Topic: Automated Clearing House (ACH) Transactions
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If a business customer wants to use our bank to pay its employees through ACH transactions, could we be liable for the customer’s payroll taxes if they overdraw their account with us when initiating payroll payments? We are not providing any payroll processing services. The customer would calculate the wages and tax withholdings on its own and use our online system to make payroll payments via ACH.
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Yes, we believe that your bank might face potential liability for honoring a customer’s overdraft in order to permit the customer to cover wages, provided that your bank is deemed to have knowledge that the employer lacked the intent or ability pay its payroll taxes. However, this issue has not been settled in Illinois; we…
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We currently offer ad hoc overdraft protection, but we want to establish a formal overdraft protection program for checking accounts, ACH transactions, and debit transactions. We have not yet established the exact parameters of our program, but we are planning to charge a fee for the service. What notice do we have to provide before rolling out the program? Can the notice be included in a periodic statement? Can we establish criteria that customers must meet in order to qualify for the program, such as that the customer does not have any delinquent loans? Or do we have to offer the program to all customers?
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Yes, your bank should provide advance notice and an opportunity to opt in to a new overdraft program. Regulation E requires financial institutions to complete a four-step process before charging a fee for paying an overdraft on an ATM or on a one-time debit card transaction. This process includes providing written notice of the overdraft…
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On the advice of our internal auditor, we recently updated our BSA policy to provide our response to a discovery of an ACH transaction that is connected to unlawful internet gambling. How can we detect these ACH transactions? Does NACHA provide any guidance?
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We are not aware of any specific guidance from NACHA on identifying ACH transactions involving illegal gambling. Regulation GG itself includes examples of policies and procedures to identify illegal gambling transactions, which include due diligence on commercial customers to determine the risk that the customer will engage in internet gambling and notification that your bank…
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One of our customers’ checks was stolen. Later, someone forged the customer’s signature on a check at a store. The store converted the paper check into an electronic check and was processed as an ACH debit transaction. Do we have to follow the Electronic Fund Transfer Act (EFTA) guidelines? Do we need the customer to complete a forgery affidavit? Do you have sample language for the affidavit?
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Yes, the EFTA would apply to an electronic check that is processed as an ACH transaction. The EFTA, as implemented by Regulation E, applies to “electronic fund transfers,” which are defined to include ACH transfers and, specifically, electronic check conversions (where a paper check is used “as a source of information to initiate a one-time…
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We plan to start allowing business customers to transfer funds via ACH, both for business-to-business transfers and intra-business transfers. Are there any special risks when customers transfer funds to their accounts at other banks by ACH transfer? We will attempt to control risk by requiring that transfers be prefunded. Are there any BSA/AML activity monitoring concerns or special issues with ACH, particularly as to fraudulent transactions?
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We are not aware of any BSA/AML monitoring issues that are unique to inter-company or intra-company ACH transfers to accounts at other banks. While such ACH credit and debit transactions could result in some exposure for your institution for money laundering or fraudulent transactions, these risks would be reduced considerably by requiring your customers to…
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Is a bank required to give business customers 14 days to report errors regarding electronic fund transfers, including ACH transactions? We have seen this 14-day deadline in business account disclosures at several other banks. We think those banks may be pulling the 14-day deadline from the Regulation E provision regarding a stop payment order on a preauthorized transfer. However, it is our understanding that Regulation E does not apply to businesses, and a bank may establish its own error notification deadlines for business accounts. Is that correct?
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You are correct that Regulation E — including its error resolution deadline — does not apply to businesses. Regulation E applies only to consumer accounts. The term “consumer” means a “natural person.” The term “account” is defined as “a demand deposit (checking), savings, or other consumer asset account . . . established primarily for personal,…
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How long should we retain records for customer payroll processing through the ACH system?
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FinCEN’s Bank Secrecy Act regulations require you to retain deposit account statements for five years after they are created. The NACHA rules require participating depository financial institutions to “retain a Record of each Entry for six years from the date the Entry was Transmitted, except as otherwise expressly provided in these Rules.” Finally, the period…
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A business customer requested a stop payment order on a preauthorized ACH debit to his account. We know that Regulation E requires consumers to provide three business days of notice to stop payment. Does this rule also apply to business customers?
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No, Regulation E — including its timeframes for stop payment orders — does not apply to business customers. The Uniform Commercial Code states that banks may establish their own cut off time for receiving orders to cancel the payment of a funds transfer. Consequently, we recommend reviewing your account agreement with your customer to determine…
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Can we accept corporate ACH deposits into a personal account? We are seeing ACH deposits for customers who are Uber and Lyft drivers that are coded CCD, with the payee listed as the accountholder’s personal name.
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We are not aware of a prohibition on accepting corporate ACH credit transactions into a personal deposit account, provided that the payee matches the accountholder’s name. In our view, these deposits should be treated as independent contractor or sole proprietor deposits into personal accounts, and it is the accountholder’s responsibility to track these payments for…