A M E N D M E N T S T O T H E N A C H A O P E R A T I N G R U L E S

Impact for Financial Institutions

T H E N A T I O N A L A U T O M A T E D C L E A R I N G H O U S E

A S S O C I A T I O N — The Electronic Payments Association(NACHA) recently announced new rules that affect check processing for financial institutions, consumers, businesses and retailers. The changes will affect nearly every aspect of dailyoperations for financial institutions.

As an industry leader and proven check expert, Deluxe FinancialServices is uniquely positioned to help financial institutions educate employees, address consumer concerns and adjust to theserule changes. In addition, Deluxe’s checks and related servicesmake it easy for financial institutions to identify opportunities forrevenue growth and improve cross-sell results while simultaneously building customer satisfaction and loyalty.

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Geared toward reducing the number of incorrect business checkconversions, phase one establishes guidelines for identifying checks ineligible for conversion to electronic transactions. Theamendment identifies checks valued at more than $25,000 or thatcontain an auxiliary on-us field in the MICR line as ineligible for conversion. In addition, the amendment provides businessesthe same opt-out previously available only to individuals.

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Referred to as back-office conversion (BOC), the second phase provides an additional method to convert checks. BOC allowsmost consumer and business checks to be placed in the till and processed later as a batch in the back office. This methodmakes it easier for retailers to accept checks and reduces the number of incorrect business check conversions.

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F I N A N C I A L I N S T I T U T I O N S

T H E I M P A C T F O R F I N A N C I A L I N S T I T U T I O N S

The amendments will impact nearly every aspect of daily operations for financial institutions, including consumer service,call volume, employee education and training, internal check processing, and product and sales.

Internal Operations and Processing

• BOC will streamline check processing, resulting in fewerincorrect check conversions, and saving time spent correctingerrors and managing related inquiries.

• BOC will increase operational efficiency by reducing time and resources needed to process check payments. The cost ofaccepting, processing and handling paper checks ranges from$.75 to $3 per check. For electronic checks, this cost decreasesto $.32 to $.70 per check.

• Financial institutions that receive a check image file from thepayee can convert eligible checks within that image file into anAutomated Clearing House (ACH) payment, provided propernotice was given to the consumer by the payee. This enablesfinancial institutions to select the most efficient and cost-effective clearing option.

• By capturing an electronic image of the check in-store, BOC reduces the need to transfer paper checks to financialinstitutions, improving security. Retailers can send electroniccheck images to their financial institution and destroy the paper check in-store.

• Changes in check conversion will affect internal operationsand fraud prevention processes, like Positive Pay, or payee verification.

• A new SEC Code will identify checks intended for BOC entries.

• BOC conversions listed on periodic financial statements mustinclude the new SEC code (BOC) and definition, company or originator name, check serial number, date and amount of transaction.

Employee Training and Consumer Service

• Financial institutions should anticipate a higher-than-normalcustomer call volume with questions related to individualtransactions, consumer and business account statements, and check conversion.

• Financial institutions should anticipate an increase in returnedelectronic check transactions. Under the new rule, notificationequals authorization. This requirement means many customersmay not be aware they have consented to conversion.Educating employees about potential issues can help financialinstitutions maintain customer satisfaction and provide seamless service throughout the transition.

Product and Sales Opportunities

• To avoid conversion, businesses that use personal size checkscan change to a business size document with an auxiliary on-us field and maintain their existing account reconciliationpractices. This upgrade may enable financial institutions to improve product and cross-sell results and generate additional revenue.

• Financial institutions can expect an increase in inquiries related to business-size checks, consumer checks and otherproducts that allow businesses to opt out of conversion.

• Since retailers and billers must implement the exceptions toconversion, financial institutions that offer standard consumersize home equity lines of credit can upgrade their customers tochecks that contain an auxiliary on-us field and are ineligiblefor conversion.

By offering financial institutions in-depth information about BOC and other NACHA rule changes, Deluxe can help financialinstitutions manage the transition, stay ahead of the competitionand excel in the eyes of their customers. For additional informationvisit the Check Resource Center located at www.deluxe.com.

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©2006 Deluxe Enterprise Operations, Inc. All rights reserved.NCH01 (08/06)

Deluxe Financial Services

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Shoreview, MN 55126

www.deluxe.com