Nacha Fraud Monitoring Updates, Risk Management

9 December 2025
Megan Williams
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Categories: ACH, Lenders, Merchants, Payments

Nacha Fraud Monitoring Updates

As 2025 comes to a close, attention is shifting to 2026 and the next wave of changes in the ACH Network. Nacha has announced several upcoming rule amendments that strengthen risk management expectations, clarify existing requirements, and introduce new monitoring obligations for ACH participants. This article outlines the key updates so businesses can understand what to expect as these Rules take effect throughout 2026.

Some of the changes are minor clarifications that will have limited impact on most participants. Others, particularly those related to fraud monitoring, represent more meaningful shifts in expectations. Not all changes will apply to every Originator, Third Party Sender, or ODFI, but all ACH participants should be aware of what is coming.

Effective January 1, 2026

Use of Return Code R17 “Questionable”
This update clarifies the proper use of R17 rather than introducing a new return code. Under the revised definition, an RDFI may return an entry as “Questionable” when it believes the transaction or Receiver information is inaccurate, incomplete, or inconsistent with what it knows about the account. This change provides clearer guidance for RDFIs and creates earlier feedback for Originators when something about the entry appears suspicious.

Banking Day Definition Clarification
This is not a substantive change but a clarification. It confirms that a “Banking Day” is defined as a day on which the ACH Operator is open for business. The goal is to remove ambiguity and ensure uniform interpretation across the network.

RDFI Requirement to Provide Payment-Related Information
Several SEC Codes require RDFIs to provide Payment-Related Information to Receivers. These include CCD, CTX, CIE and IAT. The updated Rule clarifies that this requirement does not apply if these entries post to a consumer account. The expectation only applies when the Receiver is a non-consumer.

Company Entry Descriptions
These amendments take effect March 20, 2026 and apply to both credits and debits. Originators may adopt the new descriptions before the effective date. The changes support standardization and enhanced monitoring across the network.

ACH Credit Entry
The Company Entry Description for credits that represent wages or other compensation must contain the description PAYROLL.

ACH Debit Entry
For ACH WEB debits that represent the online purchase of goods, including recurring purchases first authorized online, the Company Entry Description must contain the description PURCHASE.

Risk Management Rule Updates
The most significant changes relate to fraud monitoring. Nacha is introducing new requirements for Originators, ODFIs, Third Party Service Providers, and Third Party Senders, along with a separate monitoring requirement for RDFIs. These Rules are being phased in during 2026.

Fraud Monitoring Obligations

These new expectations apply to ODFIs, non-consumer Originators, TPSPs, and TPSs. The requirements take effect in two phases.

Phase 1: March 20, 2026
Applies to participants with annual origination volume of 6 million or more in 2023.

Phase 2: June 19, 2026
Applies to all remaining non-consumer Originators, TPSPs, and TPSs not included in Phase 1.

The purpose of the amendment is to ensure participants establish and implement risk-based processes and procedures designed to identify potentially fraudulent entries. Routine monitoring is expected to reduce the likelihood of successful fraud attempts and strengthen the entire ACH ecosystem.

Today, Originators of WEB debits and users of Micro-Entries must utilize a “commercially reasonable fraudulent transaction detection system”. The updated Rule removes that terminology. The phrase “commercially reasonable” and the expectation of a “transaction detection system” are replaced with more practical language that focuses on processes and procedures.

This shift clarifies that Nacha is not prescribing specific technologies. Instead, entities must maintain documented processes that demonstrate how they reasonably identify and respond to fraud risks, based on the role they play in the ACH Network. The flexibility allows organizations of different sizes and risk profiles to implement approaches appropriate to their environments.

Nacha requires that these processes and procedures be reviewed at least annually, or sooner if material changes occur during the year.

RDFI ACH Credit Monitoring

This update adds new expectations for RDFIs related to monitoring of incoming ACH credits. The Rule does not impose new obligations on Viking Originators but is part of Nacha’s broader fraud prevention strategy.anges, reach out to your Viking representative today.

Preparing for 2026 and Beyond

As these updates take effect in 2026, ACH participants should take time to review their current practices, confirm that documentation is up to date, and ensure fraud monitoring processes align with Nacha’s expectations. While some of the changes are minor clarifications, others require operational adjustments that strengthen risk management across the network. Viking will continue to monitor these developments and support our clients through each phase of implementation to ensure a smooth and compliant transition.

Return to Viking Resource Center

December 9, 2025

About Megan Williams

She is a dedicated payments professional with a passion for operational processes, efficiencies and a love for the Rules. She has been in the financial services industry since 2016, strengthening her understanding of the space and obtaining her ACH Certification (AAP). She specializes in optimizing operations, enhancing payment processes and ensuring compliance in all matters of her job and this industry. 

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PCI DSS 4.0 in 2025

7 June 2025
Thomas Stephens
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Categories: Lenders, Merchants, Payments

What Merchants Need to Know
About PCI DSS 4.0 in 2025

If your business accepts credit or debit cards, PCI compliance is essential. The latest version of the Payment Card Industry Data Security Standard, PCI DSS 4.0, is now fully in effect. It introduces major changes designed to strengthen cardholder data protection and adapt to today’s complex digital payment landscape.

This version replaces the older 3.2.1 standard and includes critical enhancements for fraud prevention, authentication, and risk management. Here’s what you need to know and how to stay current in 2025.

What is PCI DSS 4.0 and 4.0.1

PCI DSS 4.0 is the global security standard for any organization that stores, processes, or transmits cardholder data. It was officially released in March 2022 and became the mandatory standard as of March 31, 2024. A clarification update, version 4.0.1, was published in mid-2024 to refine language and improve implementation guidance without changing the core requirements.

The real shift came in April 2025, when many of the formerly “best practice” or future-dated requirements became enforceable. Merchants must now fully align with PCI DSS 4.0 and address all applicable requirements, including those phased in over the past year.

Why PCI DSS 4.0 Matters Now

April 1, 2025, marked the date when PCI DSS 4.0 enforcement began in full. Businesses that have not transitioned from 3.2.1 risk fines, higher merchant fees, breach liability, and potential disruption of card processing services.

The update reflects the growing complexity of modern payments, where merchants may process card data across physical points of sale, mobile apps, e-commerce platforms, and cloud environments. PCI DSS 4.0 provides a more flexible framework while raising the bar for security, accountability, and risk management.

Key Requirements Now in Effect as of April 2025

  1. Scope Definition and Maintenance
    Merchants must define and document their PCI scope annually. For service providers, this must be done every six months. This includes identifying all systems and components involved in storing, processing, or transmitting cardholder data.
  2. Multi-Factor Authentication (MFA)
    MFA is now required for all access to the cardholder data environment, both internal and external. This eliminates prior exemptions and greatly improves protection against unauthorized access.
  3. Stronger Password Controls
    User passwords must now be at least 12 characters long unless a system limitation exists. This aligns PCI DSS with modern password standards for increased security.
  4. Web Application Security
    Public-facing payment pages must use a web application firewall or equivalent controls. Merchants must also monitor the integrity of all scripts loaded into these pages to prevent tampering or injection attacks.
  5. Automated Logging and Monitoring
    Merchants must implement automated logging systems to detect and alert on failures in critical security controls. Manual log reviews are no longer sufficient.
  6. Vulnerability Management and Software Inventory
    All internal vulnerability scans must be authenticated. Merchants must also maintain an inventory of software components using a Software Bill of Materials (SBOM) to quickly address known vulnerabilities.
  7. Phishing Defense and Awareness
    Anti-phishing technologies and employee training are required. This includes protecting users from fraudulent emails that could lead to credential theft or unauthorized access.
  8. Incident Response and Data Discovery
    Incident response plans must now include procedures for detecting unauthorized storage of cardholder data, not just responding to breaches.

What’s New Since April 2025

While the 4.0 standard is stable, version 4.0.1 introduced clarification on several areas including encryption expectations, hashing, and vendor responsibilities. The PCI Council emphasized the importance of maintaining SBOMs and reinforced that organizations should now be implementing customized approaches only when clearly documented and reviewed.

Key reminders from recent updates include:

  • Use of keyed hashing algorithms
  • Proper encryption key lifecycle management
  • Annual scope validation
  • Documented roles for shared responsibility with third-party vendors

What Merchants Should Do Now

If your business is still catching up with PCI DSS 4.0 requirements, here are key action items to prioritize:

  • Perform a gap analysis against current operations and 4.0 requirements
  • Implement MFA for all users accessing systems in scope
  • Deploy or validate use of web application firewalls
  • Set up automated logging and alerting tools
  • Complete an SBOM for all software in your cardholder environment
  • Train staff annually on security awareness, phishing, and incident response
  • Confirm your third-party service providers are PCI compliant and responsibilities are clearly defined

Why This Is Important to Your Business

Compliance is not just a technical checklist. PCI DSS 4.0 is about protecting your customers, your reputation, and your financial stability. Data breaches can be devastating, both in terms of brand damage and regulatory penalties. By staying compliant, you reduce risk, maintain trust, and avoid potential disruptions to your ability to process payments.

How Viking Can Help

At Viking, we offer platforms and services built with compliance in mind. Whether you’re using VIKExpress for card-not-present transactions, VIKEdge for ACH with bank balance verification, or VIKEngage for transaction monitoring, we make sure your payments are processed securely and responsibly.

We can also help with:

  • PCI compliance assessments
  • Policy and documentation support
  • Vendor responsibility checklists
  • Technical integrations for MFA, logging, and scanning
  • Ongoing training and incident response planning

If you’re unsure whether you’re ready for PCI DSS 4.0.1 or need help getting your systems in line with the new standards, reach out to your Viking representative today.

Let’s make sure your payment security is not just compliant, but resilient.

Return to Viking Resource Center

June 7, 2025

About Thomas Stephens

He is a skilled professional in payment operations and technical support, with deep expertise in payment technologies, enhanced workflows, and leading end-to-end system and platform integrations. He brings over 10 years of experience ensuring reliable, secure payment solutions while driving process improvements and delivering high-level support across fast-paced environments. 

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Understanding ACH Reversals: When and How to Use Them

27 May 2025
Megan Williams
No comments
Categories: ACH, Lenders

Understanding ACH Reversals
When and How to Use Them

The Automated Clearing House (ACH) network facilitates millions of financial transactions daily, making it an essential component of the U.S. payment system. However, errors can occur, necessitating the use of ACH reversals. Understanding the Rules and appropriate use of ACH Reversals is crucial for Originators to ensure compliance and maintain transaction integrity.

What is an ACH Reversal?

An ACH Reversal is the process of correcting a previously processed ACH transaction by withdrawing the funds from the recipient’s account and returning them to the Originator. This process is governed by specific rules outlined by Nacha (National Automated Clearing House Association) to prevent misuse and ensure that Reversals are only used in legitimate circumstances.

When Can ACH Reversals Be Used?

ACH Reversals can only be initiated under specific conditions, as defined by the Nacha Operating Rules and Guidelines. According to Nacha, these conditions include:

  1. Duplicate Transactions: When a single transaction is processed more than once.
  2. Incorrect Amount: When the amount of the transaction is incorrect.
  3. Incorrect Account: When the transaction is credited to the wrong account.
  4. Payment Originator Error: Any error that is attributable to the originator of the transaction, such as entering incorrect transaction information.

It is important to note that ACH Reversals are time-sensitive. Nacha rules stipulate that reversals must be initiated within five banking days from the settlement date of the original transaction.

Differences Between ACH Reversals and ACH Returns

While ACH Reversals are initiated by the Originator to correct errors, ACH returns are typically initiated by the receiving financial institution (RDFI). ACH returns occur when the recipient’s bank is unable to process the transaction due to reasons such as insufficient funds, closed accounts, authorization concerns or fraud.

Process of Initiating an ACH Reversal

The process of initiating an ACH Reversal involves several steps:

  1. Identify the Error: Determine the nature of the error that necessitates a Reversal.
  2. Notify the Receiving Party: Inform the recipient of the erroneous transaction and the forthcoming Reversal.
  3. Initiate the Reversal Entry: The Originator’s financial institution (ODFI) will create a reversing file entry using the appropriate ACH information.
  4. Include “REVERSAL” in Description: It is mandatory to include the word “REVERSAL” in the Company Entry Description field of the Reversal entry.
  5. Compliance Check: Ensure that the Reversal complies with Nacha Rules, including the five-day timeframe and the specific conditions under which Reversals are allowed.

Best Practices for Managing ACH Reversals

To effectively manage ACH Reversals and minimize potential disputes or compliance issues, Originators should adopt the following best practices:

  • Accurate Data Entry: Ensure that all transaction data is accurate before initiating ACH transactions.
  • Timely Action: Act promptly to identify errors and initiate Reversals within the permissible timeframe.
  • Clear Communication: Maintain transparent communication with all parties involved in the transaction, especially when an error occurs.
  • Regular Audits: Conduct regular audits of ACH transactions to quickly identify and rectify any discrepancies.
  • Minimize Use: Only allow authorized staff to initiate.

By understanding and adhering to Nacha’s rules on ACH Reversals, Originators can efficiently correct transaction errors while maintaining compliance and minimizing the risk of disputes. For further details on the rules and best practices related to ACH Reversals.

Return to Viking Resource Center

May 27, 2025

About Megan Williams

She is a dedicated payments professional with a passion for operational processes, efficiencies and a love for the Rules. She has been in the financial services industry since 2016, strengthening her understanding of the space and obtaining her ACH Certification (AAP). She specializes in optimizing operations, enhancing payment processes and ensuring compliance in all matters of her job and this industry. 

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PCI DSS Non-Compliance: Why Is It Important?

23 July 2024
Tracey Gibson
No comments
Categories: ACH, Merchants, Payments

PCI DSS Non-Compliance
Why Is It Important?

In today’s digital age, safeguarding sensitive information has never been more critical. Businesses that handle card payments must adhere to the Payment Card Industry Data Security Standard (PCI DSS). Yet, despite its importance, some organizations still fall short of compliance. Understanding why PCI DSS compliance is crucial can help businesses protect their customers, reputation, and bottom line.

What is PCI DSS?

PCI DSS is a set of security standards established by the PCI Security Standards Council, including major credit card brands like Visa, MasterCard, American Express, Discover, and JCB. These standards ensure that companies processing, storing, or transmitting credit card information maintain a secure environment to protect against breaches and fraud.  The standard comprises 12 main requirements, ranging from maintaining a secure network to implementing strong access control measures and regularly monitoring and testing networks.

The Benefits of PCI DSS Compliance

Complying with PCI DSS standards offers numerous advantages, protecting sensitive data, enhancing business operations, and fostering customer trust. Here’s why achieving and maintaining compliance is crucial:

  • Enhanced Security
    • PCI DSS compliance ensures a robust security infrastructure, protecting sensitive cardholder data from theft and unauthorized access. This significantly reduces the risk of breaches, bolstering overall cybersecurity and safeguarding customer information.
  • Increased Customer Confidence
    • Consumers are more likely to trust businesses that prioritize data security. Demonstrating PCI DSS compliance can enhance customer loyalty and satisfaction, which are vital for long-term success. Customers feel assured knowing their payment information is handled securely.
  • Competitive Advantage
    • Compliance with PCI DSS can set a business apart from its competitors. It shows a commitment to security and can be a key differentiator in a crowded marketplace, attracting customers who prioritize data protection.
  • Regulatory Alignment
    • Adhering to PCI DSS helps businesses stay aligned with other regulatory requirements such as GDPR, HIPAA, and CCPA. This ensures broader compliance, reducing the risk of fines and penalties associated with these regulations.
  • Operational Efficiency
    • Implementing PCI DSS can lead to improved internal processes and procedures, enhancing overall operational efficiency. This can result in cost savings, better resource management, and streamlined business operations.
  • Protecting Cardholder Data
    • The primary goal of PCI DSS is to safeguard cardholder data from breaches and theft. Compliance ensures that businesses implement necessary safeguards to secure sensitive information, preventing unauthorized access and fraud.
  • Reducing the Risk of Data Breaches
    • Data breaches can have devastating financial and reputational consequences. By adhering to PCI DSS standards, businesses can significantly reduce the risk of breaches, protecting both their customers and their brand from potential harm.
  • Avoiding Legal and Financial Penalties
    • Non-compliance with PCI DSS can result in hefty fines from payment card networks. In the event of a data breach, non-compliant organizations may face penalties ranging from $5,000 to $500,000 per month until compliance is achieved, creating substantial financial burdens.
  • Facilitating Business Relationships
    • Many business partners and vendors require PCI DSS compliance as a prerequisite for collaboration. Achieving compliance can open doors to new business opportunities and partnerships, demonstrating a commitment to data security that partners and clients value.

The Risks and Consequences of Non-Compliance

Non-compliance with PCI DSS standards can expose businesses to significant risks and severe consequences, impacting financial stability, reputation, legal standing, and operational continuity.

  • Data Breaches and Cyber Attacks
    • Non-compliance heightens the risk of data breaches, as cybercriminals often target weak security systems to steal sensitive information. These breaches can lead to substantial financial losses and identity theft for customers, with costs potentially running into millions for remediation, legal fees, and settlements.
  • Financial Penalties
    • Payment brands may impose heavy fines on businesses that fail to comply with PCI DSS, ranging from thousands to millions of dollars, depending on the severity and frequency of non-compliance.
  • Legal Consequences
    • In the event of a data breach, non-compliant businesses could face legal action from affected customers and regulatory bodies. This can result in lawsuits, settlements, and additional penalties, further exacerbating financial strain.
  • Loss of Customer Trust
    • Consumers are increasingly aware of data security, and a breach can severely damage a company’s reputation. Loss of customer trust can lead to decreased sales, customer attrition, and long-term brand damage, which is difficult to recover from.
  • Business Disruption
    • Non-compliance can lead to the suspension of credit card processing privileges, causing significant disruption to business operations. This can halt sales and disrupt cash flow, especially for online retailers who rely heavily on card payments. Additionally, addressing the fallout from a data breach, including investigations and remediation efforts, can divert resources and focus from core business activities.

Overall Risks and Consequences

  • Financial Losses: Beyond fines and penalties, businesses may incur costs related to forensic investigations, legal fees, and compensation to affected customers.
  • Reputational Damage: A data breach resulting from non-compliance can severely damage a company’s reputation, leading to decreased sales, customer attrition, and long-term brand damage.
  • Legal Ramifications: Non-compliant businesses may face lawsuits from customers, shareholders, and other stakeholders affected by a data breach, leading to significant financial settlements and further tarnishing the company’s image.
  • Loss of Merchant Privileges: Payment card networks may revoke the ability to process credit card transactions for non-compliant businesses, severely disrupting operations and revenue streams.
  • Operational Disruptions: Addressing the fallout from a data breach can disrupt business operations, diverting resources and focus from core activities.

Understanding and mitigating these risks by ensuring PCI DSS compliance is essential for protecting a business’s financial health, legal standing, and reputation.

Ensuring Compliance

To avoid the severe consequences of non-compliance, businesses should take proactive steps to ensure adherence to PCI DSS standards:

  1. Conduct Regular Assessments: Regularly assess your compliance status through internal audits and third-party assessments to identify and address any gaps. Periodic reviews ensure that your business stays aligned with evolving PCI DSS requirements and can quickly adapt to any changes in the regulatory landscape.
  2. Implement Strong Security Measures: Ensure robust security protocols are in place to protect cardholder data. This includes:
    • Encryption: Encrypt sensitive data both in transit and at rest to prevent unauthorized access.
    • Firewalls: Use firewalls to block unauthorized traffic and secure your network perimeter.
    • Access Controls: Implement strict access controls to ensure that only authorized personnel have access to cardholder data. Use multi-factor authentication for an added layer of security.
  3. Educate Employees: Train employees on the importance of data security and their role in maintaining compliance. Awareness and vigilance are crucial in preventing security breaches. Employees should know how to recognize phishing attempts, handle sensitive information properly, and respond to potential security incidents.
  4. Maintain Documentation: Keep thorough documentation of security policies, procedures, and compliance efforts this includes records of:
    • Security Policies: Document your data security policies and ensure they are up-to-date.
    • Procedures: Clearly outline the procedures for handling cardholder data, including how to respond to a data breach.
    • Compliance Efforts: Maintain records of all compliance-related activities, such as audit reports, security assessments, and employee training sessions.

This documentation can be vital in demonstrating compliance during assessments and audits. It also serves as a reference for internal reviews and helps maintain consistency in your security practices.

Additional Steps for Ensuring Compliance

  1. Engage Qualified Security Assessors (QSAs): Consider working with QSAs who are certified to assess PCI DSS compliance. They can provide expert guidance and ensure that your security measures meet the required standards.
  2. Monitor and Respond to Threats: Implement a continuous monitoring system to detect and respond to security threats in real-time. This includes intrusion detection systems (IDS), security information and event management (SIEM) solutions, and regular vulnerability scans.
  3. Update Technology and Software: Regularly update all technology and software to protect against known vulnerabilities. This includes patch management for operating systems, applications, and network devices.
  4. Develop an Incident Response Plan: Create and regularly update an incident response plan to quickly and effectively address any data breaches or security incidents. Ensure that all employees are familiar with the plan and their specific roles in executing it.

Conclusion

PCI DSS compliance is not just a regulatory requirement but a critical aspect of protecting your business and customers from the risks associated with data breaches. The financial, legal, and reputational consequences of non-compliance are significant, underscoring the importance of adhering to these standards. By maintaining PCI DSS compliance, businesses can ensure the security of cardholder data, enhance customer trust, and protect their bottom line.

Return to Viking Resource Center

July 23, 2024

About Tracey Gibson

She is an accomplished compliance executive with extensive experience in overseeing and managing compliance functions and initiatives of an organization. She has expertise in ensuring organizations comply with regulatory requirements and brings a strong background in ethical business practice, risk management, privacy, employee management and customer service.

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Upcoming NACHA Rules Changes: Implications for Originators and Merchants

4 June 2024
Adam Garrett
No comments
Categories: ACH, Lenders, Merchants, Payments

Upcoming NACHA Rules Changes

Implications for Originators and Merchants

As a payment compliance specialist, it is critical to stay abreast of the latest NACHA (National Automated Clearing House Association) rule changes. Two sets of amendments are set to take effect this year—on June 21 and October 1, 2024. Some of these changes will impact originators and merchants significantly, emphasizing the need for proactive adjustments to compliance and operational strategies.

June 21, 2024: Minor Rules Topics

The first wave of changes focuses on minor rule topics. Minor changes to the Rule have little to no impact on ACH participants and no significant processing financial impact.

  1. General Rule /Definition of WEB Entries– The updated NACHA rule clarifies the use of WEB entries, which are transactions initiated by a consumer over the internet or a wireless network. The new definition eliminates confusion by specifying that all consumer-to-consumer credits must use the WEB SEC code, regardless of the internet or wireless network being the method of initiation.
  2. Definition of Originator– The updated rule provides a clearer definition of an Originator, stating that it is the party authorized by the Receiver to credit or debit the Receiver’s account at the RDFI (Receiving Depository Financial Institution). This clarification helps in precisely identifying the responsible entity in a transaction, thus reducing ambiguities and potential disputes between parties involved in ACH transactions
  3. Originator Action on Notice of Change– This rule requires Originators to take prompt action upon receiving a Notice of Change (NOC) from the RDFI. The NOC indicates necessary corrections to the information within an ACH entry. Originators must make the specified changes within six banking days or before the next entry, whichever is later.
  4. Data Security Requirements– The updated rule extends the data security requirements to all non-consumer Originators, Third-Party Service Providers, and Third-Party Senders.
  5. Use of Prenotification Entries– The revised rule on prenotification entries provides clarity on their use and the handling of responses from RDFIs. Prenotification entries are optional but recommended for verifying account information before initiating live transactions. Originators can use these entries to ensure that account details are correct, reducing the risk of errors and rejected transactions. If an RDFI responds to a prenotification with a NOC, the Originator must address the indicated issues promptly
  6. Clarification of Terminology – Subsequent Entries– The rule clarifies the term “Subsequent Entries,” referring to entries that follow an initial authorization. These can be initiated by the consumer through actions such as phone calls or online requests. The updated rule allows greater flexibility in the use of Standard Entry Class (SEC) codes for these subsequent entries, accommodating various methods of initiation and ensuring that authorization requirements are met appropriately

October 1, 2024: Risk Management Topics

The second set of changes, effective October 1, centers around risk management, reflecting NACHA’s ongoing efforts to enhance the security and reliability of the ACH Network:

  1. Codifying Expanded Use of Return Reason Code R17– The updated rule codifies the expanded use of Return Reason Code R17 to enhance the identification and management of fraudulent activities. This rule includes the following specifics:
    • R17 + “QUESTIONABLE”: The addition of the word “QUESTIONABLE” in the return addenda record signifies a potential fraud alert on the receiving bank account. This helps financial institutions quickly identify transactions that may require further scrutiny for fraud
    • Impact on Unauthorized Return Rates: These returns will not be counted in unauthorized return rates, thus not affecting the metrics used to evaluate the frequency of unauthorized transactions
    • This new Rule also includes references to a newly defined term, False Pretenses: The inducement of a payment by a Person misrepresenting (a) that Person’s identity, (b) that Person’s association with or authority to act on behalf of another Person, or (c) the ownership of an account to be credited.”
      This definition covers common fraud scenarios such as Business Email Compromise (BEC), vendor impersonation, payroll impersonation, and other payee impersonations, and complements language on “unauthorized credits” (account takeover scenario). It does not cover scams involving fake, non-existent or poor-quality goods or services.
    • Expanded Use of ODFI Request for Return/R06–This rule expands the circumstances under which an Originating Depository Financial Institution (ODFI) can request a return of an entry using Return Reason Code R06 (Return per ODFI’s Request). This expansion aims to provide more flexibility and tools for ODFIs to manage erroneous or problematic entries, ensuring better correction of mistakes and reducing potential risks associated with such entries
    • Ensure your loan management and payment processing systems are updated for NACHA’s new R17 rule. This rule allows RDFIs to use Return Reason Code R17 with the descriptor “QUESTIONABLE” in the Addenda Information field to flag transactions that may be suspicious or fraudulent. Updating your systems will help differentiate these returns from routine account errors and maintain compliance with NACHA’s standards.
  2. Additional Funds Availability Exceptions– The rule introduces new exceptions to the funds availability requirements, allowing RDFIs more time to investigate suspicious transactions before making funds available to the account holder. This extension is critical in scenarios where there is a high likelihood of fraud, enabling RDFIs to ensure that the transaction is legitimate before releasing the funds. This change aims to reduce the risk of fraudulent withdrawals and losses for both the financial institution and the account holder
  3. Timing of Written Statement of Unauthorized Debit (WSUD)– The rule modification allows for greater flexibility in the timing of signing a WSUD. Specifically, it permits the WSUD to be signed and dated by the Receiver on or after the date the unauthorized debit entry is presented, even if the debit has not yet posted to the account. This change simplifies the process for receivers to dispute unauthorized debits and facilitates quicker resolution of such issues​
  4. RDFI Must Promptly Return Unauthorized Debit– This rule mandates that Receiving Depository Financial Institutions (RDFIs) must promptly return any unauthorized debit entries once they are identified. This requirement ensures that unauthorized debits are addressed quickly, minimizing the impact on the account holder and reducing the potential for further fraudulent activity. It emphasizes the responsibility of RDFIs to act swiftly in protecting their customers’ accounts from unauthorized transactions

For further details on these rule changes, visit NACHA’s official website on minor rules topics and risk management topics.

Preparing for Compliance

For originators and merchants, preparation is key to ensuring compliance with these new rules:

  • Review and Update Systems: Ensure that all payment processing systems are updated to align with the new data specifications and validation requirements.
  • Train Staff: Conduct comprehensive training sessions for relevant staff to familiarize them with the new rules and their implications.
  • Enhance Fraud Detection: Invest in advanced fraud detection and prevention technologies to meet the updated standards.
  • Audit Third-Party Relationships: Conduct thorough audits of third-party sender relationships to ensure compliance with the new risk management requirements.

By proactively addressing these changes, originators and merchants can mitigate risks, ensure compliance, and continue to facilitate secure and efficient ACH transactions.

Return to Viking Resource Center

June 4, 2024

About Adam Garrett

He has spent almost 20 years building successful merchant acquiring programs and is a proven sales leader who brings his expertise in team management, business development, and strategic planning to Viking Payments. He received his MBA from the University of Texas at Dallas, and his BS at Missouri State University.

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Navigating the New MCC Rules for Collection Businesses

3 August 2023
Tracey Gibson
No comments
Categories: Lenders, Payments

Navigating the New MCC Rules
for Collection Businesses

Avoiding Penalties & Pitfalls
in Payment Processing

The payment landscape for collection businesses is evolving with Visa’s recent implementation of a new Merchant Category Code (MCC) for debt collection. In recent months, Visa has introduced significant rule updates, including the new MCC for collection agencies and revisions to debt repayment rules. These changes aim to support new merchant segments, offer more transparency to cardholders, and protect issuers from excessive credit risk. Collection businesses should pay close attention to these updates to avoid potential penalties, remain compliant with Visa’s rules, and maintain a positive reputation within the payment ecosystem. In this article, we will explore the new MCC rules, potential consequences of using incorrect MCCs, and the steps collection businesses can take to ensure compliance.

Background on MCCs

MCC codes are essential for businesses that engage in payment processing. These standardized codes classify businesses based on the products and services they offer, providing financial institutions with valuable insights for risk assessment and compliance. American Express was the first to assign a specific MCC (7322) for debt collection, leading to some businesses dropping it as a payment option entirely. On the other hand, Visa previously employed a broader definition when classifying debt-related transactions. Collection businesses must be diligent in accurately representing their nature of business through the correct MCC code. Failure to do so can lead to severe consequences, including penalties, regulatory scrutiny, and reputational damage.

New MCC Rules for Collection Agencies

Visa introduced MCC 7322—Collection Agencies in October 2022 to categorize collection businesses accurately. Collection agencies are now required to use this new MCC for processing payments related to the collection of overdue receivables. The MCC 7322 became available in VisaNet with the October 2022 VisaNet Business Enhancements release, and its use was made mandatory for collection agencies effective from April 15, 2023. Visa defines collection agencies as merchants that collect payments of overdue receivables under contract or collect overdue receivables purchased from a third party.

Potential Consequences and Penalties of Using Incorrect MCCs

Misrepresenting a collections business’s nature by using a false or inaccurate MCC code can lead to serious consequences and penalties for collection businesses, such as:

  • Violation of Visa Rules: Misuse of the MCC code is considered a violation of Visa’s rules and regulations, potentially resulting in penalties and enforcement actions.
  • Account Termination: Payment processors and acquiring banks may terminate a collection agency’s account if they discover misuse of the MCC code, disrupting payment processing capabilities.
  • Fines and Penalties: Visa and other payment networks can impose substantial fines and penalties on businesses found to be using incorrect or misleading MCC codes.
  • Loss of Customer Trust: Misrepresenting the nature of the business can erode customer trust, leading to a loss of clients and revenue.
  • Regulatory Non-Compliance: Incorrect MCC code usage may lead to non-compliance with industry regulations, inviting further penalties and legal consequences.
  • Reputational Damage: Misusing the MCC code could tarnish the agency’s reputation, making it difficult to attract new clients and partners.
  • Legal Action: In some cases, using the wrong MCC code might lead to legal action, especially if it is found to be intentional or fraudulent.

Ensuring Compliance and Mitigating Risks

To avoid penalties and pitfalls associated with incorrect MCC codes, collection businesses should take the following steps:

  • Accurate MCC Classification: Collection agencies must diligently assess their business activities and use the appropriate MCC code to represent their nature of business accurately.
  • Transparent Communication: Maintaining clear and transparent communication with payment processors about the agency’s business activities can help ensure proper MCC classification.
  • Seek Expert Guidance: Seeking guidance from financial and legal experts can help collection agencies understand Visa’s rules and regulations, ensuring compliance with the new MCC requirements.
  • Stay Informed: Collection businesses should closely monitor updates and clarifications from Visa and their payment processors regarding the new MCC rules to adapt their operations accordingly.

Conclusion

Visa’s new MCC rules present significant changes for collection businesses, requiring accurate classification and adherence to specific disclosure requirements. Failure to comply with these new rules can lead to serious consequences, including penalties, reputational damage, and legal actions. By staying informed, seeking expert guidance, and maintaining transparency with payment processors, collection agencies can navigate these changes effectively, ensure compliance, and continue providing seamless payment services to their customers.

To learn more about MCC codes and have a free audit to ensure you are compliant, contact us today!

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August 3, 2023

About Tracey Gibson

She is an accomplished compliance executive with extensive experience in overseeing and managing compliance functions and initiatives of an organization. She has expertise in ensuring organizations comply with regulatory requirements and brings a strong background in ethical business practice, risk management, privacy, employee management and customer service.

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