ACH Network

ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills.

[2] The rules and regulations that govern the ACH network are established and maintained by the nonprofit National Automated Clearinghouse Association (Nacha).

[4] The ideas leading to the ACH arose in the late 1960s, evolving from the existing US paper checks system.

One early predecessor was a US federal initiative used to help United States Air Force personnel get their paychecks on time.

[5] The success of this initiative led to an expansion to other employees and the government adopted it as a major payroll standard.

The difficulty in compliance between different organizations led them to unite to form National Automated Clearinghouse Association (Nacha) in 1974.

[6] As with all social networks, ACH faced a chicken-or-the-egg problem in that it was difficult to convince consumers to want to move funds via this method if banks didn't support it, and it was difficult to convince banks to join the network if customers weren't clamoring to use ACH.

In 2001, there was a major reorganization of Nacha which led to financial institutions insured by the Federal Deposit Insurance Corporation becoming direct members, making it much easier for the ACH network to be used by banks; that same year internet payments also went into effect, which would go on to be a big part of ACH payments.

In the case of ACH debit, that is likely a business, "pulling" funds from the bank account of a customer, and in the case of ACH credit, this is likely a customer, "pushing" funds from their bank account to the business's.

The ODFI either credits or debits their customer's account, depending on the flow, and forwards the transaction to an ACH operator.

The RDFI then either debits or credits (depending on the flow) the bank account of its own customer.

As of September 23, 2016, financial institutions were required to be able to process ACH credit requests to add funds to an account in all three settlement windows.

Firstly, participants are bound by the rules of the National Automated Clearinghouse Association (Nacha), as well as by the direct regulatory oversight of the Federal Reserve Bank regulations such as Electronic Fund Transfer Act and Operating Circular #4.

Several sections of the Uniform Commercial Code (notably 4 and 4a) also relate to the operation of the automated clearing house.