By Mindy Shadoin, Consultant, Young & Associates
On March 15, 2024, Nacha announced significant updates to ACH (Automated Clearing House) Rules, aimed at enhancing fraud management and improving the recovery of funds. These updates are set to roll out in phases, with some changes effective as early as June 2024 and others beginning March 20, 2026. This article summarizes the key changes that will take effect in 2026, providing a concise overview of what community financial institutions need to know.
Key Changes Effective March 2026
The changes effective March 20, 2026, are designed to address fraud more effectively and enhance the recovery of funds when fraud occurs. Institutions must adapt to these new rules to comply with regulatory requirements and improve their fraud detection and management practices.
Fraud Monitoring (Phase 1)
Who’s Affected: Originating Deposit Financial Institutions (ODFIs) and each Non-Consumer Originator, Third-Party Service Provider, and Third-Party Senders with annual ACH origination volume of six million or greater in 2023.
Requirements: Institutions must implement risk-based processes for ACH entry fraud detection and review these processes annually. The final rule emphasizes specific process requirements over the previous “commercially reasonable” standard.
Reason: The amendment is designed to cut down on fraud. By regularly monitoring for fraud, institutions can create a baseline of normal activity, which makes it easier to spot unusual or suspicious behavior.
RDFI ACH Credit Monitoring
Who’s Affected: Receiving Depository Financial Institutions (RDFIs) with annual ACH receipt volumes of 10 million or more in 2023.
Requirements: RDFIs must develop fraud detection systems for incoming credit entries, using a risk-based approach to monitor transaction patterns and account anomalies.
Reason: The rule aims to decrease successful fraud and improve the recovery of funds in case of fraud. It supports an institution’s regulatory duty to monitor suspicious transactions. Additionally, it promotes better communication between compliance, operations, product management, and relationship staff.
New Definitions and Descriptions
False Pretenses
The updated rules introduce the term “False Pretenses,” which refers to fraud involving misrepresentations of identity, authority, or account ownership. This definition aims to cover common fraud scenarios like Business Email Compromise (BEC) and vendor impersonation, enhancing clarity in handling such cases.
Standard Company Entry Description: Payroll
Effective March 20, 2026, regardless of ACH volume, all Prearranged Payment and Deposit Entry (PPD) Credits for wages and similar compensation must include the description “PAYROLL” in the Company Entry Description field. This standardization will help RDFIs better identify payroll-related transactions and prevent fraud associated with payroll redirections.
Standard Company Entry Description: Purchase
Effective March 20, 2026, regardless of ACH volume, this amendment requires that e-commerce purchases use the description “PURCHASE” in the Company Entry Description field. This change will help differentiate e-commerce transactions and prevent misclassification of transactions.
Changes Effective June 2026
Fraud Monitoring (Phase 2)
Starting June 22, 2026, the rules from Phase 1 will apply to all RDFIs not previously covered. These Phase 2 changes will further enhance fraud detection and fund recovery processes, ensuring comprehensive coverage across the industry.
Preparing for the Nacha Rule Changes
The upcoming changes to the Nacha Operating Rules represent a significant step forward in managing ACH fraud and improving fund recovery. Financial institutions will need to prepare by refining their fraud monitoring processes and adapting to the new definitions and descriptions outlined in these rules. For detailed information, you can find the Nacha Operating Rules and Guidelines on Nacha’s website.
Staying informed and compliant with these rules will be crucial for maintaining effective fraud management and regulatory adherence. This article provides a simplified overview of these updates, focusing on key changes and their implications. For a more comprehensive understanding, inquire about the in-depth article featured in the August edition of our Compliance Update newsletter, including details on the final rule changes, adjustments from the original proposal issued in May 2023, and specific actions required.
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Additionally, Young & Associates provides a full suite of regulatory compliance consulting services tailored to meet the unique needs of your institution. Our offerings include ACH self-assessment reviews, compliance outsourcing, our Virtual Compliance Consultant Program, and more, designed to simplify complex regulatory requirements and allow you to focus on strategic goals. For more information on how we can support your institution, please contact us.
