The Truth About Sending Point Agreements

By: Cait Mullins, AAP, Manager, Audit Services

Do you have an agreement with your mailman? Even though that sounds crazy, if you think about it, a Sending Point is a lot like a mail carrier. A Sending Point is a designated organization that sends ACH Entries to the ACH Operator on your behalf. A Sending Point can send either originating Entries or Return and Notification of Change (NOC) Entries. Oftentimes, the Sending Point role is filled by a correspondent financial institution or core processor.

The ACH Rules require that an ODFI must have an agreement with their Sending Point if it elects to process ACH entries through another participant. Article Two Subsection ODFI Agreement with Sending Points on page OR 7 within the 2021 ACH Rules states “An ODFI must enter into an agreement with each Sending Point that Transmits Entries on the ODFI’s behalf to an ACH Operator: The ODFI is liable for each Entry Transmitted by the Sending Point that contains the ODFI’s routing number.” The Sending Point Agreement grants the authority to the Sending Point to process files for the ODFI.

For those ODFIs who process through the Federal Reserve Bank as the ACH Operator, the ODFI and the Sending Point are also required to enter into another agreement, which is the Designated Sending Point Agreement with the Federal Reserve Bank and the related FedACH Participation Agreement. Referring back to our initial analogy, this would be like if both you and the mail carrier had to enter into an agreement with the post office. The FedACH Participation Agreement binds both the ODFI and the Sending Point to the Federal Reserve Bank’s Operating Circular #4. Within the Operating Circular #4, there is a form called the ACH Security Procedures Agreement that the Sending Point is required to sign to marry the ACH Rules to the Operating Circular.

When EPCOR performs ACH Rules Compliance Audits for financial institutions, we ask to examine a copy of the Sending Point Agreement if a Sending Point is used. Often, we are provided the FedACH Participation Agreement the financial institution has with the Federal Reserve. However, EPCOR needs to examine the agreement that is between the ODFI and the Sending Point (not with the Federal Reserve Bank), to ensure compliance with the ACH Rules.

So, if we lived in a world where you needed Sending Point Agreements to deliver your mail, you would need a Sending Point Agreement between yourself and the mail carrier to collect and send your mail, and then both parties would need another agreement with the post office. Additionally, the mail carrier would also need to sign an additional form with the post office to incorporate mailing rules with federal laws.

Luckily, we do not all have to have an agreement with our mailman for us to be able to send mail. However, if you are using a Sending Point, make sure all necessary agreements are in place to process ACH Entries. And, if your ACH Auditor asks for your Sending Point Agreement, have the correct agreement handy for review.

Not sure if your Sending Point, Originator or Third-Party Sender agreements are up to par? Have our ACH experts take a look! We can provide tips and recommendations on how to improve your agreements from both risk and compliance perspectives. Reach out to advisoryservices@epcor.org for a free, no-obligation quote for our Agreements Review service; we’d be happy to help!