View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F ederal Reserve Bank
DALLAS, TEXAS

of

Dallas

75222

Circular No. 79-165
October 4, 1979

NEW REGULATION S
Reimbursement Procedures for Financial Institutions Providing
Customer Records to the Federal Government

TO ALL STATE MEMBER BANKS IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:

The Board of Governors of the Federal Reserve System has announced
the adoption of a new Regulation to set reimbursement rates for costs incurred by
financial institutions in assembling and providing customer financial records to
an authority of the federal government. The Right to Financial Privacy Act of
1978 restricts federal government access to individual customers' financial rec­
ords except through (1) valid w ritten customer authorization, (2) adm inistrative
summons or subpoena, (3) valid search w arran t, (4) judicial subpoena, or
(5) formal w ritten request. G enerally, a financial institution should not release
applicable financial records until the federal agency has certified in w riting to
the institution that the federal agency has complied with the Act.
Under the new Regulation S, a financial institution's search and pro­
cessing costs w ill be reimbursed at the rate of $10.00 per hour per person, com­
puted on the basis of $2. 50 per quarter hour or fraction thereof. Reproduction
costs w ill be set at 15C per page, and reimbursement for transportation costs
w ill be limited to actual costs. Regulation S is effective October 1, 1979.
Printed on the following pages is a copy of the new Regulation S as
it w ill appear in the Federal R egister. The new Regulation w ill be distributed
in pamphlet form at a later date.
Any questions concerning Regulation S should be directed to the
Consumer A ffairs Section of our Bank Supervision and Regulations Department,
Ext. 6171.
Sincerely yours,
Robert H . Boykin
First Vice President

Banks and others are encouraged to use the following incoming WATS numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

TITLE 12— BANKS AND BANKING
CHAPTER 11— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[12 C.F.R. Part 219]
[DOCKET NO. R-0243]
NOTICE OF FINAL RULEMAKING
REGULATION S
REIMBURSEMENT TO FINANCIAL INSTITUTIONS FOR
ASSEMBLING OR PROVIDING FINANCIAL RECORDS

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final regulation.

SUMMARY: The Board of Governors of the Federal Reserve System has adopted
a new regulation required by section 1115 of the Right to Financial
Privacy Act (12 U.S.C. § 3415) that provides rates and conditions for
reimbursement of reasonably necessary costs, directly incurred by financial
institutions in assembling or providing customer financial records to
a federal government authority.
DATE:

This regulation is effective October 1, 1979.

FOR FURTHER INFORMATION, CONTACT:
MaryEllen A. Brown, Senior Counsel,
Legal Division, Board of Governors of the Federal Reserve System, Washington,
D.C. 20551 (202/452-3608).
SUPPLEMENTARY INFORMATION:
On August 8, 1979, the Board of Governors
of the Federal Reserve System proposed a regulation (to be known as
Regulation S) for reimbursement of reasonably necessary costs directly
incurred by financial institutions, to search for, reproduce, and transport
financial records sought by a federal authority, and invited public
comments on this proposal (44 Fed. Reg. 46475).
Comments were invited
particularly about how the reimbursement should be set and how it could
be permitted to vary over time.
As background information, the Right to Financial Privacy
Act of 1978 (the "Act") restricts federal government access to individual
customers' financial records maintained by financial institutions, and
requires that, with certain exceptions, federal authorities seeking

disclosure of these records must follow prescribed procedures.
Access
to or disclosure of these financial records must generally be pursuant
to one of the following procedures authorized by the Act:
(1) valid
written customer authorization; (2) administrative summons or subpoena;
(3) valid search warrant; (4) judicial subpoena; or (5) formal written
request.
However, emergency access is also authorized in certain situations,
as is access pursuant to a grand jury subpoena or for Secret Service
or foreign intelligence activities.
The Act also restricts transfer
of financial information obtained under the Act from one federal agency
to another.
The Act does not cover financial records of corporations or
of partnerships comprised of more than five individuals.
Except where access is sought pursuant to a search warrant
or a grand jury subpoena, or in an emergency, or for Secret Service
or foreign intelligence purposes, the bank customer is also given advance
notice of his or her rights to challenge the federal government's access,
and advice about how to effectuate these challenge rights.
A financial institution is also generally prohibited from
releasing a customer's financial records until the federal agency seeking
the records certifies in writing to the financial institution that it
has fully complied with the Act.
Various exceptions to the Act's requirements are provided,
including one that exempts the Board and other federal financial supervisory
agencies from these restrictions in the exercise of their supervisory,
regulatory, or monetary functions.
Civil penalties, injunctive relief, and employee disciplinary
proceedings are authorized as remedies for violations of the Act.
The comment period for proposed Regulation S was announced
as closing September 10, 1979.
Because of recent delays in mail deliveries,
this period was extended informally to the close of business September 12,
1979.
A total of 108 letters of comment concerning the proposed regu­
lation were received by that deadline.
The Board considered the proposed
regulation in light of the comments received and, in several instances,
changed the proposal in response to comments received.
Aspects of the
final regulation that differ significantly from the proposed regulation
are summarized below:
Rate of reimbursement for search and processing
time is increased to $10 per hour per person, computed
on the basis of $2.50 per quarter hour, limited
to the total amount of personnel time spent in
locating, retrieving, reproducing, packaging, and
preparing for shipment documents or information
required or requested by the government authority.
Reimbursement for reproduction of documents is
increased to $0.15 per page.

-3-

The response to the Board's particular request about a variable
rate elicited 28 favorable comments out of the 108 total responses.
An
additional 11 comments suggested periodic or annual review of the rates
set.
Another 3 comments suggested a sliding scale, a form of variable
rate, to vary with the time limit and scope of the work required.
Thus,
in all, some 42 comments favored either periodic review of rates or
some form of a variable rate.
Certain technical changes were also made in this final regulation.
Financial institutions are reminded to keep an accurate record
of personnel time, computer costs, number of reproductions made, and
transportation costs, by each request, and to include on the itemized
bill or invoice the name of the customer to whom it relates.
After
a financial institution receives a Certificate of Compliance with the
Act from the government authority seeking access to financial records,
the financial institution may then submit an itemized bill or invoice
to that federal authority.
If the financial institution does not receive
a Certificate of Compliance because the federal agency has withdrawn
its request for disclosure or a customer has revoked his or her authori­
zation, or because a customer has successfully challenged disclosure
to the federal agency, the financial institution may submit an itemized
bill or invoice for reasonably necessary costs directly incurred in
assembling financial records prior to the time that the federal agency
notifies it that its request is withdrawn or defeated.
Financial institutions are also reminded that the statute
provides eleven types of exceptions from cost reimbursement which are
incorporated into this regulation.
Reimbursement for financial records
sought pursuant to any of these exceptions is, accordingly, also excepted
from this regulation.
Financial institutions should also be aware that just as the
Act provides certain exceptions to its reimbursement requirement, it
also provides exceptions to the Certificate of Compliance requirement.
Thus, financial institutions will not receive a Certificate of Compliance
when financial records are sought by a financial supervisory agency
(12 U.S.C.
§ 3413(b); or for federal litigation (12 U.S.C. § 3413(e));
or for agency adjudicative proceedings (12 U.S.C. § 3413(f); or pursuant
to a grand jury subpoena or court order (12 U.S.C. § 3413(i)); or by
the Secret Service or for foreign intelligence activities (12 U.S.C.
§ 3414(a)).
Regulation S does not address the issue of internal procedures
for federal agencies because this issue is expected to be resolved by
agencies' internal audit procedures.
Comments were received urging
that agencies provide a uniform time limit for the submission of invoices
and for prompt payment of invoices; and that agencies seek to develop
and utilize a uniform invoice for payment.
However, the Board regards
it as beyond the scope of its responsibility to prescribe detailed
internal procedures for other federal agencies to foil j , except where
such procedures have been developed through common agreement with and
by other federal agencies.

-4 -

This regulation is issued pursuant to 5 U.S.C. § 553, 12 CFR
§ 262.2 and in accordance with the Board's Statement of Policy Regarding
Expanded Rulemaking Procedures (44 Fed. Reg. 3957).
Since the regulation
will reduce cost burdens to financial institutions by reimbursing them
for searching for and reproducing customers' financial records as required
or requested by the federal government or as authorized by the customer,
and in view of the fact that the regulation must be adopted by October 1,
1979, expedited rulemaking procedures were followed in issuing this
regulation, in accordance with the Board's Policy Statement.
Since
the Right to Financial Privacy Act requires the Board to establish,
by regulation, the rates and conditions of cost reimbursement, nonregulatory
alternatives were not considered during planning of these regulations.
Under the authority of section 1115 of the Right to Financial
Privacy Act of 1978, 12 U.S.C. § 3415, the Board amends Title 12 of
the Code of Federal Regulations by adding a new Part 219 (to be known
as Regulation S) to read as follows:

REGULATION S
PART 219— REIMBURSEMENT TO FINANCIAL INSTITUTIONS
FOR ASSEMBLING O R PROVIDING FINANCIAL RECORDS

219.1
219.2
219.3
219.4
219.5
219.6
219.7

Authority, Purpose and Scope
Definitions
Cost Reimbursement
Exceptions
Conditions for Payment
Payment Procedures
Effective Date

§ 219.1

AUTHORITY, PURPOSE AND SCOPE

This Part is issued by the Board of Governors of the Federal
Reserve System under section 1115 of the Right to Financial Privacy
Act of 1978 (the "Act") (12 U.S.C. § 3415).
It establishes the rates
and conditions for reimbursement of reasonably necessary costs directly
incurred by financial institutions in assembling or providing customer
financial records to a government authority.

-5 -

§ 219.2

DEFINITIONS

For the purposes of this Part,

the following definitions shall

apply:
(a)
"Financial institution" means any office of a bank,
savings bank, card issuer as defined in section 103 of the Consumers
Credit Protection Act (15 U.S.C. 1602(n)), industrial loan company,
trust company, savings and loan, building and loan, or homestead association
(including cooperative banks), credit union, or consumer finance institution,
located in any state or territory of the United States, the District
of Columbia, Puerto Rico, Guam, American Samoa, or the Virgin Islands.
(b)
"Financial record" means an original of, a copy of, or
information known to have been derived from, any record held by a financial
institution pertaining to a customer's relationship with the financial
institution.
(c)
"Government authority" means any agency or department
of the United States, or any officer, employee or agent thereof.
(d)
"Person" means an individual or a partnership of five
or fewer individuals.
(e)
"Customer" means any person or authorized representative
of that person who utilized or is utilizing any service of a financial
institution, or for whom a financial institution is acting or has acted
as a fiduciary, in relation to an account maintained in the person's
name.
"Customer" does not include corporations or partnerships comprised
of more than five persons.
(f)
"Directly incurred costs" means costs incurred solely
and necessarily as a consequence of searching for, reproducing or trans­
porting books, papers, records, or other data, in order to comply with
legal process or a formal written request or a customer's authorization
to produce a customer's financial records.
The term does not include
any allocation of fixed costs (overhead, equipment, depreciation, etc.).
If a financial institution has financial records that are stored at
an independent storage facility that charges a fee to search for, reproduce,
or transport particular records requested, these costs are considered
to be directly incurred by the financial institution.

§ 219.3

COST REIMBURSEMENT

Except as hereinafter provided, a government authority requiring
or requesting access to financial records pertaining to a customer shall
pay to the financial institution that assembles or provides the financial
records a fee for reimbursement of reasonably necessary costs which
have been directly incurred according to the following schedule:
(a)
Search and processing costs.
(1) Reimbursement of search
and processing costs shall be the total amount of personnel direct time

-6-

incurred in locating and retrieving, reproducing, packaging and pre­
paring financial records for shipment.
(2)
and processing costs is $10 per hour per person, computed on the basis
of $2.50 per quarter hour or fraction thereof, and is limited to the
total amount of personnel time spent in locating and retrieving docu­
ments or information or reproducing or packaging and preparing documents
for shipment where required or requested by a government authority.
Specific salaries of such persons shall not be included in search costs.
In addition, search and processing costs do not include salaries, fees,
or similar costs for analysis of material or for managerial or legal
advice, expertise, research, or time spent for any of these activities.
If itemized separately, search and processing costs may include the
actual cost of extracting information stored by computer in the format
in which it is normally produced, based on computer time and necessary
supplies; however, personnel time for computer search may be paid for
only at the rate specified in this paragraph.
(b)
Reproduction c o s t s .
(1) Reimbursement for reproduction
costs shall be for costs incurred in making copies of documents required
or requested.
(2)
for making copies of required or requested documents is 15 cents for
each page, including copies produced by reader/printer reproduction
processes.
Photographs, films, and other materials are reimbursed at
actual cost.
(c)
Transportation c o s t s . Reimbursement for transportation
costs shall be for (1) necessary costs, directly incurred, to transport
personnel to locate and retrieve the information required or requested;
and (2) necessary costs, directly incurred solely by the need to convey
the required or requested material to the place of examination.

§ 219.4

EXCEPTIONS

A financial institution is not entitled to reimbursement under
the Act for costs incurred in assembling or providing the following
financial records or information:
(a)
Security interests, bankruptcy claims, debt collection.
Any financial records provided as an incident to perfecting a security
interest, proving a claim in bankruptcy, or otherwise collecting on
a debt owing either to the financial institution itself or in its role
as a fiduciary.
(b) Government loan programs. Financial records provided
in connection with a government authority's consideration or admini­
stration of assistance to a customer in the form of a government loan,
loan guaranty, or loan insurance program; or as an incident to processing

The rate fo

an application for assistance to a customer in the form of a government
loan, loan guaranty, or loan insurance agreement; or as an incident
to processing a default on, or administering, a government-guaranteed
or insured loan, as necessary to permit a responsible government authority
to carry out its responsibilities under the loan, loan guaranty, or
loan insurance agreement.
(c)
Nonidentifiable information. Financial records that
are not identified with or identifiable as being derived from the financial
records of a particular customer.
(d)
Financial supervisory agencies. Financial records disclosed
to a financial supervisory agency in the exercise of its supervisory,
regulatory, or monetary functions with respect to a financial institution.
(e)
Internal Revenue summons. Financial records disclosed
in accordance with procedures authorized by the Internal Revenue Code.
(f)
Federally required reports. Financial records required
to be reported in accordance with any federal statute or rule promulgated
thereunder (such as the Bank Secrecy Act).
(g)
Government civil or criminal litigation. Financial
records sought by a government authority under the Federal Rules of
Civil or Criminal Procedure or comparable rules of other courts in
connection with litigation to which the government authority and the
customer are parties.
(h)
Administrative agency subpoenas. Financial records
sought by a government authority pursuant to an administrative subpoena
issued by an administrative law judge in an adjudicatory proceeding
subject to section 554 of Title 5, United States Code, and
towhich
the government authority and the customer are parties.
(i)
Identity of accounts in limited circumstances. Financial
information sought by a government authority, in accordance with the
Right to Financial Privacy Act procedures and for a legitimate law
enforcement inquiry, and limited only to the name, address, account
number and type of account of any customer or ascertainable group of
customers associated (1) with a financial transaction or class of financial
transactions, or (2) with a foreign country or subdivision thereof in
the case of a government authority exercising financial controls over
foreign accounts in the United States under section 5(b) of the Trading
With the Enemy Act (50 U.S.C. App. 5(b)); the International Emergency
Economic Powers Act (Title II, Public Law 95-223); or section 5 of the
United Nations Participation Act (22 U.S.C. 287(c)).
(j)
Investigation of a financial institution
or its noncustomers.
Financial records sought by a government authority in connection with
a lawful proceeding, investigation, examination, or inspection directed
at the financial institution in possession of such records or at a legal
entity which is not a customer.

(k) General Accounting Office requests. Financial records
sought by the General Accounting Office pursuant to an authorized proceeding,
investigation, examination or audit directed at a government authority.
(1)
Securities and Exchange Commission requests. Until November 10,
1980, financial records sought by the Securities and Exchange Commission.

§ 219.5

CONDITIONS FOR PAYMENT

(a)
Limitations. Payment for reasonably necessary, directly
incurred costs to financial institutions shall be limited to material
required or requested.
(b)
Separate consideration of component cos t s . Payment shall
be made only for costs that are both directly incurred and reasonably
necessary.
In determining whether costs are reasonably necessary, search
and processing, reproduction, and transportation costs shall be considered
separately.
(c)
Compliance with legal process, request, or authorization.
No payment shall be made until the financial institution satisfactorily
complies with the legal process or formal written request, or customer
authorization, except that in the case where the legal process or formal
written request is withdrawn, or the customer authorization is revoked,
or where the customer successfully challenges access by or disclosure
to a government authority, the financial institution shall be reimbursed
for reasonably necessary costs directly incurred in assembling financial
records required or requested to be produced prior to the time that
the government authority notifies the institution that the legal process
or request is withdrawn or defeated, or that the customer has revoked
his or her authorization.
(d)
Itemized bill or invoice. No payment shall be made unless
the financial institution submits an itemized bill or invoice showing
specific details concerning the search and processing, reproduction,
and transportation costs.

§ 219.6

PAYMENT PROCEDURES

(a)
Notice to submit invoice. Promptly following a government
authority's service of legal process or request, the government authority
shall notify the financial institution that an itemized bill or invoice
must be submitted for payment and shall furnish an office address for
this purpose.

(b)
Special notice. If a government authority withdraws
the legal process or formal written request, or if the customer revokes
his or her authorization, or if the legal process or request has been
successfully challenged by the customer, the government authority shall
promptly notify the financial institution of these facts, and shall
also notify the financial institution that the itemized bill or invoice
must be submitted for payment of costs incurred prior to the time that
the financial institution receives this notice.

§ 219.7

EFFECTIVE DATE

This regulation shall become effective October 1, 1979.

By order of the Board of Governors, effective October 1, 1979.

(Signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board

[SEAL]


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102