NACHA Ruling on Business Checks

Business Check Conversion
Beginning September 15, 2006, The National Automated Clearing House Association ("NACHA") will implement an amendment that provides methods for identifying business checks that are ineligible for check conversion into Automated Clearing House (ACH) transactions via accounts receivable conversion (ARC) or Point of Purchase (POP) transactions.

This amendment provides businesses with methods to opt-out of check conversion. Under the existing rules for check conversion, only consumer checks are allowed to be converted. However, many checks written by businesses are being inadvertently converted because distinguishing business checks from consumer checks has proven to be difficult. To prevent business checks from conversion into ACH transactions (electronic payments) you must use business checks that contain the auxiliary on-us field on the far left of the business checking MICR Line. This field typically contains the check serial number.

What is an MICR line?
The MICR line is located on the bottom of each check and contains characters that can be read by a bank's scanning device. The length of the MICR line and the information contained in it are determined by the size of the printed check stock. On 6 inch check stock (typically consumer checks), it will contain the routing number, on-us field (account number) and the amount field. On larger business check stock (typically 8-9 Inches), it contains space for an auxiliary on-us field, routing number, on-us field (account number), and amount field.

What is an Auxiliary On-Us Field?
The auxiliary on-us field appears in the left most position of the MICR line of some checks. At People's United Bank, our requirement for business size checks is that the auxiliary on-us field contain the check serial number. You must use check stock that is approximately 8 to 9 inches long in order to have enough space to contain the Auxiliary On-Us Field.

Business Checks
What types of checks are ineligible for conversion?

1. Business checks that are printed on approximately 8 to 9 inch check stock AND utilize the auxiliary on-us field located on the far left of the check are ineligible for conversion. People's United Bank requires that the auxiliary on-us field contain the check serial number.
   
   Note: Our partner Clarke American provides this auxiliary field on most business checks. If you are currently using consumer sized checks (typically six inches in length and do not contain the auxiliary on-us field), contact your check printer and change your check stock prior to September 15, 2006.
2. Checks greater than $25,000 are NOT eligible for conversion under any circumstances;
3. Third Party checks or sharedrafts;
4. Demand drafts and third-party drafts that do not contain the signature of the receiver;
5. Checks provided by a credit card issuer for purposes of accessing a credit account or checks drawn on home equity lines of credit;
6. Checks drawn on an investment company as defined in the Investment Company Act of 1940;
7. Obligations of a financial institution (e.g., travelers checks. Cashier's checks, Official checks, money orders, etc);
8. Checks drawn on the US Treasury, a Federal Reserve Bank, or a Federal Home Loan Bank;
9. Checks drawn on a state or local government that are not payable through or at a Participating DFI;or
10. Checks or sharedrafts payable in a medium other than United States currency.

What are examples of business checks that could be converted into ACH (electronic) transactions?
Example 1: Utility bills are often paid via check, where the utility company may convert the check into an ACH ARC transaction.

Example 2: Checks used for payment at retail stores may be converted into ACH POP transactions at the check-out counter.

What will happen to the original check after conversion?
After ARC conversion, the original check is destroyed in 14 days. Destroying the original check is the safeguard for our clients to avoid duplicate presentments. For POP conversion, the original check will be handed back to the payer at the point-of-sale.

What can I do if my business item is converted, and my business check utilized the Auxiliary On-Us Field?
As business, you have the right to automatically return unauthorized ACH transactions within 24 hours of receipt of the transaction. In additional, the new rules provide businesses with the same ability as consumers to opt-out of check conversion, and provide the same 60-day right of return for unauthorized transactions that exists for consumer check conversion. Contact your vendor and let them know that your check is not eligible for conversion. In addition, you can also contact the People's United Bank Cash Management Department to return an ACH at 203.338.3686.

What can I do if my business check is converted because I have not opted-out, and I use checks with no Auxiliary On-Us field?
Under the existing rules, businesses that convert checks must have procedures to allow consumers to opt-out, and this provision will now be available to businesses that desire to opt-out. In addition, the ruling provides the payment issuer with a 60 day right to return an unauthorized ACH debit upon obtaining a written statement from a consumer, which will now apply to ARC and POP transactions to business accounts. If you do not want your checks to be converted, make sure your contact you trading partner.