[Federal Register Volume 60, Number 183 (Thursday, September 21, 1995)]
[Proposed Rules]
[Pages 48940-48942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22647]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 240
RIN 1510-AA45
Indorsement and Payment of Checks Drawn on the United States
Treasury
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Proposed rule.
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SUMMARY: This rule revises 31 CFR Part 240, which governs the
indorsement and payment of checks drawn on the United States Treasury.
The changes are intended both to fix the time by which Treasury can
decline payment on Treasury checks and to provide financial
institutions with a date certain for final payment. These rules also
provide greater clarity by defining previously undefined terms and by
ensuring symmetry with current Treasury regulations governing Federal
payments utilizing the automated clearing house method. This rule also
provides that Treasury may instruct Federal Reserve Banks to intercept
and return, unpaid, benefit payment checks issued to deceased payees.
These proposed revisions are issued in response to concerns raised by
financial institutions, Federal agencies, and other affected parties.
DATES: Comments must be submitted on or before November 6, 1995.
ADDRESSES: All comments concerning these proposed regulations should be
addressed to Ronald Brooks, Senior Program Analyst, Financial
Processing Division, Financial Management Service, Prince Georges
Center II Building, 3700 East-West Highway, Room 725-D, Hyattsville,
Maryland 20782. Comments may be faxed to (202) 874-7534.
FOR FURTHER INFORMATION CONTACT: Ronald Brooks, (202) 874-7620 (Senior
Program Analyst, Financial Processing Division); Paul M. Curran, (202)
874-6680 (Principal Attorney).
SUPPLEMENTARY INFORMATION:
Limitations on Payment
The current regulation provides that Treasury shall have the right
to conduct first examination of Treasury checks presented for payment,
and to refuse payment of any checks within a reasonable time. The
current regulation also provides that such checks shall be deemed paid
only upon Treasury's completion of first examination. The proposed rule
clarifies this in two ways.
First, it defines first examination, and defines material defects
or alterations as including counterfeit checks. These definitions are
consistent with Treasury's longstanding interpretation of these terms.
Second, it fixes the time by which Treasury must complete first
examination, and provides that if Treasury fails to do so within 150
days, the check will be deemed paid. This change narrows the time by
which Treasury must complete first examination since Treasury
interprets the current regulation as affording up to one year for first
examination. This proposed change is intended to accommodate financial
institutions which seek not only a more compressed time frame for first
examination but also a date certain for final payment of Treasury
checks.
While Treasury will, in most cases, complete first examination
within 30 days of presentment of a Treasury check to a Federal Reserve
Bank, the 150 day maximum period affords Treasury sufficient time to
complete first examination in certain problem cases. For example, up to
150 days may be required in instances where there are delays in
Treasury's obtaining from check certifying or authorizing agencies the
payment issue tapes necessary to complete first examination.
Recovery by Bank From Depositors
The proposed rule clarifies that the regulations contained in this
part neither authorize nor direct any financial institution to debit
the account of any depositor. It further clarifies that any financial
institution's right of recovery against depositors is derived from both
the depository contracts with its customers and any self-help remedies
authorized by State law governing the relationship between financial
institutions and their customers. This provision mirrors the
regulations codified in 31 CFR Part 210, which pertains to ``Federal
Payments Through Financial Institutions By the Automated Clearing House
Method.''
Deceased Payee Check Intercepts
Currently, where a benefit payment check has been issued and
negotiated after a payee's death, Treasury generally recovers the funds
from financial institutions through the reclamation process. Financial
institutions have expressed dissatisfaction with these procedures
because Treasury reclamation actions only occur after final payment and
because in many instances the depositors have closed their accounts or
withdrawn most or all of the funds. These financial institutions seek a
process by which Treasury can intercept such checks upon presentment
and return such checks unpaid before the financial institutions are
required under Federal Reserve Regulation CC (12 C.F.R. Part 229) to
make funds permanently available to their depositors. This proposed
rule responds to those concerns, and should result in a lower volume of
payments to nonentitled payees.
Specifically, it clarifies that benefit payment checks issued after
a payee's death are not payable. It also sets forth procedures by which
Treasury will instruct the Federal Reserve to intercept such checks
upon presentment and return unpaid those checks which are successfully
intercepted to the depositary banks.
Rulemaking Analysis
It has been determined that this regulation is not a significant
regulatory action as defined in E.O. 12866. Therefore, a Regulatory
Assessment is not required.
It is hereby certified pursuant to the Regulatory Flexibility Act
that this revision will not have a significant economic impact on a
substantial number of small business entities. Accordingly, a
Regulatory Flexibility Act analysis is not required.
These regulations impose time frames within which final payment of
Treasury checks must be accomplished, and establish consequences for
the failure of Treasury to honor those time frames. Consequently, these
regulations provide financial institutions with greater certainty
regarding the entire payment process, and place higher standards of
performance on Treasury in its processing of checks.
The other principal provision of these regulations will reduce the
likelihood that final payment on Treasury checks will be made to
nonentitled persons. Treasury's efficiency and its ability to serve the
needs of legitimate payees of benefit programs will thereby be
enhanced.
Notice and Comment
Public Comment is solicited on all aspects of this proposed
regulation. Treasury will consider all comments made on the substance
of this proposed regulation, but does not intend to hold hearings.
[[Page 48941]]
List of Subjects in 31 CFR Part 240
Checks, Counterfeit Checks, Forgery, Banks, Banking, Guarantees,
Federal Reserve System.
For the reasons set out in the preamble, 31 CFR Part 240 is
proposed to be amended as follows.
PART 240--INDORSEMENT AND PAYMENT OF CHECKS DRAWN ON THE UNITED
STATES TREASURY
1. The authority citation for part 240 is revised to read as
follows:
Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 321; 31 U.S.C.
3328; 31 U.S.C. 3331; 31 U.S.C. 3334; 31 U.S.C. 3343; 31 U.S.C.
3711; 31 U.S.C. 3712; 31 U.S.C. 3716; 31 U.S.C. 3717.
2. Section 240.2 is revised to read as follows:
Sec. 240.2 Definitions.
(a) Agency means any department, instrumentality, office,
commission, board, service, or other establishment of the United States
authorized to issue Treasury checks or for which checks drawn on the
Treasury of the United States are issued.
(b) Bank means any financial institution, including but not limited
to, any savings bank, national bank, trust company, state bank, and
credit union created under Federal or state law.
(c) Benefit payment includes but is not limited to a payment of
money for any Federal Government entitlement program or annuity.
(d) Certifying agency means an agency authorizing the issuance of a
Treasury payment by a Treasury disbursing officer or a non-Treasury
disbursing officer in accordance with 31 U.S.C. 3325.
(e) Check means a draft or an order to pay drawn on the United
States Treasury.
(f) Check payment means the amount paid to a presenting bank by a
Federal Reserve Bank.
(g) Commissioner means the Commissioner of the Financial Management
Service, Department of the Treasury.
(h) Days means calendar days.
(i) Decline payment means the process whereby Treasury refuses to
make final payment on a check by instructing the Federal Reserve Bank
to reverse its provisional credit to a presenting bank.
(j) Federal Reserve Bank means a Federal Reserve Bank and its
branches.
(k) Financial institution means any bank, including but not limited
to, any savings bank, national bank, trust company, state bank and
credit union created under Federal or state law.
(l) First examination means Treasury's process of check
reconciliation which involves comparing disbursing officer issue
information on checks with Federal Reserve Bank payment information.
Where the issue information is at odds with the payment information,
first examination will include retrieval and inspection of the check,
or the best available image thereof.
(m) Material defect or alteration means
(1) The counterfeiting of a check; or
(2) Any physical change on a check, including, but not limited to,
the amount, date, payee name, or other identifying information printed
on either the front or the back of the check; or
(3) Any forged or unauthorized indorsement appearing on the back of
the check.
(n) Person or persons means an individual or individuals, or an
institution or institutions, including all forms of financial
institutions.
(o) Presenting bank means:
(1) A financial institution which, either directly or through a
correspondent banking relationship, presents checks to and receives
provisional credit from a Federal Reserve Bank; or
(2) A depositary, designated by statute, which is authorized to
charge checks directly to the Treasury General Account and present them
to Treasury for payment through a designated Federal Reserve Bank.
(p) Protest means a bank's written statement and any supporting
documentation tendered for the purpose of establishing that the bank is
not liable for refund of the reclamation balance.
(q) Reclamation means a demand by Treasury to a bank for refund of
the amount of a check payment.
(r) Reclamation date means the date on which Treasury prepares a
demand for refund. Normally, demands are sent to banks within 2 working
days of the reclamation date.
(s) Treasury means the United States Department of the Treasury.
(t) U.S. securities means securities of the United States and
securities of Federal agencies and wholly or partially Government-owned
corporations for which Treasury acts as the transfer agent.
(u) Unauthorized indorsement means:
(1) An indorsement made by a person other than the payee, except as
authorized by and in accordance with Sec. 240.5 and Secs. 240.11
through 240.15;
(2) An indorsement by a bank under circumstances in which the bank
breaches the guaranty of indorsement required of it by 31 CFR 209.9(a);
(3) A missing indorsement where the depositary bank had no
authority to supply the indorsement.
3. Section 240.3 is amended by revising paragraphs (c), (d) and (e)
to read as follows:
Sec. 240.3 Limitations on payment.
* * * * *
(c)(1) Treasury shall have the right as drawee to examine checks
presented for payment and reconcile or direct the Federal Reserve Bank
to refuse payment of any checks.
(2) Receipt of credit by a bank from a Federal Reserve Bank shall
be provisional until Treasury completes first examination of the check.
(3) When first examination by Treasury establishes that a check has
a material defect or alteration, Treasury will decline payment on the
check.
(d) Notwithstanding the provisions of paragraph (c) of this
section, when issue information is not available within 150 days after
the check is presented to the Federal Reserve Bank for payment, or when
first examination is otherwise not completed within such time frame,
Treasury will be deemed to have made final payment on the check.
(e) Notwithstanding the provisions of paragraph (d) of this
section, if Treasury is on notice of a question of law or fact about
whether a check is properly payable upon presentment for payment, and
Treasury refers such question to the Comptroller General under 31
U.S.C. 3328(a)(2), the Commissioner may defer final payment on the
check until the Comptroller General settles the question.
4. Section 240.4 is amended by redesignating paragraph (a)(3) as
paragraph (c) and revising it to read as set forth below; removing
paragraph (b) and redesignating paragraph (a)(2) as (b); and by
redesignating paragraph (a)(1) as (a) and revising it to read as
follows:
Sec. 240.4 Cancellation and distribution of proceeds of checks.
(a) Any check issued on or after October 1, 1989 that has not been
paid and remains outstanding for more than 12 months shall be cancelled
by the Commissioner.
(b) * * *
(c) On a monthly basis, the Commissioner shall provide to each
agency that authorizes the issuance of Treasury checks a list of those
checks issued for such agency which were cancelled during the preceding
month pursuant to paragraph (a) of this section.
5. Section 240.6 is amended by revising paragraph (a) to read as
follows:
[[Page 48942]]
Sec. 240.6 Reclamation of amounts of paid checks.
(a) If Treasury determines that a check has been paid over a forged
or unauthorized indorsement, or that a check containing a material
defect or alteration is deemed paid under Sec. 240.3, the presenting
bank or any other indorser shall be liable to the Treasury for the full
amount of the check payment. The Commissioner may reclaim the amount of
the check payment from the presenting bank, or from any other indorser
that breached its guaranty of indorsement prior to:
(1) The end of the 1-year period beginning on the date of
provisional payment; or
(2) The expiration of the 180-day period beginning on the close of
the period described in paragraph (a)(1) of this section if a timely
claim under 31 U.S.C. 3702 is presented to the certifying agency.
* * * * *
6. Section 240.9 is amended by revising paragraphs (a)(1) and
(a)(3) (ii) and (iv) to read as follows:
Sec. 240.9 Processing of checks.
(a) Federal Reserve Banks. (1) Federal Reserve Banks shall cash
checks for Government disbursing officers when such checks are drawn by
the disbursing officers to their own order. Payment of such checks
shall not be refused except for material defect or alteration of the
check.
(2) * * *
(3) * * *
(ii) Give immediate provisional credit therefor in accordance with
their current Time Schedules and charge the amount of the checks cashed
or otherwise received to the account of the Treasury, subject to first
examination and payment by Treasury.
(iii) * * *
(iv) Release the original checks to a designated Federal Records
Center upon notification from Treasury. Treasury shall return to the
forwarding Federal Reserve Bank a copy of any check the payment of
which is declined upon the completion of first examination, together
with notice of the declination. Federal Reserve Banks shall give
immediate credit therefor in Treasury's account, thereby reversing the
previous charge to the account for such check. Treasury authorizes each
Federal Reserve Bank to release a copy of the check to the indorser
when payment is declined.
* * * * *
7. Section 240.13 is amended by adding paragraph (c) to read as
follows:
Sec. 240.13 Checks issued to deceased payees.
* * * * *
(c) Deceased payee check intercepts.
(1) A benefit payment check, issued after a payee's death, is not
payable. When a certifying agency learns that a payee has died, the
certifying agency shall give immediate notice to Treasury. Upon receipt
of such notice, Treasury will instruct the Federal Reserve Bank to
refuse payment on the check upon presentment. The Federal Reserve Bank
will make every appropriate effort to intercept the check. Where a
check is successfully intercepted, the Federal Reserve bank will refuse
payment, and return the check unpaid to the bank with an annotation
that the payee is deceased. Where a financial institution learns that a
date of death triggering action under this section is erroneous, the
appropriate certifying agency which authorized the issuance of the
check should be contacted.
(2) Nothing in this section shall limit the right of Treasury to
institute reclamation proceedings under the provisions of Sec. 240.6
with respect to a deceased payee check paid over a forged or
unauthorized indorsement.
8. Section 240.16 is added to read as follows:
Sec. 240.16 Lack of authority to shift liability.
(a) This part neither authorizes nor directs a bank to debit the
account of any party or to deposit any funds from any account in a
suspense account or escrow account or the equivalent. However, nothing
in this part shall be construed to affect a bank's contract with its
depositor(s) under authority of State law.
(b) A bank's liability under this part is not affected by any
action taken by it to recover from any party the amount of the bank's
liability to the Treasury.
9. Section 240.17 is added to read as follows:
Sec. 240.17 Implementing instructions.
Procedural instructions implementing the regulations in this part
will be issued by the Commissioner of the Financial Management Service
in volume I, part 4 and volume II, part 4 of the Treasury Financial
Manual.
Dated: July 14, 1995.
Russell D. Morris,
Commissioner.
[FR Doc. 95-22647 Filed 9-20-95; 8:45 am]
BILLING CODE 4810-35-P