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Federal Reserve Bank
of

Dallas

RO B E R T D. M cTEER , JR.
DALLAS, TE XAS

P R E S ID E N T

75265-5906

A N D C H IE F E X E C U T I V E O F F I C E R

September 5, 1997
Notice 97-76

TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Final Amendments to
Regulation E (Electronic Fund Transfers)
DETAILS
The Board of Governors of the Federal Reserve System has adopted final amend­
ments to Regulation E to carry out statutory amendments to the Electronic Fund Transfer Act.
The 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 continue to apply to federally administered EBT programs and state and
local employment-related EBT programs, such as state pension programs.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 43467-69, Vol. 62, No. 157 of the
Federal Register dated August 14, 1997, is attached.
MORE INFORMATION
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 (FedHistory@dal.frb.org)

Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Rules and Regulations
numbers to recipients of government
benefits so that they can obtain their
benefits through autom ated teller
m achines and point-of-sale terminals.
The Board’s am endm ents to Regulation
E exempt needs-tested EBT programs
that are established or adm inistered by
state or local government agencies.
Federally adm inistered EBT programs
and state and local employment-related
EBT programs (such as state pension
programs) rem ain covered by Regulation
E subject to modified requirements.
EFFECTIVE DATE: September 15, 1997.
FOR FURTHER INFORMATION CONTACT: Jane
Jensen Gell, Senior Attorney, Division of
Consumer and Community Affairs, at
(202) 452-3667; for users of
Telecommunications Device for the Deaf
(TDD) only, contact Diane Jenkins at
(202) 452-3544.
SUPPLEMENTARY INFORMATION:

I. Background

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

Electronic Fund Transfers

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

SUMMARY: The Board is publishing
am endm ents to Regulation E (Electronic
Fund Transfers). The revisions
im plem ent an am endm ent to the
Electronic Fund Transfer Act (EFTA),
contained in the Personal Responsibility
and Work O pportunity 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

EFT A c t and Regulation E
Regulation E im plem ents the
Electronic Fund Transfer Act (EFTA).
The act and regulation cover any
consum er electronic fund transfer (EFT)
initiated through an autom ated teller
m achine (ATM), point-of-sale (POS)
terminal, autom ated clearinghouse,
telephone bill-paym ent system, or home
banking program. The act and
Regulation E establish rules that govern
these and other EFTs. The rules restrict
the unsolicited issuance of ATM cards
and other access devices; require
disclosure of terms and conditions of an
EFT service; docum ent EFTs by means
of term inal receipts and periodic
account statements; limit consum er
liability for unauthorized transfers; and
establish procedures for error
resolution.
The EFTA is not lim ited to traditional
financial institutions holding
consum ers’ accounts. For EFT services
m ade 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 m ade 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 food
stamps, supplem ental security income
(SSI), and social security. These systems
function m uch like commercial systems
for EFT. Eligible recipients receive
magnetic-stripe cards and personal
identification num bers and they access
benefits through electronic terminals. In

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the case of cash benefits such as 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 num erous 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,
im proved 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
fraud.
In March 1994, the Board am ended
Regulation E to bring EBT programs
expressly w ithin its coverage. 59 FR
10678 (March 7, 1994). The special
provisions, contained in § 205.15, apply
m ost of the requirem ents of the
regulation—including those relating to
liability for unauthorized transactions
and to error resolution—w ith some
modifications. The major exception
related to providing periodic statements
of account activity: EBT programs need
not provide periodic statements as long
as (1) account balance inform ation is
m ade available to benefit recipients via
telephone and electronic term inals and
(2) a w ritten account history is given
u po n request.
The basic premise underlying the
Board’s 1994 am endm ents to Regulation
E was that all consum ers using EFT
services should receive substantially the
same protection under the EFTA and
Regulation E. To enable states to test
and im plem ent their EBT programs, the
Board delayed the date of m andatory
compliance to March 1, 1997.
II. Revised Regulatory Provisions
On August 22,1996, the Congress
enacted am endm ents to the EFTA as
part of the Personal Responsibility and
Work O pportunity Reconciliation Act of
1996, a com prehensive welfare reform
law (Pub. L. 104-193, 110 Stat. 2105).
These am endm ents exempt “needstested” EBT programs established or
adm inistered u nder state or local law.
(“Needs-tested” EBT programs generally
take a recipient’s income or other
resources into account to determine the
appropriate level of benefits.) The
exemption was enacted by the Congress
at the urging of state and local officials,
who expressed concern about the costs
of compliance with the EFTA and

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Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Rules and Regulations

Regulation E. In particular, these
officials believed that federal provisions
limiting a recipient’s liability for
unauthorized transfers could raise
serious budgetary problems at the state
and local level.
In January, the Board issued a
proposal to im plem ent the exem ption
(62 FR 3242, January 22, 1997). Fifteen
comments were received, generally in
support of the amendments. Some
commenters requested further
clarification on certain technical issues.
For example, clarification was requested
on the treatm ent of SSI, a needs-tested
benefit adm inistered by the federal
government through the Social Security
A dm inistration. U nder the am endm ents
to the EFTA, SSI benefits rem ain
covered by the EFTA and Regulation E.
For cost efficiencies in the delivery of
benefits, EBT programs may offer both
federal and state benefits through the
use of a single card. An EBT service
provider requested clarification on how
Regulation E applies w hen a card
accesses benefits u nder m ultiple
programs, some covered by and others
exem pt from Regulation E (for example,
the Benefit Security Card® offered by
the Southern Alliance of States). In this
program, non-cash benefits (such as
food stamps) are held in one account
and cash benefits are held in a separate
account. In the cash account, federally
adm inistered and state employmentrelated benefits (covered by Regulation
E) may be pooled w ith state
adm inistered or established “needstested” benefits th at are exempt from
the regulation. Program agencies may
allocate the w ithdraw al of a recipient’s
benefits from the pooled account in any
m anner they choose.
All federally adm inistered benefits
(and state employment-related benefits)
accessed by the card from the pooled
account m ust receive the protections
provided by Regulation E. Agencies
m ust ensure that the required
disclosures concerning account
balances, liability limits, error
resolution procedures, and account
histories clearly state how these
protections apply with regard to a single
card covering exempt and non-exempt
programs. W ith regard to liability for
unauthorized use, liability limits apply
to the extent that the loss is charged
against covered benefits. Similarly, error
resolution procedures apply to the
federally adm inistered benefits (and
state employment-related benefits)
covered u n der Regulation E. This
interpretation w ill be incorporated in
the Official Staff Commentary to
Regulation E.
Based on the comments and further
analysis, the Board has adopted a final

rule exempting “needs-tested” EBT
programs established or adm inistered by
state or local government agencies.
Federally adm inistered EBT programs
and employment-related programs
established by federal, state, or local
governments (such as state pension
programs) rem ain covered by Regulation
E, subject to the m odified rules
established by section 205.15.
III. Section-by-Section Analysis of
Amendments
Section 205.15—Electronic Fund
Transfers o f G overnment Benefits
Section 205.15 contains the rules that
apply to EBT programs as defined by the
regulation. It provides m odified rules on
the issuance of access devices, periodic
statements, initial disclosures, liability
for unauthorized use, and error
resolution notices. Employment-related
benefit programs established by federal,
state, or local governments (as well as
federally adm inistered programs)
rem ain subject to these m odified rules.
15(a) Government agency subject to
regulation
15(a)(1)
The act and regulation define
coverage in terms of financial
institution, a term that applies to
entities that provide EFT services to
consumers w hether these entities are
banks, other depository institutions, or
other types of organizations entirely.
Paragraph (a)(1) specifies w hen a
government agency is a financial
institution for purposes of the act and
regulation. This provision has been
revised to exclude needs-tested benefits
in a program established under state or
local law or adm inistered by a state or
local agency, consistent w ith the 1996
statutory am endments.
15(a)(2)
The term account is defined generally
in § 205.2(b). For purposes of EBT
programs, account is defined in
§ 205.15(a)(2) to m ean an account
established by a government agency (or
agencies) for distributing benefits to a
consum er electronically, such as
through ATMs or POS terminals,
w hether or not the account is directly
held by the agency or a bank or other
depository institution. For example, an
account u nd er this section includes the
use of a database (containing the
consum er’s nam e and record of benefit
transfers) that is accessed for
verification purposes before a particular
transaction is approved. U nder the
Board’s final rule, the definition is
revised to exclude needs-tested benefits
in a program established u nd er state or

local law or adm inistered by a state or
local agency, consistent w ith the 1996
am endm ents to the EFTA. Government
benefits that rem ain covered include
federally adm inistered benefits such as
social security and SSI and state and
local benefits that are employmentrelated such as retirem ent and
unem ploym ent benefits.
IV. Regulatory Flexibility Analysis
In accordance w ith section 3(a) of the
Regulatory Flexibility Act (5 U.S.C.
603), the Board’s Office of the Secretary
has review ed the am endm ents to
Regulation E. The am endm ents, w hich
establish an exem ption for certain EBT
programs established or adm inistered by
a state or local agency, are not expected
to have a significant im pact on small
entities.
V. Paperwork Reduction Act
In accordance w ith the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR part 1320 A ppendix A .l), the
Board review ed the final rule u nder the
authority delegated to the Board by the
Office of Management and Budget. The
am endm ents provide an exem ption for
state-administered or state-established
electronic benefit transfer programs; the
am endm ents are not expected to affect
the paperw ork burden that the
regulation imposes on state member
banks or on other institutions.
An agency may not conduct or
sponsor, and an organization is not
required to respond to, this information
collection unless it displays a currently
valid OMB control number. The OMB
control num ber is 7100-0200. The
Board has a continuing interest in the
public’s opinions of the Federal
Reserve’s collections of information. At
any time, comments regarding the
burden estimate, or any other aspect of
this collection of information, including
suggestions for reducing the burden,
may be sent to: Secretary, Board of
Governors of the Federal Reserve
System, 20th and C Streets, NW.,
Washington, DC 20551; and to the
Office of Management and Budget,
Paperwork Reduction Project (71000200), W ashington, DC 20503.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund
transfers, Federal Reserve System,
Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, the Board amends 12 CFR
Part 205 as set forth below:

Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Rules and Regulations
PART 205— ELECTRONIC FUND
TRANSFERS (REGULATION E)

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

2. Section 205.15 is am ended by
revising paragraph (a) to read as follows:
§ 205.15 Electronic fund transfer of
government benefits.

(a) Government agency subject to
regulation. (1) A government agency is
deem ed to be a financial institution for
purposes of the act and this part if
directly or indirectly it issues an access
device to a consum er for use in
initiating an electronic fund transfer of
government benefits from an account,
other than needs-tested benefits in a
program established under state or local
law or adm inistered by a state or local
agency. The agency shall comply w ith
all applicable requirem ents of the act
and this part, except as provided in this
section.
(2) For purposes of this section, the
term account means an account
established by a government agency for
distributing government benefits to a
consum er electronically, such as
through autom ated teller m achines or
point-of-sale terminals, bu t does not
include an account for distributing
needs-tested benefits in a program
established u n der state or local law or
adm inistered by a state or local agency.
*

*

*

*

*

By order of the Board of Governors of the
Federal Reserve System, August 11, 1997.
W illiam W. Wiles,

Secretary of the Board.
[FR Doc. 97-21584 Filed 8-13-97; 8:45 am]
BILLING CODE 621 0 -0 1 -P

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