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Automated Clearing House (ACH) Key Facts & Responsibilities for ACH Originators

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Automated Clearing House (ACH) Key Facts & Responsibilities for ACH Originators Automated Clearing House (ACH) Key Facts & Responsibilities for ACH Originators Originator Guide July 2020 1 Contents Summary ............................................................................................................................................................... 3 ACH Legal Framework .......................................................................................................................................... 3 Your Responsibilities as an ACH Originator.......................................................................................................... 3 Industry Best Practices ......................................................................................................................................... 4 File Delivery Deadlines & Cutoff Times ................................................................................................................ 4 Direct Deposit Payroll Authorizations (Consumer) .............................................................................................. 4 Debit Authorizations (Consumer) ........................................................................................................................ 4 Corporate Authorizations ..................................................................................................................................... 5 Changing Date or Amount of Debits .................................................................................................................... 5 Pre-Notifications .................................................................................................................................................. 5 Notifications of Change (NOC) ............................................................................................................................. 5 Returns ................................................................................................................................................................. 6 Reversals .............................................................................................................................................................. 8 OFAC (Office of Foreign Asset Control) ................................................................................................................ 8 2 Summary The ACH Network provides for bank to bank clearing of electronic payments. It is governed by The NACHA Operating Rules and Guidelines (Rules), and these rules apply to all entries and data transmitted through the ACH Network. As an ACH Originator, you are required to comply with and are bound by the Rules. All ACH Originators must have access to a current copy of the Rules to ensure compliance. The ACH Rules for Corporate Originators are published annually and may be ordered for a cost at wespay.org/public under the resources tab, online store. The publication is offered in a variety of formats including printed and electronic versions. East West Bank (the Bank) is providing this guide as a brief summary of ACH Facts and ACH Originator Responsibilities. ACH Legal Framework • An ACH originator is any entity or person that creates an ACH transaction. • ACH entries are categorized as “consumer” or “corporate.” • ACH is capable of crediting or debiting checking or savings accounts. • ACH entries are received by most financial institutions. • ACH is a batch system (not real time). • ACH entries are irrevocable once they have been submitted and approved for processing. • ACH stop payments no longer have an expiration date as of March 2010. Your Responsibilities as an ACH Originator As an ACH Originator, you are required to abide by multiple rules and agreements when initiating ACH transactions. Below is a list of key items: • NACHA Operating Rules – Visit nacha.org for details • Regulation E (“Reg. E”) – Federal regulation providing protections to consumers (NACHA rules comply) • UCC4 – Uniform Commercial Code Section 4 targets corporate transactions (NACHA rules comply) • Global Transaction Services Master Agreement • East West Bank Corporate Agreements, if applicable • Authorizations from employees, customers, etc. Originators are required to provide proof of authorization upon request for any credit or debit entries submitted to the network. 3 Industry Best Practices Listed below are the Industry best practices you can follow to ensure compliance with the above rules and regulations: • Depending on the transaction type, i.e. consumer or commercial, obtain proper authorizations and retain for two years past revocation. This is also the case with standard entry class code TEL if applicable. • If requested, you must provide a copy of the authorization. We may request to see your authorizations during the two-year period as part of a required annual audit. • Send entries on the proper date. • Give appropriate notice to receiver if changing amount or date of the transaction. • Cease subsequent ACH entries once notified by receiver. • Make necessary changes to payee account information within three (3) business days upon receipt of a Notification of Change or before another entry is sent. • Check payees against OFAC checklists: sanctionssearch.ofac.treas.gov/ • Protect banking information received for the purpose of originating ACH transactions. • Ensure your computer and you are protected as outlined in the Bank’s Master Services Agreement. • Ensure the Originator is clearly identified as the source of the ACH transaction. Specifically, populate the Company Name Field of the NACHA formatted file with a name known to and readily recognized by the Receiver of the entry. File Delivery Deadlines & Cutoff Times All transmissions to the bank must be completed by the established Cutoff Times in order for processing to take place on the same business day. Any transmission completed and received by the bank after such Cutoff Times or on any non-business day, will be processed on the following Business Day. Direct Deposit Payroll Authorizations (Consumer) • Use a direct deposit authorization form that collects employee account information. This form should allow the company to make credit and debit entries in the event a payroll adjustment is necessary. (The “Appendix” section of the NACHA rules includes a sample authorization form) • Obtain a voided check from the employee, if possible. • The most common Standard Entry Class (SEC) code for direct deposit is PPD. Debit Authorizations (Consumer) • For consumers, an authorization to debit an account must be in writing or “similarly authenticated.” • The most common SEC code for consumer debits is PPD. 4 Corporate Authorizations • For companies, there must be a record of an agreement between the two parties. • The most common SEC codes for corporate transactions are CCD or CTX, depending upon the number of addenda included in the payment. Both SEC codes are used for debits and credits. Changing Date or Amount of Debits • ACH Rules require you to notify ACH recipients of any changes in date or amount debited under the following circumstances: o Seven (7) calendar days’ notice for a change of date (consumer and corporate). o Ten (10) calendar days’ notice for a change in amount (consumer only). • Sending the notice via U.S. Mail is acceptable. Pre-Notifications • Pre-notes are zero-dollar entries that precede the first live entry. The purpose of a pre-note is to verify account information. • Although optional, if you elect to send a pre-note, rules require that a pre-note must precede the first live entry by at least three (3) business days. • The Receiving Bank is not required to validate the name of the payee on the pre-note, although many do. Receiving Banks are only required to review the account number. Notifications of Change (NOC) NOCs are created by the Receiver’s financial institution to notify the originator that information in the previous transaction sent needs to be updated. The information must be updated or corrected before the transaction is originated again. The Bank will notify you if any NOCs are received for any of your transactions. Some of the more common reasons for initiating an NOC are: • Previously valid information in an ACH entry (Direct Deposit/Direct Payment) is now outdated and needs to be changed. • Information in an ACH entry (Direct Deposit/Direct Payment) is erroneous and needs to be corrected. • Banks have elected to consolidate routing numbers and want originators to use a different one. The Receiving Bank warrants that the Information they provide in a notification of change which they would like updated is correct. ACH Rules require the originator to make changes or corrections within three (3) business days of receiving the notification of change before another entry is sent. The Bank may pass along any fines incurred based upon your non-compliance. 5 Notification of Change (NOC) Codes (most common) NOC Code Reason Description C01 Account Number Account number is incorrect or is formatted incorrectly. C02 Transit/Routing Number Due to a merger or consolidation, a once valid routing number must be changed. C03 Transit/Routing Number and Due to a merger or consolidation, a once valid transit/routing Account Number number must be changed, and the account number structure is no longer valid. C05 Transaction Code Transaction code is incorrect, and this is causing the ACH entry to be routed to the wrong application (demand or savings). C06 Account Number and Account number is incorrect or is formatted incorrectly and the Transaction Code
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