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December 2004 NACHA Rule Change
Effective December 10, 2004, the ACH Rules will be amended to define, for the first time, a growing segment of participants in the ACH Network - Third-Party Senders. PNC as your ACH origination bank places high importance conveying updates to you so you can remain complaint with all applicable rules and regulations.
Even though your company may not be a Third-Party Sender, and all of your ACH origination processing relationships may include a direct contractual relationship with an Originating Depository Financial Institution (ODFI) such as PNC, you can benefit by becoming more aware of your current ACH origination obligations and warranties.
The following highlights the Rules Change and the potential impact to your business.
The Third-Party Sender (TPS) is an entity that has contracted directly with an Originating Depository Financial Institution (ODFI) for the purpose of releasing ACH entries into the network on behalf of other companies or entities. In this arrangement, the other companies or entities have not contracted with the ODFI and have relied on their TPS to do so. The primary purpose of defining the Third-Party Sender and instituting new rules is to help insure the integrity and safety of the ACH network by linking all ACH participants to warranting they will follow the ACH Rules.
Who is impacted by this ACH rule change?
If your company is a Third Party Sender, your current ACH obligations and warranties have been expanded. The bulk of the rule amendment verbiage is contained within Article Five - Obligations of Third-Party Senders, a new section of the NACHA Operating Rules.
If your company has contracted with a Third Party Sender for ACH processing and your company does not have an ACH origination agreement or contract with that ODFI, the Rules clarify that your company has the relationship with the Receiver of the ACH entry and has the status and obligations of an ACH Originator.
Your current ACH obligations and warranties have not changed as an ACH Originator if your company has contracted:
If you are a Third-Party Sender
If your company originates ACH entries now or in the future on behalf of other companies, your company has the direct ACH processing agreement with an ODFI, and your clients do not maintain a contractual relationship with that ODFI; you are an intermediary and a TPS under the forthcoming ACH rules. The companies that you process for are Originators under the ACH rules.
A TPS is bound by the ACH Rules in some new respects so PNC has updated the standard ACH Terms and Conditions in the event that your business falls into this arrangement now or in the future. The new ACH rules not only obligates a TPS make certain warranties to the ACH network but a TPS is responsible for contractually binding its clients, the ultimate Originators to the ACH Rules, in the TPS agreements.
The ACH Rules give Originating Depository Financial Institutions (ODFIs) such as PNC the alternative option of contracting with each of the TPS's clients. PNC has elected not to try to obtain ACH processing agreements with the clients of Third-Party Senders but again, has elected to modify the standard PNC ACH Terms and Conditions to obligate a TPS to put in its agreements with its clients, the ACH warranties and obligations.
If you have a relationship with a Third-Party Sender
If your company is not in the business of ACH processing for other companies, your company is an ACH Originator under the ACH Rules. Your company may have other ACH origination processing arrangements or your company may be considering future ACH processing arrangements that involve a TPS. If a TPS will be processing on your behalf and they have contracted with an ODFI on your behalf, the most significant rule change to be aware of is that ACH Originators are responsible for funding ACH credits originated or ACH debit returns in the event that the TPS is unable to fulfill their obligations with the ODFI to fund for the entries. Also importantly, the TPS must in their contract or agreement with you make it clear that your company assumes the status and obligations of Originator.
PNC has amended its standard ACH Terms and Conditions and that document will be enclosed with the annual Schedule Mailing.
The ACH Terms and Conditions bind TPSs to the NACHA Operating Rules and in particular those obligations related to Article Five. NACHA advises that TPSs and Originators with TPS processing arrangements review their processing agreements or contracts related to ACH processing. PNC is not in a position to review and advise on these agreements; however, the following highlights the basic areas to consider.
This list is not meant to be a comprehensive list but reviews some basic origination obligations.
TPSs should ensure their clients acknowledge they are Originators under the ACH Rules and they are agreeing to be bound by these rules as in effect from time to time. So even as there are new rules or rule modifications made, TPSs and Originators will need to be proactive in obtaining NACHA rule updates and in evaluating needed procedural or processing changes in order to be compliant with the ACH rules.
TPSs and Originators warrant that entries may not be initiated which violate the laws of the United States. Also, at the time the Originator or TPS transmits an entry, they warrant no knowledge of the Receiver's revocation or termination of the authorization. Another basic warranty is that each entry transmitted contains the correct Receiver account number and all other information necessary to enable the RDFI to comply with the requirements of the Periodic (bank) statement.
The TPS will warrant to the ACH network, just as an ODFI does today, that the Originator has obtained proper authorizations from and has provided notices to the Receiver(s). The Originator is required per the ACH Rules to retain the authorizations for 2 years from the last entry or from when authorization has been terminated or revoked. The PNC Terms & Conditions document states a 6 years retention timeframe to be consistent and in accordance with contract law.
The Originator authorization requirements overlap with some of the provisions in Article Five - Third-Party Senders, where the TPS is responsible as an Originator is today for producing a copy of an ARC source document, a RCK check copy and the TEL written notice or taped authorization.
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