ACH AAP Study Guide
Reversals are initiated by Originator, ODFI, or ACH Operator due to
1. Duplicate File Entry previously initiated 2. Incorrect Amount 3. Incorrect Recipient - Payment to or from a Receiver not intended to be credited or debited by the Originator
Three factors the RDFI must consider when developing a contingency plan
1. Exception conditions 2. Operational considerations 3. Contingency management
ENR (Automated Enrollment Entries)
1. May be initiated by any financial institution 2. Can be accepted by some federal governments agencies 3. Are accepted by the Social Security Administration
ACK (Acknowledgment Entry)
1. Optional, non-monetary Entries offered by ODFIs 2. Used to acknowledge that a corporate credit entry using CTX or CCD has been received
Originators of debit WEB entries are required to implement these risk management procedures
1. Verification of Receivers Identity 2. Fraudulent detection system 3. Verification of routing numbers 4. Annual audit of website security
Risk policy states institutions should establish these GENERAL CREDIT POLICIES:
1. formal written credit policies that articulate sound credit standards 2. controls at the customer level to ensure credit evaluations of individual customers are followed 3. daily, routine inspections of internal payment system, to ensure reliability & integrity
Fraud Risk
A customer contacts their financial institution after receiving their statement to ask for more information about a charge they received from Verizon. The account holder does not do business with Verizon and asks the financial institution for assistance in getting their funds back. The RDFI contacts the ODFI asking for a copy of the authorization, which they cannot produce. The entry is returned unauthorized. This scenario is an example of what type of risk?
1. Advance Notice of origination 2. Prefunding
ACH Operator may require what to handle high-risk settlement (ex: if experiencing financial difficulties)
ACH Network governed by
ACH Rules, UCC4, UCC4A, Electronic Funds Transfer Act, OFAC, Regulation E, The Right to Financial Privacy, Regulation D and Regulation CC
1. Financial institutions incur more credit risk when offering an ACH credit service than if their customers used a debit service 2. Offered by some financial institutions 3. Taxpayer initiates payment through their financial institution
ACH credit tax payment service:
Reversal
ACH entries sent to correct previously originated erroneous entries or files
Return
ACH entry that has been forwarded to the ODFI because it can't be processed
Reject
ACH entry which can't be automatically processed
"Initiated by a person other than the consumer, without actual authority to initiate such transfer from which the consumer receives no benefit
According to Reg E, what best describes the following: "unauthorized EFT"
orally or by other non-written means
According to the ACH Rules, what type of authorization is required for the consumer credit transactions
ATX (Financial EDI Acknowledgement)
Acknowledgment of receipt of a corporate credit payment originated using the CTX format
TXP
Addenda convention developed for tax payments
1. Reduced costs 2. Acceleration of the recovery process 3. Reduction of potential losses due to delays in presentment
Advantages of using ACH for collection of destroyed or lost checks
Banking Day
Any day participating DFI is open to the public
1. Safety 2. Convenience 3. Confidentiality
Benefits of Direct Deposit via ACH of payroll and pension
1. Reduce food stamp fraud 2. Allows multiple programs to use the card
Benefits of the EBT (Electronic Benefits Transfer)
Business Day
Calendar day other than a Saturday, Sunday or a Federal Holiday in the United States
Class 3 Violation
Class 2 Rules Violation continues for 3 consecutive months
VAN
Communications network for sending and receiving data
R07: Authorization Revoked
Consumer has signed Written Statement of Unauthorized Debit and no longer wants Originator to debit their account.
R29: CORPORATE Customer Advises not Authorized
Corporate receiver has not authorized the Originator and wants to return the entry
CIE (Customer Initiated Entry)
Credit only application, associated with home banking
CIE (Customer Initiated Entry) are CREDIT only transactions. CIE debits are blocked at the ACH Operator and will be returned to the ODFI
David's on-line bill paying service initiated a CIE DEBIT to Wanda's Beauty Shop's business account. What will happen?
POS (Point of Sale)
Debit entry initiated at an electronic terminal as defined by Reg E to effect a transfer of funds from a consumer account to pay an obligation incurred in a point of sale transaction
MTE (Machine Transfer Entry)
Debit or credit Entr to transfer funds to or from the consumers account, initiated at an electronic terminal as defined by Reg E
Originator
Determines the Effective Entry Date
ACH Operator
Determines the Settlement Date
Remotely created check
Drawn on a consumer account, is not created by the payor bank and does not include a drawer signature
Card Payment System governed by
Electronic Funds Transfer Act, Regulation Z, Card Association, Rules and Fair Credit Billing
Check Payment System governed by
Expedited Funds Availability Act, UCC3, UCC4, OFAC, Regulation CC, and Regulation
reduce the rate below .5% within 30 banking days and maintain it below that .5% for an additional 180 days
Great State Bank (ODFI) receives a notice from NACHA regarding Reporting Requirements for an Originator whose unauthorized returns exceeded the .5% threshold. Upon confirmation, Great State bank must do what or they may face a Class 2 Rules Violation
10 CALENDAR days prior to the date of the next debit
How long does Originator have to notify Receiver of change of amount of a recurring debit to their account
3rd banking day following Settlement, providing that a return or NOC is not received
How long must you wait between sending prenote and live entries
2 times
How many times can ODFI reinitiate a POP transaction when it is returned for either R01(insufficient funds) or R09 (uncollected funds)
Create and transmit reversing Entries to the affected RDFIs with the description NONSETTLED
If ODFI cannot settle its transactions originated into the ACH Network, the ACH Operator can:
Advance Notice of origination and prefunding
If ODFI is experiencing or has the potential to experience financial difficulties, the ACH Operator may require what prior to settlement?
Be an RDFI
If a Financial Institution wants to be an ODFI, it must also
Balance in the account OR $400, whichever is LESS
In a valid reclamation, what is the RDFI liable for
Institution that represents merchants in accepting POS debit transactions
In the Card Payment system, who is the Acquirer
when a Financial Institution employee who handles benefit payments is informed or made aware, or when it would have been brought to the employee's attention **Receipt of DNE is not required
In the reclamation process, when does RDFI have knowledge of the death of a recipient
Entry Detail Record
In what ACH Record will you find the Addenda Record Indicator
1. Timeliness of balance information 2. Number of locations the customer has
Information to know about a customer when researching for potential Cash concentration and disbursements
on-us check
John and Ringo have checking accounts at the same credit union. Ringo purchased a used drum set from John and paid him with a check. John deposits the check at his credit union. What would be the best definition of the check to the credit union?
Operational Risk
John is covering for Mary, who is on medical leave, in the exception processing department of an RDFI. John has been saving all the rejects for Mary, who is due back in week. What risk has John exposed the RDFI to?
WEB
Kimber has downloaded a mobile phone app from her tanning salon company that allows her to initiate her monthly payments using her mobile phone. This type of payment should go through the ACH Network with what SEC code
30 days
Lakes Credit Union (RDFI) sends a written request for a copy of the item to which an XCK relates within 6 years of the date on which the XCK entry was initiated; the ODFI (Star Bank) needs to supply a copy of the item to which the XCK relates to the RDFI within what timeframe?
Substitute check
Legal equivalent to a paper check
The Monetary Control Act of 1980
Legislation that encouraged private sector ACH Operators to compete with the Federal Reserve
1956
MICR becomes a national standard fro Imprinting Checks with machine-readable characters in magnetic ink.
Financial Organization Master File
Master list of routing numbers who RECEIVE ACH payments
Commercial ACH payments
NACHA Operating Rules primarily applies to
The Routing number
NOC is to provide the correct data to an Originator so they can change what
Settlement Date
NOT a field minimally included in the File Acknowledgment Entry from the ACH Operator for each file that was not rejected by the ACH Operator
Daylight Overdraft
Negative intraday balances in a customer demand deposit accounts
6 years
Number of years treasury states post-death payments may be reclaimed
Each of it's Originators and/or Third-Party Senders
ODFIs must establish Exposure Limits for who
Earlier of: the withdrawal of the stop, return of the entry OR 6 months unless renewed in writing
On Non-Consumer accounts, a written stop payment is effective for how long
Later of 9am or the time RDFIs facilities (including ATMs) are available for transactions
Opening of business is defined as:
1. Forward the Return to the Originator for action 2. Dishonor Return 3. Reinitiate the entry if it has been returned for R01 (NSF) or R09 (uncollected funds)
Options for ODFI in receipt of returned entry
1. Do nothing 2. Implement manual procedures for handling DNEs 3. Modify the Financial institution's software to stop future credit entries from posting to the deceased recipient's account
Options for handling a DNE (Death Notification Entry)
Warranties for MTE and POS and SHR Entries
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
R10: Customer Advises not Authorized
Originator is not authorized to debit customers account
ACH Network
Processing and delivery system that provides for distribution and settlement of electronic items among a large number of Financial Institutions
PPD (Prearranged Payment and Deposit): Written authorization for recurring debit with provider
Ralph receives a text from his mobile phone provider alerting him his bill is due. Ralph goes in person to the kiosk in a local mall to authorize the company to automatically debit his account on a monthly basis. What SEC code should the Originator use
R37
Reason code used by RDFI when the source document for an ARC has been presented for payment
Addenda Record
Record that contains supplemental data related to an entry 94 characters (80 of pymt related info)
Reclamation
Recover funds from financial institution paid on behalf of deceased or incapacitated depositor
1. Changing assignments in the ACH operations area periodically 2. Avoidance of temporary staff in ACH operations areas
Reduces fraud risk at a financial institution
31 C.F.R. 210
Regulation governing Federal Government Payments outlined in the Green Book
R62
Return of erroneous or reversing debit
5 banking days
Reversal entries must be made available to the RDFI within how many days of the Settlement Date of the Entry to be reversed
Operational Risk
Risk that a transaction is altered or delayed due to an unintentional error
The entry can be reinitiated up to two (2) more times within 180 days
Rose's account is overdrawn and the entry will be returned using R01 - insufficient funds. When State Bank & Trust received the entry as NSF, which of the following statements is TRUE?
CTX (Corporate Trade Exchange)
SEC code that has a maximum number of Addenda Records of 9,999
ARC (Accounts Receivable Entry) and BOC (Back Office Conversion)
SEC codes used when converting checks to ACH entries at a manned bill pay location
What is QUEST?
Service mark and set of operating rules which set forth requirements for distribution of government benefits
CTX (corporate trade entry) CCD (corporate credit or debit entry)
Standard Entry Class codes that can be used for non-monetary payments
FALSE: mandatory prenotes were made optional for corporate and consumer entries in 1996
TRUE or FALSE: Prenotes are Mandatory
SCOPE; formed in 1968
The committee which laid the groundwork for ACH Network
R08: Stop Payment
The receiver of a recurring debit wants to return a specific entry
Available to the ODFI by no later than opening of business on the second banking day following the RDFIs recepit of notification of refusal of the entry from its Receiver
The timeframe to return this credit entry is which of the following?
1974
The year NACHA was formed
Available to the ODFI no later than opening of business on the second banking day following settlement date of original entry
Timeframe to return unauthorized ACH corporate entry
1. Statement of damages 2. Summary of facts 3. Application fee
To initiate an Arbitration proceeding between DFIs, a compliant must contain what items
Wire Transfer Payment System governed by
UCC4A, OFAC, Regulation J, and Regulation CC
\ and ~
Valid characters used for terminators in an EDI ( electronic data interchange) transaction
PPD
What SEC code is used to process return fees
XCK (Destroyed Check Entry)
What SEC code would you use for a damaged check or image of the check if the MICR line can be repaired
Reg J
What addresses the collection of checks by the Federal Reserve System
1. Manually post the entry 2. Manually post the entry and initiate a Notification of Change (NOC) 3. Return the entry
What can RDFI do with an entry that does not post?
Originator Status Code
What code designates whether an item has been originated by the Federal Government
Wire transfer
What disbursement services is considered the most expensive
$200.00
What is the minimum dollar amount of loss suffered to file a claim for compensation
1. Prefunding can decrease an ODFI's exposure risk 2. Processing balanced files can increase an ODFI's exposure risk 3. Daily warehouse balancing has no impact on ODFI's exposure risk 4. Confirmation of dollar totals has no impact on ODFI's exposure risk
What is true about ODFIs exposure risk
A required field
What must be included by the ODFI or the file will be rejected by the ACH Operator
ACH Operator
What participant establishes ACH processing schedules
R05
What reason code is used to Return unauthorized CCD or CTX transactions to a CONSUMER account
OC6, Reg CC, Reg J
What regulations have a direct bearing on Fedwire funds transfer
Reg E, Reg D, Reg CC, UCC 4A and the Green Book
What regulations have a direct bearing on the ACH Network
Fraud and Credit
What risks are greater for ODFIs than RDFIs
Wire transfer
What type of disbursement services is considered the most expensive?
TEL (telephone initiated entry): primarily used for past due payments, payment of utility bills & catalog purchases
What would be the most simple solution for a financial institution looking for a way to collect loan payments before the customer is delinquent
1972
What year did CACHA (Calwestern Automated Clearing House Association) form the first ACH Association
1980
What year did Congress enact the Monetary Control Act
1974
What year was NACHA (National Automated Clearing House Association) formed
Originator and Receiver
When a consumer signs an authorization for PPD debits, who is required to receive and retain copies
Systemic Risk
When a participant in the ACH network is unable to meet their financial obligation to another financial institution is an example of what type of ACH risk
seven mandatory plus additional (8th) addenda with return reason code and original entry trace number
When doing the Return, which of the following is true relating to IAT Return entries
1. The credit transaction is an IAT and it is a suspect transaction 2. The credit transaction received appears to be fraudulent
When is RDFI excused from complying with funds availability rules
The Debt Collection Improvement Act of 1996
Which of the following relates to the EFT Mandate
Participating DFI
Which participant can submit a Rules Violation Report
Originator
Which participant determines the Effective Entry Date
ACH Operator
Which participant determines the Settlement Date
SCOPE (Special Committee on Paperless Entries): 1968
Who created the ACH Network
ACH Operator
Who determines the Settlement Date on an ACH Entry