U
nder the new rules of NACHA1, consumers will be able to make e-check payments over the telephone. The rule, which became effective on Sept. 14, 2001, permits merchants, billers and government agencies to offer e-checks by telephone as a payment option.
An e-check is an electronic debit to a checking account that is initiated on the Internet, at the point-of-sale, over the telephone or even by a bill payment sent through the mail.
E-checks by telephone are governed by the Federal Reserve's Regulation E2. NACHA's rules for the use of e-checks by telephone mirror the Federal Trade Commission's telemarketing sales rule and provide an additional consumer protection by specifically prohibiting companies that cold-call consumers from using e-checks for any resulting sales.
Since July 1999, NACHA has been conducting a pilot program3 to evaluate the use of e-checks by telephone. In the program, a participating financial institution signs up corporate customers, permitting them to offer this authorization method for debit payments. The debit is made using the Automated Clearing House (ACH) Network4.
The ACH Network is commonly used for direct deposit of payroll and government benefits such as Social Security, direct payment of consumer bills, business-to-business payments, federal tax payments and, increasingly, e-checks and e-commerce payments. In 2000, there were 6.9 billion ACH payments made, worth more than $20 trillion.
Previously, operating rules for the ACH Network required debit authorizations to be in writing and signed or similarly authenticated. While this works in recurring bill payments for mortgages, insurance premiums, utilities and other such recurring payments, a written authorization can be cumbersome for one-time, non-recurring payments.
Under the pilot program, oral authorizations take the place of written authorizations for these non-recurring payments. Consumers can authorize, by telephone, electronic debits to their checking or savings accounts to pay for goods and services. The authorization is either tape-recorded or a written confirmation notice is sent to the consumer.
The same consumer rights and protections that apply to recurring debits are maintained during the pilot program. A separate authorization is required for each debit transaction. The originating company is required to keep a record of the authorization for two years, and consumers have 60 days to challenge debits they believe to be unauthorized.
The pilot program specifically prohibits companies from calling consumers with whom they have no previous relationship. From its inception through July 2001, the latest month for which statistics are available, the pilot program has originated more than 10.5 million e-checks.
"Telephone authorizations will provide consumers with an easy and convenient method to make one-time payments," said Elliott C. McEntee, President and CEO of NACHA. "An e-check authorized over the telephone is an easy and convenient option for consumers to make payments. A consumer paying a bill or making a purchase would have an alternative to mailing a check."
To find out more about NACHA and its rulings, visit NACHA on the Internet at www.nacha.org.
1 The National Automated Clearing House Association (NACHA) represents more than 13,000 financial institutions through its 34 regional ACH associations, six councils and corporate Affiliate Membership program. NACHA develops operating rules for the Automated Clearing House Network and for emerging electronic payment solutions in the areas of Internet commerce, bill payment and invoice presentment and payment (EBPP, EIPP), e- checks, financial electronic data interchange (EDI), cross-border transactions, electronic checks and electronic benefits transfer (EBT).
2 Regulation E prescribes rules for the solicitation and issuance of EFT cards; governs consumers' liability for unauthorized electronic fund transfers (resulting, for example, from lost or stolen cards); requires institutions to disclose certain terms and conditions of EFT services; provides for documentation of electronic transfers (on periodic statements, for example); sets up a resolution procedure for errors; and covers notice of crediting and stoppage of preauthorized payments from a customer's account.
3 The financial institutions that enrolled in the pilot are AFBA Industrial Bank, AmSouth Bank, Bank of America, Bank of Denver, Bank One, Capital City Bank, Chase Manhattan Bank, Citibank, First National Bank in Brookings, FNB of Central Texas, First Premier Bank, First Regional Bank, First State Bank, First Union, Florida Bank, Ft. Knox National Bank, Legacy Bank of Texas, Mellon Bank, Northern Trust Company, Oakland State Bank, Pacific Mercantile Bank, PNC Bank, Riverway Bank, Sears National Bank and Wells Fargo/Norwest.
4 The ACH Network is a nationwide, inter-bank payments system that has been in use for more than 25 years. The ACH Network serves 20,000 financial institutions, 3.5 million businesses and 100 million individuals.