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Federal funds rate Purchases and sales in the open market of U.S. Treasury and federal agency securities are the Federal Reserve’s principal tool for implementing monetary policy. The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC). This objective can be a desired quantity of reserves or a desired price (the federal funds rate). The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
Field The smallest defined data element within an electronic file. A series of fields are a record and a group of records are a file.
Hologram A three-dimensional image created by a laser. Holograms are used to make counterfeiting more difficult—for example, in regard to plastic cards.
International Organization for Standardization The organization providing industry standards (“ISO standards”) for financial transactions and telecommunications messages.
Magnetic ink character recognition (MICR) The MICR characters on a check are printed in special ink. An MICR-encoded check passes through magnetic heads in a reader/sorter to be magnetized and then read.
Magnetic stripe A stripe of magnetic information affixed to the back of a plastic credit or debit card. The stripe contains the customer and account information required to complete electronic financial transactions. The physical and magnetic characteristics of this stripe are specified in ISO standards. A magnetic stripe “card” reader reads information from the magnetic stripe and transmits that information to a computer processor.
Merchant depository account A demand deposit account established by a merchant with a bank to receive payment for sales drafts submitted to the bank card plan.
Misdescription A misdescription is simply an erroneous description, but in an electronic funds transfer under U.C.C. Article 4A, is more narrowly said to occur when the sender of a payment order uses both a name and a number to describe either the beneficiary or a bank in the funds transfer. The misdescription results because the name and number identify different entities. Either the name or the number is erroneous.
ODFI, or originating depository financial institution An ODFI is an ACH Participating Depository Financial Institution (PDFI) with respect to entries it receives from the Originator and transmits to the ACH Operator for transmission to the RDFI for the Receivers’ account. An entry that deposits funds into the Receiver’s account is a credit entry, and one that pulls funds from the Receiver’s account is a debit entry.
On-line financial transaction A financial transaction that is settled in a single on-line message (vs. batch processing).
On-us transaction A transaction in which the payor and payee utilize the same bank. In a check on-us transaction, the drawer draws the check on the same bank that the payee uses to deposit the check. In an electronic funds transfer, the originator and the beneficiary use the same bank. On-us electronic transactions are also known as “book transfers.”
Paper draft Sales slips, credit slips, cash disbursement slips, drafts, vouchers, and other documents indicating a drawer’s requesting a drawee to pay a holder. For example, a draft, document or electronic, for a credit card charge.
Participating depository financial institution (participating DFI)
A financial institution authorized to participate in an ACH. See also ODFI and RDFI.
Payment order An instruction by a sender in a U.C.C. Article 4A funds transfer to a receiving bank to make a payment. A funds transfer is a chain of payment orders. The first payment order in a funds-transfer chain is from the originator to the originator’s bank, and the last payment order is from a bank in the chain to the beneficiary’s bank.
Personal identification number (PIN) A numeric code for an individual to be identified to a computer system, whether as an individual (as a consumer) or on behalf of a business (as an authorized person). PINs are issued and maintained under various security systems. An individual PIN is linked to the primary account number for that PIN.
Point of sale (POS) ACH terminology distinguishes between POS and POP. In point-of-sale (POS) ACH transfers, debit cards, credit cards, or a merchants card or device are used to
pay the merchant for goods or services. In point-of-purchase (POP) ACH transfers, consumers’ checks become “electronic checks,” that is, checks that are converted into ACH debit entries to pay for goods or services at the point of purchase.
Presentment The presentation by a collecting bank to the drawee bank of a check for payment.
RDFI, or receiving depository financial institution An RDFI is
an ACH Participating DFI with respect to entries it receives from the ACH Operator for the Receivers’ accounts.
Regulation E Authorized by the 1978 Electronic Funds Transfer Act (EFTA), the board of governors of the Federal Reserve System issued Regulation E, and authorizes staff interpretations of the regulation, to protect consumers. Regulation E applies to an electronic funds transfer authorizing a financial institution to debit or credit a consumer’s account, a consumer’s account being an account established primarily for personal, family, or household purposes.