CUNA Comment Letter
Proposed Guidelines for the Point of Sale (POS) Merchant-as-Keeper Pilot sponsored by the National Automated Clearing House Association (NACHA)
July 26, 1999
Nancy E. Grant
Senior Director, Electronic Check Services
National Automated Clearing House Association
13665 Dulles Technology Drive, Suite 300
Herndon, Virginia 20171
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed guidelines for the Point of Sale (POS) Merchant-as-Keeper Pilot sponsored by the National Automated Clearing House Association (NACHA). As a national trade association, CUNA represents more than 90 percent of the nation's 11,000 state and federal credit unions and solicits the opinions of these credit unions on relevant matters. The following comments were developed by CUNA with input from the Payments System Subcommittee, directed by Stan Hollen, President and CEO of The Golden 1 Credit Union, Sacramento, California, and other credit unions that provided comments to us. Although CUNA is generally supportive of the proposal, which may result in a reduction in the number of checks financial institutions process, CUNA has several concerns about specific aspects of the proposal and requests that these issues be addressed before proceeding with the pilot.
CUNA is concerned about the impact of the pilot on consumers. In particular, we are concerned that a merchant may require all of its consumers to participate and may provide inadequate consumer disclosures. We are concerned that running inconsistent check truncation pilots that allow both the merchant and the consumer to retain the check may confuse consumers and delay consumer acceptance of electronic checks.
In addition, CUNA is concerned about the role of merchants. In the pilot, merchants retain checks and initiate the ACH transaction. This combination may lead to fraud in that a merchant may process both the paper check and the ACH item. Merchants may also go out of business and leave a consumer without access to the original check or they may fail to adequately safeguard checks that contain private financial information.
We are particularly concerned about the ability of consumers to control debits to their accounts when checks are truncated. A consumer and the RDFI may not be able to stop payment on a truncated check because when the consumer requests a stop on a paper check, he or she may not be aware that this is not enough to stop payment on the ACH item. In addition, many merchants present an ACH item against a customer's account numerous times, which can impose numerous fees on the customer's account.
In light of these concerns, CUNA would make the following recommendations to protect consumers and RDFIs.
- First, CUNA recommends that the RDFI should be given a minimum of 60 days to return the duplicate paper item without it being refused as a "late return." This is necessary because a merchant may fail to stamp a check void, process the ACH item, wait 90 days and process the paper item (past the deadline to return the ACH item). By the time the customer realizes that the duplicate check has posted, it would be too late for the credit union to return the paper check.
- In addition, CUNA recommends that a separate code and specific field and format should be mandatory for entering a check number into the ACH file. This requirement would help software providers who have difficulty cross-referencing stop payments on checks and including check numbers on statements when checks are received as an ACH item.
- In addition, NACHA should limit the number of times that ACH items can be presented against a consumer's account to adequately address the concerns of credit unions regarding repeated presentments.
- Finally, RDFIs must participate in all pilots and may be liable for the stop payment and the repeated presentment practices of merchants. Therefore, CUNA recommends that NACHA widely advertise in the pilot guidelines and through its public education efforts that NACHA will enforce its rules against non-compliant merchants and that NACHA will provide a mechanism for financial institutions to use to report abusive merchant practices.
As mentioned previously, CUNA generally supports the introduction of pilots such as this to promote electronic checks. However, we urge NACHA to address these concerns before implementation of the final guidelines.
Thank you for the opportunity to comment on the proposed guidelines for the POS Merchant-as-Keeper Pilot. If you or other NACHA staff have questions about these comments, please call me at (202) 218-7766.
Assistant General Counsel