The term “False Pretenses” covers common fraud scenarios such as:

• Business Email Compromise (BEC);
• vendor impersonation;
• payroll impersonation; and
• other payee impersonations.

“False Pretenses” does not cover scams involving fake, non-existent, or poor-quality goods or services.

A payment made to the right person but induced on a fraudulent basis is not considered to have been made under False Pretenses.

The term “False Pretenses” complements language on “unauthorized credits” (i.e., account takeover scenario), but entries made under False Pretenses are not “unauthorized.” (Unauthorized credits are discussed separately within these Frequently Asked Questions.)

Examples of credit entries authorized by the Originator under False Pretenses:

• Receiver of the credit Entry misrepresents the Receiver’s identity or ownership of the receiving account.
   
• Fraudster impersonates someone with the authority to order payment (e.g., a CEO/CFO via business email compromise) to induce someone with authority to originate a payment from the credit account to make a payment.
   
• Fraudster claims to be a vendor with whom the accountholder has a relationship and requests payment to fraudster’s account.

• Fraudster claims to be a real estate settlement agent or attorney and requests funds transferred to fraudster’s account.

• Fraudster claims to be an employee of an organizations and requests payment to fraudster’s account; or, fraudster gains access to organization’s payroll system and redirects payroll payments to fraudster’s account.

• Fraudster claims to be a governmental agency (e.g., IRS) claiming a Person is delinquent in a payment (e.g., taxes) with consequences if not paid.

• Fraudster claims to be the account holding ODFI and tells the Originator that his/her account has been compromised and to avoid losses they need to move their funds to another account that has been opened for them.

An unauthorized credit entry is an entry for which the account holder (Originator) did not authorize the credit entry.

An unauthorized credit entry is different from an entry authorized under False Pretenses. (False Pretenses are discussed separately within these Frequently Asked Questions.)

Example of unauthorized credit entry:

• Account takeover - Fraudster gains access to the credentials necessary to initiate a transaction and initiates a credit entry from the accessed account.

Some disputes do not involve either unauthorized credit entries or credit entries authorized under False Pretenses and therefore do not qualify to be handled through the ACH Network, but should be resolved directly between the merchant and customer.

Examples:

• A dispute regarding the quality or condition of, or warranties or timing of delivery for, goods or services (provided there are not other circumstances that woul
  d give rise to a claim of False Pretenses or unauthorized payment).  For example, a business payment to a vendor, for which the quantity or quality of goods delivered is later disputed.
   
• Payment is made to the right person/organization but induced on a basis other than False Pretenses (e.g., a contribution to a charitable organization because it says they are going to spend the funds on something particular and then spends it on something else).

Return Reason Code R17 will be expanded to formally recognize its use by the industry to return entries it identifies as potentially fraudulent or originated under false pretenses.

No. Other uses of R17 remain intact and unaffected by the expansion of the return reason code.

Yes. The Nacha Operating Rules direct the RDFI to use the return reason code that most closely approximates the reason for the return if no appropriate return reason code exists for a specific return situation. This change to R17 simply codifies existing industry practice to use R17 in cases of suspected fraud.

No. Use of R17-Questionable for this purpose is at the RDFI’s discretion.

No. The standard 2-day return period applies when using R17.  An RDFI that chooses to return an entry as R17-Questionable when it suspects an entry is fraudulent or originated under false pretenses must transmit the return in such time that it is made available to the ODFI no later than the opening of business on the second banking day after the settlement date of the original entry.

However, certain opt-in programs may provide RDFIs with additional time frames and protections from liability when returning ACH credits as questionable.

Prior to this amendment, the Nacha Operating Rules permitted an ODFI to request an RDFI to return an Erroneous Entry, or an entry originated without the Originator’s authorization. In practice, ODFIs and RDFIs have utilized this process more broadly to request the return of entries for other reasons. This amendment codifies common business practice by expanding the rules to allow an ODFI to request the return of an entry for any reason.

No. The return of any entry in response to a request from the ODFI remains at the discretion of the RDFI.  However, this rule imposes a new obligation on the RDFI to advise the ODFI of its decision or status of the request within 10 banking days of receipt of the ODFI’s request.

An RDFI that receives a request from the ODFI to return an entry must advise the ODFI of its decision or the status of the request within ten (10) banking days of receipt of the ODFI’s request.  The manner in which the RDFI communicates the decision or update to the ODFI is at the discretion of the RDFI.

Yes. The return of the requested entry as R06 can fulfill the RDFI’s requirement to advise the ODFI of the status of its request, provided the entry is returned within the RDFI’s 10 banking day response period. In this situation, the RDFI is not required to provide an additional or separate notification to the ODFI.

If the RDFI does not return the entry within the 10-banking-day response period, it must otherwise advise the ODFI of the request’s status within that period.

No. These changes codify current business practices related to an optional process for the ODFI and may be implemented as soon as practical. At their discretion, ODFIs may request the return of an entry for any reason. Return of any entry remains at the discretion of the RDFI.