A merchant will make two small deposits in a customer's checking account to validate it for ACH transfers. Once the customer verifies the deposited amounts, the merchant removes the deposits. The net result is that no money has changed hands. However, verification has taken place.
Through this process, the merchant verified that the customer entered their banking information correctly, usually on the merchant's website, through a secure location. Now that the initial handshake and verification has completed, the merchant can debit the account for the real amount (for services or goods). This initial handshake/verification is called a small-dollar ACH entry.
This verification process falls outside of National Automated Clearing House (NACHA) rules. However, on January 31, 2022, NACHA approved a process to add micro-entries to its rule set. This rule update also assisted ACH network participants in monitoring micro-entry verifications. According to NACHA, a micro-entry is ACH credits of less than $1 and includes their offsetting debits.
After updates on January 31, 2022, more changes were made. More recent changes in NACHA rules to micro-entries do affect originators. These recent changes were done in two phases. Phase 1 became effective on September 16, 2022. Per wipfli.com, originators needed to be aware of the following:
- The company entry description field must contain “ACCTVERIFY.”
- The company name must be recognizable to the receiver and the same or similar to the company name the originator will use in future entries.
- If the company originates both micro-credits and debits, the debit amounts cannot exceed the amount of the associated credit entries. In other words, the transactions cannot result in a net debit to the receiver.
- Multiple micro-entries may be sent, but they must be sent at the same time and use the same effective entry date. The entries must be initiated so they will have the same settlement date.
- Future entries cannot be sent at the same time as the related micro-entries. Once the company has validated the micro-entries, any future entries can be initiated.
Phase 2 was put in place on March 17, 2023, related to fraudulent activity. This update also affects originators and third-party senders. They must monitor micro-entry volumes sent and returns for potentially fraudulent activity. Monitoring the reuse of account numbers should also be part of the process.
Credit unions need to update their originators of rule changes to NACHA rules. Giving originators plenty of lead time is basically a requirement, as implementations can take weeks to complete.
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