For example, the recurring ACH debit for your monthly utility bill will use the SEC code PPD which stands for 'Prearranged Payment and Deposit Entry' when the utility company debits money from your account. Some banks will also include this code on the transaction entry in your bank statement.
It is mandatory for all ACH payments to include a SEC code. Both ACH credits and ACH debits must have a SEC code. Since they tend to be specific to a particular use case, most companies will only use a few different SEC codes in their payments.
SEC codes don’t have anything to do with the Securities and Exchange Commission, the three letter agency most often associated with this acronym.
How do SEC Codes work in practice?
It is the responsibility of the Originating Depository Financial Institution or ODFI to include the correct SEC code in the ACH payment. 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 business using the ODFI for ACH, also known as 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 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 ODFI is then responsible for any return fees and resubmitting the payment with the correct code.
NACHA currently allows 13 SEC codes on ACH payments. Note that some codes can be used either for ACH credits and debits, while others can only be used for one. Similarly, certain codes can be used for both one-time and recurring payments while others can only be used for one-time payment authorization. Certain SEC codes can only be used for consumer or retail transactions, while others are reserved for business and government transactions. You will also notice that certain codes like WEB (for online authorizations) and TEL (for phone authorizations) describe where the transaction was authorized.
|SEC Code||Title||Transaction Type||Account Type||Agreement or Authorization|
|ACK||ACH Payment Acknowledge||Non-Monetary (Acknowledges CCD Credit Entry)||N/A||N/A|
|ADV||Automated Accounting Advice||Non-Monetary||N/A||Agreement: ODFI/RDFI and ACH Operator|
|ARC||Accounts Receivable Entry||Debit Single Entry||Consumer or Non-Consumer||Authorization: Written Notice|
|ATX||Financial EDI Acknowledgment||Non-Monetary (Acknowledges CTX Credit Entry)||N/A||N/A|
|BOC||Back Office Conversion Entry||Debit Single Entry||Consumer or Non-Consumer||Authorization: Posted Notice and Written Notice|
|CCD||Corporate Credit or Debit Entry||Credit or Debit Single Entry or Recurring Entry||Non-Consumer||Agreement: Originator and Receiver|
|CIE||Customer Initiated Entry||Credit Single Entry||Consumer Originated||Agreement: Originator and Receiver|
|COR||Notification of Change, or Refused Notification of Change||Non-Monetary||Consumer or Non-Consumer||N/A|
|CTX||Corporate Trade Exchange||Credit or Debit Single Entry or Recurring Entry||Non-Consumer||Agreement: Originator and Receiver|
|DNE (Federal Govt. Agency Use Only)||Death Notification Entry||Non-Monetary||Consumer||N/A|
|ENR||Automated Enrollment Entry c||Non-Monetary||Non-Consumer (Federal Govt. Agency)||Request by Receiver / RDFI Use Only|
|IAT||International ACH Transaction||Credit or Debit Single Entry or Recurring Entry||Consumer or Non-Consumer||Agreement: Originator and Receiver (Corporate); Authorization: In writing and signed, or similarly authenticated (Consumer Debit); Authorization: Orally or other non-written means (Consumer Credit)|
|MTE||Machine Transfer Entry||Credit or Debit Single Entry||Consumer||Authorization: In writing and signed, or similarly authenticated|
|POP||Point of Purchase Entry||Debit Single Entry||Consumer or Non-Consumer||Agreement: Posted Notice and in writing and signed, or similarly authenticated|
|POS||Point of Sale Entry||Credit or Debit Single Entry||Consumer||Agreement: In writing and signed, or similarly authenticated|
|PPD||Prearranged Payment and Deposit||Credit or Debit Single Entry or Recurring Entry||Consumer||Authorization: In writing and signed, or similarly authenticated (Consumer Debit); Authorization: Orally or other non-written means (Consumer Credit)|
|RCK||Re-presented Check Entry||Debit Single Entry||Consumer||Authorization: Posted Notice|
|SHR||Shared Network Transaction||Credit or Debit Single Entry||Consumer||Agreement: ODFI and RDFI|
|TEL||Telephone-Initiated Entry||Debit Single Entry or Recurring Entry||Consumer||Authorization: Orally authorized over telephone|
|TRC||Truncated Entry||Debit Single Entry||Consumer or Non-Consumer||Agreement: ODFI and RDFI|
|TRX||Truncated Entry Exchange||Debit Single Entry||Consumer or Non-Consumer||Agreement: ODFI and RDFI|
|WEB||Internet Initiated/Mobile Entry||Debit or Consumer to Consumer Credit Single Entry, or Recurring Entry||Consumer||Authorization: In writing and signed, or similarly authenticated (Debit WEB entries)|
|XCK||Destroyed Check Entry||Debit||Consumer or Non-Consumer||N/A|
Modern Treasury currently lets you use 6 SEC codes — PPD, CCD, CTX, IAT, CIE and WEB when making payments. If you don't specify a code, we will default to using PPD if the recipient is an individual. If the recipient is a business, we will default to using CCD.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks in the United States.