The question - a local business ran an ach collection fee against a customer's account as a result of a bad check given by the customer. They also ran the check back through electronified. Can this business collect the fee by ach without the customer's prior authorization?

I found an operations bulletin dated 5/15/01 which addresses collection fees. I interpreted the memo to say that NACHA recommended that businesses get prior authorization before running a collection fee through on re-deposited (electronified) checks. If correct, wouldn't we have to reject the ach debit item and give the customer his money back? In my situation, it's $30. Thank you.

A merchant who plans to "electronify" bounced checks using the ACH RCK transaction warrants that the merchant had a notice at the place of purchase (cash register?) --or in the bill paid by the check-- that the merchant may convert dishonored checks to present them electronically, and may impose a separate fee electronically for the trouble.

The NACHA rules and discussions in information accompanying recent Reg. E Commentary updates make it plain that (1) the RCK entry is not a Reg. E item since it originated as a check; and (2) that no written customer authorization is required for the Reg. E-subject ACH fee. The interpretation that I read said that by tendering the check in the first place after having an opportunity to read the notice, the customer is agreeing to the fee (if included in the notice). [See the Commentary to Reg. E §205.3(c)(1)]

There is a place on the standard NACHA dispute form for the consumer to allege that the notice was not given or that it didn't disclose the possibility of a fee.

There is no requirement for the merchant to hand the customer a notice or read it or do anything other than post it. One hopes that it's in a place it might be readily read.

John - this is from the NACHA bulletin:

"Regulation E has never required the consumer’s written authorization for a one-time EFT. The written authorization requirements of Regulation E apply only to pre-authorized recurring EFTs. The NACHA Operating Rules do, however, require a written authorization for most one-time ACH debit entries, including collection fees. The NACHA Operating Rules were amended nearly ten years ago to add this requirement in an effort to reduce fraud over the Network. The Federal Reserve Board is aware of this requirement within the NACHA Operating Rules and, in fact, references it in the Official Staff Commentary."

So while Reg E does not require the written authorization, NACHA does and if we are an ACH member, we would follow their rules. Would that be a correct understanding?

Here's the link to the NACHA information document Anonymous referenced: Word Document.

Anonymous is correct. While Reg E states the authorization does not have to be in writing, NACHA says it does. If you are a bank that receives ACH items, you are subject to the NACHA rules. More importantly, the originator (merchant) is subject to those rules, too. If your customer disputes the fee ACH as unauthorized and completes the NACHA certification form, you have 60 days from the original posting date to return it as unauthorized. Be sure to comply with Reg. E's §205.11 error resolution rules, too.

The merchant then can resubmit claiming he has the authorization. If he provides it, you process the item again.

In our discussion, we are wondering how do banks verify (or do they?) that the originator(the merchant)obtained the customer's authorization? Depending upon the number of ACH transactions a bank may have, there may not be a way for the bank to actually know this. The merchant would have a copy of the rules so they should know the requirements, but what can the bank do? Is this something looked at during an ACH audit?

In my experience, the ODFI simply relies upon its ACH agreement with the Originator, in which the latter explicitly states that it will abide by the NACHA regulations. I don't believe too many ODFIs are trucking on out to see if their RCK Originators are correctly displaying the mandated notices. The originating banks merely trust that their customers are doing what they said they would. Of course, if the ODFI gets a flood of dishonored RCKs or RCK-related PPD fees, it might be stirred to investigate.

Of course, the RDFIs are under no obligation to verify what the RCK merchant is doing. They only have to respond to a customer statement that the RCK or PPD fee was not correctly authorized.

John, please clear up my confusion on the ACH 60 day rule and the Reg E 60 day rule you referred to in your second post above.

We have a scenario where our customer's wife, who is not a signer on his account has been making payments to several different credit card companies by giving them his account number over the phone and they in turn debit the account by ACH. Initally, it seems like the ACH 60 day timing and the Reg E 60 day timing are referring to two differnt times to start counting the 60 days---ACH-60 days from the original posting and Reg E-60 days from the statement date. Can you help clear this up for me. Thank you!

Unfortunately, it is as it appears. NACHA rules allow for return of unauthorized consumer ACH debits up to 60 days from the settlement date of the transaction (usually the posting date). Reg. E provides for return of the customer's funds for the first unauthorized ACH EFT, and any other unauthorized ACH EFT by the same originator that occurs within 60 days of the day you make available the statement showing that first unauthorized item.

That leaves, as you fear, up to 30 days in which the bank might have to eat items. NACHA does allow you to pursue recovery outside the ACH system, either directly with the originator or through the courts.