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05/04/2010Treasury Announces All-Electronic Payments InitiativeNACHA Government Relations Alert...04/20/10
In a release tied to Earth Day (April 22, 2010), the U.S. Treasury announced a broad new all-electronic payments strategy. The three-pronged initiative is expected to save over $400 million and 12 million pounds of paper over the next five years.
All Federal benefit recipients will be required to receive their payments electronically, either through Direct Deposit or Treasury's new Direct Express debit card. The requirement will apply to new enrollees beginning March 1, 2011, and to existing check recipients beginning March 1, 2013. Currently 85% of Federal benefit recipients receive their payments electronically. Moving the remaining 15% of benefit recipients and all future recipients to the electronic options is expected to save upwards of $300 million over the next five years.
Businesses currently permitted to use paper Federal Tax Deposit coupons will have to make these deposits electronically beginning in 2011, with some exceptions (primarily, businesses $2,500 or less in quarterly tax liabilities that pay when filing their returns). Currently, roughly 98% of all business tax dollars are paid electronically through the Electronic Federal Tax Payment System (EFTPS). This change is expected to save an estimated $65 million over the next five years.
Treasury will eliminate the option to purchase paper U.S. Savings Bonds through payroll deductions for federal employees on September 30, 2010, and for private sector employees by January 1, 2011. Individuals will still be able to purchase paper savings bonds at financial institutions for themselves or as gifts. Payroll savers will be encouraged to continue their purchases through Treasury Direct, a web-based system that allows investors to buy and hold savings bonds electronically. This change is expected to save nearly $50 million over the next five years.
In its announcement, Treasury acknowledges that electronic transactions offer more than just cost savings to the Federal government, noting safety, convenience and control as key benefits for payment recipients, taxpayers and savings bond holders. The strategy's initiatives do not require new enabling legislation and can be accomplished through changes to treasury's existing regulations.
FOR MORE INFORMATION
Treasury's release can be found here: http://www.treasury.gov/press/releases/tg644.htm. ;
II. Federal Garnishment Compliance Standard Proposed
At the same time it engages the all-electronic payment strategy, Treasury is moving to strengthen protections for benefit recipients whose accounts are subject to a garnishment order, while protecting financial institutions from liability when, in complying with such an order, they allow the account holder access to exempt Federal benefits. The April 19, 2010 Federal Register contains a joint Notice of Proposed Rulemaking issued by Treasury, the Office of Personnel Management, the Railroad Retirement Board, the Social Security Administration and the Department of Veterans Affairs. The proposal's stated intent is to establish straightforward, uniform, cost effective procedures addressing the extent to which financial institutions may, pursuant to garnishment orders, freeze or seize funds in accounts that contain Federal benefits. Issuance of the proposal follows a period of industry (including NACHA) and stakeholder group consultations to arrive at a workable Federal approach in the face of differing and often conflicting state legal mandates.
Process for Identifying Exempt Funds: Key to financial institution compliance with garnishment orders is the ability to accurately and efficiently ascertain exempt Federal benefit payments during the applicable lookback period so that these funds can be remain available to the account holder. Recognizing this, NACHA recommended coding changes to Treasury for exempt Federal benefit payments via the ACH Network. Treasury reflects these recommendations in the NPRM by announcing the following changes specific to exempt Federal benefit ACH entries:
Treasury will encode an "X" in position 20 of the "Company Name" Field of the Batch Header Record for each Agency exempt benefit Automated Clearing House (ACH) payment. For example, a typical Social Security benefit payment would have a company name of "US TREASURY 303X." This encoding, along with the current practice of encoding a "2" in the "Originator Status Code" Field in the Batch Header Record to designate payments originated from the Federal government, will allow financial institutions to identify Federal exempt payments through either manual or systems inspection.
The Agencies will publish a list of the unique "Entry Detail Description" Fields in the Batch Header Record for all of their exempt benefit payments. For example, the "SUPP SEC" entry denotes an exempt Supplemental Security Income benefit payment, and "VA CH31" denotes an exempt VA Vocational Rehabilitation & Education benefit payment.
Because information in the "Company Name" and the "Entry Detail Description" Fields is typically included on the account holder's bank statement, financial institutions should also be able to visually identify an exempt payment using a standard customer service or account maintenance screen.
Treasury will update the Green Book, A Guide to Federal Government ACH Payments and Collections, to reflect these mechanisms for identifying exempt Federal payments, and financial institutions will be able to rely on this combination of identifiers to determine whether exempt payments were deposited to an account during the lookback period.
NACHA will be further evaluating the proposal, in detail, and providing comments. Comments are due June 18, 2010.
FOR MORE INFORMATION:
The garnishment NPRM can be accessed here: http://www.gpoaccess.gov/fr/index.html.
In the search box for 2010 (Volume 75), enter the word "Garnishment"
Click the SUBMIT button
Click on any of the file types associated with the Garnishment of Accounts Containing Federal Benefit Payments entry for April 19, 2010.
STAFF CONTACTS
Please contact the following staff with any questions on this subject.
Ian Macoy
(703) 561-3929
imacoy@nacha.org
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