B-224943, FEB 27, 1987, OFFICE OF GENERAL COUNSEL

B-224943, FEB 27, 1987, OFFICE OF GENERAL COUNSEL

MISCELLANEOUS TOPICS - FINANCE INDUSTRY - GOVERNMENT SECURITIES - PAYMENT PROCEDURES - TREASURY DEPOSIT DIGEST: PRIVATE INQUIRER QUESTIONS PROVISION IN BUREAU OF PUBLIC DEBT'S TREASURY DIRECT REGULATIONS WHICH REQUIRES THAT PAYMENTS ACCRUING TO OWNERS OF GOVERNMENT SECURITIES MUST BE MADE BY DIRECT DEPOSIT INTO FINANCIAL INSTITUTION ACCOUNTS, 31 C.F.R. SEC. 357.26 (1986). SECTIONS 3102-04, AND 3121 OF TITLE 31 EXPRESSLY AUTHORIZE THE SECRETARY OF THE TREASURY TO PRESCRIBE BY REGULATION THE CONDITIONS UNDER WHICH SECURITIES WILL BE OFFERED FOR SALE. SINCE THE METHOD TO BE USED FOR MAKING PAYMENT ON A SECURITY IS A CONDITION PERTAINING TO ITS ISSUANCE AND SALE, A REGULATION REQUIRING PAYMENT BY DIRECT DEPOSIT IS NOT LEGALLY OBJECTIONABLE.

MR. JOHN L. MACBETH:

THIS RESPONDS TO YOUR LETTER CONCERNING THE BUREAU OF THE PUBLIC DEBT'S (BUREAU) RECENTLY FINALIZED REGULATIONS GOVERNING ITS NEW BOOK ENTRY SYSTEM FOR TREASURY BONDS, NOTES AND BILLS (REFERRED TO AS "TREASURY DIRECT," AS YOU NOTE). 31 C.F.R. PT. 357 (1986). IN PARTICULAR, YOU QUESTION THE LEGALITY OF THE REGULATION PROVISIONS WHICH REQUIRE THAT, EXCEPT UNDER EXTRAORDINARY CIRCUMSTANCES, PAYMENTS ACCRUING TO OWNERS OF GOVERNMENT SECURITIES MUST BE MADE BY DIRECT DEPOSIT INTO FINANCIAL INSTITUTION ACCOUNTS RATHER THAN BY CHECKS SENT DIRECTLY TO THE OWNERS. 31 C.F.R. SEC. 357.26. IN YOUR VIEW, THIS REQUIREMENT REPRESENTS AN UNWARRANTED LIMITATION UPON THE FREEDOM OF CHOICE OF THE INVESTOR.

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

THE BUREAU, WHEN IT PUBLISHED ITS PROPOSED REGULATIONS ON DECEMBER 2, 1985, EXPLAINED THAT THE DIRECT DEPOSIT PAYMENT METHOD WAS PREFERABLE FOR REASONS OF ECONOMY AND SAFETY. 50 FED.REG. 49413 (1985). THE BUREAU THEN, AS REQUIRED BY LAW, ALLOWED TIME FOR PUBLIC COMMENT AND EVALUATED THE COMMENTS IT RECEIVED. IN ITS SECTION-BY SECTION ANALYSIS, PRINTED AT THE TIME IT ISSUED THE FINAL TREASURY DIRECT REGULATIONS, THE BUREAU STATED, "THE DEPARTMENT HAS CONCLUDED THAT WHILE THE DIRECT DEPOSIT PAYMENT METHOD IS NOT WITHOUT RISKS, IT IS FAR SUPERIOR TO THE USE OF CHECKS, IN TERMS OF THE RISKS, POTENTIAL LOSSES AND COSTS." IT FURTHER INDICATED THAT "IN A CASE WHERE A RECEIVING INSTITUTION FAILS TO ACT IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN IT, THE BUREAU INTENDS TO USE ITS BEST EFFORTS TO ASSIST INVESTORS IN RECTIFYING THE ERROR." 51 FED.REG. 18261 (MAY 16, 1986).

IN VIEW OF THE FOREGOING, THE BUREAU APPEARS TO HAVE ACTED WITHIN ITS LEGAL AUTHORITY, AND WE SEE NO BASIS TO QUESTION THE MATTER FURTHER.