WASHINGTON, DC 20005
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655 15TH ST, NW, SUITE 700 WASHINGTON, DC 20005 TELEPHONE: 202/452-8444 FAX: 202/429-4519 |
Mr. Jeffrey N. Cohen
Chief, Electronic Benefit
Transfer Branch
Benefit Redemption Division
Food and Nutrition Service
U.S. Department of Agriculture
3101 Park Center Drive
Alexandria, Virginia 22302
Re: Food Stamp Program: Electronic Benefit Transfer Benefit
Adjustments
Dear Mr. Cohen:
The Food Marketing Institute (FMI) is pleased to provide you
with the following comments regarding the interim final rule published
by the U.S. Department of Agriculture's (USDA's) Food and Nutrition
Service (FNS) on electronic benefit transfer (EBT) benefit adjustments.
64 Fed. Reg. 48933 (Sept. 9, 1999). As discussed more fully
below, we commend the Department for streamlining the adjustment
process for specific types of system errors. In particular, we
strongly support the Agency's decision to permit appropriate adjustments
to be made against a recipient's future month's benefit. We also
appreciate the Agency's recognition of the commercial realities
involved in making an adjustment and the resulting need for a
ten-day period in which retailer-initiated adjustments may be
made. Given the importance of the rule to the proper administration
of the Food Stamp Program, we urge the Department to adhere to
its March 9, 2000 implementation schedule, unless the Agency determines
that the regulation can be implemented sooner.
We recommend, however, that some further modifications be made
to the final rule. Most importantly, the final regulation should
be clarified to ensure that retailers do not bear financial responsibility
for provisional credits. Moreover, the merchant's opportunity
to participate in the fair hearing process should be clearly stated
in the regulations. Finally, we believe that the final rule would
benefit from clarification of some of the key terms, such as "system
errors," and the scope of partial adjustments.
FMI is a non-profit association that conducts programs in research,
education, industry relations and public affairs on behalf of
its 1,500 members and their subsidiaries. Our membership includes
food retailers and wholesalers, as well as their customers, in
the United States and around the world. FMI's domestic member
companies operate approximately 21,000 retail food stores with
a combined annual sales volume of $220 billion, which accounts
for more than half of all grocery sales in the United States.
FMI's retail membership is composed of large multi-store chains,
small regional firms, and independent supermarkets. Our international
membership includes 200 members from 60 countries.
As set forth in the interim rule, Section 274.12(f)(ii)(D) states
that, in the event that "there are insufficient benefits
remaining to cover the entire adjustment, the adjustment shall
be made using the remaining balance, with the difference being
subject to collection in a future month." Thus, under the
interim final rule, retailers will be able to receive the balance
of any adjustments owed from future months' benefits. The interim
regulation will prevent retailers from bearing an unfair financial
burden due to system errors. Accordingly, we strongly support
this provision of the interim rule.
As a related matter, the preamble states that collections for
adjustments may be made against benefits in future months, even
if there has been a break in receipt of benefits. 64 Fed.
Reg. at 48935. Given the importance of this explanation, we recommend
that the Agency include a sentence in this regard in the final
regulation itself.
As originally proposed, Section 274.12(f) would have required
all adjustments to be made within five days of the date on which
the out-of-balance condition occurred. 63 Fed. Reg. 27511, 27514
(May 19, 1998). In response to public comments, this provision
of the Agency's interim rule has been significantly amended.
Specifically, client-initiated adjustments must still be made
within five days of the client's discovery of the error. However,
Food Stamp Program participants will have 180 days from the date
of the error to discover it. 7 C.F.R. § 274.12(f)(ii)(A),
(B).
In contrast, retailers must complete adjustments within 10 days
from the date on which the error occurred. 7 C.F.R. § 274.12(f)(ii)(C).
The interim rule reflects the fact that retailers have access
to settlement information and also that the process may involve
several business partners. We agree that retailers will need
more than 5 days in which to complete an adjustment and appreciate
the additional time granted by the interim regulation.
Furthermore, we understand the phrase "completed the adjustment"
to mean that the retailer's account will be credited or debited
for any adjusted funds within 10 days from the date on which the
error occurred. We believe that timely completion of adjustments
is essential to the proper functioning of the system.
Section 274.12(f)(4)(ii)(G) of the interim rule requires a provisional
credit to be made to the household's account if the household
disputes the adjustment and a request is made within 10 days of
the notice. The regulation itself does not address the source
of the funds for the provisional credit.
The preamble, however, provides that the State agency must notify
the processor to initiate another adjustment to credit the recipient's
account in these circumstances. 64 Fed. Reg. at 48936. The Department
continues by stating that, "if the original adjustment was
already completed, and payment made to the party suffering the
loss, then that account must be debited in order to give
a provisional credit to the household." 64 Fed. Reg. at
48936 (emphasis added). Although unclear, the preamble suggests
that, if the retailer has already received the adjustment, the
retailer's account must be debited and the retailer must pay for
the provisional credit.
This approach places an unfair burden on retailers that is not
faced by merchants in the course of ordinary commercial practice;
the burden is especially inappropriate in the Food Stamp Program
context. Specifically, under Regulation E, the burden of provisional
crediting is placed on the issuer who may reclaim funds from retailers,
as appropriate, through customary contractual channels. Merchants
providing services to Food Stamp Program recipients face an additional
hurdle: the potential for monthly benefits and provisional credits
to be used by the household before the monies can be properly
re-credited to the retailer if the adjustment is ultimately deemed
correct. USDA implicitly recognized the significance of this
issue when the Agency amended the interim final rule to permit
collection of adjustment amounts in future month. However, given
the costs involved in passing provisional credits between merchants
and State contractors, the opportunity for an additional recovery
mechanism in future months will not adequately compensate for
the burden that retailers will face if they are responsible for
funding provisional credits. Therefore, we strongly urge the
Department to amend the final regulation to remove the burden
for funding provisional credits from retailers.
Section 273.15 provides an opportunity for a fair hearing to any
household that is aggrieved by any action of the State agency
that affects the household's participation in the Program. 7
C.F.R. § 273.15. The interim rule makes clear that the fair
hearing process will be used as a means by which a recipient may
appeal an adjustment that is made by a merchant. However, neither
Section 273.15 as currently written or as modified by the interim
rule provides a mechanism through which retailers can participate
in the fair hearing process. As the hearing process will be used
to adjudicate claims regarding processing errors that may have
been made at the retail level, retailers may wish to participate
in the process and should not be excluded. Accordingly, the regulation
should be clarified to permit merchants to participate in fair
hearings intended to resolve adjustment claims.
The proposal is unclear with respect to the scope of the system
errors subject to the adjustments rule in two respects. First,
the proposal is unclear about the types of errors that would
be permitted to be rectified under the "adjustments"
process. Specifically, proposed Section 274.12(f)(4)(ii) states
that a system error is defined as "an error resulting from
a malfunction at any point in the redemption process: from the
system host computer, to the switch, to the third party processors,
store host computer or POS device." The preamble attempts
to clarify the definition by distinguishing the system errors
covered by the rule from "human errors." In our opinion,
the Department's clarification muddies the relatively clear definition
provided in the proposed regulation.
Second, the interim regulation seems somewhat contradictory with
respect to the magnitude of the adjustment. Section 274.12(f)(ii)
states that "an adjustment must be equal to the amount of
the original error transaction…" In contrast, Section
274.12(f)(4)(ii)(D) states that, in the event that insufficient
benefits remain in the household account "to cover the entire
adjustment, the adjustment shall be made using the remaining balance,
with the difference being subject to collection in a future month…"
We believe that the Department intends these two provisions to mean the following. An adjustment must be made in the full amount to be recovered if the necessary funds are available. In the event that the household account does not contain sufficient funds to cover the adjustment, partial amounts may be credited and future credits may be made upon the addition of funds to the household account in subsequent months. We agree with this approach, but suggest that the Agency clarify the final rule to reflect that the adjustment need only equal the amount of the original error transaction if sufficient funds are available.
We appreciate the substantial progress that the Agency has made
on the EBT benefit adjustments regulation, as well as the opportunity
to provide you with our further comments on this matter. If we
may provide you with any further information in this regard, please
do not hesitate to contact us.
Cordially yours,
Tim Hammonds
President and CEO