Way back in the last millennium, the ACH Network was focused almost entirely on PPD entries as Direct Deposit of Payroll took off. In this episode, ePayResources’ Angelica Larrañaga, Director, Payments Education, starts off a series of discussions around ACH Originator compliance by Standard Entry Class Code with a look at PPD uses cases; authorization requirements; benefits to the Originator and the Receiver; and the role of our new Originator Education Community in keeping ACH Originators informed and compliant.

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This is Anne-Marie Leake, Vice President of Communications for ePayResources. Welcome to the payment space.

Today, we are welcoming back to the podcast on Angelica Larrañaga, Director of Payments Education for ePayResources. Welcome Angelica!

Thank you, Anne-Marie, for having me here today. I'm very happy to be a part of this podcast.

Today, we are going to talk about successful PPD origination. Now, this goes way back. When I started with the organization back in the last millennium, PPD and CCD were pretty much all we had to focus on. So I think we spent about 90 % of our time promoting PPD, prearranged payments and deposits.

We've come a long way since then, but we're getting back to the basics today as part of our new originator education community. This is a new online community that we have just launched for ACH originators and the ODFIs, third-party senders and third-party service providers that work with them to get them a place to network and stay informed of their roles and obligations under the NACHA operating rules.

So Angelica, let's talk about PPD entry use cases and how those transactions are being

used today.

Absolutely. PPD is prearranged payments and deposits. The standard entry class code or SEC code that an originator uses to process their transactions is really based on who the receiver is. So when we're talking about these PPD transactions, the receiver is going to be a consumer, an individual just like you and me, Anne -Marie. So I would say the most common use cases for PPD entries are going to be things like how we get our payroll from ePayResources.

We allow ePayResources to be able to send money to our personal checking or savings accounts so that we can receive those funds more quickly than what we would have gotten them if we were depositing a paper check. We can also use the PPD SEC code for debit transactions.

I pay my monthly bills, my car payment, for example. I allow Ford Motor Credit to debit my account on a monthly basis for my car payment. I don't have to write them a check every month. They don't have to go out to their website and initiate the payment. I have a signed agreement with Ford MotorCredit so that they can debit my account every single month. So, it makes it really easy for those withdrawals to be done automatically for my account. I don't really have to think about those payments and making them timely or worrying about a late fee because I had given this authorization to have my account debited.

In that example that I used, it would be a recurring debit that happens on a monthly basis but it could also be something like I hire a landscaper to come and clean my yard once a month and every month it might be a different amount and I authorize him to debit my account for his services.

I'm with you Angelica. I don't know what I would do without my automatic debits.

Sure does make life a little bit easier. That's one less thing that we have to worry about every day, right?

Definitely. So let's talk about authorizations. Authorizations are super important with consumer entries. What are the requirements with PPD?

That is a great question for these debit PPD entries. The authorization does need to be in writing and it has to be clearly identifiable as an ACH authorization. It has to have very clear and understandable terms that you and me are going to be able to understand when we sign this authorization.

That authorization can be a wet signature, or it can be an electronic signature that we apply to this authorization, and we're basically giving that originator the ability to debit our account. It needs to specify whether it's going to be a one -time entry, is it going to be a recurring entry, we also have something called a subsequent entry as well.

So, that authorization does need to have that clearly stated on there, needs to have the amount of the entry or if we're having to determine that amount because of interest rates or things of that nature.

It needs to talk about how they're determining that payment, including a start date, the number of entries, the frequency. It needs to identify me as the authorizer of that payment. It needs to include obviously my account information, right? If you're going to debit my account, I need to tell you what is my account number? What institution do I bank with is that a checking or a savings account.

It really outlines all of the terms of the authorization in a way that both the receiver, me, and the originator are able to spell out that information very clearly. It also needs to have a section within the authorization, if it is a recurring transaction on how I would be able to revoke that authorization.

So, I decide that I'm going to go to the gym, *laugh*, and I, you know, say, hey, for a year, you guys can debit me. I'm going to join this gym for a year. And after six months of not going but paying for it, I decide, you know what, I don't want to pay for this anymore so I go look at my agreement and it tells me within that agreement I can call a specific number or I can email them to revoke that authorization. There's probably going to be some terms that I have to deal with to revoke that authorization but that should be included in there as well.

I think we can all relate to that long -standing debit for the little used gym membership. I know that I can. How about retention of those authorizations. How long do originators have to hang on to those?

So, for these specific types of debit authorization, the originator needs to keep the authorization records for an additional two years after the termination or the revocation of that authorization.

And the reason that they hold on to it for that period of time is because that originator needs to be able to provide a copy of that authorization to their institution known as the originating depository financial institution or ODFI.

If that ODFI needs it, if they request it or if they get a request from the receiving institution to have proof of that authorization.

We've talked about some of the benefits of PPD. Is there anything else you'd like to add around that, Angelica?

Yeah, absolutely. We talked about some of the benefits for the consumer receivers, like you and me Anne-Marie, the ability to be able to pay these bills without really having to think about it. We've already signed them. They can, you know, come through on a monthly basis. But really, we want to talk about what benefits it is for the originator, right?

So, the originator is going to be able to benefit from these types of transactions because they're going to have a predictable cash flow.

They're going to know that they can pretty much rely on these incoming payments coming in when they're debiting an account like yours and mine for the services that they provide.

It's less costly to process transactions through the ACH network than it is to process checks. So having ePayResources have to write us a check a couple of times a month for our payroll can be a lot more costly than it is for them to just transmit those entries electronically through the ACH network.

So, it really takes away a lot of the administrative costs associated with the manual billing processing and the payment processing. And that's really where we're all trying to go, right? The future is moving more towards a paperless world. So this really does help all of us in that way to get away from that paper trail kind of world.

And you still do get a paper trail. I know that that's something that businesses rely on, kind of one of the reasons that they still use and process checks is because they like to see that physical representation. But we still get the accounting details from our financial institution regarding these payments. And so that paper trail still lives out there. It's just far more convenient and more rapid for both the receiver and the originator to be able to send and receive those payments electronically.

So truly a win -win. How would organizations get started with PPD transactions if they want to become an originator?

Another great question Anne -Marie. The first thing they need to do is reach out to their financial institution. Financial institutions are typically going to play a couple of roles in this scenario. Most financial institutions act as the RDFI, the receiving institution that accepts those payments on our behalf.

There are many institutions that act as that ODFI that will originate those transactions on behalf of the originator. So really that conversation needs to be had with your institution to see if that is something that they offer and how you can get started in getting that ball rolling with them. There's probably going to be some things that they need to do to get that origination agreement signed between the originator and the ODFI.

That's a very important part of starting the process. But you want to reach out to your own institution, find out if they offer the service and that would be your first step in this process.

Thank you. Yes, that's an excellent first step and I'll also add that ePay advisors offers customized consulting that can help support an organization in that process.

That's a great point Anne -Marie. Thank you so much for bringing that up.

From an education perspective, what else does ePayResources provide to help originators get up to speed.

This originator education community that ePayResources has rolled out is really the first step. We hear from a lot of financial institutions, those ODFIs, that they are not sure exactly how to educate their originators. There's an excerpt in the Nacha operating rules that says that the ODFI is going to make sure that their originator is bound to the Nacha operating rules.

One of the ways that ODFIs have interpreted this rule is they believe that they can just provide a rules book to their originators, and that fills that void for them, right? My theory in this is: that's fine. You absolutely can do that.

However, the originator is typically not in the banking business, right? They're employers, they're restaurants, they're landscapers, they're, you know, all different types of companies that don't necessarily know all of the banking rules and all of the acronyms and the languages that we use. So, yes, we can provide them with that rules book, but in my experience, they very rarely take a look at that rules book.

So, because we've heard this from our ODFIs, we really wanted to put a place where they can invite their originators to come and get some additional education. And we've really tried to gear the newsletters and the community that we have out there into a language that is specific to those originators, a way that they are able to more easily understand the language that you and I are a lot more familiar with, but they aren't necessarily familiar with.

This is one of the first steps that we have. We want to keep moving forward. We're hoping to get more originators added to this community so that we can continue this process, we also have some great publications available beyond that Nacha Operating Rules book. We have some originator handbooks available.

And these originator handbooks are much smaller than that Nacha Operating Rules book. And they are specific to the standard entry class code that you as the ODFI allow your originators to use. So, in this instance, where we're talking about PPD transactions, we have an originator handbook that is directed towards those originators.

It is in a language that is more easy for them to understand than maybe the Nacha operating rules, and it is specific to the PPD SEC code. And we have them for a lot of the standard entry class code. So absolutely, please go out to our website, take a look at those publications, go to the originator community, take a look at what we have out there, and please invite your originators to join so that we can continue to provide this education to all of them. –

Thank you, Angelica. Yes, it's a wonderful new resource, and we definitely encourage participation in that.

If anyone has questions they can always call our payments answer line right at 800-475-0585 option one. Ask about anything they've heard about today for more information.

Absolutely. Payments answer line is one of my favorite benefits that we offer to our members and it's pretty likely that you'll get me when you call that number. So please give us a call. We'd love to hear from you.

Angelica, thank you so much for being here today and sharing this information. We look forward to having you again sometime.

Thank you, Anne-Marie. I appreciate the invitation. Thank you for inviting me to be here today to talk about this very important topic. And I look forward to the next time we meet.

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