SEC Codes
An SEC code is a three letter word code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
How do SEC Codes work in practice?
It is the responsibility of the Originator to include the correct SEC code in the ACH payment when originating a file. SEC codes are attached to the ACH payment request since they are a part of the NACHA file format.
It is also the responsibility of the Originator, to have the proper authorization in place from the Receiver. The nature of this authorization depends on the SEC code and whether funds are being debited or credited. For example:
Most ACH debits require written or electronic authorization from the recipient while most ACH credits do not.
Debits authorized on a phone call need to use the SEC code TEL and require the company originating the payment maintain a recording of the customer's verbal authorization. Alternatively, they need to follow up with the customer for a written confirmation of the authorization before initiating the payment.
Including the incorrect SEC code could result in an ACH Return. The Originator is then responsible for any return fees and resubmitting the payment with the correct code.
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| View of SEC Codes |
SEC CODE | DIRECTION | AUTHORIZATION REQUIREMENT |
Prearranged Payment & Deposit (PPD) (Corporate to Consumer) | Credits | Authorization required. Oral or non-written means (i.e., voided check) accepted. |
Prearranged Payment & Deposit (PPD) (Corporate to Consumer) | Debits | Authorization required. Written, signed or Similarly Authenticated. |
Corporate Credit or Debit (CCD) (Corporate to Corporate) | Debits/ Credits | Agreement required for transfers between companies; written authorization implied. |
Internet-Initiated/Mobile Entry (WEB) (Corporate to Consumer) | Debits | Similarly Authenticated authorization required due to the nature of the Internet. |
Internet-Initiated/Mobile Entry (WEB) (Consumer to Consumer) | Credits | No authorization required. |
Point-of-Sale (POS) | Debit/ Credit | Written and signed or similarly authenticated |
This is all pretty important!
Obtaining the proper authorization for your ACH transaction is the most important step you can take to ensure compliance with the network rules and protect yourself against disputes, return fees, and reversed transactions.
If you’re like most people and just want to make sure you’re not breaking any rules, skip below for a sample ACH agreement.