CHECK PROCESSING GLOSSARY
Check Processing
Glossary
ABA Number:* See
Routing/Transit Number.
ACH Network: Funds
transfer system governed by the Rules of the National Automated
Clearing House Association, which provides for the interbank clearing
of electronic entries for participating financial institutions.
Affidavit:* A sworn
statement by a consumer declaring that a particular ACH transaction
was unauthorized or that the authorization for that transaction has
been revoked.
Authorizing Customer:
The checkwriter who has the legal authority to sign checks on the
account shown on the check and to sign an authorization for electronic
payment.
Authentication:* A data
security technique used to ensure that the professed sender of
information or a payment order is actually who he claims to be.
Authorization:* A
agreement by a Receiver to allow for the posting of debit or credit
items to their account. Authorizations for credit transactions may be
orally given, but debit transactions must be authorized in writing or
similarly authenticated by other means (for example, by digital
signature or PIN if by computer).
Business Practices:
Essential features of processes needed to effect standard operating
procedures in a consistent manner.
CCD:** A credit or
debit ACH entry initiated by an organization to consolidate funds of
that organization from its branches, franchises or agents, or from
other organizations, or to fund the accounts of its branches,
franchises or agents, or of another organization. CCD is a standard
Entry Class Code.
Check: (1) A negotiable
demand draft drawn on or payable through or at an office of a bank;
(2) A negotiable demand draft drawn on a Federal Reserve Bank or a
Federal Home Loan Bank; (3) A negotiable demand draft drawn on the
Treasury of the United States; (4) A demand draft drawn on state
government or unit of general local government that is not payable
through or at a bank; (5) A United States Postal Service money order;
or (6) A traveler’s check drawn on or payable through or at a bank.
The term "check" does not include a noncash item or an item
payable in a medium other than United States money. A draft may be a
check even though it is described on its face by another term, such as
"money order." For some purposes, the term "check"
also includes a demand draft of the type described above that is
nonnegotiable. (Definition is from Regulation CC: Availability of
Funds and Collection of Checks.)
Check Authorization: A
service that validates routing numbers and account information to
determine if the checking account is valid.
Check Debit: An EFT
Network service through which a paper check, presented to a merchant
or other check acceptor, is converted into a real-time electronic
transaction that debits funds for the amount of the check from the
accountholder’s account and credits those funds to the merchant’s or
check acceptor’s account, provided that the account is valid and has
sufficient funds to cover the transaction. Such funds are guaranteed
for transactions accepted by the payor bank.
Check Digit: A digit,
often the final digit of a number and usually calculated by applying
an algorithm to all or some of the digits in the number, which may be
used to test validity of the non-check-digit number. For example,
routing/transit numbers have nine digits, eight of which provided FI
identification information and the ninth is the check digit.
Check Guarantee: A
service that guarantees the checkwriter’s payment and assumes the
collections risk of check payments for a merchant.
Check Safekeeping: The
customer’s financial institution keeps the customer’s checks, not
returning it in the customer’s statement. The customer may receive an
image of the check in the statement.
Check Truncation: The
conversion of a check to an electronic debit or image of the check by
someone in the payment system other then the paying bank. The
transaction may be governed by check law (UCC, Reg CC and Clearing
house rules) or by electronic banking law (Electronic Fund Transfer
Act).
Check Verification: A
service accessing customer and/or account databases through a point of
sale system and/or by phone to verify or authorize that the check
writer and/or checking account information is valid and/or in good
standing.
Clearing House: The
organization that collects, sorts and classifies, and distributes
information, usually among a large number of organizations or
entities.
Composite Receivers File:*
A directory of all RDFIs served by an ACH Operator.
Consumer:* Usually
refers to a natural person not engaged in commercial transactions.
Consumer Account:* A
deposit account held by a participating DFI and established by a
natural person primarily for personal, family, or household use, and
not for commercial use.
Controlled Disbursement:
A bank service provided typically to corporate customers wherein the
company is notified early in the day of the dollar amount of items
waiting to clear the account later that day; the company funds the
account with the exact amount to clear the items.
Conversion:
Transforming a payment initiated by paper check that has not been
negotiated to an electronic payment.
Customer: Both consumer
and corporate. Individual or company that purchases or uses the goods
or services of another individual or company.
Depository Financial
Institution:* A financial institution able to receive deposits
from its customers or credits from the Federal Reserve Bank.
E-check: A generic term
for an ACH debit to a consumer account that is originated on the
Internet, at the point of sale, over the telephone, or by a bill
payment sent through the mail or dropped in an unattended dropbox.
Electronic Check: The
term "electronic check" is used to refer to several types of
electronic transactions.
• ACH-based electronic check. A payment that begins as a paper check
is converted into, or truncated to, an ACH debit entry. The paper
check is not processed.
• Electronic network electronic check. A payment that begins as a
paper check is converted into, or truncated to, an electronic network
entry, using networks such as an ATM network or a credit card network.
The paper check is not processed.
• Internet- or telephone-initiated payments. A transaction that is
initiated over the Internet or via phone, with the debit carried out
by an electronic debit, usually an ACH debit. Some users categorize
payments initiated via Internet or telephone but that are effected by
paper drafts as electronic checks, even though the debit is
paper-based.
• A catch-all term used loosely to refer to any attempt to initiate
payment through PCs, the Internet, and computer systems.
Electronic Check Council:
A membership organization of financial institutions, companies and
other interested entities dedicated to improving check clearing and
collection. Operated under the auspices of NACHA The Electronic
Payments Association.
Electronic Check
Presentment: The electronic transmission of the contents of a cash
letter (as captured from the MICR line on each check) to the drawee
bank ahead of the physical arrival of the checks actually in the cash
letter.
Electronic Fund Transfer
Act:* The law passed by the US Congress in 1978 which set out the
rights and obligations of consumers and their financial institutions
regarding the use of electronic systems to transfer funds. This act is
implemented in the Federal Reserve Bank’s Regulation E.
Financial Institution:*
Any bank, savings and loan, credit union or other institution
organized under either national or state banking laws capable of both
accepting deposits and making loans.
Forward Collection: The
process of collecting and settling funds for checks (demand
instruments) from the Bank of First to Deposit to the Paying Bank.
Lockbox: A financial
institution or third party processor service that facilitates rapid
collection and posting of corporate receivables. Typically, customer
payments are mailed to a lockbox or mailbox for collection, sorting,
totaling and recording by the bank or provider rather than by the
billing organization.
Magnetic Ink Character
Recognition (MICR) Line: The characters on the bottom line on the
face of a paper check that contains the routing/transit number of the
financial institution the check is drawn on, the account number of the
drawee (Receiver) and the check number, all printed in machine
readable magnetic ink in a font devised for check reading
Merchant: The seller of
goods and services.
Merchant Processor: A
company that handles or provides transaction and sometimes data
processing services to merchants (and, possibly, others).
MOTO (or MO/TO): Mail
Order/Telephone Order.
NACHA: The national
trade association for electronic payment associations, which
establishes the rules, industry standards and procedures governing the
exchange of commercial ACH payments by depository financial
institutions. Network: A system of channels and interconnections such
as among financial institutions, processors and merchants.
Originating Depository
Financial Institution (ODFI):* The financial institution which
delivers ACH entries directly or indirectly through a third party to
its ACH operator.
Participant: A person
or entity that has a share or plays a part in the activities at hand.
Point of Purchase:
Location where payment for goods or services takes place where the
purchaser and seller are both present.
POP
entry:** An ACH debit entry initiated by an Originator
pursuant to (1) a single entry authorization, and (2) a source
document as set forth in subsection 3.7.1 (Source Documents), provided
to the Originator by the Receiver at the point-of-purchase to effect a
transfer of funds from a Consumer Account of the Receiver. This type
of entry may only be used for non-recurring, in-person (i.e., at the
point-of-purchase) entries for which there is no standing
authorization with the Originator for the origination of ACH entries
to the Receiver’s account. POP is a Standard Entry Class Code.
PPD entry:** (1) An ACH
credit or debit entry (other than an MTE or POS entry) initiated by an
organization pursuant to a standing or a single entry authorization
from a Receiver to effect a transfer of funds to or from a consumer
account of the Receiver; or (2) an ACH debit entry constituting a
presentment notice of an item eligible under section 2.9 (PPD Accounts
Receivable Truncated Check Debit Entries). … This debit entry is
initiated pursuant to a check or share-draft provided to the
Originator by the Receiver and delivered via the U.S. mail for payment
of an obligation. "PPD+" is a PPD entry with one addenda
record. PPD and PPD+ are Standard Entry Class Codes.
RCK
entry:** An ACH
debit entry constituting a presentment notice of an item eligible
under section 2.8 (Re-presented Check Entries). An RCK entry is an
item as defined by Revised Article 4 of the Uniform Commercial Code
(1900 Official Text) only for the limited purpose of presentment as
set forth in Article 4-110(c) and notice of dishonor as set forth in
Article 4-301(a)(2). RCK is a Standard Entry Class Code.
Receiver: An
individual, corporation or other entity who has authorized a company
or an Originator to initiate a credit or debit entry to a transaction
account held at an RDFI.
Receiving Depository
Financial Institution (RDFI):* A financial institution which
receives ACH entries directly or indirectly from its ACH operator.
Regulation CC:* The
regulation published by the Federal Reserve Board to implement the law
which mandates the time limits for funds availability on deposited
items.
Regulation E:* The
regulation published by the Federal Reserve Board to implement the
Electronic Fund Transfer Act mandating consumer rights and obligations
with regard to electronic fund transfers.
Retail Customer: A
consumer (not a business) paying for a purchase at a retail point of
purchase (point of sale).
Return Processing: The
process of returning and settling funds for checks (demand
instruments) that were dishonored by the RDFI (Paying Bank) and
returned to the ODFI (Bank of First Deposit).
Routing/Transit Number:*
Also known as Routing Number, Transit/Routing Number and ABA number. A
nine digit number (eight digits plus a check digit) which identifies a
specific financial institution. Routing numbers are administered by
the Routing Number Administrative Board under the sponsorship of the
American Bankers Association and officially maintained and published
by Thomson Financial Publishing.
Routing Number
Administrative Board:* The cross-industry board sponsored by the
American Bankers Association which defines and administers all
policies regarding routing/transit numbers.
Standard Entry Class Code:
A three-letter code that uniquely identifies the class of ACH
transaction. For example, "POP" stands for "Point of
Purchase".
TEL:** A single-entry
ACH debit initiated by an Originator pursuant to an oral authorization
obtained over the telephone to effect a transfer of funds from a
consumer account of the Receiver. This type of entry many only be used
for a single-entry for which there is no standing authorization for
the origination of the ACH entries to the Receiver’s account. A TEL
entry may only be used when there is an existing relationship between
the Originator and the Receiver, or, when there is not an existing
relationship between the Originator and the Receiver, when the
Receiver initiates the telephone call. TEL is a Standard Entry Class
Code.
Third Party Processor:*
A party which processes ACH files and/or items on behalf of one of the
participants in the ACH system. Examples of third party processors are
payroll processing companies which create ACH files for transmission
to the ACH Operators on behalf of an originator or ODFI, a data
processing company which receives incoming ACH files and processes
them for an RDFI, or a correspondent bank which processes ACH files
for its correspondents.
TRC (Truncated (Check)
Entry):* An ACH entry which originally represented a check, in
which the actual check is safekept by one of the financial
institutions in the chain of deposit and the MICR information is
converted to an electronic entry and processed through the ACH network
back to the issuing institution. TRC is a Standard Entry Class Code.
Truncation: See Check
Truncation.
TRX (Truncated
(Extended) (Check) Entry):* A series of TRC entries put together as
addenda records with the payment item representing the total
settlement of the TRC entries for that batch. TRC is a Standard Entry
Class Code
Uniform Commercial Code:
A body of law whose underlying purpose and policies are (a) to
simplify, clarify and modernize the law governing commercial
transactions; (b) to permit the continued expansion of commercial
practices through custom, usage and agreement of the parties; (c) to
make uniform the law among the various jurisdictions. The effect of
provisions of this Act may be varied by agreement, except as otherwise
provided in this Act and except that the obligations of good faith,
diligence, reasonableness and care prescribe by this Act may not be
disclaimed by agreement but the parties may by agreement determine the
standards by which the performance of such obligations is to be
measured if such standards are not manifestly unreasonable. (Taken
from Article 1, General Provisions, Uniform Commercial Code, The
Portable UCC, second edition.)
WEB:** An ACH debit
entryinitiated by an Originator pursuant to an authorization that is
obtained from the Receiver via the Internet to effect a transfer of
funds from a consumer account of the Receiver. WEB is a Standard Entry
Class Code.
XCK entry:** A debit
entry initiated in the event an item eligible for section 2.7
(Destroyed Check Entries) is contained within a cash letter that is
lost, destroyed, or otherwise unavailable to and cannot be obtained by
an ODFI. XCK is a Standard Entry Class Code.
XpressChexOnline: Electronic
Checks over the Internet. Runs a check- verification in real time for
approval or decline. Processed and settled as ACH Items with deposits
to merchant account within 48-72 hours. Supports debits to both
Consumer and Business accounts.
Available via ECHOnline and also via ECHOnet Virtual Terminal.
XpressChexPlus:
Batch Electronic Checks over the Internet. Log on and submit a batch
file for processing via a secure Web connection. Can be used for
recurring billing.
XpressConversion:
Electronic Check Conversion at the point of sale, for retail stores.
Checks are processed as ACH Items, while the system scans checks and
stores images on a free Web site (free online image retrieval.
XpressGuarantee:
Check Guarantee at the point of sale. Accept checks . . .
but don’t accept the risk!
XpressNet:
Virtual Terminal processing electronic checks through your Web
browser. Check verification included.
XpressRecovery:
Traditional Check Collection Service.
XpressRePresentment:
Returned check electronic re-presentment for check collections
that don’t inconvenience your customers.
XpressVerification:
Check Verification at the point of sale for physical stores.
* From ACH Terms: A to Z Glossary
** Adapted from 2001 ACH Rules Book
Acronyms
ABA: American Bankers
Association
ACB: America’s Community Bankers
ACCU: Association of Corporate Credit Unions
ACH: Automated Clearing House
CBC: Computer Based Controls
CTA: Check Truncation Act
CUNA: Credit Union National Association
DFI: Depository Financial Institution
ECC: Electronic Check Council
ECCHO: Electronic Check Clearing House Organization
ECHO: Electronic Clearing House, Inc.
ECP: Electronic Check Presentment
EFT: Electronic Funds Transfer
FI: Financial Institution
FMS: Financial Management Service
FRB: Federal Reserve Bank
ICBA: Independent Community Bankers of America
MICR: Magnetic Ink Character Recognition
NACS: National Association for Check Safekeeping
NAFCU: National Association of Federal Credit Unions
NCN: National Check Network
ODFI: Originating Depository Financial Institution
POP: Point of Purchase
POS: Point of Sale
RCK: Re-presented Check
RDFI: Receiving Depository Financial Institution
RMRS: Rocky Mountain Retail Systems
Glossary terms and definitions
provided by NACHA
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