A single entry debit initiated by an Originator to the account of a Receiver based on an eligible source document provided to the Originator by the Receiver (check writer) 1) via U.S. mail or delivery service, 2) at a drop box location, or 3) in person for payment of a bill at a manned location.
The Company must provide notice to the check writer, prior to receipt of their check, that:
The check may be converted and collected electronically; and
Receipt of their check will be authorization for the check to be used as a source document for an ACH debit entry to their account.
A copy of the notice must be provided to the check writer at the time of the transaction.
The notice must be clear and readily understandable, and must be provided in a prominent and conspicuous manner.
A copy of the front of the source document must be made available upon request for two (2) years from the Settlement Date of the transaction.
Source Document Eligibility Requirements
The Company may accept a check as a source document for ARC if it meets the following criteria:
It was received through the U.S. mail or delivery service, at a drop box location, or in person for payment of a bill at a manned location;
It contains a pre-printed check serial number;
It is in an amount of $25,000 or less;
It is completed and signed by the check writer;
The routing number, account number, and check serial number are encoded in magnetic ink;
It is payable in U.S. currency only; and
It is a consumer check, or small sized business check, that does not contain an Auxiliary On-Us Field in the MICR line (large format business checks).
Checks that do not meet all eligibility requirements;
Checks payable to a person other than the Originator;
Check that accesses credit card account, home equity line, or other form of credit;
Check drawn on an investment account;
Check that is an obligation of a Financial Institution (e.g. Cashier’s check, Travelers Check, Money Order, Official Check);
Checks drawn on the Treasury of the United States, a Federal Reserve Bank, or a Federal Home Loan Bank; and
Checks drawn on a state or local government that are not payable through or at a Participating DFI.
Responsibilities of Originators
As an Originator, it's crucial to understand and fulfill your responsibilities when initiating ARC entries. To ensure compliance with the rules and regulations governing ARC transactions, follow these key steps:
Accurate Entry Details: Verify that the information in your ARC entry matches the details of the source document precisely. This includes the amount, routing number, account number, and check serial number.
No Source Document Presentation: Do not present the eligible source document for payment after initiating the ARC entry. The ARC entry effectively replaces the paper check in the transaction process.
Retention of Source Document: Retain a reproducible image or copy of the front of the Receiver's source document for a minimum of two years from the Settlement Date of the ARC entry. You should be prepared to provide this copy if requested.
Authorization and Notice: Obtain proper authorization from the Receiver before initiating ARC entries.
Provide Eligible Source Document Upon Request: Be prepared to provide the Eligible Source Document upon request.
Prompt Response to RDFI Requests: When the RDFI (Receiving Depository Financial Institution) submits a written request for a copy of the front of the Eligible Source Document, provide a clear copy within ten Banking Days of receiving the request. This must be done if the request is received within two years of the Settlement Date of the Entry.
Secure Storage Practices: Utilize commercially reasonable methods to securely store both source documents and banking information related to ARC transactions. This includes implementing measures to protect sensitive information and ensuring compliance with data security standards.
Sample ARC Notification Language
The rules governing ARC incorporate Regulation E safe harbor language into the required notice, requiring that the notice include the following, or substantially similar, language:
When you provide a check as payment, you authorize us either to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction.
The following alternative safe harbor language is also provided by Regulation E and may be used to comply with these notice requirements:
When you provide a check as payment, you authorize us to use information from your check to make a one-time electronic fund transfer from your account. In certain circumstances, such as for technical or processing reasons, we may process your payment as a check transaction.