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2005 NACHA File Formats & NACHA Operating Rules

National Automated Clearing House (NACHA) file formats, layouts, rules and regulations governing the ACH Network are included in this book.

Learn how the ACH Network works. NACHA file format and NACHA record layouts are included for every Standard Entry Class (SEC) code.

Also included: the Federal Reserve Uniform Operating Circular, Regulation E Electronic Funds Transfer Act, Federal Tax Deposit Payments. Price includes updates throughout the year.

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POINT-OF-PURCHASE ENTRIES

A. INTRODUCTION
B. LEGAL FRAMEWORK
C. OBLIGATIONS OF ORIGINATORS
(An Originator is a company using
OfficeTellerTM's check truncation products)

  • Agreements with ODFI's (An ODFI is the Originating Depository Financial
    Institution working with OfficeTeller)
  • Authorization Requirements
  • Source Documents
  • Receipt Requirements
  • Formatting Requirements
  • Return of Point-of-Purchase Entries
  • 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 OfficeTeller)

    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).
  • Terminal City; and
  • Terminal State.

    Note: The Federal Reserve Board's Official Staff Commentary on Regulation E requires the inclusion of terminal location information on the receipt provided to the consumer at the point of purchase. When a POS terminal is used to capture data electronically to initiate an EFT, the Regulation E Official Staff Commentary considers the POS terminal to be an electronic terminal, even if no access device is used, such as when a check is used to capture information to initiate a one-time EFT. As a result, when a check is used as a source document at the point of purchase and run through a terminal to read the MICR information, as is the case with POP entries, it is necessary to ensure compliance with Regulation E's requirements for electronic terminals, which mandate the inclusion of the terminal location on the receipt for POP entries.

    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.

    Terminal City/Terminal State

    To ensure compliance with both the NACHA Operating Rules and Regulation E, which require the inclusion of terminal location informationon th eocnsumre's monthly bank account statment for POP entries, Originators must ensure that they have included a four-character name or abbreviation of the city in which the electronic terminal is located within the Terminal City Field, and a two-character abbreviation for the state in which the electronic terminal is located within the Terminal State Field of the POP Entry Detail Record. This information is used to identify the location of the electronic termianl used to originate the POP entry.

    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. (Note: Effective March 15, 2002, the NACHA Operating Rules will be modified to limith the number of times an entry returned due to insufficient or uncollected funds may be reinitiated to no more than two times following the return of the original entry.)


  • ACCOUNTS RECEIVABLE ENTRIES

    A. INTRODUCTION
    B. LEGAL FRAMEWORK
    C. ELIGIBLE ITEMS
    D. OBLIGATIONS OF ORIGINATORS
    (An Originator is a company using
    OfficeTeller's check truncation products)

  • Agreements with ODFI's (An ODFI is the Originating Depository Financial
    Institution working with OfficeTeller)
  • Authorization / Notification Requirements
  • Collection Fees
  • Number of Presentments
  • Retention of Item / Copy of Item
  • Return of Accounts Receivable Entries
  • Stop Payments
  • A. INTRODUCTION

    On March 15, 2002, a new rule governing Accounts Receivable Entries (ARC) became effective, which enabled Originators (Merchants) to convert a check to a single entry ACH debit from a consumer's check received via the U.S. mail or at a dropbox location for the payment of goods or services. This new application will enhance the efficiency of the ACH Network by expanding the scope of consumer electronic check activity.

    B. LEGAL FRAMEWORK

    Effective March 15, 2002, a legal framework based on Regulation E will be applied to the Accounts Receivable Entry (ARC) application rather than a framework based on the Uniform Commercial Code. The recent revision to Regulation E's Official Staff Commentary provided NACHA with the opportunity to make an amendment to the NACHA Operating Rules to apply a Regulation E check conversion approach to the new ARC application.

    The ARC entry is a one-time ACH debit entry to a consumer's account, initiated by an Originator for purchases or payments that are made by mailing a check (source document) to the Originator (Merchant) via the U.S. mail or placing the check in a dropbox. The Originator will be required to use a reading device to capture the MICR line (routing number, account number, and check number) of the source document (check). The Originator will key enter the amount of the transaction. this application requires the Originator to provide Notice to the consumer that receipt of his check will be authorization for the check to be used as a source document for an ACH debit transaction to the Receiver's (consumer's) account at his financial institution. Used only as a source document, the check will not enter into the check collection process, nor will it constitute an access device as defined by Regulation E.

    The applicable rules/regulations for this transaction will be:

  • the NACHA Operating Rules, and
  • the Electronic Fund Transfer Act and the Federal Reserve's Regulation E.
  • C. ELIGIBLE ITEMS

    The Originator (Merchant) can accept a check as a source document to initiate an ARC entry only if it has been sent through the U.S. mail or delivered to a dropbox. To be used as a source document for this type of transaction, the check or sharedraft must:
    (1) contain a pre-printed serial number (i.e. check number)
    (2) be drawn on a consumer account, and
    (3) be completed and signed by the consumer.

    Checks that may not be used as source documents for ARC entries include:

    corporate checks, third-party checks, demand drafts and third-party drafts that do not contain the signature of the Receiver (i.e. consumer), credit card checks, obligations of a financial institution (e.g. cashier's checks, money orders, 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.

    D. OBLIGATIONS OF ORIGINATORS (An Originator is a company using OfficeTellerTM's check conversion & deposit products)

    1. Agreements with ODFI's

    Originators choosing to utilize the ACH Network to convert consumer checks received through the U.S. mail or at a dropbox location for payment of goods or services and collect them using Accounts Receivable Entries should consider modifications to their agreements with their ODFIs (OfficeTeller's Bank) to address the origination of ARC entries. Originators should ensure that their ODFI/Originator agreements not only bind the Originator to the requirements of the NACHA Operating Rules, buth they should also address any processing obligations, timing, liabilities, etc., that are unique to the ARC application.

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

    the amount of the entry, the routing number, the account number, and the check serial number are in accordance with the source document;

    the Originator must retain a reproducible, legible, image, microfilm, or copy of the front and back of the Receiver's (i.e. consumer's) source document for two years from the Settlement Date (i.e. deposit date) of the ARC entry. An RDFI that receives an ARC entry may send the ODFI a written request for a copy of the source document to which the ARC entry relates. the RDFI's written request must be received by the ODFI within two years of the Settlement Date of the ARC entry. Upon receipt of the written request, the ODFI warrants to the RDFI that it will send a copy of the front and back of the Receiver's source document within ten banking days. The copy must indicate that it is a copy on its face.

    The source document to which the ARC entry relates will not be presented or returned such that any person will be required to make payment based on the source document. In addition to the RDFI, ACH Operator, and Association, this warranty runs to any other party that may be liable on the source document.

    The source document to which the ARC entry relates must be destroyed within fourteen days of the Settlement Date of the entry.

    2. Authorization / Notification Requirements

    Originators will be required to provide notice to the Receiver (i.e. consumer), prior to the receipt of a source document that will be used as the basis for the origination of each ARC entry, that receipt of the Receiver's check will be deemed to the the Receiver's authorization for an ACH debit entry to the Receiver's account. The check will be used solely as a source document for capturing the Receiver's routing number, account number, check serial number, and dollar amount of the entry. The provision of the notice by the Originator to the consumer and the receipt of the source document together constitute authorization of the ARC entry.

    3. Collection Fees

    Accounts Receivable Entries must be originated so that the amount of the entry, the routing number, the account number, and the check serial number accurately reflect the source document. No fees may be added to the amount of the time when it is transmitted as an ARC entry. To originate an ACH debit entry to collect fees, 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 the NACHA Operating Rules.

    4. 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).

    5. Retention of Item / Copy of Item

    Each Originator of ARC entries must retain an image (OfficeTellerTM will retain an image of the Check and make the image available to the Merchant for a small transaction fee), microfilm, or other copy of the front and back of the consumer's source document for a period of two years from the Settlement Date of the entry. The ODFI must send a copy of the front and back of the source document to the RDFI within 10 banking days of receipt of a written request by the RDFI within two years of the Settlement Date of the entry.

    The source document to which the ARC entry relates must be destroyed by the Originator within fourteen days of the Settlement Date of the entry. This requirement is to protect against the risk that, by error the source document might subsequently be entered into the check processing system for payment as a check.

    6. Return of Accounts Receivable Check Entries

    Most ARC entries will need to be returned by the RDFI so that the return entry is made available to the ODFI no later than the opening of business on the second banking day following the Settlement Date of the ARC entry.

    ARC entries may also be returned by the RDFI for 60 days from the Settlement Date for the following reasons:

    1) improper source document (i.e., the source document is something other than a check drawn on a consumer account),
    2) no notice was provided to the consumer that his check was going to be converted to an ACH debit,
    3) the source document was presented for payment as a check through the check collection system, or
    4) the ARC transaction was initiated in an amount other than that idicated on the source document.

    In these four circumstances, the RDFI would require the consumer to sign or similarly authenticate a written statement under penalty of perjury prior to being re-credited for the transaction.

    ARC entries can also be returned by the RDFI for 60 days from the Settlement Date if the consumer places a stop payment on the source document (i.e., in the check stop payment system) instead of the ACH stop payment system. This sixty-day time frame will allow a "safety net" for RDFIs that have opted not to build a bridge between their check and ACH systems to check for stop payment orders for this application. A written statement under penalty of perjury is not required for this return reason.

    7. Stop Payments

    As with other Single-Entry ACH transactions, including POP and RCK, consumers desiring to place stop payment orders on ARC entries will be required to place the stop payment order to the RDFI (i.e. the consumer's bank) in such a time and manner that allows the RDFI a reasonable opportunity to act on the stop payment order prior to acting on the debit entry.



    Re-Presented Check Entries (RCK)

    A. INTRODUCTION
    B. LEGAL FRAMEWORK
    C. ELIGIBLE ITEMS
    D. OBLIGATIONS OF ORIGINATORS
    (An Originator is a company using
    OfficeTellerTM's check truncation products)

  • Agreements with ODFI's (An ODFI is the Originating Depository Financial
    Institution working with OfficeTellerTM)
  • Notice Requirement
  • Restrictive Endorsements
  • Collection Fees
  • Number of Presentments
  • Retention of Original Item / Copy of Item
  • Return of Re-Presented Check Entries
  • 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 OfficeTeller'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 OfficeTellerTM'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 OfficeTeller'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.

  • Copyright 2003 OfficeTeller.com | Privacy Policy|Affiliates

    ACH / EFT Terms

    ABA Number - A nine digit number (eight digits and a check digit) that identifies a specific financial institution. These numbers are assigned by the Rand McNally Corporation and are listed in its annual publication Key to Routing and Transit Numbers.

    ACH Automated Clearing House- The Federal Reserve Bank or other organization operating as a clearing house for automated entries. The ACH processes entries between an originator and receiver.

    ACH Association- An organization formed by financial institutions to regulate and support the exchange of electronic transactions among member institutions.

    ACH Credit- A transaction through the ACH network originated to pay a receiver (deposit funds into an account).

    ACH Debit- A transaction through the ACH network originated to remove funds from the receiver (withdrawal from account).

    Addenda Record- An ACH record type that carries the supplemental data needed to completely identify an account holder(s) or provide information concerning a payment to the Receiving Depository Financial Institution and the Receiver.

    ANSI X12- A communications format for electronic business data interchange established by the American National Standards Institute, a voluntary body supported by the American Bankers Association.

    ATM- See Automated Teller Machine.

    Authorization Agreement- A written agreement signed by an employee or customer to allow the posting of ACH transactions to his or her account.

    Automated Deposit- A deposit made directly to an account at a depository institution through the ACH network (i.e., payroll deposits, social security payments, and retirement benefits).

    Automated Teller Machine- A computer terminal to dispense cash, accept deposits and loan payments, and enable a financial institution's customer to order transfers among accounts and make account inquiries.

    Banking Day- Any day on which a participating financial institution is open to the public during any part of the day for carrying on substantially all its financial functions. With reference to an automated clearing house, any day on which the appropriate facility of the clearing house is being operated.

    Batch- A group of records or documents considered as a single unit for the purpose of data processing.

    Cash Concentration and Disbursement (CCD)- A format for ACH payments.

    Customer Initiated Entry (CIE)- These are ACH entries initiated by a consumer through direct contact with an originator such as a bill payment system.

    Central Information File (CIF)- A master file maintained by the ACH containing information on each depository financial institution. This file includes the depository financial institution's name, transit routing number, address, settlement and delivery information and output medium requested.

    Clearing House- A voluntary association of depository institutions that facilitates the clearing of checks or electronic items through the direct exchange of funds between members.

    Company- A business entity which creates paperless entries for introduction into the ACH network.

    Composite Receivers' File (CRF)- A file listing all depository financial institutions qualified to receive ACH entries. Call your association office to subscribe. The CRF is available from the FRB as magnetic tape for direct computer input, or on microfiche.

    Corporate Trade Payment (CTP)- A payment made between corporations through the ACH network.

    Corporate Trade Exchange (CTX)- An ACH payment program for corporate to corporate payments.

    Customer (Receiver)- A natural person(s) that maintains an account at a Depository Financial Institution. A customer may authorize a financial institution to debit/credit his or her account in response to an ACH entry.

    Data Base- A collection of records stored electronically.

    Data Encryption Standard- A technique by which a message is scrambled into an indecipherable stream of bits for transmission.

    Data Transmission- The electronic exchange of information between two data processing points (computers).

    Day Cycle- The first scheduled time for the Federal Reserve system's interregional transmission of data from Originating ACHs to Receiving ACHs. Also referred to as the "day time window".

    Descriptive Statement- A bank account summary that contains information concerning one or more entries for which no separate item is enclosed. ACH entries necessitate some form of descriptive statement unless a substitute enclosure document is produced by the financial institution. Minimum reporting requirements are defined by Regulation E.

    DFI- Depository Financial Institution.

    Direct Debit- A method of ACH collection used where the debtor gives authorization to debit his or her account upon the receipt of an entry issued by a creditor.

    Effective Entry Date- The date placed on an ACH transaction by the Originator of the transaction - it is normally the date the originator intended the transfer to take place.

    Electronic Benefits Transfer (EBT)- Government benefits distributed electronically through Point of Sale (POS) Terminals and Automated Teller Machines. Benefits can include Aid to Families with Dependent Children, Aid to the Aged, food stamps and child support payments.

    Electronic Federal Tax Payment System (EFTPS)- Beginning July 1, 1997, employers who made more than $50,000 in employment tax deposits in 1995 must make their tax payments by electronic funds transfer. Employers are required to enroll to use the EFTPS. They must choose to use either the ACH Debit or ACH Credit method for deposits.

    Electronic Funds Transfer- A generic term used whenever money is moved without the use of a check or draft.

    File Header- The first record of an ACH file containing information necessary to route, validate and track the ACH contained within the file.

    Funds Availability- The time at which funds associated with paperless entries have been made available to the customer.

    Intercept Point- An institution or computer service company designated to act on behalf of another institution to receive and/or send ACH entries.

    Interregional Exchange- The exchange of ACH entries through more than one ACH, to financial institutions throughout the United States.

    Intraregional Exchange- The exchange of ACH entries between two financial institutions within the same Federal Reserve zone.

    Memo Posting- A notation posted to an account which indicates credit funds will be posted, but have not yet been posted to the account.

    Machine Transfer Entry (MTE)- ACH entries initiated by a consumer through direct contact with an originator, including automated teller machines.

    National Automated Clearing House Association (NACHA)- A body which oversees all ACH activities and procedures and is composed of all local ACHs.

    Night Cycle- The second scheduled time for interregional transmission of data from Originating ACHs to Receiving ACHs. Also referred to as "nighttime window."

    Originating Depository Financial Institution (ODFI)- A member institution which is responsible for the origination of ACH transactions. This institution may deposit items directly with an ACH or may work through a processing center which is the actual sending point.

    On-Us Entries- Entries on an ACH file that belong to the originating financial institution. These entries may be stripped from the file and posted internally before a file is sent to the ACH.

    Originating Company- An organization or company that produces an ACH file and delivers it to an ODFI for introduction into the ACH network.

    Prenotification (Prenote)- A zero dollar entry that must be sent through the ACH at least ten calendar days prior to any live entries affecting an account at a receiving institution. The prenotification (prenote) allows the receiving institution to validate entry information.

    Processing Day- Any day that a member institution is open to the public to conduct business, or that an ACH facility is being operated.

    Participating Depository Financial Institutions- Any financial institution that is authorized to originate/receive ACH entries.

    Receiving Depository Financial Institution (RDFI)- A receiving financial institution is an ACH transaction's final destination. The receiving financial institution may receive the items directly from an ACH or may work through a processing center, which is the actual receiving point.

    Receiving Point- Any site where entries are received from an ACH for processing. This may be the member financial institution, its data center, or a data processing service authorized to receive entries on behalf of a member institution.

    Regulation E- Federal regulations governing electronic funds transfer.

    Remake- A replacement file generated upon request because an original file was unprocessable for some reason.

    Returned Item- An ACH entry that has been rejected by a receiving financial institution because it is non-postable.

    Reversing Entry- A file created by a sending point to completely cancel a previous file or entry because the previous file or entry was in error for some reason. Used extensively with duplicate entries.

    Sending Point- A processing site that sends entries to an ACH. This may be a member institution or a data processing service operating on its behalf.

    Settlement- The process of accounting for dollar transactions processed through the ACH. There is a daily settlement, which occurs directly in the case of Federal Reserve member financial institutions unless those financial institutions designate other members to settle in their behalf. Non-members of the Federal Reserve System must settle their accounts through a member of the Federal Reserve System.

    Settlement Date- The day on which settlement occurs, i.e., funds actually change hands as a result of an ACH entry.

    Standard Entry Class Code- A 3 character code within an ACH Company/Batch Header Record to identify the payment types contained within an ACH batch, (e.g., ARC, CCD, CIE, CTP, CTX, MTE, POS, PPD or WEB).

    Statement of ACH Activity- The advice prepared by the ACH stating the number of items and dollar value of an ACH file.

    Trace Number- A number assigned to every ACH entry by an originating institution that uniquely identifies that entry with a specific ACH file. First eight digits of the trace number are transit/routing number of ODFI and last seven digits are sequence numbers assigned by the originator.

    Transit Routing Number- A nine digit number (eight digits and a check digit) that identifies a specific financial institution. These numbers are assigned by the Rand McNally Corporation and are listed in its annual publication Key to Routing and Transit Numbers.

    Uniform Commercial Code Article 4A (UCC 4A)- Uniform Commercial Code (UCC) is a comprehensive body of state law governing commercial transactions. Article 4A covers certain funds transfers, including ACH credit transactions not subject to the Electronic Funds Transfer Act.

    Warehousing- The ability of an originating institution to receive 1 file from a customer/company ahead of the effective date and hold it for release to the ACH on the effective date or for a receiving financial institution to receive entries ahead of the effective date and hold them without posting until the effective date has been reached.

    Wholesale Credit- A credit transaction originated or received by a non-consumer, i.e., a credit transaction to a "business account".

    Window- A predetermined period in time in which an exchange of information and funds can take place.


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