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Nacha's Meaningful Modernization Rule 2 - Oral Authorizations Rule

9/10/2021 - By Janice Weisz, AAP

Currently, Nacha’s Rules do not provide oral authorizations of an ACH payment outside of a telephone call. Only the Telephone-Initiated Entry (TEL) Standard Entry Class Code (SEC) has requirements to address the risks specific to an oral authorization.  

Rule Overview

Effective September 17, 2021, the Oral Authorizations Rule will:

  • Define “Oral Authorizations” as a remote (not in-person) oral authorization of one or more entries to a consumer account
  • Allow Oral Authorizations as a valid authorization method for consumer debits distinct from a telephone call
  • Enable the broader use of Oral Authorizations, which will allow businesses to adopt ACH payments in transactional settings that make use of verbal interactions and voice-related technologies
  • The Rule will not change how existing TEL transactions are used and authorized
  • An oral authorization obtained via any channel will need to meet the requirement of an Oral Authorization
  • An Oral Authorization obtained over the Internet that is not a telephone call will need to meet the risk and security requirements that currently apply to Internet-Initiated/Mobile (WEB) entries and will use the WEB SEC type code
  • Allow for Standing Authorizations to be obtained orally and allow for Subsequent Entries initiated under a Standing Authorization to be initiated through voice commands, instructions or affirmations

Impact to Participants

ODFIs

Determining if the existing TEL volume will migrate to WEB, 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 rates.  ODFIs should update its ACH Origination Agreement, as needed, to address allowed SEC Codes.  ODFIs should also educate applicable originators regarding this new Rule.

Originators

Originators may choose to use the expanded applicability of Oral Authorizations but are not required to do so. The originators that want to use Oral Authorizations will need to modify or add to their authorization practices and language to ensure they meet all Oral Authorization requirements. Originators may find that their digital storage needs will be impacted by using Oral Authorizations.

RDFIs

RDFIs should have no impacts to their receipt and posting of entries.

Questions?

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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