[Federal Register: April 23, 2003 (Volume 68, Number 78)]
[Proposed Rules]
[Page 20045-20059]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ap03-14]
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Part II
Department of the Treasury
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Fiscal Service
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31 CFR Part 240
Indorsement and Payment of Checks Drawn on the United States Treasury;
Proposed Rule
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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: The Department of the Treasury (Treasury), Financial
Management Service (FMS),\1\ is proposing revisions to its regulations
governing the indorsement and payment of checks drawn on the United
States Treasury. This notice of proposed rulemaking (NPRM II)
supersedes the NPRM issued on May 30, 1997 (NPRM I). The regulations
provide how checks may be indorsed, and remedies when checks are lost
or stolen, and then subsequently negotiated by someone other than the
intended payee. In instances where losses occur, such as when a check
bearing a fraudulent indorsement is paid, the regulations provide for
the allocation of losses between the Government and indorsers of the
check. The regulations also provide information on how Treasury will
collect debts owed by banks and other indorsers when they fail to pay
claims arising under the terms of the regulation.
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\1\ FMS is the bureau within Treasury that is charged with
implementing Treasury's authority in this area. The terms Treasury
and FMS are used interchangeably in this proposed rule.
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DATES: Comments must be submitted on or before June 23, 2003.
ADDRESSES: All comments concerning NPRM II 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, MD 20782. Comments also may
be emailed to: Ronald.Brooks@fms.treas.gov.
FOR FURTHER INFORMATION CONTACT: Ronald Brooks, (202) 874-7573 (Senior
Program Analyst, Financial Processing Division); Randall S. Lewis,
(202) 874-6877 (Principal Attorney).
SUPPLEMENTARY INFORMATION: Regulations governing the indorsement and
payment of checks drawn on the U.S. Treasury are codified at 31 CFR
part 240 (Part 240). Many entities are involved in the Federal check
disbursing system: Treasury and non-Treasury offices that issue
Treasury checks, banks in the Federal Reserve System that receive
Treasury checks and provide payment information to Treasury, and
Treasury offices that receive payment information from the Federal
Reserve System and reconcile that information with issuance information
provided by the numerous Treasury and non-Treasury disbursing offices.
For years, Treasury has been working to find a balance between the
demands of this Federal system that relies on the coordination of many
parties and the desire of the financial community to operate within a
framework that is similar for commercial checks and Treasury checks.
Issues that have continued to generate debate over time include:
[sbull] The amount of time Treasury has to complete first
examination of Treasury checks and to decline payment of a check; and
[sbull] The allocation of loss when Treasury makes final payment on
a check prior to the determination that a check presented for payment
is a counterfeit check, or bears a forged or unauthorized drawer's
signature.
NPRM II seeks to strike a balance between these competing interests by
setting a date certain by which all Treasury checks are deemed paid
while allocating the risk of loss to financial institutions only in
those instances where reasonable actions, if properly taken by
financial institutions, could have prevented a loss to the United
States Treasury.
Background
Treasury disburses payments for a majority of civilian Federal
agencies. Other Federal agencies, such as the military departments,
have their own disbursing officers, but also use Treasury check stock
to make payments. Regardless of the agency which disburses a payment,
if the payment is made in the form of a Treasury check, the check must
be presented to the Department of the Treasury for payment. Conditional
payment, referred to in this proposed rule as provisional credit, is
effected by a credit to a reserve or other account with the Federal
Reserve Bank through which the check is presented for payment. See 31
CFR 240.5(c) of NPRM II.
On occasion, problems occur during this process because of attempts
to defraud Treasury either by interjecting counterfeit checks into the
system or by altering authentic Treasury checks. In other instances,
Treasury checks do not reach, or are lost by or stolen from, the
intended payees, and are indorsed by persons not entitled to them and
paid over those forged or unauthorized indorsements. Part 240 defines
the rules by which Treasury checks are to be indorsed and paid, and
assigns the responsibilities and associated liabilities among parties
when the system fails to prevent such frauds from occurring. In doing
so, the provisions in Part 240 describe the circumstances in which a
claim arises--e.g., when a debt is owed by a presenting bank or other
indorser of a Treasury check to the United States--and how such claims
may be collected, including limitations on the government's ability to
collect.
How claims arise. Federal law, not the commercial rules evidenced
in the Uniform Commercial Code as adopted by individual States, applies
to Treasury checks. Treasury checks are governed by Federal statutes,
FMS regulations promulgated in Part 240 pursuant to 5 U.S.C. 301, 31
U.S.C. 321, and 31 U.S.C. 3328(e), and, where the foregoing are silent,
Federal common law. See Clearfield Trust Co. v. United States, 318
U.S.C. 363 (1943). NPRM II outlines the responsibilities of the parties
involved in the indorsement and payment of Treasury checks. For
example, under Sec. 240.4 of NPRM II, payees or subsequent indorsers
of Treasury checks must present such checks for payment within one year
of a check's issuance. Similarly, under Sec. 240.5 of NPRM II, if
Treasury is going to decline payment on a check bearing a material
defect or alteration or forged or unauthorized drawer's signature, it
must do so within a reasonable amount of time not to exceed 90 days.
Claims arise when checks are presented to Treasury for payment in
violation of the requirements in this Part, such as when presenting
banks or other indorsers breach the presentment guarantees in Sec.
240.3 of NPRM II. For example, if a bank accepts a check bearing a
forged indorsement and that check is presented for payment, the
presenting bank and any indorsers of that check will have breached the
guarantee of indorsement in this rule, and a claim will arise in the
amount of the check in favor of the Government.
How claims are collected. The provisions of 31 U.S.C. 3711 require
the head of each Federal agency to try to collect claims arising from
the activities of the agency. Because of Treasury's role in issuing and
making payment on Treasury checks, Treasury historically has accepted
responsibility for the collection of claims arising from the
requirements of Part 240. Moreover, Treasury's role in this collection
activity is expressly referred to in 31 U.S.C. 3343.
In trying to collect claims arising under Part 240, Treasury first
will
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attempt to collect such claims, referred to in this Part as
``reclamation debts,'' using the reclamation procedures codified in
Sec. Sec. 240.7 and 240.8 of NPRM II. Under those procedures, Treasury
will attempt to collect by means of a demand letter, referred to as a
``REQUEST FOR REFUND (CHECK RECLAMATION).'' If the presenting bank or
other indorser from whom Treasury seeks payment, referred to in this
Part as the ``reclamation debtor,'' fails to refund the amount of the
check in response to the demand letters, Treasury will attempt to
collect by means of offset in accordance with Sec. 240.9 of NPRM II.
By employing offset, Treasury will seek to collect the debt owed by
reducing, or ``offsetting,'' by the amount of the debt, any payment due
to the reclamation debtor by another Federal agency. If Treasury still
is unable to collect the full amount of the debt, Treasury will collect
the amount through the Treasury Check Offset (TCO) procedures codified
at Sec. 240.10 of NPRM II. TCO is a collection mechanism, specifically
authorized under 31 U.S.C. 3712(e), which allows FMS to collect
reclamation debts by directing a Federal Reserve Bank to withhold
credit from a debtor bank presenting Treasury checks for ultimate
charge to the account of the United States Treasury. By presenting
Treasury checks for payment, presenting banks are deemed to authorize
this offset.
Previous NPRMs. NPRM I, published May 30, 1997 (62 FR 29314), which
was a re-issuance of a notice originally published on September 21,
1995 (60 FR 48940), addressed four issues: (1) Setting the time for FMS
to conduct its first examination of Treasury checks at 150 days; (2)
superseding Federal common law by apportioning the risk of loss on
checks bearing a forged drawer's signature, including counterfeit
checks, to presenting banks; (3) authorizing Federal Reserve Banks to
intercept checks payable to deceased payees and return them unpaid to
depositary banks; and (4) making definitions in Part 240 consistent
with other FMS regulations.
FMS did not require commenters to resubmit comments originally
submitted in response to the notice published on September 21, 1995;
all comments received in response to that notice were treated as
responses to NPRM I. FMS received a total of 24 comments on NPRM I.
Eight responses were received from individual banks, three from banking
associations, two from clearinghouse associations, five from credit
unions and credit union organizations, and one from a Federal Reserve
Bank. Five of the respondents provided comments in response to both
notices.
On May 24, 2002, FMS issued an Interim Rule (67 FR 36517)
(hereinafter ``Interim Rule'') which revised 31 CFR Part 240 to
incorporate procedures relating to TCO, a new debt collection tool
established by the Debt Collection Improvement Act of 1996 (DCIA),
Public Law 104-134, Title III, section 31001(d)(4). Under that
authority, Treasury is authorized to collect certain debts, owed to the
Treasury by financial institutions presenting Treasury checks to a
Federal Reserve Bank, by directing Federal Reserve Banks to withhold
credit from such presenting banks.
NPRM II addresses all of the issues discussed in NPRM I, as well as
issues not previously raised. It also incorporates the substance of the
Interim Rule. In particular, NPRM II codifies existing procedures
whereby presenting banks can administratively protest a Treasury
decision to decline final payment of a particular check. The proposal
also clarifies that the reclamation protest procedures at Sec. 240.8,
must be exhausted before a civil suit may be filed against Treasury.
Under Sec. 10(c) of the Administrative Procedure Act, 5 U.S.C. 704, an
agency action is not judicially reviewable until it becomes final. The
Supreme Court, in interpreting this section, has held that an agency
action is final, and therefore subject to judicial review, unless the
agency rule expressly requires exhaustion of administrative remedies as
a prerequisite to judicial review. See, e.g., Darby v. Cisneros, 509
U.S. 137 (1993). Treasury is adding language that makes it clear that
reclamation decisions are not final until the protest procedures have
been exhausted.
In addition, NPRM II expands the use of powers of attorney as a
basis for negotiating Treasury checks by allowing them to be used in
more instances, and by eliminating the requirement that a specific
Treasury power of attorney form be used. Finally, NPRM II clarifies
Treasury regulations relating to the charging of administrative costs,
penalties and interest when payments of reclamations are not submitted
timely.
Given the passage of time since the issuance of NPRM I and the
comprehensive nature of the revisions included in NPRM II, comments
provided in response to NPRM I, including those provided in response to
the NPRM issued on September 21, 1995, will not be considered as
comments submitted in response to NPRM II. Those wishing to comment on
NPRM II must provide written comments by the date indicated.
Structure of Part 240
This revision alters the structure of Part 240 by: (1) Moving
existing provisions relating to limitations on payments from Sec. Sec.
240.3(a) and (b) to Sec. 240.4, and Sec. Sec. 240.3(c) through (e) to
Sec. 240.5; (2) moving existing provisions relating to guarantees of
indorsement from Sec. 240.5 to Sec. 240.3; (3) deleting existing
rules governing the release of original checks from Sec. 240.10, and
substituting new provisions governing TCO at Sec. 240.10; (4) moving
existing rules governing reclamations of amounts of paid checks from
Sec. 240.6 to Sec. 240.7; (5) moving rules governing reclamation
demand and protest from Sec. 240.7 to Sec. 240.8; (6) moving rules
governing offset from Sec. 240.8 to Sec. 240.9; (7) adding new rules
at Sec. 240.6 governing declination protests; (8) moving existing
rules governing the processing of checks from Sec. 240.9 to Sec.
240.11; (9) moving existing rules relating to the indorsement of checks
by payees from Sec. Sec. 240.11(a) through (e) to Sec. 240.12, and
specific rules regarding Social Security checks from Sec. 240.11(f) to
Sec. 240.14; (10) redesignating rules currently promulgated at
Sec. Sec. 240.12 through 240.15 to Sec. Sec. 240.13 through 240.16;
(11) adding new rules relating to the lack of authority for financial
institutions to shift liability at Sec. 240.17; (12) adding new
provisions relating to implementing instructions at Sec. 240.18; and
(13) deleting appendix A to part 240 (Standard Forms for Power of
Attorney and Their Application).
Summary of Substantive Changes
1. Time for first examination. As stated in the current Part 240,
Treasury has the usual right of a drawee to examine checks presented
for payment and to refuse payment of any check. The current rule states
that Treasury has a reasonable amount of time to make such examination.
As indicated in the preamble to NPRM I, Treasury has tried to
develop a policy which allows itself the time necessary to perform the
functions required to complete first examination, while meeting the
desire of the financial community for a date certain after which all
Treasury payments are final. In NPRM I, Treasury attempted to address
the concerns of the financial community by defining the term ``first
examination'' and providing a date certain after which all payments
would be deemed paid. NPRM I set that date at 150 days from the date
that a check is presented to a Federal Reserve Bank for payment.
Comments on this issue varied widely among the respondents. Six
responses
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recommended that FMS adopt the commercial rule of midnight of the next
business day, while five responses recommended maintaining the current
``reasonable time'' standard. Of those suggesting alternatives to the
150 day time frame, four respondents recommended 30 days and one
suggested 90 days. One respondent recommended an approach incorporating
both a ``reasonable time'' standard and a date certain after which
payment would be final regardless of case-specific problems. This rule
adopts the latter approach.
Under the provisions of Sec. 240.5 of NPRM II, Treasury retains
the right of a drawee to examine checks presented for payment, to
reconcile checks, and, when appropriate, to direct a Federal Reserve
Bank to decline payment of any check. Treasury shall have a reasonable
amount of time to complete first examination. All payments are
provisional until first examination is completed, and, as stated in the
definition of provisional credit at Sec. 240.2 of NPRM II, may be
reversed by Treasury until the completion of first examination or final
payment is deemed made pursuant to Sec. 240.5(d) of NPRM II. As
provided in the definition of first examination at Sec. 240.2 of NPRM
II, the amount of time necessary to complete first examination will be
a function of the procedures deemed appropriate in specific
circumstances to determine whether a check presented for payment bears
a material defect or alteration or a forged drawer's signature. Under
Sec. 240.5(d) of NPRM II, if Treasury has not declined payment within
90 days after the check has been processed for payment by a Federal
Reserve Processing Center, Treasury will be deemed to have made final
payment on the check.
While FMS understands the desire of the financial community to
operate under a single set of rules that are applicable to commercial
checks and Treasury checks, adopting a midnight of the next business
day standard is not operationally feasible. As stated previously,
Treasury is not the only Federal agency to issue Treasury checks.
Treasury issues payments for a majority of Executive Branch agencies,
but some agencies, including the military departments and the U.S.
Marshal's Office, also have statutory authority to issue Treasury
checks. Some other agencies have a delegation of authority from the
Secretary of the Treasury to issue Treasury checks. It is not possible
for Treasury to receive check issue records from all non-Treasury
disbursing officials in time for Treasury to take even the most
rudimentary steps to establish the authenticity and integrity of all
such Treasury checks before midnight of the next business day. The
volume of checks issued (e.g., 362 million checks in fiscal year 2001)
and the number of agencies involved necessitate a standard different
from that applied to commercial checks.
Further, the ``midnight rule'' was specifically rejected by the
Ninth Circuit Court of Appeals in Bank of America v. Federal Reserve
Bank of San Francisco, 349 F.2d 565 (9th Cir. 1965), cert. denied, 382
U.S. 984 (1966). In that case, the Court determined that Treasury
regulations stating that checks are deemed paid ``upon first
examination'' necessarily implied that ``the Treasurer is to have
sufficient time within which to conduct first examination.'' The Court
also concluded that first examination included examination for forged
indorsements, forged signature of the drawer, raised amounts, and other
material defects. Current Treasury regulations codified at Part 240 and
these proposed revisions to those regulations ensure that Treasury has
sufficient time to make such examinations.
2. Apportionment of risk. Since the issuance of NPRM I in 1997,
Treasury has continued to improve internal processes, as well as
coordination with the various non-Treasury entities that issue Treasury
checks, to improve the efficiency of the check payment system. As a
result, Treasury is able to complete first examination on most checks
in less than 30 days, and has been able to reduce the amount of time
necessary to complete first examination in problem cases from 150 days
to 90 days. However, Treasury also understands that despite everyone's
best efforts, there will be instances where Treasury will be unable to
complete first examination within the 90 day time frame, and losses
will arise. In NPRM I, Treasury clearly stated that if a material
defect or alteration were discovered after final payment had been made,
Treasury would reclaim in instances involving forged drawers'
signatures, double forgeries (checks bearing both a forged drawer's
signature and a forged indorsement), and counterfeit checks. NPRM II
takes a different approach. In this proposed rule, Treasury will
reclaim after final payment only in those instances where an indorser
has breached one of the presentment guarantees listed in Sec. 240.3.
As a consequence, this proposed rule allocates losses in specific
circumstances as follows:
a. Checks bearing a forged or unauthorized indorsement. Treasury
will reclaim on a check if it determines, after final payment, that a
check was negotiated over a forged or unauthorized indorsement. In such
cases, the basis for Treasury's claim would be a breach of the
guarantee of indorsements at 31 CFR 240.3(a).
b. Checks that have been altered. Treasury will reclaim on a check
if it determines, after final payment, that a check has been materially
altered. In such cases, the basis for Treasury's claim would be a
breach of the guarantee of alterations at 31 CFR 240.3(b).
c. Checks bearing a forged drawer's signature. After final payment,
Treasury will not reclaim on a check bearing a forged drawer's
signature unless there is evidence that the reclamation debtor had
knowledge that the drawer's signature was forged or unauthorized. In
such instances, the basis for Treasury's claim would be a breach of the
guarantee of drawer's signature at 31 CFR 240.3(c). This provision also
applies to a check bearing both a forged drawer's signature and a
forged indorsement.
d. Counterfeit checks. After final payment, Treasury will not
reclaim on a counterfeit check unless the reclamation debtor has failed
to make all reasonable efforts to ensure that a check is an authentic
Treasury check and not a counterfeit check. Guidance regarding specific
attributes, such as the security features on a check, that financial
institutions must verify in order to ensure that they have made all
reasonable efforts to ensure the authenticity of a Treasury check, will
be provided by Treasury or on Treasury's behalf. In instances where
Treasury determines that a reclamation debtor has failed to make all
such reasonable efforts, the basis for Treasury's claim would be a
breach of the guarantee of authenticity at 31 CFR 240.3(d).
In allocating the risk of loss in this manner, Treasury is
cognizant of relevant case law in this area. In particular, the holding
in United States v. Chase National Bank, 252 U.S. 485 (1920), which
relied on the English case of Price v. Neal, 97 Eng. Rep. 871, 3 Burr.
1354 (1762), was that, after final payment, Treasury generally cannot
recover on a Treasury check bearing the forged signature of a drawer,
including those situations when such a check also bears a forged
indorsement on the back (often referred to as a double forgery). In
this proposed rule, Treasury does not alter the allocation of risk for
losses involving forged drawers' signatures on authentic Treasury
checks. However, this proposed rule does supersede the holding in Chase
National Bank to the extent that the opinion applies to
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counterfeit checks. In Treasury's view, this is a logical distinction
which places the ultimate risk of loss on the party with the best
opportunity to discover a counterfeit. As noted by the Court in Chase
National Bank, when an authentic Treasury check bearing a forged
drawer's signature is paid, it is proper to allocate the loss to the
drawee bank because it is incumbent on the drawee to know the drawer's
signature, and there can be no recovery from an innocent holder not
chargeable with fault. In the context of an authentic Treasury check
bearing a forged drawer's signature, this proposed rule recognizes
that, absent actual knowledge that the drawer's signature is forged, a
depositary bank generally has no basis for questioning the drawer's
signature. That is not the case with counterfeit checks. Treasury
checks include numerous security features which can be used to quickly
detect most counterfeit checks. One example is the watermark. Every
authentic Treasury check carries a watermark and includes, on the back,
the statement, ``WARNING--DO NOT CASH CHECK WITHOUT NOTING WATERMARK *
* * HOLD TO LIGHT TO VERIFY WATERMARK.''
Despite such security features, some counterfeit checks will go
undetected during first examination and will be deemed paid under Sec.
240.5(d) of NPRM II. Only in those situations where the depositary bank
fails to act with reasonable care when accepting a Treasury check will
the risk of loss be shifted from the Government to the depositary bank.
An example would be a situation where the depositary bank ignores the
warning to verify the watermark. Treasury will reclaim on a counterfeit
check if it determines that the counterfeit check does not have a
watermark.
In recognition of the United States Court of Federal Claims
decision in ABN AMRO Bank, N.V. v. United States, 34 Fed. Cl. 126
(1995), which held that Treasury had failed to act in a manner which
made evident an intent to modify by regulation the holdings of United
States v. Chase National Bank and Price v. Neal, NPRM II explicitly
supercedes common law to the extent that such law applies to
counterfeit checks. Treasury is cognizant of relevant United States
Supreme Court precedent interpreting the common law in this area and,
by this regulation, removes any ambiguity regarding Treasury having
supplanted that common law. In so acting, Treasury relies on the
Secretary's general rulemaking authority, 31 U.S.C. 321, as well as the
specific statutory authority of the Secretary to prescribe regulations
governing the payment of drafts, found at 31 U.S.C. 3328(e).
3. Deceased payee check intercepts. As noted in NPRM I, where a
payment has been issued and negotiated after a payee's death, Treasury
historically has recovered funds associated with payment from financial
institutions through the reclamation process. In response to concerns
raised by financial institutions that reclamation actions generally
occur only after final payment has been made and most, if not all, of
the funds have been withdrawn from depositor accounts, Treasury,
working with Federal Reserve Banks, developed procedures whereby checks
can be intercepted when a payment has been issued and negotiated after
a payee's death. Under these procedures, the intercept will take place
in situations where an agency has advised Treasury via an unavailable
check cancellation (UCC) that the payee is deceased and not entitled to
the payment. Checks associated with such payments will be intercepted
upon presentment to a Federal Reserve Processing Center. The check will
be stamped ``Not Negotiable Payee Deceased/Not Entitled Questions--
Contact Authorizing Agency'' and will be returned unpaid before
financial institutions are required under Federal Reserve Regulation CC
(12 CFR Part 229) to make funds permanently available to their
depositors. The provisions in Sec. 240.14(c) of the proposed rule
codify procedures that already have been implemented and which should
result in fewer payments to non-entitled payees. If the UCC is received
after the check has been presented for payment, Treasury will recover
the funds associated with the payment from financial institutions
through the reclamation process.
4. Declination protests. The current Part 240 does not include
provisions relating to protests of Treasury decisions to decline
payment of a check. NPRM II includes such procedures at Sec. 240.6
(Declination protest). Treasury's promulgation of declination protest
procedures serves two purposes: (1) Providing public notice of the
opportunity for a presenting bank to protest a declination; and (2)
establishing an administrative adjudication process for declination
protests. The new protest provisions for declinations formalize
procedures which allow a presenting bank to protest a declination and,
under certain circumstances, to receive back the original amount of the
check issued by a United States disbursing officer.
In order to receive back such amounts, a presenting bank must be
able to provide sufficient, credible evidence that the factual basis
for the declination was in error. For example, if Treasury declined
payment of a check upon determining during first examination that the
amount of the check had been altered from $400 to $4,000, the
presenting bank, to succeed in its protest, would have to provide
sufficient, credible evidence that the check, in fact, was issued in
the amount of $4,000. Consistent with the recent decision by the United
States Court of Appeals for the Federal Circuit in Casa de Cambio
Comdiv S.A. de C.V. v. U.S., 291 F.3d 1356 (Fed. Cir. 2002), Sec.
240.6 of NPRM II also clarifies that protests may be filed only by the
presenting bank, and not by other indorsers on the check that is the
subject of the declination.
5. Use of debt collection tools in the collection of reclamation
debts.
a. Collection of reclamation debts. Existing rules, codified at
Sec. 240.6, provide the framework for the collection process for
amounts relating to checks that, after final payment by Treasury, are
determined to have been negotiated over a forged or unauthorized
indorsement or contain a material defect or alteration. Under the
current rule, the reclamation process includes the following debt
collection tools: (1) Issuance of a demand letter, referred to as a
``REQUEST FOR REFUND (CHECK RECLAMATION)''; (2) collection of interest,
late payment penalties and administrative collection costs; (3) follow-
up on the initial demand with at least three monthly interest billing
statements including outstanding balances and notices of subsequent
collection actions; (4) referral to other Federal agencies for
administrative offset; and (5) any other actions necessary to protect
the interests of the United States should debt collection tools (1)-(4)
fail. Since the issuance of the Interim Rule on May 24, 2002, the
current rule has also included provisions relating to TCO, a debt
collection tool authorized by the DCIA. The DCIA authorizes Treasury to
collect amounts owed to the Treasury by presenting banks, i.e.,
financial institutions presenting Treasury checks to the Federal
Reserve for payment by the United States. Under TCO, Treasury will
direct a Federal Reserve Bank to withhold credit from such presenting
banks and, instead, use the funds to satisfy a presenting bank's debt
to the Treasury. In accordance with the DCIA, Treasury will collect by
means of TCO only if efforts to collect by means of Reclamation and
Administrative Offset are unsuccessful. This proposal revises the
current provisions in a number of ways.
[[Page 20050]]
First, the rules currently promulgated at Sec. 240.6 are
redesignated as Sec. 240.7. These rules still include the basic
provisions governing Treasury's initial demand for payment.
Second, NPRM II moves the TCO provisions from Sec. 240.9 to Sec.
240.10.
Third, NPRM II revises the Administrative Offset provisions
(redesignated as Sec. 240.9) to incorporate DCIA provisions requiring
United States Disbursing Officers to offset debts referred by creditor
agencies against payments to the debtors which a certifying agency has
certified for payment to the Disbursing Officer.
Fourth, redesignated Sec. 240.7 is revised to clarify that
reclamations are due on the reclamation date. This continues current
Treasury policy which is not stated explicitly in the current
regulation. This section is revised further to clarify the types of
charges that will be added to the reclamation amount, when those
amounts will accrue, and how the amounts will be calculated. NPRM II
clarifies that Treasury policy is to add such costs in accordance with
31 U.S.C. 3717, and the Federal Claims Collection Standards (FCCS) (31
CFR Parts 900-904).
In accordance with 31 CFR 901.9, Treasury waives administrative
costs during the first days following the date of delinquency based on
a determination that collection of administrative costs during the
first 60 days following the reclamation date would be against equity
and good conscience. This policy provides indorsers with a reasonable
amount of time to consider the reclamation, conduct any necessary
research, and either pay the reclamation or protest it. For the same
reasons, Treasury will apply the same policy to interest and penalties,
except that penalties will be waived for the first 90 days following
the reclamation date. Specifically, paragraph 240.7(d), as revised,
provides that: (1) Interest begins accruing at the rate determined
under 31 U.S.C. 3717 on the 61st day following the reclamation date;
(2) penalties, calculated at not more than 6% of the outstanding
balance, begin accruing on the 91st day following the reclamation date;
and (3) administrative costs begin accruing on the 61st day following
the reclamation date. The definition of Monthly Statement at Sec.
240.2 of NPRM II also is revised to clarify that such statements will
include unpaid interest, penalties, and administrative costs.
Fifth, former paragraphs (c) and (d) of Sec. 240.6 are moved to
Sec. 240.7 of NPRM II. The substance of current paragraph (c) is
incorporated in paragraph (d) of Sec. 240.7 of NPRM II, and the
substance of current paragraph (d) is incorporated in paragraph (a) of
Sec. 240.7 of NPRM II. New paragraph 240.7(e) of NPRM II provides
notice that, should all efforts to collect an unpaid reclamation be
unsuccessful, Treasury will terminate collection action on the unpaid
balance of the reclamation (including unpaid interest, administrative
costs, and penalties), and the unpaid balance will be reported to the
Internal Revenue Service as discharged indebtedness in accordance with
26 U.S.C. 6050P.
b. Reclamation procedures and protests. Reclamation protest rules,
currently promulgated at Sec. 240.7 (Demand and Protest), provide: (1)
That a presenting bank may file a protest within 90 days of the
reclamation date; (2) that the protest will be reviewed by a division
director or an authorized designee, neither of whom was involved in the
initial determination of fraudulent indorsement or alteration of the
check; and (3) that Treasury will refrain from collection by means of
administrative offset while a timely protest is being considered.
NPRM II moves these provisions to Sec. 240.8 (Reclamation
procedures; reclamation protests), and proposes that the existing
reclamation procedure and protest provisions be revised to clarify
certain current practices. Specifically, the proposal clarifies the
rights of any indorser that directly receives a reclamation (i.e., the
``reclamation debtor''), including, but not limited to: (1) The right
to inspect and copy Treasury records relating to the reclamation; (2)
the right to protest the reclamation; and (3) the right to seek a
repayment agreement. Paragraph 240.8(b)(1)(i) of NPRM II reiterates the
requirement in the current Part 240 that Treasury will not consider
protests received more than 90 days after the reclamation date. In
addition, the monthly statements will provide notice that Treasury
intends to collect the debt through administrative offset if the
reclamation debt is not paid within 120 days of the reclamation date.
Consistent with the recent decision by the United States Court of
Appeals for the Federal Circuit in Casa de Cambio Comdiv S.A. de C.V.
v. U.S., 291 F.3d 1356 (Fed. Cir. 2002), paragraph 240.8(b)(1) of NPRM
II also clarifies Treasury policy that protests may be filed only by
the recipient of the reclamation, the ``reclamation debtor,'' and not
by other indorsers of the check that is the subject of the reclamation.
Protests by an indorser that was not the direct recipient of a
reclamation will be accepted only where authorized by law. While
paragraph 240.8(b)(1)(ii) of NPRM II provides Treasury with the
discretion to consider information received by indorsers other than the
reclamation debtor, any decision by Treasury to exercise such
discretion would not, in any way, serve to waive any of Treasury's
rights under Part 240, nor would it serve to grant rights to an
indorser not otherwise provided in Part 240.
In addition, redesignated paragraph 240.8(c) of NPRM II requires
that a protest by the reclamation debtor be filed and a final
determination on the protest be issued by Treasury before the
reclamation debtor may file a civil lawsuit in relation to Treasury's
reclamation action on the check.
6. Use of powers of attorney in indorsing Treasury checks.
Limitations on the use of powers of attorney for negotiating checks
currently are codified in Sec. 240.15. These limitations allow any
check to be negotiated under a specific power of attorney which is
executed after the issuance of the check and which describes the check
in full. General powers of attorney executed in favor of individuals,
financial institutions, or other entities may be used to negotiate
certain enumerated checks, the right to which does not expire upon the
death of the payee/beneficiary. Other types of checks, such as
recurring benefit payments, may be negotiated under a special power of
attorney that is executed in favor of a financial institution as
attorney-in-fact and which states that it is not given to carry into
effect an assignment of the right to receive the payment, either to the
attorney-in-fact or to any other person. As revised, the rules will
change the availability of powers of attorney in the following ways.
a. The proposed rule expands the availability of special powers of
attorney by allowing such powers of attorney to be executed in favor of
any entity or individual, rather than only financial institutions.
However, as is current practice, paragraph 240.16(c) of NPRM II
provides that special powers of attorney may be utilized only if they
specifically state that they are not being executed with the intent of
assigning the right of payment to the attorney-in-fact or to any other
person.
b. The proposed rule allows durable special powers of attorney and
springing durable special powers of attorney to be used to negotiate
classes of checks the right to which expires upon the death of the
payee/beneficiary. This includes checks for recurring benefit payments.
A durable special power of attorney is a power of attorney that
explicitly provides for its continued effect despite the later
incompetence of the principal. A springing durable special power of
[[Page 20051]]
attorney is similar to a durable special power of attorney in that it
survives the principal's incompetence, but differs in that it does not
become effective until such time that the principal is determined to be
incompetent. A springing durable special power of attorney is created
by the principal's use of words explicitly stating that the power of
attorney is to become effective upon a determination that the principal
is incompetent. The proposed rule allows durable special powers of
attorney and springing durable special powers of attorney to be used
for a period of six months following the date that a payee/beneficiary
of a check is determined to be incompetent.
The new provisions at Sec. Sec. 240.13 and 240.16(d) and (e) of
NPRM II are intended to serve as a six-month bridge from the time a
payee/beneficiary is determined to be incompetent until a guardian or
other fiduciary is named. As with special powers of attorney, durable
special powers of attorney and springing durable special powers of
attorney may be executed in favor of an individual, a financial
institution or any other entity as attorney-in-fact, but must state
that they are not given to carry into effect an assignment of the right
to receive payment, either to the attorney-in-fact or to another
person. Durable special powers of attorney and springing durable
special powers of attorney automatically are revoked, for purposes of
negotiating Treasury checks, upon the death of the payee/beneficiary.
c. The proposed rule deletes Appendix A to Part 240 which discusses
the various Treasury power of attorney forms. Negotiating checks under
a power of attorney no longer will require the use of a Treasury power
of attorney form. Individual powers of attorney now will be governed by
applicable law to the extent that such powers of attorney are
consistent with the limitations provided in this Part, including, but
not limited to, the following: (1) That special powers of attorney,
durable special powers of attorney, and springing durable special
powers of attorney must include a recitation that the power of attorney
is not executed to effect an assignment of the right to receive payment
either to the attorney-in-fact or to any other person; and (2) that for
purposes of negotiating checks covered by this Part, all powers of
attorney automatically are revoked upon the death of the beneficiary of
the check.
d. Current paragraphs 240.16(f), (g) and (h) are deleted. They no
longer are necessary because the descriptions of the types of powers of
attorney all require that powers of attorney be executed in accordance
with applicable Federal or state law.
7. Definitions. Section 240.2 is amended by adding a definition of
``disbursing official.'' This definition is necessary due to revisions
to redesignated Sec. 240.9 (Offset) of NPRM II which allow Treasury to
refer delinquent debts to any disbursing official of the United States
for offset. The definition of ``protest'' has been deleted, and the
substance of the definition moved to the protest provisions in
Sec. Sec. 240.6 and 240.8 of NPRM II. The definitions of the terms
``commissioner'' and ``item'' were deleted because the terms are not
used in NPRM II.
The definition of ``unauthorized indorsement'' is amended to
clarify that it includes forged as well as unauthorized indorsements.
As such, the proposed rule uses the term ``forged or unauthorized
indorsement,'' and specifically states that it includes situations
where the payee's name is signed by another without the authority to do
so. The definition is also amended by deleting the reference to 31 CFR
Part 209, which was removed from the CFR on December 27, 1996 (61 FR
68155-01). Other definitions were added to improve the readability of
Part 240.
8. Other changes. The substance of current paragraph 240.3(a)(2)
has been moved to paragraph 240.4(a)(1) of NPRM II and has been revised
by deleting the language ``unless it is negotiated to a financial
institution no later than October 1, 1990.'' The deleted language
pertains to checks that were outstanding at the time Part 240 was
revised and provided notice that the Secretary of the Treasury, in
accordance with 31 U.S.C. 3328(a), would not be required to pay such
checks if they were not negotiated by the specified date. Due to the
passage of time, the deleted language no longer is necessary.
Similarly, the language in current paragraph 240.4(b) is deleted
because it relates to the cancellation of checks that were issued
before October 1, 1989, and had not been negotiated within 12 months.
The deleted language no longer is necessary because all such checks
have been paid or canceled pursuant to law.
Redesignated paragraphs 240.8(b) and 240.13(b) of NPRM II are
revised to update addresses. In addition, Sec. 240.8 is revised to
clarify that a reclamation may be sent to any indorser, not just
financial institutions in general or presenting banks in particular.
Section 240.8 also is revised to clarify that monthly statements will
include all outstanding amounts including unpaid portions of the
original claim, interest, penalties, and administrative costs. (See
definitions of ``reclamation debt'' and ``reclamation debtor'' in Sec.
240.2 of NPRM II.)
The substance of current Sec. 240.10, concerning the release of
original checks, is deleted in order to reflect Treasury's practice of
not releasing original checks to indorsers. Paragraph 240.11(a)(5) of
NPRM II authorizes a Federal Reserve Bank to release a copy of a check
to the indorser.
Redesignated Sec. 240.11 includes the substance of current Sec.
240.9 (Processing of checks). The substance of these rules is revised
to clarify that depositaries outside the United States are to make
reclamation refunds by checks drawn on or payable through U.S.
financial institutions located in the United States, not by making a
deposit directly to Treasury's General Account. Reclamation refunds
initiated by banks outside the United States shall be sent through
their headquarters or U. S. correspondent bank only. The proposed rule
also clarifies that all reclamation refunds should be accompanied by
documentation identifying the check that was the subject of the
reclamation (such as a copy of the reclamation notice or the current
monthly statement).
Redesignated Sec. 240.12 of NPRM II is revised to clarify that no
check drawn in favor of a financial institution for credit to the
account of a payee may be negotiated after the death of a payee.
New Sec. 240.19 of NPRM II incorporates a general reservation of
rights provision.
Rulemaking Analysis
Executive Order 12866
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.
Clarity of Regulations
Executive Order 12866 and the President's memorandum of June 1,
1998, require each agency to write all rules in plain language. We
invite your comments on how to make this proposed rule easier to
understand. For example:
[sbull] Have we organized the material in this proposed rule to
suit your needs?
[sbull] Are the requirements in the proposed rule clearly stated?
[sbull] Does the rule contain technical language or jargon that
isn't clear?
[sbull] What else could we do to make this proposed rule easier to
understand?
Please send any comments you have on the clarity of this proposed
rule to the address specified in the ADDRESSES section.
[[Page 20052]]
Regulatory Flexibility Act
It is hereby certified pursuant to the Regulatory Flexibility Act
that this revision, if adopted, will not have a significant impact on a
substantial number of small business entities. The major revisions to
Part 240 in this proposed regulation incorporate recent statutory
changes, or revise current agency practices relating to implementation
of FCCS requirements. Specifically, the provisions concerning
collection procedures do not create, in and of themselves, new debt
collection tools, impose new fees not authorized by law, or otherwise
create new limits on the rights of affected parties, including small
business entities. The provisions concerning the referral of delinquent
debts to other agencies or United States disbursing officials, and the
provisions concerning the collection of delinquent debts by means of
TCO, are all in furtherance of specific authorities established by the
DCIA. In particular, the DCIA provides that, ``By presenting Treasury
checks for payment a presenting bank is deemed to authorize this
offset.'' 31 U.S.C. 3712(e). Consequently, any economic impact on small
entities will be the result of the application of the statute, rather
than a direct result of Treasury regulations.
The provisions relating to how and when penalties and
administrative costs will be added to delinquent debts represent a
change in Treasury policy relating to implementation of the
requirements of the FCCS. While the change in policy may result in some
additional costs to some small entities, any such additional costs will
be the result of Treasury's compliance with the requirements of the
FCCS, and not a direct result of this regulation. Further, the impact
of the change in policy will not be significant, because the costs are
waived for those who pay within 60 days of the date of reclamation and
such costs will be incurred only by those who fail to pay a reclamation
in a timely fashion.
Provisions relating to declinations clarify existing Treasury
practices concerning the processing of checks determined to include a
material defect or alteration prior to Treasury's making final payment
on a check. Including such provisions benefits financial institutions,
as well as the general public, by providing notice of how and when
actions by Treasury to decline final payment may be protested.
Finally, while provisions in this rule supercede existing Federal
common law to the extent that such law applies to counterfeit checks,
and may result in a shift in liability for losses associated with
counterfeit checks, the actual amounts involved are expected to be
minimal. An analysis of Treasury statistics for calendar year 2001
indicates that of 95 counterfeit checks presented to Treasury for
payment, only one such counterfeit item took more than 30 days to
detect. In that instance, the item was detected on the 105th day
following presentment. Even in that instance, under the proposed rule,
liability for the loss would be shifted to an indorser only if it were
determined that the indorser breached the guarantee of authenticity in
Sec. 240.3(d) by failing to make all reasonable efforts to ensure that
the check was authentic. Consequently, the provisions relating to
liability for losses resulting from the payment of counterfeit checks
is not expected to have a significant impact on a substantial number of
small entities. Accordingly, a Regulatory Flexibility Analysis is not
required.
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.
List of Subjects in 31 CFR Part 240
Banks, Banking, Checks, Counterfeit checks, Federal Reserve system,
Forgery, Guarantees.
Authority and Issuance
For the reasons stated in the preamble, Part 240 of title 31 is
proposed to be revised to read as follows:
PART 240--INDORSEMENT AND PAYMENT OF CHECKS DRAWN ON THE UNITED
STATES TREASURY
Subpart A--General Provisions
Sec.
240.1 Scope of regulations.
240.2 Definitions.
240.3 Presentment guarantees.
240.4 Limitations on payment; cancellation and distribution of
proceeds of checks.
240.5 Provisional credit; first examination; declination; final
payment.
240.6 Declination protest.
240.7 Reclamation of amounts of paid checks.
240.8 Reclamation procedures; reclamation protests.
240.9 Offset.
240.10 Treasury Check Offset.
240.11 Processing of checks.
Subpart B--Indorsement of Checks
240.12 Indorsement by payees.
240.13 Checks issued to incompetent payees.
240.14 Checks issued to deceased payees.
240.15 Checks issued to minor payees.
240.16 Powers of attorney.
240.17 Lack of authority to shift liability.
240.18 Implementing instructions.
240.19 Reservation of rights.
Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 321, 3327,
3328, 3331, 3334, 3343, 3711, 3712, 3716, 3717; 332 U.S. 234 (1947);
318 U.S. 363 (1943).
Subpart A--General Provisions
Sec. 240.1 Scope of regulations.
(a) The regulations in this part prescribe the requirements for
indorsement and the conditions for payment of checks drawn on the
United States Treasury. These regulations also establish procedures for
collection of amounts due the United States Treasury based on claims
arising from the breach of presentment guarantees by presenting banks
and other indorsers of Treasury checks when checks bearing material
defects or alterations or forged disbursing officer (drawer) signatures
are presented for payment and are paid.
(b) Standards contained in this regulation supersede existing
Federal common law to the extent that they are inconsistent with
Federal common law rules relating to counterfeit checks. Under the
provisions of this part, the risk of loss on certain counterfeit checks
is placed on presenting banks and other indorsers unless Treasury fails
to timely reclaim on a check payment in accordance with 31 U.S.C.
3712(a) and Sec. 240.7 of this part. Treasury will reclaim on
counterfeit checks that are deemed paid under Sec. 240.5(d) when a
presenting bank or other indorser fails to make all reasonable efforts
to ensure that a check is an authentic Treasury check.
Sec. 240.2 Definitions.
Administrative offset or offset, for purposes of this section, has
the same meaning as defined in 31 U.S.C. 3701(a)(1) and 31 CFR Part
285.
Agency means any agency, 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
United States Treasury are issued.
Certifying agency means an agency authorizing the issuance of a
payment by a disbursing official in accordance with 31 U.S.C. 3325.
Check or checks means a check or checks drawn on the United States
Treasury.
Check payment means the amount paid to a presenting bank by a
Federal Reserve Bank.
Counterfeit check means a document that purports to be an authentic
check
[[Page 20053]]
drawn on the United States Treasury, but in fact is not an authentic
check.
Days means calendar days. For purposes of computation, the last day
of the period will be included unless it is a Saturday, Sunday, or
Federal holiday; the first day is not included. For example, if a
reclamation was issued on July 1, the 90 day protest period under Sec.
240.8(b) would begin on July 2. If the 90th day fell on a Saturday,
Sunday or Federal holiday, the protest would be accepted if received on
the next business day.
Declination means the process by which Treasury refuses to make
final payment on a check, i.e., declines payment, by instructing a
Federal Reserve Bank to reverse its provisional credit to a presenting
bank.
Declination date means the date on which the declination is issued
by Treasury.
Disbursing official means an official, including an official of the
Department of the Treasury, the Department of Defense, any Government
corporation (as defined in 31 U.S.C. 9101), or any official of the
United States designated by the Secretary of the Treasury, authorized
to disburse public money pursuant to 31 U.S.C. 3321 or another law.
Drawer's signature means the signature of a disbursing official
placed on the front of a Treasury check as the drawer of the check.
Federal Reserve Bank means a Federal Reserve Bank (FRB) or a branch
of a Federal Reserve Bank.
Federal Reserve Processing Center means a Federal Reserve Bank
center that images Treasury checks for archiving check information and
transmitting such information to Treasury.
Financial institution means:
(1) Any insured bank as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make
application to become an insured bank under section 5 of such Act (12
U.S.C. 1815);
(2) Any mutual savings bank as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) or any bank which is eligible to
make application to become an insured bank under section 5 of such Act
(12 U.S.C. 1815);
(3) Any savings bank as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813) or any bank which is eligible to make
application to become an insured bank under section 5 of such Act (12
U.S.C. 1815);
(4) Any insured credit union as defined in section 101 of the
Federal Credit Union Act (12 U.S.C. 1752) or any credit union which is
eligible to make application to become an insured credit union under
section 201 of such Act (12 U.S.C. 1781);
(5) Any savings association as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813) which is an insured depositary
institution (as defined in such Act) (12 U.S.C. 1811 et seq.) or is
eligible to apply to become an insured depositary institution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.); and
(6) Any financial institution outside of the United States if it
has been designated by the Secretary of the Treasury as a depositary of
public money and has been permitted to charge checks to the General
Account of the United States Treasury.
First examination means Treasury's initial review of a check that
has been presented for payment. The initial review procedures, which
establish the authenticity and integrity of a check presented to
Treasury for payment, may include reconciliation; retrieval and
inspection of the check or the best available image thereof; and other
procedures Treasury deems appropriate to specific circumstances.
Forged or unauthorized drawer's signature means a drawer's
signature that has been placed on the front of a Treasury check by a
person other than:
(1) A disbursing official; or
(2) A person authorized to sign on behalf of a disbursing official.
Forged or unauthorized indorsement means:
(1) An indorsement of the payee's name by another person who is not
authorized to sign for the payee; or
(2) An indorsement of the payee's name made by another person who
has been authorized by the payee, but who has not indorsed the check in
accordance with Sec. 240.3 and Sec. Sec. 240.12 through 240.16; or
(3) An indorsement added by a financial institution where the
financial institution had no authority to supply the indorsement; or
(4) A check bearing an altered payee name that is indorsed using
the payee name as altered.
Guarantor means a financial institution that presents a check for
payment and any prior indorser(s) of a check.
Material defect or alteration means:
(1) The counterfeiting of a check; or
(2) Any physical change on a check, including, but not limited to,
a change in the amount, date, payee name, or other identifying
information printed on the front or back of the check (but not
including a forged or unauthorized drawer's signature); or
(3) Any forged or unauthorized indorsement appearing on the back of
the check.
Minor means the term minor as defined under applicable State law.
Monthly statement means a statement prepared by Treasury which
includes the following information regarding each outstanding
reclamation:
(1) The reclamation date;
(2) The reclamation number;
(3) Check identifying information; and
(4) The balance due, including interest, penalties, and
administrative costs.
Payee means the person that the certifying agency designated to
receive payment pursuant to 31 U.S.C. 3528.
Person means an individual, institution, including a financial
institution, or any other type of entity; the singular includes the
plural.
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 which is authorized to charge checks directly to
Treasury's General Account and present them to Treasury for payment
through a designated Federal Reserve Bank.
Provisional credit means the initial credit provided to a
presenting bank by a Federal Reserve Bank. Provisional credit may be
reversed by Treasury until the completion of first examination or final
payment is deemed made pursuant to Sec. 240.5(d).
Reclamation means a demand for the amount of a check for which
Treasury has requested an immediate refund.
Reclamation date means the date on which a reclamation is issued by
Treasury. Normally, demands are sent to presenting banks or other
indorsers within 2 business days of the reclamation date.
Reclamation debt means the amount owed as a result of Treasury's
demand for refund of a check payment, and includes interest, penalties
and administrative costs assessed in accordance with Sec. 240.7.
Reclamation debtor means a presenting bank or other indorser of a
check from whom Treasury has demanded a refund in accordance with
Sec. Sec. 240.7 and 240.8. The reclamation debtor does not include a
presenting bank or other indorser who may be liable for a reclamation
debt, but from which Treasury has not demanded a refund.
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Recurring benefit payment includes but is not limited to a payment
of money for any Federal Government entitlement program or annuity.
Treasury means the United States Department of the Treasury, or
when authorized, an agent designated by the Secretary of the Treasury
or his delegee.
Treasury Check Offset means the collection of an amount owed by a
presenting bank in accordance with 31 U.S.C. 3712(e).
U.S. securities means securities of the United States and
securities of Federal agencies and Government corporations for which
Treasury acts as the transfer agent.
Writing includes electronic communications when specifically
authorized by Treasury in implementing instructions.
Sec. 240.3 Presentment guarantees.
The guarantors of a check presented to the Treasury for payment are
deemed to guarantee to the Treasury all of the following:
(a) Indorsements. That all prior indorsements are genuine, whether
or not an express guarantee is placed on the check. When the first
indorsement has been made by one other than the payee personally, the
presenting bank and the indorsers are deemed to guarantee to the
Treasury, in addition to other guarantees, that the person who so
indorsed had unqualified capacity and authority to indorse the check on
behalf of the payee.
(b) Alterations. That the check has not been materially altered.
(c) Drawer's signature. That the guarantors have no knowledge that
the signature of the drawer is forged or unauthorized.
(d) Authenticity. That the guarantors have made all reasonable
efforts to ensure that a check is an authentic Treasury check, not a
counterfeit check.
Sec. 240.4 Limitations on payment; cancellation and distribution of
proceeds of checks.
(a) Limitations on payment. (1) Treasury shall not be required to
pay any check that is not negotiated to a financial institution within
12 months after the date on which the check was issued.
(2) All checks shall bear a legend, stating ``Void After One
Year.'' The legend is notice to payees and indorsers of a general
limitation on the payment of checks. The legend, or the inadvertent
lack thereof, does not limit, or otherwise affect, the rights of
Treasury under the law.
(b) Cancellation and distribution of proceeds of checks. (1) Any
check that has not been paid and remains outstanding for more than 12
months after the issue date will be canceled by Treasury.
(2) The proceeds from checks canceled pursuant to paragraph (b)(1)
of this section will be returned to the payment certifying or
authorizing agency for ultimate credit to the appropriation or fund
account initially charged for the payment.
(3) On a monthly basis, Treasury will provide to each agency that
authorizes the issuance of checks a list of those checks issued for
such agency which were canceled during the preceding month pursuant to
paragraph (b)(1) of this section.
Sec. 240.5 Provisional credit; first examination; declination; final
payment.
(a) Any credit issued by a Federal Reserve Bank to a financial
institution shall be a provisional credit until Treasury completes
first examination of the check, or as provided in paragraph (d) of this
section.
(b) Treasury shall have the right as a drawee to complete first
examination of checks presented for payment, to reconcile checks, and,
when appropriate, to make a declination on any check.
(c) Treasury will decline payment on a check when first examination
by Treasury establishes that the check:
(1) Has a material defect or alteration; or
(2) Bears a forged or unauthorized drawer's signature.
(d) Treasury shall have a reasonable amount of time to complete
first examination. However, except as provided in paragraph (e) of this
section, if Treasury has not declined payment on a check within 90 days
after the check is presented to a Federal Reserve Processing Center for
payment, Treasury will be deemed to have made final payment on the
check.
(e) Notwithstanding the provisions of paragraph (d) of this
section, in accordance with 31 U.S.C. 3328(a)(2), if, upon presentment
for payment, Treasury is on notice of a question of law or fact about
whether a check is properly payable, Treasury may defer final payment
until the question is settled.
(f) If a Federal Reserve Bank debits a financial institution's
reserve account as a result of an erroneous declination, Treasury will
promptly refund the amount of the payment.
Sec. 240.6 Declination protest.
(a) Who may protest. Only a presenting bank may protest the
declination of a check that it has presented to a Federal Reserve Bank
for payment.
(b) Basis for protest. Where Treasury, in accordance with Sec.
240.5, has made a declination of a check presented for payment and a
Federal Reserve Bank has reversed its provisional credit to the
presenting bank, the presenting bank may file a protest challenging the
factual basis for such declination. Protests may be filed challenging
the following determinations:
(1) Counterfeit checks. The presenting bank may offer evidence that
the check is not a counterfeit.
(2) Altered checks. The presenting bank may offer evidence that the
check is not altered.
(3) Checks bearing forged or unauthorized drawer's signatures. The
presenting bank may offer evidence that the drawer's signature was
authentic or was authorized.
(4) Checks bearing a forged or unauthorized indorsement. The
presenting bank may offer evidence that an indorsement on the back of
the check was not forged or was otherwise authorized in accordance with
the requirements of Sec. Sec. 240.12 through 240.16.
(c) Procedures for filing a protest. A declination protest must be
in writing, and must be sent to: Department of the Treasury, Financial
Management Service, Branch Manager, Financial Processing Division,
Check Reconciliation Branch, Room 700-A, 3700 East-West Highway,
Hyattsville, MD 20788, or to such other address as Treasury may publish
in the Treasury Financial Manual, which can be found at http://www.fms.treas.gov.
Treasury will not consider any protest unless it is
received within 90 days from the declination date.
(d) Review of a declination protest. The Director, Financial
Processing Division, or an authorized designee, will decide any protest
properly submitted under this section, and will notify the presenting
bank of Treasury's decision. Neither the Director, Financial Processing
Division, nor an authorized designee, will have any involvement in the
decision to deny payment of a check under Sec. 240.5.
(1) If, based on the evidence provided, the Director of the
Financial Processing Division, or an authorized designee, finds that
the presenting bank has met, by a preponderance of the evidence, the
criteria in paragraph (b) of this section, Treasury will reverse its
decision to decline payment on the check by directing a Federal Reserve
Bank to provide credit in the amount of the check to the presenting
bank.
[[Page 20055]]
(2) If, based on the evidence provided, the Director of the
Financial Processing Division, or an authorized designee, finds that
the presenting bank has failed to meet, by a preponderance of the
evidence, the criteria in paragraph (b) of this section, the
declination will not be reversed.
Sec. 240.7 Reclamation of amounts of paid checks.
(a) If, after making final payment in accordance with Sec. 240.5,
Treasury determines that any guarantor has breached a presentment
guarantee listed in Sec. 240.3, the guarantor shall be liable to
Treasury for the full amount of the check payment. Treasury may reclaim
the amount of the check payment from any such guarantor prior to:
(1) The end of the 1-year period beginning on the date that a check
is processed for payment by a Federal Reserve Processing Center; 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.
(b) Treasury will not reclaim on a check that bears a forged or
unauthorized drawer's signature unless it has evidence that the
reclamation debtor had knowledge of the forged or unauthorized drawer's
signature.
(c) Treasury will not reclaim on a counterfeit check unless the
reclamation debtor has failed to make all reasonable efforts to ensure
that a check is an authentic check and not a counterfeit check. In
general, a reclamation debtor will be deemed to have failed to make all
reasonable efforts to ensure that a check is authentic if a counterfeit
check is presented to Treasury for payment despite the fact that it
lacks one or more specific attributes outlined in guidance provided by
Treasury or on Treasury's behalf.
(d) Reclamation debts are due to be paid upon receipt of the
reclamation by the reclamation debtor. Interest, penalties, and
administrative costs associated with unpaid balances will accrue as
follows:
(1) Interest. Treasury will assess interest on the unpaid principal
of the reclamation debt beginning on the 61st day following the
reclamation date, and will calculate interest based on the rate
published annually by Treasury in accordance with 31 U.S.C. 3717.
Interest will continue to accrue until the full amount of the
reclamation is paid or Treasury determines that payment is not
required.
(2) Penalties. Treasury will assess a penalty beginning on the 91st
day following the reclamation date. The penalty will be assessed in
accordance with 31 U.S.C. 3717 on the unpaid principal of the
reclamation debt, and will continue to accrue until the full amount of
the reclamation debt is paid or Treasury determines that payment is not
required.
(3) Administrative costs. Treasury will assess administrative costs
associated with the unpaid reclamation debt beginning on the 61st day
following the reclamation date. Administrative costs will continue to
accrue until the full amount of the reclamation debt is paid or
Treasury determines that payment is not required.
(e) If Treasury is unable to fully collect a reclamation debt from
a reclamation debtor, after pursuing all appropriate means of
collection (including, but not limited to, administrative offset in
accordance with Sec. 240.9 and Treasury Check Offset in accordance
with Sec. 240.10), Treasury will discharge the unpaid reclamation
debt. See 31 CFR 903.5 (Discharge of indebtedness; reporting
requirements). Treasury or the certifying agency will report the amount
of the unpaid reclamation debt to the Internal Revenue Service in
accordance with the requirements of 26 U.S.C. 6050P and 26 CFR 1.6050P-
1.
Sec. 240.8 Reclamation procedures; reclamation protests.
(a) Reclamation procedures. (1) Treasury will send a ``REQUEST FOR
REFUND (CHECK RECLAMATION)'' to the reclamation debtor in accordance
with Sec. 240.7(a). This request will advise the reclamation debtor of
the amount demanded and the reason for the demand. Treasury will make
follow-up demands by sending at least three monthly statements to the
reclamation debtor. Monthly statements will identify any unpaid
reclamation debts (as defined at Sec. 240.2) and will contain or be
accompanied by notice to the reclamation debtor that:
(i) If the reclamation debt is not paid within 120 days of the
reclamation date, Treasury intends to collect the debt through
administrative offset in accordance with Sec. 240.9;
(ii) If the administrative offset is unsuccessful, Treasury intends
to collect the debt through Treasury Check Offset in accordance with
Sec. 240.10;
(iii) The reclamation debtor has an opportunity to inspect and copy
Treasury's records with respect to the reclamation debt;
(iv) The reclamation debtor may, by filing a protest in accordance
with Sec. 240.8(b), request Treasury to review its decision that the
reclamation debtor is liable for the reclamation debt; and
(v) The reclamation debtor has an opportunity to enter into a
written agreement with Treasury for the repayment of the reclamation
debt. A request for a repayment agreement must be accompanied by
documentary proof that satisfies Treasury that the reclamation debtor
is unable to repay the entire amount owed when due.
(2) Requests by a reclamation debtor for an appointment to inspect
and copy Treasury's records with respect to a reclamation debt and
requests to enter into repayment agreements must be sent in writing to:
Department of the Treasury, Financial Management Service, Financial
Processing Division, Reclamation Branch, Room 700D, PO Box 1849,
Hyattsville, MD 20788, or to such other address as Treasury may publish
in the Treasury Financial Manual, which can be found at http://www.fms.treas.gov
.
(3) If a reclamation debt remains unpaid for 90 days after the
reclamation date and if there is no unresolved protest associated with
the reclamation debt, the monthly statement will be annotated with a
notice that the reclamation debtor has until the next billing date to
make payment on the reclamation debt or Treasury will proceed to
collect the reclamation debt through offset in accordance with Sec.
240.9 and Treasury Check Offset in accordance with Sec. 240.10.
(4) If Treasury determines that a reclamation has been made in
error, Treasury will abandon the reclamation. If Treasury already has
collected the amount of the reclamation from the reclamation debtor,
Treasury will promptly refund to the reclamation debtor the amount of
its payment. Treasury may refund the amount either by applying the
amount to another reclamation debt owed by the reclamation debtor in
accordance with this Part or other applicable law, or by returning the
amount to the reclamation debtor.
(b) Reclamation protests. (1) Who may protest. Only a reclamation
debtor may protest a reclamation.
(2) Basis for protest. Where Treasury, in accordance with Sec.
240.7 and subsection (a) of this section, reclaims the amount of a
check payment, the reclamation debtor may file a protest challenging
such reclamation. Protests may be filed challenging the following
determinations:
(i) Counterfeit checks. The reclamation debtor may offer evidence
that it did make all reasonable efforts to ensure that a check is
authentic. Such evidence must include evidence that the
[[Page 20056]]
protestor examined the check in accordance with guidelines provided by
Treasury or on Treasury's behalf.
(ii) Altered checks. The reclamation debtor may offer evidence that
the check is not altered.
(iii) Checks bearing forged or unauthorized drawer's signatures.
The reclamation debtor may offer evidence that the reclamation debtor
did not have knowledge of the forged or unauthorized drawer's
signature.
(iv) Checks bearing a forged or unauthorized indorsement. The
reclamation debtor may offer evidence that the indorsement was not
forged or was otherwise authorized in accordance with the requirements
of Sec. Sec. 240.12 through 240.16.
(3) Procedures for filing a protest. A reclamation protest must be
in writing, and must be sent to: Department of the Treasury, Financial
Management Service, Financial Processing Division, Reclamation Branch,
Room 700D, PO Box 1849, Hyattsville, MD 20788, or to such other address
as Treasury may publish in the Treasury Financial Manual, which can be
found at http://www.fms.treas.gov.
(i) The reclamation protest must include supporting documentation
(including, but not limited to, affidavits, account agreements, and
signature cards) for the purpose of establishing that the reclamation
debtor is not liable for the reclamation debt.
(ii) Treasury will not consider reclamation protests received more
than 90 days after the reclamation date.
(iii) Treasury may, at its discretion, consider information
received from a guarantor other than the reclamation debtor. However,
in so doing, Treasury does not waive any of its rights under this part,
nor does Treasury grant rights to any guarantor that are not otherwise
provided in this Part.
(4) Review of a reclamation protest. The Director, Financial
Processing Division, or an authorized designee, will consider and
decide any protest properly submitted under this section. Neither the
Director, Financial Processing Division, nor an authorized designee,
will have any involvement in the process of making determinations under
Sec. 240.7(a) or sending a ``REQUEST FOR REFUND (CHECK RECLAMATION)''
under Sec. 240.8(a).
(i) Treasury will refrain from the collection activities identified
in Sec. Sec. 240.9 and 240.10 while a timely protest is being
considered. However, interest, penalties, and administrative costs will
continue to accrue and be added to the reclamation debt until a final
determination on the protest has been made.
(ii) If, based on the evidence provided, the Director of the
Financial Processing Division, or an authorized designee, finds that
the reclamation debtor has met, by a preponderance of the evidence, the
criteria in paragraph (b)(2) of this section, Treasury will notify the
reclamation debtor, in writing, of his or her decision to terminate
collection and will refund any amounts previously collected for the
reclamation debt. Treasury may refund the amount either by applying the
amount to another reclamation debt owed by the reclamation debtor in
accordance with this Part or other applicable law, or by returning the
amount to the reclamation debtor.
(iii) If the Director, Financial Processing Division, or an
authorized designee, finds, by a preponderance of the evidence, that
the reclamation debtor is liable for the reclamation debt, Treasury
will notify the reclamation debtor, in writing, of his or her decision.
If the reclamation debtor has not paid the reclamation in full, the
reclamation debtor must pay any outstanding amounts in full within 30
days from the date of Treasury's decision. If the reclamation debtor
fails to pay the reclamation debt in full within that time frame,
Treasury will proceed to collect the reclamation debt through offset in
accordance with Sec. Sec. 240.9 and 240.10.
(5) Effect of protest decision. The notice provided to the
reclamation debtor under paragraph (b)(4)(iii) of this section shall
serve as the final agency determination under the Administrative
Procedure Act (5 U.S.C. 701, et seq.). No civil suit may be filed until
the reclamation debtor has filed a protest under this section, and
Treasury has provided notice of its final determination.
Sec. 240.9 Offset.
(a) If a reclamation debt remains unpaid for 120 days after the
reclamation date, Treasury will refer the reclamation debt, if
eligible, to Treasury's centralized offset program (see 31 CFR part
285) or another Federal agency for offset in accordance with 31 U.S.C.
3716. Prior to making a referral for offset, Treasury, in accordance
with Sec. 240.8(a)(3), will send at least one monthly statement to the
reclamation debtor informing the reclamation debtor that Treasury
intends to collect the reclamation debt by administrative offset and
Treasury Check Offset.
(b) If a reclamation debtor wishes to make payment on a reclamation
debt referred for offset, the reclamation debtor should contact
Treasury at the address listed in Sec. 240.8(b) to resolve the debt
and avoid offset.
(c) If Treasury is unable to collect a reclamation debt by use of
the offset described in paragraph (a) of this section, Treasury shall
take such action against the reclamation debtor as may be necessary to
protect the interests of the United States, including, but not limited
to, Treasury Check Offset in accordance with Sec. 240.10, or referral
to the Department of Justice.
(d) If Treasury effects offset under this section and it is later
determined that the reclamation debtor already had paid the amount of
the reclamation debt, or that a reclamation debtor which had timely
filed a protest was not liable for the amount of the reclamation,
Treasury will promptly refund to the reclamation debtor the amount of
its payment. Treasury may refund the amount either by applying the
amount to another reclamation debt owed by the reclamation debtor in
accordance with this Part or other applicable law, or by returning the
amount to the reclamation debtor.
Sec. 240.10 Treasury Check Offset.
(a) If Treasury is unable to effect collection pursuant to
Sec. Sec. 240.7 and 240.8, or Sec. 240.9, Treasury will collect the
amount of the reclamation debt through Treasury Check Offset. Treasury
Check Offset occurs when, at the direction of the Treasury, a Federal
Reserve Bank withholds, that is, offsets, credit from a presenting
bank. The amount of credit offset is applied to the reclamation debt
owed by the presenting bank. By presenting Treasury checks for payment,
the presenting bank is deemed to authorize Treasury Check Offset.
(b) If Treasury effects offset under this section and it is later
determined that the presenting bank paid the reclamation debt in full,
or that a presenting bank was not liable for the amount of the
reclamation debt, Treasury will promptly refund to the presenting bank
the amount of its overpayment. Treasury may refund the amount either by
applying the amount to another reclamation debt in accordance with this
Part or other applicable law, or by returning the amount to the
presenting bank.
(c) Treasury Check Offset is used for the purpose of collecting
debt owed by a presenting bank to the Federal Government. As a
consequence, presenting banks shall not be able to use the fact that
Treasury checks have not been paid as the basis for a claim against
Treasury, a Federal Reserve Bank, or other persons or entities,
including payees or other indorsers of checks, for the amount of the
credit offset pursuant to 31 U.S.C. 3712(e) and this section.
[[Page 20057]]
(d) This section does not apply to a claim based upon a reclamation
that has been outstanding for more than 10 years from the date of
delinquency.
Sec. 240.11 Processing of checks.
(a) Federal Reserve Banks. (1) Federal Reserve Banks must cash
checks for Government disbursing officials when such checks are drawn
by the disbursing officials to their own order, except that payment of
such checks must be refused if:
(i) A check bears a material defect or alteration;
(ii) A check was issued more than one year prior to the date of
presentment; or
(iii) The Federal Reserve Bank has been notified by Treasury, in
accordance with Sec. 240.14(c), that a check was issued to a deceased
payee.
(2) Federal Reserve Banks are not required to cash checks presented
directly to them by the general public.
(3) As a depositary of public funds, each Federal Reserve Bank
shall:
(i) Receive checks from its member banks, nonmember clearing banks,
or other depositors, when indorsed by such banks or depositors who
guarantee all prior indorsements thereon;
(ii) Give immediate provisional credit therefore in accordance with
their current Time Schedules and charge the amount of the checks cashed
or otherwise received to the General Account of the United States
Treasury, subject to first examination and payment by Treasury;
(iii) Forward payment records, requested original checks, and
copies of checks to Treasury; and
(iv) Release the original checks to a designated Regional Records
Services Facility upon notification from Treasury.
(4) If a check is to be declined under Sec. 240.5, Treasury will
provide the Federal Reserve Bank with notice of declination upon the
completion of first examination. Federal Reserve Banks must give
immediate credit therefor to Treasury's General Account, thereby
reversing the previous charge to the General Account for such check.
(5) Treasury authorizes each Federal Reserve Bank to release a copy
of the check to the presenting bank when payment is declined.
(b) Treasury General Account (TGA) designated depositaries outside
the United States.--(1) Financial institutions outside the United
States designated by Treasury as depositaries of public money in
accordance with 31 U.S.C. 3303 and permitted to charge checks to the
General Account of the United States Treasury in accordance with
Treasury implementing instructions shall be governed by the operating
instructions contained in the letter of authorization to them from
Treasury and are, as presenting banks, subject to the provisions of
Sec. Sec. 240.3, 240.7, and 240.8.
(2) If a check is to be declined under Sec. 240.5, Treasury will
provide the presenting bank with notice of declination upon the
completion of first examination and will provide the presenting bank
with a copy or image of the check. Such presenting bank must give
immediate credit therefor to the General Account of the United States
Treasury, thereby reversing the previous charge to the Account for such
check. Treasury authorizes the designated Federal Reserve Bank to
return to such presenting bank the original check when payment is
declined in accordance with Sec. 240.4(a) or Sec. 240.14(c).
(3) To ensure complete recovery of the amount due, reclamation
refunds require payment in U.S. dollars with checks drawn on or payable
through U.S. financial institutions located in the United States.
Reclamation refunds initiated by financial institutions outside of the
United States must be sent through their headquarters or U.S.
correspondent financial institution only. The payments should be
accompanied by documentation identifying the check that was the subject
of the reclamation (such as a copy of the reclamation notice or the
current monthly statement). Reclamation refunds shall not be deposited
to Treasury's General Account.
Subpart B--Indorsement of Checks
Sec. 240.12 Indorsement by payees.
(a) General requirements. Checks shall be indorsed by the named
payee or by another on behalf of such named payee as set forth in this
part.
(b) Acceptable indorsements.--(1) A check is properly indorsed
when:
(i) The check is indorsed by the payee in a form recognized by
general principles of law and commercial usage for negotiation,
transfer or collection of negotiable instruments.
(ii) The check is indorsed by another on behalf of the named payee,
and sufficiently indicates that the indorser has indorsed the check on
behalf of the payee pursuant to authority expressly conferred by or
under law or other regulation. An example would be: ``John Jones by
Mary Jones.'' This example states the minimum indication acceptable.
However, Sec. Sec. 240.13, 240.14, and 240.16(f) specify the addition
of an indication in specified situations of the actual capacity in
which the person other than the named payee is indorsing.
(iii) Absent a signature, the check is indorsed ``for collection''
or ``for deposit only to the credit of the within named payee or
payees.'' The presenting bank shall be deemed to guarantee good title
to checks without signatures to all subsequent indorsers and to
Treasury.
(iv) The check is indorsed by a financial institution under the
payee's authorization.
(2) Indorsement of checks by a duly authorized fiduciary or
representative. The individual or institution accepting a check from a
person other than the named payee is responsible for determining
whether such person is authorized and has the capacity to indorse and
negotiate the check. Evidence of the basis for such a determination may
be required by Treasury in the event of a dispute.
(3) Indorsement of checks by a financial institution under the
payee's authorization. When a check is credited by a financial
institution to the payee's account under the payee's authorization, the
financial institution may use an indorsement substantially as follows:
``Credit to the account of the within-named payee in accordance with
the payee's instructions. XYZ [Name of financial institution].'' A
financial institution using this form of indorsement will be deemed to
guarantee to all subsequent indorsers and to the Treasury that it is
acting as an attorney-in-fact for the payee, under the payee's
authorization, and that this authority is currently in force and has
neither lapsed nor been revoked either in fact or by the death or
incapacity of the payee.
(4) Indorsement of checks drawn in favor of financial institutions.
All checks drawn in favor of a financial institution, for credit to the
account of a person designating payment so to be made, must be indorsed
in the name of the financial institution as payee in the usual manner.
However, no check drawn in favor of a financial institution for credit
to the account of a payee may be negotiated by the financial
institution after the death of the payee.
(c) Unacceptable indorsements.--(1) A check is not properly
indorsed when the check is signed or otherwise is indorsed by a person
without the payee's consent or authorization.
(2) Failure to include the signature of the person signing the
check as required by paragraph (b)(1)(ii) of this section will create a
rebuttable presumption that the indorsement is a forgery and is
unacceptable.
(3) Failure to include sufficient indication of the indorser's
authority to
[[Page 20058]]
act on behalf of the payee as required by paragraph (b)(1)(ii) of this
section will create a rebuttable presumption that the indorsing person
is not authorized to indorse a check for the payee.
Sec. 240.13 Checks issued to incompetent payees.
(a) Handling of checks when a guardian or other fiduciary has been
appointed.--(1) A guardian appointed in accordance with applicable
State law, or a fiduciary appointed in accordance with other applicable
law, may indorse checks issued for the following classes of payments
the right to which under law does not terminate with the death of the
payee: payments for the redemption of currencies or for principal and/
or interest on U.S. securities; payments for tax refunds; and payments
for goods and services.
(i) A guardian or other fiduciary indorsing any such check on
behalf of an incompetent payee, must include, as part of the
indorsement, an indication of the capacity in which the guardian or
fiduciary is indorsing. An example would be: ``John Jones by Mary
Jones, guardian of John Jones.''
(ii) When a check indorsed in this fashion is presented for payment
by a financial institution, it will be paid by Treasury without
submission of documentary proof of the authority of the guardian or
other fiduciary, with the understanding that evidence of such claimed
authority to indorse may be required by Treasury in the event of a
dispute.
(2) A guardian or other fiduciary may not indorse a check issued
for any class of payment other than one specified in paragraph (a)(1)
of this section. When a check other than one specified in paragraph
(a)(1) of this section is received by a guardian or other fiduciary,
the check must be returned to the certifying agency with information as
to the incompetency of the payee and documentary evidence showing the
appointment of the guardian or other fiduciary in order that a
replacement check, and future checks, may be drawn in favor of the
guardian or other fiduciary.
(b) Handling of checks when a guardian or other fiduciary has not
been appointed. If a guardian or other fiduciary has not been
appointed, all checks issued to an incompetent payee must be returned
to the certifying agency for determination as to whether, under
applicable law, payment is due and to whom it may be made.
(c) Handling of certain checks by an attorney-in-fact.
Notwithstanding paragraph (a)(2) of this section, if a check was issued
for a class of payments the right to which under law terminates upon
the death of the beneficiary, such as a recurring benefit payment or
annuity, the check may be negotiated under a durable special power of
attorney or springing durable special power of attorney subject to the
restrictions enumerated in Sec. 240.16. After the end of the six-month
period provided in Sec. Sec. 240.16(d) and (e), such checks must be
handled in accordance with paragraph (a)(2) of this section.
Sec. 240.14 Checks issued to deceased payees.
(a) Handling of checks when an executor or administrator has been
appointed.--(1) An executor or administrator of an estate that has been
appointed in accordance with applicable State law may indorse checks
issued for the following classes of payments the right to which under
law does not terminate with the death of the payee: payments for the
redemption of currencies or for principal and/or interest on U.S.
securities; payments for tax refunds; and payments for goods and
services.
(i) An executor or administrator indorsing any such check must
include, as part of the indorsement, an indication of the capacity in
which the executor or administrator is indorsing. An example would be:
``John Jones by Mary Jones, executor of the estate of John Jones.''
(ii) When a check indorsed in this fashion is presented for payment
by a financial institution, it will be paid by Treasury without the
submission of documentary proof of the authority of the executor or
administrator, with the understanding that evidence of such claimed
authority to indorse may be required by Treasury in the event of a
dispute.
(2) An executor or administrator of an estate may not indorse a
check issued for any class of payment other than one specified in
paragraph (a)(1) of this section. Other checks, such as recurring
benefit payments and annuity payments, may not be negotiated after the
death of the payee. Such checks must be returned to the certifying
agency for determination as to whether, under applicable law, payment
is due and to whom it may be made.
(b) Handling of checks when an executor or administrator has not
been appointed. If an executor or administrator has not been appointed,
all checks issued to a deceased payee must be returned to the
certifying agency for determination as to whether, under applicable
law, payment is due and to whom it may be made.
(c) Handling of checks when a certifying agency learns, after the
issuance of a recurring benefit payment check, that the payee died
prior to the date of issuance. (1) A recurring benefit payment check,
issued after a payee's death, is not payable. As a consequence, when a
certifying agency learns that a payee has died, the certifying agency
must give immediate notice to Treasury, as prescribed in the
implementing instructions described in Sec. 240.18. Upon receipt of
such notice from a certifying agency, Treasury will instruct the
Federal Reserve Bank to refuse payment of the check upon presentment.
Upon receipt of such instruction from Treasury, the Federal Reserve
Bank will make every appropriate effort to intercept the check. If the
check is successfully intercepted, the Federal Reserve Bank will refuse
payment, and will return the check unpaid to the presenting bank with
an annotation that the payee is deceased. If a financial institution
learns that a date of death triggering action under this section is
erroneous, the financial institution must advise the payee to contact
the payment certifying agency.
(2) Nothing in this section shall limit the right of Treasury to
institute reclamation proceedings under the provisions of Sec. Sec.
240.7 and 240.8 with respect to a check issued to a deceased payee that
has been negotiated and paid over a forged or unauthorized indorsement.
Sec. 240.15 Checks issued to minor payees.
(a) Checks in payment of principal and/or interest on U.S.
securities that are issued to minors may be indorsed by:
(1) Either parent with whom the minor resides; or
(2) If the minor does not reside with either parent, by the person
who furnishes the minor's chief support.
(b) The parent or other person indorsing on behalf of the minor
must present with the check the indorser's signed statement giving the
minor's age, and stating that the payee either resides with the parent
or receives his or her chief support from the person indorsing on the
minor's behalf and that the proceeds of the check will be used for the
minor's benefit.
Sec. 240.16 Powers of attorney.
(a) Specific powers of attorney. Any check may be negotiated under
a specific power of attorney executed in accordance with applicable
State or Federal law after the issuance of the check and describing the
check in full (check serial and symbol numbers, date of issue, amount,
and name of payee).
(b) General powers of attorney. Checks may be negotiated under a
[[Page 20059]]
general power of attorney executed, in accordance with applicable State
or Federal law, in favor of a person for the following classes of
payments:
(1) Payments for the redemption of currencies or for principal and/
or interest on U.S. securities;
(2) Payments for tax refunds, but subject to the limitations
concerning the mailing of Internal Revenue refund checks contained in
26 CFR 601.506(c); and
(3) Payments for goods and services.
(c) Special powers of attorney. Checks issued for classes of
payments other than those specified in paragraph (b) of this section,
such as a recurring benefit payment, may be negotiated under a special
power of attorney executed in accordance with applicable State or
Federal law, which describes the purpose for which the checks are
issued, names a person as attorney-in-fact, and recites that the
special power of attorney is not given to carry into effect an
assignment of the right to receive such payment, either to the
attorney-in-fact or to any other person.
(d) Durable special powers of attorney. A durable special power of
attorney is a special power of attorney which continues despite the
principal's later incompetency, and is created by the principal's use
of words explicitly stating such intent. Classes of checks other than
those specified in paragraph (b) of this section may be negotiated
under a durable special power of attorney executed in accordance with
applicable State or Federal law, which describes the purpose for which
the checks are issued, names a person as attorney-in-fact, and recites
that the special power of attorney is not given to carry into effect an
assignment of the right to receive such payment, either to the
attorney-in-fact or to any other person. For the purpose of negotiating
Treasury checks, durable special powers of attorney are effective only
during the 6-month period following a determination that the named
payee is incompetent.
(e) Springing durable special powers of attorney. A springing
durable special power of attorney is similar to a durable power of
attorney except that its terms do not become effective until the
principal's subsequent incompetence. As with a durable special power of
attorney, a springing durable special power of attorney is created by
the principal's use of language explicitly stating that its terms
become effective at such time as the principal is determined to be
incompetent. Classes of checks other than those specified in paragraph
(b) of this section may be negotiated under a springing durable special
power of attorney executed in accordance with applicable State or
Federal law, which describes the purpose for which the checks are
issued, names a person as attorney-in-fact, and recites that the
springing durable special power of attorney is not given to carry into
effect an assignment of the right to receive payment, either to the
attorney-in-fact or to any other person. For the purpose of negotiating
Treasury checks, springing durable special powers of attorney are
effective only during the 6-month period following a determination that
the named payee is incompetent.
(f) Proof of authority. Checks indorsed by an attorney-in-fact must
include, as part of the indorsement, an indication of the capacity in
which the attorney-in-fact is indorsing. An example would be: ``John
Jones by Paul Smith, attorney-in-fact for John Jones.'' Such checks
when presented for payment by a financial institution, will be paid by
Treasury without the submission of documentary proof of the claimed
authority, with the understanding that evidence of such claimed
authority to indorse may be required by Treasury in the event of a
dispute.
(g) Revocation of powers of attorney. Notwithstanding any other
law, for purposes of negotiating Treasury checks, all powers of
attorney are deemed revoked by the death of the principal and may also
be deemed revoked by notice from the principal to the parties known, or
reasonably expected, to be acting on the power of attorney.
Sec. 240.17 Lack of authority to shift liability.
(a) This part neither authorizes nor directs a financial
institution to debit the account of any person or to deposit any funds
from any account into a suspense account or escrow account or the
equivalent. Nothing in this part shall be construed to affect a
financial institution's contract with its depositor(s) under authority
of state law.
(b) A financial institution's liability under this part is not
affected by any action taken by it to recover from any person the
amount of the financial institution's liability to the Treasury.
Sec. 240.18 Implementing instructions.
Additional procedural instructions implementing these regulations
will be issued by the Financial Management Service in Volume I, Part 4
(instructions relating to disbursing), and Volume II, Part 4
(instructions relating to Federal Reserve Banks), of the Treasury
Financial Manual. Implementing instructions relating to designated
depositaries outside the United States are published in Volume VI,
Chapter 2000, of the Treasury Financial Manual.
Sec. 240.19 Reservation of rights.
The Secretary of the Treasury reserves the right, in the
Secretary's discretion, to waive any provision(s) of this part not
otherwise required by law.
Dated: April 17, 2003.
Richard L. Gregg,
Commissioner.
[FR Doc. 03-9998 Filed 4-22-03; 8:45 am]
BILLING CODE 4810-35-U