We are experiencing some vendors turning our bank/cashiers checks into ACH to clear. When this occurs, they are returned.
We herad that NACHA rule is cashiers/bank checksshould not be sent through as ACH transactions.
1. Is this true
2. How do we stop this action
3. What recourse does the customer have on the return.

What is the SEC code on this ? Is it hitting an internal bank account or stopped before posted? What return code is being used?

Different in each. We had one come through as a TEL, the members swears she handed the item to a Verizon staff in an office. This was returned as our cashiers check account is closed to transactions. Others have hit as ARC, and returned for same reason.

I am dealing with the same thing. The items are being submitted through ACH as "PPD" and the item posts as an "auto debit." I have been verifying the customer's name on the ACH listing, verifying the deposit for the check and then writing the check number beside the auto debit to balance the account. I then print the page for the ACH entry and include with the statement for the official check account. This has worked so far, but I am really anxious to know if this is the proper way to handle the transaction.

Take a look at the MICR line on your cashier's checks. Is the check serial number or anything else in the "auxiliary on us" field (to the left of the routing number)? If it is, the check is not eligible for ACH conversion to ARC (NACHA's ACH Rules, subsection 2.9.1) or BOC (subsection 2.10.1), or POP (subsection 2.13.2) (all references to the 2009 ACH Rules edition). As for the TEL entry, that's just plain wrong. The phone company can't turn a check into a TEL document.

If your cashier's checks don't have encoding to the left of the routing number, they won't be caught by a reading device programmed to reject checks with aux-on-us encoding, and might slip through in amounts up to $25,000. But you are correct that cashier's checks, teller's checks, official checks, traveler's checks and money orders are not eligible for ARC, BOC or POP conversions.

You can send any of these items back R29 (Not authorized) if you can do so within your normal return deadline (ACH version of midnight deadline). If you miss them, you can complete a WSUPP and send them back within the adjustments deadline using an R10.

That's an inappropriate use of the ACH. The PPD appears to be an effort to get around the prohibitions against converting business-style (encoding in auxiliary on-us field) or official bank checks. It would be appropriate for you to refuse the entries as unauthorized (R29) if you can do it within your standard return item window.

Check under NACHA Rules, Article Three-Obligations of Originators (3.7.2 (7)) specifically disallows travelers checks, cashier checks, official checks, money orders etc.. for an ARC transaction. You may choose to send a rules violation on a company that is repeatedly sending these transactions. If it is the same company sending a 'walked in'(assuming it was) as a TEL there may be a real need to get a heads up to them that "The Rules" really need to be followed .....

Start with returning the items. That will grab the Originator's attention, and perhaps even the ODFI's. If you see repeat offenders, consider filing a rules violation complaint as Kiemo suggests. The workaround that you're using, liketogoandplay, is just unnecessary if you catch the PPDs in time to turn them around to the ODFI R29 in time for the ODFI to receive them back on the second banking day after the Settlement Date.

Particularly if the original items have been franked (defaced) in the conversion process or (even better) destroyed after conversion, the payees will have a hard time collecting -- and that's my idea of poetic justice.

The only downside risk is that the payee/Originator will treat the return like a bounced check and go after the remitter for late payments, fees, etc.

If I return the item with an R29 code, won't the customer be charged this amount? This is for a cell phone bill.

Sorry John, I had not seen the last reply that you had posted. The customer purchased the money order so that the bill would be paid and there was no possibility of a charge back. If I continue to balance the account as I described earlier, will this cause a problem for the examiners and/or internal auditor? I am catching the items as I balance the official check account (weekly), not before the cutoff time for ODFI returns.

Well, if you aren't catching the items in time for a regular R29 return, you may be stuck with what you're doing. The practice might raise an eyebrow or two if your bank gets a thorough annual ACH audit.

As for whether your customer would be hit with a charge-back or fees by the telephone company that is breaking the ACH rules, I'm guessing that it's very possible (the company already shows a disregard for the rules, so why would fairness even be a consideration for them?) Your customer might have some strong legal arguments to get the cell-phone company in trouble, but would not be likely to use them.

My best advice is to file a rules violation claim in these cases if you're concerned about causing problems for your customers. If you allow the phone company or whoever else is playing fast and loose with NACHA's rules to keep on doing so, you will continue having to deal with the fallout.

I am not sure why any bank would even allow any type of ACH access to internal accounts such as cashier's checks and money order accounts. If you are only balancing these accounts weekly, you could be open for some humongous losses.

Agreed. If asked, I would suggest that the banks receiving ACH entries on these non-eligible accounts immediately return the entries within their ACH "midnight" deadline and let the chips fall where they may. I also think that after seeing it from the same Originator more than once, they ought to contact the ODFI, point out the NACHA Rules violation, and ask the ODFI to pull its customer into compliance if it doesn't want to see a rule violation complaint filed. Chances are the ODFI doesn't know what's going on, YET.

What I find amusing is that the only ones we have had are all from payments made via cashiers check to the State of New Jersey.

Wouldn't it give you some BIG satisfaction points to rat out the state for NACHA rules violations!!!