Returned Checks Can Now Be Collected Electronically, NACHA Announces.Seattle, WA, March 10, 1998 -The National Automated Clearing House Association (NACHA) announced today that its Board of Directors has approved a "rule" for the electronic collection of checks returned for insufficient funds (NSF). Checks that have been returned unpaid for NSF can now be collected through the Automated Clearing House (ACH) Network, the network that allows financial institutions to exchange payments on behalf of business customers and consumers. NACHA announced the new rule at it PAYMENTS 98 conference in Seattle.
Keith Theisen, Vice President of Norwest Bank, led the NACHA Rules Work Group that developed the rule. He said, "The collection of returned checks through the Ach Network can bring substantial cost and time savings to businesses, consumers and financial institutions. Respondents to the group's request for comments estimate that costs associated with representing an NSF check can be reduced by up to 50 cents per check for businesses, and one dollar per check for financial institutions. Lower costs also make the collection of small-value checks more cost-effective." In addition, NACHA projects that the rate of successful collection could increase by 25 to 50 percent.
Consumers will benefit from the new provision, too. Hal Piotrowski, Vice President of Charter One Bank and the Chairman of NACHA, said, "Use of the new ACH check collection transaction will result in quicker removal of negative information from check verification databases, which many merchants use to screen out bad check writers. This means that consumers will be able to write checks again sooner."
Currently, returned checks that are to be "re-presented" must be physically sent through the check clearing system in order to be collected. The new NACHA rule allows this re-presentment to take place over the ACH network.
The new rule creates a new Standard Entry Class Code - RCK (for Represented Check Entry)- under NACHA's Operating Rules for the ACH Network. The RCK code provides a method to initiate and ACH debit transaction in place of a paper check, after the original paper check is returned for insufficient funds. The RCK rule becomes effective September 17, 1999.
Steve Shutze, Senior Vice President of NationsBank said, "The new Represented Check Entry transaction was created in response to the needs of businesses that need faster and more successful collection of returned checks."
The NACHA Board also approved an interim rule, effective September 18, 1998 through September 16, 1999, to allow ACH participants to use the existing Pre-authorized Payment and Deposit (PPD) Standard Entry Class Code to initiate these transactions.
The RCK rule requires businesses who plan to collect returned checks electronically to notify check-writers, at the point of sale or on monthly bills, in a manner to notices currently required for collection fees.
About the National Automated Clearing House Association (NACHA)
NACHA, located in Herndon, Virginia, represents more than 13,000 financial institutions through its 35 regional ACH associate, six councils and corporate Affiliate Membership program. A leader in the payments industry, NACHA develops operating rules for the Automated Clearing House (ACH) Network and for emerging electronic payment solutions in the areas of Internet commerce, bill payment and presentment, financial EDI, cross border transactions, electronic checks, and electronic benefits transfer. NACHA produces marketing collateral and technical publications, and provides extensive education services, including major conferences and seminars. Visit NACHA on the Internet at www.nacha.org.
New NACHA Ruling...
As of Friday, March 16, 2001 NACHA has ruled RCK can now be debited electronically without authorization from the check writer.
FEDERAL RESERVE SYSTEM
12 CFR Part 205
(Regulation E: Docket No. R-1074)
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule: official Staff Interpretation.
SUMMARY: The board is adopting a final rule revising the Official Staff Commentary to Regulation E, which implements the Electronic Fund Transfer Act. The commentary interprets the requirements of Regulation E, to facilitate compliance by financial institutions that offer electronic fund transfer services to consumers. The final rule provides guidance on Regulation E coverage of electronic check conversion transactions and computer-initiated bill payments: authorization of recurring debits from consumer's account; telephone-initiated transfers; and other issues.
DATE: The rule is effective March 15, 2001; however, to allow time for any necessary operational changes, the mandatory compliance date is January 1, 2002.
Excerpt for Reg "E" changes
Comment 3(c)(1)-1 provides guidance on NACHA's re-presented check entry (RCK) program, in which merchant payees (or their financial institutions or agents) re-represent returned checks electronically. Written authorization from the consumer for the RCK debit is obtained, although the merchant payee usually has provided notice at POS that any returned item may be collected electronically if returned for insufficient funds. The comment clarifies that an RCK transaction is not covered by Regulation E because the transaction was originated by check.
In some cases, a payee may impose a fee on the consumer because the consumer's check was returned. NACHA rules provide that the RCK debit must be in the amount of the original check; therefore, the amount may not be increased to include a fee. The payee would have to initiate a separate debit to collect the fee electronically. Because an electronically debited fee meets the definition of an EFT under Regulation E, it is covered by the regulation and must be authorized (in this case, by notice of the consumer). Most commenters agreed with the proposed rule excluding coverage of the RCK. A number of commenters disagreed with the proposal to cover any additional fee debited electronically from the consumer's account. Since the fee is based on the original transaction, these commenters believe the fee is likewise covered by the Uniform Commercial Code, (UCC), which permits incidental damage fees. The Board views, as separate transactions, the RCK and any fee assessed and debited from the consumer's account as a result of insufficient funds, whether or not the fee is permitted by the UCC to cover incidental damages. Authorization is required to electronically debit the fee from the consumer's account, but because the transfer is nonrecurring, notice to the consumer is sufficient for purposes of compliance with the regulation.