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Nacha System of Fines Promotes ACH Network Compliance and Integrity

Infringing on the Rules can get very expensive!

Consumers and businesses alike trust the ACH Network as a method of secure payment. The Network allows us to receive paychecks, pay bills, donate to causes, and more. The goal of Nacha’s National System of Fines is to maintain the integrity of the Network. The System serves to promote compliance with the Rules among ACH Network participants.

Nacha assesses the majority of fines based upon prior Rules violations. If an Originator commits the same infraction twice in one year, that's a Class 1 violation. FIs responsible for Class 1 violations incur the following increasing fines per recurrence:

  • First recurrence: $1,000
  • Second recurrence: $2,500
  • Third recurrence: $5,000

When an FI fails to respond to Notices of Possible Rules Violation or Fines, it is a Class 2 violation. These violations also occur when an FI fails to correct an infraction on time and remain compliant for 180 days.

Below are seven more infractions that result in Class 2 violations:

  1. Failure to register Direct Access Participants;
  2. Failure to register Third-Party Senders;
  3. Failure to register its contact information;
  4. Failure to provide proof of completion of its own, its Third-Party Service Provider’s, or its Third-Party Sender’s mandatory ACH Audit;
  5. If the timeframe required by the FI to correct a Rules Violation is excessive;
  6. If the violation causes excessive harm to one or more Network participants; or
  7. It’s the fourth or subsequent recurrence of the same Rules violation within one year of the resolution date of the immediately preceding recurrence.

Until the offending financial institution resolves a Class 2 violation, it can incur a fine of $100,000 per month. Class 3 violations can result in fines of up to $500,000 per month until resolution. These violations include:

  1. Instances where a Class 2 violation has continued for at least three consecutive months; or
  2. Instances where an egregious violation of the Rules has occurred.

When more than one party commits a violation, Nacha may assess separate fines to the financial institution of each party. The affected parties include Originators, Third-Party Senders, and Third-Party Service Providers. The Rules Enforcement Panel may direct the financial institution to suspend the party from originating more ACH entries.

Andy Barlow, Executive Vice President of Macha/PAR, has been conducting audits for over 10 years and uses the ACH Rules as a guide to fortify a financial institution’s operations. “My goal is to help people think about how their financial institution processes payments, how their payment systems interact with each other, and where things generally go wrong,” Andy begins, “We try to see how we can improve operations rather than just state compliance or non-compliance in an audit.”

While the Rules act as a lighthouse to mitigate risk, and most institutions follow them, it is important that all ACH participants are on the same playing field. Nacha’s formal system of warnings and fines corrects infractions and helps ACH Network participants to remain within the Rules’ boundaries. Submissions regularly involve issues with unauthorized entries, entries initiated to invalid account numbers, notifications of change, and incorrect returns.

Additionally, Macha’s Compliance department can assist with arbitration, which helps financial institutions to attempt to recover funds lost and/or damages incurred as a result of an alleged Rules violation.

At Macha, we encourage your institution to take necessary steps toward maintaining ACH rule compliance and stay up to date with rule changes. We see a number of FIs currently struggling to comply with the mandatory ACH Contact Registry and the later Same Day ACH window, for example, despite the value these changes bring to our industry and the market.

Reach out to our experienced team for your annual ACH Audit. Our expert staff complete a thorough review of your ACH operations, answer any questions from your team, and provide a comprehensive report with solutions you can put in place.  

As always, we're here to answer any questions your institution may have regarding the ACH Rules and changes.

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