CUNA Comment Letter
Proposed Rule on Electronic Bounced Check Fees
December 6, 2002
Mr. William Colbert
Network Services Manager
NACHA The Electronic Payments Association
13665 Dulles Technology Drive
Herndon, Virginia 20171
RE: Proposed Rule on Electronic Bounced Check Fees
Dear Mr. Colbert:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed modification to the authorization requirements for service fees associated with Re-presented Checks (RCK) entries. The change in the authorization requirements would allow a merchant to obtain a consumers authorization with a posting of notice instead of a signature or verbal assent. CUNA, a national trade association, represents more than 90 percent of the nations 10,175 state and federal credit unions.
Summary of CUNA's Views
CUNA has the following comments on the changes to the automated clearing house (ACH) rules that would affect originating depository financial institutions (ODFIs) and receiving depository financial institutions (RDFIs):
- CUNA does not support this proposal because it would impose costs by requiring employee training, new programming, and management of a deluge of consumer service inquiries.
- If the proposal is adopted, CUNA believes that the following parts of the proposal should be included in the final rule:
- The type of ACH entries must be clearly identified by depository institutions and their staff by providing a unique standard entry class code (SEC) and a special identifier.
- The check serial number should be included on both the ACH entry and on the consumers periodic statement.
- The merchants phone number should be included on the ACH entry for customer service issues within the Data Discretionary Field on ACH entries.
- The second notice should be sent 10 banking days prior to the debit date and should include specific information about alternative payment methods so the consumer does not make duplicate payments.
- The service fee should not be collected until the underlying debt is paid.
The NACHA proposal would add a two-step notification process that would be used to obtain the consumers authorization:
- The first notice would be displayed at the point of sale or on a bill statement. This notice would have to be provided to the consumer in advance of receiving the consumers check. It would clearly and conspicuously state that the merchant might send an electronic service fee for checks that are not honored.
- A second notice would be provided to the consumer, at least ten banking days before the debit was to be posted to the consumers account. This notice would inform the consumer of the intent to collect the fee electronically and provide the consumer with specific information related to the debit entry.
In addition, there would be a stipulation that the merchant and ODFI could not collect or attempt to collect the check service fee before the underlying transaction had been paid.
The PPD standard entry class code would be used with a unique identifier, CHKSRVCFEE. Finally, the proposed implementation date would be March 14, 2003.
CUNA has serious concerns about this proposal. According to NACHA, there were 4.8 million RCK transactions this past quarter and that number is growing. Although some merchants send out service fees through the ACH now, this proposal formalizes the process and should result in a substantial increase in the number of ACH service fees sent. The large and growing number of RCK entries along with the imposition of a notice authorization instead of an affirmative assent could create a large burden for depository institutions, which will be required to answer questions from consumers on potentially 4.8 million service fees per quarter. This proposal will place other burdens on credit unions. It will require credit unions to divert time and resources to reprogramming ACH software, retraining employees, responding to inquiries and returning ACH entries. While there may be some increases in efficiencies, the large number of transactions involved should be of concern and NACHA should proceed cautiously.
If this proposal is adopted despite these reservations, then NCHA should ensure that the following parts of the proposal described below are retained.
NACHA should use a new standard entry class code and a special identifier to identify ACH service fees. A specific identifier CHKSRVCFEE-- should be included in the Company Entry Description Field, to differentiate these entries. This identifier is particularly necessary if the old PPD standard entry class code is used, but should also be used even if a new standard entry class code is created. The information from that field could be passed to consumers statements. As a result, consumers would be able to identify and verify these transactions without calling RDFIs.
CUNA believes that the check serial number must be on the ACH entry and on the statement so that the credit union member can identify and verify the transaction. The check serial number may be particularly important because the original check sometimes may be months old before the service fee is processed. The check serial number also provides the consumer with proof of payment of the check fee if that proof is needed in the future.
CUNA also believes that the merchants phone number should be included on the initial ACH entry as well as the second notice. This information is critical so that credit unions can provide the phone number to their members if needed. Otherwise, credit unions may receive numerous inquiries, which they cannot respond to or forward. This information should be placed in the Discretionary Data Field.
CUNA believes that the second notice of the ACH service fee should be sent ten business days prior to the debit date. In addition, the second notice should be altered so that it makes clear that a merchant does not have to permit the consumer an alternative payment method. If consumers are permitted to pay by other methods, then those methods should be clearly specified. Otherwise, consumers may inadvertently pay twice.
CUNA strongly believes that the service fee should not be collected prior to the underlying debt being paid first. If the underlying transaction is not paid, the impact to the consumer could be significant. This underlying obligation, which could be a car or insurance note, should be paid first because the consequences for nonpayment are more severe. Moreover, if the underlying obligation is paid first, that should help prevent the collection of multiple fees against the same account because it would indicate that the account has received an infusion of funds. If the obligation remains unpaid, then an attempt to collect the service fee would be yet another attempt to collect, which could result in the depository institution charging a second returned item fee. By requiring that the underlying obligation be paid first, fewer duplicate fees will collect against the affected account.
CUNA commends NACHA for the extended comment period on this proposal. By lengthening the comment period more institutions have had a chance to respond and many have done so. If you have any further questions, please contact CUNA's Senior Vice President and Associate General Counsel Mary Dunn or me at (202) 638-5777.
Michelle Q. Profit
Assistant General Counsel