I. INTRODUCTION
Regulation E provides guidance on the coverage of a “re-presented check entry” (“RCK” transactions), where a check used to pay for goods or services is subsequently returned for insufficient funds and the payee re-presents the check electronically through an ACH system. NACHA has a RCK program, in which merchant payees (or their financial institutions or agents) re-present returned checks electronically. Written authorization from the consumer for the RCK debit is not obtained, although the merchant payee usually has provided notice at the Point of Sale (POS) that a returned item may be collected electronically if returned for insufficient funds.
II. REGULATION E
An Electronic Fund Transfer (EFT) due to the electronic re-presentment of a check is considered the continuation of a transaction originated by check and is thus excluded from Regulation E. Regulation E, Supplement I to Part 205, Official Staff Interpretations, Comment 3(c)(1)-1, effective March 15, 2001 (with a mandatory compliance date of January 1, 2002) clarifies that an RCK transaction is not covered by the regulation since it was originated by check. A fee assessed by the payee for re-presentment, such as a collection fee, however, is covered by Regulation E if authorized by the consumer to be debited electronically from the consumer’s account. Comment 3(c)(1)-1 also clarifies the authorization requirements.
Comment 3(c)(1)-1 notes that in some cases, a payee may impose a fee on the consumer because the check was returned. NACHA rules provide that the RCK debit must be in the amount of the original check; therefore, the amount may not be increased to include a fee. The payee would have to initiate a separate debit to collect the fee electronically. An electronically debited fee meets the definition of an EFT. It is covered by Regulation E and must be authorized (in this case, by notice to the consumer).
The RCK and any fee assessed and debited from the consumer’s account due to insufficient funds are viewed as separate transactions. Authorization is required to electronically debit the fee from the consumer’s account. Since such a transfer is nonrecurring, notice to the consumer is sufficient for purposes of compliance with the regulation. Note that NACHA Operating Rules currently provide greater consumer protections in that they require written authorizations.
Comment 3(c)(1) cross-references Comment 3(b)-1(v), which provides guidance on Regulation E’s coverage of an EFT where a consumer’s check is used to capture information for initiating the transfer. Comment 3(b)-1(v) states:
A transfer via ACH where a consumer has provided a check to enable the merchant or other payee to capture the routing, account, and serial numbers to initiate the transfer, whether the check is blank, partially completed, or fully completed and signed; whether the check is presented at POS or is mailed to a merchant or other payee or lockbox and later converted to an EFT; or whether the check is retained by the consumer, the merchant or other payee, or the payee’s financial institution.