Fundamental Payroll Certification (FPC) Practice Exam

Which institution is known as the Originating Depository Financial Institution (ODFI)?

1. An institution that receives direct deposit entries

2. A financial institution qualified to initiate deposit entries

3. A bank that handles checks for businesses

4. An agency that processes loan applications

The correct answer is: A financial institution qualified to initiate deposit entries

The Originating Depository Financial Institution (ODFI) is specifically defined as a financial institution qualified to initiate deposit entries into the Automated Clearing House (ACH) network. This role is crucial in the ACH process, as the ODFI is responsible for submitting transactions on behalf of its clients, which may include businesses or other organizations. By initiating the deposit entries, the ODFI facilitates the transfer of funds, ensuring that transactions are processed efficiently and correctly within the electronic funds transfer system. The ODFI's responsibilities include ensuring that all transactions comply with relevant regulations and guidelines, as well as managing the relationships with the ACH network and its participants. This is distinct from the functions of other types of institutions mentioned in the choices, such as those that handle checks or process loan applications, which do not involve the initiation of electronic deposit transactions. Additionally, while direct deposit entries are received by financial institutions known as Receiving Depository Financial Institutions (RDFIs), the question specifically pertains to the institution responsible for initiating those entries, confirming that the correct answer aligns perfectly with the definition of the ODFI.