Flutterby™! : Check clearing rules? 2004-02-08 17:27:05.380331+00

Check clearing rules?

2004-02-08 17:27:05.380331+00 by Dan Lyke 11 comments

Charlene's got an interesting one: A year ago, she paid a charge with a check. The merchant used Telecheck to clear the check. Recently, she closed out that account. A full year after the merchant did the Telecheck transaction (and we know this because of the Telecheck printing on the back of the check), Telecheck did the funds transfer, resulting in a bounce because the account was closed. Now Telecheck wants a $25 bounce fee.

My impression (and apparently Telecheck's) is that current Federal Reserve rules make checks invalid after 6 months. Telecheck is claiming a loophole because this was an EFT. Anyone have current information?

I believe it's one year, and I don't think the fact it was an EFT changes anything. You may have to wait for the bank to take you to court.

Whoops. There's an edit there now, and it's actually Telecheck that's playing the game. In looking through a bunch of bank's policies, most banks claim 6 months.

And, for the record: Be wary of paying by check with merchants who process with Telecheck, we have a check which their equipment printed as having been processed on 2003-01-21 and they didn't try to clear it through the bank until 2004-01-23.

The problem is that the way that this works is that the piece of paper is not a check, it is an authorization to electronically move funds out of the account using ACH (so check rules don't really apply). You also need be wary of the fact that they may try and re-present this transaction (according to the terms of the agreement that's either on the back of the check they handed back to you or posted at the register) and you could be into more fees. I'd look at doing two things: -Send a letter (certified mail, return receipt) to the merchant saying that the authorization isn't valid. Doing this should prevent them from re-presenting the check. -Under certain circumstances, you have 60 calendar days to contest an ACH transaction. You do this by signing an affidavit at the bank (the bank then intiatiates the ACH equivalent of a charge back). I'm looking at the options for that now (in our ACH vendor's handbook) and it looks like the closest one is: *R10 *Advised as Unauthorized, Item is Ineligible, Notice not Provided, Signatures not Genuine, or Item Altered, Improper Source Document, Amount of Entry not Accurately Obtained from Source Document *Consumer advises that the entry is not authorized. This code can be used with on Consumer entries (PPD). Return Deadline is 60 days. Permanently stops future payments. RDFIs must obtain a written statement under penalty of perjury.

Also, you might try talking with the merchant right after you do this to let them know what's coming and try it work it out with them. The ACH charge back fees are minimal (<$2) and they'd probably rather work with you than try and fight the charge back.

aiworks is essentially correct.. but by NACHA guidelines for ACH transactions, they can only process that check for X days after the initial transaction. A couple of years ago, X was equal to 30 days. So Telecheck screwed up. Electronic representments can be made 3 times.. so they can also hit you up a couple more times, causing more fees to be charged. Now the issues are, Telecheck should not be hitting you up for the bounce, the merchant should be, but th emerchant got screwed a year ago. Talk to the merchant directly and deal with them if possible. Other issues: Telecheck GUARANTEES their ACH transactions to the merchant, just like they attempt to do with Credit Cards, by charging not only the ACH fee (under 50 cents) but also a percentage of 'insurance'. Which is why they are coming after you.

Most checks in most states are only valid for a limited time.. so Telecheck's ineptitude is technically their problem. But it's not.. It's your's because if you don't pay them off, Telecheck will report this (if they have not already) to the credit reporting agencies.. and that'll cost you time money and blood to clean back up.

I bounced a check a few years ago that Telecheck had processed. I made arrangements with the vendor I wrote the check to to make the check good and told them that regardless of what their policy was I did not intend to pay a twenty-five dollar fine to them or telecheck for bouncing the check. I never paid the fee and my credit was not damaged by the incident.

It seems to me that you do owe the merchant the money that the original check was written for but that you have no obligation to pay the $25 fee. It also seems to me that the merchant would not want to piss off a customer and would have a much greater influence over what Telecheck does than you do.

If it was me I would send three seperate letters, one to the bank, one to the merchant and one to Telecheck explaining what happened and your position. I would also make a personal visit to the manager of the store that the original check was written to and discuss the matter along with all ramifications of any actions that may be taken. After this I would make sure the original check was made good and ignore any and all future attempts to collect the $25 bounce fee. Unless there are other problems with credit this isn't going to cause much damage to one's credit record.

The merchant is fine, and got the balance from Telecheck a year ago. There's no question that Charlene owes Telecheck $250. She's fighting the $25 overcharge on principle. I think we need to go verify with the bank on the lenght of time the check is valid.

As meuon alluded, the problem won't be the NACHA guidelines... Telecheck is obviously testing the constraints of the rules. However, realize that the NACHA guidelines are NOT federally mandate rules. They are actually a set of guidelines agreed upon by participating banks to facilitate inter-bank transactions. Generally, the guidelines are skewed heavily towards the banks being able to take money easily from individuals (like Charlene) and preventing small companies (like Qdebit) from being able to participate in the banking industry as anything other than a client. If you have lots and lots of cash, you can do whatever the heck you want to. You can become a bank if you have enough cash and you can get banks and the fed to jump through hoops if you have enough cash. If you don't have the cash, then you are completely at the mercy of those entities that do.

And this is where things get annoying. Unless Telecheck is being friendly, Charlene will have to capitulate and pay the $25 fee if she ever plans use a check at a merchant using Telecheck. Telecheck has no obligation to remove the negative database entry associated with Charlene's account. In many ways, this is similar to what happens when you are a victim of identity theft. Even if the perpetrators are caught and convicted and the court says it was all a big misunderstanding, you're likely to have the incident come up again and again everytime you try to buy a home or maybe even if you get pulled over for a speeding ticket.

My recomendation: either pay the $25 to Telecheck or stop writing checks altogether.

I vote for stop writing checks altogether. We're not quite there in our house, but we're getting close...

I'm down to about six checks that I write a month. I pay all my other bills online. I no longer write checks in stores. I can't see the advantage any longer in writing a check over using a debit card or a credit card that I pay off in full each month. There is practically no float any longer and the credit card I use is one of those cash back cards with no annual fee.

After the dispute I had with Telecheck my checks were still accepted by merchants using Telecheck. By all rights I probably should have paid the $25 fee but at the time I thought it was excessive and I was in an ornary mood. The error was mine, I made a mistake in my check register and wasn't using overdraft protection on my account at the time, but my bank had already charged me some outrageous fee on the bounce and I had had enough. I changed banks shortly after that and got overdraft protection on my new account.

ebradway... Could you expand on your comments about becoming a bank, please? Just curious...

It takes very little money to 'become a bank'.. It's been done with as little as $10,000 and is often done with under a million. The expensive part is the processing infrastructure.. but smaller banks outsource most of it anyway, and big banks outsource a lot of it. When Eric and I (and others) were doing the Qdebit thing, we learned how much a facade the banking systems are. Not facade in a bad way, but a facade in that what you see is not exactly what is behind the curtain, which is a very very old manually driven system in many ways. Sure, there is automation, kinda. Qdebit should have 'been a bank', but the officers of the corporation could not pass the credentialling process. Nothing really bad, but not the kind of people to make the grade. It's easier to buy a small bank.. or do like many small credit unions do: become a sub-entity of a bank, using a routing number assigned to that bank, but used by the sub-entity.

We could all pool our resources and become the 'Flutterby Bank' or at least the 'Flutterby Credit Union' pretty easily. Heck we could possibly even re-use the Qdebit routing number: 661360008 - Which.. I have to tell a story: