Clear Originator ID for Consumers Is NACHA’s Latest Risk Measure

In an effort related to a broader initiative to tighten risk management in the automated clearing house network, NACHA this week announced its voting membership has approved a rule that requires companies that originate transactions to identify themselves with names their customers will recognize. The new rule, which goes into effect June 20, carries penalties for non-compliance spelled out in NACHA's national system of fines. A first offense, for example, will draw a warning, while a recurrence will trigger a $1,000 fine. Michael Herd, managing director for ACH network rules at NACHA, says the Herndon, Va.-based rules-setting organization for the ACH estimates the problem of unrecognized originators occurs in 1% to 2% of consumer transactions, including both credits and debits. As sometimes happens with credit card statements, consumers who can't identify companies listed with ACH transactions on their bank statements are likely to make calls to the bank, resulting in customer-service issues. Also, Herd says, in some cases the lack of clear originator identification is a sign of fraud, though he says in most cases the problem arises from companies using holding-company or affiliate names that consumers don't recognize. “It's most likely a legitimate company,” Herd says. As part of the rule, which is formally known as the Company Name Identification Rule, NACHA is also requiring that the name of the actual originator, not a third party, be the one used in the transaction file. Herd says this requirement is intended to guard against processors that might identify themselves as the originator, rather than use the names of their client merchants or billers. NACHA is in the midst of a major project aimed at reducing risk in the ACH network. Last year, the organization introduced stronger penalties for unauthorized transactions and clarified a rule that bans transaction aggregation in some instances (Digital Transactions News, November 28, 2007). Herd says payments returned as unauthorized amounted to 0.04% of all transactions in the fourth quarter, unchanged from the same period in 2006.