Accredited ACH Professional (AAP) Practice Exam

What is the role of the Paying Bank in the context of ACH transactions?

1. To clear checks and electronic items

2. To issue credit or debit cards

3. To receive ACH entries and post them to accounts

4. To authorize ACH transactions

The correct answer is: To receive ACH entries and post them to accounts

The Paying Bank plays a crucial role in ACH (Automated Clearing House) transactions, specifically in receiving ACH entries and posting them to accounts. When an ACH transaction is initiated, it is the responsibility of the Paying Bank to accept the incoming ACH credit or debit entries, which are typically transmitted from the Originating Depository Financial Institution (ODFI). Once the Paying Bank receives these entries, it processes them according to its account holders' instructions, adjusting their account balances accordingly. For instance, in the case of a direct deposit (an ACH credit), the Paying Bank will add the deposited funds to the account of the recipient. Conversely, in the case of an ACH debit transaction, it will deduct the specified amount from the account holder's balance. This role is vital to ensuring that payments and transactions are executed accurately and timely, facilitating the smooth functioning of electronic payments in the banking system. The options regarding clearing checks or issuing credit and debit cards, as well as authorizing transactions, refer to different functions that do not specifically align with the primary duties of the Paying Bank in the context of ACH transactions.