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ACH compliance rules are changing: What originators and third-party senders need to know

Jun 20, 2022
By: Teresa M. Francis

Do you have originators or third-party senders initiating small-dollar ACH entries to verify their customers’ account information?

Many companies use small credit entries as a way to validate the account information their customers or potential customers provide for conducting transactions with them. These small entries have been used for a number of years and had not been previously defined in the National Automated Clearing House (NACHA) rules.

On January 31, 2022, NACHA approved a rule change regarding micro-entries to improve the process for account validation and assist ACH network participants in identifying and monitoring these types of entries. NACHA has defined a micro-entry as ACH credits of less than $1, and any offsetting debits used for account validation.

What your originators need to know

Although micro-entries are not required to be sent, using them after the effective rule change dates will require some compliance changes your originators will need to know.

Changes regarding micro-entries will become effective in two phases. Phase 1 becomes effective on September 16, 2022, and your originators should be aware of the following so they can prepare now:

  • The company entry description field must contain “ACCTVERIFY”.
  • The company name must be recognizable to the receiver and be the same or very similar to the company name the originator will be using in any future entries.
  • If the company originates both micro-credits and debits, the debit amounts cannot exceed the amount of the associated credit entries. In other words, the transactions cannot result in a net debit to the receiver.
  • Multiple micro-entries may be sent, but they must be sent at the same time and use the same effective entry date. The entries must be initiated so they will have the same settlement date.
  • Future entries cannot be sent at the same time as the related micro-entries. Once the company has validated the micro-entries, any future entries can be initiated.

Prepare for Phase 2

Phase 2 has to be in place by March 17, 2023, and, under the rules, your originators/third-party senders will need to have processes in place to identify and prevent suspicious and fraudulent activity.

The ACH rules state “originators of micro-entries will be required to use commercially reasonable fraud detection, including the monitoring of micro-entry forward and return volumes.” This means any originator using micro-entries should be looking at their current processes for using micro-entries and developing monitoring processes covering these types of entries.

Monitoring micro-entries should include analysis of the volumes of entries sent and also returned. In addition, checking data on entries sent to identify whether any of the same or similar account numbers are used multiple times or used for more than one receiver should also be part of the process.

As an originating depository financial institution, you need to keep your originators/third-party senders informed of NACHA rule changes. Originators will need lead time if they are involved in sending micro-entries and should consider how the change will impact any technology changes needed to comply by the Phase 1 and 2 effective dates. They may need to develop an implementation plan; update policies, procedures and documentation; complete testing; and train their staff on the changes.

If you need additional information on this NACHA rule change or for any other ACH compliance questions, contact Wipfli’s team of professionals to find out more.

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Author(s)

Teresa M. Francis, CIA, AAP
Senior Manager, Internal Audit
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