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Understanding the Nacha Operating Rules and Compliance


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Nacha issues operating rules and guidelines for completing electronic ACH payment and direct deposit transactions, requiring compliance by its member financial institutions and third parties to avoid significant fines and arbitration claims for damages or suspension. Nacha rules enhance the reliability of the ACH network in the U.S. for processing bank transfers.

Nacha’s original name was the National Automated Clearing House Association. 

What are Nacha Operating Rules?

Nacha Operating Rules define roles for financial institutions that are Nacha Direct Members and guidance for third-party ACH network participants for electronic bank transfer transactions through the Automated Clearing House network, governed by the Nacha organization. Besides Nacha, payment association Direct Members of Nacha contribute to creating Nacha Operating Rules

Where are Nacha Operating Rules and Guidelines Available?

Nacha updates its operating rules and guidelines annually for Nacha rule changes. Nacha offers book, website, and eBook PDF formats of the yearly Nacha operating rules and guidelines through the online Nacha Store and Payment Associations. The member price is $65, and the nonmember price is $99 for the yearly Nacha rules for ACH payments. 

Nacha also publishes the ACH Compliance Manual, a book offered through the Nacha Store about how to comply with ACH Nacha rules. Pricing is $60 for Nacha members and $100 for nonmembers. The bundled price for buying the most current annual operating rules and guidelines and the ACH compliance manual together is $112.50 for members or $179.10 for nonmembers. 

New rules and upcoming Nacha rule changes and guidelines are announced with an effective date and described on Nacha’s website. Nacha offers a webinar on the annual Nacha rules update. 

Who Do Nacha Rules Apply to?

Nacha rules apply to everyone using the ACH network to complete ACH transactions, including financial institutions, businesses, consumers, and government entities. U.S. banks and credit unions are the financial institution members of the Nacha organization, using its ACH network to send and receive electronic ACH payments and deposits domestically within the United States.

What Do Nacha Rules and Regulations Cover?

Nacha rules and regulations cover:

  1. Roles and responsibilities of members
  2. Guidelines for third-party Network participants when using the Automated Clearing House (ACH) network
  3. ACH rules for debit and credit transactions
  4. Data security requirements

Is Nacha Rules Compliance Required?

Yes, Nacha rules compliance is required. Nacha rules apply to member financial institutions (FI), including banks and credit unions, and provide guidelines for non-FI (financial institution) Originators, Third-Party Service Providers (TPSPs), Third-Party Senders (TPSs), and other ACH Network participants. 

What Happens if You are Not Compliant with Nacha Rules?

Financial institutions report Nacha rules violations, evaluated through Nacha’s compliance team. Nacha sends Notice of Possible Rules Violation letters for warnings or Notice of Possible Fine letters, followed by up to $1,000 for a first-time Class 1 rules violation or hefty fines of up to $500 thousand per occurrence for a Class 3 violation (egregious violation) and possible suspension. 

RDFI (receiving financial institution) arbitration claims for damages against an ODFI are filed with Nacha for non-compliance. 

For Nacha rules violations, Nacha reports these regular types of non-compliance issues:

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What is Nacha’s Rule for Enforcement of an Egregious Violation?

In January 2021, Nacha implemented an enforcement rule that defines the meaning of an egregious violation and specifies fines, enforcement procedures, and consequences for offenders. 

According to the Nacha rule:

“This Rule defines an Egregious Violation as:

  • A willful or reckless action, and
  • Involves at least 500 Entries, or involves multiple Entries in the aggregate amount of at least $500K.

The Rule also allows the ACH Rules Enforcement Panel to determine whether a violation is egregious, and to classify an Egregious Violation as a Class 2 or 3 Rules Violation.

  • The sanction for a Class 3 violation can be up to $500,000 per occurrence and a directive to the ODFI to suspend the Originator or Third-Party Sender

In addition, the Rule expressly authorizes Nacha to report Class 3 Rules violations to the ACH Operators and industry regulators.”

What is a Nacha Audit?

A Nacha compliance audit is required annually by the Nacha Operating Rules for member financial institutions (banks and credit unions) using the ACH network for electronic bank transfers in the U.S. 

Through its Store, Nacha offers an annual ACH Audit Guide in CD format to help financial institutions complete the detailed steps of a Nacha audit to follow audit requirements. The ACH Audit Guide pricing is $120 for Nacha members and $240 for nonmembers.

FAQs

The FAQs section answers specific questions about Nacha rules and guidelines for ACH electronic bank transfer processing. These FAQs provide Nacha rule examples. 

What is the Role of the Federal Reserve in ACH Network Bank Transfers?

In the United States, the Federal Reserve is the central bank. The Reserve Banks, operated by the Fed, include functionality as a national ACH network operator, like the Electronics Payment Network (EPN), and follow Nacha operating rules.  

Federal Reserve Banks perform these ACH payment activities:

1. Receive batch files of electronic ACH payments from each ODFI (originating depository financial institution)

2. Edit and sort ACH payments

3. Deliver the ACH payments to each RDFI (receiving depository institution) participating in the transaction 

4. Settle the ACH payment transactions through credits and debits to depository financial institutions’ settlement accounts

5. Work with the Electronics Payment Network on ACH bank transfers using both ACH operators (a.k.a. interoperator)

6. Settle interoperator ACH payments.

What is the Nacha Rule for Supplementing Fraud Detection Standards for WEB Debits?

Effective March 2021, Nacha implemented a rule that requires originators of WEB debits to validate first-use consumer account information in one of three possible ways:

An ACH prenotification [prenote]
ACH micro-transaction verification
Commercially available validation service.

According to Nacha, WEB debits are “consumer debit payments authorized or initiated over an online channel”. In its Account Validation Resource Center, Nacha describes this rule and provides a list of Third-Party Validation Service Vendors that are a Preferred Partner (PP), Payments Innovation Alliance Member (PIA), or Nacha Certified (NC). 

What is a Prenote in Nacha Rules for ACH Bank Account Transfers?

A prenote (prenotification) is a zero-dollar transaction for validation of a bank account number and routing number sent before making an ACH debit or ACH credit payment or direct deposit. Nacha rules specify the optional use of prenotes. 

A set of Nacha rule change prenotes proposals would require RDFI (receiving depository financial institution) acknowledgment of Yes or No in the ACK SEC code and speeding up the timing of prenotes from three banking days before processing the ACH by the ODFI (the ACH originator) to immediately upon receiving a Yes response from the RDFI (which takes about 24 hours). 

What is the Nacha Rule for Improper and Permissible Reversals?

Nacha implemented a rule related to reversals in June 2021 that covers improper reversals and their return for an allowable return reason, expands permissible reversal reasons to cover a “wrong date” error, and specifies reversals formatting. 

According to the Nacha reversals rule, a wrong date error permitting reversals covers:

“1) the reversal of a debit Entry that was for a date earlier than intended by the Originator, or 2) a credit Entry that was for a date later than intended by the Originator.”

“The Rule establishes formatting requirements for reversals, beyond the current standardized use of the Company Entry Description field (“REVERSAL”):

The Company ID, SEC Code, and Amount fields of the reversal must be identical to the original entry

The contents of other fields may be modified only to the extent necessary to facilitate proper processing of the reversal

This is the same approach as the formatting requirements for Reinitiated Entries

In addition, the rules explicitly permit an RDFI to return an improper Reversal:

R11 for consumer accounts, 60-day return timeframe upon receiving a consumer claim

R17 for non-consumer accounts, 2-day return timeframe

An RDFI will be permitted to use R17 to return an improper Reversal that it identifies on its own (i.e., not based on a customer contact), 2-day return timeframe”

What are Nacha Rules for Same Day ACH?

Nacha provides operating rules, addressing funds availability and the Nacha file format for submitting Same Day ACH transfers to the Automated Clearing House Network, and dollar limits per specified time periods for making ACH transactions. Same Day ACH means same banking day. The ACH operators set the ACH file processing schedules, known as time windows on Nacha. 

What is the Nacha Limitation on Warranty Claims Rule?

In June 2021, Nacha established a new rule to limit the time period during which the RDFI (receiving depository financial institution) can make a warranty claim against the ODFI (originating depository financial institution) for unauthorized ACH entries into the Automated Clearing House (ACH) Network. 

According to the revised Nacha rule on warranty claims:

“For non-consumer accounts, the time limit is one year from settlement date; for consumer accounts, claims may be made for two years from the settlement date” of the entry.

What is the Nacha Rules Interpretation for PPD Debit Entries for Check Conversion?

In March 2006, Nacha issued an Operations Bulletin (Section 13.3 Interpretive Rules) to explain its position on (Prearranged Payment and Deposit) PPD debit entries for check conversion vs. the exclusive use of POP formatting for the collection and electronic conversion of consumer checks accepted at the point of purchase (POP). 

Both PPD and POP require a consumer’s written statement of authorization and can’t be based on oral authorizations as consumer debit authorizations, enhancing consumer protection.  

Nacha’s interpretive conclusion for PPD debit entries vs. POP format is:

“The practice of receiving checks at the point of purchase and then converting those checks to one-time PPD entries is inconsistent with the exclusive application of POP entries to such payments under the Nacha Operating Rules. The rules for POP entries and POP SEC Code are the only rules, and the only SEC Code, that provide for the conversion of checks received in-person. The use of all other SEC Codes for this purpose is not permissible under the Nacha Operating Rules.”

Nacha’s rationale for this interpretive decision includes risk management, consumer protection, and better customer service. 

According to Nacha: 
“The rules for POP entries establish the legal framework and requirements that the Nacha Voting Membership determined were needed to protect ACH participants with respect to check conversion transactions initiated at the point of purchase. The rules for POP entries also establish requirements for the provision of information on the consumer’s bank account statement to enable the consumer to identify the converted check and the location where the payment was made. [12] The POP application was specifically designed to provide consumer protections and requirements unique to this type of conversion activity. 

These unique requirements were intended to mitigate risk and reduce customer service problems. These requirements do not apply to PPD entries and therefore the use of PPD entries for conversion of checks received at the point of sale could result in more risk to ACH participants and customer service issues. For example, the PPD format cannot accommodate the inclusion of the check serial number from the consumer’s source document. Similarly, the rules for PPD entries do not require the placement of this information on the consumer’s bank account statement.”

What is a POP entry at Point of Purchase?

According to Nacha:
“A POP entry is initiated by an Originator based on a written authorization and account information drawn from a check obtained from a consumer at the point of purchase. The check, which is voided by the merchant and returned to the consumer at the point of purchase, is used to capture the consumer’s routing number, account number, and check serial number, which are used to generate the ACH debit entry to the consumer’s account.

POP entries are subject to special requirements under the Nacha Operating Rules. For example, authorizations for POP entries do not need to refer to an ability to revoke the entry, because revocation would not be practical for POP transactions where the customer obtains the goods or services and then leaves the point of purchase.[2]  In addition POP entries are subject to requirements as to the types of checks that can be converted to POP entries,[3]  the capture of MICR information,[4]  and receipts.[5]  The Nacha Operating Rules require that the POP entry contain specific information, including, but not limited to, the Receiver’s bank routing number, account number, serial number of the consumer’s source document, and location (city and state) of the electronic terminal used for the transaction.[6]”

What is a PPD Entry?

Nacha defines a PPD entry as:
“a credit or debit entry (other than an MTE of POS entry) initiated by an organization pursuant to a standing or a single entry authorization from a Receiver to effect a transfer of funds to or from a Consumer Account of the Receiver.[7]

Prior to the origination of a PPD entry to the consumer’s account, the consumer must have authorized the Originator to initiate the entry to such an account. This authorization must be in writing and signed or similarly authenticated by the consumer, and the consumer must be provided with an electronic or paper copy of the authorization. The authorization must be readily identifiable as an authorization and must clearly and conspicuously state its terms, as well as indicate that the Receiver may revoke the authorization by notifying the Originator in the manner specified in the authorization. The authorization process must evidence both the consumer’s identity and his or her assent to the transaction.[8] Further, the Nacha Operating Rules require that the PPD entry contain certain information, including, but not limited to, the Receiver’s bank routing number and account number.[9]  In addition, the consumer must be provided an electronic or paper copy of the authorization.[10]”

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