The National Automated Clearing House Association, known as Nacha, is the independent organization tasked with managing ACH payments. Nacha is owned by a group of credit unions, banks, and payment processing companies. This group oversees and facilitates electronic payments. ACH payments transfer money between bank accounts without using a check, wire transfer, cash, or credit card.
Nacha isn’t the same as ACH. An ACH network is the mode by which payments are transmitted, while Nacha is the organization that oversees the electronic payment network. Nacha sets the operating rule that each ACH transaction must follow. Most businesses now use some form of ACH to remit payments.
The History of Nacha
Nacha was originally created in 1974 after the merger of several regional US banks. Nacha was primarily used to process direct deposits, pay benefits, and automate credit card transactions. Following the passage of the Affordable Care Act, Nacha was the processor of health insurance payments. Today, Nacha is still the primary facilitator of benefit plan payments using their HIPPA-compliant protocols.
Nacha also works closely with different government agencies in the United States, such as the Federal Reserve, the US Treasury, and state banks, to prioritize the integrity of electronic payment processing. In 2019, Nacha unveiled another initiative called the Faster Payments Playbook, which looks to share the same business payment processing benefits with individuals. Individuals are now able to send and receive payments through the ACH system.
The Responsibilities of Nacha
Nacha has a variety of roles and responsibilities. Here are some of Nacha’s key responsibilities:
Monitoring and implementing legislative changes that impact ACH payments in clear directions for individuals, member banks, and businesses that use the ACH network
Enforcing operating rules for member banks and other users of the ACH payment system
Developing infrastructure on the ACH payment network to facilitate smooth direct payments from each bank account
Promoting the usage of ACH for bill payments, push payments, and direct deposit
Operating as a trade organization through comprehensive leadership, education, and advocacy
A Nacha file is a document that outlines the information related to the ACH transaction. This information needs to be presented in a certain way to be processed through Nacha’s system. While there are some changing variables based on the type of transaction, every payment must contain the following information:
ODFI account numbers and routing numbers
RDFI account numbers and routing numbers
File header and trailer
Bach header record with service-class code
Entry detail record
In addition, Nacha file requirements must conform to character length requirements. Due to the specificity of Nacha file formats, many banks and financial institutions will create and process ACH files on your behalf.
Nacha Operating Rules
Nacha has well-defined operating rules that each participant must follow when using the ACH network. These regulations aim to reduce financial fraud and streamline the payment process for all involved parties. Here are some of the main Nacha rules:
Obtain authorization to receive ACH payments from customers and clients
Clearly communicate to involved parties throughout the payment process, such as whether the payment is a one-time transaction or a recurring transaction
Give notice if you make changes to the original payment terms, such as changing the amount or the arrival date
Implement security measures to safeguard customer payment information, including their bank account numbers, personal identification numbers, driver’s license numbers, and billing information
Cancel recurring ACH payments immediately after receiving authorization from the client to avoid fraudulent debits
Nacha operating rules vary by jurisdiction. For example, the United States might have different payment regulations compared to the European Union. Understanding which regulations your business must follow is important to avoid warnings, fines of up to $500,000 per month, and permanent suspension from the ACH network.
Remember, Nacha rules are subject to change. Consistently checking for updates or investing in payment management software are great ways to maintain compliance.
Summary
The National Automated Clearing House Association, known as Nacha, is an independent organization that manages ACH payments
Nacha was created in 1974 as a way to process healthcare payments but has expanded to both individual and business payment processing options
Nacha is responsible for enforcing regulations that lower financial crimes, streamline payment processes, and comply with guiding legislation in the United States
Nacha has a detailed list of operating rules that institutions must follow. Failure to abide by the rules could result in fines of up to $500,000 per month and permanent suspension from using ACH payments
