CUNA Regulatory Comment Call
June 2, 1999
Federal Reserve ACH Transactions
The Federal Reserve System requests comments on the benefits and drawbacks of modifying the Federal Reserve Banks’ pricing practices and deposit deadlines for ACH transactions they exchange with ACH operators from the private sector. Comments are due by August 6, 1999. Please submit your comments to CUNA by July 16, 1999, by fax to CUNA at 202/371-8240 or e-mail to CUNA’s Assistant General Counsel Michelle Profit at Mprofit@cuna.com. You may also contact us if you would like a copy of this May 21, 1999, Federal Register notice or you may access it on the internet.
BRIEF BACKGROUIND
The ACH is an electronic interbank payments system which is used primarily to handle transfers for consumers, businesses, and the government. The ACH system consists of an infrastructure of data processing and communications hardware and software designed to deliver and settle large volumes of electronic payment transactions and related information. The Federal Reserve Banks collectively are the largest ACH operator. They process more than 80 percent of the commercial interbank ACH transactions as well as all ACH transactions initiated by the federal government. The remaining transactions are processed by private-sector ACH operators (PSOs) that typically provide services, including processing and settling ACH transactions, similar to those offered by the Reserve Banks. PSOs use the Reserve Banks’ ACH services for processing transactions in which either the originating depository financial institution (ODFI) or receiving depository financial institution (RDFI) is not their customer.
The PSOs maintain that the Reserve Bank’s price structure and deposit deadlines do not permit the PSOs to compete effectively in providing ACH services to depository institutions. Therefore the Federal Reserve System has described its current practices as an ACH provider and has requested comments from the public on ways that the Federal Reserve System could alter the ACH services that it provides.
The Reserve Banks offer depository institutions ACH services under terms established in the Reserve Banks’ ACH operating circular, and charge fees based on published fee schedules. The Reserve Banks charge the same prices for ACH services to PSOs, depository institutions, and third-party processors. For each transaction that they process, the Reserve Banks consider both the ODFI and RDFI to be their customers and charge each of them a per-item fee. In addition, the Reserve Banks charge a per-file fee for each ACH file they receive. The Reserve Banks also assess monthly account servicing fees to each institution whose ACH transactions they process. The Reserve Banks use their reserve account posting capability to automatically debit the account designated by each ODFI and RDFI for the purpose of settling ACH transactions and fees. PSOs are not able to charge an RDFI or ODFI per-item fee for transactions transmitted through, or received from, the Reserve Banks. Also, the Reserve Banks do not pay file fees to the PSOs for files provided to the PSOs.
The Monetary Control Act and the Federal Reserve System’s pricing principles require that fees for the ACH service be set so that revenues match costs. And the Reserve Banks set their fees to meet costs. To continue to comply with this requirement, any modification that reduces the revenues or increases the cost of the ACH services would have to be offset by commensurate increases in revenues elsewhere in Federal Reserve ACH operations. Currently, the Reserve Banks’ costs for handling ACH transactions that are also processed by a PSO do not differ from their costs for handling other ACH transactions. Thus, according to the Federal Reserve System there may not be a reason to offer lower fees to PSOs based on cost, unless the Reserve Banks offer lower service levels for transactions involving a PSO.
The Reserve Banks have established a 3:00 a.m. Eastern Time deadline for the deposit of ACH transactions for all depositors, and make those ACH transactions available to the RDFI or its agent, including a PSO, by 6:00 a.m. To meet Reserve Bank deposit deadlines, PSOs must establish earlier deposit deadlines and later delivery schedules for either customer than those offered by the Reserve Banks to their customers. If the Reserve Banks were to offer different deposit and delivery deadlines to PSOs and depository institutions, PSOs would be able to establish deadlines for their customers that would be equivalent to those offered by the Reserve Banks. If the deadlines were changed, however, the Reserve Banks either would have to move the depository institution deposit deadline to earlier in the evening or reduce the time they have to process ACH files. In either case, according to the Federal Reserve System, the level of service offered to depository institutions that deal with the Reserve Banks directly may be reduced.
QUESTIONS REGARDING THE CURRENT SYSTEM
- Should the Reserve Banks continue to consider the ODFI and RDFI for ACH transactions they process to be their
customers, and charge them accordingly, even though the depository institution sent the transactions through or
received the transactions from a PSO? If not, why not?
- Should the Reserve Banks charge lower fees for ACH transactions that are also processed by a PSO than they do
for ACH transactions in which the Reserve Banks are the only ACH operator? If so, what should be the rationale for
charging different fees? For example, should the Reserve Bank offer different service levels as a rationale for
reducing the cost?
- Should the Reserve Banks pay transaction fees to PSOs that send files to the Federal Reserve and transactions
and file fees to PSOs that receive files from the Federal Reserve? According to the Federal Reserve System, the PSOs
costs for handling ACH transactions that are also processed by the Reserve Banks likely differ from the costs for
handling other ACH transaction only with respect to costs related to customer services and settlement.
- What services do PSOs provide that would justify the payment of fees to PSOs? Should Reserve Banks pay fees
to PSOs?
- The Reserve Banks assess an ACH monthly account servicing fee for each routing number that a depository institution
elects to have included in the Fed ACH customer directory. The Reserve Banks must maintain routing numbers for
depository institutions served by PSOs to provide processing, routing, accounting, and settlement services for ACH
transactions exchanged between PSO and Reserve Bank customers, and charges this fee to recover associated costs.
Should the Board continue to assess this fee to customers that use PSOs to send transactions to and receive
transactions from the Reserve Banks? If not, what would be the rationale for eliminating the fee for the PSOs
customers?
- What are the benefits and drawbacks of the Reserve Banks establishing different deposit and delivery deadlines
for PSOs and depository institutions? Should the Reserve Banks set different deposit and delivery deadlines for PSOs
and depository institutions?
- If the Reserve Banks were to modify their price structure or deadlines to treat transactions also processed by
PSOs differently, should this treatment be limited to transactions processed by PSOs or expanded to other ACH
transactions, such as those sent or received by correspondent banks or third-party processors. Why or why not? Do the
arguments to modify Reserve Bank practices regarding PSOs also apply to other entities that act as sending and
receiving points for multiple institutions? Why or why not?
- Do you think that the Federal Reserve System should adopt any changes to its current Federal Reserve ACH
operations? If so, what would be the affect of the proposed price and deadline changes on your credit union? How
would these changes affect competition, and the efficiency of the ACH system?
- What services do PSOs provide that would justify the payment of fees to PSOs? Should Reserve Banks pay fees to PSOs?
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
