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Returned Checks Collected Electronically

The National Automated Clearing House Assoc-iation (NACHA) has approved a rule for the electronic collection of checks returned for non-sufficient funds (NSF). Under the new rule, checks that have been returned unpaid for NSF can now be collected through the Automated Clearing House (ACH) Network.

Keith Theisen, Vice President of Norwest Bank, said, "The collection of returned checks through the ACH Network can bring substantial cost and time savings to businesses, consumers, and financial institutions. Respondents to the group's request for comments estimate that costs associated with representing an NSF check can be reduced by up to 50 cents per check for businesses, and one dollar per check for financial institutions. Lower costs also make the collection of small-value checks more cost-effective." In addition, NACHA projects that the rate of successful collection could increase by 25 to 50 percent.

Hal Piotrowski, Chairman of NACHA, said, "Use of the new ACH check collection transaction will result in quicker removal of negative information from check verification databases, which many merchants use to screen out bad check writers. This means that consumers will be able to write checks again sooner."

The RCK rule will not become effective until September 17, 1999 but NACHA also approved an interim rule, which will be effective September 18, 1998 through September 16, 1999. The interim rule allows ACH participants to use the existing Preauthorized Payment and Deposit (PPD) Standard Entry Class Code to initiate these transactions.

However, the new rules do require the merchant to post signs informing consumers that the check may be represented through the ACH, if it is dishonored. For billing situations, the final rules will require monthly billers to include the language on the billing in a manner similar to notices currently required for collection fees.

Also noteworthy regarding the key provisions of the RCK rules proposals are the following points1:

• RCK entries are subject to applicable check law and NACHA operating rules, not a Reg E transaction
• Eligible items are defined within the rules
• A total of three presentments are allowed: not more than two by paper or two by EFT
• Originating Depository Financial Institution (ODFI) entries require notification to the check writer but not written authorization
• Unique return reasons and return provisions are provided for RCK entries, for consistency with check law and check return rules
• Periodic statement must carry the payee name, "redepcheck" description, and the check serial number
• The check writer may obtain the original check for up to 90 days and photocopies for up to seven years from the ODFI; ODFIs must respond to requests within 10 banking days
• No collection fees may be added to RCK entries; electronic collection fees require written authorization from the check writer

It should also be pointed out that the ACH system and checks system do not talk to one another, so to the extent that a stop payment item is processed as an RCK, the item will be paid.

For more information about the RCK rule or NACHA, access www.nacha.org.

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