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Identification of Business Checks Ineligible for Conversion

On September 15, 2006, an amendment to the Nacha Operating Rules (Rules) became effective that modified the rules with respect to Accounts Receivable  Entries (ARC) and Point-of-Purchase Entries (POP) to enable ACH participants to more readily identify business checks that are ineligible for conversion to ARC and POP entries. Similar provisions will apply to Back Office Conversion Entries (BOC) when the application becomes effective on March 16, 2007. This Operations Bulletin is intended to remind ACH participants of the fundamental aspects of this amendment.

Identification of Ineligible Business Checks

On September 15, 2006, the Rules governing ARC and POP entries were amended to facilitate the identification of ineligible business checks through the presence of an Auxiliary On-Us Field in the MICR line of a check or sharedraft. Any check or sharedraft bearing an Auxiliary On-Us Field is now ineligible for conversion to an ARC or POP entry.

This change provides corporate Receivers with an additional method to opt out of check conversion activity by having their checks printed to include an Auxiliary  On-Us  Field. Consumer Receivers currently have the ability to opt out of ARC check conversion by notifying the Originator directly that their checks may not be converted, and Receivers may opt out of POP check conversion by declining to sign an authorization for the transaction. As of September 15, 2006, these existing opt out methods now also apply to business Receivers.

This amendment also restricts ARC and POP conversion by imposing a $25,000 limit on the source document to which the entry relates. This dollar limit prevents the conversion of large value wholesale payments to which stricter risk management controls should be applied. Corresponding provisions related to the identification of ineligible checks through the use of the Auxiliary On-Us Field, as well as the $25,000 limit, will also apply to BOC entries upon implementation on March 16, 2007.

This amendment does not impact other ineligible items. These include third-party checks; demand drafts and third-party drafts that do not contain the signature of the Receiver; checks provided by a credit card issuer for purposes of accessing a credit account or checks drawn on home equity lines of credit; checks drawn on an investment company as defined in the Investment Company Act of 1940; obligations of a financial institution; checks drawn on the U.S. Treasury, a Federal Reserve Bank, or a Federal Home Loan Bank; checks drawn on a state or local government that are not payable through or at a Participating DFI; or checks payable in a medium other than United States currency.

It is also important to clarify that this amendment with respect to business check conversion only applies to ARC, POP, and, as of March 16, 2007, BOC entries.  Business checks with Auxiliary On-Us Fields are not eligible for conversion under these applications and may not be converted using other Standard Entry Class Codes. For example, a business check that is presented at the point of purchase but is ineligible because it contains an Auxiliary On-Us Field may not be converted to a CCD or CTX entry.

Operational Note: ACH Operator edits have been established to reject ARC and POP entries (both forward and return transactions) in an amount greater than $25,000. For a short period of time, this may temporarily disrupt the RDFI’s ability to use the ACH return process to return any such entries originated prior to this change. This issue will resolve itself as the return windows for ARC and POP entries originated prior to the September 15th rule change close. In the interim, financial institutions are encouraged to resolve any issues surrounding the return of transactions over $25,000.


Questions about this ACH Operations Bulletin should be submitted via