Latest News

Nacha - watch list for flagging ACH originators 4/22 American Banker Nacha is developing a database of abusive ACH originators & is sharing it with member banks, though concerns about risks - to members’ reputations & their bottom lines - are making banks cautious about sharing too much about their dealings with third parties. The evolving list brings to the ACH environment an approach that has been used in the checking world for years to fight fraud. A rule that took effect in March allows Nacha to require special reports from institutions that it believes are allowing practices that create risk management problems for others on the ACH. Elliott McEntee, Nacha, said it wants to continue to tighten the monitoring of potentially fraudulent transactions under its Network Enforcement Rule, which its voting membership approved in October. ‘The ultimate objective is to have a common database to go to for both check & ACH transactions. But we’re still in the early stage of discussions there.’ Tighter fraud control is becoming more important as the ACH system opens up to more one-time transactions, such as those using the e-commerce service Secure Vault that Nacha is now testing. Nacha’s ‘Project Owl,’ an originator watch list, began a test in December with the association’s members. That list is likely to be made available to all financial institutions by the end of the summer. ‘We hope that before a financial institution takes on a company to originate for the first time, they will go to that list to see whether the company is on it.’ If a prospect’s name appeared on the list, it would be up to the originating depository financial institution to take appropriate action. ‘We’re not telling the ODFI what to do’ if that happens, ‘but we’re encouraging them to check the list.’ Roy DeCicco, JPMorganChase, said the watch list will grow as Nacha builds up its database. ‘We are going slowly, but we are creating that list. That is a step we are willing to take.’ There have been discussions about even more disclosure, but the bankers are cautious. ‘The path gets a little cold when you talk about developing a list of customers we’ve terminated for cause. Banks are concerned about putting that kind of negative information in a public arena, where it can be challenged later.’ Leonard Heckwolf, BofA, said that banks could be more efficient, but their payment systems operate as separate silos. ‘As an industry, we still think each silo is special.’ McEntee said the next phase of the Network Enforcement Rule will take effect this quarter, so that a telephone number or obscure corporate name will no longer be adequate for identifying the company debiting an account. ‘In June the originating bank will be warranting to us that the name of the ACH originator has been accurately displayed in the ACH record, so the consumer can recognize it.’ Nacha has begun exercising some of its authority under the rule, which authorized sharply higher fines against financial institutions that allow questionable use of the ACH network, & McEntee said it has withstood its first court challenge. A pair of Nevada companies, Capital Credit Alliance & Consumer Credit Services, filed a lawsuit against Nacha last year after it levied a $45,000 fine against their originating depository financial institution. Under their indemnification agreements, the institution passed that charge along to the third-party service provider that worked with the companies, which then charged them. The companies sued in state court to prevent the group from enforcing the rule, because under Nacha’s escalating penalties, the fine could grow to $200,000 in the second month & to $1m in 3 months. At Nacha’s request, the case was removed to federal court, & in January, Judge Kent Dawson of the US District Court for Nevada rejected their request a temporary restraining order. ‘Even a cursory review of the transcripts & authorization forms submitted by plaintiffs demonstrates that plaintiffs’ method of attaining customer authorization for debit transactions is deceptive & in violation of Nacha operating rules.’ The 2 firms withdrew their suit in March. An attorney for the firms would not discuss the case. In the longer term, Nacha would like to combine its database on ACH originators with the shared checking account databases managed by Early Warning Services LLC, which is owned by 5 big banking companies & First Data. Early Warning Services, which has long maintained information on account openings & closings & bounced checks from reports from a group of large banks, opened its files more broadly to the industry in 2004 & says it processed 3.4b inquries last year.