Minor Rules Topics Ballots #2-16 through #11-16
Rules Description July 28, 2016
PART I: EXECUTIVE SUMMARY These ballots would amend the NACHA Operating Rules (Rules) to address a variety of minor topics. Minor changes to the Rules have little-to-no impact on ACH participants and no significant economic impact. Minor changes can include (1) editorial changes to improve clarity or readability of language; (2) changes to correct inconsistencies between various rules; (3) changes to clarify intent; or (4) minor modifications to incorporate current practices. Specifically, the following rule changes are proposed by these ballots. Although each proposed rule is a separate issue for voting purposes, several are related to the same subject area within the rules and are grouped together for ease of discussion.
Same Day ACH
Funds Availability for Same Day Entries in Time Zones East of the Continental United States (effective September 23, 2016 and March 16, 2018) Alignment of ENR and Same Day Language (effective September 23, 2016) Alignment of TRC/TRX and Same Day Language (effective September 23, 2016)
Clarifications for Reinitiation
Standard Entry Description (effective upon approval) Applicability to RCK (effective upon approval) Non-Applicability to Corrected Entries Related to R03/R04 Returns (effective upon approval)
Rules Enforcement
Monitoring of Class 2 Violations (effective upon approval); Protection of the National Association from Liability for Enforcement of the Rules (effective upon approval); Appeal Process for Suspension from the ACH Network (effective upon approval)
IAT Entries
Clarification of Originating DFI Identification (effective upon approval)
Ballots #2-2016 Through #11-2016 - Minor Rules Topics Rules Description; July 28, 2016; Page 2
PART II: BALLOT DESCRIPTIONS
Ballot #2-16 –Funds Availability for Same Day Entries in Time Zones East of the Continental United States This amendment would revise the funds availability requirements for Same Day credit Entries received in Phase 3 by RDFIs located in time zones ahead of Eastern Time (i.e., time zones that are east of the continental United States).
Under Phase 3 of Same Day ACH, RDFIs will have an obligation to make funds from Same Day credits available to Receivers by 5:00 p.m. in the RDFI’s local time. For RDFIs located in U.S. territories that are ahead of the Eastern Time Zone, the ACH Operators’ anticipated file delivery time of 4:00 p.m. Eastern Time makes it unlikely, if not impossible, to meet the 5:00 p.m. RDFI local time requirement. For example, RDFIs in Puerto Rico and the U.S. Virgin Islands are within the Atlantic Time Zone and are one hour ahead of Eastern Time during standard time. For those financial institutions, the ACH Operator’s file distribution time of 4:00 p.m. Eastern equates to 5:00 p.m. Atlantic Time, which is also the same time at which funds must be made available to the RDFIs’ customers (i.e., 5:00 p.m. RDFI local time). Under this schedule, RDFIs have no time to process the files before they are required to make those funds available to their customers. RDFIs in the Chamorro Time Zone (i.e., Guam, Northern Mariana Islands), which are fifteen hours ahead of the Eastern Time Zone, have a similar problem. In those U.S. territories, it is well beyond 5:00 p.m. RDFI local time on Settlement Date when same-day files would be received from an ACH Operator.
This amendment would revise funds availability requirements to make an accommodation for RDFIs in these situations. Specifically, RDFIs in Atlantic Time would be allowed to make funds from Same Day ACH credits available to Receivers for withdrawal by 5:00 p.m. Eastern Time (that is, by 6:00 p.m. Atlantic/local time). RDFIs in the Chamorro Time Zone would be required to make funds from Same Day ACH credits available to Receivers for withdrawal no later than the opening of business on the Banking Day following the Settlement Date of the Entry.
In addition, this amendment would modify the language within Appendix Eight (Rules Compliance Audit Requirements) that is specific to funds availability (Part 8.3(d)) to adopt more general language referencing an RDFI’s obligation to comply with the funds availability requirements as they are defined within Article Three, Subsection 3.3.1 (Availability of Credit Entries to Receivers). The utilization of generic language that refers back to the actual rule would streamline the section by eliminating the reiteration of specific details for at least five distinct funds availability requirements. This approach would also eliminate the need for multiple rule changes to this subsection, which would be necessary to accommodate differing funds availability obligations over the various phases of Same Day implementation.
Impact on Rules Framework
This rule would revise Article Three, Subsection 3.3.1.1 (General Rule for Availability of Credits) to incorporate unique funds availability timing requirements for FIs in certain time zones east of the continental United States and west of the International Date Line. This Rule would also incorporate more general funds availability language with cross referencing within Appendix Eight, Part 8.3(d).
Ballots #2-2016 Through #11-2016 - Minor Rules Topics Rules Description; July 28, 2016; Page 3
Effective Date
Changes specific to the Rules Compliance Audit Requirements within Appendix Eight are proposed to become effective on September 23, 2016, the same effective date as Same Day ACH. Changes specific to Article Three, Subsection 3.3.1 (Available of Credit Entries to Receivers) are proposed to become effective on March 16, 2018, which is the same date as the effective date of Same Day ACH Phase 3.
Ballot #3-16 – Alignment of ENR and Same Day Language Because ENR Entries do not utilize the Effective Entry Date field (the Rules require this field to be space filled), there is no means by which a same-day ENR could be distinguished from a next-day ENR. The rule on Same Day ACH expressly states that ENR Entries cannot be Same Day Entries in the description of the Effective Entry Date field; however, corresponding language within the definitions of both Automated Enrollment Entry and Same Day Entry, as well as the general description of the ENR Entry, does not expressly state this. This amendment would revise these sections of the Rules to make clear that ENR Entries cannot be Same Day Entries.
Similarly, although the definition of a Same Day Entry, as well as the general description of the IAT Entry (at Subsection 2.5.8.1), explicitly identifies IAT Entries as ineligible for Same Day processing and settlement, a corresponding statement will be added to the definition of IAT.
Impact on Rules Framework
This amendment would revise the following sections of the Rules to clarify that these entries are not eligible for Same Day processing and settlement:
Article Two, Subsection 2.5.7 (General Rule for ENR Entries); Article Eight, Section 8.12 (definition of Automated Enrollment Entry); Article Eight, Section 8.54 (definition of International ACH Transaction); and Article Eight, Section 8.99 (definition of Same Day Entry).
Effective Date
This amendment is proposed to become effective on September 23, 2016, the same date that Same Day ACH becomes effective.
Ballot #4-16 – Alignment of TRC/TRX and Same Day Language This Rule would fully align the same-day settlement requirements for forward TRC and TRX Entries with other SEC Codes. Same Day ACH treats TRC and TRX the same as all other eligible SEC codes. This amendment would remove language from the Effective Entry Date field description and the Settlement Date description that will be outdated as of the Same Day ACH effective date. This would result in language for TRC and TRX entries being fully aligned with other SEC Codes, where settlement would be based on the Effective Entry Date.
Ballots #2-2016 Through #11-2016 - Minor Rules Topics Rules Description; July 28, 2016; Page 4
Impact on Rules Framework
There is currently no volume of TRC and TRX entries flowing over the ACH Network. Thus, this change would have no impact on any ACH Network participants. Any new users that might become participants of check truncation programs in the future would be aware of these rules as standard for TRC/TRX processing.
This amendment would modify the technical language in the following record format descriptions for TRC and TRX.
Appendix Three , Subpart 3.2.2 (Glossary of Data Elements) o Effective Entry Date o Settlement Date
Effective Date
This amendment is proposed to become effective on September 23, 2016, the same date that Same Day ACH becomes effective.
Ballots #5-16, 6-16 and 7-16 – Clarification of Reinitiation – Standard Entry Description; RCK; and Returns for R03/R04 These amendments would revise the recently-adopted rules governing the reinitiation of returned entries to make clarifications on formatting requirements and scope of coverage:
The recently effective changes to the reinitiation rules require the use of a specific company entry description (“RETRY PYMT”). In any case where an entry is returned and subsequently reinitiated, the rule intended the description “RETRY PYMT” to supersede the original content of the Company Entry Description field. However, the language did not expressly state how this requirement applies to the reinitiation of original entries that bear other, rules-mandated entry descriptions (e.g., “REDEPCHECK”, “RETURN FEE”, etc.). This amendment would clarify that the RETRY PYMT descriptive statement applies to all cases of reinitiation and supersedes any other company entry description, including other Rules-mandated company entry descriptions for original entries.
Questions have been received from industry participants as to whether the recent changes to reinitiation requirements are applicable to the reinitiation of RCK entries. The definition of a Reinitiated Entry does not exempt RCK from its scope, and the recent modifications to reinitiation requirements related to formatting, etc., were not intended to exclude RCK entries. Because the circumstances under which a returned RCK entry can be reinitiated have always been more limited than other SEC Codes, the differences for RCK were listed separately under the rule provisions specific to RCK. This amendment would clarify the reinitiation rules as applicable to RCK Entries by eliminating the separate section on reinitiated RCK entries and re-locating RCK-specific details to within the general rule on reinitiated entries.
NACHA continues to receive on-going inquiries as to whether entries that have been returned due to invalid or incorrect routing and account information (i.e., R03/R04) are considered to be reinitiated entries when corrected and subsequently transmitted into the ACH Network. By definition, a Ballots #2-2016 Through #11-2016 - Minor Rules Topics Rules Description; July 28, 2016; Page 5
Reinitiated Entry is an entry to the same Receiver’s account. In these cases, a new entry with corrected routing and/or account number would be the first presentment to the correct Receiver’s account and should not be identified as a reinitiated entry. To identify these corrected entries as reinitiations would cause confusion to the Receiver since there was no previous attempt at presentment of the entry to the account.
Impact on Rules Framework
These amendments would revise the rules on Reinitiated Entries by (1) clarifying expectations surrounding the use of the entry description “RETRY PYMT”; (2) consolidating RCK-specific requirements into the general rules addressing Reinitiated Entries; and (3) distinguishing R03/R04 returns in the context of reinitiation. The following specific sections of the Rules would be impacted:
Article Two, Subsection 2.5.13.7 (Reinitiation of Returned RCK Entries) Article Two, Subsection 2.12.4.1 (General Rule for Reinitiated Entries) Article Two, Subsection 2.12.4.2 (Formatting Requirements for Reinitiated Entries) Appendix Three, Subpart 3.2.2 (Glossary of Data Elements) o Company Entry Description
Effective Date
These changes are proposed to become effective upon approval.
Ballot #8-16 – Rules Enforcement Monitoring – Class 2 Violations This amendment would revise the description of a Class 2 Rules Violation within Appendix Ten (Rules Enforcement) to allow evaluation of the timing of a recurring violation in relation to the resolution date for the immediately preceding violation when determining its status as a Class 2 Rules Violation.
Currently, the Rules limit NACHA’s ability to monitor and enforce on any recurrences of rules violations to the one-year period following the resolution date of the initial rule violation submitted to the National System of Fines. At the end of this one-year period, tracking of recurrences ceases, regardless of whether the underlying violation has been resolved. In a number of recent enforcement cases, NACHA has encountered rules infractions that continued to recur over an extended period of time, with many still remaining unresolved beyond the end of the one-year tracking period. In those cases, the parties involved dropped out of the System of Fines solely because of the expiration of the initial violation monitoring period, leaving the National System of Fines less effective at being able to cure ACH Network quality issues. As one example, during the initial one-year monitoring period, one ODFI was charged with, and fined for, 18 recurrences of a violation in spite of its having stated the problem was resolved. Additional submissions to the National System of Fines continued beyond those 18, but because the ongoing violations occurred beyond one year from the initial resolution date period, the system “reset” and violation tracking started fresh for violation #19 with a warning letter.
Under this change, the Rules would re-define a Class 2 rules violation as the fourth or subsequent recurrence of a rule violation, where that fourth or subsequent recurrence takes place within one year of the resolution date of the immediately preceding infraction.
Ballots #2-2016 Through #11-2016 - Minor Rules Topics Rules Description; July 28, 2016; Page 6
Impact on Rules Framework
This amendment would revise Appendix Ten of the Rules to define a recurrence of a Class 2 rule violation as the same rules infraction having been committed four or more times by the same parties, each within one year of the date of the resolution date of the immediately preceding infraction.
Appendix Ten, Subpart 10.4.7.4 (Class 2 Rules Violation)
Effective Date
This amendment is proposed to become effective upon approval.
Ballot #9-16 – Protection of the National Association from Liability for Enforcement of the Rules This amendment would expand the rules enforcement provisions within the NACHA Operating Rules to include express protections for NACHA and its committees when engaged in their roles related to rules enforcement.
The Rules do not currently include language to provide NACHA, its directors, officers, or employees, or the members of its committees, and the ACH Rules Enforcement Panel with express protection from liability when acting in their official capacity to interpret and enforce the NACHA Operating Rules and to issue related fines. Most other payment systems provide broad, express protections for the systems and system bodies involved in enforcement proceedings. In order to incent NACHA members to participate on the NACHA board, relevant NACHA committees, the ACH Rules Enforcement Panel [and the Appeals Panel1], and to similarly protect NACHA staff, who are responsible for all program management functions related to the enforcement processes, NACHA is proposing to provide conforming protections within the NACHA Operating Rules. This Rule would modify Appendix Ten (Rules Enforcement) to expressly provide that the ACH Rules Enforcement Panel, [the Appeals Panel,] and the National Association (including staff) have no liability in connection with their role in enforcement matters.
Impact on Rules Framework
This amendment would revise Appendix Ten (Rules Enforcement) to establish a new subsection 10.4.7.7 (Protection of the National Association from Liability for Enforcement of the Rules) to hold NACHA and its agents harmless from liability when acting in their official capacity to enforce the NACHA Operating Rules.
Effective Date
This amendment is proposed to become effective upon approval.
1 The reference to the Appeals Panel within Appendix Ten, Subsection 10.4.7.7 (Protection of the National Association from Liability for Enforcement of the Rules) is contingent upon the approval of Ballot #10-16, which incorporates into the Rules a new process governing an Appeal of Suspension imposed under the Rules Enforcement procedures.
Ballots #2-2016 Through #11-2016 - Minor Rules Topics Rules Description; July 28, 2016; Page 7
Ballot #10-16 – Rules Enforcement - Appeal Process for Suspension from the Network This amendment would expand Appendix Ten (Rules Enforcement) to define a process by which an ODFI may appeal the suspension of its Originator or Third-Party Sender customer when suspension has been mandated by the ACH Rules Enforcement Panel as the penalty for a Class 3 rules violation.
The Rules currently provide that suspension of an Originator or Third-Party Sender is a sanction that may be imposed by the ACH Rules Enforcement Panel in the event of the most serious type of Rules infraction – a Class 3 Rules Violation. Suspension is a remedy to be used only in extreme cases. Indeed, no ACH Rules Enforcement Panel has yet decided to impose the penalty of suspension. Nonetheless, under the current Rules, if the ACH Rules Enforcement Panel were to take this extraordinary step, that decision would be final. The Rules do not contain any provision for appeal of such a decision.
In light of the impact of a suspension order on the subject Originator or Third-Party Sender, NACHA recommends that the rules enforcement process be modified to provide for an appeals process with the imposition of a suspension order. Specifically, the amendment would modify Appendix Ten to provide that a Participating DFI may appeal a suspension order to a panel (“Appeals Panel”) comprised of at least three individuals who are on the list of arbitrators maintained by NACHA in accordance with Appendix Nine (Arbitration). As members of the Appeals Panel, these individuals will not be acting as arbitrators, but rather will act together as an appellate body for enforcement cases to review the suspension decision of the ACH Rules Enforcement Panel. Because suspension orders relate to circumstances that pose serious risk to the ACH Network, the process of such an appeal would be expedited, and the decision of the Appeals Panel would be final.
Impact on Rules Framework
This amendment would revise Appendix Ten (Rules Enforcement), Subsection 10.4.7.6 (Suspension) to establish a specific process by which an ODFI may appeal a suspension decision, and to describe the composition and function of the Appeals Panel.
Effective Date
This amendment is proposed to become effective upon approval.
Ballot #11-16 – IAT Entries - Originating DFI Identification This amendment would revise the description of the Originating DFI Identification field for IAT entries to reflect a current business practice.
For Outbound IAT Entries, the Rules currently require the Originating DFI Identification field within the 4th IAT Addenda record to contain the routing number of the U.S. ODFI as the source of funding for the outbound Entry.
However, in certain business models, the funding for an Outbound IAT Entry comes from a financial institution in another country. In these cases, the current requirement to include the U.S. ODFI in this field would result in the identification of the wrong financial institution as the ultimate source of funds Ballots #2-2016 Through #11-2016 - Minor Rules Topics Rules Description; July 28, 2016; Page 8 for the payment transaction. This change enables the correct identification of either the U.S. ODFI or a foreign financial institution, whichever is responsible for providing funds for the Outbound IAT Entry.
For example, a Canadian bank uses its U.S. subsidiary bank to send Canadian payments from Canada to Mexico for its Canadian customers using the FedGlobal ACH Service. Funds are moved from the Canadian customer’s account to an account at the U.S. subsidiary bank, and then the U.S. subsidiary bank originates an IAT to the receiver in Mexico. In this example, the funding for the outbound IAT originated in Canada, and the Canadian bank would be identified in 4th IAT Addenda Record as the foreign funding bank. The U.S. subsidiary bank would be identified in the IAT Company/Batch Header Record as the Originating DFI.
Impact on Rules Framework
This amendment would revise the description of the Originating DFI Identification field as it relates to Outbound IAT Entries to include the possibility that the financial institution identified as the source of the funds is located in a foreign country.
Appendix Three, Subpart 3.2.2 (Glossary of Data Elements) o Originating DFI Identification
Effective Date
This amendment is proposed to become effective upon approval.