ACH Transactions on HELOCs

Answered by:

Question:

Should a bank allow ACH transactions on home equity lines of credit that are generally accessed by a check? Consider that some checks are converted to an ACH transaction. Under what Regs would these types of transactions be governed and what is the risk to the bank and to the consumer?

Answer:

There are added risks for a bank that allows ACH debits to post on HELOC accounts, particularly if ACH transactions will first reject (because they are received as transaction account transactions) and have to be manually charged to the correct account. The reject and repair process can add a day to posting time and can put the return of an item in jeopardy of being past the ACH return deadline. HELOC checks are technically not eligible for conversion to ARC, BOC or POP ACH entries. However, if a HELOC is accessed with personal-size checks, those checks may be indistinguishable from other checks and may easily get accepted for conversion. Banks that want to prevent conversion can do so by issuing business-size checks for their HELOC accounts and placing the check serial numbers in the MICR line in the auxiliary on-us field. An entry in that field is required to be rejected by ACH processors.

First published on BankersOnline.com 4/30/07