Federal Government Participation in the Automated Clearing House

SUMMARY: The Department of the Treasury, Bureau of the Fiscal Service (Service) is issuing this final rule to amend our regulation governing the use of the Automated Clearing House (ACH) network by Federal agencies. Our regulation adopts, with some exceptions, the NACHA Operating Rules developed by NACHA--The Electronic Payments Association (NACHA) as the rules governing the use of the ACH Network by Federal agencies. We are issuing this rule to address changes that NACHA has made to the NACHA Operating Rules since the publication of NACHA's 2009 ACH Rules book. These changes include amendments set forth in NACHA's 2010, 2011, 2012, and 2013 Operating Rules books.

DATES: Effective August 25, 2014. The incorporation by reference of certain publications listed in the rule is approved by the Director of the Federal Register as of August 25, 2014.

FOR FURTHER INFORMATION CONTACT: Ian Macoy, Supervisory Financial Program Specialist, at (202) 874-6835 or [email protected] or Natalie H. Diana, Senior Counsel, at (202) 874-6680 or natalie.diana @fiscal.treasury.gov.

SUPPLEMENTARY INFORMATION:

I. Proposed Rulemaking and Comments Received

We published a Notice of Proposed Rulemaking (NPRM) on December 12, 2013, requesting comment on a number of proposed amendments to title 31 CFR part 210 (Part 210). 78 FR 75528. Part 210 governs the use of the ACH Network by Federal agencies. The ACH Network is a nationwide electronic fund transfer (EFT) system that provides for the inter-bank clearing of electronic credit and debit transactions and for the exchange of payment-related information among participating financial institutions. Part 210 incorporates the ACH Rules adopted by NACHA, with certain exceptions. From time to time we amend Part 210 in order to address changes that NACHA periodically makes to the ACH Rules or to revise the regulation as otherwise appropriate.

Currently, Part 210 incorporates the NACHA Operating Rules as set forth in the 2009 NACHA Operating Rules book. NACHA has adopted a number of changes to the NACHA Operating Rules since the publication of the 2009 NACHA Operating Rules book. We proposed to incorporate in Part 210 most, but not all, of the changes published in the 2010, 2011, 2012 and 2013 NACHA Operating Rules books.

We received one comment letter on the proposed rule, from NACHA. NACHA commented that it supports the proposed adoption of NACHA Operating Rules changes since publication of the 2009 NACHA ACH Rules book (with effective dates through 2013), including our proposed exemptions/exceptions. More specifically, NACHA's response addressed our proposed adoption by year in which the corresponding NACHA Operating Rules changes were effective. A summary of this response follows:

* 2010 NACHA Rules--Support for adoption as proposed, including the proposed exception of NACHA rules governing risk management, due diligence and Originator monitoring practices with the acknowledgement that Federal ACH transactions and origination practices do not pose the same risk as commercial originations.

* 2011 NACHA Rules--Support for adoption as proposed.

* 2012 NACHA Rules--Support for adoption as proposed, including (a) the continued exemption from NACHA rules governing international ACH transactions (IATs) that involve Federal tax payments and (b) the exception from the audit deadline extension since NACHA's compliance and audit requirements do not apply under 31 CFR Part 210.

* 2013 NACHA Rules--Support for adoption as proposed, including the continued exemption from the NACHA Operating Rules' Risk Management enforcement provisions. NACHA did note that "formal adoption of the Security Framework . . . promotes consistent implementation of data security across the ACH Network. . ." but acknowledged that it is a "longstanding FMS practice to exempt Federal agencies" from NACHA enforcement provisions "as this exemption is consistent with the Federal government's inability to enter into arrangements that may result in unfunded liabilities."

II. Final Rule

Summary

In the final rule, we are adopting all of the amendments to Part 210 that were proposed in the NPRM, as follows:

A. 2010 NACHA Operating Rules Book Changes

1. Authorization and Returns

This NACHA Operating Rules amendment revised the requirements for obtaining a Receiver's authorization for an ACH payment and modified the processes by which Receiving Depository Financial Institutions (RDFIs) handle Receivers' claims of unauthorized debits. Specifically, the amendment (1) clarified the requirements for authorization of ACH entries, adopting the language of Regulation E that an authorization must be "clear and readily understandable;" (2) clarified that a purported authorization that is not clear and readily understandable is not considered a valid authorization; (3) eliminated the requirement that Receiver's written statement regarding an unauthorized debit be made under penalty of perjury; (4) established minimum information requirements for and revised timing requirements related to the written statement; and (5) expanded the use of Return Reason Code R39 (Improper Source Document) for duplicate check/check conversion payments. We are accepting this amendment.

2. Stop Payments and Regulation E

This amendment revised specific language within the NACHA Operating Rules regarding the application and expiration of a stop payment order so as to re-align the NACHA Operating Rules with the requirements of Regulation E. The amendment (1) eliminated the six-month time period after which a stop payment order placed by a consumer lapses; (2) provided that, where the stop payment order applies to more than one debit entry, the order remains in effect until all such entries have been stopped; (3) provided that RDFIs may require, in cases where the Receiver desires to block all future payments related to a specific authorization/Originator, that the Receiver confirm in writing that the Receiver revoked the authorization; and (4) simplified the description of Return Reason Code R08 (Payment Stopped). We are accepting this amendment.

3. Direct Access Registration

This amendment modified the NACHA Operating Rules to require Originating Depository Financial Institutions (ODFIs) to register their Direct Access status with NACHA and imposed certain requirements in connection with registration of Direct Access status. We are accepting this amendment.

4. Risk Management and Assessment

This amendment updated the NACHA Operating Rules to codify additional risk management, due diligence and monitoring practices that ODFIs must follow with respect to Originators and Third-Party Senders. We are not incorporating this amendment in Part 210, since the Federal government's origination of entries through the ACH Network does not involve the conventional roles of Originator/ODFI and does not present the risks that this amendment seeks to address.

B. 2011 NACHA Operating Rules Book Changes

1. Mobile ACH Payments

This rule established a framework for mobile-initiated ACH debit entries. It expanded the definition of Internet-Initiated Entries (WEB) to include ACH debits authorized or initiated via wireless networks. In addition, it applied all the provisions of the WEB SEC Code to mobile debit entries. The purpose of the rule was to provide clear information on how the NACHA Operating Rules apply to mobile payments and to create a more stable environment within which to develop payment products and services. We are accepting this rule.

2. Elimination of the Opt Out Requirements of ARC and BOC Entries

This amendment eliminated the requirement that Originators of Accounts Receivable Entries (ARC) and Back Office Conversion Entries (BOC) establish and maintain procedures to enable Receivers to opt out of check conversion activity. The amendment reflected the fact that opt out rates were generally 0.1 percent or lower, indicating that consumer concern about check conversion either did not exist or had dissipated over time. We are accepting this amendment.

3. Collection of Return Fees

This rule amendment established a Return Fee Entry as a specific type of ACH entry, to be used only for the purpose of collecting return fees for certain ACH debits to consumer accounts that are returned for insufficient funds or other qualifying checks that are returned NSF/UCF. The rule allows Originators to obtain authorization for a Return Fee Entry by providing the Receiver/check writer with notice that conforms to the requirements of Regulation E.

Part 210 currently provides that agencies with authority to collect returned item services fees may do so by originating an ACH debit entry following notice to the Receiver. We are accepting this rule change, which will enable agencies with authority to collect returned item fees by utilizing the Return Fee Entry.

4. Expanded Use of the XCK Application

This amendment expanded the scope of the Destroyed Check Entry (XCK) application to permit its use for certain damaged checks that cannot be imaged, or for other check images that cannot be processed. The expanded scope allows use of XCK for (1) a check that is missing part of the MICR line but that can be sufficiently repaired to create an ACH debit; (2) a check that, in whole or in part, is unreadable, obscured or mutilated in a manner that prevents automated check processing or creating of an image that may be used to produce a "substitute check" under the Check 21 Act, but has an intact MICR line; and (3) a check that does not pass standard quality tests for creation of an image that may be used to produce a substitute check under Check 21. We are accepting this rule change.

5. Recurring TEL

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "31 CFR Part 210"

RIN Number: "RIN 1530-AA05"

Citation: "79 FR 42974"

Federal Register Page Number: "42974"

"Rules and Regulations"