It is a fairly common practice for ACH originators to verify a receiver’s account by sending one or two small ACH credits of less than $1 each, and later debiting the receiver’s account either once or twice to take back some, or all, of the funds credited. Recently the National Automated Clearing House Association (NACHA) announced an upcoming rule regarding the standardization of these practices.
The upcoming rule will seek to accomplish the following four things: 1) provide a definition of these “micro-entries,” 2) standardize formatting requirements, 3) establish other origination practices, and 4) require the application of risk management requirements to the origination of these micro-entries.
The upcoming rule will define a “micro-entry” as a credit or debit used by an originator for the purpose of verifying a receiver’s account. Under the rule, micro-entries would have the following limitations: 1) credits must be in an amount of less than $1.00, 2) the total debit entries must not exceed the amount of the corresponding credits, and 3) debit entries only may exceed $1.00 to offset the amount of the credits. This rule will not require that originators use micro-entries as a method of account validation, but for those who use or want to use micro-entries for account validation, the rule will provide a better, more consistent process. This rule also does not require that originators that use credit micro-entries also use offsetting debit micro-entries. Originators will continue to be able to only use credit micro-entries for account validation.
The upcoming rule will standardize formatting requirements in the following ways: 1) the description, “ACCTVERIFY” will be required in the Company Entry Description field in order to make these entries more easily identifiable, and 2) the Company Name used must be recognizable to the receiver and similar to or the same as the Company Name that will be used in future entries. This change will really benefit customers and should lead to a better customer experience due to the micro-entries being more easily understoode.
The upcoming rule will establish the following other origination requirements: 1) an originator that is using offsetting micro-entries must send the debits and credits simultaneously for settlement at the same time, 2) the total amount of the credits must be greater than or equal to the total amount of the debits, and 3) since the originator is in the best position to know when the account has been validated, future entries may be initiated as soon as the originator’s process for validating the entries has been completed. However, the rule will not require ODFIs to actively monitor or inspect originator’s files of micro-entries for compliance with the origination requirements.
This rule will become effective in two phases. Based on the announcement it appears that the aforementioned definition, standardization of formatting requirements and establishment of other origination practices will be Phase I, which effective as of September 16, 2022.
The upcoming rule will further apply the following risk management requirements to originators: 1) the use of commercially available fraud detention intended to minimize the incident of fraud schemes and 2) monitoring forward and return volumes to establish a baseline of normal activity. Based on the announcement, it appears that the risk management requirement will be Phase II, and will be effective as of March 17, 2023.