CUNA Comment Letter
CUNA Supports Mandatory Arbitration of ACH Disputes
May 30, 2003
Mr. William Colbert
Network Services Manager
NACHA – The Electronic Payments Association
13665 Dulles Technology Drive
Suite 300
Herndon, Virginia 20171
Dear Mr. Colbert:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposal by NACHA to revise the arbitration procedures for financial institutions and make arbitration for most automated clearing house (ACH) disputes mandatory. CUNA, a national trade association, represents more than 90 percent of the nation’s 10,000 state and federal credit unions. This letter reflects the views of CUNA’s Payment Systems Subcommittee, whose chair is Terry West of VyStar Credit Union, Jacksonville, Florida.
The proposal would classify disputes into three categories based on the amount disputed and provide separate guidelines for each Procedure: A, B, and C. Procedure A with the smallest claims would provide one arbitrator; all arbitration done under the other procedures would have three arbitrators. For Procedures A and B, which regulate the smaller claims, arbitration would be mandatory as long as one party requested it. However, for the largest claims, under Procedure C, arbitration would only be required if both parties provide consent. Finally, the proposal would extend the time frame to submit an arbitration claim from one year to three years.
Summary of CUNA's Views
CUNA has the following comments on the changes to the NACHA Operating Rules that would substantially revise the arbitration procedures:
- CUNA supports the three levels of classification based on the dollar threshold for Arbitration Procedures A, B, and C. The amounts for Arbitration Procedure A would be $250 to $9,999; for Arbitration Procedure B it would be $10,000 to $99,999; and for Arbitration Procedure C would be $100,000 or more.
- CUNA supports the modification to make arbitration Procedures A and B mandatory as long as one party requests arbitration.
- CUNA supports the modification to require one arbitrator to decide cases under arbitration Procedure A and to use three arbitrators for cases under Arbitration Procedures B and C.
- CUNA supports the suggested modification to extend the deadline for submitting an arbitration claim to three years from the date of the violations asserted.
- CUNA believes that the stipend for all arbitration claims should be fixed, and not a percentage of the arbitrator’s award as is proposed for Procedures B and C.
Discussion
CUNA supports the three levels of classification and the number of arbitrators and mandatory or voluntary process associated with each classification. These three categories are:
- Arbitration Procedure A for amounts from $250 to $9,999;
- Arbitration Procedure B for $10,000 to $99,999; and
- Arbitration Procedure C for $100,000 or more
The proposal tailors the arbitration rules for each procedure to reflect the amount. It is reasonable that those smaller claims under arbitration Procedures A and B are mandatory as long as one party requests arbitration. This mandatory arbitration allows smaller claimants to cost effectively pursue claims through arbitration, that they could not pursue through litigation because of the expense and the low level of the claim. Moreover it is reasonable that for the lowest disputed amount one arbitrator is required, but for the higher amounts under Procedures B and C three arbitrators are required. In those cases with larger amounts, where the outcome is more important, requiring three arbitrators minimizes the likelihood that personal biases will unduly influence a binding decision.
CUNA supports the proposed extension of the deadline to submit an arbitration claim from one year to three years. This would allow parties an opportunity to use arbitration as a last resort.
While CUNA supports the proposal overall, CUNA disagrees with the recommendation to calculate the arbitrator’s stipend based on a percentage of the arbitrator’s decision. An arbitrators’ compensation should reflect a fixed dollar amount rather than a percentage of their decision. If the stipend is based on a percentage of an arbitrator’s decision, then this could provide an incentive to inflate the amount of a damage award. Instead, CUNA recommends fixed stipends of $100 for Procedure A; $500 for each arbitrator in Procedure B; and $1,000 for each arbitrator in Procedure C.
Conclusion
Overall CUNA believes that the proposed changes to the arbitration rules would benefit credit unions by making it easier and more cost effective to pursue arbitration, which is less expensive and faster than settling disputes through litigation.
CUNA supports the proposal to promote arbitration of ACH disputes and create a feasible alternative to litigation. If you have any further questions, please contact CUNA's Senior Vice President and Associate General Counsel Mary Dunn or me at (202) 638-5777.
Sincerely,
Michelle Q. Profit
Assistant General Counsel
