New guidelines from NACHA require more stringent account verification processes. These changes come after years of studies and surveys. The goal is to reduce risk and cut down on the number of returns. Is your credit union ready?
In this blog, we’ll look at what the changes are, who they affect the most, and how to keep things compliant.
More Details on the 2021 NACHA Rule Change
Our friends at PaymentVision clued us in on this upcoming deadline. PaymentVision has been helping merchants and financial institutions get up to speed here since the change was announced.
In fact, you can read their full article about it here. It goes a bit farther in depth about the reasoning behind the update… and about the fines for failure to comply!
The gist is, after eight years of surveys and data collection, NACHA wants to tighten things up. They hope their rule change will minimize the number of returns going through payment networks. They also hope the change will reduce risk to merchants and financial institutions.
Any organization that accepts ACH payments must be able to validate routing numbers and verify that an account is in good standing. The good standing part is new, and NACHA hasn’t provided definitive guidance about how to ensure that. Their exact words are that the verification method should be “commercially reasonable.”
These changes go into effect on March 19th, 2021. Failure to comply will result in fines that range from $1k one time to $500k per month.
How to Ensure NACHA Compliance
NACHA suggested three ways for organizations to remain compliant. They do all have drawbacks, but there may also be an opportunity for credit unions there.
1. Micro deposits. Merchants may make one or two small deposits into a customer’s account for verification.
Pros: This doesn’t require assistance from a financial institution.
Cons: This method is customer-dependent, as it requires customer verification that the deposits were received.
2. The customer may send a $0 transaction to the merchant through the ACH to verify their standing.
Pros: This requires a little less legwork for the merchant.
Cons: This is also customer dependent. Plus, merchants must wait a couple of days to ensure that the payer’s account standing doesn’t change.
3. Third-party instant verification. Merchants may enlist financial institutions to help them verify account. They may also look for recent NSFs, fraud history, account abuse, forgery and alterations, check kiting, verification, and more.
Pros: This is the fastest, easiest, and safest option for merchants. It also offers the best insight into the account and history, eliminating the most risk.
Cons: It requires third party assistance.
Credit unions don’t need to worry as much about these NACHA rule changes as small businesses do. However, credit unions may be able to help their SMB members with account verification. It would go a long way toward empowering local business communities and existing members.
PaymentVision also notes that third-party account verification may improve a credit union’s bottom line. First, credit unions won’t have to worry about the health of their SMB accounts. Second, they note that merchants must “pay fees for returns, pay employees to collect on debts, and put your business’s relationship with banks at risk for returned payments…”
Meanwhile, charging a small fee for account verification saves SMB members a headache, improves their financial resilience, and contributes to the credit union’s income. It’s a win-win!
Credit unions may want to explicitly offer this option to local small businesses to bring them on board.
Why This Is Urgent
Organizations that fail to meet requirements on March 19th will face fines. These fines range from $1k one time to $500k per month.
Third parties—organizations with exposure to affected merchants—are also on the hook for merchant compliance. Credit unions may therefore terminate agreements due to merchant NACHA violations.
We think this is a good opportunity to help business accounts with NACHA compliance.
Additional Resources
You can read the full PaymentVision article here. Or read the NACHA decision here and the NACHA FAQs here.
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