Rule Making Process

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• Recent Amendments to Rules
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Recent Amendments to the NACHA Operating Rules
Following are highlights of NACHA Operating Rules effective beginning June 19, 2009:

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EFFECTIVE JUNE 19, 2009

Modification of the Definition of an Erroneous Entry
On September 28, 2009, the NACHA voting membership approved a Category C change to the rule regarding reversals and the definition of an erroneous entry found in Article Two, section 2.5. The change clarified an ambiguity that permitted an incorrect interpretation of the definition of an erroneous entry – that it is the payment that is unintended, instead of the Receiver that is unintended.

The implementation of the revised definition was delayed for six months at the request of several Regional Payments Associations. These associations expressed concerned that an Originator of a payroll payment might find itself in conflict with state law if it was required to issue a check to an employee at the time of separation of employment, and it had already initiated a Direct Deposit. For example, an employer inititates a Direct Deposit on a Wednesday for a Friday payday, but terminates employment on Thursday. These RPAs reported that, in such a case, it is a common practice for an Originator to reverse the Direct Deposit to offset the check, even though the Direct Deposit itself is not a duplicate payment, nor did it go to a Receiver different than intended.

This modification will establish an additional definition of an erroneous entry to include Direct Deposit payments only in this scenario. Under this additional definition, an Originator will be permitted to reverse a Direct Deposit if it subsequently delivers a check to an employee at or prior to separation of employment, provided that the amount of the check is not less than the amount of the Direct Deposit, and that notification of the reversal is provided at the time the check is delivered. In this way, employers will have flexibility in handling final payments for separation of employment, while the employees will have immediate notice of the reversal and protection from having the check is for a lower amount than the Direct Deposit.

The modification also carries through these changes to the definition of erroneous entries in Article Eight, section 8.2 by which an ODFI can request the return of such erroneous payments after the time period of initiating a reversal has expired.
Approved June 12, 2009; Effective June 19, 2009.

Article One, Section 1.4 (Excused Delay)– The Rules previously permitted a delay in processing by a Participating DFI when the cause of the delay is outside of the reasonable control of the affected Participating DFI or its ACH Operator.  The excused delay provision did not extend to the general failure of the Participating DFI’s computer facilities.  This section was amended to clarify that a delay due to the general failure of a Third-Party Service Provider’s computer facilities (when such Third-Party Service Provider is acting on behalf of the Participating DFI) does not fall within the scope of an excused delay for a Participating DFI.
Approved June 12, 2009; Effective June 19, 2009.

 

Elimination of References to Outdated Technology – There were several places in the Rules (Article Two, subsections 2.1.8, 2.9.4.2, 2.10.4.7; and Article Three, subsections 3.7.3, 3.8.5 and section 3.13) that referred to older technologies, such as tape recording or microfilm.  This text was changed to eliminate these references and generalize the Rules to accommodate new recording or copying methods.
Approved June 12, 2009; Effective June 19, 2009.

Expansion of UCC Article 4A Title – The Rules contained two sections, Article Two, subsection 2.1.10 (Notice by ODFI) and Article Two, subsection 2.1.11 (Notice by RDFI), that referred to “Article 4A.”  The title names changed the abbreviated reference to “UCC Article 4A” for accuracy.
Approved June 12, 2009; Effective June 19, 2009.

Relocation of Subsections for Improved Clarity – Article Two, subsection 2.1.11 (Notice by RDFI) outlined an obligation of the RDFI with respect to UCC Article 4A, yet it appeared in Article Two – Origination of Entries.  This subsection was moved to Article Four – Receipt of Entries, where responsibilities for receipt of entries are generally addressed.  Similarly, Article Four, subsection 4.8.4 (Timing) discussed the Originator’s obligation regarding the timing of initiation of reclamation entries, but appeared in Article Four.  This subsection was moved to Article Two and placed among the other sections related to the origination of Reclamation Entries.  Cross references to these new subsections were also updated.
Approved June 12, 2009; Effective June 19, 2009.

Consolidation of Sections Regarding Sending Points – Article Two, subsection 2.2.1.11 (Sending Points) and subsection 2.2.4 (Sending Points) both addressed an ODFI’s warranties with respect to the use of Sending Points.  Because these issues are related, there was no need to address sending point warranties within multiple sections of the Rules.  These two subsections were combined into one.
Approved June 12, 2009; Effective June 19, 2009.

Transmission of ACH Information Via Unsecured Electronic Networks – This section of the Rules appeared within the general provisions of Article One, which address fundamental obligations of all Participating DFIs. Similar language specific to Originators was repeated within Article Three to focus attention on an Originator’s obligation to encrypt data exchanged over an unsecured electronic network. As these Originator obligations already fell broadly within the scope of the discussion in Article One, section 1.6, the language within Article Three, section 3.3 was removed to eliminate redundancy.
Approved June 12, 2009; Effective June 19, 2009.

Clarification of Return Time Frames – Under the NACHA Operating Rules, requirements for the return of an entry by the RDFI generally refer to the RDFI’s transmission of the return entry so that the entry is made available to the ODFI by “...the opening of business …” on the required date.  However, in Article Two, subsection 2.7.6 (Return of a Destroyed Check Entry), and in Article Six, subsections 6.1.4 (Credit Entries Returned by Receiver) and 6.1.5 (Return of Unposted Credit Entries), the return time frame was stated differently.  Each of these subsections required that the return be transmitted by the RDFI “…by midnight of…” the required date.  The description of R33 (Return of XCK Entry) in Appendix Five also stated that the XCK entry can be returned “…up to…” the required date.

In spite of the disparity between these return time frames, DFIs generally handle returns in the same manner and according to the opening of business deadline.  To make these sections consistent with industry practice and other sections of the Rules, the text in these sections was changed to the “…by opening of business…” language.
Approved June 12, 2009; Effective June 19, 2009.

Addition of General Rule Section – In Article Two, section 2.9 (Accounts Receivable Entries) did not include a specific subsection addressing the general rule for this type of entry. A new subsection for ARC entries was added to define these transactions and their general usage, ensuring consistency with the structure of rules for other payment applications.
Approved June 12, 2009; Effective June 19, 2009.

Elimination of Redundancy in Source Document Descriptions– In Articles Two and Three, the descriptions of eligible source documents for ARC, BOC, and POP each contained limitations that were repeated in the opposite manner in the list of ineligible source documents.  For example, the first paragraph of Article Two, current subsection 2.10.1 (General Rule) on BOC entries stated, “Only a check or sharedraft that … (2) does not contain an Auxiliary On-Us Field in the MICR line, (3) is in an amount of $25,000 or less…may be used as a source document for a BOC entry.”  The second paragraph of that same section stated, “For BOC entries, the following may not be used as source documents: …  (2) checks or sharedrafts that contain an Auxiliary On-Us Field in the MICR line; (3) checks or sharedrafts in an amount greater than $25,000…”  The source document lists were streamlined to eliminate such redundancies.
Approved June 12, 2009; Effective June 19, 2009.

Removal of Redundant Language – POP Entries – Article Two, subsection 2.13.1 (General Rule) stated that Originators of POP entries can obtain the Receiver’s source document at either the point of purchase or at a manned bill payment location.  Subsection 2.13.2 (Source Documents - POP Entries) restated the same language, again specifying the manner in which the Receiver can submit a source document to the merchant. The phrase “at the point-of-purchase” was removed from subsection 2.13.2 to eliminate redundancy, and replaced with more definitive language in one area.
Approved June 12, 2009; Effective June 19, 2009.

Clarification of General Rule – TEL Entries – The general rule for TEL entries found in Article Two, subsection 2.14.1, did not contain a complete description of when this Standard Entry Class Code may be used.  This section was expanded to clarify that a TEL entry may only be used when there is an existing relationship between the Originator and the Receiver, or when the Receiver initiates the call.
Approved June 12, 2009; Effective June 19, 2009.

Modification to Language – Notice by Originator to Receiver of Variable Debits – In Article Three, subsection 3.4.3 (Notice of Change in Scheduled Debiting Date), the description of the notice requirement (“…shall be sent within not less than seven calendar days before the first entry…”) was inconsistent with language defining the requirement for notice for a change in amount (subsection 3.4.1). This language was revised to be consistent with the clearer wording of the notice requirement for change in amount, requiring that such notice for change in debiting date be sent “at least seven calendar days before the date of the entry…”
Approved June 12, 2009; Effective June 19, 2009.

Correction of Inconsistency Regarding Copy of Receiver Authorization – Article Four, subsection 4.1.1 (Right to Information Regarding Entries) listed CTX credit entries among those not subject to the RDFI’s right to receive a copy of the Receiver’s authorization. The word “credit,” was removed to expand this exclusion to all CTX entries for consistency with the Rules. This same paragraph also provided an exception for XCK debit entries.  Since XCK entries are, by definition, only debit entries, the word “debit” is unnecessary in this context and was removed.
Approved June 12, 2009; Effective June 19, 2009.

Clarification of RDFI Obligation Regarding Prenotifications – The language in Article Four, subsection 4.1.2 (Obligations to Verify Prenotification) was refined to reflect that RDFIs that receive prenotifications that cannot be processed must reject the entry and either return the entry or transmit a Notification of Change. These options exist in practice but were not clearly addressed by the current text.
Approved June 12, 2009; Effective June 19, 2009.

Change to Title of Article Six – The word “adjustment” was stricken from the title of Article Six (Return, Adjustment, Correction, and Acknowledgement of Entries and Entry Information), as this article does not address the use of adjustment entries.  Any cross-references to this title was updated.  In a related change, the reference found in Article Eight, subsection 8.7.1 (RDFI’s Right to Adjustment) to Article Six, section 6.1 (Return of Entries) was also deleted, as there is no reference to the adjustment process within Article Six.
Approved June 12, 2009; Effective June 19, 2009.

Updates to Article Nine - The text of Article Nine, section 9.3 (Return and Rejection by ACH Operator) did not include a reference to Appendix Three (Specifications for Data Acceptance), which covers ACH Operator edits, as part of the acceptance criteria list.  This section was updated to include a reference to Appendix Three.  Similarly, section 9.4 (Originator Status Code Review) was moved to Appendix Three as a new section, where it is more suitably placed among the other operator edits. 
Approved June 12, 2009; Effective June 19, 2009.

Refinements to Article Fourteen Definitions – Several minor changes to Article Fourteen (Definition of Terms) were made:

• Subsection 14.1.1 “ACH Operator” or “Automated Clearing House Operator” - This definition was updated to reference the current name of Federal Reserve Banks Operating Circular 4 on Automated Clearing House Items.
• Subsection 14.1.9 “Association” - This definition was modified to state that an Association is a Payment Association.  
• Subsection 14.1.11 “Automated Clearing House” or “ACH” - This definition was changed to limit the definition to the Rules and eliminate purely descriptive language.
• Subsections 14.1.58 “Receiving Point,” 14.1.60 “Sending Point,” and 14.1.65 “Third-Party Sender” - These subsections were be modified to reflect that these entities are types of Third-Party Service Providers.

Approved June 12, 2009; Effective June 19, 2009.

Modification of Required Statement Data – In Appendix Four, Section 4.1 (Customer Accounts), the Rules language stated that, in the case of MTE, POS and SHR entries, the Terminal Identification Code, Terminal Location, Terminal City, and Terminal State were all required to be provided on the consumer’s bank statement.  Regulation E permits the RDFI the choice between providing the Terminal Identification Code or the Terminal Location, but does not mandate the inclusion of both data elements.  The required minimum descriptive information for consumer statements was revised within the Rules to provide the RDFI with the choice to provide either the Terminal Identification Code or the Terminal Location, bringing the requirement into alignment with Regulation E.  The RDFI may continue to provide both data elements, at its discretion.
Approved June 12, 2009; Effective June 19, 2009.

Minor Text Changes to Appendix Five – Several small text changes were made to improve clarity and better communicate the intent of the Rules.

• Section 5.1 (Automated Return Entries):  The last paragraph in this section was deleted from the Rules.  It restated standard information in a confusing manner.
• Section 5.3 (Adjustment Entries):  The list of Return Reason Codes designated as applicable to adjustment entries was removed from this section to eliminate redundancy. The Codes to be used for adjustment entries are noted in Section 5.4 (Table of Return Reason Codes).
• Section 5.4 (Table of Return Reason Codes): The list was updated to highlight all Return Reason Codes that can be used for adjustment entries.
• Section 5.4 (Table of Return Reason Codes): The descriptions for R07 – Authorization Revoked by Customer and R10 – Customer Advises Not Authorized each refer to a “rescinded transaction.”  This phrase is not an ACH term and it was stricken from the text.

Approved June 12, 2009; Effective June 19, 2009.

EFFECTIVE SEPTEMBER 18, 2009

International ACH Transactions (IAT)
This amendment requires ODFIs and Gateway Operators (which may be Participating DFIs and ACH Operators) to identify all international payment transactions transmitted via the ACH Network as International ACH transactions using a new Standard Entry Class (SEC) Code – IAT. This amendment also requires IAT payments to include specific data elements defined within the Bank Secrecy Act’s “Travel Rule,” so that all parties to the transaction have the information necessary to comply with U.S. law, including sanctions programs administered by the Office of Foreign Assets Control (OFAC).
Approved August 14, 2007; Effective September 18, 2009.
Additional Modifications Approved April 29, 2009; Effective September 18, 2009.

Addition of General Rule Section –Article Two, 2.11 (International ACH Entries) does not include a specific subsection addressing a general rule governing these types of entries.  This amendment will add such a subsection for IAT entries, ensuring consistency with the structure of rules for other payment applications, but not substantively change the rules for IAT entries.
Approved June 12, 2009; Effective September 18, 2009.

Refine Language Related to Provision of Payment-Related Information to Receiver - Article Four, subsection 4.4.3 (Provision of Payment-Related Information to Receiver) does not currently specify that this section applies to IAT entries to non-consumer accounts only.  Text will be added to make this clarification.
Approved June 12, 2009; Effective September 18, 2009.

Clarification of Field Length for Terminal City Data – In Appendix Two, section 2.3 (Glossary of File Format Data Elements), the language regarding the NACHA banking convention for the Payment Related Information in an IAT entry that contains POP in the first addenda record is ambiguous in terms of field length.  The reference to Terminal City will be revised to show that this field can contain a maximum of four characters.  
Approved June 12, 2009; Effective September 18, 2009.

Correction of Change Code C08 for IAT Entries – Within Appendix Six, section 6.5 (Table of Change Codes), the title and description of Change Code C08 (Incorrect Foreign Receiving DFI Identification) will be corrected to align with the formatting and technical requirements for IAT entries.  There are no changes to the formatting and technical requirements.  With the switch from CBR/PBR to IAT, the reference to the term “foreign” in the Receiving DFI Identification Field of IAT Addenda #5 was removed and should also have been removed from the title and description of C08. The description of the corrected data for IAT entries is also corrected from 11 to 34 characters, to align with the formatting and technical requirements.
Approved June 12, 2009; Effective September 18, 2009.

 

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EFFECTIVE DECEMBER 18, 2009

Rule Audit Enhancement Rule
The Rule Audit Enhancement will promote more effective annual audits of compliance with the Rules by Participating Depository Financial Institutions. Better audits will facilitate compliance with the Rules and ultimately lead to lower risk and higher quality in the processing of ACH payments. The Rule will refine and clarify existing Rules compliance audit requirements; include additional provisions to provide a more robust set of audit criteria; and provide additional guidance for ODFIs, RDFIs and their Third-Party Service Providers. In addition, several considerations for industry best practices for ACH operations are referenced in the introduction to provide additional context.
Approved February 19, 2009; Effective: December 18, 2009.

Minor Changes to Rules Audit Enhancement Language – Several Category C changes  would necessitate minor changes to the approved Rule Audit Enhancement language in Appendix Eight, section 8.3 (Audit Requirements for RDFIs).  The changes would include revising the return deadline to eliminate references to midnight; updating a cross-reference to a new section in Article Four; and clarifying that the transmission of payment related information required in Article Four, subsection 4.4.3 applies to IAT entries to non-consumer accounts.
Approved June 12, 2009; Effective: December 18, 2009.

 

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EFFECTIVE JANUARY 1, 2010

Expiration of Additional Notice for ARC, BOC and POP –  Articles Two and Three both require an additional notice for ARC, BOC and POP entries to inform the Receiver that funds related to an electronic check conversion entry may be withdrawn the same day the payment is received, and that the Receiver’s check will not be returned.  Since these additional requirements expire on January 1, 2010, this proposal recommends that they be removed from the Rules at that time.
Approved June 12, 2009; Effective: January 1, 2010

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EFFECTIVE MARCH 19, 2010

Authorization and Returns
The Authorization and Returns Rule will enhance the quality of transactions in the ACH Network by more clearly defining an Originator’s obligations for obtaining a consumer’s authorization, and by improving processes related to the return of debits that Receivers claim are unauthorized. Specifically, these changes clarify that a consumer debit authorization must be clear and readily understandable in its terms, and that any purported authorization that does not meet these criteria is not a valid authorization under the Rules. The Rule also provides greater definition and clarity with respect to an RDFI’s obligations for obtaining and providing a consumer’s written statement that a debit was not authorized, improving the efficiency with which unauthorized debits are handled by DFIs.
Approved May 1, 2009; Effective March 19, 2010.

Stop Payments and Regulation E
This Rule on stop payments will re-align the NACHA Operating Rules with the requirements of the Federal Reserve Board’s Regulation E (“Reg E”).  As the Federal Reserve Board’s Staff Interpretation of Reg E has changed over time, there has been a divergence between the Rules and Reg E with respect to the intent of, and processing requirements for, stop payment orders on ACH debits. These differences have become significant enough to result in the potential for RDFIs to have difficulty reconciling their obligations under both the Rules and Reg E. This Rule will revise specific language regarding the expiration of a stop payment order that may create confusion for RDFIs in light of the requirements of Reg E.  The Rule also adds language clarifying that the stop payment order would remain in effect until all entries related to the Receiver’s stop pay instruction have been stopped. The Rule will not alter the manner in which an RDFI returns an entry as payment stopped via the ACH Network - a stop payment order is placed in advance of receipt of a specific entry or entries and ensures that the entry(ies) does not post to the Receiver’s account. The RDFI would return any such entry it receives using return code R08. The Rule also will have no impact on an RDFI’s obligations with respect to re-crediting an entry that has posted to the Receiver’s account for which the Receiver claims that authorization was revoked.  In such a case the RDFI is responsible for obtaining the Receiver’s written statement, re-crediting the account, and returning the entry using return code R07.
Approved May 1, 2009; Effective March 19, 2010

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EFFECTIVE JUNE 18, 2010

Risk Management and Assessment
The Risk Management and Assessment Rule requires all Participating DFIs to conduct a risk assessment of their ACH activities, and to implement risk management programs based on the results of such assessments, in accordance with the requirements of their regulator(s). The Rule also provides that each ODFI has the right to terminate or suspend an Originator, or any Originator of a Third-Party Sender, for breach of the Rules; and the right to audit an Originator’s, or Third-Party Sender’s and its Originators’, compliance with the agreement and the Rules. In addition, the Rule requires an ODFI to expressly address each of the foregoing, as well as any restrictions on ACH origination activity, within a new or renewed agreement with an Originator or Third-Party Sender.  The Rule does not prescribe new restrictions on origination activity.  Rather, the Rule requires each ODFI to address its internally developed restrictions on origination, if any, within its Originator and Third-Party Sender agreements so as to highlight the importance, and improve the enforcement, of such restrictions. The Rule also requires ODFIs to perform a more comprehensive set of risk management practices in addition to the current rules on exposure limits.  
Approved May 1, 2009; Effective June 18, 2010.