Are there any Illinois regulations that would require us to collect a loan customer’s voided check before initiating ACH payments from their deposit account at another bank to make loan payments to our bank?

We are not aware of any Illinois law or regulation requiring banks to collect a voided check from a customer before initiating an ACH debit from their account at another financial institution.

While some banks may ask customers to provide a voided check to confirm the accuracy of account and routing numbers before initiating an ACH debit from an account for purposes of loan payments, we believe such practices are based on internal bank policies rather than a regulatory requirement. While an accounts receivable entry (or ARC entry) requires the use of a check as a source document for obtaining required information about the receiver at a point-of-purchase or manned bill payment location, this requirement does not apply to other types of ACH transfers such as a Prearranged Payment and Deposit (PPD) entry.

The Nacha Operating Rules require an originating depository financial institution (ODFI) transmitting an entry to warrant to each receiving depository financial institution (RDFI) in connection with such entry that it contains the receiver’s correct account number and certain other information. As a result, some banks may choose to verify a receiver’s account information by requesting a voided check. Banks also may verify such information by sending a “prenotification” or non-monetary entry to an RDFI to confirm that an account number is valid before sending a debit entry.

For resources related to our guidance, please see:

2021 Nacha Operating Rules, Subsection 2.5.10.1, General Rule for POP Entries (“A POP Entry is a Single Entry debit originated based on an Eligible Source Document provided to an Originator by a Receiver at the point-of-purchase or manned bill payment location for conversion at the point-of-purchase or manned bill payment location. . . .”)

2021 Nacha Operating Rules, Section 8.36, “Eligible Source Document” (“A Check that is used as a source of information for ARC, BOC, or POP Entries. To be used as a source of information, the Check must: . . .”)

2021 Nacha Operating Guidelines, Section V, Standard Entry Class Codes, Chapter 45, Prearranged Payment and Deposit Entries (PPD) (“A Prearranged Payment and Deposit (PPD) Entry is a credit or debit entry originated by an organization to a consumer’s account, based on standing or single-entry authorization from that consumer. PPD entries can be used for both recurring and non-recurring payments, and comprise a fundamental component of the ACH Network.”)

2021 Nacha Operating Rules, Subsection 2.4.1, General ODFI Warranties (“An ODFI Transmitting an Entry warrants the following to each RDFI and ACH Operator in connection with such Entry at the time of the Entry’s Transmission by or on behalf of the ODFI, unless another effective time frame is provided in this Subsection 2.4.1.

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Subsection 2.4.1.4 The Entry Contains Required Information — The Entry contains the Receiver’s correct account number and all other information necessary to enable the RDFI to comply with the requirements of Subsection 3.1.5 (RDFI Obligation to Provide Information about Entries), except for information within the purview of the RDFI’s relationship with the Receiver. All information Transmitted with the Entry is related to the payment represented by the Entry.”)

2021 Nacha Operating Rules, Section 3.5, Specific Provisions for Prenotifications (“An RDFI that receives a Prenotification Entry must verify that the account number contained in the Prenotification is for a valid account. If the Prenotification does not contain a valid account number, or is otherwise erroneous or unprocessable, then the RDFI must Transmit either (a) a Return Entry, or (b) a Notification of Change.”)

2021 Nacha Operating Rules, Section 8.79, “Prenotification Entry” or “Prenotification” or “Prenote” (“A Non-Monetary Entry initiated by an Originator to an RDFI prior to the initiation of the first credit or debit Entry to a Receiver’s account with the RDFI. A Prenotification notifies the RDFI that the Originator intends to initiate one or more credit or debit Entries to a Receiver’s account with that RDFI in accordance with the Receiver’s authorization.”)