February 1, 2006

Maribel Bondoc
Manager of Network Rules
NACHA
13665 Dulles Technology Drive, Suite 300
Herndon, VA 20171

Re: Request for Comment, Back Office Conversion Interim Rule

Dear Ms. Bondoc:

America’s Community Bankers (ACB) is pleased to respond to the NACHA Request for Comment on the proposed Back Office Conversion Interim Rule. ACB appreciates the opportunity to submit comments on this rule that would implement back office conversion of paper checks using the Point-of-Purchase (POP) SEC code.

ACB Position

ACB supports NACHA’s efforts to codify rules that would encourage back office conversion of paper checks. Allowing retailers to complete the processing of checks in a controlled environment, instead of at individual cashier stations, will reduce error rates and customer confusion. The strong customer notice requirement placed on retailers will also lessen customer inquiries.

ACB Comments

Registration of ODFIs and Third Party Senders
The Interim Rule would require ODFIs to agree to pay “any applicable fee” for registration when originating POP entries processed in the Back Office. This fee is intended to cover NACHA’s costs for the registration process. How is NACHA calculating this fee and what will the estimated fee be for financial institutions that participate in Back Office Conversion?

Secure Storage of Source Document and Payment Information Related to POP Entries Processed in the Back Office
The Interim Rule would require Originators (retailers) to “employ commercially reasonable methods” to ensure the security of paper checks before they are destroyed and the banking information that is retained electronically. Additional guidance will be issued giving examples of adequate methods. The consequences of data breaches and resulting identity theft can’t be overemphasized. The information included on a check is extremely sensitive and maintaining control over that data is vital to ensure public trust. ACB urges that strict guidelines be issued requiring retailers to maintain the integrity of banking information. The Gramm-Leach-Bliley Act (GLBA) establishes standards for safeguarding customer information by certain non-financial institutions that possess nonpublic personal data. NACHA should consider the GLBA requirements when issuing its Guidelines on implementing back office conversion. Retailers and financial institutions share the risk associated with lost financial data, even if it is not the fault of the bank.

Reporting Requirements for POP Entries Processed in the Back Office
This provision would trigger a NACHA review of an ODFI when there are more than fifty items returned as unauthorized over a thirty-day period. ACB recognizes the need to monitor excessive return rates to ensure compliance with the operating rules, but is uncertain about the fairness of applying a standard of 50 items across all ODFIs regardless of their POP volume.

ACB proposes that the NACHA review of ODFIs begin when more than 50 items are returned in a month for two consecutive months. The consecutive month requirement will act as a filter for ODFIs that have an abnormally high return rate for one month, perhaps due to volume increases or implementation issues, and focus on banks that have persistent processing problems. Additionally, after the first 12 months of Back Office Conversion processing the 50 item limit should be reviewed and adjusted to ensure that it will identify banks that may be out of compliance with the rules, but not impose a burden on other ODFIs.

Conclusion

ACB supports NACHA’s efforts to automate the paper check settlement cycle. This Interim Rule is an important part of the automation process.

ACB appreciates the opportunity to comment on this important matter and we look forward to working with your organization on this Interim Rule and the Final Rule later this year. If you have any questions, please contact the undersigned at (202) 857-3148 or [email protected].

Sincerely,

Stephen K. Kenneally
Director, Payments and Technology Policy