POINT-OF-PURCHASE ENTRIES
  1. INTRODUCTION
  2. LEGAL FRAMEWORK
  3. OBLIGATIONS OF ORIGINATORS (An Originator is a company using National EFT's check truncation products)
A. INTRODUCTION

The NACHA Operating Rules support an application that enables Originators (i.e., merchants, billers, etc.) to initiate a one-time ACH debit entry to a Receiver's (Consumer's) account for in-person purchases made at the point-of-purchase. This application, which is based on a written authorization and account information drawn from a source document (check) obtained from the consumer at the point-of-purchase, provides Originators with an alternative to accepting consumers' checks as the method of payment. This chapter addresses issues relating to the origination and receipt of point-of-purchase entries.

A point-of-purchase entry is an ACH debit application used by Originators as an alternative method of payment for goods or services purchased in person. These one-time debit entries are initiated by the Originator to the consumer's account based on a written authorization and account information drawn from a source document (a check) obtained from the consumer at the point-of-purchase. To initiate a point-of-purchase entry, the consumer must present a check or sharedraft that has not been previously voided or negotiated to the Originator.

The Originator uses a check reading device to capture the MICR information from the check (i.e., routing number, account number, and serial number), which will be used by the Originator to generate a debit entry to the consumer's account. The Originator may not key enter the MICR information from the check, nor may the Originator key enter the MICR information after the check reader has captured this data. The Originator then key enters the amount of the transaction, after which an authorization will be provided to the consumer to sign, authorizing the debit to his account. The Originator must provide to the consumer (1) the consumer's source document, which the Originator has voided, (2) a copy of the consumer's authorization, and (3) a receipt containing specific information relating to the purchase.

B. LEGAL FRAMEWORK

POP entries are subject to the requirements of the NACHA Operating Rules, the Electronic Fund Transfer Act, and the Federal Reserve's Regulation E. Point-of-purchase entries are considered to be ACH entries from start to finish, with the consumer's check used by the Originator solely as a source document for the consumer's routing and account number information. Such transactions are not considered to be truncated checks and do not fall under the requirements of check law or the Uniform Commercial Code for the following reasons:

(1) the check is not accepted by the merchant as a negotiable instrument; and
(2) the check is not negotiated by the merchant or accepted into the check collection system.

C. OBLIGATIONS OF ORIGINATORS

1. Agreements with ODFI's (An ODFI is the Originating Depository Financial
Institution working with National EFT)

Originators choosing to utilize the ACH Network for POP transactions should consider modifications to their agreements with their ODFI's to address the origination of these entries. These modifications should address the extent to which the Originator and ODFI will share liability for point-of-purchase transactions and should define any specific processing obligations relating to such transactions.

2. Authorization Requirements

Originators of POP entries must obtain the consumer's written authorization prior to initiating a debit entry under this application. Although the NACHA Operating Rules do not prescribe specific authorization language for the point-of-purchase application, the authorization must conform to the requirements of the NACHA Operating Rules, which require that the authorization (1) be in writing, signed or similarly authenticated by the Receiver, (2) be readily identifiable as an ACH debit authorization, and (3) clearly and conspicuously state its terms. It is strongly recommended that authorization language for point-of-purchase entries specifically state that the check will not be processed. This will assist consumers in understanding the nature of the transaction. Originators must provide a copy of the authorization to the consumer as required by the NACHA Operating Rules.

Unlike authorization requirements for most consumer debit entries, Originators of point-of-purchase entries need not include on the authorization the method by which the consumer must revoke the authorization, as these entries can not be returned using Return Reason Code R07 (Authorization Revoked). Consumers retain their rights to stop payment on the ACH entry (R08) or to have it returned as unauthorized (R10) when appropriate.

3. Source Documents

Acceptable Source Documents

Originators may only accept a check or sharedraft as a source document for a point-of-purchase debit entry if:

  • the check or sharedraft has not been previously negotiated,
  • the check or sharedraft has not been previously voided,
  • the check or sharedraft contains a pre-printed serial number, and
  • the check or sharedraft is drawn on a consumer account.
  • Unacceptable Source Documents

    Checks that may not be used as source documents for point-of-purchase entries include:

    • corporate checks,
    • third-party checks,
    • credit card checks,
    • obligations of a financial institution (e.g., cashier's checks, money orders, traveler's checks, official checks, etc).
    • checks drawn on the Treasury of the United States, a Federal Reserve Bank, or a Federal Home Loan Bank,
    • checks drawn on a state or local government, or
    • checks payable in a medium other than United States currency.
  • 4. Receipt Requirements

    Originators must, at the point-of-purchase, provide Receivers (Consumers) with a receipt that contains the following minimum amount of information:

    • Originator (Merchant) name,
    • company (Merchant) / third-party service provider telephone number,
    • date of transaction,
    • transaction amount,
    • source document check serial number, and
    • merchant number (or other unique number that identifies the location of the transaction).

    It is also recommended, but not required, that the Originator provide the following information on the receipt provided to the Receiver,

    • merchant address,
    • merchant identification number,
    • Receiver's financial institution routing number,
    • Receiver's truncated account number,
    • Receiver's truncated identification number, and
    • transaction reference number.

    Originators must be aware that the Receiver's complete account number and complete identification number are not permitted to be placed on the receipt. At the Originator's discretion, the receipt and the authorization required for point-of-purchase entries may be provided to the consumer on the same document or on different documents.

    5. Formatting Requirements

    Individual Name

    Originators should be aware that, with the POP SEC Code, the inclusion of information in the Individual Name Field is optional. If the Originator chooses to utilize this field, it must include either (1) the Receiver's (Consumer's) name, or (2) a reference number, identification number, or code that the merchant uses to identify a particular transaction or customer. (Note: When a reference number, identification number, or code is used to identify the transaction or customer, it should be uniquely related to the individual or transaction. A generic description is not an acceptable means to identify the Receiver or transaction.)

    Check Serial Number

    The rules governing POP entries require that the Originator ensure that the check serial number from the Receiver's source document is placed within the Check Serial Number Field of the POP entry. Originators should understand that the NACHA Operating Rules permit Originators to place only the check serial number within the Check Serial Number Field of the POP Entry Detail Record. The word "check," abbreviations such as "ck" or "chk," or other merchant codes must not be included within the field. Because the Check Serial Number Field is defined as an alphanumeric one, the NACHA Operating Rules require information within this field to be left justified and space filled. The serial number of the check must begin in the leftmost position of the Check Serial Number field, and any unused spaces within the field must be left blank.

    INCORRECT examples:

    • 0001234
    • 000000000001234
    • CK#001234
    • CK1234
    • 1234 6532986002
    • CK1234 48832817

    Correct example:

    • 1234

    Originators should be aware that the NACHA Operating Rules require RDFI's to print the check serial number on the consumer's bank statement.

    6. Return of Point-of-Purchase Entries

    Originators should be aware that POP entries, like other ACH transactions, may be returned for a variety of reasons. Originators should be aware, however, that RDFI's cannot return POP entries based on a consumer's claim that his authorization had been revoked (R07) since these are one-time transactions where the Originator will generally process the transactions immediately after the purchase is complete. As appropriate, however, the consumer may (1) request his RDFI to stop the payment of a POP entry (Return Reason Code R08), (2) requires his RDFI to return an unauthorized POP entry (Return Reason Code R10), or (3) go directly to the Originator (Merchant) to request a refund of the transaction.

    • Originators should also be aware that, because the POP entry application does not require the Originator to capture the consumer's name for inclusion on the point-of-purchase entry, the RDFI must rely on the ODFI's warranty regarding the validity of the consumer's account number for posting purposes. The RDFI, therefore, may not return a point-of-purchase entry using Return Reason Codes R03 or R17 solely because the consumer's name is not included in the Individual Name Field of the entry. The RDFI may, however, use these Return Reason Codes if otherwise appropriate.
    • Originators must be prepared to handle returned point-of-purchase entries and must establish procedures that enable them to identify and contact the Receiver relating to any unpaid debit entry. Because the Originator does not retain the consumer's voided check as a source document, and because the consumers' name and address are not included as part of the MICR-capture process, Originators will need to develop alternative methods for retaining information necessary to identify the consumer for whom a point-of-purchase debit has been returned. While the NACHA Operating Rules do not limit the number of times a POP entry may be reinitiated if the entry has been returned for insufficient or uncollected funds, Originators are encouraged to restrict the number of times such entries are reinitiated to lessen the likelihood of customer service inquiries or confusion.

  • ACCOUNTS RECEIVABLE TRUNCATED CHECK DEBIT ENTRIES
    1. INTRODUCTION
    2. LEGAL FRAMEWORK
    3. ELIGIBLE ITEMS
    4. OBLIGATIONS OF ORIGINATORS (An Originator is a company using National EFT's check truncation products)       
    A. INTRODUCTION

    Effective December 15, 2000 through March 14, 2002, a short-term rule is in place that enable Originators to use the PPD format to truncate consumer checks received through the U.S. mail for the payment of goods or services and to collect those checks via the ACH Network. This short-term rule amendment provides a legal framework within the NACHA Operating Rules for the protection of ACH participants while testing the effectiveness and acceptance of this consumer check truncation application. In order to originate PPD Accounts Receivable Truncated Check Debit Entries, the ODFI must sign an agreement with the National Association.

    B. LEGAL FRAMEWORK

    PPD Accounts Receivable Truncated Check Debit Entries are subject to the requirements of the NACHA Operating Rules, the Uniform Commercial Code (UCC), and the Federal Reserve Regulation CC. These entries are not, however, subject to the Electronic Funds Transfer Act or Regulation E. Transfers of funds that were "originated by a check, draft, or similar paper instrument" are specifically excluded from coverage under the EFTA (15 U.S.C. 1693(a)(6)) and Regulation E (12 C.F.R. Part 205.3(c)(1)).

    A PPD Accounts Receivable Truncated Check Debit Entry is deemed to be a presentment notice for purposes of Revised Article 4 of the Uniform Commercial Code (1990 Official Text). To that end, the receipt of a PPD Accounts Receivable Truncated Check Debit Entry constitutes presentment of the item in accordance with Article 4-110 and return of the PPD Accounts Receivable Truncated Check Debit Entry constitutes notice of dishonor or non-payment of the item in accordance with Article 4-301. The provisions of the NACHA Operating Rules that are applicable to PPD Accounts Receivable Truncated Check Debit Entries are in accordance with the Commentary provisions set forth in 12 C.F.R. Part 229.37 of Federal Reserve Regulation CC.

    C. ELIGIBLE ITEMS

    To be eligible to be truncated and transmitted as a PPD Accounts Receivable Truncated Check Debit Entry under this short-term rule, an item (check) must:

    • have been received by the Originator (An Originator is a company using National EFT's check truncation products) through the U.S. mail. (Note: For purposes of this short-term rule, (1) the term "U.S. mail" includes mail delivered by the United States Postal Service as well as mail delivered via courier service, including, but not limited to, Federal Express, United Parcel Service, or other local courier service, and (2) the term "U.S. mail" does not include checks placed within merchant drop boxes. These checks are not considered to have been received by the Originator via the U.S. mail and are not eligible for truncation under this short-term rule.)
    • be an item within the meaning of Revised Article 4 of the Uniform Commercial Code (1990 Official Text)
    • be a negotiable demand draft drawn on or payable through or at a Participating DFI (Depository Financial Institution), other than a Federal Reserve Bank or Federal Home Loan Ban
    • be completed and signed by the consumer
    • be dated 180 days or less from the date the entry is transmitted to the RDFI (i.e., the item to which the PPD entry relates is not stale dated)
    • be drawn on a consumer account
    • not have been previously presented in its physical form (i.e., the check can not have been processed through the check collection system)
    • not have been previously presented more than two times as an ACH debit entry (i.e., the ACH debit may be transmitted a maximum of three times via the ACH Network)

    Checks (items) that are ineligible to be transmitted as PPD Accounts Receivable Truncated Check Debit Entries include, but are not limited to :

    • non-cash items (as defined by Section 229.2(u) of Federal Reserve Regulation CC)
    • drafts drawn on the Treasury of the United States, a Federal Reserve Bank, or a Federal Home Loan Bank
    • drafts drawn on a state or local government that are not payable through or at a Participating DFI
    • obligations of a financial institution (e.g., cashier's checks, treasurer's checks, traveler's checks, money orders, etc.)
    • credit card checks
    • third-party checks
    • corporate checks
    • items payable in a medium other than United States currency
    • demand drafts or third-party drafts that do not contain the signature of the Receiver (i.e. the person making the check.)
    D. OBLIGATIONS OF ORIGINATORS (An Originator is a company using National EFT's check truncation products)

    1. Agreements with ODFI's

    Originators choosing to utilize the ACH Network to truncate consumer checks received through the U.S. mail for payment of goods or services and collect them using PPD debit entries should consider modifications to their agreements with their ODFI's to address the origination of PPD Accounts Receivable Truncated Check Debit Entries. Originators should ensure that their ODFI / Originator agreements not only bind the Originator to the requirements of the NACHA Operating Rules, but they should also address any processing obligations, timing, liabilities, etc., that are unique to the PPD Accounts Receivable Truncated Check Debit Entry application.

    These modifications could, for example, address the extent to which the Originator and ODFI would share liability for the following warranties as they apply to the origination of PPD Accounts Receivable Truncated Check Debit Entries:
    the ODFI has entered into an agreement with NACHA to abide by the reporting requirements set forth in the agreement
    the ODFI must transmit each PPD Accounts Receivable Truncated Check Debit Entry to its ACH Operator in such a time and manner that the entry is not made available to the RDFI before 2:00 p.m. (RDFI's local time) on the banking day prior to the Settlement Date of the entry

    the ODFI has good title to the item
    all signatures on the item are authentic and authorized
    the item has not been altered
    the item is not subject to a defense or claim
    the ODFI has no knowledge of any insolvency
    the PPD Accounts Receivable Truncated Check Debit Entry accurately reflects the item
    the item will not be presented to the RDFI unless the related PPD debit entry has been returned by the RDFI
    the ODFI will provide the RDFI with either the original or copy of the item within ten banking days of the RDFI's written request for the original or copy.

    2. Authorization / Notification Requirements

    Originators of PPD Accounts Receivable Truncated Check Debit Entries must provide the consumer with notice of the check truncation program prior to receiving the first item to which the PPD Accounts Receivable Truncated Check Debit Entry relates. This notice must clearly and conspicuously state the terms of the truncated check entry policy and must either (1) require the consumer to authorize the truncation of his checks and the initiation of ACH debit entries via a writing that is signed or similarly authenticated, or (2) notify the consumer that, if the consumer does not provide the Originator with written notice not to truncate his checks, those checks will be truncated.

    When the express authorization of the consumer is not obtained for truncation of consumer checks (see Option #2 in previous paragraph), Originators are strongly encouraged to include the notice of the check truncation policy in each subsequent bill / invoice that is provided to the consumer and to include a telephone number that the consumer may use to contact the Originator with any questions regarding the check truncation policy or to obtain specific requirements for providing notice to the Originator not to truncate the consumer's checks.

    When explicit authorization of the consumer is required, Originators must establish procedures to retain a copy of the consumer's authorization for two years from the termination or revocation of the authorization and must be prepared to provide a copy of the authorization to the ODFI if requested to do so.

    3. Collection Fees

    PPD Accounts Receivable Truncated Check Debit Entries may be originated only for the face amount of the check. No collection fees may be added to the amount of the item when it is transmitted as a truncated check entry. To originate an ACH debit entry to collect fees, an Originator must transmit a traditional PPD transaction (see ACH Software Section) and must follow all rules governing PPD entries, including having first obtained the consumer's written authorization for such entry in accordance with the requirements of the NACHA Operating Rules.

    4. Transmission of Entries and RDFI Cutoff Hour

    Originators must be aware that their ODFI's assume an additional warranty that the transmission of a PPD Accounts Receivable Truncated Check Debit Entry to its ACH Operator is in such a time and manner that the entry will not be made available to the RDFI before 2:00 p.m. (RDFI's local time) on the banking day prior to the Settlement Date of the entry. Originators must also understand that an RDFI cutoff hour of 2:00 p.m. (RDFI's local time) has been established for PPD Accounts Receivable Truncated Check Debit Entries, after which time the receipt of such an entry by an RDFI will be considered to have been at the opening of business on the next banking day. For example, a PPD Accounts Receivable Truncated Check Entry made available to the RDFI at 3:15 p.m. on Wednesday will be after Wednesday's cut-off time for receipt of these entries and will be considered to have been presented on Thursday, which is the Settlement Date for the entry.

    These requirements ensure compliance with Federal Reserve Regulation CC, which contains special provisions for the return of checks in the amount of $2,500 or more. Regulation CC requires that a paying bank (the RDFI in the ACH debit environment) returning a check in the amount of $2,500 or more provide notice of non-payment to the depositary bank (ODFI of a debit in ACH terms) by 4:00 p.m. on the second banking day following the day the check was presented.

    Because the receipt of the presentment notice and the Settlement Date are the same day, the return time frame for PPD Accounts Receivable Truncated Check Entries is the typical return time frame for ACH transactions, which requires that the return entry be received by the RDFI's ACH Operator by its deposit deadline for the return entry to be made available to the ODFI no later than the opening of business on the second banking day following the Settlement Date. The return of the ACH entry serves as sufficient notice of non-payment under Regulation CC. In order to be consistent with check terminology, the term "Settlement Date of the original entry" in the NACHA Operating Rules has been replaced with the terminology "banking day of receipt of the presentment notice."

    5. Number of Presentments

    Originators may transmit a PPD Accounts Receivable Truncated Check Debit Entry a maximum of three times via the ACH Network. A PPD Accounts Receivable Truncated Check Debit Entry that has been returned may not be reinitiated unless (1) either the PPD entry has been returned for insufficient or uncollected funds, or the ODFI has taken corrective action to remedy the reason for the return, and (2) the item to which the PPD entry relates has not been presented in its physical form (e.g., processed through the paper check collection system) and has not been reinitiated more than two times as a PPD entry.

    An item may not be presented as a PPD Accounts Receivable Truncated Check Debit Entry if the item has been previously presented in its physical form (i.e., the check has been processed through the paper check collection system).

    6. Retention of Item / Copy of Item

    Originators must retain the original check to which the PPD Accounts Receivable Truncated Check Debit Entry relates for ninety (90) days from the Settlement Date of the truncated check entry and a copy (e.g. scanned image, photocopy, microfiche, etc.) of the check to which the PPD Accounts Receivable Truncated Check Debit Entry related for seven (7) years from the Settlement Date of the truncated check entry.

    When requested to do so by the ODFI, the Originator must provide either the original check or a copy of the front and back of the check to the ODFI for its use or for the use of the RDFI requesting the information. If the check has been finally paid, this must be indicated on the face of the check or copy of the check.

    Once the item has been finally paid, Originators may wish to destroy the original check after the 90-day retention requirement to lessen the potential for fraud or processing error relating to retention of the original check.

    7. Return of PPD Accounts Receivable Truncated Check Debit Entries

    Originators should be aware that PPD Accounts Receivable Truncated Check Debit Entries may be returned for a variety of reasons. For the majority of PPD Accounts Receivable Truncated Check Entry returns, the RDFI must transmit the return entry so that it is received by the RDFI's ACH Operator by its deposit deadline for the return entry to be made available to the ODFI no later than the opening of business on the second banking day following the banking day of receipt of the presentment notice (i.e., the Settlement Date of the entry).

    However, Originators should be aware that, for PPD Accounts Receivable Truncated Check Debit Entries for which (1) the Receiver had placed a stop payment order on the item to which the PPD Accounts Receivable Truncated Check Debit Entry relates, (2) the required notice stating the truncated check entry policy was not provided by the Originator, (3) the check is ineligible, (4) all signatures on the check are not authentic or authorized, or the check has been altered, (5) the Receiver has provided notice to the Originator not to truncate the check, or (6) written authorization of the Receiver was required by the Originator prior to truncation of the item and such authorization was not obtained from the Receiver, the RDFI will be able to transmit a return entry to its ACH Operator by its deposit deadline for the return entry to be made available to the ODFI no later than the opening of business on the banking day following the sixtieth (60th) calendar day following the Settlement Date of the truncated check entry. With the exception of returns due to stop payment on the original item, the Receiver will have been required to execute an affidavit declaring and swearing under oath the reason for the return as described above.


    Re-Presented Check Entries (RCK)
    1. INTRODUCTION
    2. LEGAL FRAMEWORK
    3. ELIGIBLE ITEMS
    4. OBLIGATIONS OF ORIGINATORS (An Originator is a company using National EFT's check truncation products)
    A. INTRODUCTION

    The NACHA Operating Rules permit the ACH Network to be utilized to transmit ACH debit entries in place of a paper check after the paper check has been returned for insufficient or uncollected funds. This chapter addresses issues relating to the origination and receipt of re-presented check entries.

    B. LEGAL FRAMEWORK

    Re-presented check entries are subject to the requirements of the NACHA Operating Rules, the Uniform Commercial Code (UCC), and the Federal Reserve Regulation CC. These entries are not, however, subject to the Electronic Funds Transfer Act or Regulation E. The legal framework for Re-Presented Check Entries is premised on the fact that the origin of each Re-Presented Check Entry is a paper check that has been dishonored.

    Transfers of funds that were originated by a check, draft, or similar paper instrument are specifically excluded from coverage under the EFTA (15 U.S.C. 1693a(6)) and Regulation E (12 C.F.R. 205.3(c)(1)). Accordingly, if a re-presented check entry is treated as a check transaction for purposes of the EFTA and Regulation E, it follows that the UCC and Regulation CC should continue to be the bodies of law that govern the rights and responsibilities of the parties involved with that payment, even though it has been converted to electronic form.

    C. ELIGIBLE ITEMS

    A Re-Presented Check Entry is considered to be a presentment notice for purposes of Revised Article 4 of the Uniform Commercial Code (1990 Official Text). To that end, the receipt of a Re-Presented Check Entry constitutes presentment of the item in accordance with Article 4-110, and the return of the re-presented check entry constitutes notice of dishonor or non-payment of the item in accordance with Article 4-301. The provisions of the NACHA Operating Rules that are applicable to re-presented check entries are in accordance with the Commentary provisions set forth in 12 C.F.R. Part 229.37 of Federal Reserve Regulation CC.

    To be eligible to be transmitted as a Re-Presented Check Entry, an item (check) must:

    • be an item within the meaning of Revised Article 4 of the Uniform Commercial Code (1990 Official Text)
    • be a negotiable demand draft drawn on or payable through or at a Participating DFI (Depository Financial Institution), other than a Federal Reserve Bank or Federal Home Loan Bank
    • be in an amount less than $2,500
    • indicate on the face of the document that it was returned for insufficient or uncollected funds
    • be dated less than 180 days from the date the entry is transmitted to the RDFI
    • be drawn on a consumer account
    • must have been previously presented (a) no more than twice in paper form, if the entry is an initial Re-Presented Check Entry; or (b) no more than once in paper form and no more than once as a Re-Presented Check Entry, if the entry is a reinitiated Re-Presented Check Entry.

    Checks (items) that are ineligible to be transmitted as Re-Presented Check Entries include, but are not limited to :

    • non-cash items (as defined by Section 229.2(u) of Federal Reserve Regulation CC)
    • drafts drawn on the Treasury of the United States, a Federal Reserve Bank, or a Federal Home Loan Bank
    • drafts drawn on a state or local government that are not payable through or at a Participating DFI
    • United States Postal Service money orders
    • items payable in a medium other than United States currency
    • items that are third-party items (e.g., the payee endorses a check over to a third party who also endorses the check)
    • demand drafts and third-party drafts that do not contain the signature of the Receiver (e.g., the drawer does not sign a check but authorizes another party to debit his account via a draft).

    D. OBLIGATIONS OF ORIGINATORS (An Originator is a company using National EFT's RCK software products)

    1. Agreements with ODFI's

    Originators choosing to utilize the ACH Network to collect checks that have been returned for insufficient or uncollected funds should consider modifications to their agreements with their ODFI's to address the origination of Re-Presented Check Entries.

    These modifications could, for example, address the extent to which the Originator and ODFI would share liability for the following warranties as they apply to the origination of these transactions:

  • the ODFI has good title to the returned item
  • all signatures on the item are authentic and authorized
  • the item has not been altered
  • the item is not subject to a defense or claim
  • the ODFI has no knowledge of any insolvency
  • the Re-Presented Check Entry accurately reflects the item
  • the item will not been and will not be presented
  • the information encoded after issue in magnetic ink on the item is correct
  • any restrictive endorsements placed on the item is void or ineffective
  • the ODFI will provide the RDFI with either the original or a copy of the item within ten banking days of the RDFI's written request for the original or copy.
  • 2. Notice Requirement

    Originators of RCK entries must provide notice to the check writer, prior to receiving the item to which the Re-Presented Check Entry relates, informing the check writer that his returned check may be collected electronically if the check is returned for insufficient or uncollected funds.

    The manner in which the Originator provides notice to the check writer is not prescribed by the NACHA Operating Rules. However, the notice must clearly and conspicuously state the terms of the Re-Presented Check Entry policy. It is recommended that notice provided at the point-of-sale be clearly displayed on a sign at the point-of-sale, and that notice provided by a billing firm (e.g., utility company or credit card company which issues a bill for payment) be clearly displayed on or with the monthly billing statement.

    Originators should be aware that, to protect both the check writer and the RDFI, a check writer will be able to sign an affidavit at his RDFI if the required notification by the Originator is not provided and, consequently, have his account recredited. The RDFI, in turn, will be able to return the RCK entry (for which the check writer has signed an affidavit that notice was not provided) by transmitting the return entry to its ACH Operator by its deposit deadline for the return entry to be made available to the ODFI no later than the opening of business on the banking day following the sixtieth (60th) calendar day following the settlement date of the RCK entry.

    3. Restrictive Endorsements

    Any restrictive endorsement (e.g., "For Deposit Only") placed on the item by the Originator or its agent is void or ineffective when the item is presented as a Re-Presented Check Entry.

    4. Collection Fees

    Re-Presented Check Entries may be originated only for the face amount of the check. No collection fees may be added to the amount of the item when it is transmitted as an ACH entry.

    To originate an ACH debit to collect fees, (see RCK Fees allowable by state) an Originator must transmit a traditional PPD transaction and must follow all rules governing PPD entries, including having first obtained the consumer's written authorization for such an entry in accordance with the requirements of NACHA Operating Rules.

    Some Originators may desire to place an authorization stamp on the check being used for the payment of goods or services in order to collect a returned check fee in the event that the check is returned for insufficient or uncollected funds. In order for this practice to be compliant with the NACHA Operating Rules, the following requirements must be met:

  • An authorization placed on the check must be signed (not initialed). This signature must stand alone, i.e., the authorization language for the ACH debit entry must not be stamped in close proximity to the maker's signature on the check. The signature must clearly relate to the authorization language itself.

  • The authorization on the check must be identifiable as an ACH debit authorization and must clearly and conspicuously state its terms (i.e., the print cannot be so small or smeared that a consumer would be unable to easily read the authorization and understand its terms).

  • The authorization on the check must contain information that explains how the consumer may revoke the authorization.

  • The Originator must provide the consumer with an electronic or hard copy of the authorization.

  • The Originator must retain the original or a microfilm (or its equivalent) copy of the authorization for two years from the termination or revocation of the authorization.

    Authorization language, if stamped on the back of the check, should be in the endorsement space provided and not lower on the check. Before stamping the back of a check with anything other that an endorsement, Originators must ensure that they understand and are in compliance with both the NACHA Operating Rules and all regulations that govern the collection of checks.

  • 5. Number of Presentments

    Originators may transmit a Re-Presented Check Entry no more than twice after the first return of a paper item, and no more than once after the second return of a paper item.

    6. Retention of Original Item / Copy of Item

    Originators must retain the original check to which the Re-Presented Check Entry relates for ninety (90) days from the Settlement Date of the Re-Presented Check Entry, and a copy (e.g. scanned image, photocopy, microfiche, etc.) of the check to which the Re-Presented Check Entry relates for seven (7) years from the Settlement Date of the Re-Presented Check Entry.

    When requested to do so by the ODFI, the Originator must provide either the original check or a copy of the front and back of the check to the ODFI for its use or for the use of the RDFI requesting the information. If the check has been finally paid, this must be indicated on the face of the check or copy of the check.

    Once the item has been finally paid, Originators may wish to consider developing procedures to destroy the original check after the 90-day retention requirement to lessen the potential for fraud or processing error relating to retention of the original check.

    7. Return of Re-Presented Check Entries

    Originators should be aware that Re-Presented Check Entries may be returned for a variety of reasons. For the majority of Re-Presented Check Entry returns, the RDFI must transmit the return entry so that it is received by the RDFI's ACH Operator by midnight of the second banking day following the banking day of receipt of the Re-Presented Check Entry.

    However, Originators should be aware that, for Re-Presented Check Entries for which (1) the Receiver had placed a stop payment order on the item to which the RCK relates, (2) the required notice stating the Re-Presented Check Entry policy was not provided by the Originator, (3) the check is ineligible, (4) all signatures on the check are not authentic or authorized, or (5) the check has been altered, the RDFI will be able to transmit a return entry to its ACH Operator by its deposit deadline for the return entry to be made available to the ODFI no later than the opening of business on the banking day following the sixtieth (60th) calendar day following the Settlement Date of the RCK entry. With the exception of returns due to stop payment on the original item, the Receiver will have been required to execute an affidavit declaring and swearing under oath the reason for the return as described above.


    Telephone-Initiated Entries (TEL)

    A. INTRODUCTION
    B.
    LEGAL FRAMEWORK
    C.
    TEL ENTRIES
    D.
    OBLIGATIONS OF ORIGINATORS
    (An Originator is a company using
          National EFT's check truncation products)

  • Agreements with ODFI's (An ODFI is the Originating Depository Financial
          Institution working with National EFT)
  • Authorization Requirements
  • Risk Management
  • A. INTRODUCTION

    On September 14, 2001, an amendment to the NACHA Operating Rules will become effective that will permit an Originator of a Single Entry consumer debit transaction to obtain the consumer's authorization for a debit entry, including the banking information, orally via the telephone. An entry based upon a consumer's oral authorization must utilize a new Standard Entry Class Code, TEL (Telephone-Initiated Entry). This new Standard Entry Class Code will enable ACH participants to readily identify Single Entry transactions that are initiated pursuant to a consumer's oral authorization via the telephone. These rules streamline the ACH authorization process by providing an alternative method for obtaining the consumer's authorization for Single Entry ACH debit activity, facilitating use of the ACH Network for one-time payments. Because TEL entries are Single Entry debits, Originators must be aware that they must obtain a separate oral authorization from the consumer for each entry to the consumer's account.

    C. LEGAL FRAMEWORK

    TEL entries are subject to the requirements of the NACHA Operating Rules and the Electronic Fund Transfer Act as implemented by the Federal Reserve Board's Regulation E. While Regulation E covers both recurring and non-recurring ACH debit entries, the Regulation does not have specified requirements for the authorization of non-recurring ACH debit entries.

    B. TEL ENTRIES

    A TEL entry is an entry initiated by an Originator in response to a consumer's oral authorization, which includes the consumer's banking information, captured via the telephone to transmit a Single Entry ACH debit to his account to collect payment for goods or services. A Single Entry is a one-time transfer of funds initiated by the Originator in accordance with the Receiver's authorization. Originators may not utilize this Standard Entry Class Code to transmit credit entries, with the exception of reversals, to the consumer's account.

    A TEL entry should not be initiated in situations where the consumer has provided the Originator with a standing authorization for the transmission of multiple but non-recurring ACH debit entries to his account (e.g., the consumer has provided a written authorization to his brokerage firm to debit the consumer for occasional securities purchases). Although the purchase may be transacted via telephone, authorization and banking information were provided via a separate written authorization. In this situation, ACH debit activity should be originated using the PPD Standard Entry Class Code as defined by the NACHA Operating Rules.

    A TEL entry may be transmitted only in circumstances in which (1) there is an existing relationship between the Originator and the consumer, or (2) there is not an existing relationship between the Originator and the consumer, but the consumer has initiated the telephone call to the Originator. A TEL entry may not be used by an Originator when there is no existing relationship between the Originator and the consumer, and the company has initiated the telephone call. The Originator and the consumer are considered to have an existing relationship when either (1) there is a written agreement in place between the Originator and the consumer for the provision of goods or services (e.g., the consumer has an insurance policy with the Originator), or (2) the consumer has purchased goods or services from the Originator within the past two years.

    D. OBLIGATIONS OF ORIGINATORS (An Originator is a company using National EFT's TEL software products)

    1. Agreements with ODFI's

    Originators desiring to use the ACH Network to transmit TEL entries should consider modifications to their agreements with their ODFI's to address the origination of this type of transaction. At a minimum, additions to the ODFI/Originator agreement should include the Originator's responsibilities and obligations with respect to the provision of specific information to the consumer during the telephone call, the Originator's requirement to tape record or provide written confirmation of the consumer's authorization, verification of the identity of the Receiver, and verification of routing numbers. As the ODFI assumes additional warranties with respect to the verification of the consumer's identity and verification of the consumer's routing number, the agreement should also address the extent to which the Originator and ODFI will share liability for any failure on the part of the Originator to comply with these and other requirements of the NACHA Operating Rules.

    2. Authorization Requirements (An Originator is a company using National EFT's TEL software products)

    As with other ACH entries, Originators of TEL entries must obtain the consumer's explicit authorization prior to initiating a debit entry to a consumer's account. Unlike other debit entries to a consumer's account, however, Originators need not provide the consumer with a written authorization for the consumer to sign or similarly authenticate. Instead, the Originator may obtain the consumer's authorization for a TEL entry orally via the telephone. Originators of TEL entries are obligated either to tape record the consumer's oral authorization or to provide, in advance of the Settlement Date of the entry, written notice to the consumer that confirms the oral authorization. The Originator must ensure that, at a minimum, the following specific information is disclosed to the consumer during the telephone call:

  • the date on or after which the consumer's account will be debited
  • the amount of the debit entry to the consumer's account
  • the consumer's name
  • a telephone number that is available to the consumer and answered during normal business hours for customer inquiries
  • the date of the consumer's oral authorization
  • a statement by the Originator that the authorization obtained from the Receiver will be used to originate an ACH debit entry to the consumer's account.

    For an oral authorization obtained over the telephone to be valid, the Originator must (1) state clearly during the telephone conversation that the consumer is authorizing an ACH debit entry to his account, and (2) express the terms of the authorization in a clear manner. The Originator must retain either the original or a duplicate tape recording of the consumer's oral authorization or a copy of the written notice confirming the consumer's oral authorization for two years from the date of the authorization.

    An Originator that chooses the option to provide the consumer with written notice confirming the consumer's oral authorization must disclose to the consumer during the telephone call the method by which such notice will be provided. The written notice must include, at a minimum, the six pieces of information required to be disclosed during the telephone call, as described above. Originators should understand that the term "provide" is intended to mean that the Originator has utilized a medium (e.g., U.S. mail, FAX, or other mail delivery method) to send the written notice to the consumer. (Note: At this time, use of e-mail communication is NOT considered to be an acceptable delivery method for provision of written notice to the consumer.) The term "provide" does not imply receipt of such notice by the consumer. Originators must understand that, when written notice is used to confirm the authorization, the consumer must be afforded the right to contact the Originator, using the telephone number provided, to correct any erroneous information contained within the notice.

    An Originator using a voice response unit (VRU) to capture a consumer's authorization for a TEL entry must understand that key-entry responses by the consumer to input data and to respond to questions does not qualify as an oral authorization. A VRU may be used by the consumer to key enter data and to respond to questions, provided that the actual authorization by the consumer (including the six pieces of information defined above) is provided orally.

  • 3. Risk Management

    In an effort to minimize the risk related to Telephone-Initiated Entries, in which the identity of the consumer and the consumer's assent to the authorization cannot be assured by a written authorization, the NACHA Operating Rules require Originators to implement a number of specific risk management procedures relating to TEL entries:

  • Verification of Identity of Receiver

    Originators of TEL entries are required to utilize commercially reasonable procedures to verify the identity of the consumer. Originators will need to establish a commercially reasonable method (e.g., use of a directory, database, etc.) to verify the consumer's name, address, and telephone number. The Originator is also advised to further verify the Receiver's identity by verifying pertinent information with the Receiver (e.g., past buying history, mother's maiden name, Caller ID information, etc.).

  • Verification of Routing Numbers

    Each Originator that initiates TEL entries must establish commercially reasonable procedures to verify that routing numbers are valid. Because TEL entries are Single Entry debits where consumers will provide their routing numbers by reading them from a source document (e.g., the consumer's check), there are likely to be circumstances in which the routing number is provided by the consumer incorrectly. Similarly, there may be situations in which the MICR information on the consumer's check is not appropriate for ACH processing. As a result, exception processing related to TEL entries may increase. To minimize the potential for exception processing with respect to these transactions, each Originator is obligated to employ commercially reasonable procedures to verify that routing numbers are valid. Verification of the validity of the entry's routing number can be accomplished through the use of a database or directory (either commercially or proprietary), or through other methods devised by the Originator. The validity of the entry's routing number may also be verified by manual intervention such as contacting the consumer's financial institution. Although the NACHA Operating Rules do not require verification of the structure of the consumer's account number. Originators are encouraged to establish similar procedures to validate this information prior to the transmission of TEL entries.

    A commercially reasonable system, technology, practice, or procedure is one that corresponds to commonly accepted commercial practices among commonly situated Originators conducting similar types of business. In other words, the concept of "commercial reasonableness" means that an Originator, given the facts of a specific transaction, acted in a way that other similar Originators would have acted. The determination of commercial reasonableness is based on the situation of each Originator with respect to a number of factors including the size, type, and frequency of entries typically transmitted by the Originator, the alternative available to the Originator, and procedures in general use by similarly situated Originators. Whether an Originator has fulfilled its obligations to perform in a commercially reasonable manner will be determined based on an evaluation of those circumstances, including a weighing of the cost to the Originator to employ a particular technology or procedure against the level of protection it affords to the Originator and other ACH participants. A party challenging the Originator that the use of a particular system, technology, practice, or procedure has the burden of proving that it was not commercially reasonable.


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