Wire Transfer &
ACH Origination
Regional Payments Associations, through their Direct Membership in NACHA, are specially
recognized and licensed providers of ACH education, publications and support. Regional
Payments Associations are directly engaged in the NACHA rulemaking process and Accredited
ACH Professional (AAP) program. NACHA owns the copyright for the NACHA Operating Rules &
Guidelines. The Accredited ACH Professional (AAP) is a service mark of NACHA.
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What will you learn?
• Discuss the importance of commercially
reasonable security procedures
• Explain the consequences of not being
compliant with UCC 4A
• Given an ACH origination scenario:• Identify the prerequisite rules required for ACH origination
• Identify appropriate actions necessary for exception processing
while complying with the ACH Rules
After this course, you will be able to:
Wire Transfer Origination
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Wire Transfer Participants &
Flow
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Originator Originating/
Sender BankFederal Reserve
Bank
Beneficiary’s
BankBeneficiary
$
$
Legal Framework
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Prerequisite to Sending a
Wire Transfer
• Written agreement
– Typically in place for businesses sending wire
transfers on a regular, recurring basis
• Written authorization
– Most often used for consumer or one-off requests
– Best practice to require request be done in-
person
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Receipt of Payment Order
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UCC 4A
Commercially Reasonable Security Procedures
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Commercially Reasonable?
1. Verify identity of Originator prior to sending
wire transfer through the use of PINs, code
words or tokens
2. Require dual controls be used
3. Use call backs to confirm wire transfer
request
4. Document all wire transfers in a log book
5. Signature comparison only
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Security Procedures
Deemed to be commercially reasonable if:
(i) the security procedure was chosen by a customer
after the bank offered, and the customer refused, a
security procedure that was reasonable for that
customer, and
(ii) the customer expressly agreed in writing to be
bound by any payment order, whether or not
authorized, issued in its name and accepted by the
bank in compliance with the security procedure
chosen by the customer.
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UCC 4A and Liability
SituationLiable Party for
Unauthorized Wire Transfers
Originator and Originating/Sender
Bank do NOT agree on commercially
reasonable security proceduresOriginating/Sender Bank
Originator and Originating/Sender
Bank AGREE on commercially
reasonable security procedures
Originator
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Wire Fraud Case
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Choice Escrow and Land Title
vs. BancorpSouth Bank
• Online banking credentials stolen
• $440,000 fraudulent wire transfer to Cyprus
• Fraudulent wire caused the account to be
overdrawn by $90,000
• Bank did not contact customer
Wire Fraud Case
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Choice Escrow and Land Title
vs. BancorpSouth Bank
“They said they didn’t want to use it because they were concerned
that one of the designated authorized users might be out of the
office when they needed to do a wire.”
~ Defendant's Attorney
Limiting Liability
• Use commercially reasonable security
procedures,
• Ensure both parties agree to the security
procedures to be used, and
• Follow your security policies and
procedures!
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ACH Origination
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ACH Participants & Flow
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Legal Framework
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Bank of Lake Superior
• $500 million in assets
• Recently began offering ACH origination
services
– PPD credits
– PPD debits
– CCD credits
– CCD debits
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Quality Public Water Supply
District (PWSD)
• Services 4,600 water
customers
• Bill on a monthly basis
• Employ 25 staff
• Payroll is paid bi-monthly
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Would they be a good candidate for
ACH origination services?
The Sales Call
• Bank of Lake Superior meets with
Quality PWSD to discuss ACH
origination
• After reviewing the Bank’s ACH
origination service, Quality PWSD
decides to begin with payroll of
its employees
Identify the steps within Section 2.2, page OR 5,
that the Bank must take prior to sending
Quality PWSD’s payroll file.
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Prerequisites to Origination
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Staff Meeting
• Quality PWSD holds an all-staff meeting
to announce the move to Direct Deposit of payroll
• They also discuss the benefits and answer
questions from staff
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Under Section 2.3, page OR 6, is Quality PWSD
required to obtain a written authorization
from each employee before sending his/her payroll?
Authorization Requirements
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File Delivery
How might Quality PWSD deliver its payroll file
to the Bank of Lake Superior?
A. Upload to online banking
B. Upload to FTP server
C. Bring a CD or USB drive to the ODFI
D. Bring a paper listing so the Bank can manually
enter for them
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Important file be delivered by an authorized user
and by the cutoff times specified
in the Origination Agreement.
ACH Risk
1. What risk(s) are reduced by ensuring the file is delivered by an authorized user?
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2. What risk(s) are reduced by setting a
cutoff time?
ODFI Warranties
• Section 2.4, page OR 9
– Entry is properly authorized
– Entry complies with the ACH Rules
– Entry contains the Receiver’s correct
information
– Credit entry is timely
– Debit entry is due and owing
– Banking information is securely
transmitted
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Prenotes
• Bank of Lake Superior requires all payroll
Originators to send prenotes prior to
sending a “live” entry
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1. Are prenotes required to be sent under the
ACH Rules, Section 2.6, page OR 26?
2. How can the Bank require
prenotes be sent?
Waiting Period for Prenotes
• Subsection 2.6.2, page OR 26
– Quality PWSD may initiate the live entry as soon
as the third banking day following the Settlement
Date of the prenote, provided it has not received a
return or Notification of Change (NOC)
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Settlement
Date
Third
Banking Day
Notification of Change
(NOC)
• Joe Drinkwater, an employee of
Quality PWSD, provided
erroneous account information
in his authorization
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• Credit Union of Wealth
has sent an NOC with
Joe’s correct account
number
NOC
1. Describe what the Bank is required to do
upon receiving an NOC.
2. Describe Quality PWSD’s responsibilities
related to receipt of an NOC.
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Subsection 2.11.1, page OR 29
NOC Responsibilities:
Bank of Lake Superior
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NOC Responsibilities:
Quality PWSD
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Returns
• Joe closes his account at
Credit Union of Wealth
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• Joe opens an account at Nuttin’
Left Bank, but fails to notify Human
Resources of the change
• Credit Union of Wealth returns Joe’s payroll as account closed within 2 banking days of the Settlement Date of the payroll
Returns
1. Describe what the Bank is required to
do when it receives a return entry.
2. What must Quality PWSD do to
resolve this issue?
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Subsection 2.12.1, page OR 29
Return Responsibilities:
Bank of Lake Superior
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Return Responsiblities:
Quality PWSD
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