Re: Interim Final Rule on Interoperability and Portability of Food Stamp Program EBT Systems (7 CFR Parts 272, 274)

Mr. Jeffrey N. Cohen
Chief, EBT Branch
Benefit Redemption Division
Food and Nutrition Services
United States Department of Agriculture          
3101 Park Center Drive        
Alexandria, Virginia 22302        

Re:      Interim Final Rule on Interoperability and Portability of Food Stamp Program EBT Systems (7 CFR Parts 272, 274)

Dear Mr. Cohen:

The Food Marketing Institute (FMI) is pleased to respond to the United States Department of Agriculture (USDA) Food and Nutrition Service (FNS) request for comments on the agency’s interim final rule regarding the interoperability and portability of Food Stamp Program (FSP) electronic benefit transfer (EBT) systems. 65 Fed. Reg. 40719 (Aug. 15, 2000). The interim rule is intended to implement the Electronic Benefit Transfer Interoperability and Portability Act of 2000, Public Law 106-171. Enacted on February 11, 2000, P.L. 106-171 requires state agencies to provide nationwide interoperable functionality in their EBT systems and portability for electronically-issued FSP benefits by October 1, 2002 in order to enhance the flow of interstate commerce involving electronic transactions for FSP benefits under a uniform national standard. P.L. 106-171, Sec. 2(3). The act further directs USDA to issue regulations to establish standards to achieve interoperability and portability. P.L. 106-171, Sec. 3.

FMI supports the interoperability of FSP benefits. To achieve this end, however, we recommend that USDA adopt the QUEST rules and that the agency clarify several elements of the interim rule before issuing the final rule. Our specific recommendations in this regard are discussed below.

FMI is a nonprofit association conducting programs in research, education, industry relations and public affairs on behalf of its 1,500 members including their subsidiaries — food retailers and wholesalers and 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 $300 billion, which represents three-quarters of all grocery store sales in the United States. FMI’s retail membership is composed of large multi-store chains, small regional firms and independent supermarkets. Its international membership includes 200 members from 60 countries.
     

A.     Interoperability of Cash Benefits (7 C.F.R. § 274.12)

Benefits for cash programs, such as Temporary Assistance for Needy Families, are currently interoperable. In the preamble to the subject interim final rule, the agency mentions cash benefits, but does not indicate whether the interim rule will affect the interoperability of cash benefits. See, e.g., 65 Fed. Reg. at 49721. Since P.L. 106-171 addresses only FSP benefits, we trust that benefits for cash programs will continue to be interoperable and that FNS does not intend for this rule to affect their status.
     

B.     Interoperable Transaction Set Requirements (7 C.F.R. § 274.12(h))

Public Law 106-171 requires USDA to promulgate regulations that “adopt a uniform national standard of interoperability and portability . . . that is based on the standard of interoperability and portability used by a majority of State agencies.” 7 U.S.C. § 2016(k)(4)(A), as amended by P.L. 106-171, Sec. 3. As the agency knows, the QUEST Operating Rules have been adopted by a majority of State agencies. 65 Fed. Reg. at 49721. Accordingly, USDA should adopt the QUEST rules to control the interoperability and portability of FSP benefits.

       1.     Message Format (Section 274.12(h)(10)(ii))

Section 274.12(h) requires State agencies to adopt uniform standards to facilitate interoperability and portability nationwide. In the preamble, the agency states that FNS has determined that three technical standards are necessary to accomplish this goal. 65 Fed. Reg. at 49721. The first of these is the use of the International Organization for Standardization (ISO) 8583 message format to standardize the information included in each EBT transaction so that all EBT point of sale (POS) transaction messages are universally understood. 65 Fed. Reg. at 49721. In fact, USDA states, “[F]or purposes of interoperability, standardization is critical to effectuating communications between a State agency’s issuer and retailer/third party messages from sources outside the state EBT system area.” Id. at 49722 (emphasis added). Toward this end, interim Section 274.12 states as follows:

Each authorization system must use the International Organization for Standards (ISO) 8583 message format, modified for EBT, in a version mutually agreed to between the authorization agent and the party connected for all transactions. Each authorization system must process each financial transaction as a single message financial transaction, except for pre-authorized transactions and reversals, processed as pair transactions.

7 C.F.R. § 274.12(h)(10)(ii).   FMI has two comments regarding the foregoing provision of the interim regulation.

First, we agree that a standardized authorization system and message format are critical to effectuating communications between the parties involved in an EBT transaction and that the use of the ISO 8583 message format modified for EBT is a useful starting point. However, allowing parties to adopt various versions “mutually agreed to” will dilute the effectiveness of this approach. Retailers might then be forced to adhere to any number of different specifications, which would undercut the ability to achieve the standards of interoperability and portability required under P.L. 106-171.

Instead, we recommend that FNS mandate the adoption of the standard currently being developed by the ANSI X9A11 EBT Working Group;¹ the document is currently known as the Draft Standard Trial Use (DSTU)-2-1995. ANSI’s EBT Working Group is charged with developing and maintaining the use of ISO 8583 as modified for EBT applications. All financial transactions related to EBT would in effect be standardized. We recommend that USDA incorporate the ANSI standard and any future revisions or updates into the regulation by reference. The use of this specification would assure technical compliance from the EBT recipient to the processor, to the retailer and state agencies.

Second, paragraph (h)(10)(ii) also requires authorization systems to process financial transactions as a single message transaction, “except for pre-authorized transactions and reversals, processed as paired transactions.” Although not defined in the regulation or preamble, we understand “paired transactions” to refer to situations in which a retailer originates a second transaction related to an initial transaction, e.g., a debit is charged to a benefit recipient’s account (original transaction), but no confirmation is received, so the retailer originates a second transaction to reverse the original debit. To ensure that recipients’ accounts are not double-charged, we recommend that FNS clearly require reversals to be processed as paired transactions. The addition of the following italicized language in the final regulation would more clearly convey the requirement: “…except for pre-authorized transactions and reversals, which must be processed as paired transactions.”
            

2.     Third Party Processor (Section 274.12(h)(10)(iv))

Paragraph (h)(10)(iv) of interim Section 274.12 sets forth the requirements for third party processors that participate in the FSP EBT system. Among other things, this paragraph requires each terminal operator to “maintain the necessary computer hardware and software to interface either directly with a State authorization system or with a third party service provider to obtain access to one or more State authorization systems.” 7 C.F.R. § 274.12(h)(10)(iv). As some retailers have a “direct-connect” to the processor, they might be considered third party processors. If the regulatory requirement is applied to retailers with direct-connects, the retailers would either be required to connect to every State authorization system – which is simply impractical – or to contract with a service provider and pay a fee for each interoperable transaction with any state in which the retailer does not have stores. Accordingly, we recommend that FNS specifically exempt retailers that are directly connected from the requirement of connecting to every state authorization system.

     C.     Interoperability Should Be Required for Manual Transactions

The interim regulation does not require interoperability for manual transactions, except for those processed by border stores. See Section 274.12(g)(4)(ii)(C). Although the agency considered requiring manual transactions nationwide, USDA rejected the idea because “substantial standards beyond [those] currently in the QUEST rules would need to be in place for handling manual vouchers.” 65 Fed. Reg. at 49722. The primary impediment to manual transactions identified by the agency is the manner in which authorization numbers would be obtained for the transaction. Id.

A simple solution to obtaining authorization numbers for manual transactions is the use of the support service that can be accessed by calling the toll-free telephone number that appears on the back of each recipient’s card. A retailer could easily obtain an authorization number through this service. Since, as USDA indicates, only a “small percentage of these transactions would occur” (65 Fed. Reg. at 49722), obtaining authorizations through the toll-free telephone number should not place an undue burden on the system. In a nationwide, interoperable EBT program – especially if a single identifying mark like QUEST is used – clients should be assured that they can complete an FSP benefit transaction regardless of the circumstances. To protect the rights of the client, all retailers displaying and accepting electronic payment system transactions under the QUEST mark must be able to complete both on-line and manual transactions.

     D.     Funding Provisions

Section 274.12(k) sets forth the standards that State agencies must meet in order to qualify for federal funding of the costs they incur for switching and settling FSP interstate transactions. For the time period from February 11, 2000 through September 30, 2002, State agencies must “adhere to the standard of interoperability and portability adopted by a majority of State agencies.” 7 C.F.R. § 274.12(k)(6)(i). As the agency knows, the QUEST Operating Rules have been adopted by a majority of State agencies. See 65 Fed. Reg. at 49721. However, in the preamble relevant to the funding provisions, the agency interprets Section 274.12(k) as allowing States to be eligible for funding if they have not adopted the QUEST rules, but instead have adopted “comparable standards by another name.” 65 Fed. Reg. at 49723.

FMI disagrees with this approach. Public Law 106-171 authorizes funding prior to October 1, 2002 only “if the State agency uses the standard of interoperability and portability adopted by a majority of State agencies,” which, as USDA admits, is QUEST. 7 U.S.C. § 2016(k)(4)(A), as amended by P.L. 106-171, Sec. 3. If funding is permitted for non-QUEST systems, it will encourage their use. A State that uses an alternative system will likewise use an alternative mark. For example, if Texas retains its Lone Star program, but amends its rules to allow for interoperability and does not adopt QUEST, retailers in other states would also be required to display the Lone Star mark, as well as the QUEST mark, to be able to accept the Lone Star card under the new interoperability rules. As a result, retailers in other states will be required to operate under different sets of operating rules and to display additional marks on their terminals. Since a national mark has already been adopted by a majority of the states, USDA should only permit interoperable EBT transactions under the QUEST mark.

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FMI appreciates the opportunity to comment on the interim rule implementing the interoperability and portability of FSP benefits, and would be happy to discuss any of our recommendations with you further.

Sincerely,

George Green
Vice President
General Counsel