The Federal Reserve created the opportunity recently by issuing a “commentary” on Regulation E that changes the rules for customer authorization of electronic payments and payment of returned checks. A signed authorization is no longer required. The Federal Reserve commentary would allow retailers the option of receiving consumer authorization by posting a sign at the point of sale notifying shoppers of the new check-processing rule.
“The proactive Federal Reserve commentary regarding Regulation E, the ACH system, and electronic check conversion provides real and measurable opportunities for retailers,” said Ted Mason, director, EPS network services and emerging technologies at FMI. .
“Paper checks are the largest dollar volume tender passing through supermarket checkouts,” he said, “and are often handled in-store five or more times before reaching the bank. New electronic check conversion programs, based on recent Federal Reserve commentary, could improve the check-handling efficiencies of multilane retailers and provide enhanced customer convenience during the checkout process.”
FMI and its members are now working with NACHA to align its electronic check conversion and collection rules with the commentary. The Federal Reserve statement specifically addresses the interpretation of Regulation E rules governing emerging electronic check conversion and returned-check collection programs. NACHA is crafting rules that will allow innovation by retailers, financial institutions and processors in designing efficient electronic check conversion and check-collection programs.
Prior to the new Federal Reserve commentary, most retailers considered ACH electronic check conversion rules “too cumbersome to implement, too hardware intensive and too expensive to manage,” according to Mason. “Written authorization had to be obtained from the consumer to convert checks to ACH transactions and the signed authorizations had to be stored by retailers for a long period of time.
“Trading one piece of paper — a check — for another — a signed authorization — did not make economic or practical sense to retailers. It has hindered the adoption of check conversion programs by supermarkets.”
Assuming NACHA rules become aligned with the Federal Reserve commentary, retailers will have the flexibility to design balanced check conversion and collection programs based on customer service and convenience, operational efficiencies and individual company risk assessments.
For the full Federal Reserve commentary and NACHA’s proposed rules, please click below.