October 02, 2023

Proof of Authorization Complaints Keeping System of Fines Busy

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It’s an issue vexing financial institutions big and small—while keeping Nacha’s National System of Fines busy handling disputes: proof of authorization.

“There’s a lot of confusion surrounding what constitutes a valid proof of authorization,” said Lorie Nash, AAP, APRP, Nacha Senior Director, Compliance. It centers around Article Two, Section of the Nacha Operating Rules: Retention and Provision of the Record of Authorization. 

“What we are seeing is that the ODFIs are providing what they believe is an accurate authorization document,” said Nash. “However, the name on the authorization doesn’t match a name of an account holder of the account being debited. The RDFI then disputes this as an invalid authorization and files a Rules violation.” 

Who’s right? According to Nash, “The Rules state that the ODFI must provide an accurate Record of the Receiver’s authorization. To be deemed a valid authorization, however, the name on the authorization must match that of the Receiver being debited, otherwise the proof of authorization is deemed to be invalid.” 

Nevertheless, disagreements continue, with Nash noting that, “This type of violation has become one of the most common types of violations received by the National System of Fines.” She said today it’s that much more important for Originators and ODFIs to avail themselves of tools to ensure they are verifying customer identification to the best of their ability.

Learn more about Nacha Rules compliance on the Nacha website.