The National Automated Clearing House Association (NACHA) Operating Rules and Guidelines (the Rules) serve as the definitive sources of information governing the exchange and settlement of electronic funds through the ACH network. As a business that originates ACH, the ACH Rules can feel overwhelming. However, it’s extremely important that you, as an Originator, understand and abide by the Rules. Each Financial Institution is required to complete an annual audit of the ACH Rules to ensure the Financial Institution and their Originators are compliant.    

In Part Two of this three-part blog series, we break down common ACH processing items and the applicable Rules. Read on to learn more and save this article as a resource for questions related to ACH Processing Rules. 

For easy access to the ACH Rules, you can create an account and claim a basic subscription at no cost by visiting: https://www.nachaoperatingrulesonline.org

Prenotification Entries (Prenotes)

Prenotes are zero-dollar entries that precede the first live entry. The purpose of a prenote is to verify that the account number on an entry is for a valid account at a Receiving Depository Financial Institution (RDFI). The RDFI is required to verify the account number on the prenote, but they are not required to validate the name of the payee on the prenote. 

Prenotes are optional; However, if sent, ACH Rules require that the prenote must precede the first live entry by at least three (3) banking days. If there are any errors in a prenote entry or it cannot be processed, a Notification of Change or Return will be sent by the RDFI to notify your company of the necessary corrections to be made before a live dollar entry is initiated. 

Notification of Change (NOC)

A Notification of Change (NOC) is transmitted by a RDFI to an Originating Depository Financial Institution (ODFI) to request the Originator to correct or change information related to a Receivers’ bank account.  As long as the RDFI can recognize the intended account, it can post the transaction and send an NOC.  This allows the RDFI to notify the ODFI that information contained in an entry has become outdated or is incorrect without having to return the item. Upon receipt of the NOC, your ODFI must report the NOC information to you.

The ACH Rules require your company to make the requested changes within six (6) banking days of the receipt of the NOC or prior to the initiation of another ACH entry. 

Below are common NOC Codes and a description of the information that need to be corrected.

NOC Code	Description of Error
C01 – Incorrect Account Number	Account number is incorrect or is formatted incorrectly.
C02 – Incorrect Routing Number	Due to merger or consolidation, a once valid routing number must be changed.
C03 – Incorrect Routing Number and Incorrect Account Number	Due to a merger or consolidation, the routing number must be changed, and account number structure is no longer valid.
C05 – Incorrect Transaction Code	Transaction code is incorrect and is causing entry to be routed to the wrong type of account (checking, savings, general ledger, loan).

 

ACH Return

An ACH return is an ACH entry that the RDFI is unable to post for reasons defined by the various return codes (see common codes below). An RDFI may use the return process for prenotes as well as for valued ACH entries.

In an effort to maintain the integrity of the ACH Network, NACHA enforces fines or termination of services for violation of rules associated with returns. An ODFI must pay an Unauthorized Entry Fee to the RDFI for each unauthorized return.  Originators must maintain a return rate below 0.5% for entries returned as unauthorized. 

The use of consumer (PPD) or corporate (CCD) entry codes determines the applicable ACH return Rules. 

For entries with a corporate CCD SEC code, the RDFI must transmit the return in time for your ODFI to receive it by opening of business on the second banking day following the settlement date of the original entry, referred to as the “24-hour rule”. Returns that are unauthorized beyond the 24 hours are the company’s liability and any disputes may have to be settled outside of the banking network. 

Certain entries with a consumer PPD SEC code are exceptions to the 24-hour rule and may be returned within 60 days of the settlement date. 

Below are common ACH Return Codes and the action that must be taken by the Originator if a return is received. 

Reason for Return	Action by Originator
R01 – Insufficient Funds The available and/or cash reserve balance is not sufficient to cover the dollar value of the debit entry.	Originator may initiate a new ACH entry within 180 days of original settlement date (maximum of two attempts).
R02 – Account Closed A previously active account has been closed by action of the customer or the RDFI.	Originator must stop initiation of entries and obtain an authorization from the Receiver for another account.
R03 – No Account/Unable to Locate Account The account number structure is valid, and it passes the check digit validation, but the account number does not correspond to the individual identified in the entry, or the account number designated is not an existing account.	Originator must stop initiation of entries and contact the Receiver for correct account information.
R04 – Invalid Account Number Structure The account number structure is not valid.	Originator must stop initiation of entries until account number/structure is corrected.
R05 – Unauthorized Debit to Consumer Account Using Corporate SEC Code CCD or CTX debit entry was transmitted to a consumer account of the Receiver and was not authorized by the RDFI.	Originator must stop initiation of entries.
R07 – Authorization Revoked by Customer The RDFI’s customer (the Receiver) revoked the authorization previously provided to the Originator for this debit entry.	Originator must stop initiation of entries until new consumer authorization is obtained.
R08 – Payment Stopped The Receiver has placed a stop payment order on this debit entry.	Originator must contact Receiver to identify the reason for the Stop Payment and obtain authorization before reinitiating the entry.
R09 – Uncollected Funds A sufficient ledger balance exists to satisfy the dollar value of the transaction, but the available balance is below the dollar value of the debit entry.	Originator may initiate a new ACH entry within 180 days of original settlement date (maximum of two attempts).
R10 – Customer Advises Originator is Not Known to Receiver and/or Originator is Not Authorized by Receiver to Debit Receiver’s Account The RDFI has been notified by the Receiver that the Receiver does not know the identity of the Originator; has no relationship with the Originator; or has not authorized the Originator to debit the account.	Originator must stop initiation of entries.
R11 – Customer Advises Entry Not in Accordance with the Terms of the Authorization The RDFI has been notified by the Receiver that the Originator and Receiver have a relationship and an authorization to debit exists, but there is an error or defect in the payment such that the entry does not conform to the terms of the authorization (the entry is for an amount different than authorized; the entry was initiated for settlement earlier than authorized).	Originator must contact Receiver to identify the reason for the return. New authorizations may be required prior to reinitiating the entry.
R16 – Account Frozen Access to the account is restricted due to specific action taken by the FDFI or by legal action; or OFAC has instructed the RDFI or Gateway to return the entry.	Originator must stop initiation of entries.
R20 – Non-Transaction Account ACH entry to a non-transaction account.	Originator must stop initiation of entries.
R23 – Credit Entry Refused by Receiver Any credit entry that is refused by the Receiver may be returned by the RDFI.	Originator must obtain Receiver authorization prior to reinitiating the entry.
R24 – Duplicate Entry The RDFI has received what appears to be a duplicate entry, i.e., the trace number, date, dollar amount and/or other data matches another transaction.	Originator should accept the return. If the entry has already been reversed, Originator should contact the RDFI to determine a solution. An Originator may reverse an erroneous or duplicate ACH entry/file up to 5 banking days after the Settlement Date of the entry/file. OR if may request the RDFI to send a return.
R29 – Corporate Customer Advises Not Authorized The RDFI has been notified by the Receiver (non-consumer) that a specific entry has not been authorized by the Receiver.	Originator must stop initiation of entries until subsequent authorization has been obtained.

 

Re-Initiated Entries 

 

If you receive an ACH return, a debit entry may be re-initiated based on the following: 

• A return for Insufficient Funds or Uncollected Funds can be re-initiated two more times. 
• A return for Stop Payment may be re-initiated only if approval is received from the payee to re-send the item. 
• The Originator or ODFI (Border Bank) has taken corrective action to remedy the reason for the return.

The ACH Rules require that Originators must cease the origination of any ACH debit transactions when a previous ACH debit is returned as unauthorized, or authorization revoked by the Receiver. The Originator must obtain a new authorization prior to re-originating any future transaction. It is a violation of NACHA Rules to re-initiate the debit entry if a return is received for any other reason. 

The re-initiated debit entry must be submitted in a batch that includes the words “RETRY PYMT” in the Company Entry Description field.  The entry must contain identical information in the Company Name, Company ID and Amount fields. The Company originating the Entry must remain identifiable to the Receiver as in the original Entry and the amount of the Entry must be for the amount originally authorized by the Receiver.

Reversals 

An Originator or ODFI may initiate a reversal to correct an erroneous entry or file previously transmitted. Reversals may only be made for the following reasons:

• duplicate transaction
• incorrect account
• incorrect dollar amount
• incorrect settlement date

Reversals must be transmitted within five (5) banking days of the settlement date of the erroneous entry or file, and within 24 hours of the discovery of the error. If the reversal is due to an incorrect account or incorrect amount, a correcting entry or file must also be sent. A payee must be notified of a reversal to their account; however, a payee does not need to authorize the reversal. The RDFI is under no obligation to post the reversing debit if it overdraws the payee’s account or if the payee’s account is closed.  

The reversing entry must be submitted within a batch that includes the word “REVERSAL” in the Company Entry Description field. The description “REVERSAL” must replace the original content of the Company Entry Description field transmitted in the original batch. 

If a reversing entry or file must be transmitted, please contact Border Bank for instructions.

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