Responding to persistent requests from corporate users, the National Automated Clearing House Association has modified a longstanding operational requirement known as the prenotification rule.

Prenotifications are now optional on virtually all of the system's direct payments.

Effective in September 1996, banks originating several types of retail- oriented payments, including the direct payroll deposits that are a mainstay of the system, can skip the preparatory step and begin processing electronic transactions immediately.

Prenotifications - essentially "dummy" zero-dollar transmissions for verification purposes that clear the way for actual funds transfers - had already been optional on corporate-to-corporate payments.

The latest change "removes an obstacle for many potential users of the ACH network," said Andrew Higgins, chairman of the National Automated Clearing House Association and senior vice president of Barnett Banks Inc., Jacksonville, Fla.

"This is proof that Nacha's new rulemaking process is responsive to the needs of the network," Mr. Higgins said.

The electronic payment association adopted a streamlined rulemaking procedure in late 1994 along with its new strategic plan, which invites broader participation in policymaking.

Some corporations took advantage of the opening to press for a liberalization of what they viewed as an unwieldy process that caused unnecessary delays and hindered network usage.

Because of other procedural changes over the years, a prenotification no longer serves as proof of a transaction authorization, the clearing house association said. But it does give payment originators an opportunity to verify receivers' bank account numbers, and for those who choose to continue using the procedure, existing rules will continue to apply.

The new rule, adopted last month, makes prenotifications optional in the transaction categories known as PPD (prearranged payment and deposit), POS (point of sale), MTE (machine transfer entry), and SHR (shared network transaction). The latter three are used mainly by automated teller machine networks and similar electronic funds transfer systems.

George C. White, a longtime ACH consultant and head of White Papers Inc. in Montclair, N.J., said the change was "long overdue" and fought for by insurance companies and other high-volume payment initiators. He said the rule dates back to the ACH's beginnings more than 20 years ago and was widely disregarded, but for bureaucratic and political reasons it was difficult to change even when deemed to have outlived its usefulness.

"ACH network participants were very interested in the optional prenotification rule and played an active role in making it a reality," said Janet L. Schneider, vice president of Automatic Data Processing Inc., who sponsored the work group that initiated the rule.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.