Nacha's Meaningful Modernization Rule 1 - Standing Authorization Rule

9/10/2021

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:

  • Define a “Standing Authorization” as an advance authorization by a consumer of future debits at various intervals
  • Future debits may be initiated by the consumer through some further action, different from recurring entries which require no further action and occur at regular intervals
  • A Standing Authorization may be obtained in writing or orally
  • Define “Subsequent Entries” as individual payments initiated based on the Standing Authorization
  • Individual Subsequent Entries may be initiated in any manner identified in the Standing Authorization
  • An originator that obtains a Standing Authorization must clearly specify the action(s) that the receiver can take to initiate a Subsequent Entry

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:

  1. Standing Authorization for 2 years following termination/revocation of the Standing Authorization
  2. Proof that the receiver affirmatively initiated each payment in accordance with the terms of the Standing Authorization for 2 years following the settlement date of the entry

Standing Authorization Proof of Authorization Requirements

Upon receipt of an RDFI’s written request, the ODFI must provide a copy of each:

  1. A copy of the Standing Authorization 
  2. Evidence of the receiver’s affirmative action to initiate a Subsequent Entry

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.

Questions?

Staying in compliance can be challenging, so if you have any questions or need assistance, email paymentadvisors@saltmarshcpa.com or a member of our Financial Institutions Team so we can help. 

About the Bank Advisors

The Bank Advisors at Saltmarsh have provided audit, tax and consulting services to a wide range of financial institutions since our founding in 1944, making it the firm’s largest specialty practice and industry of focus. Our Financial Institution Advisory Group has the talent, expertise and insight to help you and your institution thrive. Our team members are also industry leaders who have the knowledge and experience to provide you with unparalleled service and guidance.

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