I am trying to develop a product offering to market Check Truncation services to companies that receive consumer payments. Essentially the consumer checks will be scanned for the MICR line data (account number, bank routing number, check serial number, amount), converted to an ACH debit and presented to the consumers bank as an electronic entry; the original check is copied then destroyed. We need to understand what rules apply if we need to convert MICR line data back to a paper check for those entries that cannot be sent electronically. Would we need to present the original paper check for collection or would an image copy suffice? Could we create a substitute check using the MICR data?

This is still in the proposal stages, but you should probably look at the proposed Check Truncation Act. It has some pretty clear requirements for what they are calling "substitute checks" as well as the process for "reconverting" a substitute check. You can find the act at www.federalreserve.gov/PaymentSystems/truncation/ctact.htm

You may wnat to review the Electronic Check Conversion and the Re-presented Check under REG E and NACHA rules. The new additions give good information insight to the retention standards;what is accepted in the legal realm.

I am by NO means an expert in this area, but I have heard discussions about it. One of the features I've heard discussed as "necessary" is the ability to compare the MICR data on a scanned check with a table of valid FRDABA numbers (which would include only FI's capable of receiving ACH transactions). Some have discussed having the name of the bank appear on a screen (from the table) for comparison with the name printed on the check. Both would seem to be prudent fraud prevention measures.

I think the item you are talking about is the NACHA ARC SEC code which goes into effect as a rule on 3/15. FYI, according to this you need to provide the check number from the ACH file on the customer's statement.

This project is mainly aimed at the large lockbox providers who process tens of thousands of checks a day. Many of the lockbox providers are integrating this into their software configs. They are doing some of the checking against the R/T database in addtion to the Thomson EPICWare Database.

what is micr number

Magnetic Ink Character Recognition, and is used to describe the special numbers and symbols you typically see at the bottom of checks.

please explain this in more detail

MICR is the ink that is used on the bottom of checks. This ink allows the bank's proof machines to route the check to the right fed district, then to the right bank, and ultimately to the right account.

The MICR line is printed using ink that has a mixture of Iron Oxcide in it. This gives each of those specially designed numbers an electrical value which the computers can read.