CUNA Comment Letter

Proposed Merchant-As-Keeper Automated Clearing House Pilot

Via e-mail
February 11, 2000

Ms. Debbie Barr
Assistant Director of Network Services
13665 Dulles Technology Drive
Suite 300
Herndon, Virginia 20171

Dear Ms. Barr:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on NACHA's proposed point-of-purchase (POP) pilot. In this pilot, the merchant collects a written authorization and a completed, signed check from the consumer. The merchant uses a MICR reader to obtain the consumer's routing and account numbers, the check is stamped void and an ACH item is created (POP check entries). As a national trade association, CUNA represents more than 90 percent of the nation's 11,000 state and federal credit unions. This letter reflects the opinions of those credit unions and CUNA's Payments System Subcommittee.

CUNA recognizes NACHA's hard work in sponsoring and administering automated clearing house (ACH) pilots. These ACH pilots will ultimately reduce check use and create a faster, more efficient payment system.

This POP pilot, however, raises serious concerns. Under the proposed POP pilot, the merchant and the originating depository financial institution (ODFI) would retain the check. Although the merchant is supposed to stamp this check void, there is still a possibility that the merchant or ODFI could process the check and the ACH item

CUNA also has numerous concerns about safekeeping of the check in this POP pilot. The proposal requires the merchant, the ODFI or an agent to retain a copy of the check for up to seven years and to provide the RDFI with check copies, if those are requested, within 10 days. Merchants and their agents may not adequately safeguard checks, which contain private financial information. In addition, these participants may not comply with the seven-year storage requirements, which could make it difficult for RDFIs to retrieve checks for customers. Credit unions have truncated checks for years, and are used to member requests for copies of these checks for numerous reasons (e.g., taxes, fraud investigations and payment disputes). Credit unions are currently able to quickly fulfill these requests. In this pilot, however, credit unions will have to request a share draft from another source, which may delay or eliminate their ability to retrieve a share draft for a member. If this pilot is adopted, there should be penalties for ODFIs that do not comply with the retrieval provision within the Rules.

None of the concerns listed above are present in the Consumer-As-Keeper POP pilot, which is currently in existence. In that model, as you know, the member keeps the share draft that is not completed. Consumer retention eliminates the problems with duplicate presentment, storage and retrieval mentioned above.

CUNA is concerned about the confusion and mistakes caused by introducing two POP pilots that would run concurrently. These two pilots would create a need for credit unions to train their staffs for two substantially similar POP pilots that are governed by two separate bodies of law. The differences in the two pilots may also create confusion and anxiety among consumers, who may not become familiar with receiving their checks in POP pilots if the next day they have to complete them. This confusion could result in reduced public and media support for these type of ACH pilots overall, especially if there are errors with duplicate presentments. It would seem that this pilot at least should be postponed until there is time for better education and more acceptance of the current Consumer-As-Keeper POP pilot.

Introducing more check truncation and check conversion pilots, when so many are already in existence strains the resources of RDFIs. Credit unions and other RDFIs are already working under temporary rules for three different processes for share draft conversion and truncation. In addition to the Consumer-As-Keeper POP pilot cited above, there are the re-presented check interim rules and the accounts-receivable-check- truncation interim rules. Until the final rules for these items are effective, credit unions are extremely limited in their ability to develop solutions to cross-reference a stop payment on a check number or control other errors they currently experience. Credit unions and other RDFIs need time to review the results of these pilots and resolve problems they encounter processing for these pilots, before a new pilot is started that is substantially similar to one already in existence.

CUNA is also concerned that this POP pilot may impede the ability of credit unions to serve their membership. Credit union members may treat POP check entries as a normal share draft transaction, when in reality, it will be an ACH POP transaction. These transactions are handled quickly, and consumers may often be too late to place stop payment orders on them in time for an RDFI to react. Credit union members may have trouble understanding why their credit union cannot place a stop payment order for them. Credit union members and the customers of other financial institutions will also confront the RDFI if there are problems with check retrieval or duplicate presentment caused by the operation of this pilot. In conclusion, this POP may negatively impact the relationship between an RDFI and its customer or member.

For all the reasons stated above, CUNA has reservations about introduction of this POP pilot. CUNA urges NACHA not to proceed before addressing these concerns. If you have any further questions, please contact Michelle Profit at (202) 682-4200.


Michelle Q. Profit
Assistant General Counsel