Robbing Peter to Pay Paul? NACHA vs Reg E

Randy Davis, VP (egisticsinc.com)

Looking for winners and losers

On September 1, 2009 NACHA issued a Request for Comment on a proposal to amend the NACHA operating rules regarding the time frame for ACH adjustment entries. In brief the proposed rule change would extend the period during which a Receiving Depository Financial Institution (RDFI) may transmit an adjustment entry to its ACH Operator from 60 calendar days to 90. The rationale of the extension is to give RDFIs enough time to submit adjustment entries for "virtually all" credits owed to consumers under Reg E. The goal is to narrow/close the time gap between NACHA re-credit obligations and Reg E re-credit obligations. The rule change is proposed (though it has yet to be balloted) for implementation in March 2011.

Currently Reg E theoretically could allow a credit to the consumer as many as 38 days past what the NACHA rules allow. Within the Reg E 90-day period, the RDFI is obligated to credit the consumer, but could be left holding the bag if the NACHA 60-day period has expired, resulting in expiration of the automated adjustment period with the ODFI. After that, the RDFI must pursue a warranty claim against the ODFI manually and outside the ACH network. Possible outcomes are as follows: A) Both the RDFI and ODFI incur costs to settle the RDFI's claim against the ODFI's warrant; B) The RDFI could request proof of authorization, which results in costs to the ODFI and Originator; C) The RDFI could decide not to pursue the claim and take the loss.

The Hoped-for Benefits
NACHA believes the rule change will 1) avoid RDFI losses, 2) avoid manual claim costs, and 3) reduce or avoid write-offs.

The Dreaded Costs
ODFIs will have to ensure that their systems can accept adjustments up to 90 days beyond the settlement date of the original entry.

Originators will be subject to more automated adjustments.

Everyone -- RDFIs, ODFIs, Originators and ACH Operators -- may need to store ACH records for "additional periods of time."

Who Wins and Loses?
Possible Loser: The ODFI loses because it will receive more automated claims that off-set any cost reductions.

Possible Winner: The RDFI wins because it reduces costs and write-offs.

Possible Winner: Originators win because it reduces the requirement to provide proofs of authorization.

Possible Winner: The ACH network wins as productivity and efficiency is improved.

Chime In
Do you agree with my assessment of winners and losers? Use the Comment box to let me know what I've missed, and to contribute to the discussion.

Take our poll at the bottom of this page to vote on who you think is the winner from the rule change!