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Managing. The risk of Payment System - Turner P.

Turner P. Managing. The risk of Payment System - John Wiley & Sons, 2003. - 253 p.
ISBN 0-471-32848-0
Download (direct link): managingtherisksofpayment2003.pdf
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(ii) the entry has not been reinitiated contrary to the ACH
Rules,20 and
(iii) the entry otherwise complies with the ACH Rules.
ODFI Warranty about Revocation of Authorizations. At the time the entry is transmitted to the Originating ACH Operator21:
(i) the Originator’s authorization has not been revoked,
(ii) the agreement between the ODFI and the Originator concerning the entry has not been terminated, and
(iii) neither the ODFI nor the Originator has actual knowledge of the revocation of the Receiver’s authorization or of the termination of the arrangement between the RDFI and the Receiver concerning the entry.
Origination of ACH Entries
ODFI Warranty about Termination of Authorization by Operation of Law. At the time the entry is processed by the RDFI, the authorization for the entry has not been terminated in whole or in part by operation of law.22
ODFI Warranty about PIN Requirements. If a personal identification number (PIN) is required for a machine terminal (MTE), point of sale (POS), or shared network (SHR) entry, the Originator has complied with the applicable American National Standards Institute (ANSI) requirements.23
ODFI Warranty about Transmittal of Required Information. Each entry transmitted by the ODFI to the ACH Operator contains the correct Receiver account number and other information necessary to enable the RDFI to comply with the ACH Rules relating to the furnishing of Periodic Statements,24 except for information within the purview of the RDFI’s relationship with the Receiver. Information transmitted with the entry is payment related and conforms to the record format specifications of Appendix Two of the ACH Rules.
ODFI Warranty about Reclamation Entries for Governmental Benefits.
If the purpose of the ACH transfers is to pay governmental benefits to the Receiver and the Receiver dies before the RDFI receives a payment, the RDFI may be liable for the return of the payment. Such payments are returned by the transmittal of a reclamation entry from the ODFI to the RDFI.25 The ODFI warrants to the RDFI, the ACH Operator, and the member associations that26:
(i) the information in the entry is correct,
(ii) the entry is timely and properly authorized, and
(iii) any payment for which the RDFI is liable is not subject to restriction on the number of parties having an interest in the account at the RDFI.
Risks of Automated Clearing House Payments
ODFI Warranty about “Sending Points.” A sending point is an entity that sends entries to the ACH Operator on behalf of the ODFI. If the entry is transmitted to the ACH Operator by a sending point, the ODFI warrants to the RDFI, the ACH Operator, and the member associations that the entry is transmitted pursuant to an agreement between the ODFI and the sending
The ODFI warrants that it has complied with the audit requirements imposed on the ODFI by Appendix Eight of the ACH Rules.
Warranties about POP and TEL Entries. If the Originator is a merchant that has converted a consumer’s check into a debit entry at the point of purchase (POP), the ODFI warrants that the original check has been returned voided to the consumer and has not been provided by the consumer for use in any prior POP entry. If the Originator has initiated a TEL entry, the ODFI warrants that the Originator has used commercially reasonable security procedures to verify the identity of the Receiver and to verify that routing numbers are valid.
Liability of ODFI for Breach of Warranty2 The ODFI has no liability in connection with a claim asserted by the Originator or the Receiver with respect to the goods or services.29 The ODFI is otherwise broadly liable under ACH Rule 2.2.3.
What Is an Indemnity?
An indemnity is an agreement to hold an indemnified party harmless from claims by third parties. ACH Rule 2.2.3 requires the ODFI to indemnify the RDFI, the ACH Operator, and the member associations against claims and expenses, including attorney’s fees and costs, resulting from a breach of warranty. This indemnity is even broader, because it covers claims and expenses resulting from “the debiting or crediting of the entry to the Receiver’s account.” Presumably, these are claims and expenses
Origination of ACH Entries
that would be based on the ground that the debiting of an entry to an account resulted in the return of items or entries due to insufficient funds. These are claims and expenses that are specifically included in the Rule 2.2.3 indemnity, which also includes, in the case of a consumer account, claims resulting from the RDFI’s violation of Regulation E.
ACH Prenotification
Prenotification is an optional method of testing the efficacy of an ACH entry. Prior to initiating the first entry to a Receiver, the Originator may deliver or send notification (referred to by practitioners as a “prenote”) through the ODFI to the ACH Operator for transmittal to the RDFI.30 The prenotification must provide notice to the RDFI that the Originator intends to initiate one or more entries to the Receiver’s account.
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