Critical Nacha Rules Changes with Guest Sean Carter
Wrestling Payments Podcast: Season 2 - Episode 04
Episode Summary
In this episode of Wrestling Payments, host Joe Casali talks with Sean Carter, President & CEO at NEACH, about the significant changes in ACH rules. They dive into the recent ballots passed with over 93% approval, focusing on the new risk management framework. This framework aims to protect the payment network from fraud, a challenge all payment systems currently face. Carter emphasizes the collective effort required to combat fraud, highlighting that the changes affect not just one party but all involved in the ACH network.
The conversation then shifts to specific rule changes, particularly the ACH credit monitoring by RDFIs. This new concept asks receiving financial institutions to do more in spotting and preventing fraud, marking a departure from the traditional focus on originators and ODFIs. Examples of past fraud incidents are discussed to illustrate the potential impact of these rules in preventing future fraud. Carter points out the importance of collaboration between RDFIs, ODFIs, and originators to effectively use these rules.
Finally, Carter stresses the urgency of implementing these changes well before the 2026 deadline. He suggests that financial institutions should not wait to adapt, given the serious implications of fraud on society, including funding for trafficking, drugs, and terrorism. The discussion concludes with the importance of keeping information up to date in the NACHA registry and leveraging technology like AI to enhance fraud detection efforts.
Download the Episode Transcript
Guest-at-a-Glance
💡 Guest: Sean Carter
💡 What he does: President & CEO
💡Company: NEACH
Key Insights
A United Front Against ACH Fraud
Sean Carter emphasizes the importance of a collective effort in combating fraud within the ACH network. The new ACH rules, passed with overwhelming approval, reflect this approach by not singling out any one party but rather distributing the responsibility across RDFIs, ODFIs, originators, and third-party senders. This strategy acknowledges that fraud is a complex issue that no single entity can address alone. By mandating contributions from all sides, the aim is to fortify the entire payment system against fraudulent activities, demonstrating a shift towards a more inclusive and collaborative defense mechanism within the financial ecosystem.
Enhanced Role of RDFIs in Monitoring ACH Credits
The episode dives into one of the major changes in the ACH rules: the requirement for RDFIs to monitor ACH credits more closely. This significant shift tasks RDFIs with identifying and addressing potential fraud more proactively. Previously, the focus was predominantly on the originators and ODFIs. By extending this responsibility, the new rules aim to leverage the unique position of RDFIs to spot unusual activities, such as unexpected large deposits, that might indicate fraud. This change underscores a holistic approach to fraud prevention, recognizing that effective detection requires insights from all parties involved in the transaction process.
Immediate Action Required to Combat Fraud
Despite a 2026 deadline for implementing the new ACH rule changes, Sean Carter stresses the importance of starting now. He highlights the critical nature of fraud prevention, not just for the integrity of the payment system but also for societal concerns, as fraud often funds illegal activities. By encouraging financial institutions to adopt new measures promptly, Carter underscores the notion that waiting is not an option when it comes to safeguarding against fraud. This urgency is a call to action for all entities involved in ACH transactions to review and update their processes, utilize new technologies, and ensure compliance with the evolving landscape of financial security measures.
Episode Highlights
The Rising Challenge of ACH Fraud
Timestamp: [00:02:05]
Joe Casali and Sean Carter discuss the alarming rise in ACH fraud, highlighting its impact on the payment system's integrity. They focus on how fraud challenges, including person-to-person fraud and email impersonation, have necessitated the development of a new risk management framework by NACHA. This framework is designed to protect the ACH network and its users by implementing rules aimed at mitigating fraud risks. The conversation underscores the pressing need for these changes, given the sophistication and prevalence of fraudulent activities targeting the ACH system.
"Felt that these were important changes important enough to approve them becoming rules. Uh the impetus for this really uh is really to try to protect the network. Uh anybody that's paying attention can tell you that all payment systems including ACH are being really challenged right now with fraud."
Leveraging Technology to Combat Fraud
Timestamp: [00:20:53]
The podcast highlights the critical role of technology, especially AI, in enhancing ACH fraud prevention efforts. Sean touches on how the new risk management framework could benefit from advancements in technology, providing financial institutions with better tools to detect and prevent fraud. He emphasizes the importance of integrating technological solutions into the ACH network's defenses against fraud, suggesting that future enhancements in AI and machine learning could significantly improve the effectiveness of these measures.
"I don't think anybody needs to wait. I think you can start formulating your plan now, work with your cores, look for technology. What can AI do and look at spaces where AI could help with this. "
Early Adoption of New ACH Rules is Crucial
Timestamp: [00:13:56]
The dialogue emphasizes the importance of early adoption of the new ACH rules, well ahead of the 2026 deadline. Sean Carter argues that given the serious implications of fraud, it's imperative for financial institutions to start planning and implementing the necessary changes immediately. He illustrates how fraud not only affects the financial system but also has broader societal impacts, funding illegal activities such as trafficking and terrorism. The conversation calls for proactive measures, urging institutions to not delay their response to these critical updates.
"So part of it is that the RDFI will now do a little more due diligence and say why did this one account get five different names of five different unemployments from three different states?"
Striking a Balance: Regulation and Innovation in ACH Transactions
Timestamp: [00:16:52]
In this segment of the podcast, Joe and Sean discuss the balance between introducing new regulations to combat fraud and fostering innovation within the ACH payment system. They touch on how the ACH rules serve as minimum requirements, encouraging financial institutions to go beyond these standards to protect their customers. Sean Carter suggests that as technology evolves, so too will the strategies employed by fraudsters, making it crucial for regulations to adapt in tandem to ensure the ACH network remains secure and efficient for users.
"We put that in as a response to natural when they were doing the web rule. We thought it should be for every SEC code. Anyway I don't I don't think an SEC code drives fraud right? It's the actions of the originators and the receiver."
To hear this episode and many more like it, subscribe to Wrestling Payments on Apple Podcasts, Google Podcasts, Spotify, or anywhere else you listen to podcasts, or listen above.