Do many banks require their ACH Originators to prefund their originations? We currently do not – and I’m not sure why. We perform other risk mitigation procedures like setting limits for a client, performing initial and ongoing credit reviews, monitor their origination activity, require one time passwords via tokens to originate, etc.

Seems like the best method to deter risk is to require prefunding. Is this a common practice throughout banking? (We are just over $1 billion in assets and have several clients with an ACH limit near or over $1 million)

Where I currently work, we do require prefunding. However, my previous banks did not. The simple explanation is because the software we used did not have the capability to prefund automatically. Since it was a manual process, we didn't do it. We also didn't offer the service to just anyone.

If your system can do it automatically, then it is a good tool for origination of credits (debit origination is another discussion). However, sometimes there are other circumstances that may prevent prefunding - such as the system may not play well with loan sweeps or ZBAs.

It really comes down to risk. If your underwriting is right, your monitoring is good, and you really know your customer, then you should be fine either way. If they are marginal credit risks, then you definitely want to prefund, if you choose to offer them the service at all.