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Federal Reserve Bank OF DALLAS R O BER T D. M C T E E R , president JR. T n r m a r v 9 Q 1QQ7 January zy, iyy/ A N D C H IE F E X E C U T IV E O F F IC E R da lla s, tex a s 7 5 2 6 5 -5 9 0 6 Notice 97-10 TO: The Chief Executive Officer of each financial institution and others concerned in the Eleventh Federal Reserve District SUBJECT Proposed Amendments to Regulation E (Electronic Fund Transfers) DETAILS 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. ATTACHMENT 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. 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) 3242 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 rules. FEDERAL RESERVE SYSTEM 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. FOR FURTHER INFORMATION CONTACT: Jane 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 SUPPLEMENTARY INFORMATION: 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 programs. 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. SUMMARY: 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 fraud. 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 level. 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. 3243 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 7100-0200. 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 benefits. 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 Regulation proposed amendments provide an In accordance with section 3(a) of the 15(a)(1) 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, 15(a)(2) 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) 3244 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 requirements. 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: 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 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 section. (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
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