Nacha approves rules for ineligible business cheques
03 November 2005 | 1515 views | 0
The voting members of NACHA - The Electronic Payments Association have approved an amendment to the NACHA Operating Rules that provides methods for Originators to identify business checks that are ineligible for check conversion, and also provides corporate Receivers with methods to opt-out of check conversion.
The existing rules for check conversion allow only consumer checks to be converted. In practice, however, many checks written by businesses are being inadvertently converted because Originators cannot distinguish many business checks from consumer checks.
"Business checks are being converted today," said Elliott C. McEntee, President and Chief Executive Officer of NACHA. "The new rules will give Originators simple and effective methods to identify business checks that should not be converted. The new rules could also lead to greater use of check conversion, particularly ARC, by making it easier for Originators to comply with the rules. We know that some companies have not implemented ARC because they believe they cannot identify many business checks that should not be converted."
The new rules provide that checks that contain an auxiliary on-us field in the MICR line are ineligible for conversion. Such checks are typically used by corporate treasury, purchasing and accounts payable departments, and can be readily identified because they are nine inches in length, compared to
the standard six inches for consumer checks. Businesses that want to opt-out of check conversion can use check stock that contains the auxiliary on-us field.
The new rules also provide that checks for more than $25,000 are ineligible for conversion. In practice, virtually all such checks are business checks,
and the dollar limit will ensure that checks sent to wholesale lockboxes are not converted.
Finally, the new rules provide businesses with the same ability as consumers to opt-out of check conversion, and provide RDFIs the same 60-day right of return for unauthorized transactions that exists for consumer check conversions. Under the existing rules, Originators of ARC transactions must have reasonable procedures to allow consumers to opt-out, and this provision will now be available to businesses that do not use checks with auxiliary on- us fields. In addition, the NACHA Operating Rules provide an RDFI with a 60- day right to return an unauthorized ACH debit upon obtaining a written statement from a consumer, and this provision will now apply to ARC and POP transactions to corporate accounts.
The new rules become effective on September 15, 2006. NACHA will begin industry education efforts with a teleseminar on December 1.
Check conversion has been available in the marketplace since September 2000, when NACHA's rules for converting checks at the point-of-purchase (POP) went
into effect. In March 2002, NACHA's rules for accounts receivable conversion (ARC) became effective. NACHA estimates that in 2004 there were 1.25 billion consumer checks converted into ARC payments, and that at its current growth rate may reach 2 billion payments in 2005, making ARC the fastest-growing payment application in the 33-year history of the ACH Network.