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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 43467 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 43468 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 43469
