9/10/2021 - By Janice Weisz, AAP
The current authorization framework for consumer ACH debits encompasses recurring payments and single payments. Originators that have, or want to use, a different model for ongoing commerce do not have specific rules for payments that are a hybrid, falling somewhere in between recurring and single entries.
By defining a Standing Authorization, the Standing Authorization Rule will fill the gap between single and recurring payments and enable businesses and consumers to make more flexible payment arrangements for relationships that are ongoing in nature.
Rule Overview
Effective September 17, 2021, the Standing Authorization Rule will:
The Rule will allow originators some flexibility in the use of consumer Standard Entry Class (SEC) Codes for individual Subsequent Entries. Originators will be able to use the TEL (Telephone-Initiated Entry) or WEB (Internet-Initiated/Mobile Entry) SEC Codes for Subsequent Entries when initiated by either a telephone call or via the Internet/wireless network, respectively, regardless of how the Standing Authorization was obtained.
Standing Authorization Record Retention Requirements
The originator must retain a copy of each:
Standing Authorization Proof of Authorization Requirements
Upon receipt of an RDFI’s written request, the ODFI must provide a copy of each:
Impact to Participants
ODFIs
Since some volume of Subsequent Entries may have a different SEC Code than under the existing rules, ODFIs should prepare for a potential impact on the application of risk management practices specific to SEC Codes and on the tracking of SEC Code volume, returns and return rate. ODFIs should update its ACH Origination Agreement, as needed, to address allowed SEC Codes. ODFIs should also educate its originating customers regarding the use of standing authorization for future debits, the potential modifications to authorization practices and language and risk management and security requirements (TEL and WEB).
Originators
Originators may choose to use Standing Authorizations and Subsequent Entries but will not be required to do so. Originators that choose to use this authorization method should review their practices, policies and controls regarding its authorization methods and to update authorization forms as needed.
RDFIs
RDFIs should have no impacts to their receipt and posting of entries.
For more information, you can also visit Nacha's website.
Staying in compliance can be challenging, if you have any questions or need assistance preparing for these new Nacha Rules, email me or a member of our Financial Institutions Team so we can help.
About the Author | Janice Weisz, AAP
Janice is a consultant in the Financial Institution Advisory Group at Saltmarsh, Cleaveland & Gund. Janice has been working with financial institutions since 2001 with an emphasis on operations, compliance, audit and internal controls. Janice currently is an Accredited ACH Professional (AAP) and conducts risk-based Nacha compliance audits and provides ACH-consulting services to the firm’s financial institution industry clients.
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