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The Basics of Managing ACH Notifications of Change (ACH NOCs)

John Cliff, AAP, CTP, Senior Product Manager

Alkami

In the rapidly evolving landscape of banking, where mergers and acquisitions are commonplace, Automated Clearing House Notifications of Change (ACH NOC) play a crucial role in ensuring the accuracy and efficiency of ACH transactions in commercial banking solutions. Let’s explore ACH NOCs, outlining their purpose, triggers, and best practices for both sending and receiving financial institutions.

 

What is a Notification of Change?

A Notification of Change (NOC) is a non-monetary ACH entry used in the banking industry. It is sent by a Receiving Depository Financial Institution (RDFI) to the Originating Depository Financial Institution (ODFI) and the Originator via their ACH Operator. The purpose of an NOC is to identify and communicate incorrect information within an ACH entry, such as account numbers or transit and routing numbers, ensuring future transactions reflect accurate data.

Typically, when you receive an ACH NOC, your transactions will process as usual; however, it’s important to update your records with the revised account details to make sure any future ACH transactions are processed accurately. According to the rules set by the National Automated Clearing House Association (Nacha), these updates to your customer or member records must be completed within six banking days of receiving an NOC.

 

Triggers for Notifications of Change

The banking industry has seen a significant consolidation over the years due to mergers and acquisitions. According to the Federal Deposit Insurance Corporation (FDIC) and Alkami analysis, the number of commercial banks decreased from 7,767 in 2003 to 4,036 in 2023, marking about a -3.2% annualized growth rate. This trend suggests that by the end of 2033, there could be as few as 2,910 commercial banks. 

Such consolidations often lead to updates in Transit and Routing (TR) numbers and account renumberings as core accounts and other systems are migrated and integrated. These changes are communicated from the RDFI to the ODFI and Originator. 

 

The Process of Sending and Receiving NOCs

ACH NOCs are sent to the ODFI using the COR Standard Entry Class (SEC) code, and the ODFI must provide the NOC to the Originator within two banking days of the settlement date (2024 Nacha Rules, Subsection 2.12.1). It is vital for the Originator to act on this information swiftly—within six banking days of receipt of the NOC information or prior to initiating another ACH Entry to the account, whichever is later—to avoid processing delays and possible fines. A failure to manage ACH NOCs efficiently can lead to increased processing costs for Originators and potential penalties for non-compliance for the ODFI and/or the Originator. While ACH NOC information should be applied to all types and frequencies of SEC codes, exceptions are allowed for certain entries like converted checks (e.g., ARC, BOC, POP), RCK entries, one-time TEL or WEB entries, and XCK entries, according to the Nacha rules.

 

Best Practices for Managing ACH NOCs

For ODFIs and Originators:

  • Proactive Management: Originators need to proactively manage the ACH NOCs they receive, as a higher ratio of ACH NOCs to total entries often signals significant banking changes like local mergers or acquisitions. According to Nacha, the typical ACH NOC percentage is approximately .07% of entries. However, during mergers or acquisitions within an Originator’s area, this percentage can temporarily increase to an elevated level for 2-4 months as RDFIs carry out TR and account renumbering activities, along with issuing COR Entries. Eventually, these figures should return to normal levels as Originators or their agents address the received ACH NOCs effectively.
  • Tracking and Compliance: ODFIs should track ACH NOCs by originator and by SEC code to ensure updates are timely. To enforce compliance, ODFIs may impose fees for delays. 
  • Utilizing Technology: ODFIs can leverage automated tools for ACH NOC management and can significantly reduce the burden on staff and decrease the likelihood of errors. These systems can automatically apply changes noted in an ACH NOC—such as updated TR or account numbers—when the originator initiates the next transaction to the affected receiver.

 

For RDFIs:

  • Monitoring COR Entries: RDFIs should keep track of the frequency of COR entries they send to avoid issuing the same corrections repeatedly, which can be costly. 
  • Proactive Management: Originators typically face fees for each ACH NOC received from their ODFI, and poor management of these notices can result in increased treasury management fees over time. 
  • Collaboration with ODFIs: Effective communication between RDFIs and ODFIs can help streamline the correction process and reduce unnecessary expenses. Both RDFIs and ODFIs incur expenses when processing these entries, making efficient management of ACH NOCs beneficial for both. 

 

The management of ACH NOCs is more than a regulatory requirement; it is a vital practice that can significantly influence the operational efficiency of financial institutions. By adopting ACH reporting solutions for handling ACH NOCs, banks and credit unions can not only comply with regulations but also enhance their service delivery, ensuring transactions are processed smoothly without unnecessary delays or costs. For Originators, staying on top of these changes and communicating effectively with their ODFIs is essential to maintain streamlined operations and minimize financial discrepancies. 

As the banking landscape continues to evolve, the role of ACH NOCs will remain crucial in navigating these changes effectively. To further explore and understand these dynamics, consider tuning into Wespay’s Payments Perspective Podcast. This podcast series brings together industry experts to discuss the most pertinent payment topics and pressing issues in our industry today. Make sure not to miss the upcoming episode on May 31, featuring Michael Herd, Executive Vice President, ACH Network Administration at Nacha, where they will delve into ACH network statistics and provide invaluable insights. This is a fantastic resource for anyone looking to enhance their understanding of the payments landscape, one episode at a time.

Interested in improving your operational efficiency with ACH Returns & NOCs? Alkami’s solution offers actionable alerts, enabling originators to promptly manage this activity. With features allowing for viewing, searching, and exporting data into various formats—plus a history of 365 days—our self-service ACH Returns & NOCs solution is designed to support your back office in monitoring compliance. To see how it can benefit your organization, request a demo today.

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Alkami Technology Digital Banking Solutions
Alkami Technology, Inc. is a leading cloud-based digital banking solutions provider for financial institutions in the United States that enables clients to grow confidently, adapt quickly and build thriving digital communities.
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