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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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“Troubled” Sending Banks
A business may find that its bank has become classified as “troubled,” and this will affect the business’s ACH operations. Although the business may want to change banks, that may be easier said than done, particularly if the business depends on the bank for a credit relationship.
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Risks of Automated Clearing House Payments
A sending bank that has been identified by its local Reserve Bank as having financial difficulties (hereinafter a “troubled sending institution”) may be required to execute the standard agreement. The agreement is designed to reduce the risk of loss or disruption by the troubled sending institution agreeing to take steps to permit its ACH credit items to be monitored and to be settled at the time of receipt by the Reserve Bank. These steps may be either notice of origination or prefunding.
A “Notice of Origination” is defined as “a written or electronic statement showing, by settlement date, the total amount of all credit items to be originated and the total amount of all debit items to be originated by the sending institution for a given ACH cycle.” A Reserve Bank receiving a notice of origination may, from time to time, verify its accuracy by comparing it with the credit and debit items actually originated. It may point out discrepancies and require explanations, and where inaccurate notices are submitted, it may refuse to process ACH credit originations or to provide ACH or net settlement services.
“To prefund” is defined as “to pay, in actually and finally collected funds, to [a] Bank, the total amount of all ACH credit originations shown on a Notice of Origination prior to sending the item to this Bank for processing.” Credit originations can be prefunded by a troubled sending institution by Fedwire transfer from another institution, by obtaining an advance from its Reserve Bank, or by maintaining a sufficient balance of actually and finally collected funds in its (or its correspondent’s) reserve or clearing account. Unless otherwise agreed upon, the troubled sending institution authorizes the Bank, prior to processing the items, “to deduct from the sending institution’s (or its correspondent’s) reserve or clearing account the amount needed to prefund the ACH credits.”
CROSS-BORDER PAYMENTS
The Cross-Border Council of NACHA maintains the Cross-Border Payment Operating Rules and Cross-Border Payment Operating
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Federal Government Payments
Guidelines. A Gateway Operator acts as the outgoing point for entries originated in the national system for transmission to another national system, and a second Gateway Operator acts as the receiving point in the other national system. The Gateway Operator that receives an entry from an ODFI within a national system for transmission abroad is the “Originating Gateway Operator” (OGO), and the Gateway Operator that receives an entry originated abroad for transmission to an RDFI within the national system is the “Receiving Gateway Operator” (RGO).
The Gateway Operator assumes responsibility for foreign exchange conversion and settlement, format mapping and translation of data, and other aspects of the cross-border funds transfer. For transactions between a U.S. financial institution and a U.S. Gateway Operator, the NACHA Operating Rules apply.
The Cross-Border Rules and Guidelines require the existence of agreements between (1) the Originator and the ODFI, (2) the ODFI and the OGO, and (3) the OGO and the RGO. The agreements must provide that the parties will be bound by the Rules and establish responsibilities, rights, and obligations in much the same manner as agreements executed in connection with the NACHA rules. ODFIs in the United States currently transmit ACH entries mostly to Canada and Mexico under the CrossBorder Rules and Guidelines and are also subject to the NACHA Rules. RDFIs in the United States that receive entries from Canada and Mexico are not subject to the Cross-Border Rules and Guidelines but are subject to the NACHA Operating Rules.
FEDERAL GOVERNMENT PAYMENTS
The federal government uses the ACH system for making payments to creditors and collecting funds from its debtors, as well as for collections from debtors. In the context of government ACH transfers, “payment applications” (credit entries) are contrasted with “collection applications” (debit entries). These can be recurring payments in the form of direct deposits to payees’ accounts, such as federal salaries, Social Security payments, or
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veterans benefits. Credit entries for nonrecurring payments include Internal Revenue Service (IRS) tax refunds and payments to vendors under the “Vendor Express” program. The latter is a direct deposit for a business that provides goods or services to a federal agency. The format primarily used in Vendor Express is that of CCD, which facilitates a single-payment, singleaddendum record (invoice).
A Pre-Authorized Debit (PAD) is currently used for ACH collections by federal agencies. A PAD is a debit entry initiated by a federal agency. A credit entry (CIE) is initiated by a debtor of a federal agency. PAD is well suited for recurring payments of a fixed or slightly varying amount, such as licensing fees, housing payments, insurance payments, overpayments, and loan repayments. Current ACH collections include delinquent taxes, funding fees on guaranteed home loans, brokerage duties, mortgage insurance premiums, and flood insurance premiums.
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