CUNA Regulatory Comment Call


July 7, 2000

PAYMENT FOR GOODS AND SERVICES VIA TELEPHONE-INITIATED ACH DEBIT ENTRIES

EXECUTIVE SUMMARY

NACHA is proposing to amend its Operating Rules to allow for consumers to pay for goods and services authorized/initiated over the telephone. The consumer would provide oral authorization and financial institution routing number and account number to the Originator (merchant originating the transaction) over the telephone. The Originator would then initiate a single-entry ACH debit to the consumer's account in order to collect payment. NACHA proposes implementing the rule on March 16, 2001.

This Request for Comment contains the recommendation that the NACHA Operating Rules be amended to:

Comments are due to NACHA by July 28, 2000. Please submit your responses to CUNA by July 21, 2000. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Regulatory Advocacy Counsel Catherine Orr at corr@cuna.com or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, D.C. 20005.

NACHA has prepared its own survey that includes the questions at the end of this comment call. Click here or contact Catherine Orr for a complete copy of that survey. Surveys and comments may be sent directly to NACHA attention of: Debbie Barr, AAP, Assistant Director of Network Services, NACHA, 13665 Dulles Technology Drive, Suite 300, Herndon, VA 20171, fax: (703) 787-0996, e-mail dbarr@nacha.org. Please forward your responses to the survey to CUNA as well.

RULE

Legal Framework

The legal framework for Telephone-Initiated Debit Entries (TEL) would be the NACHA Operating Rules, the Electronic Funds Transfer Act, and Regulation E.

Rules Framework for Telephone-Initiated Debit Entries

The new SEC code, TEL, would be utilized when a consumer provides an oral authorization over the telephone to a company to transmit a single ACH debit entry to his account to collect payment for goods or services. The consumer would also provide his banking information (account number and routing number) over the telephone. Each ACH debit transaction would require a separate telephone-initiated authorization.

Allowable Telephone Calls

This rules proposal allows for: (1) the consumer to make a telephone call to the company when they either do or do not have an existing relationship, and (2) the company to make a telephone call to the consumer when the consumer and company have an existing relationship. This rule amendment specifically excludes from its coverage the scenario where a company makes a telephone call to a consumer with which it does not have an existing relationship. An existing relationship is defined as the existence of a written agreement between the Originator and Member or the circumstance in which the Member has purchased goods or services from the Originator within the past two years. In addition, any Originator or ODFI (Originating Depository Financial Institution) initiating these transactions must always check on applicable state and local laws to assure that they are in compliance with those laws.

Authorization Requirement

For the authorization initiated over the telephone to be valid, the company must:

Returns Not Allowed For Authorization Revoked

Telephone-Initiated Debit Entries are not permitted to be returned by the consumer for Return Reason Code R07 - Authorization Revoked By Consumer. Therefore, the Originator would not be required to include a method on the telephone call authorization by which the authorization could be revoked by the Member. The rationale for not allowing returns for this reason is that these transactions are one-time payments. The consumer could either return the transaction with Return Reason Code R10 (unauthorized), place a stop payment on the ACH debit, or call the company directly for a refund.

Stop Payment of a Telephone-Initiated Debit Entry

Like other ACH entries, a consumer may place a stop payment order on a Telephone-Initiated Debit Entry. For these entries, however, a minor variation from current NACHA Operating Rule provisions is included, stating that in order for a Member to place a stop payment, the RDFI (Receiving Depository Financial Institution) must have a reasonable opportunity to act upon the stop payment order prior to acting on the debit entry. This time frame has been established because an Originator will generally process TEL entries quickly, and it is unlikely that consumers would be able to meet the three-day advance notice requirement for placing stop payment orders on such entries. This follows the requirements for re-presented check entries, point-of-purchase entries, and PPD Accounts Receivable Truncated Check Debit Entries.

ODFIs

In addition to general warranties that cover ODFI transmission of all ACH entries, ODFIs assume the following additional warranties related to Telephone-Initiated Debit Entries:

These warranties expose them to additional liabilities. ODFIs must ensure that they are aware of such warranties and resultant liabilities, and they should ensure such issues are addressed within their ODFI/Originator agreements.

ODFIs will need to ensure that their ACH software is modified to accommodate the transmission and receipt of this new payment format.

RDFIs

RDFIs should be aware that they cannot return these proposed transactions for R07 - Authorization Revoked. RDFIs should be aware that Telephone-Initiated Debit Entries may be returned for any valid reason (with the exception of the instance noted above), just as any other ACH transaction may be returned, provided the returns are transmitted within the required return time frame. Unlike the check collection system, for unauthorized Telephone-Initiated Debit Entries to consumer accounts, the RDFI may transmit the return entry so that it is made available to the ODFI no later than the opening of business on the banking day following the sixtieth calendar day following the Settlement Date of the Telephone-Initiated Debit Entry. For such return entries, the RDFI must have the Receiver's affidavit that the entry was not authorized. RDFIs should also understand the difference in the stop payment time frame as it relates to Telephone-Initiated Debit Entries as noted above. RDFIs will need to ensure that their operations and customer service departments understand how these entries are authorized in order to be prepared to respond to consumer inquiries related to these transactions.

RDFIs will need to modify their ACH software systems to receive and process the new SEC code, TEL.

NACHA states that RDFIs would derive the following benefits from this proposed rule:

Members

Members should be aware that by providing their authorization over the telephone along with their financial institution information (account and routing number), they have authorized the initiation of an ACH debit to their account for the purchase of goods or services. Members should understand that information relating to the transaction (i.e., company name, amount of the transaction, etc.) will be provided to them on their monthly bank account statements to assist in reconciling their accounts. Information pertaining to such entries will be located in the electronic payments section of the bank statement. Members should also be aware that they may not revoke their authorizations for TEL entries but that they may place a stop payment order on a Telephone-Initiated Debit Entry, just as for any other ACH entry.

QUESTIONS REGARDING THE PROPOSAL

  1. Are you an RDFI or an ODFI?



  2. Has your institution participated in the Consumer Authorization for Non-Recurring ACH Debit Entries Pilot (the Telephone Pilot)?

    Yes ________ No ________

    If no, why not?
















    If yes, please describe your experiences with the pilot:
















    If no, would you begin to initiate transactions authorized over the telephone if this rules proposal were approved? Yes ________ No ________

    Why or why not?















  3. Would ACH payments authorized solely over the telephone pose additional risk to your institution as compared to other ACH payments?

    Yes ________ No ________

    If no, why not?















    If yes, what specific risks are you most concerned about?















  4. Does your institution agree that there is a need to allow for single entry ACH debit transactions to be authorized over the telephone?

    Yes ________ No ________

    Why or why not?















  5. Does your institution agree that a new Standard Entry Class Code is the most appropriate method to identify ACH payments that have been authorized over the telephone?

    Yes ________ No ________

    Why or why not?















    If your institution does not agree that a new Standard Entry Class Code is the most appropriate method to identify these entries, what options does your institution suggest to identify these payments?















  6. Does your institution believe that the proposed format for telephone-initiated ACH debits meets the needs of your Members and institution?

    Yes ________ No ________

    If no, how could the format be improved to meet those needs?















  7. Does your institution agree that ODFIs should warrant that Originators of telephone-initiated entries have used commercially reasonable procedures to verify the identity of the Receiver?















    What tools could Originators use to verify such data?















  8. Does your institution agree that ODFIs should warrant that Originators of telephone-initiated entries have used commercially reasonable procedures to verify that routing numbers are valid for ACH transactions?

    Yes ________ No ________

    Why or why not?
















    What tools could Originators use to verify such data?
















    What other methods could Originators use to verify such data?















  9. Does your institution agree that ODFIs should warrant that Originators of telephone-initiated entries have used commercially reasonable procedures to verify that account number structures are valid for ACH transactions?

    Yes ________ No ________

    Why or why not?
















    What tools could Originators use to verify such data?
















    What other methods could Originators use to verify such data?
















    Does your institution anticipate that requiring the Originator to verify the validity of the routing number and account number structure will reduce the number of administrative returns you process?

    Yes ________ No ________

  10. The proposal includes the recommendation that telephone-initiated transactions could not be returned for Return Reason Code R07 (Authorization Revoked by Consumer). Does your institution agree with the recommendation to not allow consumers to return these transactions for authorization revoked?

    Yes ________ No ________

    Why or why not?















  11. Does your organization agree that, in order to better serve consumers, the proposed rule amendment should include the modification to require the RDFI to act on a stop payment order for telephone-initiated transactions that is placed with the financial institution when the financial institution has been given a reasonable time to act on the stop payment order instead of the three days notice?

    Yes ________ No ________

  12. Does your organization agree with the information requirements that must be included in the oral customer authorization?

    Yes ________ No ________

    Is there additional information that should be required to be included as part of the authorization?















  13. The proposed rule amendments will require your institution to make changes to its software. Will the required software changes be:

    Very extensive ________
    Moderately extensive________
    Somewhat extensive________
    Not extensive________

    Will the required software changes be:

    Very costly ________
    Moderately costly________
    Somewhat costly________
    Not costly________

  14. Does this Request For Comment adequately address the impact of this change on your institution?

    Yes ________ No ________

    If no, specify why not?















  15. Does your organization agree with the proposal contained within this Request For Comment?

    Yes ________ No ________

    Why or why not?
















    If no, what would cause your organization to be in favor of this proposal?

    A. ______________________________________________________________________

    B. ______________________________________________________________________

    C. ______________________________________________________________________

    D. ______________________________________________________________________

  16. Do you agree with the recommended implementation date of March 16, 2001?

    Yes ________ No ________

    Why or why not?















    If no, what implementation date do you believe is more appropriate?

    September 2000
    September 2001
    Other (please specify)

  17. Please identify any other specific issues that you may have concerning this proposed rule change: (attach additional pages if needed)

















Name:





Title:





Organization:





Street Address:





City/State/Zip:




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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com