Processing ACH Transactions

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Question:

I'm trying to figure out if CIP is required on the merchants for whom we process ACH transactions. Here's the scenario. Company A (Merchants) sells goods/services on the internet. They send their debit and credit transactions to Company B (Payment Processor), who then in turn sends their ACH files to us for processing through their account(the merchants does not have an account with us). We perform all BSA requirements for the processor because they are our customer, but I am wondering if the merchant is considered our customer as well, or just a customer of the Payment Processor? Should we be obtaining CIP information on the merchants?

Answer:

The merchants are not your customers, so you don't have any CIP requirements relating to them. However, you can't turn a blind eye to these arrangements because they add a layer of risk to your ACH transaction activity.

NACHA monitors ACH return activity. When an ODFI's or Originator's returns become excessive, NACHA can impose extra reporting duties and penalties for rules violations. Excessive returns could also expose your bank to added risks that you won't be able to recoup charge-backs.Whether or not you're a national bank, review OCC Bulletin 2008-12 on Payment Processors: Risk Management Guidance. Finally, review the information on Third Party Payment Processors beginning on page 239 of the BSA/AML Exam Manual.

First published on BankersOnline.com 10/04/10