Picture this: Jones, LLC has been your client for years. One of the services you provide to Jones, LLC includes ACH Origination. Last night on the local news, there was a report that the owners of Jones, LLC had been indicted for money laundering and failure to pay taxes. The next day, you review their Origination file and realize Jones, LLC is a Third-Party Sender with a $500,000 ACH exposure limit. The types of transactions they send include payroll and vendor payments. What do you do?
What happens when a business entity begins to go bad, either through a change in the industry or even a change in how that company does business? Ultimately, you may need to change or discontinue the services you offer to them. But can you?
Subsection 2.2.2.2 (e) of the ACH Rules states, “The Right of the ODFI to terminate or suspend the agreement, or any Originator of the Third-Party Sender, for breach of these Rules in a manner that permits the ODFI to comply with these Rules.” This means that you should have a clause in your ODFI/Origination Agreement that addresses the termination of the relationship between you and the Originator. So, your first step is reviewing that Agreement to make sure you are within your rights to terminate the Agreement.
What are some other aspects to think about when you want to terminate an ACH Origination relationship?
- What are both the financial institution and customer entitled to based on the agreement?
- What type of notice needs to be provided to terminate the relationship?
- How much notice must be provided before the service is discontinued?
- What is the residual impact of cutting ties?
- What can you do to prevent this from happening in the future?
Here are some questions to consider to help keep you out of this situation going forward:
- What did you learn from this endeavor?
- What processes need to be enhanced to ensure the same event does not happen?
- What additional due diligence should be done on other existing clients to ensure there are no similar situations?
Though the ideal situation would be that ACH Origination clients continue to conduct business in a reputable manner, that does not always happen. Whether you hear of a client’s demise from them directly, or indirectly through the news, legal documents or other means, it is your responsibility to monitor activity and manage your risk when it comes to ACH Origination.
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