CUNA Comment Letter

Letter to NACHA regarding Point-of-Purchase Truncated Check Debit Entries

Via e-mail

July 31, 2000

Ms. Debbie Barr
Assistant Director of Network Services
National Automated Clearing House Association
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. As a national trade association, CUNA represents more than 90 percent of the nation's more than 10,500 state and federal credit unions. This letter reflects the opinions of those credit unions and CUNA's Payments System Subcommittee, directed by Stan Hollen, President and CEO of The Golden 1 Credit Union in Sacramento, California.

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). 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.

In enabling Originators to truncate checks at the point of purchase, this pilot would provide benefits to all ACH participants. It would provide Originators, ODFIs, and RDFIs with an alternative to paper check processing that is more efficient, less costly, and more secure. Consumers would benefit from additional consumer protections provided by the ACH network processing system. The formatting for this rule, which provides for the check serial number to be entered in the Individual Identification Number field, would be sufficient for institutions to post items correctly. If an institution rejects the account number for cause (ie. account closed, unable to locate), the institution could still have the opportunity to return the item. Although it consumer names on ACH items is not absolutely necessary, it would be beneficial to include consumers' names on these POP check entries. If the consumer's name is included, institutions could use the consumer's name to research the item when the account number is incorrect.

CUNA commends NACHA for addressing most of the key issues raised by respondents in the first Request for Comment in this new proposal. However, CUNA is concerned that several serious issues still remain unaddressed in this second Request for Comment. Under the proposed POP pilot, the merchant and the 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. If the check is truncated and the merchant is no longer in business (ie. the merchant fails, closes, becomes insolvent or the owner is deceased), the ODFI may be unable to locate the records. 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 fulfill these requests quickly. 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.

In general, CUNA supports the stop payment proposal in this rule. CUNA believes that adherence to the two-day return rule is appropriate. Besides being consistent with current requirements for similar transactions, this is fair to both members and credit unions. The processing time for a paper check transaction can vary depending on whether or not the check is considered local and on how quickly the Originator deposits the check. Under certain circumstances, a regular check could be processed as quickly as an ACH truncated check. Consequently, members would not "lose" time for placing stop payment orders by agreeing to have their checks truncated at the point of purchase and processed as ACH items. Under the proposed rule, credit unions will have adequate time to execute stop payment orders for ACH truncated checks using the same time frames they use for regular checks. If a credit union properly links their checking and ACH systems, it should be able to detect a stop payment order for an ACH truncated check in the same amount of time it takes to detect a stop payment order for a regular check. If the member has an issue with the services or goods that the merchant provided, they can always deal directly with the merchant or pursue legal action. The stop payment feature is just one option that may be available to members.

Although CUNA supports measures aimed at more efficient processing of ACH items, we have remaining concerns regarding POP stop payments that need to be addressed. CUNA believes that consumers should be informed as to how POP transactions work. Otherwise, consumers may be confused and treat a POP check entry as a normal share draft or check transaction, when in reality, it will go through as an ACH POP transaction. In addition, these POP 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. Consumers may have trouble understanding why their credit union cannot place a stop payment order for them. Credit unions involved in the pilot program have noted instances where the member thought he had placed a stop payment on a share draft but the transaction came through as an ACH and was paid. If there are problems with stop payment orders, check retrieval or duplicate presentment caused by the operation of this pilot, consumers will confront their RDFI. These problems may negatively impact the relationship between an RDFI and its customer or member. Consequently, CUNA firmly believes consumer education, including merchant disclosure, is key to the success of this pilot.

CUNA appreciates the opportunity to comment on NACHA's proposals. CUNA makes every effort to give each request for comment a careful review but would like to offer one comment on the comment process. In general, CUNA believes that NACHA should avoid setting the comment deadline for multiple proposals on the same date. In this case, comments on the proposal for Payment for Goods and Services Via Telephone-Initiated ACH Debit Entries are due at the same time as this letter. We believe it would be beneficial to all interested parties if NACHA would stagger comment letter deadlines to allow for more time for a thorough review of each proposal. Following this procedure will avoid overtaxing the resources of any interested party and facilitate the filing of thoughtful and informative comments.

CUNA urges NACHA to address the critical concerns mentioned above before going forward with the introduction of this POP pilot. If you have any further questions, please contact Mary Dunn or Catherine Orr at (202) 682-4200.


Mary Mitchell Dunn
Associate General Counsel

Catherine A. Orr
Regulatory Advocacy Attorney