AAP Questions of the Day

What is the minimum amount that ACH compensation claims must be in order to pursue action?

$200

Name the Originator benefits of Direct Payment via ACH.

1) Improved cash flow/collections 2) Time/labor reduction 3) Lower administration and operating expenses

Name the Receiver benefits of Direct Deposit via ACH.

1) No lost/stolen checks 2) Immediate funds availability 3) Convenience

What are the Represented Check (RCK) eligibility criteria?

1) Returned for insufficient or uncollected funds 2) Below $2,500 3) Consumer account 4) Contains a pre-printed serial number 5) Previously presented no more than two times through the check collection system 6) Dated less than 180 days from the date the Entry is transmitted to the RDFI If in your answer you included some information about notice provided to the Check writer that would be okay, too. However, notice speaks to how the RCK Entry is authorized. The question and the answer is really only meant to speak to what is eligible to be converted to an RCK Entry.

What are the three Field Inclusion Requirements?

1. Mandatory - a Mandatory field is necessary to ensure the proper routing and/or posting of an ACH Entry. Any Mandatory field not meeting required data specifications will cause that Entry, batch, or File to be Rejected by the ACH Operator. A Rejected Entry will be returned to the Participating Depository Financial Institution by the ACH Operator. A Rejected batch or Rejected File will be reported to the Participating Depository Financial Institution or Sending Point by the ACH Operator. 2. Required - a Required field will not cause an Entry Reject at the ACH Operator but may cause a reject at the RDFI and may result in the return of the Entry. An example is the DFI Account Number field in the Entry Detail Record. If this field is omitted by an ODFI, the RDFI may return the Entry as nonpostable. Data classified as Required should be included by the Originator and ODFI to avoid processing and control problems at the RDFI. 3. Optional - an Optional data field is at the discretion of the Originator and ODFI. However, if a DFI does originate Files using optional data fields, the RDFI must return these fields to the ODFI if the Entry is returned. One of these three field inclusion requirements is applied to each field within every Record. Two of these designations are also applied to data segments and elements within Transactions Sets used to transmit remittance information found in Addenda Records. These two are Mandatory and Optional. There are any number of ways to remember the significance of each requirement. Here is one option. O for Optional and ODFI. Optional fields are used by the ODFI and their origination partners. One example of this type of field is the Individual Identification Number field in the Entry Detail Record of a PPD Entry. This field is optional in the PPD Entry Record. Originators might use this field to include a customer's account number or Social Security Number. R for Required and for RDFI. Required fields are crucial for the Receiving Depository Financial Institution to do its job correctly. An example of this type of field is the DFI Account Number in the PPD Entry Detail Record. An RDFI must have a valid account number in order to post each Entry. M for Mandatory and for ACH Operator. (Sorry. The mnemonic breaks down a bit there.) An example of this field is also found in the PPD Entry Detail Record. This example is the Receiving DFI Identification field. How can the ACH Operator possibly route the Entry to the correct DFI without a valid routing number in this field?

What are four criteria on which to base Exposure Limits?

1. Overall customer relationship 2. Individual subsidiaries/divisions of company 3. Historical or predicted dollar value of Files processed 4. Specific ACH application

What are the ACH applications requiring only the Originator to use a MICR reading device to capture the Receiver's banking information from the MICR line of the source document?

1. Point-of-Purchase (POP) Entries 2. Account Receivable (ARC) Entries 3. Back Office Conversion (BOC) Entries

The ACH Security Framework addresses what three areas?

1. Protection of sensitive data and access controls 2. Self-assessment 3. Verification of Originators and Third-Party Senders

What is the year the Routing Number Policy was adopted?

1911. The basic routing number, devised by the American Bankers Association (ABA) in 1910 and adopted in 1911, has served to identify the specific financial institution, which is responsible for the payment of a negotiable instrument or ACH Entry. Yes, that's correct: the routing number policy has been used longer than the Federal Reserve System has been in existence.

The year the Federal Reserve System was created?

1913. The Federal Reserve Bank celebrated its one hundredth birthday in 2013.

What is the maximum number of Addenda Records allowed for Corporate Trade Exchange (CTX), Automated Enrollment (ENR), and Truncated Entries Exchange (TRX) Entry Records?

9,999 One mnemonic used to remember the three types of Standard Entry Class Codes that accommodate 9,999 Addenda Records is to remember the abbreviation for etcetera—etc. That's E for ENR; T for TRX; and C for CTX.

What is a Beneficiary Identification Code (BIC)?

A Beneficiary Identification Code (BIC) identifies the beneficiary of a federal benefit payment. The BIC, paired with other identifying information like social security number and name, allows agencies to differentiate between the thousands of beneficiaries. Example codes include, "B1" that identifies a husband drawing on a wife's record; "D" that identifies a wife drawing on a deceased husband's record; and "E4" that identifies a widowed father is drawing the benefit payment. Remember, these codes alone do not identify a person. The BIC and other identifying information work together to correctly identify the beneficiary. The RDFI can find these codes used within the Payment Related Information field of the Addenda Record accompanying the credit PPD Entry that is the benefic payment. (ePayResources provides a long list of BICs within the Connections community library.)

What is a Third-Party Sending Point?

A Sending Point is an organization that Transmits Entries to an ACH Operator on behalf of an ODFI. A Sending Point might be a Participating DFI or Third-Party Service Provider acting on behalf of one or more ODFIs, or an ODFI Transmitting its own entries. If the ODFI uses one or more Sending Points, the Nacha Operating Rules & Guidelines require the ODFI to enter into an agreement with each Sending Point individually. The ODFI is liable for each Entry Transmitted by a Sending Point that contains the ODFI's routing number. Examples of a Third-Party Sending Point include correspondent banks, corporate credit unions, and processors. Therefore, a Third-Party Sending Point is a Sending Point that is not the ODFI for the transactions sent. If an ODFI transmits its own Entries to the ACH Operator, the ODFI is the Sending Point as opposed to a Third-Party Sending Point. A Third-Party Sending Point should not be confused with a ThirdParty Sender.

What is the consequence of a breach of warranty?

A breach of warranty within the Nacha Operating Rules can require indemnification of the injured party by the warrantor. The Rules assert the indemnification that is made by the person making the warranty, the warrantor, in the event of a breach of a warranty. The indemnification includes compensation for loss or harm, under certain circumstances. Through indemnification offered by a Network participant, an injured party may seek redress from any and all claims, demands, losses, liabilities, or expenses, including attorneys' fees and costs, resulting directly or indirectly from the breach of warranty made by the indemnifying participant. Warranties are a contractual promise made by the warrantor to the warrantee. The Person to whom the warranty is made can claim the rights of the indemnification and the restitution the indemnification allows if: 1) a breach of warranty occurs, and 2) the warrantee suffers a loss due to the breach of warranty. If a Participating Depository Financial Institution files a Rules violation, a Rules violation can result from a breach of warranty. If damages equal or exceed $250, an arbitration proceeding may result from a breach of warranty.

Uniform Commercial Code (UCC) Article 4A

A comprehensive body of law for wholesale electronic funds transfers that details the rights and obligations of RDFIs, ODFIs, Originators, and Receivers

According to UCC-4A, when is a payment order authorized and verified?

A payment order received by the receiving bank is authorized if the person authorized the order or is otherwise bound by it under the law of agency. To meet the definition of "otherwise bound by it under the law of agency," the following must all be true. If a bank and its customer have agreed that the authenticity of payment orders issued to the bank in the name of the customer as sender will be verified pursuant to a security procedure, a payment order received by the receiving bank is effective as the order of the customer, whether or not authorized, if both i. The security procedure is a commercially reasonable method of providing security against unauthorized payment orders. ii. The bank proves that it accepted the payment order in good faith and in compliance with the security procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the customer. The bank is not required to follow an instruction that violates a written agreement with the customer or notice of which is not received at a time and in a manner affording the bank a reasonable opportunity to act on it before the payment order is accepted. The commercial reasonableness of a security procedure is a question of law to be determined by considering the wishes of the customer expressed to the bank, the circumstances of the customer known to the bank, including the size, type, and frequency of payment orders normally issued by the customer to the bank, alternative security procedures offered to the customer, and security procedures in general use by customers and receiving banks similarly situated. A security procedure is deemed to be commercially reasonable if (i) the security procedure was chosen by the customer after the bank offered, and the customer refused, a security procedure that was commercially reasonable for that customer, and (ii) the customer expressly agreed in writing to be bound by any payment order, whether or not authorized, issued in its name and accepted by the bank in compliance with the security procedure chosen by the customer. [UCC 4A §4A-202]

Define Correspondent Bank

A private depository institution, bankers' bank, or Federal Reserve Bank providing payment clearing or settlement services to a BOFD, collecting bank, or paying bank. This participant is comparable to the ACH Operator in the ACH Network. Keep in mind that Check processing may also make use of a Bankers' Bank or a Clearing House at this step in the process.

What is risk pooling?

A strategy used by an ODFI to establish one total Exposure Limit for multiple Originators. For nonrated customers or customers in an impaired financial condition, alternative procedures such as risk pooling or mandatory prefunding can help minimize the ODFI's exposure.

What time frame must an RDFI initiate a Correcting Entry for the NOC Entry to be timely?

A timely Correcting Entry, otherwise known as a Notification of Change Entry, must be initiated within two Banking Days of the Settlement Date of the ACH Entry for which the Correcting Entry is initiated. This is very different from the Return time frame that requires the RDFI to initiate a Return in such a time and manner for it to be made available to the ODFI by the opening of business on the second Banking Day following the Settlement Date of the Entry that is being returned. An NOC must be initiated within two Banking Days. A Return must be initiated in such a time and manner for it already to be available to the ODFI by opening of business on the second Banking Day. If the RDFI wishes to initiate a Notification of Change Entry in response to a Prenotification Entry and, also, require the Originator to make the changes before initiating the live Entry, the RDFI must initiate the COR Entry in time for the NOC it to be available to the ODFI by the opening of business on the second Banking Day following the Settlement Date of the Prenotification Entry. The RDFI must, therefore, follow the Return time frame for the Notification of Change Entry if it wants to stop a live Entry on day three following settlement of the Prenotification Entry.

As part of the study process for the Accredited ACH Professional test, we ask people to remember the names of the participants within each payments channel. How many participants can you name within the ACH, Card, Check, and Wire payments channels?

ACH Channel Originator ODFI ACH Operator RDFI Receiver Card Network Merchant Acquirer Processor POS Network / ATM Network / Credit Card Network Card Issuer Card Holder Check System Payee Depositary bank Bank of First Deposit Clearing House Federal Reserve Bank Correspondent Bank Paying bank Drawer Maker FedWire Funds and Securities Originator Originator's bank Federal Reserve Bank Beneficiary's bank Beneficiary

What is the sequence of Records in ACH Files?

ACH Files contain groups of ACH items in batches that must be in a specific sequence or the File will not be processed by the ACH Operator. The following picture outlines the sequence of an ACH File with three batches. Each of the various Record types is 94 characters in length. The File Header Record is also referred to as the 1 Record. The File Control Record is also referred to as the 9 Record. The Company/Batch Header Record is also referred to as the 5 Record. The Company/Batch Control Record is also referred to as the 8 Record. Entry Detail Records are also referred to as 6 Records, and Addenda Records, when present, are referred to as 7 Records.

American National Standards Institute authorized to establish and maintain guidelines and standards for the financial industry?

ANSI ASC (American National Standards Institute Accredited Standards Committee). Specifically, two committees within the ASC set standards for the financial industry. The X9 standards establish security for Personal Identification Number (PIN) management, which is critical for any MTE, POS, or SHR transaction. The X12 committee establishes payment related information standards. Nacha adopted the standards as transaction sets. These X12 transaction sets include 835 - the transaction set for payment-related information EDI for healthcare related payments.

What is the Electronic Data Interchange (EDI) Transactions Set for Lockbox payments?

ANSI ASC X12.823 The 823 set is one of the transaction sets used to facilitate EDI through the ACH Network and in the payments industry. There are various transaction sets available for use. The format requirements and data specification for the different EDI standards used by corporate Originators and their financial institutions are established by the ANSI ASC X12 group. These transaction sets are used to transmit payment-related information in Addenda Records. The transactions sets are: 103 - Abandoned Property Filings 521 - Asset Offset 813 - Tax Return information 820 - Payment Order / Remittance Advice 823 - Lockbox 835 - Health Care Claim Payments / Advice Other approved payment standards for EDI include UN/EDIFACT and ISO 20-022. Because any of these transaction sets are subject to appear in a test question, here are some mnemonics to help you commit these to memory follow. When a house gets over one hundred years old, it may be abandoned. Filing taxes is never fun event. In fact, one might call it an unlucky event. Think unlucky 13 and Tax Return transaction set 813. When one plays 21 (Blackjack) at the casinos, one most often has an Asset Offset. Think 21 and the Asset Offset transaction set 521. Twenty year olds often have trouble paying their remittances. Think 20 somethings having trouble with remittances and the transaction set 820. Michael Jordan, arguably one of the greatest basketball players ever, has very big shoes! Michael Jordan's jersey number was 23. Think Michael Jordan's number 23 and the very big lockbox required to hold his shoes. Think big lockbox 23 and Lockbox transaction set 823. As one matures, one sometimes requires more health care intervention. Think of needing more health care after 35 and the Health Care transaction set 835.

For which type(s) of ACH Entry must the Check Serial Number be included?

ARC, BOC, POP, RCK, XCK, and TRC. (A Return Fee Entry using the PPD Standard Entry Class Code) The File format mandates the Originator include the Check Serial Number obtained from the Eligible Source Document for every ARC, BOC, and POP Entry. The information is also mandatory for the ODFI to include with every XCK Entry. Additionally, the IAT Entry that bears the value of ARC, BOC, or RCK in the Transaction Type Code field within the First IAT Addenda Record must include the Check Serial Number within the Payment Related Information field of an Addenda Record for IAT Entry Remittance Information. Specifically in position four, the value of the Check Serial Number must be present, followed by a Data Segment Terminator character, i.e., \ or ~. If the value of POP is found in the Transaction Type Code field within the First IAT Addenda Record, the Addenda Record for IAT Entry Remittance Information must be formatted with the following information: • Terminal Identification Code (maximum 6 characters) • Terminal Location (maximum of 27 characters) • Terminal City (maximum of 15 characters) • Terminal State / Foreign Country (country code must be one of the two-character ISO codes) The above data components get separated from each other by the data element delimiter. The data elements are followed by the data segment terminator. Example data would look like: 743273*2425 S CESAR CHAVEZ*DALLAS*US\ A Return Fee Entry using the PPD Standard Entry Class Code is used when the underlying Entry that was returned for insufficient or uncollected funds bears either the ARC, BOC, POP, or RCK Standard Entry Class Code. If a Return Fee is authorized for one of these four SEC Codes, the Originator may use the PPD Entry for the Return Fee Entry. In the Return Fee Entry, the Check Serial Number is placed inside the Individual Identification Number field. Why doesn't the list include the TRX Standard Entry Class Code? It is because the information about each Check cleared via the Truncation Exchange Entry (TRX) is included in an Addenda Record, not the Entry Detail Record. The TRX Entry Addenda Record must contain information formatted in accordance with National Association for Check Safekeeping syntax. The specific requirements of that syntax are outside the scope of your AAP studies. Therefore, you may leave study of Check Safekeeping requirements to a future date. Your welcome.

What is the payment system to which net settlement applies?

Admittedly, there could be more than one correct answer to this question of the day. The answer to remember, however, is: The ACH Network. The ACH system is a batch processing, store-and-forward system. Transactions received by a financial institution during the day are stored and processed some time later in a batch mode. Just as each financial institution effects settlement for its own account holders, the ACH Operator effects settlement for the financial institutions. This is accomplished by net settlement. In other words, the total amount of debit items and the total amount of credit items for a depository financial institution is calculated daily. The difference is then either debited or credited from the financial institutions account with the ACH Operator. All the moneys used to settlement ACH transactions remain in the Federal Reserve System. It is also true that financial institutions may use net settlement for in-clearing checks. For example, in a scenario where one clearing house, such as the Federal Reserve Bank, facilitates both clearing and settlement for multiple financial institutions, a net settlement method may be used. Multiple checks are cleared throughout the business day. At the contracted time of settlement, the net effect of the payments is settled to each financial institution's designated account. Be that as it may, for purposes of studying for the AAP exam, remember that the ACH Network is a net settlement system.

Within the payments industry, there is an organization, which develops cross-industry national standards. What is the name of this non-profit organization?

American National Standards Institute (ANSI). The American National Standards Institution and their Accredited Standards Committee (ASC) set the requirements for many different aspects of important payment related information. The ASC X9 group sets PIN standards as well as standards for Image Replacement Document (IRD); placement and location of magnetic ink printing (that's the MICR stuff); and specifications for Electronic exchange of check and image data. The ASC X12 group sets standards for the many transaction sets used for Remittance information.

What are the warranties of the ODFI?

An ODFI Transmitting an Entry warrants the following to each RDFI and ACH Operator: • The Entry is authorized by the Originator and the Receiver, • The Entry complies with the Nacha Rules, • The Entry is not Transmitted on behalf of a suspended Originator or Third-Party Sender, • The Entry contains required information, • Each credit Entry is timely, • Each debit Entry satisfies an obligation, corrects an error, or reclaims an amount received after death or legal incapacity, and • The secure transmission of banking information. • All warranties above are made for Entries Transmitted through a Sending Point bearing the ODFI's routing number • For ARC Entries: o Entry information is accurate o Eligible Source Document will not be presented for payment o Retention of copy of Eligible Source Document and related payment data by Originator for two years from the Settlement Date of the ARC Entry o Provision of copy of Eligible Source Document provided written request from RDFI is received within two years from Settlement Date of the ARC Entry • For BOC Entries: o Verification of identity of Originator or Third-Party Sender has been verified o Documentation of Originators of BOC Entries is maintained at ODFI including: ▪ Company Name ▪ Address ▪ Contact Person ▪ Taxpayer Identification Number; and ▪ Description of the nature of the business of the Originator o Provision of Originator information provided to RDFI within two Banking Days of receipt of written request o Verification of Receiver's identity by Originator o Customer service telephone number is maintained by Originator during normal business hours o Entry information is accurate o Eligible Source Document will not be presented for payment o Retention of copy of Eligible Source Document and related payment data by Originator for two years from the Settlement Date of the BOC Entry o Provision of copy of Eligible Source Document provided written request from RDFI is received within two years from Settlement Date of the BOC Entry • For Outbound IAT Entries: o Compliant with U.S. Legal Requirements o Compliant with Foreign Laws or payment system rules regarding authorizations of receiving country • For MTE and POS and SHR Entries: o Originator has complied with the American National Standards Institute's (ANSI) Accredited Standards Committee (ASC) X9.8 concerning PIN management and security if a PIN is required in connection with the authorization • For POP Entries: o Originator returns the voided Eligible Source Document to the Receiver at the time of the transaction o Eligible Source Document not used for prior POP Entry • For RCK Entries: o ODFI is entitled to enforce the item related to the RCK Entry o All signatures on the item to which the RCK Entry relates are authentic and authorized o Item to which the RCK Entry relates has not been altered o Item to which the RCK Entry relates is not subject to a defense or claim o The ODFI has no knowledge of any insolvency proceeding commenced with respect to the item to which the RCK Entry relates o The RCK Entry accurately reflects the item o The item to which the RCK Entry relates will not be presented unless the related RCK Entry is Returned o Any information added to the MICR line of the item to which the RCK Entry relates after the issuance of the item is correct o Originator has agreed that any restrictive indorsement made by Originator on the item to which the RCK Entry relates is void or ineffective • For TEL Entries: o Originator has verified the Receiver's identity o Originator has verified the routing number used in the TEL Entry • For WEB debit Entries: o Originator had implemented fraud detection systems o Originator has verified the Receiver's identity o Originator has verified the routing number used in the WEB debit Entry • For XCK Entries: o ODFI is entitled to enforce the item related to the XCK Entry o All signatures on the item to which the XCK Entry relates are authentic and authorized o Item to which the XCK Entry relates has not been altered o Item to which the XCK Entry relates is not subject to a defense or claim o The ODFI has no knowledge of any insolvency proceeding commenced with respect to the item to which the XCK Entry relates o Item to which the XCK Entry relates is drawn on or payable at the RDFI o The XCK Entry accurately reflects the item o The item to which the XCK Entry relates will not be presented and will not be presented o The ODFI has all necessary authority to initiate the XCK Entry and the item to which the XCK Entry relates meets all eligibility requirements • Reclamation Entries: o All information is accurate and applies to the Receiver and account identified in the Reclamation Entry or written demand for payment o RDFI's right and obligation to pay the Reclamation Entry are not limited to the number of parties having an interest in the account • Dishonored Return Entries relating to Reversals: o ODFI dishonoring the Return of a debit Erroneous Entry warrants it Transmitted a credit Reversing Entry to correct such debit Erroneous Entry and that the ODFI has not received a Return of that Reversing Entry from the RDFI o ODFI dishonoring the Return of a debit Reversing Entry warrants that such Reversing Entry was intended to correct a corresponding credit Erroneous Entry and that the ODFI has not received a Return of the credit Erroneous Entry from the RDFI • Return Fee Entries o Originator imposing the Return Fee has not and will not impose any other Return Fee in relation to the underlying Entry or item that was returned unpaid

What is the amount of time given to an ODFI to provide an RDFI a copy of an item relating to an XCK Entry?

An ODFI must provide a copy of the item to which the XCK Entry relates to the RDFI within 30 calendar days of receiving a written request from the RDFI provided that such request is received within six years of the date on which the ODFI initiated the XCK Entry.

For what type(s) of payments are RDFIs required to pass Addenda Record information to their customers?

An RDFI is required to provide Remittance Information to Non-Consumer Account holders after the commercial customer or member first makes the request. The requirement applies to any Payment Related Information that accompanies CCD, CTX, CIE, or IAT Entries to the requesting business Receiver. How the Addenda Record information is passed to the Non-Consumer Account holder is decided between the RDFI and Receiver. This could include any manner of information sharing—secure email, fax, U.S. mail, hard copy delivered in person, flash drive, etc. The Nacha Operating Rules do make one constraint with respect to provision of Remittance Information, however. That condition is specific to the Addenda Record associated with a Health Care EFT Transaction(s). The RDFI is required to offer or make available to the Health Care Provider an option to receive or access the Payment Related Information via a secure, electronic means that provides a level of technology that uses a commercially reasonable encryption technology that complies with regulatory requirements. The two parties—the RDFI and the Health Care Provider—may by agreement use any method to disseminate the Addenda Record information. However, the RDFI must still have at its disposal a secure, electronic means, which meets or exceeds the minimum encryption technology standard, by which it may send to the Health Care Provider the remittance information.

How many days does an RDFI have to respond to a written request from an ODFI for a copy of the Written Statement of Unauthorized Debit specific to an Extended Return Entry?

An RDFI must provide either the original or a copy of the Written Statement of Unauthorized Debit within ten Banking Days from receipt of the written request from the ODFI (not the Originator). Additionally, the ODFI may make such a written request up to one year from the date the Extended Return Entry is initiated.

What is the Entry information the Rules require an RDFI to verify when receiving a Prenotification Entry?

An RDFI that receives a Prenotification Entry must verify that the account number contained in the Prenotification is for a valid account. That is the minimum: account number validation. If the Prenotification does not contain a valid account number, the RDFI must Transmit either (a) a Return Entry, or (b) a Notification of Change. This is the only situation that requires an RDFI generate a Notification of Change Entry.

Define Clearing House

An institution comprised of member depository institutions for exchanging, clearing, and settling Check payments among members. This participant is comparable to the ACH Operator in the ACH Network. Keep in mind that Check processing may also make use of a Bankers' Bank or a Correspondent Bank at this step in the process.

Define Bankers' Bank

An institution owned by depository institutions that typically provides correspondent services, including Check clearing and settlement services, to its owners and other banks. This participant is comparable to the ACH Operator in the ACH Network. Keep in mind that Check processing may also make use of a Correspondent Bank or a Clearing House at this step in the process.

What do the terms "on-us" and "transit" communicate for a Check?

An on-us item is a Check presented to the paying bank where the Check writer, the drawer, has the funds on deposit. These types of items occur when the depositing customer, the Payee, also maintains an account at the same financial institution. The depositary bank (or Bank of First Deposit) is the same depository bank as the paying bank. Transit items occur when the deposited Check must travel to another depository bank for presentment to occur. These days the Check "travel" occurs in the form of an Electronic Check, in almost all instances. Gone are the days when a physical Check has to be moved from depositary bank to paying bank. It's important to understand that these terms apply to payments channels other than Check. An ACH Entry may be on-us, as well. In instances where the Originator and the Receiver maintain accounts at the same Participating Depository Financial Institution, the ACH item is on-us. The ODFI and the RDFI are the same Participating DFI.

Electronic Signatures in Global and National Commerce Act (E-Sign Act)

Any agreement, authorization, Written Statement of Unauthorized Debit or other record that is required to be signed or similarly authenticated may be signed with an electronic signature in conformity with the terms of this Act

Title 12 Code of Federal Regulation Part 229

Availability of Funds and Collection of Checks (Regulation CC)

When does an RDFI agree to the provisions of Title 31 of the Code of Federal Regulations Part 210?

By accepting a recurring benefit payment from a federal government agency, a Receiving Depositing Financial Institution (RDFI) agrees to the provisions of 31 CFR 210, including the reclamation and debiting of the RDFI's Federal Reserve Bank account for any reclamation for which it is liable. This liability provision of the Federal reclamation regulations is part of the contract between the government and the RDFI. The two parties agree to share liability for post-death payments. This contract is renewed by the RDFI each time it accepts and credits an ACH payment on behalf of the depositor [The Green Book on-line page 5-3].

Payment system whose participants include the Drawer, Payee, Bank of First Deposit, Correspondent Bank/Bankers' Bank/Clearing House, and Paying Bank (also called Drawee)?

Check Payment System. The Drawer is comparable to the Receiver in the ACH Network. The Drawee or Paying Bank is comparable to the Receiving Depositary Financial Institution in the ACH Network. The Payee is comparable to the Originator in the ACH Network. The Bank of First Deposit or Depositary Bank is comparable to the Originating Depositary Financial Institution in the ACH Network. There really is no clear-cut counterpart to the ACH Operator in the Check Payment System. That is because a check may travel through one or more clearing paths. These clearing paths involve participants that go by the following names: • Correspondent Bank • Intermediary Bank • Federal Reserve Bank • Bankers' Bank • Clearing House

What changes to the payments system—specifically ACH—came about because of the Monetary Control Act in 1980?

Congress enacted the Monetary Control Act in 1980 to improve the payments system. Because of that Act, private-sector ACH Operators were encouraged to compete with the Federal Reserve Bank, which could no longer offer its services free of charge. A private sector adjustment factor (i.e., profit margin) is included in Federal Reserve processing so that the Federal Reserve Bank operates as if it were on a "for profit" basis.

Under UCC-4A, if the RDFI fails to make funds available to the Receiver, it may be liable for what type of damages?

Consequential damages

What is the risk that occurs when an ODFI permits an Originator or thirdparty to use its routing number to send Files directly to the ACH Operator?

Direct-Access Risk—Direct Access is a situation in which an Originator or third-party (either a Participating DFI's Third-Party Service Provider or an Originator's Third-Party Sender) Transmits ACH transactions directly to an ACH Operator, outside of a Participating DFI's risk management process, using the ODFI's routing and transit number and settlement account. Direct-Access Risk is a type of ancillary risk. Failure to register Direct Access status with Nacha is an automatic Class 2 Rules violation, after it is discovered.

What is EBIDS?

EBIDS allows businesses to deliver "eBills" to online banking accounts for presentment to consumers and to receive authorized credit payments through the ACH Network. The common platform that includes EBIDS participating merchants includes a collaborative mechanism to share Notification of Change Entries received from the RDFI by an Originator. The service can also earn transaction revenue for financial institutions for presenting consumer bills. The agreement to use EBIDS requires bill payment Originators to apply account edits provided by the biller before originating a payment. By enforcing edit rules, EBIDS improves efficiencies and ultimately reduces bill payment exceptions. In addition to using services such as EBIDS for standardization purposes and to ensure account masks are being used and shared, the Council for Electronic Bill Payment (CEBP) suggests the following. • Developing directories / shared databases to verify account numbers, structures, and billing / remittance details • Enhancing communications among billers, banks, and processors, especially for resolving exceptions Increasing available options to correct or validate account numbers by sharing scrub files and / or master account files

What is the name for the summation of routing numbers contained within a batch?

Entry Hash. This 10-position field found within the Company/Batch Control Record and the File Control Record is a mandatory field. The Receiving DFI Identification in each Entry Detail Record is hashed to provide a check against inadvertent alteration of data contents due to hardware failure or program error. Addenda Records are not hashed. The hash process is a simple sum of all the Receiving DFI Identification fields contained within the Entry Detail Records. The Receiving DFI Identification Field contains the 8-digit routing number of the RDFI. The hash is the sum of all the 8-digit routing numbers. If the sum exceeds the 10 characters allowed for the field, the Entry Hash field must be populated with the rightmost 10 characters. The Entry Hash field in the Company/Batch Control Record is the hash of the Receiving DFI Identification Field in every Entry Detail Record contained in a batch. The Entry Hash field in the File Control Record is the hash of the Receiving DFI Identification Field in every Entry Detail Record contained in a File.

Of the two wholesale services— Fedwire® Funds Service and Fedwire® Securities Service—offered by the Federal Reserve Banks for direct participation, which is a credit/push system?

Fedwire® Funds Service The Fedwire® Funds Service is a credit / push system with respect to funds movement in which only the sending depository institution can debit funds from its Federal Reserve Bank account. In contrast, the Fedwire® Securities Service is a debit / pull system with respect to funds movement.

What are the warranties of the RDFI?

For each Entry received, an RDFI warrants to each ODFI and ACH Operator that it has the power under applicable Legal Requirements to receive Entries as provided in the Nacha Rules. For RCK Entries, the RDFI warrants that it will (a) Display the descriptive information contained in the Entry on the relevant periodic statement sent to the Receiver by the RDFI, and (b) Accord the Receiver the same rights with respect to the RCK Entry as are provided for items under Revised Article 4 of the 1990 Official Text of the Uniform Commercial Code, except as otherwise provided in the RDFI's agreement with the Receiver. For each Notification of Change an RDFI transmits, the RDFI warrants to each ODFI and ACH Operator that the information contained with the COR Entry or corrected COR Entry is correct. An RDFI Transmitting an Extended Return Entry in accordance with the Nacha Rules warrants that, prior to initiating the Extended Return Entry, the RDFI obtained from the Receiver a Written Statement of Unauthorized Debit complying with Section 3.12 (Written Statement of Unauthorized Debit).

Title 31 of the Code of Federal Regulation Part 210

Governs federal government payments made via the ACH Network

Title 31 of the Code of Federal Regulation Part 370

Governs the handling of payments for the Bureau of Public Debt made through the ACH Network

How many types of authentication are there?

I know the list of authentication methods could be very long. There's biometric; token; out-of-bank, just to name a few. But, I am looking for the opportunity to discuss types of authentication, not really the methods that make up the three types. The answers I seek are: • Single-factor Authentication - Method using only one authentication factor • Two-factor Authentication - Method using two authentication factors (Sometimes referred to as 2FA) • Multi-factor Authentication - Method using more than two authentication factors (Sometimes referred to as MFA) Remember the saying: 1) something they know, 2) something they have, or 3) something they are. For two-factor authentication, one might make use of both a token—something they have—and a fingerprint—something they are. The more secure multi-factor authentication makes use of all three—something they know, something they have, and something they are.

What statement information do the ACH Rules and Regulation E specify must be provided to Receivers of a POS Entry beyond what is provided for other Standard Entry Class Codes?

If someone answered that no information beyond what is provided for other Standard Entry Class Codes is provided for a POS Entry, you would technically be correct. This was not intended as a trick question, however. Rather, this was intended to encourage study into Record formats. Below are the fields included in the POS Entry that are not included with the majority of Standard Entry Class Codes. There are notes that list what other SEC Codes include similar fields in their Entry Detail or Addenda Records. 1. Terminal ID (Also provided for MTE & SHR Entries) 2. Terminal City (Also provided for POP, MTE, & SHR Entries) 3. Terminal State (Also provided for POP, MTE, & SHR Entries) 4. Terminal Location (Also provided for MTE & SHR Entries)

What are the values required for use within the Company Entry Description field and for what type(s) of Entries must the values be used?

In most cases, the Originator establishes the value of the Company Entry Description to communicate the reason for the payment. There are, however, times that the Rules require the field to contain specific values. In all these instances, the value must be in UPPER CASE. Incidentally, the field may be completed with UPPER CASE information all the time. Use of UPPER CASE is not limited to the following examples. Rather, it is required in the following examples. VALUE / What the value is used for NONSETTLED / Used by an ACH Operator to "send back" Entries that could not settle. The batch contains Entries that did not settle. RECLAIM / Used by a commercial Originator for their Reclamation Entry, sent to the deceased Receiver's account to reclaim post-death benefits that neither the Receiver nor survivors are entitled to. The batch contains commercial Reclamation Entries. Don't confuse this with the debit an agency of the Federal Government may initiate to the settlement account of an RDFI. Reclamations Entries post to the specific account of the decedent. RETRY PYMT / Used by an Originator for properly Reinitiated Entries. RETURN FEE / Used by an Originator to Transmit authorized fees charged after the Return of an ACH Entry for insufficient or uncollected funds. The batch contains Return Fee Entries. REVERSAL Used by an Originator, ODFI, or ACH Operator, as applicable, to communicate the Entry (or Entries) correct a previously initiated Erroneous Entry. The batch contains Reversing Entries. HCCAIMPMT / Used by an Originator who is a health care claim payor to send payment to the health care claim provider. The batch contains health care claim credit payments, using the CCD Record format. AUTOENROLL / Used by an RDFI to send enrollment information to a Federal Agency on behalf of the RDFI's account holder that wishes to enroll in a benefit program. The batch contains Automated Enrollment Entries (ENRs). REDEPCHECK / Used by the Originator when initiating ACH Entries to collect an obligation still outstanding due to a check returned for insufficient or uncollected funds. The batch contains Re-presented Check Entries (RCKs). NO CHECK / Used by the ODFI as the description for Entries initiated using the XCK Standard Entry Class Code. There are other circumstances require specific input in the Company Entry Description field. When the batch contains TRX Entries (Truncation Exchange Entries), the ODFI must populate the field with the routing number of the keeper of the checks, i.e., the ODFI / Depositary bank. When a batch contains automated advice from an ACH Operator to a Participating Depository Financial Institution, the ACH Operator must populate the field with a value that should describe the activity to which the accounting information relates. One example of accounting advice a Participating Depository Financial Institution may receive is a Balance Report. One of the biggest requirements an ODFI must know is when it initiates Person-to-Person WEB Entries. These are the Entries by which a consumer Originator sends a credit to a consumer Receiver. The ODFI must include a value within the Company Entry Description field that the Receiver "would readily recognize as descriptive of a Person-to-Person Entry." How's that for vague?

What is an Unsecured Electronic Network (UEN)?

It isn't necessarily a website that does not make use of security protocols, e.g., http: versus https:, but https is a good indicator of a secured website. Unsecured Electronic Network is a network, either public or private, that 1) Is not located entirely within a single, contiguous, physical facility; and either a) Transmits data via circuits that are not dedicated to communication between two end points for the duration of the communication, or b) Transmits data via wireless technology (excluding a communication that begins and ends with a wireline connection, but that is routed by a telecommunication provider for a portion of the connection over a wireless system). For clarity, the Internet is a UEN, even though secure transmissions may be made over that otherwise unsecure network.

What is MAC to the ACH Network?

MAC or Message Authentication Code is an eight-character code derived from a special key used in conjunction with the DES algorithm. (DES stands for Data Encryption Standard.) The MAC is used to validate the authenticity of ACH Entries and the authenticity of a batch. The DES algorithm and key message standards must be in accordance with standards adopted by the American National Standards Institute (ANSI). The remaining eleven characters of this field are intentionally blank. Since the field is an alphameric field, that means the eight-character MAC will be left justified with the remaining eleven characters filled with spaces.

What does the acronym MICR stand for?

MICR stands for magnetic ink character recognition. This descriptive information comprised of numbers and symbols printed in magnetic ink at the bottom of a physical check that can be recognized at high speed by automated processing equipment.

Does the Green Book, the procedural manual for Title 31 of the Code of Federal Regulation Part 210, govern state government ACH payments?

No. The Green Book is the procedural manual for Title 31 of the Code of Federal Regulation Part 210, which governs federal government payments made via the ACH Network. As you may recall from previous Questions of the Day, payments can be divided up into many categories. Two categories are federal and commercial. If the Originator Status Code is 2, the Entry was originated by an agency of the federal government and is a federal payment. If the Originator Status Code is 1, the Entry was originated by some other Originator, which makes the Entry a commercial Entry. This latter type of Originator group includes state agencies. A third possible value in the Originator Status Code is 0 (zero). These Entries are originated by an ACH Operator. Only federal payments are governed by Title 31 of the Code of Federal Regulation Part 210 and the Green Book.

According to Regulation E, what constitutes authorization for a service fee to be collected for an ACH Entry returned due to insufficient or uncollected funds?

Notice + Specific Fee Being Imposed + Receiver going forward with the transaction = Authorization

Office of the Comptroller of the Currency (OCC) Banking Circular 235

OCC issuance is specific to National Banks, but their guidance is applicable to any financial institution. Banking Circular 235 was written to alert national banks to the risks associated with large dollar payments systems, particularly within the international sector, i.e., International Payments Systems Risks

One of the participants in Check processing is the Payee's Depository Financial Institution. To which ACH Network participant is the Payee's Depository Financial Institution comparable?

Payor's Depository Financial Institution: Typically called the "paying bank," or, occasionally, "payor bank," "payor's bank," or "drawee," this is the depository institution associated with the routing number encoded in the MICR line on a Check. The paying bank is comparable to a Receiving Depository Financial Institution for an ACH debit Entry in the ACH Network.

Title 31 of the Code of Federal Regulation Part 203

Provides rules for financial institutions that use EFT to process federal tax payments through EFTPS

Title 12 Code of Federal Regulation Part 1005

Regulation E, written to implement the Electronic Fund Transfer Act of 1978 The parts of Title 12 that fall under the jurisdiction of the Consumer Financial Protection Bureau are numbered 1000 to 1099 Chapter 10.

What is reputation risk and which ACH Network participant is (participants are) encouraged to control this type of risk?

Reputation risk occurs when an account holder's confidence in a financial institution is diminished. Reputation risk is one of the ancillary risks that financial institutions face when processing payments. Though, Originators also may suffer from reputation risk. An ancillary risk is a consequence or byproduct of not managing other types of risk such as Compliance risk or Fraud risk. Participating DFIs— both ODFIs and RDFIs—are encouraged to manage their Reputation risk.

Title 31 of the Code of Federal Regulations Part 208

Requires all federal agencies to make payments by electronic funds transfer. This part does not apply to payments under the Internal Revenue Code of 1986.

Title 12 Code of Federal Regulation Part 204

Reserve Requirements of Depository Institutions (Regulation D)

What does the acronym SCOPE stand for?

SCOPE stands for Special Committees on Paperless Entries. This committee formed in 1968 to develop a workable alternative to the clearing of paper checks.

What are the Mandatory and Optional Addenda Records?

See image

What is the ACH application for a consumer point-of-sale transaction within a shared network system in which the ODFI and RDFI have a common operating agreement?

Shared Network Transaction (SHR)

What is systemic risk and what ACH Network participant is (participants are) responsible for mitigating systemic risk?

Systemic risk is primarily associated with institutions that handle high dollar activity relative to their capital. This is address for financial institutions and payments system operators in the Federal Reserve Board's Payments System Risk Policy. For the ACH Network, the ACH Operators—the Federal Reserve and the private sector Operator, The Clearing House (TCH), formerly known as EPN—are the systemic risk mitigating participants.

What is an Addenda Type Code?

The Addenda Type Code field informs the ACH File software the specific format for the Addenda information contained within the Entry. Each code specifies the type of data the user may expect to find within the Addenda Record and, therefore, how the field or fields and the information within the fields may be interpreted. Values include: 02 Point-of-Sale Entry (POS), Shared Network Transaction (SHR), or Machine Transfer Entry (MTE) Use of this code informs software the Addenda contains the Terminal Identification Code; Transaction Serial Number; Transaction Date; Authorization Code or Card Expiration Date; Terminal Location; Terminal City; and Terminal State. 05 Addenda Record that applies to ACK, ATX, CCD, CIE, CTX, DNE, ENR, PPD, TRX, and WEB Entries. Each Standard Entry Class Code makes use of its Addenda Records in different ways. For example, the ENR Payment Related Information field contains information required to enroll a person in a federal benefit program. Each federal agency will have its own required information and format for data input in the field. The CCD and the CTX Standard Entry Class Codes afford the business Originator to send remittance information to its business partner, the Receiver, in one of the transactions sets already communicated in a question of the day email. 10 1st Addenda Record for IAT Entry 11 2nd Addenda Record for IAT Entry 12 3rd Addenda Record for IAT Entry 13 4thAddenda Record for IAT Entry 14 5th Addenda Record for IAT Entry 15 6th Addenda Record for IAT Entry 16 7th Addenda Record for IAT Entry Addenda Type Codes 10 through 16 are the required Addenda Records that must always travel with the IAT Entry. They communicate the data specific to the payment, the Originator, and the Receiver of the IAT Entry. Together, they satisfy the "travel rule." For example, the second Addenda Record contains the Originator's name and street address. The third Addenda Record, as another example, must contain the Originator's city & state / province and the Originator's country and postal code. 17 Addenda Record for IAT Entry Remittance Information Only two of this type of Addenda Record may travel with the IAT Entry. It is one of the optional Addenda Records. The remittance information Addenda Record may contain payment related information as needed. This is the Addenda Record used to inform financial institutions that there is party to the IAT transaction, in addition to the Originator and Receiver. The "for further credit to" or the "funding participant" must be identified by name, address, city, state / province, country code, and postal code within the Payment Related Information field. When the Addenda Record for IAT Entry Remittance Information includes one of these additional parties to the IAT Entry, this Addenda Record becomes mandatory. 18 Addenda Record for IAT Entry Foreign Correspondent Bank Information Only five of this type of Addenda Record may travel with the IAT Entry. The Addenda Record contains fields: Foreign Correspondent Bank Name; Foreign Correspondent Bank Identification Number Qualifier; Foreign Correspondent Bank Identification Number; and Foreign correspondent Bank Branch Country Code. 98 Notification of Change (COR) Addenda Record and Refused Notification of Change (COR) Addenda Record The COR Addenda Record contains the Change Code and the Corrected Date, along with other tracking information. 99 Return Entry Addenda Record, dishonored Return Entry Addenda Record, and contested dishonored Return Entry Addenda Record Every Return Entry, regardless of which type of Return, e.g., contested dishonored Return Entry or Extended Return Entry, must include an Addenda Record with Addenda Record Type Code 99. The Return Addenda Record stores, for audit-trail-type purposes, information about the Entry. For example, Original Return Reason Code (found in both the dishonored Return and the contested dishonored Return Addenda Record to show the reason the originator Entry was returned. Another example, the Date Original Entry Returned must be completed when an RDFI uses R73 to indicate the date the RDFI initiated the original Return. The information is used to contest the ODFI's claim the Return was untimely.

What is the year the Magnetic Ink Character Recognition (MICR) process was adopted for use?

The American Bankers Association first adopted the MICR standard in 1956*. *1956 is the date Nacha provides in the Accredited ACH Professional Handbook. ePayResources realizes that research makes a case for other dates. This is an instance where it benefits the AAP candidate to memorize the information the owner of the test considers correct even though it may not be correct.

Speaking of "on-us," where may an Auxiliary On-Us Field be found and what are its uses?

The Auxiliary On-us Field is found in the MICR line of a business-sized Check. Bear in mind that the business-sized term references the size of the item. It does not, in any way, indicate the use of the Check. It is entirely possible for a consumer to purchase business-sized Checks for personal use. The optional variable format field allows the paying bank and their drawer customer to use up to 15 characters to identify things like: Check serial number; separate operating budgets all within one account, i.e., charge this check to office supplies, charge this Check to utilities; or product codes. Its use is defined by the paying bank. The auxiliary On-Us field is positioned to the left of the routing field or the EPC field when an external processing code is present. Data located in the auxiliary On-Us field must be bracketed by an opening On-Us symbol and a closing On-Us symbol. Only these two On-Us symbols shall be printed in their designated positions within the auxiliary On-Us field. The formatting specifics of the Aux On-us field, just like all other aspects of the MICR line, are defined by an ANSI standard. The standard for MICR line printing is X9.100-160. An illustration appears below. If the MICR line includes the Aux On-us field, the Check can never be an Eligible Source Document.

What is the Blocking Factor?

The Blocking Factor defines the number of Records within a block (one block is 940 characters). For all ACH Files, a Blocking Factor of ten (10) must be used. If the number of Records is not a multiple of then, the remainder of the block must be filled with "9s." So, the number of Records in a File must be 10, 20, 30, 40, etc. A block that does not contain a number of Records divisible by ten may be filled— or completed—by creating one or more dummy Records. Each dummy Record will be 94 characters in length. All characters in a dummy Record are nines (9).

What is the deadline for a Gateway to notify an RDFI of an inbound IAT transaction that has been blocked and / or rejected?

The Gateway has five-Banking Days to notify an RDFI of an Inbound IAT transaction that has been blocked or/and rejected. A Participating Depository Financial Institution acting as a Gateway may process both Inbound and Outbound IAT credit and debit transactions. The Participating DFI acting as a Gateway must review the IAT transactions for OFAC compliance. There is an optional field in every IAT Entry titled, Gateway Operator OFAC Screening Indicator (Field 10 of the IAT Entry detail Record). Although populating the Gateway Operator OFAC Screening Indicator with the results of the review is optional, it is a best business practice. OFAC has stated that the responsibility for investigating suspect IAT transactions may be passed to the RDFI, but within the Nacha Operating Rules, the Gateway has taken on the warranties and responsibilities of the ODFI. As such, the Gateway warrants that all transactions originated are in compliance with U.S, law. To that end a Participating DFI acting as a Gateway should investigate and clear any suspect IAT transactions before they are originated into the U.S. ACH Network. If an Inbound IAT transaction is found to be in violation of an OFAC sanction policy, OFAC has stated that all processing should cease; that the Gateway / ODFI is to notify OFAC within ten days. The Gateway should notify the Foreign Gateway that the item has been rejected or frozen because it was in violation of U.S. law, and the Gateway should send a copy of the unlawful transaction to the RDFI as notification of the blocked or rejected transaction.

How many Addenda Records may accompany an International ACH Transaction (IAT) Entry?

The IAT Entry accommodates up to 12 Addenda Records. Seven of these Addenda Records are mandatory under current processing Rules. Five are optional. If the IAT payment includes an additional party to the transaction—either the ultimate beneficiary or payer of the funds—an additional Addenda Record is required. In cases when the payment flow includes an ultimate beneficiary or payer of funds, one of the optional Remittance Information Addenda Records must be used to include information specific to that additional party to the transaction. In these cases, eight Addenda Records will be scanned against the Specially Designated Nationals list.

What is excused delay?

The Nacha Operating Rules & Guidelines help clarify circumstances in which processing delay by a Participating DFI or an ACH Operating would be excused. The Rules permit a Participating DFI or ACH Operator to delay performance of its obligations under the Rules beyond required time limits if both: 1. The delay was caused by the interruption of communication or computer facilities. 2. The delay was beyond the reasonable control of the Participating DFI or ACH Operator seeking the excused delay. Whether the delay is beyond the reasonable control of the party asserting an excused delay must be determined based on the available facts and circumstances surrounding the delay, including whether the Participating DFI or ACH Operator exercised the level of diligence required under such circumstances. A delay that is excused will continue to be excused until either the cause of the delay has been eliminated or should have been eliminated if the affected Participating DFI or ACH Operator had exercised the level of diligence required under the circumstances, whichever is earlier. The ACH Participant asserting an excuse from any delay should as promptly as possible notify all other ACH participants of the delay.

What is the amount of time given to an ODFI to request a copy of a Written Statement of Unauthorized Debit?

The ODFI may request a copy of a Written Statement of Unauthorized Debit (WSUD) for up to one year from the date of the initiation of the Extended Return Entry. The RDFI has ten Banking Days to send the ODFI a copy of the WSUD after receiving written request. Keep in mind the Rule language is different when it states the RDFI must retain a copy of the WSUD for at least one year from the Settlement Date of the Extended Return Entry. One section reads, "initiation of the Extended Return Entry;" one section reads, "Settlement Date of the Extended Return Entry."

What is the name of the field that identifies a government or commercial Entry?

The Originator Status Code field is a one-position field containing a code identifying the ODFI initiating the Entry. There are three possible values. 0 ADV File prepared by an ACH Operator 1 This code identifies the Originator as a depository financial institution, which makes the Originator a commercial entity. 2 This code identifies the Originator as a Federal Government entity or agency.

What is the deadline for an Originator to reinitiate a returned Entry back into the ACH Network following the Settlement Date of the returned original Entry? In other words, what is the deadline for a properly Reinitiated Entry?

The Originator or ODFI must Reinitiate the Entry within 180-calendar days after the Settlement Date of the original Entry. An Originator or ODFI must not Reinitiate an Entry more than two times following the Return of the original Entry. Three total attempts are allowed. Reinitiation of Return Entries is only allowed under certain conditions, however. An Originator or ODFI may Reinitiate any Entry, other than an RCK Entry, that was previously returned, only if: (a) the Entry was returned for insufficient or uncollected funds; (b) the Entry was Returned for stopped payment and Reinitiation has been separately authorized by the Receiver after the Originator or ODFI receives the Return Entry; or (c) the Originator or ODFI has taken corrective action to remedy the reason for the Return. RCK Entries may also be reinitiated. Because the first attempt to collect the obligation owed by the Receiver was clearing the Check, the RCK Entry may never be reinitiated more than one time. Example: first time as Check; second time as first RCK Entry; third time as Reinitiated Entry. If the Originator intends to charge a Return Fee, the deadline for an Originator to initiate a Return Fee Entry authorized by notice following the Settlement Date of the Return is 45-calendar days.

How is the Payment Type Code field used?

The Payment Type Code field communicates whether a Telephone Initiated Entry (TEL) or an InternetInitiated / Mobile Entry (WEB) is a recurring Entry or a Single Entry. The Originator must indicate the WEB transaction is either Single Entry or recurring Entry by placing the value "S" or "R" within the field, respectively. For the TEL transaction, the Originator must use the value of "R" when the TEL authorization is for a recurring payment. For a Single Entry TEL, the Originator may use the value "S" or leave the field blank. The values have repercussions for other ACH Network requirements. For Notification of Change Entries, the Originator must make the changes indicated by the RDFI for each Correcting Entry received with respect to a recurring payment. However, the Originator has the freedom not to make changes with respect to Single Entry TEL and Single Entry WEB transactions. For authorization retention, the values also make a difference. That is because there are different authorization requirements for a TEL Entry depending on if the authorization is for a Single Entry or a recurring Entry.

What do the Quest® Operating Rules govern?

The Quest® Operating Rules form the foundation for nationwide electronic benefits transfer (EBT). Adopted by Nacha's Electronic Benefits and Services Council (formerly the EBT Council) in April 1996, they are a landmark achievement of a public / private partnership that is committed to developing and maintaining uniform EBT operating rules. The Quest® Operating Rules set forth the requirements for the distribution of government benefits under the Quest service mark. Government entities may utilize these Quest® Operating Rules by incorporating them in their contracts with private sector entities utilized to distribute benefits. There is no fee for use of the QUEST® Mark. Of course, government entities may also choose to distribute benefits under other operating rules. The Quest Operating Rules do not address electronic distribution of government benefits under other service marks other than the QUEST® Mark.

What is the series of numbers that ties or relates the Health Care EFT payment to the remittance information transmitted through another electronic means called?

The Reassociation Trace Number. A Health Care Claim Payment is a Corporate Credit or Debit (CCD) Entry originated by a Health Plan to a Health Care Provider with respect to a health care claim. A Health Care EFT Transaction must be accompanied by one Addenda Record that contains the ASC X12 835 TRN (Reassociation Trace Number) data segment in the Payment Related Information field. With the Effective Entry Date field's value and the Amount field's value, the Reassociation Trace Number makes up the CORE-required Minimum CCD+ Reassociation Data Elements. Three fields' values create the CORE-required Minimum CCD+ Reassociation Data Elements. The Reassociation Trace Number is the value from the Payment Related Information field of the CCD Entry. The definition for CORE-required Minimum CCD+ Reassociation Data Elements is information Transmitted by a Health Plan to a Health Care Provider in a Health Care EFT Transaction for the purpose of reassociating the Health Care EFT Transaction with an electronic remittance advice. The CORE-required Minimum CCD+ Reassociation Data Elements include information contained with the Effective Entry Date field, the Amount field, and the Payment Related Information field of the CCD Entry.

One of the participants in the Wire Transfer Network is the Beneficiary's Bank. This participant is comparable to which ACH Network participant?

The Receiving Depository Financial Institution or RDFI. The participants in the Wire Transfer Network are: Originator: The party that wants to make a payment to the Beneficiary; Sender of the payment order; Originates the funds transfer. The Originator is comparable to the Originator in the ACH Network. Originator's Bank: The receiving bank to which the payment order of the Originator is issued if the Originator is not a bank or the Originator if the Originator is a bank. The Originator's Bank is comparable to the Originating Depository Financial Institution in the ACH Network. Intermediary Bank: Any bank receiving a payment order that is part of the funds transfer; there may be no Intermediary Bank or there may be several in a funds transfer. The Intermediary Bank, when there is one or more involved, is comparable to the ACH Operator in the ACH Network. When there is no Intermediary Bank involved in the wire transfer, the transaction is analogous to the "on-we" transactions in the ACH Network. Beneficiary's Bank: The bank identified in a payment order in which an account of the Beneficiary is to be credited pursuant to the order or which otherwise is to make payment to the Beneficiary if the order does not provide for payment to an account. The last bank in the chain of payment orders that is intended to make credit available to the Beneficiary. This participant is comparable to the Receiving Depository Financial Institution in the ACH Network. Beneficiary: The party that is intended to receive the payment from the Originator. It usually receives credit to its account at the Beneficiary's Bank when applicable. The Beneficiary is comparable to the Receiver in the ACH Network.

What is the default choice of law state in the Network?

The State of New York. The Nacha Operating Rules make the choice of law distinction specifically for credit Entries subject to Uniform Commercial Code Article 4A. Because every state adopts their own version of Uniform Commercial Code, it becomes important for everyone to declare what version of laws the participant applies to the credit Entry subject to UCC-4A. As a greater discussion, stating a default choice of law state determines what state's laws apply to claims / disputes that may arise as part of the course of doing business. Most disputes must be resolved according to state law or / and agreement. And, the Nacha Rules are an agreement—a contract between Participating Depository Financial Institutions. If a Participating Depository Financial Institution chooses another choice of law state other than New York, that state's laws impact the resolution of disputes and claims.

In the ACH Entry, what is it that informs the Receiving Depository Financial Institution (RDFI) which of the various types of debit, credit, or accounting transactions the Entry is supposed to be?

The Transaction Code identifies various types of debit, credit, or accounting Entries. The Transaction Code is a two-position mandatory field. The two-digit field identifies what type of account the transaction is intended for and what type of action to take. The first digit indicates the type of account, i.e., demand account; savings account; general ledger account; etc. The second digit indicates the action to take, i.e., Return or Notification of Change; Credit; Prenotification; Debit; etc.

What is a Truncating Bank?

The Truncating Bank is the financial institution that truncates or creates an image of the original check; or if a person other than a financial institution truncates the original check, the first financial institution that transfers, presents, or returns, in lieu of such original check, a substitute check or, by agreement with the recipient, information relating to the original check (including data taken from the MICR line of the original check or an electronic image of the original check), whether with or without the subsequent delivery of the original check. Because the process of truncating a check only applies to the original check, there may be only one Truncating Bank. This is contrasted with the Reconverting Bank, which is a financial institution that produces or creates the substitute check; or with respect to a substitute check that was created by a person that is not a financial institution, the first financial institution that transfers, presents, or returns that substitute check.

What is EFTPS?

The acronym EFTPS stands for Electronic Federal Tax Payment System. It is a system through which taxpayers remit Federal tax payments electronically. Title 31 of the Code of Federal Regulation Part 203 - Electronic Federal Tax Payment System directs certain businesses to make tax payments electronically. The exempted businesses are those with $2,500 or less in quarterly tax liabilities. There are three methods of electronic payment. The first is EFTPS Direct. This method results in an ACH debit to the business' account at the RDFI. The second is an ACH credit push through the business' RDFI. The third method is a same-day payment through Fedwire®.

What is the amount of time an Originator must retain a copy of the consumer Receiver's authorization?

The answer to this question depends on the type of authorization. How many of you caught this trick question? Most consumer Receiver authorizations must be retained for a period of two years from the termination or revocation of the authorization. This includes ARC, BOC, PPD, POP, POS, MTE, SHR, recurring TEL, and debit WEB Entries. Exceptions follow. For RCK Entries, a copy of the authorization must be retained for a period of seven years from the Settlement Date of the RCK Entry. An Originator must retain the original or a copy of the written notice or the original or a duplicate recording of the oral authorization for two years from the date of the authorization of a single-Entry TEL Entry. Lastly, we have our old friend—the IAT Entry. To determine the retention period for an IAT Entry, one must look at the Transaction Type Code field to determine the underlying payment application. For example, if the Transaction Type Code field is POP, the IAT Entry is the international equivalent to the domestic POP Entry, and the authorization retention requirements mirror that for POP Entries. This example may be followed whenever the Transaction Type Code field value is that of a Standard Entry Class Code. The use of a Standard Entry Class Code inside the Transaction Type Code field is called a secondary SEC Code.

What is the amount of time an ODFI or commercial Originator has to initiate a Reclamation Entry or written demand for payment after receiving notification of death?

The commercial Originator or ODFI must originate a Reclamation Entry or written demand for payment within five-Banking Days after the Originator receives notice of the Receiver's death. If a Reclamation Entry is returned by the RDFI, the Originator may make a written demand for payment within 15-Banking Days after it receives a returned Reclamation Entry.

Define Payee's Depository Financial Institution

The first depository institution at which a Check is deposited. Usually called the Bank of First Deposit (BODF) or depositary bank, also, collecting bank: any bank, other than the payor bank, that handles a Check for collection. In the ACH Network, the terms "depositary bank," "collecting bank," or "presenting bank" is comparable to the Originating Depository Financial Institution (ODFI) for an ACH debit Entry.

What is the format required for alphameric fields?

The format for alphameric fields is left justified and space filled. Compare this to the format for numeric field, which is right justified and zero filled. Examples follow. Alphameric field - DFI Account Number, 17-character alphameric field, followed by the Amount field, 10-character numeric field

What is the minimum dispute amount required before the arbitration procedure can be used, and what are the three ACH arbitration procedures and their dollar limits?

The minimum dispute amount required before the arbitration procedure can be used is $250. The three ACH arbitration procedures and their dollar limits are: 1. Procedure A = $250 or less than $10,000 2. Procedure B = $10,000 or less than $50,000 3. Procedure C = $50,000 or greater Additionally, these procedures differ based on the number of arbitrators to decide the dispute, their selection, and their stipend. For Procedure A, each party to the dispute receives a list of five arbitrators—the same five. Each party to the dispute deletes two names from the list. The parties to the dispute must send their list within ten days or Nacha moves on without them. From the lists, Nacha chooses one arbitrator not deleted from both lists. For Procedures B and C, the selection process is similar. However, each party to the procedure receives a list of ten arbitrators from which they delete three names. Nacha picks three arbitrators not deleted from both lists. The arbitrator's stipend for a Procedure A case is $100. The stipend for each arbitrator in a Procedure B case is one percent of the decision. The stipend for all three arbitrators in a Procedure C case is one and a half percent of the decision.

One of the participants in the Card Network is the Acquirer. The Acquirer is comparable to which ACH Network participant?

The participants in the Card Network are: Cardholder: An individual who has been issued or is authorized to use a credit, charge, debit, or prepaid card. The Cardholder is comparable to the Receiver in the ACH Network. Card Issuer: The entity that issues a payment card to the Cardholder and is responsible for the provision of customer service for the life of the card. The Card Issuer is comparable to the Receiving Depository Financial Institution in the ACH Network. Acquirer: An organization that represents merchants in the processing, acceptance, and settlement of POS transactions. For transactions involving the Visa® and MasterCard® network, Acquirers must be sponsored by a bank with a license to use the network. The Acquirer is comparable to the Originating Depository Financial Institution. ATM/Payment Network: organizations, typically with a global reach, that operate a network of systems that facilitate the routing of payment card authorization requests, corresponding responses, and settlement transactions between acquirers and issuers. In addition to the technical services, networks also (a) develop, establish, and promote a network brand; (b) develop and administer transaction processing and operating rules and standards; (c) enforce compliance among network participants; and conceive and develop new payment card-related technologies and services. This participant is comparable to the ACH Operator in the ACH Network. Merchant: An entity that has agreed to accept a payment card for purchase of goods and services at its retail locations. The Merchant is comparable to the Originator in the ACH Network.

Define Payor

The party obligated to pay on a Check. Also known as the maker, check.

Define Payee

The party, or parties, due payment and so indicated on the Check. This party's name will be indicated on the "Pay to the order of" line of a negotiable instrument. In the ACH Network, this party is comparable to the Originator.

What is the minimum encryption standard for communication over a UEN?

The requirement is for a technology that provides a commercially reasonable level of security that complies with applicable regulatory requirements. Banking information includes any Entry, routing number, account number, PIN or other identification symbol. The obligation applies to any Transmissions between: a) Receiver and Originator b) Originator and ODFI c) ODFI and ACH Operator d) ACH Operator and RDFI e) Originator, ODFI, RDFI, or ACH Operator and a Third-Party Service Provider The requirement applies to the communication of any banking information related to an Entry that is Transmitted via an Unsecured Electronic Network unless the communication is by means of voice or keypad inputs from a wireline or wireless telephone to a live operator or voice response unit.

What is the format of the three-digit number that identifies the Settlement Date called?

The three-digit Settlement Date number inserted by the Receiving ACH Operator is in Julian date format. The Julian date is the date on which the Participating DFI's or its correspondent's settlement account is scheduled to be debited or credited by the Federal Reserve. Receiving Depository Financial Institutions should make certain their reports indicate the appropriate date as Settlement Date. RDFI reports should reflect the day of the year corresponding to the threedigit Julian date, not the Effective Entry Date. Additionally, RDFI reports should not reflect an antedated Settlement Date just because the format of the Julian date does not provide for a specific year.

Who are the ACH Operators and what is their function?

The two ACH Operators are Electronic Payments Network (EPN) and Federal Reserve Bank. One or both function as the facility for clearing, delivery, and settlement of ACH Entries between or among Participating Depository Financial Institutions. When both ACH Operators are involved in the transmission of Entries, one operates as the Originating ACH Operator and the other as the Receiving ACH Operator.

What is the difference between a Third-Party Service Provider and a Third-Party Sender?

The two-word answer: an agreement. An agreement makes the difference between a Third-Party Service Provider and a Third-Party Sender. The answer should probably read, "The absence of an agreement between the ODFI and the Originator." Let me explain. A Third-Party Service Provider is an organization that performs some ACH function for an Originator, an ODFI, or an RDFI. As such a service provider, there will be an agreement between the two parties—the Third-Party Service Provider and the Originator, the ODFI, or the RDFI, as applicable. At the same time, the ODFI will have an origination agreement with the Originator—a direct agreement between the Originator and ODFI that, among other considerations, binds the Originator to the Nacha Operating Rules. Because there is an existing agreement between the ODFI and the Originator, this third party performing ACH functions on behalf of the Originator is a Third-Party Service Provider. A Third-Party Sender will have similar agreements in place with the parties for whom they perform ACH functions—perhaps an Originator or an ODFI. That part is like above. In the Third-Party Sender situation, there is no existing agreement between the Originator and the ODFI that forwards the Entries into the ACH Network. Instead, there is an agreement between the ODFI and the Third-Party Sender, which, among other considerations, binds the Third-Party Sender to the Nacha Operating Rules. There is a separate Origination Agreement between the Third-Party Sender and the Originator, which, among other considerations, binds the Originator to the Nacha Operating Rules. The Third-Party Sender acts as the intermediary between the ODFI and the Originator. Because there is no existing agreement between the Originator and the ODFI, this third party is a Third-Party Sender. In other words, the agreement, which does not exist between the Originator and the ODFI, is the agreement, which makes a ThirdParty Service Provider turn into a Third-Party Sender.

What are the valid reasons for initiating Reversing Entries?

The valid Erroneous Entry conditions are: 1. A duplicate of an Entry previously initiated by the Originator or ODFI. 2. Payment to or from a Receiver not intended to be credited or debited by the Originator. 3. Payment in a dollar amount different than was intended by the Originator. 4. PPD credit (representing payroll) Transmitted prior to employee termination and separation and a check provided for an amount that is greater than or equal to the PPD credit that is provided to the Receiver after the ACH File has been initiated into the ACH Network.

What is the number of characters in an Addenda Record?

There are 94 characters in each Addenda Record. An Addenda Record contains 94 characters with 80 characters of payment-related information. Please, don't get these two numbers confused. There are 80 characters of payment related information inside the 94-character Addenda Record.

Name the clearing and settlement methods for checks.

There are four main clearing paths for transit checks or checks which are not on-us items. These paths are: • Direct presentment • Federal Reserve Bank • Clearing House • Correspondent Bank Of course, in many instances a combination of these channels is used. For example, after the item (the Check) is deposited at the Bank of First Deposit, the item may then be negotiated at a Correspondent Bank, which may then use either the Federal Reserve Bank or a Clearing House for presentment to the Paying Bank.

How many days does an RDFI have to respond to a written request from an ODFI for a copy of a stop payment order form for a specific ACH debit Entry?

This is a trick question. A stop payment order form is an internal document only. An RDFI is under no obligation to provide a copy of this form to any other ACH Participant.

What is the largest dollar amount possible for one ACH transaction?

This number is not called out in the Nacha Operating Rule Book. Rather, one must make the logical inference from the supplied information. Let me explain. The Amount field within an Entry Detail Record is 10 positions in length. Furthermore, the Amount field is unsigned. This means only numbers are accepted this field—zero through nine. There is no dollar sign or plus (+) or minus (-) sign. Therefore, the largest ACH transaction possible is ten nines. (That's $99,999,999.99.) The same reasoning applies to finding the answer to the maximum number of batches allowed in a File or the maximum number of Entry / Addenda Records in a batch. The answer is 999,999 to both. The fields that inform this answer are Batch Count field in the File Control Header Record and the Entry / Addenda Count field in the Company / Batch Header Record respectively.

What provides rules for financial institutions that use EFT to process federal tax payments through EFTPS?

Title 31 of the Code of Federal Regulation (CFR) Part 203 - Payment of Federal Taxes and the Treasury Tax and Loan Program. A great place to find a complete listing of Federal Government publications is http://www.gpo.gov/fdsys/search/home.action

What is the title and part of the Code of Federal Regulation that governs federal government payments made via the ACH Network?

Title 31 of the Code of Federal Regulations (CFR) Part 210 governs federal government payments made via the ACH Network. Title 31 of the Code of Federal Regulation deals with Money and Finance: Treasury. Title 12 CFR deals with Banks and Banking. The chapters within each title are further divided in to topic groups. The chapter number may usually be determined by the first of the three-digit part. For example, Title 12 of the Code of Federal Regulation part 210 means this is chapter 2 of title 12. Additionally, the regulations in Title 12 are lettered and numbered correspondingly. For example, Regulation E is Title 12 C.F.R. Part 1005. E is the fifth letter of the alphabet, so it reflects number 5 within the chapter 10. Regulation CC is Title 12 C.F.R. Part 229. If we counted past letter Z to CC, we would be at number 29.

Federal Reserve Bank Operating Circular 4

Titled "Automated Clearing House Items" governs the clearing and settlement of ACH credit and debit items by the Federal Reserve Banks, ODFIs, and RDFIs

Federal Reserve Bank Operating Circular 5

Titled "Electronic Access" governs a financial institution's access to certain services available by means of electronic connection or connections.