Account Information Improvements Through the ACH Network
Nacha requests comments on a set of proposals that is intended to improve the capabilities of the ACH Network to validate and correct account information. These proposed changes would provide ACH Network participants with more reliable, low-cost, ACH Network-based solutions to validate a Receiver’s account. The set of proposals should be considered in its entirety in order to provide benefits to all parties in the ACH Network.
The proposals would:
- Provide a “Yes/No” response by an RDFI to all prenotifications;
- Shorten the timing for a prenotification and its response;
- Standardize practices for the use of micro-entries;
- Standardize formatting for both prenotes and micro-entries; and
- Improve compliance with Notifications of Change.
ACH Originators and service providers seek improvements to the ACH Network’s account validation capabilities. Many do not use them today as they consider the existing processes to be slow and inconclusive.
At the same time, RDFIs often express frustration that corrected account information provided in Notifications of Change (NOCs) is frequently ignored.
This set of Rules proposals intends to improve both sides of the account information equation by improving the function and effectiveness of the ACH Network’s account validation methods, and improving the effectiveness of the NOC process. By addressing both sides, this proposal intends to provide benefits for both the origination and receipt side of ACH payments.
Ultimately, more effective account information processes would improve the experience for consumers and businesses that use ACH payments
- Better and faster account information processes would be more effective
- More effective processes should lead to greater use
- Greater use would result in more validated and corrected account information achieved through the ACH Network
- More validated and corrected account information would mean that consumer and business receivers would have a better experience in using ACH payments
- Greater compliance with NOCs mean more Receivers do not experience disruption in their payments
ODFIs and RDFI both would experience fewer account information exceptions and rejects on behalf of their customers.
Under this proposal, an RDFI would respond with a Yes or No to all prenotes. The ACH Acknowledgement Entry (ACK SEC Code) would be re-purposed as this response with the Discretionary Data field of the ACK containing either “Y” or “N”.
This proposed acknowledgement framework would take the place of the current framework that uses Returns and NOCs. As a result of re-purposing the ACK SEC Code, the other type of acknowledgement – the ATX – would be retired, and eliminated from the Rules.
Under this proposal, Prenotes would be processed by the ACH Operators during the next available processing window, including the three Same Day ACH windows. RDFIs would respond to prenotes no later than the processing window on the next Banking Day that corresponds to the processing window in which the prenote was received (i.e., approximately a 24-hour response). Originators would be permitted to send live entries as soon as they receive a Yes response.
This waiting period would be substantially shorter than the current three Banking Day waiting period.
This proposal would establish standardized formatting requirements for prenotes
- Prenotes would have the word “VALIDATION” in the Company Entry Description Field
- The Company Name field must contain the name by which the Originator is known to and readily recognized by the Receiver, and must be the same Originator name to be used in future, live ACH Entries
- A Prenotification Entry must bear an appropriate Transaction Code
These standards would be useful to help Receivers identify and understand the purpose of prenotes if RDFIs want to, or are encouraged to, present prenotes to Receivers via statements, alerts, and notifications
This proposal would recognize Micro-Entries as a specific means of account validation. A Micro-Entry would be defined as an entry (either a credit or debit) for less than $1 that is used for account validation. Prior to initiating live entries, an Originator may originate one or more Micro-Entries for the purpose of validating a Receiver’s account at the RDFI. An Originator that has originated one or more Micro-Entries to a Receiver’s account may initiate subsequent live Entries to the Receiver’s account as soon as the Receiver completes the Originator’s process for validating the amounts of the Micro-Entries.
An Originator that transmits one or more debit Micro-Entries must simultaneously transmit one or more credit Micro-Entries that, in aggregate value, equals or exceeds the value of the debit Micro-Entry(ies). In other words, the total amount a Receiver is debited through one or more Micro-Entries must never exceed the total amount credited through one or more Micro-Entries.
This proposal would establish standardized formatting requirements for Micro-Entries
- Micro-Entries would have with the word “VALIDATION” in the Company Entry Description Field
- The Company Name field of a Micro-Entry must contain the name by which the Originator is known to and readily recognized by the Receiver of the Entry and must be the same Originator name to be used on future, live Entries
These formatting requirements will help Receivers identify them, and have a similar and more consistent experience across different Originators. Better and standardized formatting across Originators could enable and encourage RDFIs to send alerts or notifications to consumers about these validation requests, which would improve their effectiveness.
Notifications of Change
Under this proposal, an ODFI will be required to provide information from an NOC to its Originator within one Banking Day. This is an improvement from the current requirement of two Banking Days.
An Originator would be prohibited from invalidating a Receiver’s authorization due to the receipt of an NOC. An Originator may not require the Receiver to confirm the validity of the corrected data provided by the RDFI, or to provide a new authorization. This is often the source of repeat and ongoing NOCs. It also leads Originators and consumers to revert back to using checks when they originally intended to use ACH.
The proposal would increase enforcement for not using the corrected information provided in an NOC, thereby improving the effectiveness of an NOC. An ODFI’s first violation for failure by its Originator to use corrected information may be classified as a Class 1 rules violation (i.e., subject to a fine). An ODFI’s second violation for the same infraction by the same Originator for failure to use corrected information may be classified as a Class 2 Rules violation.
For the ACH Network as a whole:
- Improving the user experience and addressing pain points of both the origination and receipt of ACH payments
- Better, faster and more effective account information processes that benefit both Originators and Receivers
- Fewer exceptions for live ACH entries; and also fewer situations that revert to check due to account number problems
Prenotifications would become more effective
- Originators would receive responses to all prenotes
- The prenote and response cycle would become faster, and the associated waiting period would become shorter
- Better and standardized descriptions could enable and encourage more presentment of prenotes to consumers via statements and notifications
Micro-Entries would be standardized
- Standardization would provide a more consistent experience for consumers across multiple Originators
- Better and standardized descriptions could enable better understanding of validation attempts, and encourage additional alerts and notifications to consumers of validation requests
Notifications of Change would become more effective
- A common RDFI pain point - that NOCs are ignored – would be addressed, making it more worthwhile to send NOCs
- A consumer’s authorization could no longer be “cancelled” due to an RDFI sending an NOC, which often results in reverting to checks
Nacha anticipates that the proposal benefits both the origination and receipt sides of ACH payments
ACH Originators have access to better and faster account validation methods through the ACH Network
- Responses to all prenotes
- Shorter waiting period
- Fewer exceptions for subsequent live entries
Account validation methods through the ACH Network become more standardized, resulting in a better experience for Receivers/consumers
- Standardized formatting can enable customer alerts and notifications of account validation requests
- Customer’s payments get set up with fewer exceptions
- Sending corrected information via NOCs become more effective, and therefore the effort to send them is more worthwhile. Customer’s ACH authorization won’t get “cancelled” due to NOCs.
All financial institutions - ODFIs and RDFIs - would have to adopt the revised “acknowledgment” framework for prenotes, including the ability to use the re-purposed ACK SEC Code for this purpose.
- RDFIs would have to send responses to all prenotes, instead of just to prenotes with account number problems
- RDFIs would have to meet the timeframe for responding to prenotes
- RDFIs may want to provide additional alerts and notifications to consumers of prenotes and Micro-Entries received, although this would be optional
ODFIs and Originators
- Originators would have to adopt the formatting conventions for prenotes and Micro-Entries, and observe the required waiting periods
- ODFIs would need to provide NOC information to Originators within one Banking Day
- Originators would have to apply NOC information, and could not cancel a Receiver’s authorization
- ODFIs would be subject to heightened enforcement of NOC rule violations by their Originators
ACH Operators would have to process all prenotes in the next available processing window
This RFC proposes that these rules would go into effect on March 18, 2022
- elements of the proposed rules would go into effect simultaneously
- some portions of the proposal could go into effect sooner (e.g., NOC enforcement), but on the whole Nacha thinks it better that all parts of the proposal go into effect at the same time
- standards could be adopted earlier by individual Originators