CUNA Regulatory Comment Call
July 14, 2006
Revising NACHA Rules Relating to Regulation E Revisions
EXECUTIVE SUMMARY
- NACHA is proposing to modify its Operating Rules (Rules) to incorporate changes necessary to ensure compliance with the recent Regulation E revisions.
- Proposed changes include modifications to the notice requirements for Account Receivable Entries (ARC), Point of Purchase entries (POP) and Back Office Conversion entries (BOC) that would ensure that the Rules remain consistent with the requirements of Regulation E.
- Revisions would clarify that the POP authorization would include both notice and written authorization, and that "opt-out" is a reason to return an ARC or BOC entry as unauthorized.
- This proposal would remove language from the Rules that precludes a tape recording from being considered a written authorization for ACH participants that believe a tape recording of an authorization satisfies the requirements of E-Sign, Regulation E, and, therefore, the Rules.
- Commentary on several issues regarding notice requirements for electronic check transactions that has been added to the Official Staff Interpretation on Regulation E would be incorporated into the NACHA Guidelines.
- The amendments addressed all changes except those that affect the Back Office Conversion (BOC) Standard Entry Class Code would have an implementation date of January 1, 2007. The changes relating to BOC would have an implementation date of March 17, 2007.
- Please submit your comments to CUNA by July 24, 2006. Comments are due to the NACHA by July 31, 2006.
Please feel free to fax your responses to CUNA at 202-638-7052; Assistant General Counsel Lilly Thomas at lthomas@cuna.com; or mail them to Lilly c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, D.C. 20004. Click here for a copy of this Request for Comment.
BACKGROUND
In December 2005, the Federal Reserve Board released several revisions to Regulation E and the Official Staff Commentary. The changes became effective on February 9, 2006, with a compliance date of January 1, 2007.
Regulation E was revised to include specific authorization requirements for electronic check conversion services. Under the revised regulation, an authorization is provided when a consumer is provided with appropriate notice and goes forward with the transaction.
Merchants must disclose that they may collect the payment either as an electronic fund transfer or to process it as a check transaction. The notice must be posted in a "prominent and conspicuous location" at the point of sale and a copy must be given to consumers. Additionally, Regulation E includes additional notices, which are required until January 1, 2010 and inform the consumers that, when the payment is processed electronically, the funds may be withdrawn from the consumer’s account as soon as the same day and that the check will not be returned by the consumer’s financial institution.
Revisions to Regulation E also withdrew guidance in the Official Staff Interpretation that a tape recording of a telephone conversation with a consumer who agreed to preauthorize debits did not constitute written authorization for purposes of compliance with the Regulation.
DISCUSSION OF PROPOSAL
NACHA is proposing to modify its Operating Rules (Rules) to incorporate changes necessary to ensure compliance with the recent Regulation E revisions.
The proposal would modify the authorization requirements for point of purchase entries (POP) by defining "authorization" as being comprised of both a notice at the point of purchase and the written authorization of the Receiver. The Regulation E safe harbor language would be incorporated in the NACHA Operating Guidelines as well as requiring the notice to be posted in a prominent and conspicuous location. NACHA is proposing to require the notice to include the following or substantially similar language:
"When you provide a check as payment, you authorize us either to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction."
The rules governing POP entries would also be modified to require the posting of the following or substantially similar additional notice language on the initial notice until January 10, 2010:
"When we use information from your check to make an electronic fund transfer, funds may be withdrawn from your account as soon as the same day you make your payment."
NACHA is also proposing to modify the current Rules regarding the notice requirement for Account Receivable entries (ARC) to incorporate the Regulation Es safe Harbor language. A specific requirement to the NACHA Rules would be added that the Originator of ARC and POP entries must provide notice stating that payment by check authorizes an ACH debit to the Receiver’s account. The notice would be required to be provided in a clear and conspicuous manner. Merchants would be able to use the following or substantially similar language:
"When you provide a check as payment, you authorize us either to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction."
The proposed changes to ARC and POP notice requirements would permit a merchant to choose to collect a payment either as an ACH transaction or as a check. Minor modifications would be made to the Originator obligation and ODFI warranty stating that the source document would not be presented for payment unless the ARC entry is returned by the RDFI.
This proposal would also make minor changes to the rules regarding a Receiver’s right to recredit and an RDFI’s right to adjustment for ARC, POP and Back Office Conversion entries (BOC). The changes would include language that clarifies that an unauthorized POP entry is one where the requirements for both notice and written authorization were not met. Language would also be added to clarify that ARC and BOC entries that are converted even though the Receiver opted out, would be unauthorized and could be returned for up to sixty days.
Language that requires electronic authorizations to be displayed on a computer screen or other visual display would be removed so that the rule comports with the Regulation E revisions on tape recordings. The NACHA Rules would continue to require that debit entries to consumer accounts be authorized in writing and signed or similarly authenticated by the consumer and would continue to state that the writing and signature requirements may be satisfied by compliance with the E-Sign Act.
Additionally, several clarifications with NACHA Operating Guidelines would be made related to the revisions to Regulation E.
- Clear and conspicuous notices for electronic check truncation entries must be clear and readily understandable and that notices in small print buried in the middle of unrelated information would likely not meet the standard. The Operating Guidelines would state that Originators may want to consider using headings preceding the notice and a pointer to lead the receiver to the notice language.
- Notices must be provided and authorization obtained for each transaction. However, with certain types of transactions, such as those with coupon books, one advance notice may be sufficient. The Operating Guidelines state that for purposes of obtaining the consumer’s authorization for conversion of a check, a notice placed in a conspicuous location of a coupon book that the consumer can retain constitutes the provision of notice on each coupon that accompanies a check provided as payment.
- The provision of notice to the consumer listed on a billing account is sufficient for the conversion of all checks provided in payment for the particular billing cycle or the invoice for which notice was provided.
- Changes would be made to the Operating Guidelines that correspond to the changes made to the Rules related to removing language requiring a visual display of an authorization (thus precluding the use of a tape recording as written authorization).
QUESTIONS REGARDING THE PROPOSAL
- Do you agree with the proposed modifications to the NACHA Operating Rules?
a. Yes ______
b. No ______
Please explain.
- Do you agree with the wording of the proposed notice language for POP entries?
a. Yes ______
b. No ______
Please explain.
- Do you agree with the wording of the proposed notice language for ARC entries?
a. Yes ______
b. No ______
Please explain.
- Do you agree with the proposed change that includes a revision to an Originator obligation and ODFI warranty for ARC entries to specify that the source document could be processed as a check only if the ARC entry is returned?
a. Yes ______
b. No ______
Please explain.
- The notice language requirement for Back Office Conversion entries includes the language "For inquiries, please call
" be included in the BOC notice. This is not a Regulation E requirement and the current proposal does not include a retailer telephone number as part of either the notice for ARC entries or POP entries. Should the retailer telephone number be included on the notices for ARC and POP entries?
a. Yes ______
b. No ______
Please explain.
- Do you agree with deleting language from the Rules requiring a visual display of an authorization, which precludes the use of a tape recording as a written authorization?
a. Yes ______
b. No ______
Please explain.
- Do you agree with the proposed modifications that would state that an unauthorized POP entry or an ARC or BOC entry could be returned if the Receiver opted out of the transaction and it was still transmitted?
a. Yes ______
b. No ______
Please explain.
- Do you foresee any operational impact with the changes being proposed?
a. Yes ______
b. No ______
Please explain.
- Do you support the implementation date of January 1, 2007?
a. If you do not support this date, please suggest an implementation date you believe more appropriate.
- Please provide any additional comments.
- Do you agree with deleting language from the Rules requiring a visual display of an authorization, which precludes the use of a tape recording as a written authorization?
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Lilly Thomas • Assistant General Counsel • (202) 508-6733 • lthomas@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
