined in
section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) or any
bank which is eligible to make
application to become an insured bank
under section 5 of such Act (12 U.S.C.
1815);
(2) Any mutual savings bank as
defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813)
or any bank which is eligible to make
application to become an insured bank
under section 5 of such Act (12 U.S.C.
1815);
(3) Any savings bank as defined in
section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) or any
bank which is eligible to make
application to become an insured bank
under section 5 of such Act (12 U.S.C.
1815);
(4) Any insured credit union as
defined in section 101 of the Federal
Credit Union Act (12 U.S.C. 1752) or
any credit union which is eligible to
make application to become an insured
credit union under section 201 of such
Act (12 U.S.C. 1781);
(5) Any savings association as defined
in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) which is
an insured depositary institution (as
defined in such Act) (12 U.S.C. 1811 et
seq.) or is eligible to apply to become an
insured depositary institution under the
Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.); and
(6) Any financial institution outside
of the United States if it has been
designated by the Secretary of the
Treasury as a depositary of public
money and has been permitted to charge
checks to the General Account of the
United States Treasury.
First examination means Treasury’s
initial review of a check that has been
presented for payment. The initial
review procedures, which establish the
authenticity and integrity of a check
presented to Treasury for payment, may
include reconciliation; retrieval and
inspection of the check or the best
available image thereof; and other
procedures Treasury deems appropriate
to specific circumstances.
Forged or unauthorized drawer’s
signature means a drawer’s signature
that has been placed on the front of a
Treasury check by a person other than:
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Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / Proposed Rules
(1) A disbursing official; or
(2) A person authorized to sign on
behalf of a disbursing official.
Forged or unauthorized indorsement
means:
(1) An indorsement of the payee’s
name by another person who is not
authorized to sign for the payee; or
(2) An indorsement of the payee’s
name made by another person who has
been authorized by the payee, but who
has not indorsed the check in
accordance with § 240.4 and §§ 240.13
through 240.17; or
(3) An indorsement added by a
financial institution where the financial
institution had no authority to supply
the indorsement; or
(4) A check bearing an altered payee
name that is indorsed using the payee
name as altered.
Guarantor means a financial
institution that presents a check for
payment and any prior indorser(s) of a
check.
Master Account means the record of
financial rights and obligations of an
account holder and the Federal Reserve
Bank with respect to each other, where
opening, intraday, and closing balances
are determined.
Material defect or alteration means:
(1) The counterfeiting of a check; or
(2) Any physical change on a check,
including, but not limited to, a change
in the amount, date, payee name, or
other identifying information printed on
the front or back of the check (but not
including a forged or unauthorized
drawer’s signature); or
(3) Any forged or unauthorized
indorsement appearing on the back of
the check.
Minor means the term minor as
defined under applicable State law.
Monthly statement means a statement
prepared by Treasury which includes
the following information regarding
each outstanding reclamation:
(1) The reclamation date;
(2) The reclamation number;
(3) Check identifying information; and
(4) The balance due, including
interest, penalties, and administrative
costs.
Original check means the first paper
check drawn on the United States
Treasury with respect to a particular
payment transaction.
Payee means the person that the
certifying agency designated to receive
payment pursuant to 31 U.S.C. 3528.
Person means an individual,
institution, including a financial
institution, or any other type of entity;
the singular includes the plural.
Presenting bank means:
(1) A financial institution which,
either directly or through a
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17:09 Jan 31, 2023
Jkt 259001
correspondent banking relationship,
presents checks to and receives
provisional credit from a Federal
Reserve Bank; or
(2) A depositary which is authorized
to charge checks directly to Treasury’s
General Account and present them to
Treasury for payment through a
designated Federal Reserve Bank.
Provisional credit means the initial
credit provided to a presenting bank by
a Federal Reserve Bank. Provisional
credit may be reversed by Treasury until
the completion of first examination or
final payment is deemed made pursuant
to § 240.6(d).
Reasonable efforts means, at a
minimum, confirming the validity of a
check, using Treasury’s check
verification system or other similar
authorized system, whenever such
system is available, as well as the
authenticity of the check such as by
verifying the existence of the Treasury
watermark on an original check.
Acceptance of a check by electronic
image or other non-physical means does
not impact reasonable efforts
requirements. Based upon the facts at
hand, including whether a check is an
original check, a substitute check, or an
electronic check, reasonable efforts may
require the verification of other security
features.
Reclamation means a demand for the
amount of a check for which Treasury
has requested an immediate refund.
Reclamation date means the date on
which a reclamation is issued by
Treasury. Normally, demands are sent to
presenting banks or other indorsers
within two business days of the
reclamation date.
Reclamation debt means the amount
owed as a result of Treasury’s demand
for refund of a check payment, and
includes interest, penalties and
administrative costs assessed in
accordance with § 240.8.
Reclamation debtor means a
presenting bank or other indorser of a
check from whom Treasury has
demanded a refund in accordance with
§§ 240.8 and 240.9. The reclamation
debtor does not include a presenting
bank or other indorser who may be
liable for a reclamation debt, but from
which Treasury has not demanded a
refund.
Recurring benefit payment includes
but is not limited to a payment of
money for any Federal Government
entitlement program or annuity.
Stop payment means that Treasury or
a certifying agency has indicated that a
Treasury check should not be paid and
instead should be canceled. A stop
payment could be placed on a Treasury
check for reasons including that the
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Fmt 4702
Sfmt 4702
check was reported lost or stolen; the
check was determined to have been
issued improperly; the payee was
deceased prior to the issuance of the
check; or any other allowable reason.
Substitute check means a paper
reproduction of a check drawn on the
United States Treasury that meets the
definitional requirements set forth at 12
CFR 229.2(aaa).
Treasury means the United States
Department of the Treasury, or when
authorized, an agent designated by the
Secretary of the Treasury or their
delegee.
Treasury Check Offset means the
collection of an amount owed by a
presenting bank in accordance with 31
U.S.C. 3712(e).
Truncate means to remove a paper
check from the forward collection or
return process and send to a recipient,
in lieu of such paper check, a substitute
check or an electronic check.
U.S. securities means securities of the
United States and securities of Federal
agencies and Government corporations
for which Treasury acts as the transfer
agent.
Validity or valid check means an
authentic Treasury check that is a
payable instrument and has not been
previously negotiated or canceled.
Writing includes electronic
communications when specifically
authorized by Treasury in implementing
instructions.
■ 3. Amend § 240.4 by revising
paragraph (d) to read as follows:
§ 240.4
Presentment guarantees.
*
*
*
*
*
(d) Authenticity and Validity. That
the guarantors have made all reasonable
efforts to ensure that a check is both an
authentic Treasury check (i.e., it is not
a counterfeit check) and a valid
Treasury check (i.e., it has not been
previously negotiated or canceled).
*
*
*
*
*
■ 4. Amend § 240.6 by revising
paragraph (c)(3) to read as follows:
§ 240.6 Provisional credit; first
examination; declination; final payment.
*
*
*
*
*
(c) * * *
(3) Treasury has already received
presentment of a substitute check,
electronic check, or original check
relating to the check being presented,
such that Treasury is being requested to
make payment on a check it has already
paid; or Treasury is being requested to
make payment on a check that is not
valid due to a stop payment or other
cancellation.
*
*
*
*
*
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Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / Proposed Rules
IV. Commission Analysis
V. Notice of Proposed Rulemaking on
Analytical Principles Used in Periodic
Reporting (NPPC ET AL Proposal One)
5. Amend § 240.12 by revising
paragraphs (a)(1)(ii) and (iii), and
adding paragraph (a)(1)(iv) to read as
follows:
■
§ 240.12
Processing of checks.
(a) * * *
(1) * * *
(ii) A check was issued more than one
year prior to the date of presentment;
(iii) The Federal Reserve Bank has
been notified by Treasury, in
accordance with § 240.15(c), that a
check was issued to a deceased payee;
or
(iv) The Federal Reserve Bank has
been notified by Treasury that a check
is not valid.
*
*
*
*
*
David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2023–01024 Filed 1–31–23; 8:45 am]
BILLING CODE 4810–AS–P
POSTAL REGULATORY COMMISSION
39 CFR Part 3050
[Docket Nos. RM2023–1; RM2023–3; Order
No. 6430]
Periodic Reporting
Postal Regulatory Commission.
Order denying request and
notice of proposed rulemaking.
AGENCY:
ACTION:
The Commission is
acknowledging a recent filing requesting
the Commission consider a motion for
reconsideration or, in the alternative,
petition regarding appropriate analytical
principles for retiree health benefit
costs. This document informs the public
of the filing, invites public comment,
and takes other administrative steps.
DATES: Comments are due: February 8,
2023.
ADDRESSES: Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
SUMMARY:
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FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Background
III. The Mailers’ Motion and Petition and
Responses
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17:09 Jan 31, 2023
Jkt 259001
I. Introduction
On December 9, 2022, the
Commission issued Order No. 6363,
which, in relevant part, identified how
the accepted analytical principles
would apply to the treatment of retiree
health benefit normal costs in fiscal year
(FY) 2022.1 The Commission stated that
should any party ‘‘desire the
Commission rely on a different
analytical principle with regard to the
. . . normal cost payments . . . , [it]
may petition the Commission for a
change pursuant to 39 [CFR] part 3050.’’
Order No. 6363 at 11. On December 19,
2022, the National Postal Policy
Council, the Alliance of Nonprofit
Mailers, the American Catalog Mailers
Association, the Association for Postal
Commerce, the Major Mailers
Association, the National Association of
Presort Mailers, and N/MA—The News/
Media Alliance (Mailers) filed a motion
requesting reconsideration of Order No.
6363, or in the alternative, adoption of
a petition to change the analytical
principles applied to the FY 2022 retiree
health benefit normal costs.2 For the
reasons discussed below, the
Commission reaffirms the applicable
findings in Order No. 6363 and provides
notice of its intent to consider the
Mailers’ petition to change the
analytical principles applied to the FY
2022 retiree health benefit normal costs.
II. Background
In its annual periodic reports to the
Commission, the Postal Service is
permitted to use only accepted
analytical principles. 39 CFR 3050.10.
Accepted analytical principles refer to
the analytical principles that were
applied by the Commission in its most
recent Annual Compliance
1 Docket No. RM2023–1, Order Granting Petition,
In Part, for Reconsideration, December 9, 2022, at
10 (Order No. 6363). The Postal Service has
separately appealed Order No. 6363. See U.S. Postal
Serv. v. Postal Regul. Comm’n, No. 23–1003 (D.C.
Cir. Jan. 6, 2023), ECF Document No. 1980503, at
1–3.
2 Docket Nos. RM2023–1 and RM2023–3, Motion
for Reconsideration or, in the Alternative, Petition
to Initiate a Proceeding Regarding the Appropriate
Analytical Principle for Retiree Health Benefit
Normal Costs, December 19, 2022 (Mailers’ Motion
and Petition). The Mailers initially designated their
petition as Proposal Eight. In Order No. 6382, the
Commission redesignated the petition as NPPC et
al. Proposal One to distinguish it from proposals
initiated by the Postal Service. Docket Nos.
RM2023–1 and RM2023–3, Order Granting Motion
for Extension of Time, December 21, 2022, at 2 n.2
(Order No. 6382). This change continues to be
reflected in the caption for Docket No. RM2023–3
and is how the Commission will reference the
Mailers’ petition in this proceeding.
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6679
Determination (ACD) unless different
analytical principles subsequently were
accepted by the Commission in a final
rule. 39 CFR 3050.1(a).
Retiree health benefit normal costs
represent the present value of the
estimated retiree health benefits
attributable to active employees’ current
year of service.3 Between FY 2017 and
FY 2021, the Postal Service was
required to pay retiree health benefit
normal costs and amortization payments
for the unfunded portion of the Postal
Service Retiree Health Benefit Fund
(PSRHBF) obligation as calculated by
the Office of Personnel Management
(OPM).4 On April 6, 2022, President
Joseph Biden signed the Postal Service
Reform Act (PSRA) into law.5 Section
102 of the PSRA repealed former 5
U.S.C. 8909a(d), thus eliminating the
required annual retiree health benefit
payments. Under the requirements of
the PSRA, the Postal Service will
instead be required to pay into the
PSRHBF for current retiree health care
costs equal to the excess of the cost of
annual claims over premiums. The
Postal Service will not, however, be
required to make these payments until
OPM computes whether ‘‘top up’’
payments are due (which will occur not
later than June 30, 2026) or the PSRHBF
is exhausted. Thus, no retiree health
benefit payments were due in FY 2022.
After several letters and filings
concerning how the Postal Service
should address the changed retiree
health benefit payment requirements (in
addition to other changes to costs)
caused by the PSRA,6 the Commission
3 Docket No. ACR2021, Financial Analysis of
United States Postal Service Financial Results and
10–K Statement, May 18, 2022, at 7 n.9.
4 Former 5 U.S.C. 8909a(d)(3)(B). As explained in
detail in Section IV.A., infra, these requirements
replaced different retiree health benefit funding
requirements that were in place between FY 2007
and FY 2016.
5 Postal Service Reform Act of 2022, Public Law
117–108, 136 Stat. 1127 (2022).
6 See Letter from Richard T. Cooper, Managing
Counsel, Corporate and Postal Business Law to
Erica A. Barker, Secretary and Chief Administrative
Officer, August 12, 2022, available at https://
www.prc.gov/docs/122/122469/Lttr%
20re%20PSRA%20Effects%20ACR%20CRA.pdf;
Letter from Erica A. Barker, Secretary and Chief
Administrative Officer to Richard T. Cooper,
Managing Counsel, Corporate and Postal Business
Law, October 7, 2022, available at https://
www.prc.gov/docs/123/123096/Response%
20Letter.pdf; Docket No. RM2023–1, Petition for
Reconsideration and Initiation of Proceeding,
November 4, 2022; Letter to Erica A. Barker,
Secretary and Chief Administrative Officer, October
13, 2022, styled Motion for Reconsideration of
Response to the Postal Service’s Proposed Changes
to Accepted Analytical Principles, available at
https://www.prc.gov/docs/123/123145/
Motion%20for%20Reconsideration_PropChange_
.pdf; Docket No. RM2023–1, Response of the United
States Postal Service in Opposition to GCA Petition
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]]>Agencies
- DEPARTMENT OF THE TREASURY
- Bureau of the Fiscal Service
[Federal Register Volume 88, Number 21 (Wednesday, February 1, 2023)]
[Proposed Rules]
[Pages 6674-6679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01024]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Bureau of the Fiscal Service
31 CFR Part 240
RIN 1530-AA22
Indorsement and Payment of Checks Drawn on the United States
Treasury
AGENCY: Bureau of the Fiscal Service, Treasury.
ACTION: Notice of proposed rulemaking with request for comment.
-----------------------------------------------------------------------
SUMMARY: The Bureau of the Fiscal Service (Fiscal Service) at the
Department of the Treasury (Treasury) is proposing to amend its
regulations governing the payment of checks drawn on the United States
Treasury. Specifically, to prevent Treasury checks from being
negotiated after cancellation by Treasury or a payment certifying
agency--also known as payments over cancellation (POCs)--Fiscal Service
is proposing amendments that would require financial institutions use
the Treasury Check Verification System (TCVS), or other similar
authorized system, to verify that Treasury checks are both authentic
and valid. This proposal also contains conforming amendments, including
the addition of a definition of ``cancellation'' or ``canceled.''
Finally, the proposal would amend the reasons for which a Federal
Reserve Bank must decline payment of a Treasury check to include prior
cancellation of the check, so that Fiscal Service may place what is
commonly referred to as a ``true stop'' on a Treasury check and avoid a
POC.
DATES: Comments on the proposed rule must be received by April 3, 2023.
ADDRESSES: Comments on this proposed rule, identified by docket FISCAL-
2021-0001, should only be submitted using the following methods:
Federal eRulemaking Portal: www.regulations.gov. Follow
the instructions on the website for submitting comments.
Mail: Department of the Treasury, Bureau of the Fiscal
Service, Attn: Gary Swasey, Director, Post Payment Modernization
Division, 13000 Townsend Rd., Philadelphia, PA 19154.
The fax and email methods of submitting comments on rules to Fiscal
Service have been decommissioned.
Instructions: All submissions received must include the agency name
(Bureau of the Fiscal Service) and docket number FISCAL-2021-0001 for
this rulemaking. In general, comments received will be published on
regulations.gov without change, including any business or personal
information provided. Comments received, including attachments and
other supporting materials, are part of the public record and subject
to public disclosure. Do not include any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure. In accordance with the U.S. government's
eRulemaking Initiative, Fiscal Service publishes rulemaking information
on www.regulations.gov. Regulations.gov offers the public the ability
to comment on, search, and view publicly available rulemaking
materials, including comments received on rules.
FOR FURTHER INFORMATION CONTACT: Gary Swasey, Director, Post Payment
Modernization Division, at (215) 516-8145 or
[email protected]; or Thomas Kearns, Senior Counsel, at
(202) 874-6680 or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
Currently, when either Treasury or a payment certifying agency puts
a ``stop payment'' (or ``check stop'') on a Treasury check to cancel
it, the canceled check may still be negotiated, which leads to a POC.
POCs are improper payments that amount to approximately $98 million
each year. Resolving POCs also costs the Federal Government
approximately $1.3 million each year.
Financial institutions often have access to real-time or same-day
check verification information to ensure that non-Treasury checks have
not been canceled, and soon this will be the case for Treasury checks
as well. Fiscal Service's Treasury Check Verification System (TCVS)
provides verification information for Treasury checks, but currently
TCVS has a one-day lag. However, Fiscal Service expects to complete
enhancements to TCVS that will allow same-day verification by mid-2023.
TCVS is available at no cost to financial institutions, either for
single-item use via a free online web portal or for bulk verification
of Treasury checks via an Application Programming Interface (API). TCVS
verifies the authenticity of a Treasury check using the check symbol
and serial number (i.e., the 4-digit and 8-digit components,
respectively, that together comprise a unique Treasury check number),
check date, and payment amount.
Use of TCVS is currently optional. At present, Treasury procedures
charge back POCs to the certifying agency, so banks have little
incentive to use TCVS to avoid POCs. Only approximately 40% of all
Treasury checks are run through TCVS before being negotiated.
After enhancements to Treasury's systems have been implemented and
same-day Treasury check verification is functional, Fiscal Service
proposes requiring that a financial institution use its check
verification system when negotiating a Treasury check if the financial
institution is to avoid liability for accepting a Treasury check that
has been canceled. Financial institutions will be notified via a
communication from the Federal Reserve's Customer Relations Support
Office, Federal Register notice, and/or other appropriate means at
least 30 days prior to the date that enhanced TCVS will become
available for use and this requirement becomes effective.
Under existing rules, financial institutions are required to use
``reasonable efforts'' to ensure that a Treasury check is authentic
(i.e., not counterfeit) and also are responsible if they accept a
Treasury check that has been previously negotiated, but they are not
required to ensure that a Treasury check has not been canceled. The
definition of ``reasonable efforts'' found in 31 CFR 240.2 does not
currently include a requirement to use Treasury's check verification
system to ensure that a Treasury check is valid (i.e., a payable
instrument that has not been canceled and meets the criteria for
negotiability). Fiscal Service proposes revising the definition of
``reasonable efforts'' to include this verification process.
Requiring a financial institution to use TCVS (or a subsequent
check verification system built to carry out the same function) has
several benefits. It will greatly reduce POCs, as it will allow
certifying agencies to place a ``true stop'' on a Treasury check. It
will also help financial institutions reduce instances where a Treasury
check (or an item purporting to be a Treasury check) is charged back to
the financial institution, by allowing the financial institution to
verify that the Treasury check is not counterfeit, that the amount has
not been altered, and that the check is not stale-dated (i.e., more
than twelve months past the date of issuance and
[[Page 6675]]
thus no longer negotiable). Use of Treasury's check verification system
will also help financial institutions avoid liability by reducing
instances where a financial institution accepts a Treasury check that
has been previously negotiated. However, because Treasury often is not
informed immediately that a Treasury check has been negotiated, the
enhanced check verification system will not eliminate acceptance of
duplicate presentations entirely. (The enhancements to TCVS expected in
mid-2023 will allow TCVS to provide information on negotiated Treasury
checks on the same day Fiscal Service receives that information, but
will not speed up Treasury's receipt of that information.) In some
cases, TCVS may not have information to provide before the financial
institution that accepted the duplicate presentation makes funds
available, which it typically does no later than the next business day.
As a practical matter, though, often the second presentation of a
Treasury check does not occur until after Treasury's records have been
updated. In this instance, use of TCVS will allow the financial
institution to avoid liability by declining the previously negotiated
Treasury check when it is presented.
Additionally, although the required usage of Treasury's check
verification system will be limited to verifying the check symbol and
check serial numbers, the payment amount, and the negotiation status of
the check (e.g., valid, cashed, canceled), the enhanced system may
eventually allow for the optional verification of other check
information, such as the payee name and ZIP code. These capabilities
will better enable financial institutions to identify Treasury checks
that have been altered, or counterfeit checks that purport to be
Treasury checks, and thus help financial institutions avoid liability
for accepting such checks that are not valid.
II. Summary of Proposed Rule Changes
A. Amendment to the Definition of, and Guarantee Regarding,
``Reasonable Efforts''
Part 240 currently includes a presentment guarantee, made by the
guarantor of a check presented to Treasury for payment, that the
guarantor has made all reasonable efforts to ensure that the check is
an authentic Treasury check and not a counterfeit check. The current
definition of ``reasonable efforts'' focuses on the watermark and/or
other security features of a security check, to ensure that the
Treasury check is authentic and not counterfeit. We propose to amend
the definition of ``reasonable efforts'' to include verifying not only
the Treasury check's authenticity, but also the check's validity, by
requiring use of Treasury's check verification system to ensure that
the check has not been canceled. Exceptions to this requirement would
exist where Treasury's check verification system is not operating and
is thus unavailable.
A corresponding amendment to the presentment guarantees found in
the regulations would change the guarantee of Treasury check's
authenticity to include a presentment guarantee regarding the check's
validity as well, as described below.
B. Adding a Definition of ``Validity''
Currently, part 240 does not define ``validity.'' We propose adding
a definition of ``validity'' or ``valid check.''
The proposed definition describes a valid Treasury check as a
payable instrument (i.e., not a counterfeit check, as defined in the
existing regulations) that meets the criteria for negotiability (i.e.,
it has not been previously negotiated or canceled). A corresponding
amendment to the presentment guarantees would add a new presentment
guarantee regarding the check's validity.
C. Adding a Definition of ``Cancellation'' or ``Canceled''
Currently, part 240 does not define ``cancellation'' or
``canceled'' with regard to a Treasury check. We propose adding a
definition of ``cancellation'' or ``canceled.''
This definition describes a canceled Treasury check as one that was
once a valid and negotiable instrument, but is no longer due to a
reason other than the Treasury check's negotiation. A Treasury check
may be canceled because it has limited payability (i.e., it is older
than one year past its issuance date and thus stale-dated), or because
Treasury or the certifying agency has placed a ``stop payment'' (as
defined below) on it.
D. Adding a Definition of ``Stop Payment''
Currently, the regulations do not define a ``stop payment'' with
regard to a Treasury check. We propose adding a definition of this
term.
This proposed definition describes the situation where Treasury or
the certifying agency has indicated in its systems that an authentic
Treasury check should not be paid. Reasons for issuing a stop payment
on a Treasury check include that the Treasury check has been reported
lost or stolen, it has been issued to a deceased payee, or it was
discovered to be improper. Once a stop payment has been placed on a
Treasury check, the check has been canceled and is no longer a valid
Treasury check (even though it is an authentic Treasury check).
E. Amendment to the Processing of Checks, Declination, and the Reasons
for Refusal
Current Treasury regulations require that a Federal Reserve Bank
cash a Treasury check presented to it, except in certain circumstances
where the Federal Reserve Bank must instead refuse to pay the Treasury
check. The check must be refused if (1) the check bears a material
defect or alteration, (2) the check was presented more than one year
later than the check's date of issuance, or (3) the Federal Reserve
Bank has been notified by Treasury, pursuant to Treasury regulations,
that a check was issued to a deceased payee. We propose adding a fourth
circumstance in which a Federal Reserve Bank must refuse to pay a
Treasury check: if the Federal Reserve Bank has been notified by
Treasury that a Treasury check is not valid.
As noted above, under the proposed definition, a Treasury check is
not valid if the Treasury check is counterfeit, previously negotiated,
or canceled.
A corresponding amendment to the regulation regarding Treasury's
right of first refusal will include the instruction for Treasury to
decline payment of a Treasury check when Treasury is being requested to
make payment on a check that is not valid.
The Fiscal Service invites comments on the proposed regulation to
require financial institutions to verify that a Treasury check has not
been canceled, to prevent payments over cancellation (POCs). We invite
commenters' views on all aspects of the proposed rule, which would
permit Treasury to place a ``true stop'' on Treasury checks to avoid
POCs, including whether the proposed definitions (e.g., ``reasonable
efforts'' ``cancellation'' ``canceled'' ``valid'') are reasonable and
appropriate.
III. Section-by-Section Analysis
A. Section 240.2--Definitions
We propose to amend the definitions section of part 240, found at
31 CFR 240.2, by removing the lettering within that section (the list
letters (a), (b), (c), etc.), and simply listing the terms in
alphabetical order within the section. This comports with the Office of
the Federal Register's recommendation for a list of definitions found
in regulations, as stated in Section 2-13 of the Document Drafting
Handbook. This
[[Page 6676]]
change also removes the need to re-letter the list of definitions when
new definitions are added to the list.
For the reasons set forth above, we propose amending Sec. 240.2 to
revise the definition of ``reasonable efforts''; add the definition of
``cancellation'' or ``canceled''; add the definition of ``stop
payment'' or ``check stop'' or ``stop''; and add the definition of
``validity'' or ``valid check.'' These four definitions are the only
substantive changes to the rule's definitions section; the other terms
are listed without substantive change, for purposes of removing the
lettering system only, as described above.
These proposed new definitions and amendments to existing
definitions will help effectuate and clarify the requirement for
financial institutions to use Treasury's check verification system when
negotiating Treasury checks in order to avoid liability for accepting a
Treasury check that is not valid due to cancellation. They will allow
help effectuate and clarify that the use of Treasury's check
verification system will assist financial institutions in avoiding
liability for accepting Treasury checks that have already been
negotiated or have been altered, as well as for accepting counterfeit
checks that purport to be Treasury checks.
B. Section 240.4--Presentment Guarantees
We propose amending the presentment guarantees to include a
guarantee that the guarantor has made reasonable efforts to ensure that
the check is an authentic Treasury check and that it is valid at the
time of acceptance.
C. Section 240.6--Provisional Credit; First Examination; Declination;
Final Payment
We propose amending the reasons that Treasury will decline a
Treasury check upon first examination to include the fact that the
check has been canceled, in addition to when the check has already been
paid.
D. Section 240.12--Processing of Checks
We propose amending the reasons that a Federal Reserve Bank must
refuse payment of a Treasury check to include circumstances where the
Federal Reserve Bank has been notified that the Treasury check has been
canceled or is otherwise not valid.
IV. Procedural Analysis
Request for Comment on Plain Language
Executive Order 12866 requires each agency in the Executive branch
to write regulations that are simple and easy to understand. We invite
comment on how to make the proposed rule clearer. For example, you may
wish to discuss: (1) whether we have organized the material to suit
your needs; (2) whether the requirements of the rule are clear; or (3)
whether there is something else we could do to make the rule easier to
understand.
Regulatory Planning and Review
The proposed 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 proposed rule will not have a
significant economic impact on a substantial number of small entities.
The proposed rule could potentially impose a significant additional
burden or cost on three to seven small entities, out of a total of
approximately 8,000 financial institutions that qualify as small
entities.
The proposed rule only adds a simple query to the list of
reasonable steps that banks take when determining the validity of a
Treasury check. Treasury offers a free verification tool for bulk
verification of Treasury checks via an Application Programming
Interface (API) or for single-item use via a free online web portal.
Use of the web portal requires no purchase of special equipment by
financial institutions and requires only a standard internet
connection. Banks should be able to complete a single-check search
using this free web portal in approximately 30 seconds to one minute
per search. An analysis of the 100 largest FDIC-insured institutions
under $600 million in assets and the 100 largest federally insured
credit unions under $600 million in assets shows that all but one of
these financial institutions accepted fewer than 9,500 Treasury checks
in 2020. The median for these 200 institutions was approximately 2,974
Treasury checks cashed in 2020, and the average was approximately
3,105. At an estimated 30 seconds per verification, 3,105 items would
amount to approximately 26 staff hours per year. Congress has stated,
by means of example, that additional recordkeeping requirements of 175
staff hours per year would constitute a significant impact on a small
business entity. See 126 Cong. Rec. part 16, S10,938 (Aug. 6, 1980).
Even assuming a full minute for the use of the TCVS web portal to query
an individual Treasury check, these figures are well below the 10,500
checks that it would take to constitute 175 staff hours in a year (and
the 21,000 checks needed with 30-second searches).
Additionally, an analysis of all the approximately 9,000 financial
institutions that negotiated Treasury checks in 2020 shows that only
325 of them negotiated over 21,000 Treasury checks. Of those 325, only
three are identifiable as small businesses with assets under $600
million. Even using the one-minute allotment for each use of the
Treasury web portal, which translates into 10,500 negotiated Treasury
checks, this figure increases to just seven small financial
institutions (i.e., those with assets under $600 million) receiving
more than that number of Treasury checks.
Finally, it is worth noting that at approximately 90.3 million
checks, Treasury check volume in 2020 was considerably higher than for
other recent years, largely due to an increased quantity of check
payments made under the Coronavirus Aid, Relief, and Economic Security
(CARES) Act. By means of comparison, in the previous three calendar
years (2019, 2018, and 2017), Treasury issued 54.2 million, 55.9
million, and 58.4 million Treasury checks, respectively. In years with
fewer Treasury checks issued, it is reasonable to expect that financial
institutions will be presented with a correspondingly lower Treasury
check volume. Treasury estimates that with the possible exception of
three to seven entities as mentioned above, financial institutions
considered small entities will spend substantially fewer than 175 staff
hours per year verifying the validity of Treasury checks through the
manual use of TCVS; smaller financial institutions that receive fewer
Treasury checks would likely spend significantly less time.
Additionally, any financial institution manually processing a large
enough quantity of Treasury checks that it might experience a
significant economic impact, due to the staff-hours required for such
manual processing, would have the option instead to use an API to
access Treasury's check verification system for use with bulk files. As
with manual access, bulk access to the verification tool is free of
charge to financial institutions.
Treasury anticipates that no more than three to seven small
financial institutions, out of approximately 8,000 such entities, may
potentially be subject to a significant impact as a result of this
proposed rule. This translates into substantially less than 1% of all
small financial institutions (between 0.04% and 0.1%). Thus, the
proposed rule will not have a significant impact on a substantial
number of small financial
[[Page 6677]]
institutions. Accordingly, a regulatory flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) is not required.
Treasury invites comments on the potential impacts this proposed rule
would have on small entities.
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 proposed 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 240
Authenticity, Canceled, Cancellation, Check, Check stop,
Declination, Financial institutions, Presentment, Presentment
guarantees, Processing, Reasonable efforts, Stop, Treasury check,
Treasury check verification system, Valid check, Validity,
Verification.
For the reasons set out in the preamble, the Bureau of the Fiscal
Service proposes to amend 31 CFR part 240 as follows:
PART 240--INDORSEMENT AND PAYMENT OF CHECKS DRAWN ON THE UNITED
STATES TREASURY
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1. The authority citation for part 240 continues to read as follows:
Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 321, 3327,
3328, 3331, 3334, 3343, 3711, 3712, 3716, 3717; 332 U.S. 234 (1947);
318 U.S. 363 (1943).
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2. Revise Sec. 240.2 to read as follows:
Sec. 240.2 Definitions.
Administrative offset or offset, for purposes of this section, has
the same meaning as defined in 31 U.S.C. 3701(a)(1) and 31 CFR part
285.
Agency means any agency, department, instrumentality, office,
commission, board, service, or other establishment of the United States
authorized to issue Treasury checks or for which checks drawn on the
United States Treasury are issued.
Cancellation or canceled means that a Treasury check is no longer a
valid instrument, due to the one-year limitation on negotiability and
payment described in Sec. 240.5(a), or the placement of a stop payment
on the check by Treasury or the certifying agency.
Certifying agency means an agency authorizing the issuance of a
payment by a disbursing official in accordance with 31 U.S.C. 3325.
Check or checks means an original check or checks; an electronic
check or checks; or a substitute check or checks.
Check payment means the amount paid to a presenting bank by a
Federal Reserve Bank.
Counterfeit check means a document that purports to be an authentic
check drawn on the United States Treasury, but in fact is not an
authentic check.
Days means calendar days. For purposes of computation, the last day
of the period will be included unless it is a Saturday, Sunday, or
Federal holiday; the first day is not included. For example, if a
reclamation was issued on July 1, the 90-day protest period under Sec.
240.9(b) would begin on July 2. If the 90th day fell on a Saturday,
Sunday or Federal holiday, the protest would be accepted if received on
the next business day.
Declination means the process by which Treasury refuses to make
final payment on a check, i.e., declines payment, by instructing a
Federal Reserve Bank to reverse its provisional credit to a presenting
bank.
Declination date means the date on which the declination is issued
by Treasury.
Disbursing official means an official, including an official of the
Department of the Treasury, the Department of Defense, any Government
corporation (as defined in 31 U.S.C. 9101), or any official of the
United States designated by the Secretary of the Treasury, authorized
to disburse public money pursuant to 31 U.S.C. 3321 or another law.
Drawer's signature means the signature of a disbursing official
placed on the front of a Treasury check as the drawer of the check.
Electronic check means an electronic image of a check drawn on the
United States Treasury, together with information describing that
check, that meets the technical requirements for sending electronic
items to a Federal Reserve Bank as set forth in the Federal Reserve
Banks' operating circulars.
Federal Reserve Bank means a Federal Reserve Bank or a branch of a
Federal Reserve Bank.
Federal Reserve Processing Center means a Federal Reserve Bank
center that images Treasury checks for archiving check information and
transmitting such information to Treasury.
Financial institution means:
(1) Any insured bank as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make
application to become an insured bank under section 5 of such Act (12
U.S.C. 1815);
(2) Any mutual savings bank as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible to
make application to become an insured bank under section 5 of such Act
(12 U.S.C. 1815);
(3) Any savings bank as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make
application to become an insured bank under section 5 of such Act (12
U.S.C. 1815);
(4) Any insured credit union as defined in section 101 of the
Federal Credit Union Act (12 U.S.C. 1752) or any credit union which is
eligible to make application to become an insured credit union under
section 201 of such Act (12 U.S.C. 1781);
(5) Any savings association as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) which is an insured depositary
institution (as defined in such Act) (12 U.S.C. 1811 et seq.) or is
eligible to apply to become an insured depositary institution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and
(6) Any financial institution outside of the United States if it
has been designated by the Secretary of the Treasury as a depositary of
public money and has been permitted to charge checks to the General
Account of the United States Treasury.
First examination means Treasury's initial review of a check that
has been presented for payment. The initial review procedures, which
establish the authenticity and integrity of a check presented to
Treasury for payment, may include reconciliation; retrieval and
inspection of the check or the best available image thereof; and other
procedures Treasury deems appropriate to specific circumstances.
Forged or unauthorized drawer's signature means a drawer's
signature that has been placed on the front of a Treasury check by a
person other than:
[[Page 6678]]
(1) A disbursing official; or
(2) A person authorized to sign on behalf of a disbursing official.
Forged or unauthorized indorsement means:
(1) An indorsement of the payee's name by another person who is not
authorized to sign for the payee; or
(2) An indorsement of the payee's name made by another person who
has been authorized by the payee, but who has not indorsed the check in
accordance with Sec. 240.4 and Sec. Sec. 240.13 through 240.17; or
(3) An indorsement added by a financial institution where the
financial institution had no authority to supply the indorsement; or
(4) A check bearing an altered payee name that is indorsed using
the payee name as altered.
Guarantor means a financial institution that presents a check for
payment and any prior indorser(s) of a check.
Master Account means the record of financial rights and obligations
of an account holder and the Federal Reserve Bank with respect to each
other, where opening, intraday, and closing balances are determined.
Material defect or alteration means:
(1) The counterfeiting of a check; or
(2) Any physical change on a check, including, but not limited to,
a change in the amount, date, payee name, or other identifying
information printed on the front or back of the check (but not
including a forged or unauthorized drawer's signature); or
(3) Any forged or unauthorized indorsement appearing on the back of
the check.
Minor means the term minor as defined under applicable State law.
Monthly statement means a statement prepared by Treasury which
includes the following information regarding each outstanding
reclamation:
(1) The reclamation date;
(2) The reclamation number;
(3) Check identifying information; and
(4) The balance due, including interest, penalties, and
administrative costs.
Original check means the first paper check drawn on the United
States Treasury with respect to a particular payment transaction.
Payee means the person that the certifying agency designated to
receive payment pursuant to 31 U.S.C. 3528.
Person means an individual, institution, including a financial
institution, or any other type of entity; the singular includes the
plural.
Presenting bank means:
(1) A financial institution which, either directly or through a
correspondent banking relationship, presents checks to and receives
provisional credit from a Federal Reserve Bank; or
(2) A depositary which is authorized to charge checks directly to
Treasury's General Account and present them to Treasury for payment
through a designated Federal Reserve Bank.
Provisional credit means the initial credit provided to a
presenting bank by a Federal Reserve Bank. Provisional credit may be
reversed by Treasury until the completion of first examination or final
payment is deemed made pursuant to Sec. 240.6(d).
Reasonable efforts means, at a minimum, confirming the validity of
a check, using Treasury's check verification system or other similar
authorized system, whenever such system is available, as well as the
authenticity of the check such as by verifying the existence of the
Treasury watermark on an original check. Acceptance of a check by
electronic image or other non-physical means does not impact reasonable
efforts requirements. Based upon the facts at hand, including whether a
check is an original check, a substitute check, or an electronic check,
reasonable efforts may require the verification of other security
features.
Reclamation means a demand for the amount of a check for which
Treasury has requested an immediate refund.
Reclamation date means the date on which a reclamation is issued by
Treasury. Normally, demands are sent to presenting banks or other
indorsers within two business days of the reclamation date.
Reclamation debt means the amount owed as a result of Treasury's
demand for refund of a check payment, and includes interest, penalties
and administrative costs assessed in accordance with Sec. 240.8.
Reclamation debtor means a presenting bank or other indorser of a
check from whom Treasury has demanded a refund in accordance with
Sec. Sec. 240.8 and 240.9. The reclamation debtor does not include a
presenting bank or other indorser who may be liable for a reclamation
debt, but from which Treasury has not demanded a refund.
Recurring benefit payment includes but is not limited to a payment
of money for any Federal Government entitlement program or annuity.
Stop payment means that Treasury or a certifying agency has
indicated that a Treasury check should not be paid and instead should
be canceled. A stop payment could be placed on a Treasury check for
reasons including that the check was reported lost or stolen; the check
was determined to have been issued improperly; the payee was deceased
prior to the issuance of the check; or any other allowable reason.
Substitute check means a paper reproduction of a check drawn on the
United States Treasury that meets the definitional requirements set
forth at 12 CFR 229.2(aaa).
Treasury means the United States Department of the Treasury, or
when authorized, an agent designated by the Secretary of the Treasury
or their delegee.
Treasury Check Offset means the collection of an amount owed by a
presenting bank in accordance with 31 U.S.C. 3712(e).
Truncate means to remove a paper check from the forward collection
or return process and send to a recipient, in lieu of such paper check,
a substitute check or an electronic check.
U.S. securities means securities of the United States and
securities of Federal agencies and Government corporations for which
Treasury acts as the transfer agent.
Validity or valid check means an authentic Treasury check that is a
payable instrument and has not been previously negotiated or canceled.
Writing includes electronic communications when specifically
authorized by Treasury in implementing instructions.
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3. Amend Sec. 240.4 by revising paragraph (d) to read as follows:
Sec. 240.4 Presentment guarantees.
* * * * *
(d) Authenticity and Validity. That the guarantors have made all
reasonable efforts to ensure that a check is both an authentic Treasury
check (i.e., it is not a counterfeit check) and a valid Treasury check
(i.e., it has not been previously negotiated or canceled).
* * * * *
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4. Amend Sec. 240.6 by revising paragraph (c)(3) to read as follows:
Sec. 240.6 Provisional credit; first examination; declination; final
payment.
* * * * *
(c) * * *
(3) Treasury has already received presentment of a substitute
check, electronic check, or original check relating to the check being
presented, such that Treasury is being requested to make payment on a
check it has already paid; or Treasury is being requested to make
payment on a check that is not valid due to a stop payment or other
cancellation.
* * * * *
[[Page 6679]]
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5. Amend Sec. 240.12 by revising paragraphs (a)(1)(ii) and (iii), and
adding paragraph (a)(1)(iv) to read as follows:
Sec. 240.12 Processing of checks.
(a) * * *
(1) * * *
(ii) A check was issued more than one year prior to the date of
presentment;
(iii) The Federal Reserve Bank has been notified by Treasury, in
accordance with Sec. 240.15(c), that a check was issued to a deceased
payee; or
(iv) The Federal Reserve Bank has been notified by Treasury that a
check is not valid.
* * * * *
David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2023-01024 Filed 1-31-23; 8:45 am]
BILLING CODE 4810-AS-P
