Recent amendments to the ACH Rules have prompted much conversation about what ODFIs should be doing related to monitoring for return activity – unauthorized, administrative and overall debit returns. While it is important to track this and be prepared to address any issues, it concerns me as an educator that there hasn’t been much talk about what could be done upfront to minimize potential returns and improve origination practices.
I believe there is more that ODFIs could and should do to educate their Originators; that is, go beyond teaching them how to submit an ACH file. You might be wondering why I think the only training they get is on this. Well, a few years ago, I went for my annual eye exam. Before leaving, I wrote a check for the co-payment (yes, I’m an AAP who writes an occasional check). I then handed my check to the receptionist, she ran it through a MICR reader, stamped void on it, handed it back to me along with a receipt that needed my signature. Remember, I’m an AAP and one who just got a good checkup . . . I didn’t see any notice posted letting me know that my check was going to be converted to an ACH. Not being able to stop myself, I explained to her that she had just violated the ACH Rules, which, of course, she knew nothing about. She told me that her bank didn’t tell them they needed a notice, but that she would be contacting them about it. Two weeks later when I picked up my new eye glasses, I found the notice – it wasn’t anywhere near where I’d be writing my check, but was on the door as you entered the office along with the logos of the card payments they accepted. Obviously, she did contact her bank, but yet again they failed to explain her compliance obligations fully.
While I had no intentions of disputing the POP debit to my account as unauthorized, I certainly had a valid reason to do so as the notice was missing. You might be thinking the average consumer wouldn’t know that this payment wasn’t properly authorized, and you’d most likely be right. However, consumer groups have said that financial institutions need to take more steps to actively protect consumers, particularly from unauthorized transactions. And regulators continue to scrutinize origination practices in the ACH viewing high overall return rates as an indicator of fraud. As an ODFI, it is your responsibility to ensure that your Originators are processing ACH payments in compliance with the Rules and applicable payments regulations. Your Originators are not payment experts, but you are! So, let me leave you with some ideas on what I believe you could do to minimize potential returns and at the same time improve origination practices:
- Even though you have bound them to the Rules within your Origination Agreement, you might want to include within the agreement authorization requirements, reinitiation responsibilities and NOC obligations. Or you might create a cheat sheet with this information that you’ll go over with them and provide as a take-away.
- Share best practices for ensuring routing and account number information provided by the Receiver is correct. These practices include sending prenotes, requesting a voided check or letter from the Receiver’s financial institution or requiring dual entry of this data by the Receiver.
- Share the sample ACH authorization forms found in Appendix F and G of the ACH Rules with your Originators.
- Provide training upon onboarding an Originator and annually thereafter. This can be done in-house or by partnering with EPCOR and will ensure Originators understand their compliance obligations.
- Communicate any Rules updates and any changes to your processes/procedures to Originators that would impact their ACH processing. EPCOR’s Inside Origination newsletter can help you do this.
Shelly Simpson, AAP
Director, Certifications and Continuing Education