Apply Your SPF and Watch Your Exposure (Limits)

Amy Donaghue

By: Karen Nearing, AAP, APRP, CAMS, CRCM, NCP, Director, Compliance Education

Summer is officially here. Bring on the sunshine, but don’t forget your sunscreen! As we think about protecting ourselves outdoors, enjoying the summer months and adjusting to our “new normal,” don’t lose sight of one of the protections implemented for financial institutions to minimize credit risk when processing ACH transactions – exposure limits.

One of the best ways to minimize credit risk in processing ACH transactions is through exposure limits. These limits are mentioned in the 2020 ACH Rules within subsection 2.2.3 (c) (iii) ODFI Risk Management which states, ODFIs are required to “enforce the exposure limit.” As an ODFI, you most likely have policies and procedures in place to create and maintain these exposure limits. However, is there more you can do?

The exposure limit criteria within your policy and procedures should look at the client’s creditworthiness, length as a client, recent changes in their financial condition and their type of business. Most of these criteria do not change over time; however, under the current economic environment, a review of each client’s financial situation and changes in the business environment may be warranted.

Here are a few important questions to ask about each Originator:

  • Are originated files of the same caliber?
  • Are accounts (checking, savings, loans) in good standing?
  • Is the account officer aware of any changes/issues?
  • Is the business operating at full capacity?
  • Are there any other indicators warranting a change to the limit?

Though it may seem like a daunting task to review all origination clients, a review is a simple way to begin to manage your credit risk during these extraordinary times.

Similar to how exposure can be detrimental to your physical health, exposure to the elements can be detrimental to all pieces of our economic future. Though we may not have control over nature, a financial institution can minimize its risk by ensuring it is appropriately managing and monitoring the parts of life we can control.

So, lather up your ACH sunscreen and watch your exposure limits! And, to dive deeper into the latest compliance and fraud issues currently impacting the payment space, register for our Quarterly Compliance and Fraud Review webinar on August 12th.

Don’t Get Burned – Know Your Risk!

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