NACHA Sets Rules to Tell Business Checks from Consumer Checks

NACHA, the Herndon, Va.-based organization that sets rules for the automated clearing house network, has released rules to allow banks and check-accepting businesses to distinguish checks written by companies from those written by consumers. The former are not supposed to be submitted to the network for settlement under NACHA rules, but in practice many are because retailers and other businesses accepting commercial checks can't readily tell them apart from consumer checks. NACHA's new rules, which take effect Sept. 15, 2006, also provide businesses the same ability to opt out from ACH processing that already exists for consumers. Under the new rules, checks with a so-called auxiliary on-us field in the MICR line will be ineligible for conversion to electronic transactions through the ACH. For the most part, these are checks written by purchasing and accounts-payable departments of businesses, and are generally distinguished from consumer checks because they are 9 inches long, compared to the typical 6-inch consumer check. Checks valued at $25,000 or more will also be ineligible. “The new rules will give originators [businesses that accept checks for payment and convert them to electronic transactions] simple and effective methods to identify business checks that should not be converted,” said Elliott C. McEntee, president and chief executive of NACHA. The association also expects the new rules to lead to even more check conversion at lockboxes, a process known as accounts-receivable conversion (ARC), since a number of businesses have shied away from ARC because of the absence of a standard set of rules to identify business checks. Introduced in March 2002, ARC has undergone explosive growth over the past two years. According to NACHA estimates, 1.25 billion checks were converted via ARC last year, a number the association says could reach 2 billion this year. As with consumers, not all businesses will want to see their checks converted to electronic debits. NACHA says businesses that want to opt out of conversion can do so by using checks containing the auxiliary on-us field. Moreover, under the new rules, originators will have to put in place a procedure allowing businesses that don't use the longer check stock to opt out, much as they must have such procedures in place for consumers. Beyond that, the rules allow banks housing the accounts on which business checks are written the right to return unauthorized transactions within 60 days, the same right already in place for consumer conversions. Most electronic conversions of paper checks via the ACH take place at the point of sale, under a NACHA code known as POP, and at biller lockboxes.