NACHA updates its rules regarding consumer ACH debits: key points

As noted briefly in our September newsletter, the National Automated Clearing House Association (NACHA) has updated its Operating Rules and Guidelines to create a new type of consumer ACH debit authorization, called a “standing authorization.”

One of the limitations of the prior NACHA Operating Rules was that consumer debit authorizations were required to either be “recurring,” meaning that the debits were pre-scheduled at regular intervals, or “single,” meaning that each separate authorization had to include all the information required under the NACHA Rules for a debit authorization, based on the type of entry (such as TEL or WEB), and be separately authorized by the consumer. The new standing authorization essentially bridges the gap between authorizing single and recurring debit entries and permits advance authorization of future debits initiated by a consumer at varying, unscheduled intervals. 

Standing authorizations may be obtained in writing, electronically or orally. The Operating Rules establish requirements for the content of, and method of memorializing, the authorization. The authorization itself will need to specify how future debits may be initiated by the consumer, and each future debit is referred to as a “subsequent entry” under the Operating Rules.

Each subsequent entry must be separately initiated by an affirmative act of the consumer, but the permissible methods for initiating a subsequent entry are extensive, and include telephone calls, Internet interactions, text messages, transactions at an ATM or point-of-sale terminal, and email. Depending on how the subsequent entry is initiated, it may be classified under the NACHA Operating Rules as a TEL, WEB, PPD, POS, MTE, or SHR debit entry for purposes of processing. 

NACHA’s guidance includes examples of subsequent entries that illustrate the potential scope and utility of standing authorizations:

• Bill payment: A standing authorization could allow a consumer to initiate payments on a credit card account intermittently and via various channels (such as phone, online, mobile app, text, virtual assistant technology)
• E-wallet/personal financial management: A consumer could provide a standing authorization for future debits related to using an e-wallet or other personal financial management service
• Personal or home virtual assistants: A standing authorization could be used in conjunction with services and apps that allow future e-commerce and payments to be initiated via virtual voice assistant or similar functionality; and
• Account transfers: A consumer could provide a standing authorization to authorize funding debits to a brokerage account based on investment activity.

Originators must retain the original or a copy of each standing authorization for the entire time the originator is relying on the standing authorization, plus two years. Proof of each initiated subsequent entry must be retained for two years following the settlement date of the entry.

In conjunction with facilitating standing authorizations, the Operating Rules also expand the methods by which a consumer may authorize debit entries orally. Historically, an oral authorization could only be obtained from a consumer over the telephone. The new rules permit oral authorization through a wide variety of voice technologies. NACHA offers up several examples:

• The consumer communicates an oral authorization to the Originator via a traditional telephone call.
• The consumer interacts with a home digital assistant (“Voice Assistant, pay my bill”).
• The consumer authorizes a bill payment via a video chat via the Internet.

An oral authorization may be used to establish a single authorization, a recurring authorization, or a standing authorization. As part of the update to the Operating Rules, NACHA has established minimum requirements for the content and memorialization/confirmation of oral authorizations, as well as retention requirements for proof of the authorization.

For more information on implementing and administering standing authorizations, subsequent entries, and oral authorizations, contact David Whitaker or Margo Tank.