Disclosure Requirements for POS Entries
This Rule establishes an Originator/Third-Party Service Provider obligation to provide consumer Receivers with certain disclosures when providing those consumers with cards used to initiate ACH Point of Sale (POS) Entries.
Details
This Rule establishes an Originator/Third-Party Service Provider obligation to provide consumer Receivers with certain disclosures when providing those consumers with cards used to initiate ACH Point of Sale (POS) Entries.
Nacha continues to receive feedback from some financial institutions that they experience customer service calls and contacts regarding so-called ACH cards (i.e., cards issued by third-parties – generally non-financial institutions – that initiated debits to a consumer’s account via the ACH). These financial institutions report that customers sometimes are confused with regard to the applicability of overdraft protection opt-in coverage and card network “zero liability” programs for transactions initiated with card-network branded cards.
In 2010, Nacha issued an ACH Operations Bulletin describing the applicability of the Federal Reserve’s Overdraft Opt-In Rule (now administered and promulgated by the CFPB) on RDFIs and ACH Payments. See https://www.nacha.org/news/impact-federal-reserve-overdraft-opt-rule-rdfis-and-ach-payments. In the case of an ACH card, because the RDFI did not issue the card, the Overdraft Opt-in rule should not apply to the resulting ACH transactions (which use the “POS” SEC Code).
Although the Overdraft Opt-In Rule should not apply to ACH POS entries, consumers using ACH cards at the point of sale may not be aware of the differences between an ACH card and a debit card issued by a financial institution. Therefore, the Rule requires certain disclosures to the consumer by the issuers of ACH cards. The purpose of this change is to avoid confusion by consumers, especially with respect to whether overdraft-opt-in programs and card network zero liability programs apply to transactions using ACH cards.
Specifically, this Rule requires Originators or Third-Party Service Providers that issue ACH cards (or their virtual, non-card equivalent, collectively referred to as “ACH cards”) to make the following disclosures in written or electronic, retainable form to a consumer prior to activation:
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The ACH card is not issued by the consumer’s Depository Financial Institution.
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POS Entries made with the ACH card that exceed the balance in the consumer’s financial institution account may result in overdrafts and associated fees, regardless of whether the consumer has opted to allow overdrafts with respect to debit cards issued by the Depository Financial Institution that holds the consumer’s account.
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Benefits and protections for transactions made using the ACH card may vary from those available through debit cards issued by the consumer’s Depository Financial Institution.
Technical
This change will require Originators and Third-Party Service Providers that issue ACH cards to provide consumer Receivers with information governing the card issuer, overdraft charges and fees, and benefits and protections related to card use at the time the card is issued.
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Article Two, Subsection 2.5.11.2 (Disclosures for ACH Cards Used to Initiate POS Entries) – Adds a new subsection to the specific provisions for POS Entries to require Originators and Third-Party Service Providers that issue ACH cards to provide disclosures related to overdraft charges, benefits, and protections related to the use of such cards.
- Article Eight (Definition of Terms Used in These Rules), Section 8.2 (“ACH Card”) – establishes a new definition for “ACH Card” as a card or other means of access to a Consumer Account held by a Depository Financial Institution that is issued by an entity other than the Depository Financial Institution, and can be used at the point of sale to initiate POS Entries.
The following is sample language for Originators or Third-Party Service Providers to consider in designing an ACH Card disclosure for purposes of compliance with the Nacha Operating Rules. Nacha makes no representation or warranty as to the effect of the language for any other purpose, or as to the relationship of this language to any other language in any institution’s agreements or disclosures. Affected parties should consult with their own legal counsel.
Your [ACH Card product name] Card is issued by [Name of Issuing Entity]. It is not issued by the financial institution (your “Bank”) that maintains the deposit account that you have linked to your [ACH Card product name] Card. The terms, benefits, and protections associated with your [ACH Card product name] Card may vary from those that apply to a debit card issued by your Bank. For example, if you use your [ACH Card product name] Card to make a purchase that exceeds the balance in the deposit account that you linked to the [ACH Card product name] Card, that account may become overdrawn even if you chose not to allow overdrafts with respect to a debit card issued by your Bank, and you may incur associated overdraft fees. Similarly, the liability limits applicable to your [ACH Card product name] Card may be different from those applicable to a debit card issued by your Bank.
Impact
Originators/Third-Party Service Providers: This change will require Originators and Third-Party Service Providers that issue ACH cards to provide consumer Receivers with information governing the card issuer, overdraft charges and fees, and benefits and protections related to card use at the time the card is issued. To minimize the compliance burden and associated costs, Originators and third-parties are allowed 12 months from the implementation date to provide new disclosures to existing cardholders. As with other Originator obligations, ODFIs warrant the Originator’s/Third-Party’s compliance with these obligations, but are not required to actively monitor or audit such compliance.
RDFIs: This change should reduce RDFI customer confusion with respect to the difference between an ACH card and a debit card issued by the customer’s own financial institution.
FAQs Section
What is an “ACH Card?”
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As defined by the Nacha Operating Rules, an “ACH Card” is a card (or other means of access to a Consumer Account held by a Depository Financial Institution) that is issued by an entity other than the Depository Financial Institution or a party that has contracted directly with the Depository Financial Institution to issue such cards or other means of access, and can be used at the point of sale to initiate POS Entries.
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Article Eight – Definitions of Terms Used In These Rules. Section 8.2 “ACH Card”.
Does the ACH Card have to be a card?
No. The term “ACH Card” covers other means of access that can be used by consumers to initiate ACH POS Entries. Examples include, but are not limited to, a keychain fob and a secure token stored on a smart phone.
Does the consumer’s depository financial institution (DFI) have to provide the disclosure for an ACH Card linked to the consumer’s account at that DFI?
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No. ACH Card disclosures, as required by the Nacha Operating Rules, are the responsibility of the party that issues the ACH Card and not the responsibility of the consumer’s financial institution. Originators or Third-Party Service Providers that issue ACH Cards or other means of access used to initiate POS Entries must make the disclosures in written or electronic, retainable form to the consumer card holder.
- Subsection 2.5.11 Specific Provisions for POS Entries
Do the disclosures have to be provided to all ACH Card holders?
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Yes.
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For new cards issued on or after the March 18, 2016 effective date of the rule change, card issuers (i.e., Originators/Third-Party Service Providers) must provide the disclosures to consumers prior to activating the cards.
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For existing card holders as of the March 18, 2016 effective date, Originators/Third-Party Service Providers must provide those card holders with the new disclosures within 12 months following the March 18, 2016 effective date.
What information must be included in the disclosure for the ACH Card?
At a minimum, the issuer must disclose the following information:
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The ACH Card is not issued by the consumer’s Depository Financial Institution;
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POS Entries made with the ACH Card that exceed the balance in the consumer’s linked financial institution account may result in overdrafts and associated fees, regardless of whether the consumer has opted to allow overdrafts with respect to debit cards issued by the Depository Financial Institution that holds the consumer’s account; and
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benefits and protections for transactions made using the ACH Card may vary from those available through debit cards issued by the consumer’s Depository Financial Institution.
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Subsection 2.5.11 Specific Provisions for POS Entries
May Originators include additional terms and information within the required ACH Card disclosures?
Yes. The specific disclosure items required by the Nacha Operating Rules are the minimum information that must be disclosed to ACH Card holders. Card issuers may choose to include additional information relevant to the card holder, such as customer service contact instructions.
Does NACHA have sample disclosure language that may be used by Originators/Third-Party Service Providers?
Yes. Sample disclosure language for ACH Cards will be included within the appendices of the 2016 Nacha Operating Rules and Guidelines publication. It is also provided under the Technical Tab on this webpage.
Could use of the ACH Card result in an overdraft and associated fees if the consumer had opted to not allow overdrafts on his bank issued debit card?
Yes. The terms may differ for the ACH Card since it is not issued by the consumer’s own financial institution.
