ACH Welcome Kit. Rev. 10/2014. Member FDIC Page 1 of 8

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1 ACH Welcome Kit Rev. 10/2014 Member FDIC Page 1 of 8

2 Dear Customer, Thank you for utilizing FirstMerit s ACH services. We have finalized the setup of your ACH product and you may now begin processing ACH transfers. ACH processing allows for both disbursements and collections from customers electronically. Businesses can automate the payment process as well as reduce errors. As an active participant in the ACH network, it is very important that the company understands their rights, responsibilities and obligations. Enclosed is the FirstMerit ACH Customer Education and Roles & Responsibilities document which contains the following information: ACH Network Explained Main ACH Participants ACH Network Functions ACH Fund Settlements Key ACH Definitions Key Rights, Responsibilities and Liabilities NACHA Viewing Instructions In order to maintain compliance with new as well as existing requirements under multiple regulatory sources for ACH activities, customers, at a minimum, should read and understand the attached procedures. The National Automated Clearing House Association (NACHA) requires that you, as an ACH originator, comply with its Operating Rules & Guidelines. The NACHA Rules & Guidelines can be viewed at (instructions are attached). You are also required to stay up to date with any rule changes and updates. Please refer to the Customer Education and Roles & Responsibilities packet. Should you need assistance with any of your Treasury Management services, please contact our Commercial Customer Services Group at Hours of operation are Monday through Friday, 8:00 a.m. to 6:00 p.m. EST. Member FDIC Page 2 of 8 rev. 10/2014

3 FirstMerit ACH Customer Education and Roles & Responsibilities ACH Network Explained The Automated Clearing House (ACH) Network is an electronic payments network governed by the Uniform Commercial Code (UCC), Regulation E (implementing regulation of the Electronic Funds Transfer Act) and the rules of the National Automated Clearing House Association (NACHA). This framework provides the interbank clearing of electronic entries for participating financial institutions. It is used by individuals, businesses, financial institutions and government organizations. The ACH Network functions as an efficient, electronic alternative to paper checks. It is primarily used to allow funds to be electronically debited or credited to a checking account or savings account, but can be used for other purposes as well. The ACH Network is a batch processing, store-and-forward system. Transactions are stored by financial institutions throughout the day and processed at specified times in a batch mode. This provides significant economies of scale and faster processing than check payments. All transaction information necessary to process a transaction accompanies the ACH entry. Main ACH Participants There are five key participants that contribute to the successful completion of an ACH transaction: 1. The bank s customer is the Originator and has been authorized by the Receiver (consumer or company) to either credit or debit their account. When your company initiates a credit transaction to your employee's account for payroll or to a customer's account for payment of goods and services, you are considered the Originator. Originators may also initiate debit transactions to a consumer or business account for payment of goods or services. 2. The Receiver can be either an individual or a company that has authorized the Originator (your company) to credit or debit their account. An employee is the Receiver if their company is initiating a payroll credit. A business partner is the Receiver if the Originator is sending a credit to pay for goods or services. The Originator can also be a Receiver, in situations where another party is initiating credits or debits to their account. The authorization is a key component of the ACH transaction, as it gives your company as the Originator the authority to send credit or debit transactions to the Receiver's account. Crediting a consumer requires only an oral agreement, however a consumer debit must always have a written agreement. For a company, whether a debit or credit transaction, a written agreement is required. 3. If a company is sending ACH instructions to a bank (i.e., FirstMerit), then FirstMerit would be the Originating Depository Financial Institution (ODFI). The financial institution has a contractual relationship with the customer for the ACH services and is responsible for sending ACH entries into the ACH Network upon the originator s instruction. 4. The Receiving Depository Financial Institution (RDFI) is a financial institution with which the Receiver has an account relationship. Credit or debit entries sent to a Receiver's account will be received by the RDFI from the ACH Operator and then posted to the Receiver's account. 5. The ACH Operator is the central clearing facility which receives and distributes Entries and performs settlement services with regards to the Entries. Member FDIC Page 3 of 8 rev. 10/2014

4 ACH Network Functions As an Originator, your company must first obtain authorization to initiate a transaction to the Receiver's account or provide notice to the Receiver that a transaction will be initiated to their account. A company originally creates a transaction, assigning a name that is easily recognized by the Receiver. The transaction instructions are then sent to the company s financial Institution. The ODFI collects ACH files from Originators with which it has contractual relationships, verifies the validity of these files and at specified times, transmits these files to the ACH Operator. The ACH Operator receives ACH files from the ODFI, edits the file to make sure they are formatted properly and distributes files of entries to the Receiving Depository Financial Institution (RDFI). The RDFI receives files of entries from the ACH Operator for its account holders. Entries are posted based upon the Settlement Date and account Number. FirstMerit will provide to the Receiver descriptive information about the ACH transaction, including the date of the transaction, dollar amount, payee (Originator) name, transaction description (Ie. payroll, water bill). ACH Funds Settlements Settlement is the actual transfer of funds between financial institutions to complete the payment instructions of an ACH entry. The Federal Reserve Bank provides settlement services for FirstMerit ACH entries. The timing of settlement is based upon the Effective Entry Date indicated on the ACH file and the time of its delivery to the ACH Operator. Your company as the Originator will determine the Effective Entry Date of the file you send to your ODFI. This is the date your company intends the entries to post to the accounts of the Receivers (employees or customers). When the ACH Operator processes an ACH file, the Effective Entry Date is read and entries are settled based upon that date, known as the Settlement Date. The Effective Entry Date in most cases is the same as the Settlement Date, but it is possible that the Settlement Date could be after the Effective Entry Date. For example, if the ACH Operator cannot settle on the Effective Entry Date due to untimely file delivery, weekend or holiday, etc., the ACH Operator will apply a Settlement Date of the next business day. Key ACH Definitions ACH Authorization: Agreement by a receiver to allow an ACH credit or debit entry to its account. Authorizations for credit transactions may be oral, but consumer debit transactions must be authorized in writing or similarly authenticated by other means (e.g., by digital signature or PIN if by computer). Please be reminded that, as Originators, the ACH NACHA Rules require that you must retain ACH Authorizations for a minimum of 2 (two) years. ACH Debit: A transaction through the ACH Network originated to remove funds from the Receiver (withdrawal from an account). ACH Credit: A transaction through the ACH Network originated to pay a Receiver (deposit into an account). Effective Entry Date: The date specified by the Company on which it intends a batch of transactions to be settled. Member FDIC Page 4 of 8 rev. 10/2014

5 Electronic Data Interchange (EDI): The movement of data relating to a transaction, or transactions, between two corporate trading partners. From an ACH standpoint a financial EDI transaction would include a payment and the data relating to the payment within an ACH entry. On-Us Entry: An Entry received for credit or debit to an account at FirstMerit. Pre-Not otification Authorization (Pre-Note): A zero dollar entry that must be sent through the ACH network 3 (three) calendar days prior to any live dollar entries that affect an account at an RDFI. The Pre-Note allows for the RDFI to validate the transaction information. Regulation CC: This regulation, published by the Federal Reserve Bank Board of Governors, implements the Expedited Funds Availability Act and the Check Clearing for the 21st Century Act. Regulation E: This regulation, published by the Federal Reserve Bank Board, establishes the rights, liabilities and responsibilities of consumers who use electronic fund transfers and financial institutions that offer electronic fund transfer services. Settlement Date: The day on which settlement occurs, i.e., funds actually change hands as a result of an ACH entry. Standard Entry Class Code (SEC): A three character code within an ACH Company/Batch Header Record to identify the payment types contained within an ACH batch. (i.e. CCD, CIE, CTX, MTE, POS, or PPD). Please note that FirstMerit does not allow WEB or TEL payment types. Third Party Processor: or: A party that processes ACH files and/or items on behalf of one of the participants in the ACH Network. Examples of third party processors are payroll processing companies which create files for transmission to the ACH Operator on behalf of an Originator or ODFI, a data processing company which receives incoming ACH files and processes them for an RDFI, or a correspondent bank which processes ACH files for its correspondents. Under the ACH Rules, third party processors are essentially invisible; the party they are processing for bears virtually all of the liability and risk for their third party processor s actions. FirstMerit must approve all Third Party Processors. Third Party Sender: an entity that authorizes an ODFI to transmit debits or credits to the account of a Receiver but which is not an Originator. In these situations the Third-Party Sender acts as an intermediary between the Originator and the ODFI. Third Party Service Provider: An entity other than an Originator, ODFI, or RDFI that performs any functions on behalf of the Originator, the ODFI, or the RDFI related to ACH processing of entries, including but not limited to, the creation of ACH files or acting as a sending or receiving point on behalf of a Participating DFI. Transaction Code: or trancode - the two digit code in the ACH record that determines whether an entry is a debit or a credit to a savings, demand deposit account DDA (checking), general ledger, or loan account. Uniform Commercial Code Article 4A (UCC 4A): The Uniform Commercial Code (UCC) is a comprehensive uniform body of law adopted by a vast majority of sates and which govern Member FDIC Page 5 of 8 rev. 10/2014

6 commercial transactions. Article 4A covers certain funds transfers, including ACH credit transactions not subject to the Electronic Funds Transfer Act. Key Rights, Responsibilities and Liabilities Originators must recognize what their key roles and responsibilities are. The following are key items to note: 1. The National Automated Clearing House Association (NACHA) requires that all ACH Originators comply with its Operating Rules & Guidelines. 2. The Originator is required to stay up to date with any NACHA rule changes or updates. 3. The customer understands their roles and responsibilities as the Originator and/or Receiver. 4. The Originator is responsible to ensure adequate funds are in place to cover a related ACH transaction prior to its Effective Entry Date. An ACH transaction can rapidly result in an account being "overdrawn" (reflecting a negative balance.) In the event of an overdrawn account, the Originator is responsible for any associated overdraft fees and returning the account to a positive balance. 5. Transmissions from the Originator should be received in a timely manner and in accordance with the ACH Rules prior to the Effective Entry Date. 6. Only PPD, CCD and CTX transactions (debits and/or credits) are accepted by FirstMerit acting as the ODFI. Note: FirstMerit currently does not accept the following Standard Entry Class codes for origination: ARC, BOC, POP, RCK, TEL, WEB or IAT. 7. All customers, vendors, or employees that are receiving ACH s from FirstMerit (either debits or credits) have signed ACH authorization forms on file. ACH data/record retention is to be kept in secure location. Please be reminded that, as Originators, the ACH NACHA Rules require that you must retain ACH Authorizations for a minimum of 2 (two) years. 8. If Pre-Note Authorizations are sent, the originator understands that they must be initiated at least 3 (three) banking days before sending the first live dollar entry. If a Notification of Change (NOC) is returned, changes are required to be made within 3 (three) banking days of the receipt of the NOC or prior to the initiation of another ACH entry. 9. No ACH transactions originated by FirstMerit are being forwarded on to a foreign financial institution. Alternative payment methods will need to be discussed. 10. All computer equipment used to operate Cash Management ACH Origination software is regularly updated and patched for security (including use of and updating of firewall, antivirus protection, anti-malware protection, and anti-spam protection). In addition, such equipment is located in a reasonably secure location that permits access only to authorized personnel. 11. Plans for contingencies and disaster recovery have been considered and processes are in place to implement these plans as needed. In the event of ACH service interruptions, the customer should use alternative methods for processing their payments/collections (i.e., delivery of the ACH file via secure means to a designated location, sending wire transfers, or generation of paper checks for manual delivery). Member FDIC Page 6 of 8 rev. 10/2014

7 12. Administrative access is granted to the appropriate originator s employee to manage all user rights, account access and limits as needed. Cash Management ACH transaction rights are limited to personnel with appropriate business need for functionality. The Originator ensures that all individuals with access to the Cash Management program received training necessary to understand their responsibilities and utilize the software in accordance with the applicable terms, agreements and ACH Rules. 13. The Originator s administrator is responsible for creating unique User ID's and passwords for each authorized individual that is granted access to the ACH initiating program. User ID s should never be shared amongst staff, and proper user security, password controls and separation of duties should be maintained. User ID s that are no longer being used should be reviewed and deleted on a regular basis. 14. Appropriate steps are taken to ensure that all User ID's, Passwords, authentication methods and any other applicable security procedure issued to and Originator s employees are protected and kept confidential. 15. Dual control, in which one employee generates the ACH batch and the system requires a secondary employee to log in and approve the ACH batch, is strongly encouraged to ensure adequate separation of duties to assist in preventing ACH origination fraud. 16. Account activity for all accounts accessible is monitored daily by viewing ACH transactions. The originator ensures all messages sent from the ODFI are reviewed in a timely manner. 17. An originator must notify the Bank immediately of any suspicious activity. Examples include: unexpected password resets, unknown transactions, suspected user credential compromise, suspected embezzlement or other security incident that might compromise an originator s computer or network security. Instructions on how to obtain additional information regarding the current NACHA Rules and Guidelines: 1. Enter the following url: in your web browser 2. Either login, or navigate to the New Account section and click on the Basic User link 3. Enter your information in the applicable fields (* denotes a required entry) 4. Select the Basic Access radio button 5. Click the Continue button 6. A new screen will populate and you will be required to enter your information in the applicable Business Information and Affiliation fields 7. Click the Continue button 8. A new screen will populate and select the applicable radio button(s) 9. Click the Finish button You should then be automatically directed to the NACHA Rules and Regulations. Note that these are read only and cannot be saved or printed. Member FDIC Page 7 of 8 rev. 10/2014

8 If you wish to purchase the NACHA Rules and Regulations, instructions are located on the NACHA website ( Should you need assistance with any of your Treasury Management services, please contact our Commercial Customer Services Group at Hours of operation are Monday through Friday, 8:00 a.m. to 6:00 p.m. EST. Member FDIC Page 8 of 8 rev. 10/2014