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ELECTRONIC CHECK REPRESENTMENTInterim Rule*: Using the PPD Format to Represent ChecksThis interim rule, which modifies the NACHA Operating Rules to expand the definition of the Prearranged Payment and Deposit (PPD) Standard Entry Class Code to allow this format to be used to transmit ACH debit entries in place of a paper check after the item is returned for insufficient or uncollected funds, was extended for an additional period of time. This rule amendment was a two-year interim rule (effective September 18, 1998 through September 14, 2000) which provided a legal framework within the NACHA Operating Rules to represent returned checks electronically via the ACH Network. This interim rule was superseded on September 15, 2000 by a new rule amendment for represented check entries, which established a new Standard Entry Class Code (RCK) for these types of transactions. Original ballot was approved on March 4, 1998. Change of Implementation Date Ballot Was Approved on October 1, 1998. Rule amendment became effective on September 18, 1998 through September 14, 2000. *This rule is called interim as a matter of practice. This rule is in fact permanent. For any questions regarding this issue call NACHA at (703) 561-3931. For retail merchants, this rule indicates that the electronic collection policy on NSF checks must be presented in writing at the point-of-sale, along with the applicable assessment charge as allowed by law. The authorization must be stamped or printed on all checks by the merchant and signed by the check writer that they have read and understand the merchant's check usage policy. Companies that use a billing process can include the Check Usage Policy in their monthly statement. The patron's signature is required, which can be kept on file. The Check Usage Policy needs to be displayed on the invoice to show the company's continuous use of the policy. Represented Check EntriesThis ruling has Modified the NACHA Operating Rules to create a new Standard Entry Class Code, RCK (Represented Check Entry), to provide commercial depositors and their financial institutions with a legal framework and technical specifications to transmit ACH debit entries to collect paper checks that have been returned for insufficient or uncollected funds. This rule change superseded an interim rule amendment that enabled the Prearranged Payment and Deposit (PPD) format to be used to represent returned paper check items. The original ballot was approved on March 4, 1998. Change of Implementation Date ballot was approved on October 1, 1998. The rule amendment became effective on September 15, 2000. Questions about "representment" answered below:What is electronic check representment? What are the benefits of electronic check representment? Is electronic check representment legal? What is the National Automated Clearing House Association (NACHA)? How many times can an NSF check be submitted for collection? Can a bad check fee be charged to the NSF check writer? Is the merchant still charged a returned-check charge by the bank? How soon does the merchant get paid once the check is recovered? What has been the consumers' reaction to electronic check representment? How does a check writer identify the transaction? How are the NSF checks sent to the local processor? Why does the merchant not want the bank to redeposit the NSF checks? Is the use of paper checks decreasing? How is the merchant notified on bad checks so they can flag their system as soon as possible? Are customers frustrated with this check process and what is the best way to handle the frustration? What type of policy statements must be used for the different types of services used? What is electronic check representment?Electronic Check Representment is the conversion of non-sufficient funds (NSF) and uncollected funds checks into electronic items. These items are then sent through the ACH network for collection. | top What are the benefits of electronic check representment?Lower collection costs. Most banks charge $2-$4 to re-deposit a NSF check. Whereas, with Electronic Check Representment there is no charge for representing the item. Most banks charge $5-$10 per redeposited NSF check that returns a second time, whereas, with Electronic Check Representment there is no charge for NSF checks that return a second time. Dramatic improvement in collection rates. The National Automated Clearinghouse Association (NACHA) reports increases in collection rates by as much as 50% as compared to traditional collection methods. Recovery can be as high as 85%. The faster the NSF check is represented electronically, the higher the recovery rate. Faster deposit to your bank account. As an industry standard, it takes approximately 5 days from the time the file is received by the Automated Clearing House (ACH) to procure payment. This 5-day period allows time for the check to be completely processed and payment information received. Transactions that are recovered are then deposited directly into the merchants account for reconciliation. Traditional collection methods take 30 to 60 days to recover NSF items compared to 7 days using Electronic Check Representment after the check has been received by the Processing Center. Timing the NSF check representment. Our Processing Center can time re-presentments to hit the bank on payday. This provides a greater chance of collection. Traditional methods do not provide the ability to time the collection. Verification of Available Funds. The bad check writer's bank can be contacted to verify the availability of funds to increase our ability to recover the NSF checks. | top Is electronic check representment legal?Keith Theisen, Vice President of Norwest Bank, led the NACHA Rules Work Group that developed the rule. He said, "the collection of returned checks through the ACH Network can bring substantial cost and time savings to businesses, consumers and financial institutions." NACHA projects that the rate of successful collection could increase by up to 50 percent. Our Processing Center has realized recovery rates as high as 85%, amd even 100% in some instances. Steve Shutze, Senior Vice President of NationsBank said, "the new Represented Check Entry transaction was created in response to the needs of businesses that require faster and more successful collection of returned checks." | top What is the National Automated Clearing House Association (NACHA)?NACHA, located in Herndon, Virginia, represents more than 13,000 financial institutions through its 35 regional ACH associations, six councils and corporate Affiliate Membership program. A leader in the payments industry, NACHA develops operating rules for the Automated Clearing House (ACH) Network and for emerging electronic payment solutions in the areas of Internet commerce, bill payment and presentment, financial EDI, cross border transactions, electronic checks, and electronic benefits transfer. NACHA produces marketing and technical publications and provides extensive education services, including major conferences and seminars. | top How many times can an NSF check be submitted for collection?NSF items can be represented a total of 3 times. Twice by the bank, once electronically, which is one more presentation than a paper check can be presented. Or, once by the bank, and twice electronically. | top Can a bad check fee be charged to the NSF check writer?Yes. An amount as allowed by law which varies per state. This can also be collected electronically if certain guidelines are adhered to. It must be a separate transaction from the original NSF recovery transaction. In order to collect the fee, the customer must sign an authorization. The authorization is stamped on the customer's check and signed at the point of sale. | top Is the merchant still charged a returned-check charge by the bank?Yes, if their bank charges for NSF returns. The electronic recovery service is not in the collection loop at this point. Once the check is sent to the authorized Processing Center, there are no further charges to the merchant. However, this can be eliminated with the use of our Point-of-Sale Electronic Check Conversion Service. | top How soon does the merchant get paid once the check is recovered?As an industry standard, it takes approximately 5 days from the time the file is received by the Automated Clearing House (ACH) to procure payment. This 5-day period allows time for the check to be completely processed and payment information received. Transactions that are recovered are then deposited directly into a merchant's account for reconciliation. The average deposit time is within 7 business days from the time the funds are collected. | top What has been the consumers' reaction to electronic check representment?It has been very favorable. It is less embarrassing and it restores the customers' check writing privileges quickly with no need for them to bring cash or money orders to the merchant. It is a real convenience. | top How does a check writer identify the transaction?The check writer's statement will have the payee's name, i.e., the merchant's or biller's name; the amount of the check; and a descriptive statement reading REDEPCHECK. | top From the merchant's perspective, what is the difference between processing these items electronically vs. the old way?In short, speed, cost and a higher percentage of successful collections. Depending on the amount of returned items you have to deal with annually, the bottom line impact could be substantial. | top How are the NSF checks sent to the local processor?The merchant signs a Letter of Authorization Release Form that is processes at their bank that instructs the bank to mail all Returned Checks to the Processing Center rather than re-depositing the NSF checks. | top Why does the merchant not want the bank to redeposit the NSF checks?Banks charge as much as $3 -$10 to redeposit a NSF check. There is no charge to redeposit the check electronically. Furthermore, the Electronic Representment is far more likely to be successful due to the speed and timing of the representment. Another benefit to the merchant is that there is no return charge if a NSF check returns after the first or second re-presentment. | top Is the use of paper checks decreasing?Quite the contrary. Note the following facts about check usage in the U.S.: Merchants took in more than $13 billion in bad checks in 1996, an increase over the year before. (Nilson Report, June 1997). It is projected that the number of checks written annually will rise by 2-4% through the year 2003. That amounts to 1.2 million new checks entering the system each day. On average, Americans write approximately one million bad checks each day, totaling $5 million. Estimates are that in the year 2000, 85 billion checks will be processed and 731 million will bounce. Between 1990-2000, the number of checks processed will increase 18%. | top For businesses that invoice their customers, is there a way for them to include a statement with the invoice that allows them the authorization to do the electronic NSF?Yes. A merchant's check policy statement can be put on the invoice. The statement must be used continuously as long as the merchant is using this service or any EFT service. ELECTRONIC CHECK POLICY When returned funds are transmitted to the merchants account, is a letter issued at that time to the merchant that a collection was made?The merchant will receive a weekly report detailing the collection deposits to their account from the Processing Center. The electronic deposit will also show up on the Merchant's bank statement as an EFT transaction. If no checks have been processed for the merchant that week, the merchant will not receive a report. | top How is the merchant notified on bad checks so they can flag their system as soon as possible?The merchant's bank will typically continue to send them a notice of NSFs. The statement that the processing Center will send to the merchant includes a listing of the checks that have been returned NSF. Also included in the statement to the merchant is a listing of the checks that have been collected, and the checks that have been forwarded for manual collection. Any checks that cannot be processed electronically, i.e., checks that have not been stamped or signed, account closed, stop payments, forged checks, etc., will be forwarded to the merchants assigned collection agency or returned to the merchant. The Processing Center will also call merchants if a stream of bad checks are coming through from a particular bad check writer. | top Are customers frustrated with this check process and what is the best way to handle the frustration?As with any new consumer process, there will be a period of time during which customer awareness grows. As indicated in the PPD format, this process has to be used until some time NACHA may not require the notification on the check at the point of sale. Experience has shown that there is very little negative reaction from patrons. Can stolen, forged, account closed or payment stopped checks be recovered? A stolen check may be recovered electronically if the account is still open and stop payment has not been put on the checks. Electronic processing does not know the difference between a stolen or regular check, and neither does the bank. If an account has been closed, the check can be sent to a collection agency for collection. Approximately 5% of checks that are returned NSF cannot be collected either manually or electronically such as forged and payment stopped checks. | top What type of policy statements must be used for the different types of services used?Signage with this or similar verbiage to be posted at the point-of-sale when a merchant is using our NSF Check Representment service: ELECTRONIC CHECK POLICY Or: CHECK USAGE POLICY Verbiage to be used if merchant is using our Electronic Check Conversion and Electronic Check Representment services. This can be stamped or printed on the front or back of the check: ELECTRONIC CHECK POLICY If Point-of-Sale (POS) Electronic Check Conversion is used, the following or similar verbiage must be used on the signature receipt. These transactions are processed much like a credit card transaction: I authorize the merchant to initiate an Electronic Funds Transaction (EFT) to debit my account for the amount of the transaction. I understand that a service fee as allowed by law may be charged to my account for any dishonored checks. The retail environment of the electronic checkChecks continue to be a significant form of payment for consumers at the point of sale. Use of paper checks for personal and business payments has grown steadily for more than 125 years and research by The Green Sheet, Inc., suggests that it will continue to grow for at least another 25 years. Today, there are over 64 billion checks written each year. The projected rate of increase is 2% (1.4 million checks per day) per year until 2003. Current costs to process a paper check ranges from $2.78-$3.09 as compared to $1.15-$1.47 for an electronic transaction (Verifone White Paper, 1998 and 1996 U.S. Federal Reserve Study). For more than two decades the banking industry has been trying to eliminate the paper check in favor of an electronic payment system. However, the advent of the electronic check will ensure the continued life of the check as a primary means of payment well into the next century. As check volume has grown, so have the associated costs of processing the paper checks through the check clearing system. For retailers, significant costs associated with check acceptance originate from deposit preparation, transportation, check clearing fees, returned item handling, collection efforts and fraud. The Green Sheet also states that the primary risks associated with checks are those drawn for payments at the point of sale and business to business checks. These checks represent approximately $28 trillion in check risk, and use of verification and check truncation (Conversion) can reduce this risk dramatically. In particular, the electronic check can eliminate delay in time from the original presentment to the actual receipt of the return check transaction. These delays with standard paper check presentment negatively impact the merchants ability to prevent and collect returned items and control check fraud. Merchants are currently using electronic POS terminals and check MICR readers to capture bank account and routing data to verify checks using third party authorization. While these systems provide valuable risk protections, the merchant still must rely on a relatively slow, costly, paper-based check clearing system to receive final payment or to be notified of a return. The electronic payment systems environment present at the point of sale will readily support a process in which the MICR data from the check can be converted into an electronic transaction and entered into the banking system for rapid, low cost clearing. Retail merchants are continuously searching for ways to reduce cost and risk associated with check acceptance. Our Processing Center has developed its electronic check processing systems as a means of making available to the retail industry, systems designed to expedite the check clearing process and provide a vehicle for cost reduction. Our Electronic Funds Transaction (EFT) services combined with the Electronic Check Representment service, are designed to allow merchants the ability to eliminate the exorbitant expenses involved with operational time and collection efforts. These expenses are replaced with a fast turn-around in payment time and an ability to dramatically increase collection percentages on NSF checks. | top Call or Email Us today for a free evaluation or information. |
