NACHA Approves Rules for Back-Office Check Conversion

The voting members of NACHA – The Electronic Payments Association have approved an amendment to the NACHA Operating Rules that will allow retailers and billers that accept checks at the point-of-sale or at manned bill payment locations to convert eligible checks to ACH debits in the back-office. Known as back-office conversion, or BOC, the rules become effective March 16, 2007. NACHA announced the new rules here today at PAYMENTS 2006, its annual conference.

“Back-office conversion will enable financial institutions to provide additional value to their customers in a business environment where many checks are still used,” said Steve Ellis, Chairman of NACHA and Executive Vice President of Wells Fargo & Company’s Wholesale Banking Group. “As consumers and businesses continue to move from cash and checks to electronic forms of payments, financial institutions continue to find opportunities to provide their customers with value-added electronic services to collect checks.”

Several requirements of the BOC rules are intended to ensure that customers are properly notified that their checks may be converted, that customer service contact information is provided, and that customers have the ability to opt-out. The notification requirements are consistent with those recently required by the Federal Reserve’s changes to Regulation E.

NACHA will conduct an industry training and education program on back- office conversion later this summer. The first stage of this program will provide customer service training materials to financial institutions, and consumer-friendly information and brochures to retailers and billers interested in using BOC. The materials will be announced and made widely available through the Check Conversion section of the new Electronic Payments web site — www.electronicpayments.org.

Consistent with other rules recently passed by NACHA in November 2005 and that become effective in September 2006, the BOC rules define checks that contain auxiliary on-us fields or are written for amounts greater than $25,000 as ineligible for conversion. These definitions provide simple and effective methods for retailers and billers to identify checks that are not eligible for conversion.

Back-office conversion will also allow financial institutions to convert eligible checks received in image files to ACH debits. The same rules and eligibility definitions apply to this processing scenario — i.e., proper notice and contact information must be given, customers must be given the ability to opt-out, and checks with auxiliary on-us fields or for amounts greater than $25,000 are ineligible.

Check conversion at the point-of-sale has been available in the marketplace since September 2000, when NACHA’s point-of-purchase (POP) rules went into effect. Additional check conversion rules for accounts receivable (ARC) payments became available in March 2002. NACHA estimates that 2.3 billion checks were converted into ACH payments in 2005.