Electronic Check Processing Glossary
ABA Number:* See Routing/Transit
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or that the authorization for that transaction has been revoked.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
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
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
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
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
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
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
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
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
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
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,
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
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.
* From ACH Terms: A to Z Glossary
** Adapted from 2001 ACH Rules Book
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