Payday Loan ACH versus Check 21

payday loan ACH check 21By: Jer Ayler at Trihouse – For Small Dollar Lenders – Check 21 vs ACH Payments

Payday loan, installment lenders, car title loan and collection companies are discovering it’s a challenge to maintain a <1.5% charge-back threshold as required by NACHA and ACH processors.

Check 21 provides another option to ACH processing.

So… for a small dollar lender, what’s the difference between Check 21 and ACH?

Borrowers provide their lender with a bank routing number and account information in conjunction with an authorization to debit the borrower’s bank account. The collected funds are deposited into the lender’s  bank account.

Check 21 uses bank-to-bank image transfers rather than the Automated Clearing House (ACH) network to process the transactions. Transactions for both Check 21 and ACH clear through the Federal Reserve at midnight.

The biggest difference between Check 21 and ACH from a lender’s perspective? ACH transactions are governed by NACHA regulations which require that revoked transactions – also known as “chargebacks” or “consumer unauthorized” be maintained at less than 1.5%.

Check 21 is governed by check laws and the Uniform Commercial Code. It’s legal for anyone to use a computer scanner or mobile phone to capture images of checks and deposit them electronically; a process known as “remote deposit.” Thus, there’s more flexibility in the number of “revoked transactions” that can be processed.

Advantages / Disadvantages of Check 21 Processing.

If your “revoked transaction” rate exceeds 1.5%, you will not successfully maintain an ACH account. The primary advantage of Check 21 is that provides the lender with a better way to process echecks with fewer concerns about “revoked transactions.”

Lenders concerned about the current ACH environment should implement Check 21 . Note that the Paytoo “virtual wallet” offers a simple to use Check 21 component. See it in action by requesting a demo here: Paytoo Wallet Demo Request

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