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CUNA Regulatory Comment Call

July 29, 2003

EXECUTIVE SUMMARY

• NACHA – The Electronic Payments Association has issued a request for comments regarding modifications to the current provisions of the NACHA Operating Rules (Rules) related to automated clearing house (ACH) return entries.
• The proposal would make the following changes to the Rules:
  

  1) Remove an ACH Operator edit related to the Original Receiving DFI (Depository Financial Institution) Identification Field within the addenda records of the dishonored return and contested dishonored return entries that is inconsistent with the definition of the field, and
  2) Require ACH Operators to settle return entries no earlier than the effective entry date in the original Company/Batch Header Record.

• The recommended implement date for the proposed changes is proposal is March 12, 2004.

• Comments are due to NACHA by August 18, 2003. Comments may be sent to NACHA directly to the attention of Maribel Bondoc, Network Services Assistant, NACHA, 13665 Dulles Technology Drive, Suite 300, Herndon, VA 20171, fax: (703) 787-0996, e-mail: mbondoc@nacha.org. Please send your comments to CUNA by August 8, 2003. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary and Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. If you would like a copy of proposal, please contact us or go to NACHA’s website at http://www.nacha.org/ACH_Rules/Rule_Making_Process/Rules_Work_Groups/RFC_53/rfc_53.htm.

BACKGROUND

ACH Operator Edit Criteria

• Under the current Rules, the addenda records for return, dishonored return and contested dishonored return entries contain a field entitled "Original Receiving DFI Identification", which bears the routing number of the RDFI receiving the original entry. Although this field is defined as a Required field (that is, the ACH Operator does not edit the content of the field except to ensure that the field contains valid characters) within Appendix Two (ACH Record Format Specifications), the edit criteria under Return Reason Code R26 (Mandatory Field Error) within Appendix Three (Specifications for Data Acceptance) define this field as a Mandatory field, requiring ACH Operators to reject such an entry if the content of the field is non-numeric. These two references create an inconsistency within the Rules.
• For example, there have been instances in which an ACH Operator received from another ACH Operator a dishonored return entry containing spaces within the Original Receiving DFI Identification Field in the addenda record. Based on the current requirements of Appendix Three, which require the ACH Operators to reject an entry for which the contents of this field are non-numeric, the receiving ACH Operator rejected the transaction. However, this field is defined as a Required field, rather than a Mandatory one, and should not have been edited by the ACH Operators at all.

Settlement of Return Entries

• Under the description of the Settlement Date Field within Appendix Two, the Rules require ACH Operators to settle return entries at the earliest opportunity, which will be either the same banking day of processing or the next banking day following the processing date. In certain situations involving 2-day credit entries, it is possible for the return entry to be settled by the ACH Operator before the original credit entry is settled. This can occur, for example, when an ODFI transmits a credit file on Monday for settlement on Wednesday. In some cases, such as with a closed account or an invalid account number, an RDFI may return the credit immediately (rather than waiting until after settlement of the original entry) and receive credit for the return on Monday or Tuesday. In this instance, the ODFI has received credit for the return before it has been debited on Wednesday for the original entry, creating float within the ACH Network.
• In order to prevent the creation of float associated with this practice, NACHA is proposing a change to the rules to prohibit ACH Operators from settling return entries prior to the effective entry date contained within the original entry. If the effective entry date were stale or invalid, the Operators would settle the entry at the earliest opportunity.

DESCRIPTION OF THE PROPOSAL

• The reference to the ACH Operator edit on the original RDFI Routing Number within dishonored returns and contested dishonored returns within the eleventh bullet of Return Reason Code R26 (Mandatory Field Error) within Section 3.6 of Appendix Three be removed. Because this field is classified as a Required field, ACH Operators would not edit this field for any specific content.
• The Rules would be modified to prohibit ACH Operators from settling return entries prior to the effective entry date contained within the original entry. In the case of a stale or invalid effective entry date, the ACH Operators would settle the entry at the earliest opportunity.
• Originating depository financial institutions (ODFIs) and receiving depository financial institutions (RDFIs) should be aware that ACH Operators would not edit the Original RDFI Routing Number Field in dishonored and contested dishonored returns to ensure that it is numeric. ODFIs and RDFIs should also be aware that ACH Operators would be prohibited from settling return entries prior to the effective entry date in the original entry. This change would not impact an RDFI's practices for processing return entries. However, credit unions and other ACH participants should be aware that processing of and settlement for return entries may not occur at the same time.

1. Does your credit union agree with the modification of the eleventh bullet of Return Reason Code R26 (Mandatory Field Error) to remove the ACH Operator mandatory field error edit on the Original RDFI Routing Number Field within dishonored returns and contested dishonored returns as this field is not defined as a mandatory field?
   
   Yes ______ No ______
   
   Please explain why or why not.
   
   

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2. Does your credit union agree with the proposal related to the ACH Operators' modification to prohibit the settlement of returns prior to the effective entry date of the original entry?
   
   Yes ______ No ______
   
   Please explain why or why not.
   
   

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3. Is your credit union able to return entries prior to the effective entry date of the original entry?
   
   Yes ______ No ______
   
   If yes, will the Rules modification cause your credit union to make any changes to your return practices?
   
   

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4. Please describe any specific benefits or disadvantages to your credit union that would result from the proposed Rules changes.
   
   

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5. Would this proposed change require your organization to make changes to its ACH software?
   
   Yes ______ No ______
   
   If yes, how extensive would the required software change be (very extensive, moderately extensive, somewhat extensive, minimally extensive)?
   
   Please explain.
   
   

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How costly would the change be (highly costly, moderately costly, somewhat costly, minimally costly)?

Please explain.



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6. Does your credit union agree that the recommended implementation date of March 12, 2004 is an adequate time frame for implementing the proposed Rules changes?
   
   Yes ______ No ______
   
   If no, what time frame would be adequate?
   
   

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7. Other comments?
   
   

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