ACH Rules & Regulations
Many rules and regulations govern the transmission of ACH entries. These are the ones with the most impact on the financial institution.
When conflicts are found among these rules and regulations, the most restrictive rule or regulation applies: the one that benefits or provides the most protection to the consumer.
What each rule governs
| Rule or regulation | Source of authority | What it governs |
|---|---|---|
| ACH Rules | Contract law, binding by agreement | The Commercial ACH Network, and the obligations and liabilities of each financial institution |
| Office of Foreign Assets Control (OFAC) | U.S. Department of the Treasury | Economic sanctions and embargo programs, including screening against the SDN List |
| Regulation E and the EFTA | Federal law and regulation | The rights, liabilities, and responsibilities of consumers who use electronic fund transfer services |
| State law | State statutes and labor codes | ACH transactions in states where the law is more restrictive or more protective of consumers |
| 31 CFR Part 210 | Federal regulation | Use of the ACH Network by federal government agencies |
| Uniform Commercial Code Article 4A (UCC 4A) | State laws | Corporate ACH transactions, and the security procedures required for ACH origination |
| USA PATRIOT Act | Federal law, 2001 | Information sharing and customer identification programs |
ACH Rules
The ACH Rules serve as the primary source of rules and regulations for the Commercial ACH Network, and agreements make them binding as contract law. Commercial ACH entries come from the private sector: individuals, companies, and state and local governments.
The ACH Rules define the obligations and liabilities of each financial institution, including a provision to perform an annual audit, and they give a receiving institution a mechanism to return an entry to the sending institution. The ACH Rules help reduce risk in the ACH Network and protect financial institutions from potential loss.
Office of Foreign Assets Control (OFAC)
The U.S. Department of the Treasury, Office of Foreign Assets Control, administers economic sanctions and embargo programs that require assets and transactions involving the interests of targeted countries, targeted country nationals, and other specifically identified companies and individuals to be frozen. OFAC maintains a list of Specially Designated Nationals and Blocked Persons (SDN List) to help financial institutions identify blocked parties.
All U.S. participants in the ACH Network may be held accountable for sanction violations and must understand their compliance obligations. As a Receiving Depository Financial Institution (RDFI), the financial institution should have a process to determine whether any of its account holders appear as a blocked party on a current SDN List. Financial institutions should obtain a current SDN List and other compliance information directly from OFAC.
Regulation E and the Electronic Fund Transfer Act (EFTA)
Regulation E carries out the purpose of the Electronic Fund Transfer Act (EFTA), which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services. The primary objective of the act and the regulation is to protect individual consumers who engage in electronic fund transfer services.
Regulation E also sets the responsibilities of financial institutions for disclosures, stop payments, and unauthorized debit transactions to consumer accounts, and it defines the process for resolving errors.
State law
Some state laws affect ACH transactions when the law is more restrictive or provides greater consumer protection than other prevailing rules or regulations. For example, some states let companies require employees to be paid by Direct Deposit, but most state labor codes restrict companies from offering only Direct Deposit. Many states require businesses and corporations to initiate state tax payments through the ACH Network. The states' Attorneys General Offices can provide specifics.
Title 31 Code of Federal Regulations Part 210 (31 CFR Part 210)
Title 31 of the Code of Federal Regulations, Part 210, provides the regulatory foundation for use of the ACH Network by federal government agencies. It defines the rights and liabilities of agencies, Federal Reserve Banks, financial institutions, and the public in connection with ACH entries.
The Green Book is the procedures manual for financial institutions that process federal government payments. It covers the handling of federal government reclamations and enrollment in federal government benefit payment programs. A financial institution that accepts a federal government benefit payment agrees to be bound by 31 CFR Part 210 and must follow these procedures.
Uniform Commercial Code Article 4A (UCC 4A)
The Uniform Commercial Code (UCC) is a series of state laws that govern commercial transactions. Article 4A of the UCC governs corporate ACH transactions that are referred to as "corporate wholesale credit entries." RDFIs may identify these transactions by the Standard Entry Class codes CCD or CTX.
UCC 4A also addresses the "commercially reasonable security procedures" required for ACH origination.
USA PATRIOT Act
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) establishes many ways to combat international terrorism. Title III, International Money Laundering Abatement and Anti-Terrorist Financing, contains provisions on money laundering and terrorist access to the financial system in the United States. Title III is the section of the act that affects financial institutions for information sharing and customer identification programs (CIPs).
CIPs require financial institutions to complete the following steps before opening a new account:
- Verify the identity of any person seeking to open an account.
- Maintain records of the information used to verify identity.
- Consult government lists of known or suspected terrorists to determine whether the customer appears on any such list.
Growth of the ACH Network
Over the years, consumer and corporate customers have become more aware of the advantages of the electronic payments network. As a result, customers are more demanding and financially savvy. The ACH Network can directly deposit employee payroll, support automated bill payment services, process online purchases, and let companies perform cash concentration and make corporate-to-corporate payments.
As migration from paper to electronic payment continues, the cost-effective ACH Network will grow and enable innovation that strengthens the industry with creative payment solutions.