PR - NACHA's Deposited Check Truncation Pilot Set to Launch

NACHA, the electronic payments association, anticipates launching its Deposited Check Truncation (DCT) Pilot in the first quarter of 2008.

The initiative, recently approved by the NACHA Rules & Operations Committee, will encompass an opt-in, closed pilot expected to last 18 months.

The DCT Pilot will enable the truncation of low-value consumer checks deposited with financial institutions. The checks will be cleared and settled via the ACH Network. As negotiated items, DCT transactions will be covered by the Uniform Commercial Code Articles 3 and 4, and Regulation CC, not the Electronic Funds Transfer Act/Regulation E.

From a legal standpoint, DCT will be structured as the collection and, in some cases, the return, of a check with the NACHA Operating Rules functioning as Clearing House rules, as permitted by UCC and Regulation CC, supplemented by Pilot Agreements. DCT transactions will constitute electronic presentment notices for paper checks to RDFIs/Paying Banks, and returns of DCT transactions will constitute notices of dishonor for checks. The NACHA Operating Rules will provide consumers with a right of re-credit for unauthorized transactions and RDFIs/Paying Banks with a right of return.

Depository financial institutions that do not enroll in the pilot will not receive DCT transactions.

NACHA issued a Members Memo on June 29, 2007, that provided a summary of the DCT concept and an analysis of the business case, inviting members to submit written comments to aid the Rules & Operations Committee in its assessment of the concept. Comments, which were instrumental in identifying areas needing additional consideration or clarification, including the legal framework and certain operating requirements, were received from 14 members.

Today, depository financial institutions that receive image or paper check deposits from their customers may clear them through image exchange with Paying Banks that are image enabled and with which exchange agreements exist. If check images cannot be exchanged, the Collecting Bank must present either the original paper check or a substitute check/Image Replacement Document for payment. Image exchange volume is showing rapid growth, but many financial institutions expect that a significant number of paper clearings will remain by 2009. With thousands of Paying Banks unable to accept images for presentment, billions of checks are still processed by exchanging paper.

The DCT Pilot will help determine what role the ACH Network can play in facilitating the clearing and settlement of low-value consumer paper checks as the industry searches for further cost savings and product enhancements in this period of convergence.

DCT Pilot objectives:

• Determine whether the ACH Network infrastructure supports truncation of low-value consumer checks.

• Measure the impact, costs and benefits of check truncation on Collecting Banks/ODFIs and Paying Banks/RDFIs related to:

• Check and ACH processing.
• Customer service operations.
• Float.
• Fraud and risk management.
• Financial institution profitability.

• Measure depositor and check-writer reaction to, and expectations of, electronic collection of truncated checks.
• Identify issues and challenges to developing a full application, including determining whether financial institution participation should be opt-in, opt-out or universal.