More ACH Rule Changes Coming This Fall

To provide the best possible quality of ACH service, the National Automated Clearing House Association (NACHA) continually makes changes to the ACH operating rules. Five amendments will soon be added to the ACH rules, becoming effective Sept. 18. To help make them easier to understand, following is a short summary of each.

Interim Rule: Using the PPD Format to Re-present Checks

To help facilitate a faster and more efficient mechanism for collecting checks returned for insufficient funds (NSF), a new NACHA rule will enable financial institutions to electronically re-present NSF checks using the ACH network.

In addition to speeding up the collection process, respondents to NACHA's request for comment estimated cost savings of at least 50 cents per item for businesses to more than one dollar per item for financial institutions.

Starting Sept. 18, you can initiate these transactions using the Preauthorized Payment and Deposit (PPD) Standard Entry Class (SEC) Code. A permanent rule goes into effect next September with the addition of a new SEC Code, RCK.

Remittance Information Processing by RDFIs

To help companies comply with EFT 99, a NACHA rule amendment will require financial institutions to provide receiving companies the remittance information transmitted with all CCD, CTX and CIE entries. If this information is requested, RDFIs must make it available within two banking days of the entry's settlement date.

Receiving payment-related data with ACH transactions helps companies update their accounts receivable systems and reconcile payments against invoices. The translation of ACH addenda information, called financial electronic data interchange, will require financial institutions to have some form of translation software (see article on front page). By assuring customers can receive remittance information if necessary, this rule change should make the ACH network more attractive to originators and increase the use of electronic payments in the commercial sector.

Automated Enrollment

Since 1996, financial institutions have been able to use the ACH network to electronically send direct deposit sign-up information to federal agencies on behalf of consumers who wish to receive their government benefits electronically This process, called Automated Enrollment or Quick$tart, classifies information using the ENR SEC Code. Quick$tart currently is limited to consumer ACH credits; however, a rule amendment will expand the functionality of ENR to include consumer debits, as well as corporate payments.

Financial institutions that already offer Quick$tart can expand their service to accommodate both corporate and consumer enrollments for credit and debit applications.

This enhancement also provides the IRS with a platform for offering ENR as a method for companies to enroll in EFTPS.

NOC Issues

To improve the efficiency of the notification of change (NOC) process, a new rule change requires ACH participants to speed up the procedure of correcting errors. Specifically, if an entry requires an NOC, the RDFI has two banking days from the entry's settlement date to transmit the NOC. (The only exceptions are NOCs due to mergers, acquisitions or other similar events.)

In turn, the ODFI has two banking days from the settlement date of the NOC to provide NOC information to the originator. ODFIs also must provide originators with a minimum level of NOC-related information (listed on page R10 in NACHA's 1998 ACH Rulesbook). Finally, originators will be required to make the requested changes within six banking days from receiving the NOC information or before initiating another entry to the receiver's account, whichever is later.

Customer Initiated Entry (CIE) Debits

This amendment will help ensure that certain entries returned to consumer accounts are transmitted using the correct format. Currently, the Customer Initiated Entry (CIE) SEC Code should only be used as a credit application, typically when a bill payment service provider is transmitting a payment to a biller on behalf of a consumer. If an offsetting debit needs to be made to the consumer's account, the ACH rules require that the PPD SEC Code be used. However, these debits often are returned incorrectly as CIE entries.

Previously, there were no procedures in place to prevent the transmission of these incorrect entries. However, with this amendment, ACH operators will edit and return all CIE debit transactions (except reversals to correct erroneous credits). ODFIs currently transmitting CIE debits on behalf of their originators will need to modify their processing structures to ensure the PPD, not the CIE, SEC Code is used for debits to consumer accounts generated from bill payment or home banking applications.

These enhancements should make the ACH network a safer and more efficient payment mechanism and ultimately increase the use of electronic payments.

If you have questions on these rule changes, please contact Cheryl Whitworth at (314) 444-8713.

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