Understanding Standard Entry Class (SEC) Codes with Actum

ACH Standard Entry Class (SEC) Codes and Authorizations

When merchants process ACH transactions, they can accept authorizations in many ways. Each has its compliance requirements that Originators (merchants) need to familiarize with when originating ACH. The way in which ACH transactions are authorized depends on the Standard Entry Class (SEC) code(s). With this in mind, this section explains SEC codes along with Proof of Authorizations (POAs) that support the ACH Entry.

Once an Originator’s transaction is originated to the ACH Network, it becomes an Entry.

ACH transactions depend on how a merchant captures authorization from its Receiver; the individual  or business whose bank is debited or credited. The four SEC codes are Prearranged Payment and Deposit (PPD), Telephone-Initiated Entries (TEL), Internet-Initiated/Mobile Entries (WEB) and Corporate Credit or Debit (CCD).

– PPD entries consider situations in which the merchant obtains written authorization for debiting or crediting a customer; or for use when a WEB debit entry is being refunded to the same Receiver (ACH Credit coded PPD).
– TEL entries transpire when a merchant accepts authorization and payment information from a consumer over the telephone.
– WEB entries are consumer debit payments authorized or initiated over the Internet or wireless.
– CCD entries occur when merchants debit or credit another business bank account

Authorizations and Providing Proof of Authorization (POA)

Authorizing PPD Transactions

PPD entries can be one-time and recurring payments. Originators (merchants) submit PPD Credits or Debits to a consumer’s account based on the authorization’s terms and according to the NACHA Operating Rules.

Originators submitting PPD Debits must provide/be the following for their authorizations.

– Written
– Readily identifiable as an ACH authorization
– Clear, readily understandable terms
– Provide that the Receiver may revoke an authorization only by notifying the Originator in the manner stipulated in the authorization
– Signed or similarly authenticated by the consumer

This Sample PPD Authorization Form provides the sample authorization language for a PPD transaction.

Authorizing TEL Transactions

As TEL transactions occur when merchants accept authorization and payment information from a consumer over the phone. A merchant may initiate an ACH Entry once the consumer provides oral authorization to debit their bank account and may only be used when there is either an existing relationship or when the Receiver initiates the call.

A merchant must ensure, at the bare minimum, the following information that gets disclosed to the consumer during a phone call.

– Date on or after the consumer’s account will be debited (if recurring, clearly state timing and frequency)
– Debit entry amount to consumer’s account
– Consumer’s name
– Bank account to be debited
– Phone number available to consumer and answered during regular business hours for consumer inquiries
– Date of consumer’s oral authorization
– Statement by Originator that authorization obtained from the Receiver will be used to originate the ACH Debit entry to the consumer’s account
– Clearly state how the consumer may revoke authorization if it pertains to a recurring Debit entry

This Sample TEL Authorization Script provides sample language for a TEL transaction.

Authorizing WEB Transactions

The WEB SEC Code (consumer debit payments authorized or initiated over the Internet or wireless) is solely for originating an ACH debit to a consumer account. If a merchant intends to refund a prior WEB debit, the SEC Code used is PPD.

NACHA rules stipulate that authorizations must be the following.

– In writing, signed or similarly authenticated by the merchant online
– Readily identifiable as an ACH debit authorization
– Express terms in a clear, readily understandable manner
– Provides consumers with a method to revoke authorization by notifying the Originator in a prescribed manner

Note:  When providing Proof of Authorization for WEB entries, Originators often need to collect data from difference sources or from different points in the payment or enrollment process.  

These data points can be reconstructed to produce a compliant POA.

This Sample Web Authorization Language document contains sample authorization language for WEB transactions.  

Authorizing CCD Transactions

CCD entries are used for B2B transactions when the Receiver is a corporate entity. Originators of CCD entries may obtain an authorization in any manner permitted by applicable Legal Requirements and must obtain the Receiver’s agreement to be bound by the Rules.

Businesses using CCD Debit Entries must be/provide the following with authorizations.

– Have an agreement required for transfers between companies; authorization in any manner permitted by applicable Legal Requirements.