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CUNA Regulatory Comment Call

April 24, 2000

(NOT A MAJOR RULE)

EXECUTIVE SUMMARY

• The Department of the Treasury published an interim rule for comment in the April 7, 1999 Federal Register. The rule would amend Treasury's ACH rules by adopting the changes to the automated clearing house rules made by NACHA since publication of NACHA's 1999 rule book. The interim rule is effective April 7, 2000. Changes to specific NACHA rules are effective on May 8 or NACHA's effective date for the specific rule, whichever is later.
• Comments are due to the Access Board by June 6, 2000. Please submit your comments to CUNA by May 23, 2000, by fax at 202/371-8240 or by e-mail to CUNA's Assistant General Counsel Michelle Profit at mprofit@cuna.com. The proposed rule is available on Treasury's web site at http://www.fms.treas.gov/ach/.

Treasury would adopt the following NACHA changes to its regulations.

• The proposal adopts NACHA's interim rule to provide a legal framework for the conversion of checks to ACH debit entries at the point-of-purchase. The interim rule is effective from September 17, 1999 through September 14, 2000.
• Treasury adopts an interim rule that allows originators to utilize the PPD format to truncate checks received through the U.S. mail to pay bills and convert them to ACH debit entries. The effective period is from December 17, 1999 through December 15, 2000.
• NACHA has revised the definition of ACH Operator so that fewer institutions would qualify as ACH Operators. This revision became effective June 18, 1999.
• Treasury would adopt NACHA amendments to the ACH Rules to establish two new SEC codes, for consumer and corporate cross- border transactions. These would be used for the origination and receipt of cross-border ACH entries. The amendment would become effective as of September 15, 2000.
• Treasury would establish a new SEC code to provide commercial depositors and their financial institutions with a legal framework and technical specifications to transmit ACH debit entries to collect checks that have been returned for insufficient or uncollected funds. The new code would become effective as of September 15, 2000.

Treasury will NOT adopt the following NACHA amendments

• NACHA's revised the self-audit provisions of the ACH Rules. This rule requires self-audits annually rather than every three years; requires third-party service providers to conduct self-audits; requires that proof be retained that a self- audit was completed; and requires that originating depository financial institutions (ODFIs) and receiving depository financial institutions (RDFIs) specifically warrant that they have completed self-audits. The effective date of these changes was December 17, 1999.
• Treasury would not accept for federal payment other than vendor payment, the changes to the ACH Rules that permit the crediting of ACH credits to a general ledger account or to a loan account at a financial institution. The rule provides that ACH credit entries representing federal payment, other than vendor payment, must be deposited to an account at a financial institution in the name of the recipient with the exceptions that the account must be a deposit account, and not a loan account or general ledger account.

INTERIM RULE BACKGROUND

On April 9, 1999, Treasury published a final rule in the Federal Register that adopted the ACH rules published in NACHA's 1999 rule book with certain exceptions. That rule provides that any amendment to the ACH Rules, as published in the NACHA 1999 Rule Book that takes effect after September 17, 1999 will not apply unless it is published again in the Federal Register. Treasury is now publishing these rules, as well as new amendments to the rules promulgated by NACHA later in 1999. Treasury's interim rule would adopt most, but not all of those changes, and it provides notice for comment. All these rule changes are discussed on CUNA's website under the NACHA final rules chart, with the exception of the ACH Operation definition.

This definition of ACH Operator is particularly important because the Federal Reserve may use this definition to define who is an ACH Operator to grant them preferential deadlines in ACH processing and to grant them better prices under ACH pricing models that may be proposed within the next few months. The revised ACH Operator definition would include the following:

The revised definition requires all ACH Operators, except Federal Reserve Banks, to execute an annual agreement with NACHA, in which the ACH Operator agrees to perform the specific functions and comply with the requirements for ACH Operators as defined under the NACHA Operating Rules. A Federal Reserve Bank would be considered to be an ACH Operator if it performs the specific functions of an ACH Operator as expressed in the definition.

• An ACH Operator must agree to adhere to the requirements of the NACHA Operating Rules and to other applicable laws, regulations, and policies. An exception has been added to exempt Federal Reserve Banks from compliance with a provision of the NACHA Operating Rules in the event such a rule is inconsistent with the policies or practices of the Federal Reserve Banks.
• A requirement has been added that an ACH Operator must execute agreements with a minimum of twenty independent Participating DFIs (i.e., the DFIs utilizing that ACH Operator's services) that bind such DFIs to both the ACH Operator's rules and the NACHA Operating Rules. An exception has been added to exempt Federal Reserve Banks from binding a Participating DFIs to any provision of the NACHA Operating Rules in the event such a rule is not incorporated into the provisions of the Uniform Operating Circular of the Federal Reserve Banks.
• The requirement to provide clearing, delivery, and settlement services for ACH entries has been expanded to require the provision of clearing, delivery and settlement services both for transaction exchanges by Participating DFIs utilizing the same ACH Operator (intro-ACH Operator exchange) as well as for transactions exchanged by participating DFIs utilizing different ACH Operators (inter-ACH Operator exchanges).
• A requirement has been added that requires each ACH Operator to evaluate the credit worthiness of and apply risk control measures to their participating.
• A requirement has been added that requires each ACH Operator to adhere to the Federal Reserve's Policy Statement on Privately Operated Multilateral Settlement Systems, if it is applicable.
• A requirement has been added that obligates an ACH Operator to adhere to any National ACH Operator Performance Standards of the National Association, which define minimum performance standards for ACH Operators.

QUESTIONS REGARDING THE CURRENT SYSTEM

• Could the definition of the ACH Operator be redefined to allow some natural person or corporate credit unions to qualify as an ACH Operator? How should it be redefined? What requirements could be dropped to make it more inclusive?
  
  

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• Do you encounter problems with federal ACH payments that warrant a change in the ACH rules? Please explain.
  
  

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• Do you have any other comments or questions about these rules?
  
  

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• Is the rule located at 31 C.F.R 210, written in understandable English? (Click here to obtain a copy.)
  
  

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