SUMMARY: This regulation implements the provisions of section 31001(x) 
of the Debt Collection Improvement Act of 1996 (Act) that require that, 
subject to the authority of the Secretary of the Treasury (Secretary) 
to grant waivers, all Federal payments (other than payments under the 
Internal Revenue Code of 1986) made after January 1, 1999, must be made 
by electronic funds transfer (EFT). This regulation establishes the 
circumstances under which waivers are available; sets forth 
requirements for accounts to which Federal payments may be sent by EFT; 
provides that any individual who receives a Federal benefit, wage, 
salary, or retirement payment shall be eligible to open a low-cost 
Treasury-designated account at a financial institution that offers such 
accounts; and sets forth the responsibilities of Federal agencies and 
recipients under the regulation.
    In addition, this regulation provides for the designation of 
financial institutions as Financial Agents for purposes of implementing 
electronic benefits transfer (EBT) programs. EBT is the provision of 
Federal benefit, wage, salary, and retirement payments electronically, 
through disbursement by a Financial Agent. EBT includes payment through 
an electronic transfer account (ETASM) as well as payment 
through a Federal/State program.

DATES: This rule is effective January 2, 1999.

ADDRESSES: This rule is available on the Financial Management Service's 
EFT web site at the following address: http://www.fms.treas.gov/eft/.

FOR FURTHER INFORMATION CONTACT: Diana Shevlin, Financial Program 
Specialist, at (202) 874-7032; Donna Wilson, Financial Program 
Specialist, at (202) 874-6799; Sally Phillips, Senior Financial Program 
Specialist, at (202) 874-6749; Natalie H. Diana at (202) 874-6950; 
Cynthia L. Johnson, Director, Cash Management Policy and Planning 
Division, at (202) 874-6590; or Margaret Marquette, Attorney-Advisor, 
at (202) 874-6681.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    Section 31001(x) of the Act amends 31 U.S.C. 3332 to require that 
agencies convert from paper-based payment methods to EFT under 
regulations issued by the Secretary. The Act, which exempts only 
payments under the Internal Revenue Code of 1986, provides that the 
conversion from checks to EFT be made in two phases. During the first 
phase, recipients who became eligible to receive Federal payments on or 
after July 26, 1996, are required to receive such payments by EFT 
unless they certify in writing that they do not have an account with a 
financial institution or an authorized payment agent. Treasury issued 
an interim rule on July 26, 1996, to implement these requirements. 61 
FR 39254. The interim rule will remain in effect through January 1, 
1999.
    The second phase begins January 2, 1999. Beginning on that date, 
all Federal payments, except payments under the Internal Revenue Code, 
must be made by EFT unless waived by the Secretary. This regulation 
(Part 208), which was published for comment on September 16, 1997 (62 
FR 48714)(208 NPRM), implements the second phase requirements.
    Part 208 provides guidance to agencies and recipients regarding 
compliance with the Act's requirements. In developing this rule, 
Treasury followed four principles: (1) The transition to EFT should be 
accomplished with the interests of recipients being of paramount 
importance; (2) Treasury's policies should maximize private sector 
competition for the business of handling Federal payments, so that 
recipients not only have a broad range of payment options, but also 
receive their payments at a reasonable cost, with substantial consumer 
protections, and with the greatest possible convenience, efficiency, 
and security; (3) recipients, especially those having special needs, 
should not be disadvantaged by the transition to EFT; and (4) 
recipients without accounts at financial institutions should be brought 
into the mainstream of the financial system to the extent possible.
Proposed 31 CFR Part 207
    Part 208 also incorporates selected provisions from the proposed 
rule 31 CFR Part 207, Electronic Benefits Transfer; Selection and 
Designation of Financial Institutions as Financial Agents (207 NPRM) 
published for comment on May 9, 1997. 62 FR 25572. As described below, 
the EBT system is a system for making certain types of Federal payments 
available electronically (by EFT) to recipients. In EBT, the payments 
are disbursed to the recipient by a financial institution acting as 
Treasury's Financial Agent. Legislation enacted in 1996 authorized the 
Secretary of the Treasury to designate financial institutions as 
Financial Agents to provide EBT services. Section 664, Omnibus 
Consolidated Appropriations Act, 1997, Pub. L. 104-208.
    At the time the 207 NPRM was published, Treasury contemplated 
fulfilling the mandate in the Act that it assure that individuals 
required to have an account in order to receive electronic payments 
have access to an account at a reasonable cost and with the same 
consumer protections as other account holders at the same financial 
institution, by establishing one or more EBT systems through a 
competitive selection process, and thus provide for the electronic 
delivery of payments to those individuals who did not have an account 
with a financial institution. The 207 NPRM proposed to establish a 
legal framework for obtaining the services of financial institutions as 
Financial Agents to perform the disbursement of public funds that is 
central to the Federal EBT program.
    As indicated below in the discussion on Sec. 208.5, Treasury has 
determined that the statutory mandate to assure recipients access to 
accounts is better implemented by designing an ETASM that 
may be offered by any Federally-insured financial institution that 
enters into an ETASM Financial Agency Agreement with 
Treasury. It has also determined that the ETASM should be 
made available to any individual who receives a Federal benefit, wage, 
salary, or retirement payment. Under Part 208, an ETASM 
falls within the definition of ``EBT.''
    Also within the definition of EBT are Federal/State programs under 
which a recipient who receives benefit payments from both the Federal 
government and a State government can receive his or her payments 
through the same system. This is consistent with the National 
Performance Review implementation plan for nationwide EBT encouraging 
Federal agencies, in partnership with State and local governments, to 
develop a nationwide integrated EBT system utilizing the existing 
commercial infrastructure to provide combined access to Federal 
payments and State-administered benefits for a recipient on a single 
card. As discussed below in the analysis of Sec. 208.5, Treasury 
intends, where requested by States to do so, to work with States in 
implementing joint Federal/State EBT programs. Individuals who are in States with a 
Federal/State program and who receive both Federal and State benefit 
payments will have the option of participating in the program.
    Based on the shift in focus from a competitive selection process 
for obtaining EBT services to the development of an ETASM to 
be offered at the option of Federally-insured financial institutions, 
as well as on comments to the 207 NPRM indicating some confusion over 
the relationship of the 207 NPRM to Part 208 and other related 
documents, Treasury believes that a separate Part 207 rulemaking is no 
longer necessary or desirable. Instead, those portions of the 207 NPRM 
that relate to the statutory authority of the Secretary to designate 
financial institutions to provide EBT services, including the offering 
of ETAsSM, as Treasury's Financial Agents, have been 
modified and incorporated in Part 208. Those portions of the 207 NPRM 
that outline the duties of financial institutions designated as 
Financial Agents, some of which may vary depending on a specific EBT 
program, will be included in the Financial Agency Agreement for that 
particular program, e.g., the ETASM Financial Agency 
Agreement or the Financial Agency Agreement governing the disbursement 
of Federal benefits in a Federal/State EBT program. Selected duties, 
e.g., the duty related to complying with Regulation E, 12 CFR Part 205, 
will also be reflected in the notice of ETASM attributes to 
be published at a later date in the Federal Register.

B. Participation in Rulemaking Process

    As part of the rulemaking process for Part 208, Treasury has 
provided multiple forums for public comment and discussion. Since the 
publication of the 208 NPRM, Treasury has actively solicited the views 
of interested parties, including consumer and community-based 
organizations, most of which are advocates for Federal recipients 
likely to be most affected by the rule. For example, focus groups were 
held nationwide to understand better the needs of Federal payment 
recipients and to test public education messages and materials 
developed to explain EFT to recipients. Also, the public was invited to 
attend four Treasury-sponsored public hearings in the cities of 
Baltimore, Dallas, Los Angeles, and New York. Over 50 interested 
parties testified as to their views and concerns regarding EFT. In 
addition, representatives from consumer and community-based 
organizations and from financial institutions, financial institution 
trade associations, and ATM networks were invited to participate in two 
public meetings to discuss the account to be made available pursuant to 
Sec. 208.5.
    Finally, through an EFT Interagency Policy Workgroup, Treasury has 
worked with Federal agencies to solicit input on EFT conversion as well 
as to understand better agency implementation concerns. Agency feedback 
has been essential to formulating a final rule that meets both Federal 
agency and recipient needs.

II. Comments

A. 208 NPRM

    Treasury received 212 comment letters in response to the 208 NPRM 
that was published on September 16, 1997. Copies of the comments are 
available on the Financial Management Service's (Service's) web site at 
http://www.fms.treas.gov/eft/. Comments were received from consumer and 
community-based organizations, recipients, financial institutions, non-
financial institutions, Federal agencies, and other interested parties. 
In addition, comments were received in the form of testimony at the 
four public hearings on EFT.
    In general, commenters supported the use of EFT for Federal 
payments. Although comments were received on a multitude of issues, the 
principal issues addressed in the comment letters were the expansion of 
hardship waivers; the availability and features of the ETASM 
to be made available by Treasury pursuant to Sec. 208.5 of the 208 
NPRM; and the regulation of accounts other than the ETASM to 
which Federal payments may be sent.
    These issues are discussed below in the section-by-section 
analysis.

B. 207 NPRM

    Treasury received 33 comment letters on the 207 NPRM that was 
published on May 9, 1997. Copies of the comments are available on the 
Service's web site at http://www.fms.treas.gov/eft/. Comments were 
received from consumer organizations, financial institutions, financial 
trade associations, a representative of non-bank financial service 
providers, State government organizations, and a software development 
company. The comment letters generally supported the use of EBT to make 
Federal payments.
    Some of the comments on the 207 NPRM related to issues that were 
the subject of Part 208, in particular Sec. 208.5, Availability of the 
ETASM. Those comments have been addressed below in the 
section-by-section analysis of Part 208.
    Other comments related to issues that will be the subject of a 
notice of proposed ETASM features to be published in the 
Federal Register and, therefore, will be addressed in that document. 
Comments related to the attributes of the ETASM include 
comments on provisions in proposed Sec. 207.3 that an account 
established by a Financial Agent may be closed only at the direction of 
Treasury; that Financial Agents must comply with Regulation E; and that 
recipients must be provided debit card access to the account.
    Still other comments, related to the duties and compensation of 
Financial Agents, will be reflected in the Financial Agency Agreement 
between Treasury and any financial institution that elects to provide 
EBT services, e.g., ETAsSM, as Treasury's Financial Agent. 
The characteristics and requirements of EBT programs, including the 
duties of the Financial Agent for a particular program, may vary 
according to the program. Therefore, Treasury believes that these 
duties are best incorporated in the Financial Agency Agreement for the 
particular program.

III. Section-by-Section Analysis of Part 208

A. Section 208.1--Scope and Application

    Final Sec. 208.1, which is unchanged from proposed Sec. 208.1, 
states that this rule applies to all Federal payments made by an agency 
and, except as waived by the Secretary, requires that such payments be 
made by EFT. This part does not apply to payments under the Internal 
Revenue Code of 1986.

B. Section 208.2--Definitions

    All definitions contained in the 208 NPRM are substantively 
unchanged in the final Part 208 rule. Definitions for the terms 
``ETASM,'' ``Federal/State EBT program,'' and ``Federally-
insured financial institution'' have been added to the rule. In 
addition, definitions from the 207 NPRM for ``Direct Federal electronic 
benefits transfer (EBT)'' and ``disburse'' have been modified and 
incorporated into Part 208 as ``electronic benefits transfer (EBT)'' 
and ``disbursement.'' The definitions of ``eligible financial 
institution'' and ``Financial Agent'' have been combined as ``Financial 
Agent.'' Comments were received on the 208 NPRM definitions of 
``authorized payment agent'' and ``Federal payment.'' For the reasons 
discussed below, Treasury has left these two definitions unchanged in 
the final rule. Disbursement
    The final rule includes a definition for ``disbursement.'' This 
definition is similar to that for ``disburse'' in the 207 NPRM. The 
term ``disbursement'' is used in the definition of ``electronic 
benefits transfer (EBT)'' as meaning the performance of a series of 
functions by a financial institution that has been designated by 
Treasury as a Financial Agent. The functions are: the establishment of 
an account that meets the requirements of the Federal Deposit Insurance 
Corporation or the National Credit Union Administration Board for 
deposit or share insurance; the maintenance of the account; the receipt 
and crediting of Federal payments to the account; and the provision of 
access to the account on terms specified by Treasury.
    The broad definition of ``disbursement'' in Part 208 reflects 
Treasury's determination that all of the functions must be performed in 
order to accomplish Treasury's goal of providing recipients access to 
their payments through an ETASM or a Federal/State EBT 
program. By contrast, the term ``disburse'' is used in a narrower sense 
in 31 CFR Part 206, Treasury's regulation dealing with the management 
of Federal agency receipts and collections. ``Disburse'' is defined in 
31 CFR 206.2 as the initiation of an EFT because, in the context of 
agency cash management where all the parties have accounts at financial 
institutions, the only function that needs to be performed in order to 
deliver public money by EFT to the intended recipient is the initiation 
of the EFT.
    The definition of ``disburse'' in proposed Sec. 207.3(a)(1) 
required that the Financial Agent establish an account in the name of 
each unbanked recipient. Part 208 deletes the requirement that the 
account be ``in the name of'' the recipient because this requirement, 
and certain exceptions, are already set forth in Sec. 208.6 of the 
final rule.
    However, the reference in the definition of ``disbursement'' to the 
establishment of an EBT account ``for the recipient'' is intended to 
clarify that the account is established on behalf of the recipient and 
that the recipient has an ownership interest in the account. While 
Treasury controls the nature of the account and imposes certain 
obligations on the Financial Agent, the account itself, once 
established, is the recipient's account. Accordingly, when Treasury 
sends a Federal payment to the account, the funds transferred to the 
account cease to be public monies and become the property of the 
recipient. In addition, it is the recipient's account for deposit or 
share insurance purposes. Also, the recipient is entitled to any 
available protection under Regulation E and other consumer protection 
laws with respect to the account. Just as with any other account to 
which Federal payments are sent, Treasury's liability to the recipient 
is extinguished upon final crediting of the transfer of the funds to 
the recipient's account.
    The final rule adds the phrase ``or other electronic means'' to the 
definition of ``disbursement'' to clarify that EBT may not necessarily 
be effected through the Automated Clearing House (ACH) system. In 
addition, the final definition incorporates, with minor modifications, 
the requirement in proposed Sec. 207.3, Duties of the Financial Agent, 
that the account established by the Financial Agent be eligible for 
Federal deposit insurance.
Electronic Benefits Transfer (EBT)
    The final rule includes a definition for ``electronic benefits 
transfer (EBT)'' to make clear that certain types of Federal payments 
disbursed by a Financial Agent through an ETAsm or a 
Federal/State EBT program are considered to be EBT payments. ``EBT'' is 
defined specifically as the provision of Federal benefit, wage, salary, 
and retirement payments electronically, through disbursement by a 
Financial Agent. This definition has been modified from the definition 
of ``direct Federal electronic benefits transfer (EBT)'' that appeared 
in the 207 NPRM. For reasons discussed below in the section-by-section 
analysis of Sec. 208.5, the definition of ``EBT'' is no longer limited 
to the disbursement of payments to recipients who do not have an 
account at a financial institution.
    In 1996, Congress amended the Federal laws that govern Treasury's 
designation of financial institutions as Financial Agents. The 
amendments clarify the broad authority of the Secretary to define EBT 
and to utilize any process deemed appropriate to select Financial 
Agents to provide EBT services:

    Notwithstanding the Federal Property and Administrative Services 
Act of 1949, as amended, the Secretary may select [financial 
institutions] as financial agents in accordance with any process the 
Secretary deems appropriate and their reasonable duties may include 
the provision of electronic benefit transfer services (including 
State-administered benefits with the consent of the States), as 
defined by the Secretary.

Section 664, Omnibus Consolidated Appropriations Act, 1997, Pub. L. 
104-208 amending 12 U.S.C. 90. Conforming amendments were made to 12 
U.S.C. 265, 266, 391, 1452(d), 1767, 1789a, 2013, 2122 and to 31 U.S.C. 
3122 and 3303.
    Part 208 defines the term ``EBT'' for purposes of Pub. L. 104-208 
as the provision of certain types of Federal payments electronically, 
through disbursement by a financial institution acting as a Financial 
Agent. As indicated above, the term ``EBT'' includes disbursement 
through ETAsSM and Federal/State EBT programs.
    EBT is distinguished from Direct Deposit, the program used by 
agencies, at the request of the payment recipient, to send funds 
through the ACH system to an account established by the recipient at a 
financial institution. Although Direct Deposit and EBT are similar in 
that both involve the movement of funds by EFT to an account at a 
financial institution, there are significant distinctions between them. 
In Direct Deposit, Treasury initiates an electronic payment to a 
recipient's account, but has no responsibilities with respect to the 
account or the nature or quality of the account services provided. In 
contrast, in an EBT program, the attributes of the account to which the 
Federal payments are sent are determined by Treasury, and the financial 
institution provides recipients access to their payments in the manner 
and on terms specified by Treasury. The financial institution holding 
the EBT account acts as Treasury's Financial Agent in establishing and 
maintaining the account for the recipient, and thus has a legal 
relationship with Treasury with respect to the account.
    In addition, as mentioned above, although both Direct Deposit and 
EBT involve the disbursement of public funds, what is involved in 
accomplishing the disbursement differs. In Direct Deposit, Treasury 
disburses public funds by originating an ACH credit to the financial 
institution designated by the recipient as the financial institution 
that holds the recipient's account. In EBT, disbursement is a multi-
step process that includes, in addition to the origination of an ACH 
credit, the establishment of an account for the recipient by Treasury's 
Financial Agent and the provision of access to that account by the 
Financial Agent in accordance with the terms specified by Treasury.
ETASM
    The final rule includes a definition for ``ETASM. The 
208 NPRM did not use the term ``ETASM and, therefore, did 
not define the term. Since the final rule uses the term in Sec. 208.5 
as well as selected other sections, a definition has been added to facilitate the referencing of the Treasury-designated account 
to which Federal payments may be made electronically. The definition 
states that an ETASM is a Treasury-designated account, i.e., 
Treasury will determine the features of the account. In addition, the 
definition makes clear that a financial institution offering an 
ETASM does so as Treasury's Financial Agent. As indicated 
above in the discussion on ``EBT,'' an ETASM falls within 
the definition of ``EBT.''
Federal/State EBT Program
    The final rule includes a definition for ``Federal/State EBT 
program'' to distinguish an account offered through this type of 
program from an ETASM. As defined, a Federal/State EBT 
program is a program that provides access to Federal payments and 
State-administered benefits through a single delivery system and in 
which Treasury designates the Financial Agent to disburse the Federal 
payments.
Federally-Insured Financial Institution
    The final rule includes a definition for ``Federally-insured 
financial institution. This definition was added because of the 
requirement in Sec. 208.5 that all financial institutions that offer an 
ETASM must be Federally insured.
Financial Agent
    The final rule includes a definition for ``Financial Agent.'' 
``Financial Agent'' is defined as a financial institution that has been 
designated by Treasury as a Financial Agent for EBT pursuant to any 
statutory Financial Agent designation authority. The definition makes 
reference to certain selected United States Code sections, amended by 
Pub. L. 104-208, that authorize the designation of financial 
institutions as Financial Agents.
    As indicated in the discussion on ``EBT,'' Pub. L. 104-208 
clarifies the Secretary's authority to designate financial institutions 
as Financial Agents to provide EBT services. As also indicated, for 
purposes of Part 208, EBT services include disbursement of Federal 
payments through ETAsSM as well as through Federal/State EBT 
programs, where applicable.
    The Part 208 definition of ``Financial Agent'' combines the 207 
NPRM definitions of ``eligible financial institution'' and ``Financial 
Agent.'' The substance of the definition remains the same.
Financial Agent--Designation
    A number of financial institutions and financial trade associations 
commenting on the 207 NPRM requested clarification as to whether a 
financial institution could be designated as a Financial Agent and 
compelled to provide EBT services even if the institution did not wish 
to do so. These entities urged Treasury to allow financial institutions 
to decide whether or not they wish to act as Financial Agents for the 
provision of EBT services and to clarify in the rule that participation 
is voluntary. Treasury does not intend to designate as Financial Agents 
financial institutions that do not wish to provide EBT services. To 
clarify this point, Sec. 208.5 has been modified to read, ``Any 
Federally-insured financial institution shall be eligible, but not 
required, to offer ETAsSM as Treasury's Financial Agent.''
Financial Agent--Liability
    A number of commenters on the 207 NPRM requested clarification 
regarding the responsibilities and liabilities of financial 
institutions that are designated as Financial Agents for the provision 
of EBT services. Some financial institutions and financial trade 
associations were concerned about the potential liabilities that 
financial institutions would face in serving as Financial Agents. 
Several of these organizations commented that, in particular, the 
regulations should be more specific regarding the potential liability 
of a Financial Agent for erroneous payments. Other financial 
institutions commented that since Financial Agents will be required to 
accept recipients as customers and will not have the discretionary 
right to freeze or close an EBT account, the risk of loss associated 
with such accounts may be significantly higher than for regular 
customer accounts. For example, losses could be incurred if the 
Financial Agent is required, pursuant to Regulation E, to provide 
provisional funds as a result of an account dispute and the funds are 
subsequently withdrawn. In light of the higher risk that commenters 
believe EBT accounts might involve, Treasury was urged to indemnify 
Financial Agents against all losses associated with providing EBT 
services.
    With respect to the issue of erroneous payments, Federal payments 
made pursuant to an EBT program through the ACH system will be governed 
by 31 CFR Part 210, Treasury's regulation establishing the rights and 
liabilities of parties in connection with ACH credit entries, debit 
entries, and entry data originated or received by a Federal agency 
through the ACH system. A Notice of Proposed Rulemaking to revise Part 
210 was published for public comment on February 2, 1998. 63 FR 5426.
    Treasury has not included in Part 208 any reference to the closing 
of accounts. Rather, Treasury will include in the Financial Agency 
Agreement a provision that the account may only be closed in 
circumstances that have been approved by Treasury. It is not Treasury's 
intent to restrict a Financial Agent's ability to prevent losses 
arising from fraudulent or abusive activity in the account. However, 
Treasury is concerned that the closure of EBT accounts could pose a 
significant hardship to recipients who are relying on the availability 
of such accounts in order to receive their Federal payments. Treasury 
believes that the hardship to recipients that could result from the 
closing of EBT accounts must be balanced against the need to detect and 
limit fraudulent activity on the accounts. Treasury also believes that 
the bases upon which it is appropriate to permit a Financial Agent to 
close an account may vary among EBT programs, depending on the nature 
and features of the accounts. The Financial Agency Agreement will 
include program-specific criteria for the closing of accounts, i.e., 
will establish the circumstances under which a Financial Agent may 
close an account. The Financial Agency Agreement will also address the 
allocation of any resulting losses.
    With respect to losses to Financial Agents resulting from 
recipients' abuse of EBT accounts, Treasury's legal authority to 
indemnify Financial Agents must be determined on a case-by-case basis. 
Treasury does not believe that, as a general matter, it is necessary or 
appropriate to indemnify Financial Agents for all losses associated 
with providing the EBT services. Any unusual risks that might be 
presented by the structure of a particular EBT program will be 
evaluated and addressed on a program-specific basis.
Financial Agent--Compliance With Regulation E
    Several financial trade associations and financial institutions 
requested clarification on the responsibilities of Financial Agents 
regarding Regulation E. Section 207.3(a)(2) of the 207 NPRM proposed to 
require all Financial Agents to comply with Regulation E. At the same 
time, Sec. 207.3(b) of the 207 NPRM proposed that the Financial Agent 
``be accountable only to the Treasury,'' which appeared to some 
commenters to conflict with the obligations that a financial 
institution would have to recipients under Regulation E. In addition, 
several State government entities requested clarification on how 
Regulation E claims would be handled in cases where both State and Federal funds are included in the same 
account. Two financial trade associations commented that the Regulation 
E exemption for small financial institutions should be available for 
such institutions. Another financial institution trade association 
commented that Financial Agents should be allowed to delegate 
Regulation E compliance requirements to a third party, such as a 
corporate credit union (in the case of credit unions).
    The rule language of Part 208 does not incorporate the 207 NPRM 
provision on Regulation E. The extent to which Regulation E applies to 
an account established under a particular EBT program will be addressed 
on a program-by-program basis, including in the context of a Federal/
State EBT program. The Board of Governors of the Federal Reserve System 
is responsible for the implementation and interpretation of Regulation 
E. See 15 U.S.C. 1693b. Accordingly, Treasury does not believe it is 
appropriate for Treasury to address the availability of the exemption 
for small financial institutions or the ability of financial 
institutions to delegate Regulation E requirements. For purposes of the 
ETASM, requirements related to Regulation E will be included 
in the notice of proposed ETASM attributes and in the 
ETASM Financial Agency Agreement.
    Treasury has not included in Part 208 the accountability language 
of Sec. 207.3(b) of the 207 NPRM. Treasury notes, however, that a 
Financial Agent will be accountable to Treasury for any failure of the 
Financial Agent to comply with its obligations under the agreement 
between Treasury and the Financial Agent.
Authorized Payment Agent
    The 208 NPRM defined ``authorized payment agent'' as any individual 
or entity that is appointed or otherwise selected as a representative 
payee or fiduciary, under regulations of the Social Security 
Administration, the Department of Veterans Affairs, the Railroad 
Retirement Board, or other agency making Federal payments, to act on 
behalf of an individual entitled to a Federal payment. The final rule 
makes no change in this definition.
    Treasury received comments from non-financial institutions 
requesting Treasury to expand the definition of an authorized payment 
agent to include non-financial institutions. Commenters stated that the 
current financial infrastructure is not sufficiently extensive to reach 
all Federal recipients required to receive payments electronically. 
Many of these entities stressed their extensive network of agents in 
locations in rural areas and low and moderate income neighborhoods. 
These locations include convenience stores, supermarkets, pharmacies, 
travel agents, gas stations, and other retail outlets. In their 
comments, money transmitters, currency exchanges, and check cashers 
stressed their current role in providing financial services in 
locations where there are few bank branches.
    Treasury has considered the role of non-financial institutions in 
two contexts in the rule: Sec. 208.5 related to the ETASM 
and Sec. 208.6 related to account requirements. A discussion of 
comments received and Treasury's response is included in the section-
by-section analysis of the respective sections.
Federal Payment
    The definition of ``Federal payment'' in the final rule is 
identical to the definition of that term in the proposed rule.
    Treasury received many comments from agencies seeking clarification 
on whether payments made to recipients through third parties are 
required to be made by EFT. For example, the Department of Health and 
Human Services requested that Treasury clarify whether payments made by 
third-party contractors to doctors and hospitals for Medicare claims 
are required to be made by EFT. Typically, when an agency relies on a 
third-party contractor for payment services, the contractor makes a 
payment to a Federal payment recipient on behalf of the Government and 
the Government either (1) funds the payment by sending the funds to the 
contractor before the contractor makes the payment, or (2) reimburses 
the contractor for amounts already paid on the Government's behalf.
    Treasury will consider on a case-by-case basis situations in which 
an agency makes an EFT payment to a third-party contractor for purposes 
of funding a paper payment issued by that third party to a recipient. 
Treasury believes that some of these arrangements comply with this 
part. For example, in light of certain specific statutory provisions 
governing the issuance of Medicare payments, as well as the overall 
structure of the program, the issuance of paper Medicare payments by 
intermediaries and carriers would be in compliance with this part. 
However, Treasury does not believe that other arrangements in which a 
Federal agency reimburses a contractor by EFT for the contractor's 
issuance of checks to the agency's payees necessarily comply with this 
part.
    Several agencies also requested clarification on whether third-
party drafts and certain other paper-based instruments such as credit 
card convenience checks utilized by some agencies are considered to be 
in compliance with the Act. Under current third-party draft and 
convenience check arrangements, agencies make payments using drafts and 
checks drawn against an account held by a third party. After the draft 
or check has been presented to and paid by the third party's bank, the 
third party bills the agency and the agency reimburses the third party 
by EFT. Several agencies commented that the issuance of a check or 
draft in these circumstances is only a component of the overall 
transaction which, viewed in its entirety, should be considered to be a 
Federal payment made by EFT because the agency is reimbursing the third 
party by EFT.
    It is Treasury's view that a payment made by a third-party draft or 
convenience check in this manner is a Federal payment, and therefore 
must be made by EFT unless a waiver is available. The fact that third-
party drafts and convenience checks are not drawn against an account of 
the United States Government does not exclude them from the category of 
Federal payments. The essential nature of such arrangements is simply 
the issuance of a paper check, with the added step of utilizing an 
account owned by a third party. One goal of the Act is to save the 
Government money by eliminating checks and the incremental costs 
associated with them and converting all payments to less costly EFT. 
Third-party draft arrangements involve all the costs associated with 
paper instruments, plus the additional expense of reimbursing the third 
party for the agency's use of the account. Accordingly, third-party 
drafts, credit card convenience checks, and similar arrangements 
utilizing paper-based instruments may only be used when the requirement 
to make payment by EFT is waived under the waiver categories found at 
Sec. 208.4.

C. Section 208.3--Payment by Electronic Funds Transfer

    This section, which is unchanged from Sec. 208.3 of the 208 NPRM, 
implements 31 U.S.C. 3332(f)(1) and provides that, subject to 
Sec. 208.4 and notwithstanding any other provision of law, effective 
January 2, 1999, all Federal payments made by an agency shall be made 
by EFT. Pursuant to the definition of Federal payment, payments made 
under the Internal Revenue Code of 1986 are not required to be made by EFT.

D. Section 208.4--Waivers

Waiver Standards
    Section 208.4 lists waivers from the requirement that Federal 
payment be made by EFT. As explained in the preamble to the 208 NPRM, 
the waiver categories are based on the following four standards 
developed by the Secretary: (1) Hardship on the recipient; (2) 
impossibility; (3) cost-benefit; and (4) law enforcement and national 
security. The 208 NPRM provided eight waiver categories; for the 
reasons described below, the final rule provides seven waiver 
categories.
    The waivers contained in the 208 NPRM related to standards two 
through four named above remain the same, except for a minor change in 
wording in proposed Sec. 208.4(e) from ``armed forces'' to ``uniformed 
services'' to reflect the use of that term in 10 U.S.C. 101(1)(13) 
defining contingency operations. Those waivers, contained in the 208 
NPRM as Secs. 208.4(c) through (h), appear in the final rule as 
Secs. 208.4(b) through (g).
Hardship Waivers
    Sections 208.4(a) and (b) of the 208 NPRM, related to standard one 
(hardship on the recipient), have been revised and combined into 
Sec. 208.4(a) in the final rule. As with Secs. 208.4(a) and (b) of the 
208 NPRM, the hardship waivers referenced in final Sec. 208.4(a) apply 
only to recipients who are individuals as defined under Sec. 208.2.
Hardship Waivers--Recipients With and Without Accounts
    Final Sec. 208.4(a) broadens the hardship waivers available to 
individuals. The final rule does not distinguish between recipients who 
have an account with a financial institution and those who do not. 
Rather, it simply refers to individuals who determine that payment by 
EFT would impose a hardship.
    Treasury received a number of comments from consumer organizations, 
recipients, and Government agencies stating that the hardship waivers 
should apply to all Federal payment recipients, regardless of whether 
they have an account at a financial institution. Commenters stated that 
by limiting the financial hardship provision in the 208 NPRM to 
individuals who do not have an account at a financial institution, no 
accommodation is made for recipients who may have an account but, for 
whatever reason, may not be able to afford keeping such an account. 
This could happen if, for example, account fees or charges increase to 
what becomes an unaffordable amount for the recipient. It could also 
happen if the recipient's overall financial situation were to change 
for the worse for some reason beyond the recipient's control, such as a 
job loss, a serious illness of a dependent, or the death of an income 
provider.
    Commenters also noted that, as proposed, the financial hardship 
provision would not be available to those recipients who opened 
accounts because of the fear of losing or interrupting their benefits. 
A number of consumer organizations stated that some of their 
constituents had enrolled in high cost programs with financial and non-
financial institutions in the mistaken belief that they needed to have 
an account in order to continue to receive Federal benefit payments. In 
response to these comments, Treasury has deleted from the hardship 
waiver category any reference to persons having or not having an 
account at a financial institution.
Hardship Waivers--Date of Eligibility
    The final rule does not distinguish between recipients who became 
eligible for a Federal payment before July 26, 1996, and those who 
became eligible on or after that date. Final Sec. 208.4(a) provides 
that certain hardship waivers are available to individuals, regardless 
of when they became eligible to receive their Federal payments.
    The majority of consumer organizations, recipients, and Government 
agencies commenting on the 208 NPRM objected to the ``date of 
eligibility'' distinction in the NPRM. As proposed, there were no 
hardship waivers for recipients who had an account with a financial 
institution and who became eligible for a Federal payment on or after 
July 26, 1996. Commenters stated that a recipient's physical condition 
and geographic location have no direct relationship to the recipient's 
date of eligibility for his or her Federal payments. For example, 
recipients who are physically disabled may need a hardship waiver, 
regardless of when they began receiving their benefits. In addition, 
commenters pointed out that the date of eligibility distinction makes 
no allowance for future changes in the circumstances of a recipient. 
For example, a recipient who was receiving payment by EFT and then 
becomes physically disabled should be eligible for a physical hardship 
waiver.
    Benefit agencies presented other reasons for removing the ``date of 
eligibility'' distinction from the hardship waiver provisions. Several 
agencies expressed concern about the complexity of implementing a 
system to track waivers where a hardship waiver would be available for 
one type of payment for which an individual became eligible prior to 
July 26, 1996, and not available for another type of payment for which 
the same individual became eligible after that date.
    Several other agencies, however, defended the ``date of 
eligibility'' distinction in the NPRM, based on their past experiences 
in enrolling Federal payment recipients in EFT. These agencies stated 
that even though there is no direct relationship between a recipient's 
ability to receive an EFT payment and his or her date of eligibility 
for Federal benefits, this policy makes sense from an operational 
perspective, since the majority of new payment recipients voluntarily 
enroll in EFT. For example, the Social Security Administration is 
currently enrolling 85% of its new benefit recipients in EFT. In 
addition, these agencies expressed concern that Treasury would diminish 
the effectiveness of the EFT mandate by providing liberal waiver 
policies. However, even though there is clear evidence that the 
majority of new Federal payment recipients voluntarily enroll in EFT, 
it is not clear that those for whom EFT would impose a hardship are 
proportionately represented. Based on this and on the comments 
received, Treasury has determined that there is not sufficient 
justification to distinguish between recipients based on their date of 
eligibility for payment.
Expansion of Hardship Waivers
    Final Sec. 208.4(a) expands the hardship waiver provisions to 
accommodate recipients with mental disabilities or language or literacy 
barriers. Comments on the 208 NPRM from consumer and community-based 
organizations and payment recipients presented reasons as to why EFT 
may not be a viable option for recipients with such disabilities and 
barriers. A recurring argument heard for each of these categories was 
that there are factors specific to EFT payments that present greater 
challenges to recipients than do check payments. For example, a 
recipient with a mental disability or a language or literacy barrier 
may be able to sign his or her name on a check but may not be able to 
navigate through the information on ATM screens.
    Consumer and community-based organizations also took issue with the 
position taken in the 208 NPRM that agencies currently accommodate 
recipients with mental disabilities by allowing for representative 
payees to manage the recipients' benefit payments, and that the method 
by which payment is made to the representative payee has no effect on the 
actual recipient. These commenters stated that many recipients with 
mental disabilities are able to perform tasks necessary to negotiate a 
check payment on their own and do not need to rely on a representative 
payee to do so. However, this is not usually the case with EFT 
payments, since an electronic system is more difficult to 
conceptualize. As a result, the EFT requirement can drastically reduce 
a recipient's financial independence and subject him or her to the 
inherent risks associated with relying on a third party to access a 
payment.
    Broadening the hardship waivers available to recipients is 
consistent with the legislative history of the Act which refers 
specifically to ``individuals who have geographical, physical, mental, 
educational, or language barriers'' and a concern that these 
individuals may not be able to receive their benefits if payment is 
required to be made by EFT. See 142 Cong. Rec. H4090 (April 25, 1996).
Waiver Process
    In addition to broadening the hardship waivers available to 
individuals, the final rule makes clear Treasury's intent that the 
waiver process will be based on an individual's self-determination that 
a hardship exists. By changing the language from ``certifies'' to 
``determines'' and adding the phrase ``in his or her sole discretion,'' 
Treasury is indicating that an individual has the right to determine 
whether he or she qualifies for a waiver. As discussed below in the 
section-by-section analysis of Sec. 208.7, an agency may request that 
the individual inform the agency of his or her election to rely upon a 
waiver. However, the agency may not require evidence of any condition 
underlying the recipient's election of a waiver. In addition, if the 
agency receives no response from a recipient, the agency must continue 
to make payment by check.
    The change from ``certifies'' to ``determines'' also addresses a 
concern raised by the Social Security Administration and other agencies 
that collecting and documenting written waiver certifications would 
impose a heavy administrative burden on those agencies. Under the final 
rule, there is no requirement that written certifications be obtained.
    In contrast to Sec. 208.4(a), the availability of a waiver under 
Secs. 208.4(b) through (g) is to be determined in the first instance by 
the agency responsible for making the payment. Under the regulation, 
there is no requirement that Treasury approve or certify the 
applicability of a waiver under circumstances described in 
Secs. 208.4(b) through (g). Treasury believes that, as a general 
matter, agencies are in the best position to determine whether the 
criteria set forth at Secs. 208.4(b) through (g) are met in a 
particular set of circumstances. Treasury does not intend to review 
routinely agency decisions to make payment by check or cash in 
circumstances addressed in Secs. 208.4(b) through (g). However, 
Treasury may consider the appropriateness of check or cash payments in 
reliance on Secs. 208.4(b) through (g) on a case-by-case basis.
Automatic Waiver
    In addition to the changes mentioned above, the final rule contains 
three changes in the automatic waiver provision for individuals who do 
not have an account with a financial institution. In the 208 NPRM, this 
waiver was until the earlier of January 2, 2000, or the date as of 
which the Secretary determines that the ETASM is available.
    First, the final rule adds the phrase ``who are eligible to open an 
ETASM'' to reflect the change made in final Sec. 208.5 
limiting eligibility for an ETASM to individuals who receive 
a Federal benefit, wage, salary, or retirement payment. Second, the 
final rule deletes the phrase ``who certify'' to emphasize that 
individuals who do not have an account with a financial institution do 
not need to take any action in order to invoke the automatic waiver. 
Third, the final rule deletes the reference to January 2, 2000, and 
states that an automatic waiver is granted until such date as the 
Secretary determines that the ETASM is available. Agencies 
stated that they will need six to nine months after the 
ETASM becomes operationally available to enroll recipients 
who elect to have access to their payment through this account. In 
order to ensure that agencies have the necessary lead time, Treasury 
has deleted the January 2, 2000, date reference.
Waiver for Non-Recurring Payments
    Agency comments were received on proposed Sec. 208.4(g), which 
provides a waiver for payment by EFT where the agency does not expect 
to make more than one payment to the same recipient within a one-year 
period, i.e., the payment is non-recurring, and the cost of making the 
payment via EFT exceeds the cost of making the payment by check. This 
waiver was intended to address those situations in which payment by 
check might be more cost-effective than payment by EFT given the 
administrative cost of enrolling a recipient for an EFT payment.
    One agency requested clarification as to who would be responsible 
for the cost/benefit analysis. Another agency requested clarification 
as to whether a cost/benefit analysis must be documented to support an 
agency's decision to issue a check. While the cost/benefit of making an 
EFT payment over a check payment is generally known, the cost to each 
agency of enrolling a recipient for EFT payment is best determined by 
that agency. Therefore, Treasury is leaving it to the agency to 
determine if it is more cost-effective to make a non-recurring payment 
by check rather than electronically. Agencies will not be expected to 
document a cost/benefit analysis for every non-recurring payment, but 
should establish internal procedures for determining when such payments 
are to be made by check.
    As pointed out in the preamble to the 208 NPRM, this waiver 
category was not meant to suggest that the dollar amount of the payment 
is at any time a determining factor for the application of the waiver. 
Rather, the determining factor is whether the payment is a one-time 
payment as opposed to a recurring payment.
No Waiver for Vendor Payments
    As with the 208 NPRM, the final rule contains no specific waiver 
for vendor payments. Treasury received several comments from agencies 
and Federal Government vendors citing a need for a waiver in those 
circumstances where remittance data, i.e., information that identifies 
the payment, is not available to the vendor. This may happen because a 
financial institution is not capable operationally of delivering the 
data to the vendor in human readable form or because the cost to the 
vendor of obtaining the data is determined to be unacceptably high. 
Vendors require this payment-related information to reconcile payments 
against outstanding invoices.
    Since the publication of the 208 NPRM, much progress has been made 
in the effort to provide vendors with access to remittance data. As of 
September 1998, the National Automated Clearing House Association rules 
require that upon request of a recipient, a financial institution 
receiving a payment to be credited to the recipient's account through 
the ACH must provide all payment-related information sent with the 
payment. To assist in this effort, the Board of Governors of the 
Federal Reserve System has acquired low-cost software that will enable 
financial institutions to capture payment information and present it to the vendor in readable form. This 
software, expected to be released in the fourth quarter of 1998, will 
be made available to approximately 12,000 financial institutions 
through Fedline, the Federal Reserve's telecommunication service.
    Also, the Service's Austin Financial Center has developed an online 
internet site where vendors can use a password to access information 
about a Federal payment. This service currently is available to all 
Federal agencies and their vendors. Other ongoing efforts include 
training for agencies on correctly formatting the addenda record in 
which payment information is contained and outreach through literature 
and local ACH association workshops for financial institutions and 
their customers. In addition, Treasury has developed a standard check 
insert, which agencies are encouraged to use, to assist in enrolling 
vendors in Direct Deposit.
    Treasury expects that these efforts will result in readily 
available solutions to this problem by the January 2, 1999, deadline. 
Treasury will continue to monitor the development of these solutions to 
determine if some modification is needed.

E. Section 208.5--Availability of the ETASM

    Proposed Sec. 208.5 provided that where the requirement to pay by 
EFT is not waived and an individual either certifies that he or she 
does not have an account with a financial institution or fails to 
provide information necessary to send the payment by EFT, Treasury 
would provide the individual with access to an account at a Federally-
insured financial institution selected by Treasury.
    In response to comments and as a result of further research and 
analysis, Treasury has taken a different approach to account access in 
the final rule. Final Sec. 208.5 states that an individual who receives 
a Federal benefit, wage, salary, or retirement payment shall be 
eligible to open an ETASM at a financial institution that 
offers ETAsSM. Any Federally-insured financial institution 
will be permitted (but not required) to offer ETAsSM as 
Treasury's Financial Agent upon entering into an ETASM 
Financial Agency Agreement. (The designation of the financial 
institution as Treasury's Financial Agent is authorized under Pub. L. 
104-208.) The final regulation provides that Treasury shall publish 
required attributes for ETAsSM and that any ETASM 
offered by a financial institution must comply with those requirements. 
Further, it clarifies that the offering of an ETASM 
constitutes the provision of EBT services within the meaning of Pub. L. 
104-208.
Eligibility for an ETASM
    The final rule limits eligibility for an ETASM to 
individuals who receive a Federal benefit, wage, salary, or retirement 
payment. The comments received indicate that it is this group of 
recipients of Federal payments--rather than recipients of vendor or 
miscellaneous payments--who most need, and would benefit from, a low-
cost account such as the ETASM. It is Treasury's objective 
to encourage this group of individuals to move into the financial 
mainstream through access to ETAsSM.
    The 208 NPRM stated that Treasury would provide access to an 
account ``where the requirement to pay by electronic funds transfer is 
not waived'' and ``an individual either certifies that he or she does 
not have an account with a financial institution, or fails to provide 
information pursuant to Sec. 208.8.'' All of these conditions have been 
removed in the final rule. Under final Sec. 208.5, any recipient of a 
Federal benefit, salary, wage, or retirement payment is eligible to 
open an ETASM. However, if a recipient does not 
affirmatively elect electronic deposit to an ETASM or 
another account at a financial institution, the recipient will receive 
payment by check.
    Comments received from consumer and community-based organizations 
urged Treasury to allow recipients to receive their Federal payments 
through an ETASM even if the recipient has another account 
at a financial institution. Several commenters expressed the concern 
that some recipients are opening accounts which are too costly because 
of the fear that their payments would be stopped or interrupted if an 
account was not opened. Some commenters were concerned that financial 
institutions' fee structures are confusing for some recipients and that 
account-related fees may increase, with the result that recipients can 
no longer afford to maintain an account that was affordable when 
opened. Other commenters expressed a concern that a recipient's 
financial circumstances can change, so that the recipient can no longer 
afford to maintain an account at a financial institution. Some consumer 
and community-based organizations also commented that individuals may 
have established accounts for certain limited uses, such as a savings 
account set up for a special purpose, which they do not wish to use to 
access their Federal payment.
    The final rule addresses all of these concerns by making any 
individual who receives a Federal benefit, wage, salary, or retirement 
payment eligible for an ETASM, regardless of whether the 
individual has an account at a financial institution.
Regulation of Non-ETASM Accounts
    Treasury believes that expanding eligibility for the 
ETASM mitigates the concern expressed by several consumer 
organizations that the provision of the ETASM as 
contemplated in the 208 NPRM would not fully satisfy the Act's 
``reasonable cost'' and ``same consumer protections'' requirements.
    Specifically, the Act provides:
    Regulations under this subsection shall ensure that individuals 
required under subsection (g) 1 to have an account at a 
financial institution because of the application of subsection (f)(1) 
2--
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    \1\ Subsection (g) requires each recipient of Federal payments 
required to be made by EFT to designate a financial institution or 
other authorized agent to which payments shall be made and to 
provide the paying agency with the information necessary for the 
recipient to receive EFT payments through the institution or agent.
    \2\ Subsection (f)(1) requires that, with certain exceptions, 
all Federal payments made after January 1, 1999, be made by EFT.
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    (A) Will have access to such an account at a reasonable cost; and
    (B) Are given the same consumer protections with respect to the 
account as other account holders at the same financial institution. 31 
U.S.C. 3332(i).
    As discussed in the preamble to the 208 NPRM, the requirement that 
Treasury ensure access to an account could be read very broadly to 
refer to all individual recipients who are required to receive their 
Federal payments by EFT, whether or not they already have an account. 
62 FR 48714, 48723. The Act also could be read more narrowly as 
referring to those individuals who have not voluntarily selected or 
opened an account at a financial institution, who are not eligible for 
a waiver, and who will need access to an account in order to receive a 
Federal payment by EFT. Several commenters urged Treasury to read the 
requirement in the broader fashion and to regulate the pricing and 
terms of all accounts at financial institutions to which Federal 
payments may be sent by EFT. Consumer and community-based organizations 
in favor of such regulation stated that some financial institutions 
charge fees for basic banking services that are excessive or 
inadequately disclosed. These groups were particularly concerned with 
the development of arrangements between financial institutions and non-
financial institution payment service providers in which individuals may have access to their Federal payments only 
through the service provider under terms and conditions that the 
individuals may not understand. Consumer and community-based 
organizations stated that the fees charged in connection with accessing 
payments through these types of arrangements may be both substantial 
and complicated.
    In contrast to comments received from consumer and community-based 
organizations, financial institutions commented that Treasury should 
not regulate banking fees and services because such regulation would 
interfere with the efficient operation of the free market. Both 
financial institutions and other providers of financial services, 
including check cashers, urged Treasury not to regulate arrangements in 
which recipients establish and access accounts at financial 
institutions through check cashers, stating that check cashers provide 
convenient hours and locations and a variety of services not otherwise 
available to recipients.
    Treasury has decided in this rulemaking not to engage in a broad 
regulation of accounts, other than ETAsSM, offered directly 
by financial institutions. By providing that all recipients of Federal 
benefit, wage, salary, and retirement payments are eligible for an 
ETASM, Treasury believes that many of the concerns expressed 
by consumer organizations should be allayed. Regulating all accounts 
opened voluntarily by Federal payment recipients would create a 
significant burden on bank regulatory agencies and the banking industry 
and would interfere with the functioning of the market for financial 
services. Treasury believes that the emphasis of the Act is on ensuring 
that individuals required to have an account in order to receive 
Federal payments will not be disadvantaged by establishing an account 
for receipt of their payments. To this end, the Act requires that these 
individuals be afforded access to an account at a reasonable cost and 
with the same consumer protections made available to other individuals 
who maintain accounts at the same financial institution.
Non-Financial Institution Payment Service Providers
    Treasury believes that a majority of Federal payment recipients 
receiving electronic Federal payments have chosen or will choose an 
account that best suits their needs and resources. However, Treasury is 
very concerned with the nature of certain arrangements that some 
financial institutions have entered into with non-financial institution 
providers of payment services, such as check cashers, currency 
exchanges, or money transmitters. Such arrangements may involve giving 
recipients access to EFT deposits in their insured accounts through the 
uninsured service provider. Some commenters stated that non-financial 
institutions provide payment services in rural areas and low and 
moderate income neighborhoods not served by banks and other financial 
institutions. While arrangements between financial institutions and 
non-financial institution payment service providers could provide 
recipients with an expanded range of alternatives for payment services, 
they also raise the possibility that recipients would not be clearly 
informed of the fee structures involved, the legal nature of the 
relationship, the application of deposit insurance, or the other 
options available under the Act. At present, there is no comprehensive 
Federal regulation of non-financial institution payment service 
providers and, except in limited cases, no Federal oversight of 
arrangements between financial institutions and non-financial 
institution service providers.
    Treasury has advised the Federal bank regulatory agencies that 
supervise financial institutions that an insured financial institution 
should provide appropriate disclosures to customers when it 
participates in arrangements with non-financial institution providers 
of payment services. Such disclosures should fully and fairly convey 
information about the fees and costs imposed by all of the parties to 
the arrangement, as well as the legal relationships involved, and 
should explain the applicability of federal deposit insurance insofar 
as it is relevant to the arrangement. In addition, disclosures should 
be framed so as not to mislead recipients as to the requirements of the 
Act.
    Treasury is monitoring the development of arrang