Financial Institution Work Group

December 16, 1997

DC-97-93

TO ALL STATE IV-D DIRECTORS

RE: Results of the Financial Institution Work Group Meeting and Draft Data Specs for Your Review

Dear Colleague:

In a recent Dear Colleague Letter (DC-97-64, dated October 6, 1997) we informed you of the formation of the Financial Institution Work Group and the initial meeting of the Group on November 12-14, 1997. The purpose of the meeting was to develop structural and operational processes which would streamline the quarterly financial data match process mandated by the 1996 Welfare Reform Law.

A general overview of the meeting is provided as the first enclosure to this letter.

We were fortunate to have 32 States and 33 financial institutions represented at the meeting. For those of you who were unable to attend or send a representative, we hope that you will be able to attend the next meeting. An important achievement of the meeting was that both child support enforcement (CSE) agencies and financial institutions gained a better understanding of each other's operations. This allowed conversations regarding streamlining and uniformity to proceed in a direction which responded to both segments' concerns.

All attendees were in agreement that one of the primary elements of any streamlining effort is the development of uniform file formats which will limit the time involved in data software development and computer processing. This will allow financial institutions to easily respond to inquiries from more than one State, and simplify the process for institutions with offices in more than one State. The purpose of this letter is to ask that you review and provide your comments on the uniform file formats discussed below.

The Work Group was divided into five working groups: policy, agreements, operational procedures, fees, and implementation/outreach. The Operational Procedures Group developed a draft of the National Financial Data Match

Specifications Format for both the information to be sent to CSE agencies by financial institutions and the inquiry file which would be sent by CSE agencies to the financial institutions. They are included as a second enclosure to this letter. These specifications were based on those used by the Massachusetts Department of Revenue's Bank Match Program, which in turn were based on the Internal Revenue Service Publication 1220, Form 1099 file format - a format used by every financial institution for year-end tax reporting.

Page 2 - Financial Institution Data Match

The specifications have been designed to accommodate all information States want to receive. However, the Operational Procedures Group recognized that all financial institutions may not have certain requested information available to them. For example, while data fields are provided for the date of birth for the account owner, some financial institutions may not have this information available. Nevertheless, there are set fields for this data. Should a financial institution be able to provide this data, it will always appear at a specific location within the format. (Instructions will be provided on how to "fill" the data field if no information is provided.)

It is important to realize that over time (and with more experience had by all) these file formats may change slightly. For now, however, it is important that agreement be reached quickly on these data formats. In your review, please consider the following: 1) Are other standardized file formats needed? 2) Are any additional fields needed? 3) Are there other issues that haven't been addressed?

We are planning to have another meeting of the Work Group in February. (Further information on the meeting will be provided as soon as it becomes available.) The two primary foci of the meeting will be agreement on the standardized formats and the contents of the Policy Action Transmittal. We need to receive your comments on these standardized formats by January 15, so that they can be consolidated for presentation and acceptance by the Work Group as a whole during that meeting. The draft Policy Action Transmittal will be sent to you sufficiently in advance of the meeting for you to provide your comments.

Feel free to call Pat Hagen on 202-401-5684 should you have questions.

Please note that the data specs have also being sent to the person(s) which you have identified as the Financial Institution contact for your States.

Thank you for your cooperation and support.

Sincerely,

David Gray Ross

Deputy Director

Office of Child Support Enforcement

Enclosures

cc: Regional Administrators, Regions I - X

CSE Program Managers, Regions I - X

Enclosure 1

FINANCIAL INDUSTRY WORK GROUP MEETING

On November 12-14, the Office of Child Support Enforcement held the initial meeting of the Financial Institution Work Group. Representatives from 32 States and 33 Financial Institutions and/or their Associations attended the meeting. Among these were the American Bankers Association, America's Community Bankers, Credit Union National Association, American Council of Life Insurance, Securities Industry Association, Norwest, First Union, and Boston Financial Data Services.

The purpose of the meeting was to develop structural and operational processes which would streamline the quarterly financial data match process. An important achievement of the meeting was that both child support enforcement (CSE) agencies and financial institutions gained a better understanding of each other's operations. This allowed conversations regarding streamlining and uniformity to proceed in a direction which responded to both segments' concerns.

All attendees were in agreement that one of the primary elements of any streamlining effort is the development of uniform file formats which will limit the time, and hence costs, involved in data software development and computer processing. This will allow financial institutions to easily respond to inquiries from more than one State, and simplify the process for institutions with offices in more than one State.

The Work Group divided into five working groups: policy, model agreements, operational procedures, fees, and outreach/implementation. The Policy Group worked on a draft action transmittal (AT) which provided questions and answers related to data match provisions. The draft AT had previously been circulated to all of the Work Group attendees, and their concerns and issues were included in the discussions. A revised draft is scheduled to be available in early January.

The "Model" Agreement Group focused on the development of a sample document which could be used by States and financial institutions as they negotiated written agreements which would govern their matching processes. While the model agreement was not particularly difficult to develop (States which had moved ahead in this area provided copies), the idea of having to sign agreements with of all of the financial institutions doing business within their State was still somewhat overwhelming. (Illinois has over 3,000 fi's doing business within their State.)

The Operations Group assumed the responsibility of drafting the uniform file formats. Two draft standard file formats were developed. The first is the file that will be used to transmit information from the State CSE agency to the financial institution. The second will be used to transmit information from the financialinstitution to the State CSE agency. The Operational Procedures Group used data fields from IRS Form 1099, and also borrowed heavily from the formats currently being used by MA's Department of Revenue. These formats will be sent out for review the week of December 8th. Financial Institution Associations have pledged to lend their assistance in transmitting and receiving comments from their constituencies.

The Fees Group had a very difficult task. Massachusetts, by legislation, allows their financial institutions to charge its customers a fee for processing a lien (currently $20), rather than allowing the financial institution to charge them for the cost of operations. Since their match operations is operated by their Department of Revenue which already collects 1099 information, this approach to payment allows them to operate in a cost-effective manner, almost without regard to the amount collected. Colorado's and Illinois' legislation establishes a $.05 per record fee. If this figure was applied to the Massachusetts program, its ability to be cost effective would be questionable.

The Outreach/Implementation Group envisioned a variety of products. The first would be a brochure, similar to the initial new-hire brochure, which would inform the financial industry community about the mandate for the data match. This could hopefully be sent out as part of a mailer done by the regulatory agencies which provide oversight to the fi's. The second product would be a sample newsletter which, with different slants, could be included in the Child Support Reporter, FI Association mail-outs, and any mail-outs done by the regulatory agencies. As the AT discussed above was finalized, a second brochure containing Q&A's pertinent to fi's could be distributed. Other products would be developed as further decisions regarding the structure of the operations were made.

Two hours were set aside on the second day of the conference to discuss the issues related to centralization. Centralization would involve the establishment of single point which would: 1) receive files on delinquent obligors from the states; 2) send a consolidated file to financial institutions wishing to do the match in-house and receiving match data back from those institutions;

3) receiving account information from financial institutions and matching that information against the delinquent obligors; and 4) sending the matched account information back to the appropriate State(s) for action.

Many expressed the idea that operations should be centralized at the Federal level as part of the FPLS. However, OGC opined that requirements contained in the Right to Financial Privacy Act might preclude the establishment of a Federal data base. The financial institutions encouraged the centralization concept, although many stated that they would rather perform the data match in-house, rather than releasing the names of all of their account holders. As an option to federalization, the idea of a State consortium was discussed. This would not require a legislative change and, dependent upon further review, might fall outside of the purview of the Right to Financial Privacy Act. OCSE will be meeting with the Federalregulatory agencies to determine if this approach would conflict with existing statute or regulation. Simultaneously, we will be considering other operational alternatives which could be quickly implemented. These options will be shared with/discussed with the IV-D communities shortly. However, States were informed of the need to move ahead on the implementation of the data match provisions, rather than waiting for centralization.

A second conference is planned for mid-February. At that time, the Work Groups' focus will be on finalizing the uniform file formats and the Action Transmittal. Time will be also be provided for further discussion of centralization.