May 29, 1998 Mr. Wallace L. Earnest Director, Division of Staff Services U.S.

Department of the treasury Bureau of Public Debt 200 3rd Street, Room 507 Parkersburg, WV 26106-1328 United States Savings Bonds Dear Mr. Earnest: The National Automated Clearing House Association ("NACHA") appreciates this opportunity to respond to the Bureau of the Public Debt's ("BPD") request for public comment on the issue and offering of U.S. Savings Bonds [63 Fed. Reg. 83, pp. 23695-23703]. NACHA's response focuses only on the aspect of the proposed changes that would authorize the sale of U.S. Savings Bonds using automated clearing house ("ACH") debit entries. Proposed 31 CFR part 370, Subpart D would establish rules and the exclusive liability of BPD for debit entries to a purchaser's account to buy bonds from BPD. BPD anticipates that a purchaser would authorize an entity named on an approved authorization form to be the Originator for the debit entries. This entity would forward collected funds to Treasury in exchange for a fee (unless BPD chooses to name itself as the Originator). BPD would then issue the bonds through a Federal Reserve Bank acting as a fiscal agent for the United States. Under proposed Sec. 370.31, all debit authorizations must be accomplished through a procedure approved by BPD. The authorization would have to be signed and would allow for recurring debit entries. The section would also provide that except to the extent required by BPD, the Originator will not be required to take additional steps to verify the identity of the purchaser or the authenticity of the signature. A purchaser's subsequent authorization would cancel a previous authorization only if so noted by the purchaser on the subsequent authorization form. This provision would allow a purchaser to make additional recurring purchases of savings bonds through debit entries without having to list anew all the recurring purchases on a single form. Under proposed Section 370.35, the requirement of a prenotification, as well as the length of the period during which the Originator must wait after sending a prenotification before sending

a live debit entry, would be left to the discretion of BPD. Proposed Subpart E would establish rules for the electronic submission of purchase applications and remittances for the purchase of savings bonds issued through BPD. The subpart explicitly would enable BPD's acceptance of electronic signatures, establish the rules of contract formation accomplished by electronic means, address the admissibility of digital signatures, and set out the exclusive liability of BPD for these transactions. The first use of these provisions would be to facilitate the sale of savings bonds over the World Wide Web through remittances paid for by credit cards. NACHA Comments NACHA is pleased with BPD's intention to rely on ACH debit entries for the purchase of U.S. Savings Bonds, adopt the NACHA Operating Rules (with relevant changes under Federal law) as the governing law for these transactions, and establish a process for purchases via the Internet. With respect to proposed Subpart D governing BPD's reliance on ACH debits, NACHA would like to address the several issues that we believe BPD should consider. Prenotifications: In addition to other provisions and formatting requirements regarding prenotifications in the NACHA Operating Rules, NACHA believes that BPD should follow the rule governing the period between a prenotification and the first value entry. Section 2.3 Prenotifications; Subsection 2.3.2 -...an Originator that has initiated a prenotification may initiate entries to a Receiver's account no sooner than six banking days following the settlement date of the prenotification entry. Authorization: NACHA believes that proposed Subsection D, coupled with the language addressing electronic authorization contained in proposed Subpart E, would provide BPD with the ability to use the automated enrollment process (also referred to as "ENR," which is the standard entry class code for these electronic enrollment entries) now available through the ACH Network. This process is currently limited to the authorization of ACH credit entries, but a rule change that takes effect September 18, 1998 expands its availability to ACH debit entries. We encourage BPD to embrace this application since the use of ENR will improve the efficiency and effectiveness of the enrollment process by providing accurate financial institution routing and

account information to Federal agency Originators. However, BPD should also be aware that this does not necessarily eliminate the need for paperwork being sent (e.g., by mail or fax) between the Receiver and Originator, outside the ENR process, to relay other relevant information about the application. This could include, for example, contact and address information, certain terms of the agreement, or an authorization (which could be authenticated by a written signature or electronically with a digital signature or code as described below). NACHA would also like to respond to proposed Subpart E and the use of the Internet to authorize U.S. Savings Bond purchases. To the degree that BPD may ultimately accept other means of payment in addition to credit cards, for example authorizing electronically ACH debit entries, BPD should be aware that NACHA recently adopted a new policy for electronically authorizing recurring electronic fund transfers ("EFTs") for consumer payments. Specifically, the NACHA Operating Guideline applicable to an ACH debit authorization now states: All debits to consumer accounts must be authorized in writing, signed or similarly authenticated by the consumer using a digital signature or other code.[emphasis added] To meet the requirement that an authorization be in writing, an electronic authorization must be able to be displayed on a computer screen or other visual display that enables the consumer to read the communication. The authorization must include provisions for revocation of the authorization. ...The definition of electronic authorization does not allow for the authorizations to be voice recorded. At a minimum, and until the Federal Reserve Board issues further guidance on this matter, when the Internet is utilized to authorize recurring payments (where a Receiver and an Originator have or are initiating an ongoing relationship), and the Receiver is using a code for authorization purposes, the use of such code satisfies the requirement for the authorization to be "similarly authenticated," under the NACHA Operating Rules, as long as the following three tests are met: (1) the consumer either selects and confirms selection of the code on-line or the consumer has previously selected the code or been issued the code by the Originator or [Originating Depository Financial Institution]; (2) the authorization appears onscreen and clearly and conspicuously sets out the terms of the authorization (including the terms for revoking the authorization); and (3) the screen containing the authorization can

be printed out by the consumer [minus the code], and, if the consumer desires, he or she can request a hard copy of the authorization from the Originator. The use of a code authorizing the Originator to initiate recurring EFTs from a consumer's account serves to (1) alert the consumer to the important nature of the transaction he or she is entering into, and (2) allow for the flexibility necessary as Internet and electronic technology develops over the next several years (this is especially important because relying solely on the use of digital signatures is currently premature - as a public key infrastructure has yet to gain widescale acceptance in the marketplace). NACHA's approach, which is technology neutral, allows reliance on a code selected by the consumer as an acceptable alternative to a digital signature for authenticating an authorization for recurring EFTs. This, in turn, allows the market to determine what methods of electronic commerce will continue to develop and does not create barriers to this development. * * * * * * NACHA is available to assist BPD in any appropriate capacity as it considers this response. Sincerely,

Ian W. Macoy Senior Director, Government Relations ----------------------------------------------------------------------------John C. Rasmus Manager Senior Federal Administrative Counsel Regulatory and Trust Affairs American Bankers Association 1120 Connecticut Avenue, N.W. Washington, D.C. 20036

June 1, 1998

Mr. Wallace L. Earnest

Director, Division of Staff Services Room 507 Bureau of the Public Debt 200 3rd Street Parkersburg, WV 26106-1328 Re: Department of the Treasury, Fiscal Service; Regulations Governing Agencies for the Issue and Offering of United States Savings Bonds, Including Sales by Electronic Means; 31 CFR Parts 317, 351, 353 and 370; 63 Federal Register 23695; April 30, 1998 Dear Mr. Earnest: The American Bankers ("ABA") appreciates the opportunity to comment on the Treasury Department's proposed regulation enhancing the United States Savings Bonds ("Savings Bonds") program through the establishment of new categories of issuing agents and the expansion of methods for the sale of bonds particularly through electronic means and the Internet. The American Bankers Association brings together all categories of banking institutions to best represent the interests of the rapidly changing industry. Its membership--which includes community, regional and money center banks and holding companies, as well as savings associations, trust companies and savings banks--makes ABA the largest banking trade association in the country. Background This proposed rule would expand the types of organizations eligible to serve as Savings Bonds issuing agents. Currently, the regulations provide that issuing agents are limited to financial institutions, agencies of the United States, state and local governments and employers participating in payroll savings plans. The proposed rule would include as additional eligible entities those organizations that operate payroll savings plans on behalf of employers. According to the proposed rule, this position would "bolster payroll savings plan sales from small businesses, which often do not have the resources to maintain such plans themselves." The proposed rule also provides the Commissioner of the Bureau of the Public Debt with the flexibility to qualify issuing agents in situations in which to do so would be in the "public interest". The overall process to qualify an issuing agent would also be changed so that applications will be approved by the Commissioner of the Bureau of the Public Debt even though applications continue to be made through the appropriate Federal Reserve Bank. The Bureau of the Public Debt ("Bureau") would claim the night to establish new categories of fees in response to creative mechanisms for selling Savings Bonds. The proposed rule clarifies the categories of Savings Bonds sales to ensure that employers and organizations operating payroll savings plans on behalf of employers would be unable to sell Savings Bonds over-the-counter. This authority would be restricted to the Treasury Department, government agencies and financial institutions. In the area of sales by electronic means, the proposed rule would "establish rules for the electronic submission of purchase applications and remittances for the

purchase of Savings Bonds issued through the Bureau". This would enable the Bureau to accept electronic signatures, establish the rules of contract formation accomplished by electronic means, address the admissibility of digital signatures, and set out the liability of the Bureau. The proposed rule facilitates the sale of Savings Bonds over the World Wide Web through remittances paid for by credit cards. The proposed rule establishes the definition of "signature", the definition of "digital signature", the application of the "mailbox rule" to the process and the impact of electronic signatures on the sale of Savings Bonds. ABA Position From the inception of the Savings Bonds program more than 50 years ago, the banking industry has actively sold and redeemed Savings Bonds. Banks and other financial institutions provide the Treasury Department with thousands of convenient locations throughout the United States for the sale and redemption of Savings Bonds. These locations have been the backbone of the Savings Bonds program. The commitment of the banking industry to this program has significantly enhanced the sale of Savings Bonds while providing the structure and stability to support this program. Banks by their very nature ensure the integrity of the Savings Bonds program. When individuals enter a bank to purchase or redeem Savings Bonds they know that their transaction will be handled efficiently and properly and at no risk to them. Over many decades, the banking industry has worked closely with the Treasury Department to enhance the success of the Savings Bonds program and to provide at nominal cost their services throughout the country in the sale and redemption of Savings Bonds. Also, bankers on the national level and in their local communities have actively volunteered their time and expertise to promote Savings Bonds and to educate the public regarding the role of Savings Bonds. The ABA works closely with the Treasury Department and the Savings Bonds Marketing Office to assist bankers in meeting the needs of their customers relating to the sale and redemption of Savings Bonds. This partnership between the savings bonds program and the banking industry has been a key element in the growth and success of the program. In terms of the specifics of the proposed role, the ABA endorses the clarification that in effect only banks and other financial institutions could serve as private sector retail outlets for over-the-counter sales of Savings Bonds. Employers and organizations offering payroll savings plans for employers would not be able to sell bonds in this manner. The ABA believes it is essential that the integrity of the Savings Bonds program be maintained through partnership with the banking industry for the over-the-counter sales of Savings Bonds. The ABA is concerned that the proposed text for Section 317.2(d) which would give the Commissioner of the Bureau of the Public Debt the ability to designate "other organizations" not otherwise specifically referenced in this section of the regulation lacks a compelling rationale to justify a change in the types of eligible

organizations. Banks and other types of organizations listed in Section 317.2(ac) have demonstrated that they can readily provide the capability to sell Savings Bonds "In unique ways" such as "electronic methods." There is no demonstrable need to add this new text given the capabilities and interest of currently eligible organizations. The Secretary of Treasury's announcement that the Bureau would be selling Savings Bonds through a website using the SET protocol demonstrates the commitment of the Federal government to use commercial standards and solutions, where possible. The ABA is pleased that the Bureau has decided to adopt information assurance technologies and standards that the banking industry and others in the private sector have developed. Industry standards bodies have been working closely with National Institute of Standards and Technology and other government agencies with standards interests to address our common interests. Each group recognizes that electronic authorization technologies and solutions such as digital signatures will enable widespread and secure electronic commerce and access to information. The ABA recognizes that it is entirely appropriate for the Bureau to set the terms, so long as they are reasonable, by which it does business and the necessity of addressing some Federal contract law provisions addressing electronic and digital signatures to establish a inn legal foundation for the transactions. The banking industry and government have these interests in common generally in order to support commerce and specifically this program. The ABA and the ABA Information Security Infrastructure Working Group stand ready to advise the Bureau as it further examines these technologies. The ABA believes that there are appropriate applications for electronic sale through the World Wide Web or through various programs established by individual banks as part of their Internet banking facility. The banking industry looks forward to working closely with the Treasury Department and the Bureau in exploring these new opportunities. The advent of Internet banking and issues relating to digital signatures are in the forefront of issues under consideration by the banking industry. The ABA will be pleased to cooperate with the Treasury Department and the Bureau on these issues in order to ensure that the future of the Savings Bonds program fully benefits from this new technology. The ABA appreciates the opportunity to comment on these important issues relating to the Savings Bonds program. Please do not hesitate to contact the undersigned or Kawika Daguio (202-663-5434) for any additional information. Sincerely,

John C. Rasmus -----------------------------------------------------------------------------

Board of Governors of the Federal Reserve System Division of Consumer and Community Affairs

June 2, 1998 Wallace L. Earnest Director, Division of Staff Services Bureau of the Public Debt 200 3rd Street, Room 507 Parkersburg, WV 26106-1328 Re- Proposed Rule -- Electronic Purchase of Savings Bonds Dear Mr. Earnest: This letter conveys the comments of the Division of Consumer and Community Affairs of the Federal Reserve Board on proposed regulations published by the Bureau of the Public Debt concerning electronic purchases of United States Savings Bonds (63 FR 23695, April 30, 1998) in regard to 31 CFR Parts 317, 351, 353, and 370. The Division is responsible for writing and administering Board regulations implementing the Truth in Lending Act (TILA), 15 U.S.C. s1601 et seq., and the Electronic Fund Transfer Act (EFTA), 15 U.S.C. s1693 et seq. From our review, it appears that in some cases the proposed regulations of the Bureau of the Public Debt conflict with provisions of Regulation Z, which implements the TILA, and of Regulation E, which implements the PTA, In other cases, the proposal overlaps with these regulations in a way that could cause confusion. Our comments focus on the proposed changes to 31 CFR Part 370, in particular new subpart D, sections 370.33 and 370.34, and new subpart E, sections 370.54 and 370.56. SUBPART D Subpart D sets forth rules relating to automated clearing house (ACH) debit entries for the purchase of Savings Bonds. ACH debits to a consumer account are among the transactions covered by the EFTA and Regulation E. Although certain transactions involving the purchase or sale of securities are exempt from Regulation E, electronic purchases of Savings Bonds as described in the Bureau's proposal are riot exempt because the securities are not (1) regulated by the Securities and Exchange Commission (SEC), (2) purchased or sold through a broker-dealer regulated by the SEC, or (3) held in book-entry form by a Federal Reserve Bank or federal agency, as set forth in the exemption provisions of Regulation E (12 CFR

s205.3(c)(4)). Cancellation or Suspension by Purchaser Proposed section 370.33 in subpart D provides that a Savings Bond purchaser may terminate all future debits or .suspend one or more future debits by written notice to the originator. Section 205. 10(c) of Regulation E (EFTA s907) provides that a consumer may stop payment of preauthorized debits such as ACH debits by notifying the accountholding financial institution orally or in writing; the institution may require written confirmation of an oral notice. While section 370.33 and section 2O5.10(c) could coexist, each giving the consumer different protections, section 370.33 could create the misperception that it provides an exclusive rule for stopping payment of a recurring debit. Error Resolution Proposed section 370.34 deals with error resolution and provides that a consumer may give an oral notice to the originator as to the correctness of an ACH debit. The originator may ask the customer to submit the notice in writing within 30 days, and if the consumer fails to do so, the originator may ignore the oral notice. This latter provision conflicts with the EFTA and Regulation E. Section 205. 11 of Regulation E (EFRA s908) also deals with error resolution. It provides that a consumer may notify the account-holding institution of an alleged error orally or in writing. The institution may request written confirmation of an oral notice of error within 10 business days, but if the consumer fails to furnish the written confirmation, the only consequence is that the institution is not required to give provisional credit to the consumer's account while it investigates the alleged error. The institution is required in all cases to investigate and resolve the, error within a maximum of 45 days. Accordingly, we recommend that sections 370.33 and 370.34 be deleted or conformed to Regulation E. If these sections are not deleted or conformed, a statement should be inserted in each of them (or in section 370.30, relating to governing law) to the effect that these provisions do not affect the rights of any person under the EFTA and Regulation E, 12 CFR Part 205. SUBPART E Subpart E addresses the electronic submission of purchase applications and remittances

for the purchase of Savings Bonds. The supplementary information accompanying the proposed regulations explains that this new subpart would facilitate the use of credit cards through the World Wide Web site of the Bureau of the Public Debt to purchase Savings Bonds. Consumer purchases using credit cards are covered by the TILA and Regulation Z. Certain credit transactions involving securities are exempt from Regulation Z, but not the transactions contemplated in the proposed regulations, since they do not involve "transactions in securities . . . accounts in which credit is extended by a broker-dealer" registered with the SEC, as required by the exemption provisions of Regulation Z (12 CFR s226.3(d)). Negligence Contributing to Unauthorized Signature Proposed section 370.56 provides that a "person whose failure to exercise ordinary care substantially contributes to the creation or submission of an unauthorized electronic signature is precluded from disavowing the unauthorized signature and the validity of any electronic record to which the signature is affixed. " The proposed section further provides that the burden of proof is on the person against whom the signature is asserted to establish the exercise of ordinary care. This proposal is in direct conflict with section 226.12(b) of Regulation Z (TILA s133), which provides that in any transaction involving the unauthorized use of a credit card, the consumer's liability is limited to $50. The liability limit of section 226,12(b) applies regardless of negligence on the part of the cardholder. Accordingly, we suggest that section 370.56 either be deleted in the finial regulations or be revised to conform to section 226.12(b) of Regulation Z. Other Matters We note that, as drafted, subpart E addresses the use of credit cards via the Internet to purchase Savings Bonds. If the subpart were also to apply to the use of electronic debit (either debit card transactions or ACH debits) to purchase Savings Bonds. there could be potential conflicts with Regulation E. Section 205.6 of Regulation E (EFTA s909) limits a consumer's liability for unauthorized electronic debits to $50, provided the consumer notifies the account-holding institution within two business days of teaming of the loss or theft of a debit card or other access device. As in the case of credit transactions, the limitation applies regardless of negligence

on the part of the consumer in the handling of the access device. Proposed section 370.54 provides that, to the extent that the law requires a signature, an "electronic signature" shall satisfy that rule of law. The proposed regulations define signature" to mean "any symbol or method executed or adopted by a party with present intent to he bound, and includes electronic methods ... approved by the Bureau of the Public Debt." It appears. therefore, that the types of electronic signatures deemed to satisfy legal signature requirements could be quite broad. Section 205.10(b) of Regulation E (EFTA s907) states certain requirements relating to the authorization of recurring electronic debits. Specifically, section 205.10(b) requires that the authorization be in writing and signed by the consumer, or, if in electronic form, be "similarly authenticated." The person that obtains the authorization must provide a copy to the consumer. The "similar authentication" requirements of Regulation E could be interpreted to impose stricter requirements than section 370.54 in instances involving the electronic authorization of recurring debits. If in the future subpart E were to be applied to the use of recurring ACH debits, it would be desirable to incorporate a cross-reference to section 205.10(b) of Regulation E at that time. If you have any questions or would like to discuss any of our comments, please contact me or John Wood, Senior Attorney, at (202) 452-2412, Very truly yours, Adrienne D. Hurt Assistant Director