Automated Clearing House (ACH)

Automated Clearing House (ACH)

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The Automated Clearing House (ACH) is a nationwide mechanism that processes large volumes of electronically originated batches of credit and debit transactions. Rules and regulation governing ACH is established by the National Automated Clearing House Association (NACHA) and the Federal Reserve (Fed).

ACH credit transfers include direct deposit payroll payments and payments to contractors and vendors. ACH debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills.

Debit transfers also include new applications such as the Point-of-Purchase (POP) check conversion pilot program sponsored by NACHA. FedACH is the Federal Reserve's centralized application software used to process ACH transactions. Both the government and the commercial sectors use ACH payments.

The Federal Reserve Banks are collectively the nation's largest automated clearinghouse operator and in 2000 processed more than 80 percent of commercial interbank ACH transactions. Private-sector ACH operators (PSOs) process the remaining transactions and typically provide services, including processing and settling ACH transactions, similar to those offered by the Reserve Banks. PSOs and the Reserve Banks rely on each other for the processing of some transactions in which either the Originating Depository Financial Institution (ODFI) or Receiving Depository Financial Institution (RDFI) is not their customer. These interoperator transactions are settled by the Reserve Banks.

In 2002 the system processed more than 8.94 billion ACH entries which amounted more than $24.4 trillion.

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