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EPISODE SUMMARY:

QUESTIONS ALWAYS WELCOME. jcasali@neach.org

In this episode of Wrestling Payments, host Joseph Casali continues his three-part NACHA SmackDown series, taking listeners inside the high-stakes world of ACH rules violations. Through compelling real-world cases, Joseph reveals the consequences when financial institutions fail to follow proper authorization procedures.

The episode examines Steward Bank's repeated failures to provide valid authorization proof, resulting in escalating fines from warnings to $7,500. Joseph also explores O'Leary Bank's improper SEC code use, demonstrating critical compliance errors that payment professionals must avoid.

"These are really places to learn how the rules apply," Joseph explains. "Look what happened here. This went wrong, and they got fined for it. It's a really good way to learn how the rules work."

While emphasizing that NACHA's enforcement process doesn't recover funds for affected parties, Joseph provides valuable insights for operations managers and directors responsible for ACH compliance.

KEY INSIGHTS:
The Enforcement Process Protects the Network, Not Individual Cases
NACHA's enforcement process exists to uphold system integrity, not recover funds for affected parties. The process identifies rule-breakers and imposes fines to discourage future violations, but consumers must look elsewhere for recovery. Understanding this distinction is crucial for banking professionals managing payment operations—rules enforcement serves as a deterrent while arbitration offers a path for financial recovery. This separation of powers helps maintain ACH Network quality while giving institutions multiple ways to address unauthorized transactions.

Authorization Type Must Match the SEC Code
SEC codes must align with the authorization type obtained from customers—a critical compliance point for operations managers. Converting a check into a WEB debit constitutes an automatic rules violation because the authorization types differ fundamentally. Payment professionals must understand that each SEC code requires its distinct authorization format. This knowledge helps institutions avoid costly violations while ensuring proper payment processing across different channels.

Progressive Enforcement Drives Compliance
NACHA's enforcement panel uses progressively increasing penalties to encourage compliance, starting with warnings before moving to monetary fines. For payment professionals, this highlights the importance of addressing issues immediately rather than ignoring them.

The panel's willingness to impose recurring monthly fines for persistent violators underscores NACHA's commitment to maintaining network integrity.

Proper Documentation Prevents Costly Violations
Under NACHA rules, the obligation to provide valid proof of authorization within 10 banking days is non-negotiable. Financial institutions must maintain organized, accessible records and ensure staff understand how to respond properly to authorization requests.

Both cases highlight the importance of having knowledgeable staff (ideally AAP-certified) who can identify proper authorization formats and requirements. Operations managers should implement procedures ensuring authorization documentation matches receiver information exactly, as mismatches invalidate the proof and trigger violations.