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ACH Debits

You get them. You know, those pesky little checks for $12.00. “That must be the rebate check I was expecting.” So you deposit the check. What you may not been aware of is that the check had an endorsement on the back of the check. It said that if you deposit this check, Company X will ACH (Automated Clearing House) debit your account for “Y” dollars every month for a service.

The problem is that once the ACH debits start they are almost impossible to stop without closing the account. This may be a pain in the neck for people, but imagine a large corporation that receives one of these checks in their payment lock box, where all the checks are swept and deposited several times per day with nobody really looking carefully at them. Changing one of these accounts may take months and many tens of thousands of dollars in man hours alone, not to mention check reprinting etc…

How do you prevent the deposit of one of these ACH debit checks? For a person, it’s simple; Read what you get in the mail, and don’t deposit them.

For a large corporation, you really only have a few choices. One of them is ACH blocking and filtering. Many banks allow you to set up your business account with options to post no ACH entries, post only ACH credit entries, post only ACH debit entries, post only certain ACH debit and/or credit entries, and to automatically return unauthorized items to the originating company.

ACH blocking aside, it is prudent to set up your accounting so that deposits are made only into one account. Once they clear, the funds are transferred out to other accounts for the payment of goods and services. These other accounts do not take deposits other than your own transfers. Never, set up a tax account that would accept direct deposits, particularly without ACH blocking. Can you imagine trying to get 50 states and all of the municipalities changed to a new account just to solve your ACH withdrawal problem? Yikes.

There is an interesting question as to what law governs these restrictive endorsements. UCC? Commercial Contract Law? NACHA? And is this a corporate-to-corporate debit or ???

It will be interesting to see how this evolves as Check 21 continues to roll out.

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