You may be hearing about RCK, Represented Check Entry. RCK is a product which uses the ACH network to transmit ACH debit transactions in place of a paper check after the paper item has been returned for NSF; in other words, automatically debiting a customer's account after they have written a bad check. Although this is being discussed by many people in the same context as ECP or Point-of-Sale Truncation (POST), it is only a related subject.
Since the NSF item began as a check and was negotiated as a check, the methods to collect the check have to conform to NACHA rules. The paper item is also subject to UCC and Reg CC rules. Although it is not subject to Reg E rules, many Reg E rules parallel NACHA rules.
[Whew! That's all very confusing.] The two things you really need to know about RCK are:
There is a limitation on the number of times RCK can be initiated to collect a returned check.
A separate authorization is required for collecting fees for returned checks.
In March of this year NACHA approved two RCK rules: an interim rule (which will be in effect from 9/18/98 through 9/16/99) and a final rule (which will be in effect beginning 9/17/99). The rules are essentially the same but the interim rule provides time to make the necessary software changes.
Rules
To collect a check through RCK, the following rules must be met:
Positives
Proponents of RCK believe that the consumer may feel that automatic debit is less intrusive and embarrassing than standard collection calls and letters. Checkwriters may also be removed from a negative database sooner and will also receive detailed information about the debit on their statement. Banks using RCK benefit from the lower cost (due to less human involvement) and possibly earlier fraud detection.
Negatives
The biggest negative of RCK is the fact that a separate authorization has to be obtained to collect a NSF fee. While some feel that their collection rates are so much better with RCK that the fee doesn't matter, others are unwilling to give up the fee. But, how to do it?
It is not feasible to put wording for authorization on a check because the wording is too long. Also the check itself is negotiable, so anything placed on it is negotiable as well.
Additionally, with RCK some items that are converted to ACH are returned due to the MICR to ACH conversion. Test participants report a 1.5-5.5% return rate due to misread or unreadable items. Another problem is the potential for duplicate entries. Finally, once the RCK is collected, the item needs to be removed from any negative files immediately upon collection, so that the consumer is not unduly denied at the POS.
Predictions
Many in the industry feel RCK will be widely accepted. Deluxe feels it improves recovery and reduces the cost of collection activity (phone calls and letters). Deluxe also believes that in two or three years, RCK will work best for larger retailers who will not charge fees. TeleCheck reports that their test met with acceptance as well. They report that they are very excited and feel RCK is the wave of the future. Both companies, as well as E-Funds, report that between 2 and 5% of their RCK items were reversed.
But, many industry members point out that if an organization wants to collect the fee, they will use RCK only as a last ditch effort.
Kmart Beta Test of RCK
Kmart beta tested RCK for three months and processed 70,000 items. They did not attempt to collect service fees.
Kmart uses 250-300 depositary banks and has centralized returns, which means the returned checks from all 2,200 locations go to one location. Approximately 65-70% of Kmart's returned checks are NSF checks, and all returned checks are automatically redeposited before they come back to Kmart for collection.
None of Kmart's collection factors changed in the beta test.
Beta Test Procedures
For the purposes of the test, Kmart waited 120 days simply because it was easier. Amounts of checks were between $5 and $2500. Average ticket size was $87. Account closed, multiple returns, and accounts with more than four NSF checks were NOT eligible, due to the RCK rules.
Eighty percent of Kmart's returned checks entered RCK; the other 20% did not meet the criteria. Prior to using RCK, Kmart sent a collection letter stating that Kmart may elect to collect electronically. Then, an electronic file was generated and picked up by SCAN. It was then sent to e-Funds for processing and submitted as an ACH transaction. Kmart then received a payment listing from e-funds, which they entered manually. The credit from e-funds arrived by wire transfer. When using RCK, it is up to the banks and merchants to decide who does the check safekeeping. In this case, the paper item was retained by Kmart.
Results
Kmart experienced a net collection of 12% of the face amount of the check. This was an increased net collection dollar of 40% and an improved collection rate of 3%. In June they cleared 20% of items, representing 15% of the dollar amount. Since with RCK the MICR line needs to be converted to ACH, there is a rejection factor. For Kmart, the rejection rate was approximately 4 to 5%.
Even without the fee, Kmart had a better collection rate than traditional methods with a fee. They forfeited the fee because they would have had to process the fee as a separate transaction. Also, they would have had to ask every customer to sign a paper at the POS stating that they authorized the fee RCK transaction. Since Kmart feels that every one in a hundred shoppers is a bad check writer they did not want to alienate their customers by asking them to sign such an agreement. In the future they plan to notify by signage.
Issues
The issues Kmart felt they had to deal with in the trial were:
1. the fact that no fees were allowed but with the results they felt it was worth it,2. a few customer complaints,
3. a few transactions caused errors in consumer's checkbooks (in one instance, Kmart paid the consumer's bank fee because the check and the RCK crossed in the mail.)
We will have to wait and see how many organizations are willing to forfeit the check fee and get on board with ECP.
