NACHA Rule Change
March 2012: Expansion of ARC Application and IAT Modifications and Refinements
On March 16, 2012, two new NACHA Operating Rules ("Rules") went into effect. The first Rule change affects the ARC (Account Receivables Entry) for the conversion of checks to ACH, and the second rule change affects IAT (International ACH Transactions) transactions.
Expansion of ARC Application
For the ARC application, previously, eligible checks were allowed for the ARC application only if they were received through the U.S. mail or at a dropbox location. The Rule change expands the use of ARC application for the conversion of checks, now allowing the use of ARC for the conversion of checks tendered in person for the payment of a bill at a manned location.
If you are currently or considering converting checks using the ARC application through the ACH Network, you may choose to expand the use of the ARC application to include checks received in person at a manned location.
IAT Modifications and Refinements
The IAT Modifications and Refinement Rule change contains additional clarifications and refinements to allow more efficient and accurate processing of international payments in the ACH network.
IAT Entries and the Effective of Illegality
The Rule change expands the subsection to clarify that the Participating Depository Financial Institution ("DFI") must comply with all requirements of the Rules for any non-suspect transaction. An RDFI may not delay posting solely because an entry is an IAT. If, after initial review, an RDFI believes an IAT is a suspect transaction that requires additional examination, posting may be delayed to perform that examination.
Clarifications of Rules Exceptions for IAT Entries
This Rule change clarifies the conditions and circumstances under which specific provisions of the Rules do not apply to certain IAT Entries. In some cases, these exclusions relate to domestic ACH Network operational processes that may not have counterparts in the payment systems of the foreign countries. Specifically, the change:
- defines specific authorization requirements for Outbound IAT Entries.
- updates the current list of Rules not applicable to Outbound IAT Entries and clarifies that certain ACH functions apply only to the extent that they are permitted by the laws and payment system rules of the receiving country.
- establishes a new subsection to identify specific Rules that do not apply to Inbound IAT Entries.
- broadens the Rules to (1) incorporate an explicit statement that a Participating DFI acting as a Gateway assumes the responsibilities and warranties of an RDFI for each Outbound IAT Entry it transmits, with the specific exception of the rights and obligations between the DFI and the foreign receiver, and (2) update the current list of Rules not applicable to Outbound IAT Entries.
- requires Gateways to notify their foreign contacts of any changes requested through the NOC (Notifications of Change) process to ensure proper processing of future ACH Entries.
Required Gateway Agreements and Authorizations for Outbound IAT Entries
This Rule change revises the current Rule that requires a Gateway to enter into an agreement with and obtain specific authorization from the Originating Depository Financial institution ("ODFI") prior to transmitting Outbound Entries. This is in recognition of the international payments models involving the Gateway and a party other than the ODFI, such as Gateway?s own account-holder or customer. Specifically, the Rule:
- broadens the Gateway agreement requirements to permit parties other than the ODFI to have an agreement with the Gateway for the transmission of Outbound IAT Entries.
- broadens the Gateway authorization requirements to permit parties other than the ODFI to authorize the Gateway to transmit Outbound IAT Entries to and settle with a Foreign Gateway for further credit to the foreign receiver?s account.
- revises the description and cross-reference sections of Return Reason Code R81 to broaden the discussion regarding the lack of necessary agreements.
Return of Outbound IAT Entry by Foreign Gateway - Transmission of ACH by Gateway to ODFI
This Rule change clarifies the timeframe for a Gateway to transmit an ACH Return Entry for any outbound IAT Entry that was properly returned to it by a Foreign Gateway. Under the current Rules, RDFIs have a defined time period under which they must transmit Returns for domestic Entries. However, no similar provision exists today for the processing and return of entries received by a Gateway from outside the U.S. This change adds a specific obligation and time frame for a Gateway to transmit a return entry related to an Outbound IAT Entry that was properly returned to it by the Foreign Gateway.
Identification of the Foreign Funding Financial Institution Within an ACH Entry
This Rule change revises the descriptions of the four fields within the Fourth IAT Addenda Record to clarify that this information, when contained in an Inbound IAT entry, must identify the foreign financial institution that provides the funding for the transaction. The four fields that are impacted by this change are: the Originating DFI Branch Country Code, Originating DFI Identification, Originating DFI Identification Number Qualifier, and Originating DFI Name.
Clarification of Originator Identification Field
This Rule change revises the definition of the Originator Identification Field within an IAT entry to permit the inclusion of additional identifying information for use by the ODFI. This change explicitly allows Originators and ODFIs to include a one-digit alphameric code within the first position of the field to allow for further identification and processing of the payment by the ODFI.
If the Originator is not established under the laws of a state or the United States or is not a natural person, the DDA account number at the foreign financial institution may be included. If the DDA number exceeds 9 characters, the last 9 characters would be used. If there are 9 or fewer characters in the account number, the entire number would be used.
If a Third Party Sender was used for the entry, the tax identification number of either the Originator the Third-Party Sender may be used when the ODFI has a contractual relationship with the Third-Party Sender rather than the Originator of the entry. The Originator Name field must be populated with the Originator's name and not of the Third Party Sender.
Return Reason Codes R80-R84 ? Clarification of Use For Outbound IAT Entries Only
This Rule change clarifies that these codes are for use by Gateways only. This Rule clarification should have no impact to the ACH participants.
Expansion of Return Reason Code R84 (Entry Not Processed By Gateway Operator)
This Rule change expands the use of this return code to allow a Gateway to return an IAT Entry when the foreign payment system does not support the function(s) needed to process the transaction.
If you are a current IAT originator or are looking to originate IAT transactions, and would like additional information or clarifications regarding these Rule changes, please contact your Treasury Management representative to request an access code to 'achrulesonline.org'.