A North Carolina insurance official may have thrown a small monkey wrench into an increasingly popular automated clearing house service, the electronic presentment of bounced checks.

Under a rule that Nacha, which governs the automated clearing house, approved two years ago, a merchant stuck with a bounced check can electronically route it back to the bank that holds the checking account.

Often such "re-presented" checks clear on the second try - especially if the problem arose from processing glitch, not insufficient funds.

But Nancy Renn, a special investigator and accounts auditor for the Department of Insurance in North Carolina, says only a state-licensed collection agency can provide such a service there if returned-check fees are involved, as they usually are.

In a March 1 letter Ms. Renn told a merchant that its service provider needed a collection-agency permit to do electronic re-presentment. Permits cost $500 a year and require at minimum a $5,000 surety bond.

Similarly, in a letter last year she told a third-party service provider that it "did meet the definition of a collection agency, and did not meet any of the exemptions of a collection agency" - and therefore required a permit.

"The reason this type of operation is required to be licensed is just because of how our statute is written," Ms. Renn said. "Some states do not regulate collection agencies at all. All we can do is enforce the general statute."

Merchants have welcomed electronic re-presentment - as many as 1,000 may be using it, according to Nacha. And ACH product managers are eager to smooth the way for adoption by more.

But now, a Nacha spokesman said, there are fears that the events in North Carolina may slow merchant adoption of the service.

The issue might also affect third-party service providers such as Houston-based Telecheck Inc., E-Funds Corp. of Milwaukee, and Bankserv of San Francisco.

There is also a remote possibility that banks might be classified as debt collection agencies, which are subject to separate consumer protection rules, the Nacha spokesman said.

The North Carolina letters suggest that banks originating re-presented check transactions might be regulated as collection agencies under the Fair Debt Collection Practices Act, he said.

David Kvederis, president and chief executive officer of Bankserv, said banks are exempt from North Carolina collection-agency statutes. Banks are "generally held to higher standards," he said.

Jane Larimer, general counsel at Herndon, Va.-based Nacha, said its operating rules bar merchants from collecting fees that exceed the written amount of checks - fees that would subject them to collection-agency guidelines. Any additional amount is a separate transaction that is separately authorized, she said.

"It appears that there might be some confusion that it is all one entry," Ms. Larimer said. But re-presentation, though accomplished through an electronic funds transfer network, is in fact governed by checking law, she said.

Ronald Sargis of the Hefner, Stark & Marois law firm in Sacramento, Calif., said, "My rule of thumb is that a check is a check is a check." Though electronic re-presentment is electronic in nature, the transactions are still legally check transactions, he said.

"It is just a method by which a check is being presented," Mr. Sargis said, "and it is no different if you are doing it electronically than if you had just sent it over to the bank."

Providers of electronic re-presentment services are "electronic couriers" more like armored car services than collection agencies, he said.

Ms. Renn, the North Carolina official, said her letters were just that, not official opinions - "I don't issue opinions" - and should have little impact on the banking industry.

The issue was first reported by the Green Sheet, a newsletter serving independent sales organizations.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.