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Meaningful Modernization: New ACH Rules effective September 17

By Steve Jones, VP Product Manager

On September 17, Nacha will implement a set of new ACH Rules entitled Meaningful Modernization. These Rules were designed to improve and simplify the ACH user experience by doing the following:

  • Facilitate the adoption of new technologies and channels for the authorization and initiation of ACH payments.
  • Reduce barriers to use of the ACH Network.
  • Provide clarity and increasing consistency around certain ACH authorization processes.
  • Reduce certain administrative burdens related to ACH authorizations.

As Mike Herd, Nacha SVP, ACH Network Administration, said on the Payments SmartCast podcast, “Nacha has been very focused for a while on the end user experience with ACH, and these are some of the areas that have been identified by our members and others in the industry that would be fruitful for modernization.” When this Rule becomes effective on September 17, it will offer new frameworks for how businesses can authorize and initiate consumer ACH payments that Herd said are often “part of, or embedded into, new types of technology channels or services.”

Reviewing a few details

Some details of the new Rules include the following:

  • New terms: Standing Authorization, Subsequent Entry, and Oral Authorization
    • “Standing Authorization” – An advance authorization by a consumer for future, periodic debits that require further action by the Receiver.
    • “Subsequent Entry” – An Entry to a consumer account that is initiated within the terms of a Standing Authorization.
      • A Standing Authorization may be obtained in writing or orally (Oral Authorizations).
      • Individual payments initiated based on the Standing Authorization will be defined as Subsequent Entries.
      • Individual Subsequent Entries may be initiated in any manner identified in the Standing Authorization.
    • The allowance for an “Oral Authorization” outside of a telephone call.
      • This rule will expand the use of oral authorizations for consumer ACH payments without changing how existing TEL transactions are currently used and authorized.
      • It will also accommodate new technologies and channels for conducting commerce and initiating payments that make use of use voice commands and interactions.
      • The rule clarifies the use of SEC Codes and risk management requirements related to oral authorizations.
  • Permission for ODFIs to expedite requests for proof of authorization by immediately agreeing to accept a return as unauthorized instead
    • This Rule will reduce an administrative burden on ODFIs and their Originators for providing proof of authorization in every instance in which it is requested by an RDFI.
    • By allowing an alternative, the rule will reduce the costs and time needed to resolve some exceptions in which proof of authorization is requested.
    • The rule provides some additional flexibility to parties in the ACH Network on how to handle these exception cases. For example, let’s say an RDFI requests proof of authorization for a PPD debit; the ODFI will have the option within 10 banking days to either provide proof or agree to accept a return. If the ODFI chooses to accept the return, the RDFI will have 10 banking days to make that return.
  • Adding clear, explicit language in the Rules that permit an RDFI to obtain a consumer’s Written Statement of Unauthorized Debit (“WSUD”) electronically or orally
    • This Rule will address an administrative burden on RDFIs and their consumer Receivers. Currently, anecdotal evidence suggests that the significant majority of WSUDs are still obtained by paper/wet signature.
    • Accepting WSUDs electronically and or orally increases flexibility for RDFIs and can reduce administrative burdens.
    • These options and increased flexibility will reduce exception costs and resolution time.
    • Increased adoption of electronically and orally provided WSUDs will improve consumers’ experiences in interacting with their financial institutions.

How will this impact my credit union?

For more information about the new Rules, including which ones are optional and which ones are mandatory, visit Nacha’s “Meaningful Modernization” webpage, or view Nacha’s Summary of Implementation Impacts.