LEGAL NOTICES...This is 100% LEGAL!!

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 document 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.  

For the purpose of definition in this document, ODFI means Originating Depository Financial Institution.

RDFI is Regional Depository Financial Institution.

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).  

1. Notice Requirement  

Merchants using CheckSavers 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.  

Merchants 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.

2. 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.  

3. 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 state fees) an originator must transmit a traditional PPD transaction and must follow all rules governing PPD entries.  

4. 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.  

5. Retention of Original Item / Copy of Item  

CheckSavers will 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, CheckSavers will 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.

6. Return of Re-Presented Check Entries

Merchants 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, Merchants 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.

For complete information, feel free to visit www.NACHA.org 

 

Massive Change in Check Collection

Major retailers will be dancing in the street with this NACHA rules change.

The Board is adopting a final rule revising the Official Staff Commentary to Regulation E, which implements the Electronic Fund Transfer Act to permit the collection of check service fees without a written authorization from the consumer. Under this new view, a sign telling consumers that their check may be collected electronically will be considered sufficient notice.

All businesses, including collection organizations, will benefit, but major retailers like Wal-Mart have been lobbying for this change for a while. Wal-Mart has said over and over that it wants to collect check service fees electronically without slowing down its checkout process to acquire consumer signatures.

Re-presented check entry (RCK) collection has been a major cost-savings opportunity for high-volume check businesses like Wal-Mart, and collection of the service fee with as little work as possible will be another terrific boost to collection effectiveness.

While the collection of a service fee, which varies by state, is always beneficial, it is most significant on low-value checks. These fees, which average about $35 nationally, can double the net collection percentage on checks less than $70, which explains why major retailers will benefit most from this new rule.

The new 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 a consumer's account, telephone-initiated transfers and other issues.

The new rule was effective March 15; however, to allow time for any necessary operational changes, the mandatory compliance date is January 1, 2002.

Excerpt for Regulation "E" changes:

Comment 3(c)(1)-1 provides guidance on NACHA's RCK program, in which merchant payees (or their financial institutions or agents) re-present returned checks electronically. Written authorization from the consumer for the RCK debit is not 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 to the consumer).

Most stakeholders in the industry agreed with the proposed rule excluding coverage of the RCK. A number of stakeholders, however, 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 stakeholders believed that the fee was 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.

Bad News for Collection Companies

This change also might have some other unexpected side effects. Since service fees are so significant in low-value checks, major retailers might plan to do more work for themselves in check collections and outsource less work. Since the high volume of low-value checks might decline in the number assigned to collection agencies, the collections companies will find they must compete in higher-dollar checks, where the collection results are much lower.

Finally, the lack of easier collection items, in what are essentially freebie collections, to offset the higher cost of large-value check collection might make it more difficult for collection companies to compete with check guarantee companies.

It also is likely to be true that enough benefit might be realized in low- value check collections, once service fees also can be collected cheaply and easily, that it might well begin to impact the adoption of check electrification.

1 National Automated Clearing House Association is the trade association that develops operating rules and business practices for the ACH network.

2 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.  

³ A request for Comment (posted on the NACHA Web site, http://www.nacha.org) on electronic check applications asks for opinions on the proposed rule changes.