NACHA Rule Changes

Effective: 2016-08-18

Clarification of Reinitiation – Standard Entry Description; RCK; and Returns for R03/R04

These amendments revise the recently-adopted rules governing the reinitiation of returned entries to make clarifications on formatting requirements and scope of coverage:
(1) The recently effective changes to the reinitiation rules require the use of a specific company entry description (“RETRY PYMT”). In any case where an entry is returned and subsequently reinitiated, the rule intended the description “RETRY PYMT” to supersede the original content of the Company Entry Description field. However, the language did not expressly state how this requirement applies to the reinitiation of original entries that bear other, rules-mandated entry descriptions (e.g., “REDEPCHECK”, “RETURN FEE”, etc.). This amendment clarifies that the RETRY PYMT descriptive statement applies to all cases of reinitiation and supersedes any other company entry description, including other Rules-mandated company entry descriptions for original entries.

(2) Questions have been received from industry participants as to whether the recent changes to reinitiation requirements are applicable to the reinitiation of RCK entries. The definition of a Reinitiated Entry does not exempt RCK from its scope, and the recent modifications to reinitiation requirements related to formatting, etc., were not intended to exclude RCK entries. Because the circumstances under which a returned RCK entry can be reinitiated have always been more limited than other SEC Codes, the differences for RCK were listed separately under the rule provisions specific to RCK. This amendment clarifies the reinitiation rules as applicable to RCK Entries by eliminating the separate section on reinitiated RCK entries and re-locating RCK-specific details to within the general rule on reinitiated entries.

(3) NACHA continues to receive on-going inquiries as to whether entries that have been returned due to invalid or incorrect routing and account information (i.e., R03/R04) are considered to be reinitiated entries when corrected and subsequently transmitted into the ACH Network. By definition, ​a Reinitiated Entry is an entry to the same Receiver’s account. In these cases, a new entry with corrected routing and/or account number would be the first presentment to the correct Receiver’s account and should not be identified as a reinitiated entry. To identify these corrected entries as reinitiations would cause confusion to the Receiver since there was no previous attempt at presentment of the entry to the account.​

Rules Enforcement Monitoring – Class 2 Violations

This amendment revises the description of a Class 2 Rules Violation within Appendix Ten (Rules Enforcement) to allow evaluation of the timing of a recurring violation in relation to the resolution date for the immediately preceding violation when determining its status as a Class 2 Rules Violation.

Under this change, the Rules re-define a Class 2 rules violation as the fourth or subsequent recurrence of a rule violation, where that fourth or subsequent recurrence takes place within one year of the resolution date of the immediately preceding infraction.

Protection of the National Association from Liability for Enforcement of the Rules

This amendment expands the rules enforcement provisions within the NACHA Operating Rules to include express protections for NACHA and its committees when engaged in their roles related to rules enforcement.

Rules Enforcement – Appeal Process for Suspension from the Network

This amendment expands Appendix Ten (Rules Enforcement) to define a process by which an ODFI may appeal the suspension of its Originator or Third-Party Sender customer when suspension has been mandated by the ACH Rules Enforcement Panel as the penalty for a Class 3 rules violation.

The Rules currently provide that suspension of an Originator or Third-Party Sender is a sanction that may be imposed by the ACH Rules Enforcement Panel in the event of the most serious type of Rules infraction – a Class 3 Rules Violation. Suspension is a remedy to be used only in extreme cases. The Rules do not contain any provision for appeal of such a decision.

In light of the impact of a suspension order on the subject Originator or Third-Party Sender, the rules enforcement process will be modified to provide for an appeals process with the imposition of a suspension order, that a Participating DFI may appeal a suspension order to a panel comprised of at least three individuals who are on the list of arbitrators maintained by NACHA. As members of the Appeals Panel, these individuals will not be acting as arbitrators, but rather will act together as an appellate body for enforcement cases to review the suspension decision of the ACH Rules Enforcement Panel. Because suspension orders relate to circumstances that pose serious risk to the ACH Network, the process of such an appeal would be expedited, and the decision of the Appeals Panel would be final.

IAT Entries – Originating DFI Identification

This amendment revises the description of the Originating DFI Identification field for IAT entries to reflect a current business practice.

For Outbound IAT Entries, the Rules currently require the Originating DFI Identification field within the 4th IAT Addenda record to contain the routing number of the U.S. ODFI as the source of funding for the outbound Entry. However, in certain business models, the funding for an Outbound IAT Entry comes from a financial institution in another country. In these cases, the current requirement to include the U.S. ODFI in this field will result in the identification of the wrong financial institution as the ultimate source of funds for the payment transaction. This change enables the correct identification of either the U.S. ODFI or a foreign financial institution, whichever is responsible for providing funds for the Outbound IAT Entry.

For example, a Canadian Bank uses its U.S. subsidiary bank to send Canadian payments from Canada to Mexico for its Canadian customers using the FedGlobal ACH Service. Funds are moved from the Canadian customer’s account to an account at the U.S. subsidiary bank, and then the U.S. subsidiary bank originates an IAT to the receiver in Mexico. In this example, the funding for the outbound IAT originated in Canada, and the Canadian bank would be identified in 4th IAT Addenda Record as the foreign funding bank. The U.S. subsidiary bank would be identified in the IAT Company/Batch Header Record as the Originating DFI.

Effective Date: 2016-08-18 12:00 am