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The Micro-Entry Rule defines and standardizes the practice and formatting of Micro-Entries, which are used by some ACH Originators as a method of account validation. As of September 16, Nacha’s Phase 1 of the Micro-Entry rule changes is now in effect. As a reminder, this update includes implementing the definition of Micro-Entries within the ACH Rules. There will also be standardized formatting to follow. And, effective March 23^rd, Originators of Micro-Entries will be required to use commercially reasonable fraud detection, including the monitoring of Micro-Entry forward and return volumes.

While this may seem overwhelming, don’t get stressed! We are happy to break down the two pieces of Phase 1 which are now in effect and provide an overview of what is to come in Phase 2.
 

Phase 1 (Now in Effect)

Implementing the Definition of Micro-Entries within the Rules:

Micro-Entries are used to authenticate a Receiver’s account through the ACH Network using small credits and debits. The credit entry(ies) cannot exceed $1.00. The debit Entry or Entries cannot exceed a total of $1.00. Essentially, the credit entry(ies) and debit Entry of a Micro-Entry are used to offset each other. Ultimately, the Receiver’s account can end up in the net positive if the sender wants them to for any reason, but it cannot end up net negative. They must be made whole.

Standardized Formatting:

The new formatting used to send Micro-Entries should be a minor update for most financial institutions. First, the Company Name must be easily recognizable to the Receiver. All future Entries may be identical or comparable to the Company Name. This is because the Originator may have small variations in the Company Name allowing them to meet the needs for processing. Then, the Company Entry Description field is required to use “ACCTVERIFY”. Having a defined description will allow Micro-Entries to be more identifiable as an account validation tool or micro-entry that allows ODFIs and RDFIs to perform their internal processing procedures as appropriate. In return, ODFIs and RDFIs can implement their acquired processing internal controls.

The implementation of Phase 1 of the Micro-Entries Rule change impacts ODFIs and Originators. ODFIs must be aware of the Micro-Entries Rule update to help their Originators remain compliant. Originators must implement the new formatting by including “ACCTVERIFY” in the Company Entry Description and they must meet the requirements of the Company Name field for the Entries. They also must make sure the entries don't put the Receiver in a net negative and that the entries are sent at the same time to offset.

Phase 2 (Effective March 23^rd)

Originator Requirements:

Originators of Micro-Entries will be required to use commercially reasonable fraud detection, including the monitoring of Micro-Entry forward and return volumes. Implementing the requirement for commercially reasonable fraud detection is being done in hopes of minimizing the use of Micro-Entries in fraud schemes. At a minimum, monitoring forward and return volumes establishes a baseline and understanding of what should be considered normal activity. Under this Rule, an Originator is not required to perform an entry-by-entry review.

Overall benefits:

For ODFIs and RDFIs, this Rule will reduce fraudulently initiated Micro-Entries. This in turn improves the overall quality of this type of Entry in the ACH Network.

See? Now that wasn’t so bad! When it comes to Phase 1, it should be a top priority to confirm that organization and your Originators are acting in accordance with the Rule change. Additionally, now is the time to work with your Originators to ensure they are prepared to fulfill the commercially reasonable fraud detection required when Phase 2 goes into effect.

Source: Nacha