Financial Institutions and Banking

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New ACH rules issued for “micro-entries”

Earlier this year, the National Automated Clearing House Association (Nacha) adopted rule changes regarding micro-entries — the small ACH credits and debits originators or third-party senders use to validate customer account information. The changes are designed to standardize practices and formatting of micro-entries in order to improve the effectiveness of micro-entries as a means of account validation; better enable identification and monitoring of micro-entries; and improve ACH Network quality.

Effective September 16, 2022, micro-entries are defined as ACH credits of less than one dollar — and any offsetting debits — used for account validation. Credit amounts must equal or exceed debit amounts, and credits and debits must be transmitted to settle at the same time. Originators must use “ACCTVERIFY” in the company entry description field. In addition, the company name must be easily recognizable and similar to the name used in subsequent entries.

Effective March 17, 2023, originators must use commercially reasonable fraud detection, including monitoring micro-entry forward and return volumes.

Proposal would modernize Community Reinvestment Act

Under the Community Reinvestment Act (CRA), federal banking agencies periodically evaluate community banks’ records in meeting their communities’ needs and make those evaluations available to the public. They also consider a bank’s CRA rating when reviewing requests to approve mergers or acquisitions, charters, branch openings, and deposit facilities. Recently, the agencies issued a proposal to modernize their CRA regulations. Among other things, the proposed regulations would: 1) promote expanded access to credit, investment, and basic banking services in low- and moderate-income communities, 2) update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models, and 3) provide greater clarity and consistency by adopting a metrics-based approach to CRA evaluations of retail lending and community development financing.

Black box credit models don’t excuse ECOA non-compliance

The Consumer Financial Protection Bureau (CFPB) has issued a warning to banks and other lenders that use complex algorithms (popularly known as “black box” models) to make credit decisions. A recent CFPB circular warned that the use of these models doesn’t allow lenders to avoid their obligations under the Equal Credit Opportunity Act (ECOA). The act requires lenders to provide applicants with specific reasons for the denial of credit or other adverse actions. The circular makes clear that a lender isn’t relieved of this obligation, even if a black box model prevents it from accurately identifying the specific reasons for an adverse action. According to the circular, “A creditor’s lack of understanding of its own methods is … not a cognizable defense against liability for violating ECOA.”

Contact one of our experts if you have any questions about the new ACH rules, the Community Reinvestment Act, or the Equal Credit Opportunity Act.

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