This blog is dedicated to understanding Automated Clearing House (ACH) transactions.
If you look out there, everything you’ll find about ACH is talking about banks and credit unions and using words and acronyms we don’t understand.
Everything ACH is about breaking it all down, explaining it and describing it in terms we can all understand. Real people language, not the typical legalese. I think this will be an interesting journey and I welcome you to come aboard…
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Where can we email questions?
You can either post your question here or send me an e-mail at jeff.gonzales@achdirect.com.
What are the consequences for an RDFI if they do not meet the minimum statement content required in the ACH Rules?
Hey Lori,
If an RDFI is not supplying the appropriate information on their statement (see Appendix 4 of the ACH Operating Rules), there is more than the ACH Operating Rules to be concerned about. For starters, yes, technically, they could be in violation of the ACH Rules. But, they could also could also be in violation of Regulation E.
As far as consequences, if a Report of Possible Rules Violations were submitted against them, then they could face fines from the network. If they were reported to their governing body, they could face fines – possibly more, I’m not really familiar with what the OCC or CUNA might offer up in this type of situation.
I would suggest that if your RDFI is not supplying the appropriate information on your statement, you consider contacting them first. 2nd would be contacting your states banking commission or NCUA if the RDFI is a Credit Union.
I hope that helps,
ACHGuy
Please forgive my ignorance on this subject as I am a teller researching for a project and haven’t the first clue where to begin.
I work at a small community bank that uses a correspondence bank for our EFTs. We only offer savings accounts, CDs and loans. When our customers set up direct deposit their money goes into our checking account at our correspondence bank. Then we must discern what EFT belongs to who and take from our checking account and transfer into that person’s savings account or apply it to their loan.
We are interested in simplifying these direct deposits and electronic transfers and “cutting out the middle man (bank)”. What do we need to know? Where do we begin?
Thank you for whatever help you can provide!
Hey Laura,
I’m probably not the best source of information for this, but let me take a stab at it and make a couple of recommenations. I have a couple of suggestions for resources too.
First things first, you want to find out what you’re in for – from a workload stand point. Talk to your ACH Operator (likely the Federal Reserve Bank or Fed) and your industry peers to find out what your responsibilities will be. Not just from a processing piont of view, but from daily tasks, audits, things of that nature. You may also want to talk with your local Regional Payments Association. I don’t know where you are, but if you are not a member of your local association, I highly recommend it. I belive there is a publication or two that might be of value when it comes to operating as an RDFI. I am not intimately familiar with many of today’s publications, but your RPA will be and should be able to make suggestions. If you need, you can find a list of RPAs at http://www.nacha.org/Memberships/RPA/rpa.htm.
While your talking with your peers, pick their brains on software. Depending on what all services your correspondent bank is providing, you may need to purchase your own software. There is no better recommendation than that from a trusted source. There are many, many, many providers out there. You will need to do your due diligence to determine which is best for you.
Once you get to this point and your software is selected, installed and your staff trained, you will need to change your agreement with your ACH Operator. Currently, it would show your correspondent bank as your Receiving Point and that’s what you will want to change.
Suggestions for resources: Industry peers tops my list and then your Regional Payments Association. Of course, if you have an AAP on staff that’s good too.
That’s all I have I think Laura. If I think of anything new, I will update my post here and send you an e-mail too.
I wish you luck,
ACHGuy
Can you refer me to the regulations for the posting of payments? Example: A customer pays their loan through an EFT payment – what requirements/regulations are there that require us to post that payment within X hours. Can we back date a payment? If they pay on the 3rd of the month what prevents us from posting it as a payment of the 31st?
This one really made me stop and think. Depending on whether you are the RDFI or the Originator, the ACH Rules may not address this.
Let me explain. If you are the RDFI and you need to know when you are required to post a payment, say to a loan account or any transaction in general. Transactions must be posted on Settlement Date. You can find this on page OR 23. 4.4.1 for Credits and 4.4.2 for Debits.
For credits, if the information were made available to the RDFI by 5:00 PM the day before Settlement Date, then the Credit must be posted by 9:00 AM or opening of business, whichever is later. If the information was not made available to the RDFI by 5:00 PM the day before the Settlement Date, then the Credit must simply be posted on Settlement Date.
For Debits, they cannot posted to an account earlier than Settlement Date.
If you’re talking about posting to an account at the Originator, which I think is your question, the ACH Operating Rules do not address this. I would say that the common practice is that you would post the payment on the date you initiate the debit to your customer’s account.
As far as back-dating a payment….could you? Sure, I guess. Once again, however the ACH Operating Rules do not address this. You may have to answer to your Accountant or perhaps an auditor, but that is an entirely different issue.
I guess that’s not much of an answer, but it’s all I got.
I hope that helps,
ACHGuy
Hi,
I have two quries related to the way ACH operates,
1) If the physical check is converted into an electronic transactions how does the drawee bank / paying bank verfies/ authenticates the signature.
2) How does teh ACH cycle operates ie what are the ACH batch processing cycle times.
Thanking you
LMK
Hey LMK,
Welcome to Everything ACH.
In answser to your questions:
1) When you refer to verifying or authenticating the signature, you are referring to a standard check law convention. As check law does not apply to these types of transactions (ARC, POP, BOC), there is no requirement for the Receiving Bank (equivalent to the Drawee/Paying Bank) to verify the signature. However, that being said, I don’t mean to imply this to be any easy avenue for shady business.
The Originator should still follow their standard procedures when accepting a check prior to conversion to ACH. A process which typically includes verifying ID/Driver’s License, running the check against a negative and/or positive check database or other check verification services.
Should there ever be a question, the RDFI maintains the right to request a copy of the ‘source document’ (check) from the Originator and the Originator must provide it. They have to keep a copy for 2 years from the Settlement Date (for ARC and BOC). For POP a copy of the signed receipt/authorization must be kept for 2 years from the Settlement Date and it is becoming more common for the check scanner (MICR Reader) to capture an image of the check too.
2) The ACH Operator – specifically the Fed (though I assume EPN as well) processes 6 times a day – the final processing time is 2:00 AM ET. If you follow that backwards to the typical ODFI or 3rd Party Service Provider, they probably only process a couple of times a day. Contractually, they have a cut off time with the ACH Operator. They in turn offer a scaled back cut off time to their Originators to allow for any processing errors/issues. This cut off time will vary from ODFI to ODFI and even within an ODFI, it may vary from Originator to Originator.
I hope this helps, but if you have any further questions, just let me know,
ACHGuy
Dear ACH Guy , Thank you for your prompt response.
We know that the ACH is an ideal platform for the repeated pull type transactions ie Insurance premia, loan installments etc where the money needs to be pulled by the Insurance co( ODFI) . and lending institution regularly , I am sure there must be a one time mandate/ authorization provided by the payee authorizing the ODFI to debit their accounts periodically , I am sure these mandates would be requiered by the RDFI to authenticate such transactions whenever thet are presented , Can u help me in understanding how is this process handled at the RDFI’s end
Regards
LMK
Good afternoon LMK,
This may be an easier conversation than an e-mail, but let me take another stab at this…
I think you are referring to an authorization for recurring transactions and trying to determine at what point the RDFI authenticates/verifies the signature on that authorization. Is that right?
With that, if I’m understanding you correctly, there is no standard opportunity for the RDFI to see the authorization. The RDFI maintains the right to request a copy of any authorization relating to any transaction they receive for an account holder, but unless there is an issue, they have no incentive to make that request. There are warranties in place requiring the Originator to verify the identity of the Receiver.
As I don’t know your level of ACH knowledge, please don’t be offended by this simplified comparison, but I think it might make things a little easier as you seem to have some check knowledge and I should be able to equate the parties to make it easier all around….
In a typical debit transaction process (let’s say insurance company debiting my checking account), the parties (there are a minimum of 5 parties to every ACH transaction) are as follows:
Originator = Insurance Company = Payee
ODFI = Insurance Company’s Bank = Bank of First Deposit or Payee Bank
ACH Operator = Federal Reserve Bank = Clearing House
RDFI = ACHGuy’s Bank = Payor Bank
Receiver = ACHGuy = Payor/Check Writer
When I (Receiver) sign an debit authorization with the Insurance Company (Originator), they are required to provide a copy to me (in most cases). So, who has a right to a copy of the authorization?, almost everyone really. The Origintor, ODFI, RDFI and Receiver.
The Originator must maintain a copy of the authorization for 2 years from the Settlement Date of the transaction.
The ODFI who processes the transaction on behalf of the Originator maintains the right to request a copy at any time, they generally will only do so in the event an issue arises relating to the transaction.
The RDFI who receives the transaction on behalf of the Receiver maintains the right to request a copy for their own use or on behalf of the Receiver. They too will generally only do so in the event an issue arises relating to the transaction.
The Receiver. They should already have a copy, but they also have the right to request a copy at any time.
Does that make sense?
ACHGuy
Dear ACHGuy,
Your website is great and I have a few questions for you regarding WEB debits.
The company I work for provides e-commerce (B2B Business 2 Business) and payment processing solutions to our customers. Usually we only do credit card applications but our customers seem to be really interested in ACH. I have done some research on the internet and read your blog and so far this is what I think we need to implement in order to comply with the NACHA rules. Please correct me if I am wrong or if I am missing something.
Once a customer is online trying to pay his/her bill we need to display a text agreement similar to this:
I authorize {company name} to debit the bank account indicated in this web form, for noted amount on today’s date. I understand that because this is an electronic transaction, these funds may be withdrawn from my account as soon as the above noted transaction date. I acknowledge that the origination of ACH transactions to my account must comply with the provisions of U.S. law. I will not dispute merchant debiting my checking/savings account, so long as the amount corresponds to the terms indicated in this web form.
(I got this example from the PayPal website)
The website should then prompt the customer to print this authorization and then provide them with a button “I Agree” or a “Cancel” button.
If they click on “I Agree” then the application will save the details of this order as well as the authorization text in a secure database. This way a receipt can be re-generated at any time.
Of course I understand that the internet connection has to be secure and that the company needs to conduct an annual security audit.
Is there anything else that is needed legally? I keep reading about digital signatures and pins and passwords and I’m not sure where this all fits in.
If it’s too much to discuss online I would love for my manager and I to give you a call. Let me know. Your help is much appreciated.
Thank You,
RMB
Dear ACH Guy,
How do I know when I should use PPD vs WEB? Can an e-commerce B2C transaction be a PPD entry? If the authorization is displayed in writing on the website and digitally signed by clicking on an I Agree button, how do I know what to classify it under?
Thank You,
RMB
Hey RMB,
Thanks for your question. Here’s the deal on PPD vs. WEB – it’s actually pretty short and sweet…
It’s PPD IF you have a written, signed (or similarly authenticated) authorization and the transaction is B2C. The authorization for a PPD transaction will always be something in writing, something you can hold, typically with a wet signature.
It’s WEB IF the authorization is actually displayed and authenticated (signed) on the Internet and it’s B2C. The authorization for a WEB transaction will always be something that was displayed (and printed) and authenticated over the Internet.
It’s all dependends on how you receive the authorization.
Does that help?
ACHGuy
I found your site a couple of days ago…I’m so EXCITED! I’m studying for the AAP exam in October and the way you disscuss these topics using “Human language” makes it much easier to understand. Thank you for the time and energy you put in.
I’m so glad to hear that my work is appreciated. Good luck on the AAP exam!
Dear ACH Guy,
I need a little help! With the new regulation changes going into effect tomorrow, I have a question concerning stop payments on ACH tranactions. Can a person ask that a stop payment be placed on an ACH debit if it has has not taken place yet? How do the new changes come into play?
Hey Desiree,
Stop Payments can only be placed on an account before the transaction (to which it relates) has posted to their account. The account holder is seeking to stop a future payment.
If the payment has already posted to their account, then they need to look at other options for returning it, such as Authorization Revoked or Unauthorized. That type of claim can only be made after the transaction posts to their account.
As far as the new changes relating to Stop Payments, check out my recent post titled “The Good ‘Ol Days”, it’s about the new Stop Pay Rules. Also, it’s important to note that the new changes go into effect on Friday, March 19.
I hope this helps,
ACH Guy
great stuff thx
awesome work thanks
This is my first time I have visited here. I found a lot of interesting information in your blog. From the tons of comments on your posts, I guess I am not the only one! keep up the impressive work.
My friend mentioned to me your blog, so I thought I’d come have a read. Very interesting reading, will be back for more!
Hello Warner,
Of course you may share any information contained on this blog. I do ask however, that if done in writing, you provide my blog as the reference.
Thanks,
ACHGuy
Good morning Bryon,
To subscribe to my blog, click on the “Subscribe to my blog” link on the right hand side under the “sponsored by ACH Direct” grahic and in the box at the top, you can click subscribe.
I hope that helps,
ACH Guy
Readers are always welcome to share my posts on their blog. All I ask is that you reference back to Everything ACH.
– ACHGuy
Do you do all your own writing? Or do you outsource some of it? I’m looking for some similar content for my blog! These are great posts!
Thanks for the compliment. Yes, I do all my own writing. I enjoy it – it’s a good time.
-ACHGuy
This was really a great post, and this blog is really boosting my knowledge in the financial industry which is a great help as I run several bad credit websites, making it very important to get all the up to date finance info I can
Dear ACHGuy,
In our previous interactions you had explained me the inportance of the ‘Debit Authorization’ which teh ODFI has to hold record, I have following queries in this regard,
1)Is there any standard format of the debit authorization / mandate that the ODFI has to sent to the RDFI
2)Are the details of the authorization tagged in the ACH system centrally
3)Is the RDFI supposed to store the authorisaton info in his systems
4) What is the recourse avaialble if the ODFI has fraudulently initiated the transaction.
Welcome back.
To answer your questions in order:
1) While there are many great sample authorizations out there, because every situation is different, every authorization is different. That being said, keep in mind that there certain requirements for authorizations that supersede any differences. For example, all TEL authorizations must include 6 specific pieces of information, all authorizations for recurring transactions must provide revocation language and the language in every authorization must be clear and readily understandable – to name a few.
2) No. The specifics of the authorization are known only to the parties to that authorization – the Originator and the Receiver.
3) The RDFI is not required nor expected to maintain copies of authorizations to which they are not a party. However, it is important to note that the RDFI maintains a right to a copy of any authorization relating to transactions posting to accounts at their institution.
4) That’s a bit of a loaded question, ordinarily, an ODFI would only initiate transactions into the ACH Network when acting on behalf of an Originator. However, whether Originator or ODFI, any fraudulent transactions would be subject to returns up to 7 years beyond the Settlement Date of the transaction – depending on the state (the number of years varies from state to state and currently ranges from 2 to 7 years). Beyond that, an Originator or ODFI could be fined.
I would think that knowingly initiating fraudulent transactions into the ACH Network would be considered Willful Disregard of the ACH Operating Rules and would likely invite the harshest of fines in the amount of $500,000.00 per month until the situation is rectified. This ordinarily would relate if the activity were specific to an Originator. The Originator could also be subject to Suspension; meaning they would be barred from access to the ACH Network through that or any ODFI.
If it were the ODFI perpetrating the fraud, I would assume the treatment would be just as harsh though more so.
Not to mention as every ACH Network participant; Originator and ODFI included, is contractually bound to the ACH Operating Rules, they could be found to be in breach of warranty (every participant warrants that they will initiate only lawful ACH transactions) – reason enough for any ODFI to close an Originator account and I would think severe enough for an ACH Operator to reconsider their contract with any ODFI.
I hope that helps,
ACHGuy
I was wondering if you are an AAP (Accredited ACH Professional) through NACHA? Thanks.
Hello Halls,
Thanks for asking, it is important for folks to know. I am an AAP. Accredited ACH Professional, for those folks who might not be familiar with the acronym.
I acquired my AAP designation in 1998 and have maintained it since.
Thanks,
ACHGuy
Dear ACHGuy,
Are there any arguments for establishing a Third Party Processing firm?
2. What rules govern their licensing and general operations?
3. When one considers the overall transaction flow of a typical ACH transaction (either debit or credit) how to Third Party Processors come in?
I would be glad to receive a prompt response to these questions and any links to documents you may recommend.
Thanks.
Richard
Hey Richard,
I happen to like Third Party Processors, in fact, I work for a Third Party Service Provider. There are 2 types of 3rd Parties – Third Party Senders and Third Party Receivers. Third Party Service Providers are a subset of Third Party Senders…I like to refer to them as TPPs.
In answer to your questions:
1) Yes. Absolutely. I believe the TPPs have a place in the ACH Network and offer a great alternative to your standard ODFI – the provide competition.
2) The ACH Operating Rules which govern all ACH transaction also dictate the responsibilities of the various parties including TPPs. Generally, a TPP has the same responsibilities/liabilities that an ODFI has.
3) Third Parties can come into play in different places. For instance your typical transaction flow goes like this:
Originator –> ODFI –> ACH Operator –> RDFI –> Receiver
This one shows all the potential places where a 3rd party could exist:
Originator –> 3rd Party Service Provider –> ODFI –> 3rd Party Sender –> ACH Operator –> 3rd Party Receiver –> RDFI –> Receiver
I hope this helps and thanks for reading,
ACHGuy
Question: I would like to start a P2P electronic payment service using only AHC. Do I need a bank (ODFI) to submit the transaction through or can I do it by directly connecting to the ACH network or system?
Good morning Kermit,
I apologize for the delay in my response. There has to be either an ODFI or Third Party Service Provider involved at some point. That is how you would access the network.
Hope this helps,
ACHGuy
Hi ACHGuy,
I read all of your blogs and my question is: I have a ACH deposit going from bank to bank. The ODFI sent the fund on a FRI at 4pm Eastern time and the RDFI still has not posted the funds to my account Monday End of business day. Can you explain to me what the hold up might be? My RDFI claims they process the desposit as soon as they receive it. I am going to get in touch with their ACH department tomorrow to see if I can find out any more information, but I thought you may be able to help. Thanks.
Hello Renee,
Thanks for reading. I can think of a couple of reasons that the deposit may be delayed.
1) Every ODFI has a cut off time. This is kind of like close of business where everything that happens after a certain time is considered next day’s business. Depending on the cut off time for processing ACH transactions for the ODFI, it could mean that a 4:00 PM transaction was not processed until Monday, which means it would not be received and posted by the RDFI until Tuesday.
2) Some ODFIs require verification of funds (upon receipt of a consumer request) before the transaction is affected. Generally, they will wait until transactions have posted for the day before sending the transaction. They want to be sure that it won’t push the account into an overdraft status, this is basically a Risk Management issue.
3) Were there sufficient funds in the account that was being debited? If not, then if Overdraft Protection were in place, funds would have to be transferred before the transaction would be processed.
4) Was that Monday a Federal Holiday? If so, then ACH transactions would not process and the funds would not be available until the next banking day…Tuesday.
That’s really about all I got. If you really wanted to narrow down a reason, you could ask the RDFI to follow up on it. They can use the Trace Number and track via the ACH Operator exactly when the transaction was received by the Operator which will of course tell you when it was actually processed.
I hope this helps and I hope it all turns out OK in the end,
ACH Guy
Thank you that did help and it posted early Tuesday morning. It was awesome to be able to find a source that was reliable and explained the whole process. Thanks again!
Hi ACH Guy,
I have a couple of ACH questions:
Q1. Do ACH rules require that the customer to provide the name and phone number to the merchant? Q2. The consumer can declare a transaction “unauthorized” for up to 60 days or 90 days and get the funds back thru the ACH system? Thanks for your attention.
Thanks for the questions. 1) As all ACH transactions require an authorization (most of them signed or similarly authenticated), I cannot imagine that any Originator would be willing to process a transaction without knowing the name of the person to whom the transaction is being sent. Also, some of the SEC Codes require the Individual Name in the Entry Detail Record and still others (WEB and TEL specifically, require that you authenticate the identity of the Receiver. As far as the phone number, is providing a phone number to the Originator required, no. Recommended, yes. The more information the Originator has about the Receiver (customer), the better. 2) The consumer (not business) can take advantage of what’s called the “Right of Return”. This allows a consumer to return any transaction that posted to their consumer account within the last 60 calendar days. There is a post called “Fighting Bank – Beyond 60 days” where I talk about that stuff.
I hope that helps,
ACHGuy
Hello!
Is it a requirement to provide ANNUAL ACH Agreements or is the requirement simply to review them to make sure they are still compliant? If a notification is received regarding Schedule A, is a NEW Agreement required, or simply update Schedule A? Hopefully this makes sense……love the blog BTW!!
Thanks!
Hey Toni,
Thanks for the love!
Your ACH Agreements really should be reviewed regularly. I don’t know that they need to be reviewed annually, but if you can do it, go for it. Talk to your auditor. They’ll probably tell you annually. Also, those agreements should be reviewed any time there is a change in the relationship with the Originator for example, if they begin processing a new SEC Code or there are major changes to the ACH Rules relating to the type of transactions they already process. I’m a fan of keeping it simple and would say just update Schedule A. However, my not being an attorney and all…I would recommend you talk to your attorney.
Hope that helps,
ACHGuy
You have helped me tremendously. I am in the fists steps to start
my own money transfer service company that will concentrate on
sending small amounts of money to Mexico and all of Latin America. Just like xoom.com but I have a way of connecting multiple
family members and collectively send remittances.
I would love for anyone to please help me answer this questions.
1. Do I have to go through the Federal Reserve Bank to reach Receiving Depository Financial Institutions??
all I read said Yes.
I have already filed my company as an LLC in California and will be
paying the State license fee for transferring money.
2. What else do I have to pay, beside website built, software, an publicity?? Is there a big fee to pay to FRB??
Lastly,
Do I need to be a bank to do this sort of business?
What’s the role of a bank or credit union with my business?
How can I approach a bank to support my business?
I talks to small business specialist and they don’t know what i’m talking about, who should I talk to in the bank??
thank you,
Hey Ignacio,
Thanks for the questions. Congratulations on starting your Money Transfer Service. I wish you well.
On to your questions:
1) You don’t have to go through the Federal Reserve Bank to reach the RDFIs; there are 2 ACH Operators (Federal Reserve Bank and EPN). However, you don’t get to choose the ACH Operator. The banks choose which ACH Operator they use and it really doesn’t matter to anyone except those banks who they use.
2) Fees…I think you have the biggies. Your ODFI will charge you ACH related fees. There are a number of fees that can be charged and I encourage you to shop around – look for file, batch, per transaction, return, monthly, invoice and probably other fees for a start. You will need to have a relationship with an ODFI (Originating Depository Financial Institution). Their role is mostly just to initiate your transactions into the ACH network – you cannot do this without an ODFI or Third Party Processor. You will want to speak with a personal business banker at a bank or pick up the phone and contact any Third Party Processor – let them know that you are interested in processing International ACH Transations. Whichever direction you go, there will be an underwriting process and you should also know that not all ODFIs and TPPs process those types of transactions as they are considered higher risk.
I hope that helps,
ACH Guy
where can I find a directory of banks willing to process for an existing 3rd party processor of ODFI transactions? Or processors with relationships that we can process through? steve.rabago@zimplemoney.com
Hey Steve,
There really isn’t a directory specifically for FIs that will work with a 3rd party processor. Unforatunately, you have to go old school for this and pick up the phone or let your legs do the walking. In either case, you will want to talk to a business account person. They should be able to help or direct you.
I wish you luck,
ACHGuy
What is the verbiage for RDFI responsibilty for not having to verify the names on accounts for ach?
Hello Juci,
The verbiage comes directly from the 2011 ACH Operating Rules book (Full Edition) Article Three, Section 3.1, Subsection 3.1.2 “An RDFI may rely solely on the account number contained in an Entry for the purpose of posting the Entry to a Receiver’s account, regardless of whether the name of the Receiver in the Entry matches the name associated withthe account number in the Entry.”
Essentially, the RDFI is relying on the warranty by the Originator that the information contained in every ACH transaction they process, is accurate.
ACHGuy
Hi ACHGuy,
We keep receiving ACH payments from a company for non-existent customers and account numbers. Is there a way to stop these once and for all? It is time consuming to have to return these.
Thanks,
Christina
Hello Christina,
I’m sorry to hear that this Originator is causing you problems or at the very least being annoying. A reminder to Originators everywhere…you warrant that all the information contained in every ACH transaction you process is accurate.
With that being said, I have a couple of suggestions, assuming that you’ve been returning the transactions as R03 – No Account or Unable to Locate.
1) I’m a huge proponent of communication, so my first suggestion is to reach out to the ODFI. Explain what’s happening and ask them to intervene. Without having to remind them that they also warrant the accuracy of every ACH transaction their Originators process, they should step up, apologize (hopefully) and offer to reach out to the Originator directly. At the very least consider what you would do if you were the ODFI being contacted and assume they would act in a similar manner. Be nice and treat this as an opportunity to begin what could someday be a beneficial relationship…personal contacts at other FIs are always good.
2) If you’ve already tried option #1without success, file a Report of Possible Rules Violation against the Originator and/or the ODFI and submit to your local Regional Payments Association. If the ODFI is also part of your RPA, then the RPA can reach out to them and it becomes the difference between the 400 lb. and the 600 lb. gorilla asking them to act. Or, if the ODFI is not part of your RPA, the RPA can reach out to the ODFI’s local RPA and you have the same affect, it will just take an extra day or 2.
Not sure who the ODFI is? Check out: http://www.fededirectory.frb.org//search_ACH.cfm
Not a member of a RPA? Doesn’t matter, but you can find them here: http://www.nacha.org/c/RegPayAssoc.cfm
Need a blank copy of the Rules Violation Report? Go to http://www.nacha.org and do a search for Rules Violation Report or Violation Form both return a link to their Violation Form
I always like to assume that the Originator isn’t misbehaving intentionally, only out of ignorance. They may not have received proper instruction/education on how to respond to returns and a good ODFI will see this as an educational opportunity and act accordingly.
I hope this helps and I wish you luck,
ACHGuy
Hi ACH Guy,
What happens to an authorization for recurring entries when a merchant sells the business? I see that Regulation E has a provision for a “successor institution” which includes a “successor payee” but I don’t see anything similar in the NACHA rules. Can a successor merchant continue auto-debits based on authorization to the prior merchant? Any help would be much appreciated!
Thank you,
Jake
Good morning Jake,
Thanks for your question. Typically, an authorization is with the business, vs. the business owner and so if a business is sold, the authorization should continue without issue. For example, if I have an authorization with my gym…we’ll call it Jay’s Gym…and Jay (the owner) sells the business to Jacob, it doesn’t matter as far as my authorization is concerned. My authorization is with Jay’s Gym (which still exists), not with Jay. That being said, this is assuming the authorization shows the Originator as Jay’s Gym and not Jay (the individual).
Now, if the sale is to a business that is planning to absorb the 1st business and Jay’s Gym would no longer exist, that would be a different issue. There are 2 different schools of thought here: 1) As long as the members are notified of the name change in writing, the existing authorization should be able to continue without issue – at least temporarily. It would be in the best interest of the busiess to get new authorizations as the existing ones expire or come up for renewal. 2) The other school of thought is that all new authorizations should be captured before any transactions are processed. I disagree with this argument. I think it places an uneccessary hardship on the business.
While I am not an attorney, and I’m sure you could find one to disagree with me, my position is based on experience in the industry. I have seen this exact same thing happen a number of times and in nearly every case, new authorizations were acquired as existing ones expired or came up for renewal. Those that went the ‘all new authorizations now’ route were small in number.
I’m sure this is not exactly the answer you wanted, but ultimately, the decision is yours. If you are still unsure what to do, then I would recommend seeking the assistance of your legal counsel.
I hope that helps,
ACHGuy
I found your blog tonight and I find it to be the most wonderful place to get real answers. With that being said, I have a question for you. We acquired a company in 2007 and they have been processing the have been responsible for their ACH Web transactions with their current bank. We are currently in the midst of creating operating efficiencies and eliminating one of two billing systems. We are an insurance company and will be taking over their WEB transactions but have a relationship with a different bank. Is there any need to notify them of the new ODFI?
Good afternoon Wendy,
Thanks and welcome to my blog, I’m glad you like.
It sounds like you are going to end up processing all transactions through 1 ODFI, vs. maintaining relationships with 2 ODFIs. That is the smart thing to do. So, then the question, do you need to notify the ODFI? The short answer is yes. But let me explain a little.
You don’t specify which ODFI you want to notify, so let me tackle it from both sides:
You will need to notify the surviving ODFI as you may run into transaction limits with them. You want to make sure they are aware that you will be processing X number of additional transactions each month and that the value of those transactions will grow too. That ODFI may want to review your account with them (for underwriting/risk purposes) and just make sure that all is OK and that they can comfortably adjust your limits. The last thing you want is to run up against your limits when you try to process all transactions for the first time.
You will need to notify the ODFI (the one that’s going away) as you will want to be sure to close out that account (see the agreement on how to do that). Also, they may have a reserve on file, they may want you to maintain funds on account for so many days (to allow for returns, etc., this is a risk consideration), they may offer you a great deal to process with them. There are a number of reasons.
Some additional advice, you will want to make sure (just in case) that you can access all the authorizations from the other company, should an RDFI requests one and you will want to make sure that you notify your new customers of the new name they should expect to see on their statement. Inevitably, some will see a different name and have no idea their insurance company changed names. Expect some amount of returns (that’s also another reason to talk with the surviving ODFI – make them aware of additional volume and possible returns even if a spike is temporary).
I hope this helps,
ACHGuy
I am very glad I found this blog! I work at credit union and as of yesterday we would take a check over the phone with no signature required as of today we are now required to fax the ACH to our customer and have them sign it and fax it back… our controller think she found something in the NACHA rules and regs that has lead her to believe we are required to get the signature. I have work at other banks and a signature has never been required for an ACH. What are your thoughts? Do we need a signature? If you are able could you let me know what section of the NACHA Operating Rules & Guidelines that would state a signature is not required?
Great info on this site and if you can answer this one for me you will be my new Hero!
Hey David,
Welcome to my blog. Glad to hear you like it.
I’m not completely clear whether you are referring to TEL transactions (wherein the authorization to initiate an ACH transaction is acquired over the telephone) or a Check-by-Phone situation where persmission to pay is given over the phone which results in a physical check being printed and presented for payment (signature line would read something to the effect of “Signature on File”, so I’ll address both.
Let’s talk about Check-by-Phone first. Check-by-Phone falls under Check Law (Check out: http://www.sheshunoff.com/products/Brady-on-Bank-Checks%3A-The-Law-of-Bank-Checks.html). Check law allows for these types of Remotely Created Checks/Drafts or RCCs/RCDs. I’m not a check law expert nor a lawyer, heck I don’t even play one on the Internet, but I do know 2 things: 1) RCCs allow for use of “Signature on File” or some such text on the signature line – meaning no Account Holder signature required and 2) I don’t like these types of transactions. They tend to be prone to fraud.
On the TEL front, still no signature required. As we know, every ACH transaction requires a signed or similarly authenticated authorization. TEL falls under the similarly authenticated part. During your telephone process, you should be authenicating the identity of the customer and either recording or sending a notice of the transaction (for one-time/single transactions) or recording the exchange for recurring TEL transactions. Check out: Page OR 19 – Subsection 2.5.15 Specific Provisions for TEL Entries or for a bigger picture and full details on TEL, Chapter 47 (Page OG 205) in the 2011 NACHA Operating Rules and Guidelines. And of course, don’t forget the new rules for Recurring TEL on page ORxlviii – in the Supplement #2.
With all that being said, here’s my bottom line: No signature required. None.
I hope that helps,
ACHGuy
I stopped payment on an ACH debit and the bank told me et was all done. However, when I logged on to my account, it looks like it is going through.should it be blocked right away or will it show that it is pending and then be denied by the bank?
Good afternoon Lynda,
For Stop Payment transactions, the item to which the Stop Pay Order relates, should not be posting first. However, it may be in a status that called Soft Post or Memo Post…this means that the transaction has been received and is in line to be posted to your account, but has to wait for normal processing. Once it has been returned, you should not see anything of the transaction on your account.
That being said, I would recommend checking online after regular processing has occurred and then if it still isn’t right, contacting your bank. Unfortunately, it seems that just about every bank and credit union has their own way of doing things internally and I cannot say for sure what your bank’s policy/procedure might be.
I am hopeful that you’ll see what you expected to see after processing has taken place.
I wish you luck,
ACHGuy