2015 NACHA COMPLIANCE SUMMARY GUIDE

Transcription

1 2015 NACHA COMPLIANCE SUMMARY GUIDE Note: This compliance summary guide is provided by Jack Henry & Associates solely as a convenience to its ProfitStars Enterprise Payment Solutions customers and is not intended to provide legal advice or interpretation regarding the requirements of the NACHA Rules or any other legal aspects of processing ACH transactions. The user of this Guide should become familiar with the provisions and requirements of the current NACHA Rules and should seek competent business advice and legal counsel and exercise his or her own judgments in applying the NACHA Rules and laws and regulations relating to the ACH processing activities undertaken by his or her organization. While Jack Henry & Associates has exercised care in accurately summarizing the contents of selected current NACHA Rules in this Guide, it cannot guarantee that its summary of the NACHA Rules in this Guide provides a comprehensive treatment of the NACHA Rules and laws or regulations applicable to ACH processing or that this Guide is completely up to date with the latest updates to the NACHA Rules that may be issued by NACHA from time to time. NOTE: Any reliance upon the contents of this Guide will be at the user s sole risk. Copyright Jack Henry & Associates, Inc. All rights reserved. Information in this document is subject to change without notice. [1]

2 Table of Contents Overview Revisions to NACHA Operating Rules... 5 ACH Network Risk and Enforcement... 5 Return Rate Levels (Effective September 18, 2015)... 5 Reinitiation of Entries (Effective September 18, 2015)... 5 Third-Party Sender Issues (Effective date January 1, 2015)... 5 NACHA s Enforcement Authority (Effective date January 1, 2015)... 6 Improving ACH Network Quality Unauthorized Entry Fee... 6 Unauthorized Entry Fee (Effective October 3, 2016)... 6 Minor Rule Topics... 7 Point of Sale (POS) Entries (Effective January 1, 2015)... 7 Return Entry Formatting Requirements (Effective January 1, 2015)... 7 Entry Detail Record for Returns Clarification Regarding POP Entries (Effective January 1, 2015)... 7 Clarification of RDFI s Obligation to Recredit Receiver (Effective January )... 7 Clarification of Prenotification Entries and Addenda Records (Effective January )... 7 Clarification of Audit Requirements for Participating DFI s Reporting Network Administration Fees (Effective August 22, 2014 applicable for 2014 audit)... 7 Clarification on Company Identification for P2P WEB Credit Entries (Effective January )... 7 What is ACH?... 8 What is Authorization?... 9 What is an ACH Return? What happens when an entry returns? Why are entries returned? What is a Notification of Change (NOC)? What happens when a NOC is received? Why a Notification of Change? What is ARC? ARC Compliance Considerations ARC Eligibility Requirements What is BOC? BOC Compliance Considerations BOC Eligibility Requirements What is CCD? CCD Compliance Considerations What is POP? [2]

3 POP Compliance Considerations POP Receipt Requirements POP Eligibility Requirements What is PPD? Sample PPD Authorization Language What is RCK? RCK Compliance Considerations RCK Eligibility Requirements What is TEL? TEL Compliance Considerations What is WEB? WEB Compliance Considerations Sample WEB Authorization Language Risk Management Requirements Common Return Reason Codes Common Change Codes [3]

4 Overview The ProfitStars Division of Jack Henry & Associates ( ProfitStars ) enables your organization to process transactions using the ProfitStars Enterprise Payment Solution system through the Automated Clearing House (ACH) Network. NACHA was formed in 1974 to coordinate the ACH Network, which is governed by operating rules and guidelines, which are developed by the actual users of the system, and is administered through a series of agreements among financial institutions, customers, trading partners, and ACH Operators. While the NACHA Operating Rules is the primary document addressing the rules and regulations for the commercial ACH Network, Federal Government ACH payments are controlled by the provisions of Title 31 Code of Federal Regulations Part 210 (31 C.F.R. Part 210). The Financial Management Service (FMS) of the U.S. Department of the Treasury is the agency responsible for establishing Federal Government ACH policy. Other laws that have a direct bearing on ACH operations are the Uniform Commercial Code Article 4, which governs check transactions, and Article 4A, and the Electronic Funds Transfer Act as implemented by Regulation E. The ProfitStars Enterprise Payment Solution system is designed to operate in full compliance with the regulations governing the ACH Network. However, many of the requirements must be carried out by the Originator. It is ultimately the responsibility of the Originator to fully comply with all of the regulations governing the ACH Network, including the NACHA Operating Rules. (Please refer to your signed ProfitStars Agreement.) We strongly recommend that you keep a current copy of the NACHA Operating Rules on hand. (Copies are available through The ACH Network supports a variety of payment types, each governed by a unique set of operating rules and guidelines. NACHA identifies and recognizes each payment type by a specific three-digit code, known as a Standard Entry Class (SEC) Code. Included in this guide are summaries of the ACH payment types supported by ProfitStars. This compliance summary is provided as a convenience and is not intended to provide legal advice. If you have any questions about the information presented in this guide, please refer to the NACHA Operating Rules or contact ProfitStars Partner Support team at [4]

5 2015 Revisions to NACHA Operating Rules ACH Network Risk and Enforcement Return Rate Levels (Effective September 18, 2015) This rule addresses concerns related to unauthorized transactions by reducing the current return rate threshold for unauthorized debit Entries (Return Reason Codes R05, R07, R10, R29 and R51) from 1.0 to 0.5 percent. ODFI s have the same obligations for monitoring return rates of their Originators and/or Third-Party Senders and is subject to the same enforcement as currently established in the Rules. Establishing Administrative Debit and Overall Debit Returns This rule establishes two new return rate levels in the Rules: A return rate level of 3.0 percent will apply to debit entries returned o R02 Account Closed o R03 No Account/Unable to Locate Account o R04 Invalid Account Number Structure A return rate level of 15.0 percent will apply to all debit entries (excluding RCD) that are returned for any reason. The Rule establishes an inquiry process, separate from a Rules enforcement proceeding, as a starting point for evaluating activity of Originators and Third-Party Senders that reach the new administrative return and overall debit return rate levels. Reinitiation of Entries (Effective September 18, 2015) Subsection of the Rules implicitly prohibits the reinitiation of Entries outside of the express limited circumstances permitted by the rules. Effective September 18, 2015 this Rule makes this prohibition explicit and adds a specific prohibition against reinitiating a transaction that was returned as unauthorized. Also, the Rule expressly states that a debit Entry is not considered a reinitiation if the Originator obtains a new authorization for the debit Entry after the receipt of the Return. Third-Party Sender Issues (Effective date January 1, 2015) [5]

6 Subsection of the Rules includes a direct obligation on Third-Party Senders to monitor, assess and enforce limitations on their customer s origination and return activities in the same manner the Rules require of ODFI s. In addition the Rule is updated with certain reporting requirements in order to streamline oversight of Third-Party Service Providers and Third-Party Senders. See subsection and Appendix Eight of the Rules regarding Rules compliance audit requirements. NACHA s Enforcement Authority (Effective date January 1, 2015) In Subpart of Appendix Ten of the Rules, NACHA has authority to initiation a Rules enforcement proceeding in three specific circumstances. In order to provide NACHA the tools to act promptly, the Rule includes the express authority for NACHA to bring an enforcement action based on the origination of unauthorized entries. The Rule requires the ACH Rules Enforcement Panel to validate the materiality of this type of enforcement case before NACHA can initiate any such proceeding. Improving ACH Network Quality Unauthorized Entry Fee Unauthorized Entry Fee (Effective October 3, 2016) The Rule will require an ODFI to pay a fee to an RDFI for ACH debit returns due to: R05 Unauthorized Debit to Consumer Account Using Corporate SEC Code R07 Authorization Revoked by Customer R10 Customer Advised Not Authorized, Notice Not Provided, Improper Source Document, or Amount of Entry Not Accurately Obtained from Source Document R29 Corporate Customer Advised Not Authorized R51 Item is Ineligible, Notice Not Provided, Signature Not Genuine, Item Altered, or Amount of Entry Not Accurately Obtained from Item Methodology for Setting Fees The Rule defines a methodology by which NACHA staff will sent and review every three years the amount of the Unauthorized Entry Fee. NACHA estimates the fee will range from $ $5.50 based on current collection of data. Collection and Disbursement of Fees NACHA and the two ACH Operators will arrange for a system to collect and distribute the fees. [6]

7 Minor Rule Topics Point of Sale (POS) Entries (Effective January 1, 2015) The Rule re-aligns the general rule for POS Entries with the definition for POS Entries in Article Eight Return Entry Formatting Requirements (Effective January 1, 2015) The Rule revises the formatting requirements for certain Return Fee Entries to align with the formatting requirements specific to the underlying transaction to which the return fee relates. Entry Detail Record for Returns Clarification Regarding POP Entries (Effective January 1, 2015) This Rule adds a footnote to the Entry Detail Record for Return Entries to clarify the specific use of positions with respect to the return of a POP Entry. Clarification of RDFI s Obligation to Recredit Receiver (Effective January ) This Rule clarifies that an RDFI s obligation to Recredit a Receiver for an unauthorized or improper debit Entry is generally limited to Consumer Accounts, with certain exceptions for check conversion and international transactions. Clarification of Prenotification Entries and Addenda Records (Effective January ) This Rule revises the NAHCA Operating Rules to clarify that, with the exception of IAT Entries, a Prenotification Entry is not required to include addenda records that are associated with a subsequent live Entry. Clarification of Audit Requirements for Participating DFI s Reporting Network Administration Fees (Effective August 22, 2014 applicable for 2014 audit) This Rule revised the annual rules compliance audit provisions for all Participating SFI s to clarify that a Participating DFI s obligation to verify that it has paid annual and per-entry fees to NACHA is applicable only when that Participating DFI exchanges Entries through a means other than through an ACH Operator (i.e. a direct send between the Participating SFI and another, non-affiliated Participating DFI). Clarification on Company Identification for P2P WEB Credit Entries (Effective January ) This Rule adds language to the Company Identification field description to clarify content requirements for Person-to-Person (P2P WEB credit Entries. [7]

8 What is ACH? The Automated Clearing House (ACH) Network The ACH Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system governed by the NACHA Operating Rules, which provide for the interbank clearing of electronic payments for participating depository financial institutions. The Federal Reserve Bank and Electronic Payments Network are the two ACH Operators that serve as the central clearing facilities through which financial institutions transmit and receive ACH entries. Originator Any individual, corporation or other entity that initiates entries into the ACH Network Originating Depository Financial Institution (ODFI) A participating financial institution that originates ACH entries at the request of and by (ODFI) agreement with its customers. ODFI s must abide by the provisions of the NACHA Operating Rules and Guidelines Third Party Service Provider A Third Party Service Provider handles any aspect of the ACH process on behalf of an originator, ODFI, or RDFI. NOTE: ProfitStars operates in this capacity. Receiving Depository Financial Institution (RDFI) Any financial institution qualified to receive ACH entries that agrees to abide by the NACHA Operating Rules and Guidelines Receiver Any individual, corporation or other entity who has authorized an Originator to initiate a credit or debit entry to a transaction account held at an RDFI [8]

9 What is Authorization? Authorization is permission. Originators must obtain authorization from a receiver to effect entries to the receivers account. The manner in which authorization can obtained differs by Standard Entry Class (SEC) codes and originators should refer to the rules for the types of entries they will originate to determine the specifics for each entry type. General Authorization Guidelines Consumer Accounts A credit entry to a Consumer Account does not require written authorization when both the Originator and the Receiver are natural persons. Debit entries to a Consumer Account must be in writing and signed or similarly authenticated (i.e. e- sign) except as the rules provide in the authorization requirements specific to each SEC code. An Authorizations must: be readily identifiable as an authorization have clear and readily understandable terms provide that the Receiver may revoke the authorization in the manner outlined in the authorization Non-Consumer Accounts (Business Accounts) Any entry effected to a Non-consumer account must be originated as a Corporate Credit or Debit (CCD). The NACHA Operating Rules do not require the CCD authorization to be in a specific form. The Rules require that the Originator and Receiver have an agreement that binds the Receiver to The Rules. NOTE: Effective September 19, 2014 Originators of CCD entries must be able to provide accurate record evidencing the Receiver s authorization upon request from the ODFI/ProfitStars. [9]

10 What is an ACH Return? An ACH Return is an entry that has been rejected by the Receiving Depository Financial Institution (RDFI) because it cannot be processed. What happens when an entry returns? When the ODFI/ProfitStars receives a return entry that entry is posted to your Merchant Settlement Account. If the return entry is a debit your Merchant Settlement Account will be debited. Conversely, if the return entry is a credit your Merchant Settlement Account will be credited. Why are entries returned? There are various reasons that an RDFI may return an entry. Each Return Entry is accompanied by a Return Reason Code. Please see a list of the most common return reason codes on Page For a complete list of Return Reason Codes please refer to Appendix Four of the NACHA Operating Rules and Guidelines. [10]

11 What is a Notification of Change (NOC)? Notification to a merchant from a receiver's bank indicating that bank account information provided with a specific transaction was incorrect and provides correct information. (Also known as a COR Entry) What happens when a NOC is received? When the ODFI/ProfitStars receives a Notification of Change (COR Entry) the information contained in the Entry is provided to the Merchant. The Merchant (Originator) is required to make the changes specified in the NOC within 6 Banking Days of receipt of the information or prior to initiating another Entry to the Receiver s account, whichever is later. Why a Notification of Change? There are various reasons that an RDFI may initiate a NOC. Each NOC is accompanied by a Change Code. Please see a list of common Change Codes on Page 40. For a complete list of Change Codes please refer to Appendix Five of the NACHA Operating Rules and Guidelines. [11]

12 What is ARC? The Standard Entry Class code for Accounts Receivable Entries is ARC. ARC is a single-entry ACH debit that takes place when an Originator receives and converts a check payment that is sent via mail or deposited into a drop box. When the paper check is converted, it is then referred to as a source document. NOTE: Effective March 16, 2012 the Rules are amended to permit the use of ARC for the conversion of checks tendered in person for the payment of a bill at a manned location. What types of businesses benefit from offering ARC? Any company that receives check remittances through the mail or in a drop box should evaluate the benefits of ARC. A wide variety of industries take advantage of ARC, such as credit card companies, utility companies and mortgage companies and other billers. Property management companies, lenders, health care providers, government agencies, educational institutions and not-for-profit organizations also enjoy the following benefits of using ARC: Cost-savings created by processing paper checks as ACH transactions; Reduced time-frame for processing payments; Receive earlier notification of returned items; Reduction in errors resulting from manual processing. For the most recent NACHA published statistics regarding ARC please visit: ACH Network Statistics Originators of ARC transactions are ultimately responsible to comply in full with applicable regulations, including Regulation E and the NACHA Operating Rules. For additional compliance information, please refer to a current version of the NACHA Operating Rules. [12]

13 ARC Compliance Considerations As established by the NACHA Operating Rules, there are a number of compliance requirements for Originators that accept ARC transactions, including advance notice of the intent to convert the check, electronic capture of payment information from the MICR line and retention of a copy of the source document. Additionally, there are eligibility requirements that checks must meet for conversion to ARC. Compliance Checklist for ARC Transactions Authorization Requirements The Originator provides notice to the customer of the company s intent to convert the check, typically on an invoice or billing statement; for checks deposited in a drop box, notice should be clearly displayed on signage; Notice must clearly and conspicuously state that receipt of the check will authorize an ACH debit; NOTE: Effective March 18, 2011 the requirement that Originators of ARC entries have procedures in place to allow Receivers to opt out of check conversion is optional. Sample ARC Authorization Language Note: The sample authorization language is provided for illustrative purposes only. Originators should consult with their legal counsel. ProfitStars requires Originators to provide a copy of the current authorization upon request. When you provide a check as payment, you authorize us to either use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check. Alternative Reg-E safe harbor language: When you provide a check as payment, you authorize us to use information from your check to make a one-time electronic fund transfer from your account. In certain circumstances, such as for technical or processing reasons, we may process your payment as a check transaction. [13]

14 ARC Eligibility Requirements An Originator may accept a check as a source document for ARC if it meets the following criteria: Must contain a pre-printed check serial number; Must be in an amount of $25,000 or less; Must be completed and signed by Receiver; Must have a Routing Number, Account Number, and check serial number encoded in magnetic ink; Presentment via U.S. mail or drop box; Originator must provide notice to Receiver; Originator must use a reading device to capture the MICR line from the check. Ineligible items include: 1. Checks or share drafts that contain an Auxiliary On-Us Field in the MICR line; 2. Check or share draft payable to person other than Originator; 3. Check or share draft that does not contain signature of Receiver; 4. Check or share draft that accesses credit card account, Home Equity Line, or other form of credit; 5. Check drawn on investment company as defined in the Investment Company Act of 1940; 6. Obligations of an FI (travelers checks, money orders etc.); 7. Checks drawn on the Treasury of the U.S., a FRB or Federal Home Loan Bank; 8. Checks drawn on a state or local government that is not payable through or at a Participant DFI; 9. Checks or share drafts payable in a medium other than United States currency. Capturing Payment Information from the MICR line NACHA sets forth specific guidelines for capturing payment information from the source document: Originators must use an electronic check reading device to capture MICR information, such as the account number, routing number and serial number; Originators are prohibited from key entering MICR information from the check, except for correcting errors from the reader device; Originators may key enter the transaction amount. Retention of Source Document or Copy The NACHA Rules do not specify a destruction requirement timeframe. All banking information must be securely stored in a commercially reasonable manner. A copy of the front of the source document must be stored and available upon request for two years from the Settlement Date of the transaction. If requested, the Originator s bank has 10 banking days to provide a copy of the source document. [14]

15 Collection of Fees ARC 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 of any type may be added to the amount of the source document when it is transmitted as an ARC entry. An Originator desiring to use the ACH Network to collect a service fee from a Receiver must originate a separate entry using the appropriate Standard Entry Class Code and must follow all rules governing the specific transaction used, including having first obtained the Receiver s authorization for such an entry in the manner specified by the NACHA Operating Rules. Originators need to be aware that the requirements of the NACHA Operating Rules are in addition to any requirements defined by applicable state law governing service fees. Originators are responsible for determining what the applicable state laws are, if any, for each of their check-accepting locations that intend to, or may, use the ACH Network for the collection of service fees. Source: NACHA Operating Rules & Guidelines 2014 Chapter 37 OG126. [15]

16 What is BOC? The Standard Entry Class code for Back Office Conversion is BOC. Organizations that accept checks at the point of sale or manned bill payment locations can convert paper checks to an ACH debit in a location away from the point of sale, such as a back office. BOC entries are single-entry debits and may only be used for non-recurring, in-person payments. What types of businesses benefit from offering BOC? BOC can help companies of all sizes, whether they accept a handful or a significant number of checks. A wide range of industries enjoy a variety of advantages by utilizing BOC. Some examples include multilane retailers like grocery stores, health care providers and pharmacies, utility companies and not-forprofit organizations. Other companies that benefit by using BOC include in-home service providers, professional service providers like attorneys, retail service businesses and quick service/delivery restaurants. Some of the notable BOC benefits include: Cost-savings created by processing paper checks as ACH transactions; Reduced time-frame for processing payments; Earlier notification of returned items; Reduction of errors resulting from manual processing; The ability to convert checks accepted at the point of sale with minimal impact upon the customer experience; Because the checks are converted away from the point of sale, the checkout process flows normally. For the most recent NACHA published statistics regarding BOC please visit: ACH Network Statistics Originators of BOC transactions are ultimately responsible to comply in full with applicable regulations, including Regulation E and the NACHA Operating Rules. For additional compliance information, please refer to a current version of the NACHA Operating Rules. [16]

17 BOC Compliance Considerations As established by the NACHA Operating Rules, there are a number of compliance requirements for Originators that accept BOC transactions, including advance notice of the intent to convert the check, electronic capture of payment information from the MICR line and retention of a copy of the source document. Additionally, there are eligibility requirements that checks must meet for conversion to BOC. Compliance Checklist for BOC Transactions Authentication Requirement Originators are required to verify the identity of the consumer at the point of sale. Authorization Requirements The Originator provides notice to the customer of the company s intent to convert the check on signage at the point of sale that is posted in a prominent and conspicuous manner; A copy of the notice must be provided to the customer at the time of the transaction; Both notices must include a working customer service telephone number for customer inquiries, which is answered during normal business hours. NOTE: Effective March 18, 2011 the requirement that Originators of BOC entries have procedures in place to allow Receivers to opt out of check conversion is optional. [17]

18 Sample BOC Authorization Language Note: The sample authorization language is provided for illustrative purposes only. Originators should consult with their legal counsel. ProfitStars requires Originators to provide a copy of the current authorization upon request.. When you provide a check as payment, you authorize us to either use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction. For inquiries please call <customer service phone number>. BOC Eligibility Requirements An Originator may accept a check as a source document for BOC if it meets the following criteria: Must contain a pre-printed check serial number; Must be in an amount of $25,000 or less; Must be completed and signed by Receiver; Must have a Routing Number, Account Number, and check serial number encoded in magnetic ink; Presentment at point-of-purchase or manned bill payment location for conversion during backoffice processing; Originator must provide notice to Receiver; Originator must use a reading device to capture the MICR line from the check. Ineligible items include: 1. Checks or share drafts that contain an Auxiliary On-Us Field in the MICR line; 2. Check or share draft payable to person other than Originator; 3. Check or share draft that does not contain signature of Receiver; 4. Check or share draft that accesses credit card account, Home Equity Line, or other form of credit; 5. Check drawn on investment company as defined in the Investment Company Act of 1940; 6. Obligations of an FI (travelers checks, money orders etc.); 7. Checks drawn on the Treasury of the U.S., a FRB or Federal Home Loan Bank; 8. Checks drawn on a state or local government that is not payable through or at a Participant DFI; 9. Checks or share drafts payable in a medium other than United States currency. [18]

19 Capturing Payment Information from the MICR line NACHA sets forth specific guidelines for capturing payment information from the source document: Originators must use an electronic check reading device to capture MICR information, such as the account number, routing number and serial number; Originators are prohibited from key entering MICR information from the check, except for correcting errors from the reader device; Originators may key enter the transaction amount. Retention of Source Document or Copy The NACHA Rules do not specify a destruction requirement timeframe. All banking information must be securely stored in a commercially reasonable manner. A copy of the front of the source document must be stored and available upon request for two years from the Settlement Date of the transaction. If requested, the Originator s bank has 10 banking days to provide a copy of the source document. Collection of Fees BOC 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 of any type may be added to the amount of the source document when it is transmitted as a BOC entry. An Originator desiring to use the ACH Network to collect a service fee from a Receiver must originate a separate entry using the appropriate Standard Entry Class Code and must follow all rules governing the specific transaction used, including having first obtained the Receiver s authorization for such an entry in the manner specified by the NACHA Operating Rules. Originators need to be aware that the requirements of the NACHA Operating Rules are in addition to any requirements defined by applicable state law governing service fees. Originators are responsible for determining what the applicable state laws are, if any, for each of their check-accepting locations that intend to, or may, use the ACH Network for the collection of service fees. Source: NACHA Operating Rules & Guidelines 2014 Chapter 38 OG135. [19]

20 What is CCD? The Standard Entry Class code for corporate ACH entries is CCD. The CCD code applies to both singleentry and recurring payments. Originators are required to have an agreement with the Receiver that binds them to the NACHA Rules. CCD Compliance Considerations NOTE: Effective September 19, 2014 Originators of CCD entries must be able to provide accurate record evidencing the Receiver s authorization upon request from the ODFI/ProfitStars. What types of businesses benefit from offering CCD? Almost any type of business can use CCD entries. Some of the commonly used applications for CCD credits include paying monthly bills or taxes, funding branches, franchises or agents, funding employee benefit accounts or charitable donations. Benefits of using CCD for credits include: Reduced cost per transaction versus check payments; Eliminates the costs of replacing lost checks; Reduced administrative costs, including labor to process checks, stamps, check stock. Examples of CCD debits include consolidation of funds from branches or locations and collecting corporate receivables. Benefits of CCD debits include: Earlier notification of returned items; Reduced administrative burden of accounts payable; Predictive cash flow; No waiting for checks to clear. For the most recent NACHA published statistics regarding CCD please visit: ACH Network Statistics Originators of CCD transactions are ultimately responsible to comply in full with applicable regulations, including the NACHA Operating Rules. For additional compliance information, please refer to a current version of the NACHA Operating Rules: Source: NACHA Operating Rules & Guidelines 2014 Chapter 39 OG145. [20]

21 What is POP? The Standard Entry Class code for Point-of-Purchase Check Conversion is POP. Organizations that accept checks at the point of sale or manned bill payment locations can convert paper checks to an ACH debit in a location. POP entries are single-entry debits and may only be used for non-recurring, in-person payments. The consumer signs an authorization for conversion, and receives their voided check back along with a document that provides information about the transaction. What types of businesses benefit from offering POP? POP can help companies of all sizes, whether they accept a handful or a significant number of checks. A wide range of industries enjoy a variety of advantages by utilizing POP; for example, multi-lane retailers like grocery stores, pharmacies, utility companies and not-for-profit organizations. Other companies that benefit by using POP include automotive companies and retail service businesses, such as dry cleaners and mail services stores. Some of the notable POP benefits include: Cost-savings created by processing paper checks as ACH transactions; Reduction of the time-frame for processing payments; Earlier notification of returned items; Reduction of errors resulting from manual processing. For the most recent NACHA published statistics regarding BOC please visit: ACH Network Statistics Originators of POP transactions are ultimately responsible to comply in full with applicable regulations, including Regulation E and the NACHA Operating Rules. For additional compliance information, please refer to a current version of the NACHA Operating Rules. [21]

22 POP Compliance Considerations As established by the NACHA Operating Rules, there are a number of compliance requirements for Originators that accept POP transactions, including advance notice of the intent to convert the check, providing the customer with a copy of the authorization notice and a receipt, and electronic capture of payment information from the MICR line. The Originator must mark the check as void and return to the customer. Additionally, there are eligibility requirements that checks must meet for conversion to POP. Compliance Checklist for POP Transactions Although the NACHA Operating Rules do not prescribe specific authorization language for the point-ofpurchase application, the authorization must conform to the requirements of the NACHA Operating Rules, which require that the authorization: Authentication Requirement Originators are required to verify the identity of the consumer at the point of sale. Authorization Requirements The Originator provides notice to the customer of the company s intent to convert the check and must be readily identifiable as an ACH debit authorization on signage at the point of sale that is posted in a prominent and conspicuous manner; A copy of the notice must be provided to the customer; Originators must offer customers an opt-out method. [22]

23 POP Receipt Requirements In addition to the voided paper check, the Originator must also hand the consumer a document containing specific information. The following information may be included on the same document as the customer s receipt. REQUIRED Originator Name Originator Phone Number Date of Transaction Transaction Amount Check Serial Number Merchant Number (or other unique number that identifies the location of the transaction) OPTIONAL Merchant Address Merchant Identification Number Receiver s FI Routing Number Receiver s TRUNCATED account number Receiver s TRUNCATED identification number Transaction reference number Terminal City Terminal State NOTE: The complete account number cannot be placed on the customer s takeaway receipt or document [23]

24 Sample POP Authorization Language Note: The sample authorization language is provided for illustrative purposes only. Originators should consult with their legal counsel. ProfitStars requires Originators to provide a copy of the current authorization upon request. Signage Language: When you provide a check as payment, you authorize us to either use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction. Customer Authorization/Take-away Copy Language: [Date] [Merchant Name and Number] [Street Address] [City, State] I authorize [Merchant] to convert my check and electronically debit my account for the sale amount. For customer service inquiries, please call [phone number]. Sale Amount: [$] Check Number: [#] Customer Signature [24]

25 POP Eligibility Requirements An Originator may accept a check as a source document for POP if it meets the following criteria: Must contain a pre-printed check serial number; Must be in an amount of $25,000 or less; Originator must use a reading device to capture the MICR line from the check; Must have a Routing Number, Account Number, and check serial number encoded in magnetic ink; Presentment at point-of-purchase or manned bill payment location; Originator must provide notice to Receiver and copy of notice or similar language to Receiver at time of transaction and a written authorization from the Receiver; Source document is voided and returned to Receiver; Source document has not been used for a prior POP entry. Ineligible items include: 1. Checks or share drafts that contain an Auxiliary On-Us Field in the MICR line; 2. Check or share draft payable to person other than Originator; 3. Check or share draft that accesses credit card account, Home Equity Line, or other form of credit; 4. Check drawn on investment company as defined in the Investment Company Act of 1940; 5. Obligations of an FI (travelers checks, money orders etc.); 6. Checks drawn on the Treasury of the U.S., a FRB or Federal Home Loan Bank; 7. Checks drawn on a state or local government that is not payable through or at a Participant DFI; 8. Checks or share drafts payable in a medium other than United States currency. Capturing Payment Information from the MICR line NACHA sets forth specific guidelines for capturing payment information from the source document: Originators must use an electronic check reading device to capture MICR information, such as the account number, routing number and serial number; Originators are prohibited from key entering MICR information from the check, except for correcting errors from the reader device; Originators may key enter the transaction amount, along with any relevant customer information, such as address, phone number, driver s license number, etc.; The source document must be voided by the Originator and returned to the check writer at the time of the transaction. [25]

26 Collection of Fees Originators need to be aware that ACH notice and authorization requirements are in addition to any requirements required by applicable state law governing returned-check service fees. Originators are responsible for determining what the applicable state laws are, if any, for each of their check-accepting locations that intend to, or may, use the POP application. In addition, the authorization for the conversion of the check does not include authorization for any returned-check fees that may become necessary to collect the check unless the authorization specifically includes appropriate language covering such fees. Source: NACHA Operating Rules & Guidelines 2014 Chapter 44 OG202. [26]

27 What is PPD? A Standard Entry Class code frequently used for consumer ACH entries is PPD. The PPD code applies to both single-entry and recurring payments. A customer provides a written, signed or similarly authenticated authorization for either a credit or debit transaction to their account. PPD entries can either be single or recurring transactions. Standard PPD authorizations can be used for recurring bills where the amount may vary. What types of businesses benefit from offering PPD? Almost any type of business can use PPD entries for transactions to a consumer account. Some of the commonly used applications for PPD credits include direct deposit of payroll, Social Security payments, payment for employee commissions or expense reimbursement and annuity payments. Benefits of using PPD for credits include: Reduced cost per transaction versus the cost of issuing a check; Eliminates the cost of replacing lost checks; Guaranteed payment date/time to employees; Reduces the administrative burden of processing payments. Examples of PPD debits include mortgage, loan and insurance payments, payments for credit card and utility bills, charitable donations and recurring payments for health club memberships and subscriptions. Benefits of PPD debits for companies include: Eliminate check-handling procedures (i.e. opening mail, recording checks, trips to bank to make deposits, etc.); Faster settlement; Earlier notification of returned items. For the most recent NACHA published statistics regarding PPD please visit: ACH Network Statistics Originators of PPD transactions are ultimately responsible to comply in full with applicable regulations, including the NACHA Operating Rules. For additional compliance information, please refer to a current version of the NACHA Operating Rules. Source: NACHA Operating Rules & Guidelines 2014 Chapter 45 OG210. [27]

28 Sample PPD Authorization Language Note: The sample authorization language is provided for illustrative purposes only. Originators should consult with their legal counsel. ProfitStars requires Originators to provide a copy of the current authorization upon request. Sample PPD Authorization Language - Credits Sample PPD Authorization Language - Debits [28]

29 What is RCK? The Standard Entry Class code for Re-presented Check Entries is RCK. RCK entries are single-entry debits to a consumer account use to re-present a paper check after the item has been returned unpaid. Customers are required to sign an authorization and must receive a copy of the authorization language. What types of businesses benefit from offering RCK? RCK provides Originators with a more efficient method, compared to traditional NSF check methods. RCK can help companies of all sizes, whether they accept a handful or a significant number of checks. A wide range of industries enjoy processing efficiencies and decreased costs by utilizing RCK; for example, multi-lane retailers like grocery stores, pharmacies, convenience stores, utility companies and health care providers. Other companies that benefit by using RCK include professional service providers such as attorneys, in-home service providers, retail service businesses and quick service/delivery restaurants. Some of the notable RCK benefits include: Cost-savings created by re-presenting paper checks as ACH transactions; Reduction of the time-frame for processing payments, with faster access to collected funds; Increased likelihood of collecting funds, due to the ability to target a specific re-presentment date; Earlier notification of returned items; Reduction of errors resulting from manual processing; RCK allows an additional electronic presentment. For the most recent NACHA published statistics regarding RCK please visit: ACH Network Statistics Originators of RCK transactions are ultimately responsible to comply in full with applicable regulations, including Regulation E and the NACHA Operating Rules. For additional compliance information, please refer to a current version of the NACHA Operating Rules. [29]

30 RCK Compliance Considerations As established by the NACHA Operating Rules, there are a number of compliance requirements for Originators that initiate RCK transactions, including advance notice of the intent to re-present the check electronically. Additionally, there are eligibility requirements that checks must meet for conversion to RCK. Compliance Checklist for RCK Transactions Authorization Requirements The Originator provides notice to the customer of the company s intent to re-present the check as an electronic debit in a clear and conspicuous manner, such as signage at the point of sale or at a drop box. For checks received in the mail, notice should be clearly displayed on an invoice or with a monthly billing statement. Sample RCK Authorization Language Note: The sample authorization language is provided for illustrative purposes only. Originators should consult with their legal counsel. ProfitStars requires Originators to provide a copy of the current authorization upon request. If your check is returned for insufficient funds or is unpaid, your account will be electronically debited. Choosing to use a check for payment is your acknowledgement and acceptance of the terms and conditions of this policy. [30]

31 RCK Eligibility Requirements An Originator may accept a check as a source document for RCK if it meets the following criteria: Must contain a pre-printed check serial number; Must be in an amount of $2,500 or less; Consumer accounts only; Must be completed and signed by Receiver; Must have a Routing Number, Account Number, and check serial number encoded in magnetic ink; Originator must provide notice to Receiver of the terms for initiating an RCK entry prior to receiving the source document to which the RCK relates; Source document is dated 180 days or less from the date of the RCK entry; Ineligible items include: 1. Checks or share drafts that contain an Auxiliary On-Us Field in the MICR line; 2. Check or share draft payable to person other than Originator; 3. Check or share draft does not contain signature of the Receiver; 4. Check or share draft that accesses credit card account, Home Equity Line, or other form of credit; 5. Check drawn on investment company as defined in the Investment Company Act of 1940; 6. Obligations of an FI (travelers checks, money orders etc.); 7. Checks drawn on the Treasury of the U.S., a FRB or Federal Home Loan Bank; 8. Checks drawn on a state or local government that is not payable through or at a Participant DFI; 9. Checks or share drafts payable in a medium other than United States currency. Number of Presentments Originators may transmit a RCK entry no more than twice after the return of a paper item; or no more than once after the second return of a paper item. (i.e. 2 times as a check, 1 time as RCK) Retention of Copy of Item A copy of the front and back of the check must be stored and available upon request for seven years from the Settlement Date of the transaction. If requested, the Originator s bank has 10 banking days to provide a copy of the source document. If the check has been finally paid, this must be indicated on the copy. [31]

32 Collection of Fees An Originator may transmit an RCK entry for the face amount of the returned check only. No collection or service fees of any type may be added to the amount of the item when it is transmitted as an ACH entry. An Originator desiring to use the ACH Network to collect a service fee from a Receiver must originate a separate debit entry using the appropriate Standard Entry Class Code and must follow all rules governing the specific transaction used, including having first obtained the Receiver s authorization for such an entry in the manner specified by the NACHA Operating Rules. These requirements of the Rules are in addition to any requirements defined by applicable state law governing the collection of service fees. Originators are responsible for determining what the applicable state laws are, if any, for each of their check-accepting locations that intend to, or may, use the ACH Network for the collection of service fees. Some Originators may desire to place an authorization stamp on the check being used for 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). The 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 such that it could appear that by signing the check, the check writer has also agreed to the authorization. The signature for authorization must clearly relate to the authorization language itself; The authorization on the check must be readily identifiable as an ACH debit authorization and its terms must be clear and readily understandable (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 had copy of the authorization; The Originator must retain the original or a 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 than 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. [32]

33 Restrictive Endorsements Any restrictive endorsement (such as For Deposit Only ) placed on a check by the Originator is void or ineffective when the item is presented as a RCK entry. Source: NACHA Operating Rules & Guidelines 2014 Chapter 46 OG214. [33]

34 What is TEL? The Standard Entry Class code for Telephone-initiated ACH entries is TEL. TEL is used when an Originator obtains authorization via the phone from a consumer to create an ACH debit. The TEL code applies to single-entry payments and recurring payments. TEL transactions must be drawn on a consumer account and be payable in U.S. currency. Additionally, TEL may only be used when: A relationship already exists between the Originator and the consumer, OR In the case where there is not an existing relationship, the consumer initiates the contact with the Originator NOTE: Effective September 16, 2011, an amendment to the NACHA Operating Rules became effective that expands the scope of the TEL application to permit its use for recurring consumer transactions. What types of businesses benefit from offering TEL? A wide variety of industries benefit by offering TEL as a payment option to their customers. Billers such as credit card companies, utility companies and mortgage companies enjoy widespread consumer acceptance of TEL payments. Catalog retailers, government agencies, educational institutions, health care providers and not-for-profit organizations also enjoy the following benefits of using TEL: ACH offers reduced cost of processing transactions versus credit cards; Increased customer loyalty by offering a convenient payment option; By offering a payment option for those who don t have or choose to use credit/debit cards, additional sales can be generated through an expanded customer base; Enhanced customer satisfaction by creating a secure, convenient payment option for customers making last-minute payments. For the most recent NACHA published statistics regarding TEL please visit: ACH Network Statistics Originators of TEL transactions are ultimately responsible to comply in full with applicable regulations, including Regulation E and the NACHA Operating Rules. For additional compliance information, please refer to a current version of the NACHA Operating Rules. [34]