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Federal Reserve Bank

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Notice 97-10

The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
Proposed Amendments to
Regulation E (Electronic Fund Transfers)

The Board of Governors of the Federal Reserve System has requested public
comments on proposed amendments to Regulation E (Electronic Fund Transfers).
The proposed amendments exempt certain “needs-tested” electronic benefit
transfer (EBT) programs established or administered by state or local government
agencies from requirements of the Electronic Fund Transfer Act. The modified
regulatory requirements that the Board established in its 1994 rulemaking would
continue to apply to federally administered EBT programs and state and local employ­
ment-related EBT programs, such as state pension programs.
The Board must receive comments by February 19, 1997. Please address
comments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. All
comments should refer to Docket No. R-0959.
A copy of the Board’s notice as it appears on pages 3242-44, Vol. 62, No. 14,
of the Federal Register dated January 22, 1997, is attached.
For more information, please contact Peggy Atcher at (214) 922-6202. For
additional copies of this Bank’s notice, please contact the Public Affairs Department at
(214) 922-5254.
Sincerely yours,

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston
Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (


Proposed Rules

F ederal Register
Vol. 62, No. 14
W ednesday, January 22, 1997

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

12CFR Part 205
[Regulation E; Docket No. R -0959]

Comments may be inspected in Room
MP-500 of the Martin Building between
9:00 a.m. and 5:00 p.m. weekdays,
except as provided in 12 CFR 261.8 of
the Board’s rules regarding the
availability of information.
Jensen Gell, Staff Attorney, Division of
Consumer and Community Affairs, at
(202) 452-2412 or (202) 452-3667; for
users of Telecommunications Device for
the Deaf (TDD) only, contact Dorothea
Thompson at (202) 452-3544.

Electronic Fund Transfers


AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule.

I. Background

The Board is publishing for
comment proposed amendments to
Regulation E, (Electronic Fund
Transfers). The proposed revisions
implement an amendment to the
Electronic Fund Transfer Act (EFTA),
contained in the Personal Responsibility
and Work Opportunity Reconciliation
Act of 1996, that exempts certain
electronic benefit transfer (EBT)
programs from the EFTA. Generally,
EBT programs involve the issuance of
access cards and personal identification
numbers to recipients of government
benefits so that they can obtain their
benefits through automated teller
machines and point-of-sale terminals.
The Board’s proposal exempts from
Regulation E needs-tested EBT programs
established or administered by state or
local government agencies. Federally
administered EBT programs and state
and local employment-related EBT
programs (such as state pension
programs) would continue to be subject
to modified requirements that recognize
the special characteristics of EBT
DATES: Comments must be received on
or before February 19, 1997.
ADDRESSES: Comments should refer to
Docket No. R-0959, and may be mailed
to William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, N.W., Washington, DC 20551.
Comments also may be delivered to
Room B-2222 of the Eccles Building
between 8:45 a.m. and 5:15 p.m.
weekdays, or to the guard station in the
Eccles Building courtyard on 20th
Street, N.W. (between Constitution
Avenue and C Street) at any time.

EFT A ct and Regulation E
Regulation E implements the
Electronic Fund Transfer Act (EFTA).
The act and regulation cover any
consumer electronic fund transfer
initiated through an automated teller
machine (ATM), point-of-sale (POS)
terminal, automated clearinghouse,
telephone bill-payment system, or
home-banking program; and provide
rules that govern these and other
electronic transfers. The regulation sets
rules for issuance of ATM cards and
other access devices; disclosure of terms
and conditions of an EFT service;
documentation of electronic fund
transfers by means of terminal receipts
and account statements; limitations on
consumer liability for unauthorized
transfers; procedures for error
resolution; and certain rights related to
preauthorized transfers.
The EFTA is not limited to traditional
financial institutions holding
consumers’ accounts. For EFT services
made available by entities other than an
account-holding financial institution,
the act directs the Board to assure, by
regulation, that the provisions of the act
are made applicable. The regulation also
applies to entities that issue access
devices and enter into agreements with
consumers to provide EFT services.
Electronic Benefit Transfer Programs
Electronic benefit transfer (EBT)
programs are designed to deliver
government benefits such as Aid to
Families with Dependent Children
(AFDC), food stamps, Supplemental
Security Income (SSI) and social
security. These systems function much
like commercial systems for EFT.
Eligible recipients receive plastic
magnetic-stripe cards and personal
identification numbers (PINs) and they

access benefits through electronic
terminals. In the case of cash benefits
such as AFDC or SSI, the terminals may
include ATMs that are part of existing
commercial networks; for food stamp
benefits, POS terminals in grocery stores
are typically used.
EBT offers numerous advantages over
paper-based delivery systems, both for
recipients and for program agencies. For
recipients, these advantages include
faster access to benefits, greater
convenience in terms of times and
locations for obtaining benefits,
improved security because funds may
be accessed as needed, lower costs
because recipients avoid check-cashing
fees, and greater privacy and dignity.
For agencies, EBT programs offer a
system that can more efficiently deliver
benefits for both state and federal
programs by reducing the cost of benefit
delivery, facilitating the management of
program funds, and helping to reduce
In March 1994, the Board amended
Regulation E to bring EBT programs
expressly within its coverage. 59 FR
10678 (March 7, 1994). The special
provisions, contained in § 205.15,
applied most of the requirements of the
regulation—including those relating to
liability for unauthorized transactions
and error resolution—with some
modifications. The major exception
related to the requirement to provide
periodic statements of account activity:
EBT programs need not provide
periodic statements as long as (1)
account balance information is made
available to benefit recipients via
telephone and electronic terminals and
(2) a written account history is given
upon request. The basic premise
underlying the Board’s 1994
amendments to Regulation E was that
all consumers using EFT services
should receive substantially the same
protection under the EFTA and
Regulation E. To enable states that are
interested in EBT to test and implement
their programs, the Board delayed the
date of mandatory compliance to March
I, 1997.
II. Proposed Regulatory Provisions

On August 22,1996, the Congress
enacted the Personal Responsibility and
Work Opportunity Reconciliation Act of
1996, a comprehensive welfare reform
law (Pub. L. 104-193, 110 Stat. 2105)
(“the 1996 Act”). The 1996 Act contains

Federal Register / Vol. 62, No. 14 / W ednesday, January 22, 1997 / Proposed Rules
amendments to the EFTA that exempt
“needs-tested” EBT programs
established or administered under state
or local law (for example, benefits such
as the food stamp and AFDC programs).
The 1996 amendments were enacted by
the Congress at the urging of state
officials, who expressed concern about
the costs of compliance with the EFTA
and Regulation E. In particular, the
states believed that the EFTA provisions
limiting a recipient’s liability for
unauthorized transfers could raise
serious budgetary problems at the state
The proposed amendments to
Regulation E implement the
amendments to the EFTA. Federally
administered EBT programs and
employment-related programs
established by federal, state, or local
governments (such as state pension
programs) would continue to be subject
to the modified rules established by the
Board’s 1994 rulemaking.


established by a government agency for
Reduction Project (7100-0200),
distributing benefits to a consumer
Washington, DC 20503, with copies of
electronically, such as through ATMs or such comments to be sent to Mary M.
POS terminals, whether or not the
McLaughlin, Chief, Financial Reports
account is directly held by the agency
Section, Division of Research and
or a bank or other depository institution. Statistics, Mail Stop 97, Board of
For example, an “account” under this
Governors of the Federal Reserve
section includes the use of a database
System, Washington, DC 20551.
An agency may not conduct or
containing the consumer’s name and
sponsor, and an organization is not
record of benefit transfers that is
accessed for verification purposes before required to respond to, this information
collection unless it displays a currently
a particular transaction is approved.
valid OMB control number. The OMB
Under the Board’s proposal, the
control number for Regulation E is
definition would be revised to exclude
needs-tested benefits in a program
The disclosures required by this
established under state or local law or
regulation are found in 12 CFR Part 205
administered by a state or local agency,
consistent with the 1996 amendments to and are required to ensure adequate
disclosure of basic terms, costs, and
the EFTA. Government benefits that
would remain covered include federally rights relating to electronic fund transfer
services provided to consumers. The
administered benefits such as social
recordkeepers are providers of these
security and SSI and state and local
services. Records must be retained for
benefits that are employment-related
24 months.
such as retirement and unemployment
Regulation E applies to all types of
institutions that offer EFT services, not
IV. Form of Comments Letters
III. Section-by-Section Analysis of
just state member banks. Under the
Proposed Amendments
Paperwork Reduction Act, however, the
Comment letters should refer to
Federal Reserve accounts for the
Docket No. R-0959. The Board requests
Section 205.15—Electronic Fund
paperwork burden associated with
that, when possible, comments be
Transfers o f Government Benefits
Regulation E only for state member
prepared using a standard courier
Section 205.15 contains the rules that typeface with a type size of 10 or 12
banks. Any estimates of paperwork
apply to EBT programs as defined by the characters per inch. This will enable the burden for institutions other than state
regulation. It provides modified rules on Board to convert the text into machinemember banks are provided by the
the issuance of access devices, periodic
federal agency or agencies that
readable form through electronic
statements, initial disclosures, liability
supervise those institutions.
scanning, and will facilitate automated
for unauthorized use, and error
There are 1,042 state member banks
retrieval of comments for review.
resolution notices. Employment-related
Comments also may be submitted on 3.5 that are covered by Regulation E
benefit programs established by federal, or 5.25 inch computer diskettes, in any
requirements, with an average frequency
state, or local governments (as well as
of 85,808 responses per year per bank.
IBM-compatible DOS-based format.
federally administered programs)
The total annual burden for all state
Comments on computer diskettes must
remain subject to these modified rules.
member banks is estimated to be
be accompanied by a paper version.
478,804 hours; the combined annual
15(a) Government Agency Subject to
V. Regulatory Flexibility Analysis
cost is estimated to be $9,496,080. The
proposed amendments provide an
In accordance with section 3(a) of the
Regulatory Flexibility Act (5 U.S.C.
exemption for state-administered or
The act and regulation define
603), the Board’s Office of the Secretary state-established electronic benefit
coverage in terms of “financial
has reviewed the proposed amendments transfer (EBT) programs; the
institution,” a term that is broadly
to Regulation E. The amendments,
amendments are not expected to
construed. Coverage applies to entities
increase the hour burden that the
which establish an exemption for
that provide EFT services to consumers
regulation imposes on state member
certain EBT programs established or
whether these entities are banks, other
banks or on other institutions.
administered by a state or local agency,
The disclosures to consumers under
depository institutions, or other types of are not expected to have a significant
Regulation E are mandatory. Because
organizations entirely. Paragraph (a)(1)
impact on small entities. A final
the records would be maintained at state
specifies when a government agency is
regulatory flexibility analysis will be
member banks, no issue of
a financial institution for purposes of
conducted after consideration of
confidentiality under the Freedom of
the act and regulation. Under the
comments received during the public
Information Act arises. Disclosures
Board’s proposal, this provision has
comment period.
relating to specific transactions or
been revised to exclude needs-tested
VI. Paperwork Reduction Act
accounts are not publicly available.
benefits in a program established under
In accordance with the Paperwork
Comments are invited on: (a) whether
state or local law or administered by a
the proposed collection of information
state or local agency, consistent with the Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320 Appendix A.l), the Board
is necessary for the proper performance
1996 statutory amendments.
reviewed the proposed rule under the
of the Federal Reserve’s functions,
authority delegated to the Board by the
including whether the information has
The term “account” is defined
Office of Management and Budget.
practical utility; (b) the accuracy of the
generally in § 205.2(b). For purposes of
Comments on the collections of
Federal Reserve’s estimate of the burden
EBT programs, “account” is defined in
information should be sent to the Office of the proposed information collection,
§ 205.15(a)(2) to mean an account
of Management and Budget, Paperwork
including the cost of compliance; (c)


Federal Register / Vol. 62, No. 14 / Wednesday, January 22, 1997 / Proposed Rules

ways to enhance the quality, utility, and
clarity of the information to be
collected; and (d) ways to minimize the
burden of information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
List o f Subjects in 12 CFR Part 205

Consumer protection, Electronic fund
transfers, Federal Reserve System,
Reporting and recordkeeping
Text of Proposed Revisions

Certain conventions have been used
to highlight the proposed changes to
Regulation E. New language is shown
inside bold-faced arrows.
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR Part 205 as set forth below:

1. The authority citation for Part 205
is revised to read as follows:
Authority: 15 U.S.C. 1693-1693r.

2. Section 205.15 would be amended
by revising paragraphs (a)(1) and (a)(2)
to read as follows:
§ 205.15 Electronic fund transfer of
governm ent benefits.

(a) Government agency subject to
regulation. (1) A government agency is
deemed to be a financial institution for
purposes of the act and this part if
directly or indirectly it issues an access
device to a consumer for use in
initiating an electronic fund transfer of
government benefits from an accountfl,
other than needs-tested benefits in a
program established under state or local
law or administered by a state or local
agencyf i . The agency shall comply with
all applicable requirements of the act
and this part, except as provided in this
(2) For purposes of this section, the
term account means an account
established by a government agency for
distributing government benefits to a
consumer electronically, such as
through automated teller machines or
point-of-sale term inalsfl, but does not
include an account for distributing
needs-tested benefits in a program
established under state or local law or
administered by a state or local
agency, fi.





By order of the Board of Governors of the
Federal Reserve System, January 15,1997.
William W. Wiles,
Secretary o f the Board.
[FR Doc. 97-1384 Filed 1-21-97; 8:45 am]
BILLING CODE 62 1 0 -0 1 -P

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