1. INTRODUCTION
2. LEGAL FRAMEWORK
3. 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
• Source Documents
• Receipt Requirements
• Formatting Requirements
• Return of Point-of-Purchase Entries

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.

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.

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.

1. INTRODUCTION
2. LEGAL FRAMEWORK
3. ELIGIBLE ITEMS
4. 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 / Notification Requirements       
• Collection Fees       
• Transmission of Entries and RDFI cutoff hour (An RDFI is the bank that the check is drawn on)       
• Number of Presentments       
• Retention of Item / Copy of Item       
• Return of PPD Accounts Receivable Truncated Check Debit Entries

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.

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.

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.)

2. Authorization / Notification Requirements

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."

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).

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.

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.

1. INTRODUCTION
2. LEGAL FRAMEWORK
3. ELIGIBLE ITEMS
4. 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)
• Notice Requirement
• Restrictive Endorsements
• Collection Fees
• Number of Presentments
• Retention of Original Item / Copy of Item
• Return of Re-Presented Check Entries

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.

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.

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)

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.

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.

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:

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.

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.

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

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.

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.

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)

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:

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: