How Your Business Can Ensure Nacha Compliance

Most business transactions nowadays involve digital banking. This has a lot of advantages over the use of cash and checks to make payments. Nevertheless, criminals find ways to bypass the system at every turn. Hence, Nacha has made screening online payments mandatory. Here is the latest information to help you ensure that your business complies. 

What Is NACHA?

The National Automated Clearing House (Nacha) is the governing body that makes the rules and regulations for ACH payments in America. The Electronic Payments Network and the Federal Reserve are the network operators. They make up the ACH network. This is the technology governed by NACHA.

All businesses should be able to receive ACH payments. Most companies try to give their customers a wide range of ways to make payments to suit every person. Nacha has instituted all the rules pertaining to ACH payments. Businesses that fail to adhere to these regulations can face harsh penalties. 

What Is ACH?

You are no doubt familiar with American Express, Visa, and Mastercard. These are networks for card payments. ACH (Automated Clearing House) is also a network that makes it possible to transfer money from one bank account to another. However, it operates as a cardless system. 

ACH payments include Direct Payments and Direct Deposits. The former is when an account is paid. This can be any account, such as a customer paying a retail account or a business paying a supplier. The latter occurs when an employer pays salaries to staff members or the government makes a deposit into a citizen’s account, e.g., for a grant.

Background to The New Regulations 

The new rules came into place on the first of January 2020. However, it was felt that businesses needed more time to gain familiarity with the regulations and to educate themselves on the requirements. Hence, the date when the new rules came into effect was 19 March 2021. These are covered under the WEB Debit Account Validation Rule

New Regulations For Preventing Fraud 

The new rule stipulates that all bank accounts must be verified in line with fraud prevention. When making an online debit, a company must positively confirm the recipient’s details and identification. Businesses are required to make use of fraudulent transaction detection systems, such as Yodlee to monitor accounts for fraud. This bank verification is not negotiable and is applicable when an account is transacted with for the first time or undergoes any change in the number of the account. 

Regards the detection system a company chooses to utilize, Nacha stated that it must be “commercially reasonable”, meaning dependent on the business circumstances. In other words, they do not have to make use of an expensive solution that is difficult for them to afford.

Compliance Methods 

Any of the following methods can be used for account validation. However, as none of them is perfect, it is recommended that companies choose a combined approach of at least two of these. Firstly, a voided check is followed up with the individual’s bank. Secondly, a zero-dollar transaction is made to verify details. Thirdly, two trial deposits are made into the consumer’s account using the routing and account numbers, respectively. Fourth, details are cross-checked with a third-party database. Fifth, consumers prove that they have access to the accounts via their banks.

These guidelines will help your business to be compliant with the new Nacha rules.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.