2023 AAP Questions and Answers
PPD - answer Prearranged Payment and Deposit Entry
Originator - answer A company or individual that has been authorized by the
Receiver to initiate either a credit or debit ACH entry to their account
Receiver - answer An individual or a company that has authorized the Originator to
initiate an ACH entry to their account with the RDFI.
Originating Depository Financial Institution (ODFI) - answer A financial institution that
receives payment instructions from Originators and forwards the entries to the ACH
Operator.
Receiving Depository Financial Institution (RDFI) - answer A financial institution that
receives ACH entries from the ACH Operator and posts the entries to the accounts of its
depositors.
Nested Third-Party Sender - answer A Third-Party Sender that (1) has an Origination
Agreement with another Third-Party Sender and (2) does not have a direct agreement
with the ODFI itself.
Third Party Sending Point - answer A third-party that sends ACH files on behalf of
the ODFI. Examples include correspondent banks, corporate credit unions and
processors.
Third-Party Receiving Point - answer A third-party that receives ACH files on behalf
of the RDFI. Examples include correspondent banks, corporate credit unions and
processors.
Third-Party Sender - answer A third-party that provides ACH services to the
Originator, and, in that capacity, acts as an intermediary between the Originator and
ODFI.
Third-Party Service Provider - answer A Third-Party that processes ACH files and/or
entries on behalf of financial institutions and/or Originators.
Reconverting Bank - answer Financial institution that produces the substitute check.
Truncating Bank - answer Financial institution that creates an image of the original
check.
,Batch process, store-and-forward system - answer ACH payment transactions are
accumulated throughout the day, sent to the ACH Operator, sorted by destination and
transmitted in groups at specified times.
Nacha - answer The national trade association for electronic payments, which
establishes the rules, industry standards and procedures governing the exchange of
commercial ACH payments by Depository Financial Institutions.
Auxiliary On-Us Field - answer An optional, variable format field of the MICR line of a
check.
ACH Network - answer Payment system to which net settlement applies.
Check Payment System - answer Payment system governed by the Expedited
Funds Availability Act, UCC 3, UCC 4, OFAC, Regulation CC and Regulation J.
Wire Transfer Payment System - answer Payment system to which real-time, gross
settlement applies.
1. Direct Presentment
2. Federal Reserve Bank
3. Clearing House
4. Correspondent Bank - answer Name the clearing and settlement methods for
checks.
Card Payment System - answer Payment system governed by the Electronic Fund
Transfer Act, Regulation Z, Card Association Rules and Fair Credit Billing.
Wire Transfer Payment System - answer Payment system governed by UCC 4A,
OFAC, Regulation J and Regulation CC.
ACH Network - answer Payment system governed by the ACH Rules, UCC 4, UCC
4A, Electronic Fund Transfer Act, OFAC, Regulation E, The Right to Financial Privacy,
Regulation D and Regulation CC.
1. Funds Service
2. Securities Service - answer Two services provided by Fedwire.
1. On-us checks
2. Transit checks - answer Two basic types of checks in the collection cycle.
Magnetic Ink Character Recognition (MICR) - answer A national standard for
imprinting checks with machine-readable numbers and characters in magnetic ink.
Special Committee On Paperless Entries (SCOPE) - answer Special task force
formed to develop a workable alternative to paper checks.
, Check Payment System - answer Payment system whose participants include the
Payor, Payee, Bank of First Deposit, Correspondent Bank/Banker's Bank/Clearing
House and Payor's Depository Financial Institution
Card Payment System - answer Payment system whose participants include the
Cardholder, Card Issuer, Acquirer, Card Processing Network and Merchant.
Merchant - answer An entity that agrees to accept debit, credit or stored value cards
in exchange for the sale of goods and services.
Card Processing Network - answer Provides switching facilities for routing credit,
debit and ATM card transactions between Acquirers and Issuers.
Fedwire Funds Service - answer A real-time credit transfer system used for interbank
settlement of transactions, such as Fed fund purchases, corporate payments and other
large-value payments.
Bankers' Bank - answer An institution owned by Depository Financial Institutions that
typically provides correspondent services, including check clearing and settlement
services, to its owners and other banks.
1. Federal Reserve Bank (FRB)
2. The Clearing House (a.k.a. Electronic Payments Network or EPN) - answer Name
the two ACH Operators.
Fedwire Funds and Securities Services - answer The two payment systems whose
participants include the Originator, Originator's Depository Institution, Reserve Banks,
Beneficiary's Depository Institution and Beneficiary.
Clearing House - answer A voluntary association of depository institutions that
facilitate the clearing of checks or electronic items through the direct exchange of funds
between members.
Payor (Check Writer, Maker or Drawer) - answer The party obligated to pay on a
check.
Bank of First Deposit (Payee's Depository Financial Institution) - answer The first
bank to which a check is deposited or transferred.
Payee - answer The party to whom a check is made payable.
Paying Bank (Payor's Depository Financial Institution) - answer Financial institution
identified by the routing number encoded on the MICR line of a check.
