Compliance Bulletin

Treasury’s Revised Reclamation Rule Allows for Debit of Bank’s Master Account at Federal Reserve Bank
September 29, 2011

The U.S. Department of the Treasury’s Fiscal Management Service (FMS) issued a final rule amending its “reclamation” claim regulation, which consists of procedures by which the Treasury Department seeks the return of funds inappropriately paid on Treasury instruments. The regulation prescribes the requirements for endorsement, conditions for paying Treasury checks, and procedures pertaining to warranty claims [1]. Among other things, the amended rule allows the Treasury to direct the Federal Reserve Banks to debit a financial institution’s (e.g., reclamation debtor’s) Master Account to recover a claim. Banks are given the right to file a protest with FMS if they believe a proposed reclamation is in error.

Under the amended rule, when a financial institution indorses or presents a U.S. Treasury check it is deemed to authorize its servicing Federal Reserve Bank to debit the institution’s Federal Reserve Master Account [2]  for the amount of the reclamation and any accrued interest, penalties, and administrative costs [3]. Under the Treasury’s existing rules Treasury will assess interest on the unpaid principal as of the 61st day after the reclamation date until the full amount is paid or Treasury determines that payment is not required. In addition, it assesses a penalty beginning on the 91st day after reclamation to cover the cost of processing and handling the claim and a charge of not more than 6% a year. Finally, the Treasury will assess administrative costs “associated with the unpaid reclamation debt” beginning on the 61st day after the reclamation date. If the Federal Reserve Bank is unable to debit the financial institution’s Master Account, FMS will assess interest, penalties, and fees under its current procedures, including its offset procedures [4].

The Treasury initiates a reclamation claim by sending a “Notice of Direct Debit Reclamation” to the reclamation debtor indicating the demand amount and the reason for the claim. It will state that if the debt is not paid within 30 days after the reclamation date, Treasury will instruct the appropriate Federal Reserve Bank to debit the debtor’s Master Account on the 31st day.

Additionally, the notice will disclose that the Federal Reserve Bank will provide the debtor with an advice of debit and the debtor will have an opportunity to inspect and copy Treasury’s records. The debtor may request Treasury to review its decision, and if filed within 30 days after the reclamation date, Treasury will not institute the debit procedure with the Federal Reserve Bank while the protest is pending. Any reclamation protest received more than 60 days after the reclamation date will not be considered. Treasury will not proceed with the reclamation if it determines that the claim was made in error, and in such instances will promptly refund any amount paid by the debtor.

Finally, the notice will state that the debtor may to enter into a payment plan with Treasury upon satisfactory proof that it is unable to repay the entire amount owed when due. The request to review Treasury’s records and the request to enter into a repayment agreement must be sent in writing to the address provided on the Check Claims Web site at http://www.fms.treas.gov/checkclaims or other address published in the Treasury’s Goldbook: The Check Reclamation Guide, which can be found at http://www.fms.treas.gov. The revised rule is effective as of October 19, 2011.

  1. The Treasury’s reclamation regulation is codified at 31 CFR 240.1(a).
  2. Master Account is defined as the record of financial rights and obligations of an account holder and the Federal Reserve Bank with respect to each other, where opening, intraday, and closing balances are determined. See 31 CFR 240.2(t).
  3. See 31 CFR 240.8 and 31 U.S.C. 3717.
  4. Those procedures are set forth in 31 CFR Sections 240.8, 240.10, 240.11, and 31 U.S.C. 3716.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

© This CBA Regulatory Compliance Bulletin is copyrighted by the California Bankers Association, and may not be reproduced or distributed without the prior written consent of CBA.

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