Ensuring That Your Business Is Nacha Compliant

By Rosana Beechum, freelance writer.

Originally, this now self-governing consortium – since 1985 – was called NACHA. This is an acronym that stood for National Automated Clearing House Association. Subsequently, this non-profit organization changed its name to simply ‘Nacha’ and the abbreviations fell away.

Roughly 11,000 financial institutions form part of the ACH network, which is regulated by Nacha, along with multiple businesses and individuals. These financial institutions comprise the bulk of the USA's credit unions and retail banks. Failure to comply with the governing body’s regulations makes those in contravention liable for penalty payments.

Businesses that process payments need to check their accountability. Nacha keeps to frequently updated rules as new potential risks are identified that could compromise financial processing, safe data, and fraud prevention.

Since 2021, businesses that initiate ACH debits over the internet must perform account validation through a system designed to uncover fraud. This involves validating account numbers and ensuring that the account is active and tied into the ACH network as a means of account verification. Account verification must precede instituting an ACH debit online.

The ACH Network

Being able to receive and transmit electronic payments safely and accurately is the basis on which the ACH Network exists. In 2019 alone, the ACH Network processed a quarter of a billion transactions worth $55.8 trillion. These figures continue to increase as more people use the internet for financial transactions.

Fraudsters continuously try to find loopholes in these security measures to commit their crimes. This undermines the efforts of consumers to pay bills on time and receive their salaries promptly and correctly on the specified date.

Nacha, FedACH, and The Clearing House have provided information to businesses on account verification best practices as the internet grew. Further information can be obtained on the Nacha 2022 rules here.

Nacha’s Mandate

The ACH network is operated by two bodies, FedACH and The Clearing House. They are governed by Nacha, which unpacks instructions from the government into legal rules and prescribes applicable standards to be followed by these parties and the greater financial industry.

Nacha’s roles are:

• Providing the ACH network with guidance so that participants can comply with federal and government decrees
• Rule enforcement and charging penalties
• Encouraging other parties to join the ACH network
• Providing education, promotion, and support for the ACH network, through mechanisms such as roundtables

Nacha’s Principles, Rules and Standards

Nacha’s principles, on which rules and standards are based are:

• Standardization
• Fraud reduction
• Data security
• Increased access and user-friendliness

While the complete rulebook can be purchased from Nacha, the key principles lead to its rules and standards. Some of the core rules are: 

• Data must be encrypted
• Hard copies are subject to storage policies, which must be communicated to consumers
• The account verification process must be followed by using a commercial company, providing this service at a reasonable cost, to undertake this screening as a means to prevent fraud
• The consumer must give express authorization for debits
• Recurring debits require giving consumers sufficient notice to withdraw their authorization if the debit amount changes
• The bank must cancel recurring debits promptly upon notification

The key to Nacha compliance for businesses starts with account verification.