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!

Trends in ACH Dispute Management

Trends in ACH Dispute Management
Thursday, August 12 at 1 p.m. eastern

As ACH volumes have grown, so too have the number of ACH transaction disputes that processors must manage. Expensive to handle, these disputes are subject to a complex mix of rules and regulations, and can lead to hefty charge-offs if improperly managed. Just how big a problem are ACH disputes? This webinar will share the results of an exclusive survey of ACH processors on trends in ACH dispute management, including volumes, costs, levels of automation, future plans and more. Attendees will be able to benchmark their operations, gain actionable insights from our panelists, and learn what some processors are doing to automate their ACH dispute processing.

To register, click this link https://www1.gotomeeting.com/register/589842392 or e-mail Dave Nitchman of IAPP-TAWPI at dnitchman@tawpi.org.

Panelists:
Rossana Salaris, principal, Radix Consulting
Amer Khan, senior vice president, product and sales support, eGistics

Moderator:
Mark Brousseau, facilitator, IAPP-TAWPI Payments and Receivables Council

Same-day ACH settlement highlights need for better dispute management tools

By Ed Pearce (epearce@egisticsinc.com)

Last week's announcement by the Federal Reserve Board of posting rules for a new same-day automated clearing house (ACH) service brought the topic front and center. Everyone from industry analysts and bloggers to trade publications and associations have expounded the pros and cons of same-day settlement. But virtually unmentioned in the all the hubbub is the potential for more ACH disputes as a result of accelerated settlement -- a scenario most banks are ill-prepared to manage.

Starting next month, the Federal Reserve Banks will be offering a same-day settlement service for certain ACH debit payments through its FedACH service. FedACH customers may opt-in to the service by completing a participation agreement. The service will be limited to transactions arising from consumer checks converted to ACH and consumer debit transfers initiated over the Internet and phone. Same-day forward debit transfers will post to a financial institution's Federal Reserve account at 5 p.m. eastern time, while same-day return debit transfers will post at 5:30 p.m.

As a result of the faster settlement, banks undoubtedly will see more consumers coming into their branches complaining of unauthorized transactions. The limitations of traditional in-house ACH systems and the strict time constraints and complex processing requirements imposed by NACHA rules and Regulation E already have led to sharp increases in operations expenses and higher charge-offs associated with ACH disputes. A new influx of consumer disputes will require financial institutions to implement a more centralized, more streamlined approach to dispute management.

Several features will be critical:

• Real-time distributed data access to any authorized user, anywhere
• Intuitive search capabilities
• The ability to annotate comments to disputed transactions
• The ability to export data
• Expanded search capabilities
• Filtering capabilities to block and restrict access to certain transactions
• Unlimited data storage

It may be some time before same-day ACH settlement achieves critical mass. But the next generation of consumers will demand it. This means that banks must begin adapting their ACH infrastructure today or risk even higher operations costs, as well as falling behind the competition. And this includes deploying sophisticated solutions to manage the inevitable spike in ACH disputes.

ACH Dispute Management Survey

NOTE: The survey is closed. Tune in to the Results Webinar at 1pm EDT August 12 for a discussion of the results and insights into ACH processing and dispute management practices.


Sign up for the Webinar here: 

https://www1.gotomeeting.com/register/589842392

Through July 15 eGistics is conducting a survey of ACH processing and dispute management practices. If you have specific knowledge of ACH processing, we encourage you to contribute to the survey. The survey should take 5 - 10 minutes to complete.


All known participants will receive survey results once the survey is completed, and an invitation to access a special Webinar that will present and discuss the results.


We believe that you will find the survey results helpful in better understanding how ACH processing and dispute management are being practiced across the industry, and the various challenges ACH processors are facing.


To protect your privacy, the survey link below enables you to take the survey without revealing any contact information about you or your company.


Please take a short amount of time to complete this important survey.

Survey Closed

 

Thank you for your participation. Your input will help provide a clearer understanding of how you and others are addressing the challenges of ACH processing and dispute management.

 

Check back here later for the final survey results and a discussion of the findings.