CUNA Regulatory Comment Call
November 4, 2004
Proposal on Network Return Entry Fees
EXECUTIVE SUMMARY
- NACHA – The Electronic Payments Association is seeking comments on a proposal to assess a fee to the Originating Depository Financial Institution (ODFI) for processing ACH debits that are returned as unauthorized.
- If this system were established, fees would automatically be assessed to ODFIs for all Unauthorized (R05, R07, R10, and R29) ACH debit return entries and these fees would be distributed to receiving depository financial institutions (RDFIs).
- Federal Government ACH transactions would not be subject to network return entry fees.
- A Return Entry Fee Panel would be established to determine the dollar amount of the fee using cost data. The Panel would review the fees annually for any adjustments.
- The proposal recommends implementing the fees as of June 17, 2005.
- Comments are due by November 30, 2004. Please submit your comments to CUNA by November 16, 2004.
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 Assistant General Counsel Lilly Thomas at lthomas@cuna.com or mail them to Mary and Lilly in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6733, if you would like a copy of the Request for Comment, or you may click here.
BACKGROUND
In August 2003, the Business Case Validation Task Force, established by NACHA’s Board of Directors to re-evaluate the business cases for various ACH applications, concluded that processing certain types of ACH returns imposes a cost to RDFIs. The task force recommended to the Board the concept of network return entry fees (NREFs).
NACHA issued a Request for Information (RFI) in November 2003 that addressed NREFs for both returns of unauthorized entries and returns of entries containing invalid account numbers. See CUNA’s Comment Call for more details on this RFI. After receiving numerous responses, the NREFs for returns of unauthorized entries and returns of entries containing invalid account numbers have been separated into distinct rule making efforts.
This Request for Comment is proposing to assess NREFs only for unauthorized returns. When an unauthorized debit is presented to the RDFI, costs are incurred by the RDFI to return the debit. NACHA conducted a survey to determine what the estimated costs are in relation to returns of unauthorized debit entries. Based on this survey, NACHA estimates that it costs the RDFI from $12 to $17 per entry.
A second cost associated with unauthorized debit entries is risk management. NACHA ensures compliance with its Operating Rules and actively manages ACH risk. The responsibility for funding risk management efforts currently falls on the regional payments associations and financial institutions that are NACHA members as part of their membership dues. This proposal would shift these costs from the RDFIs and NACHA to the ODFIs.
PROPOSAL TO ASSESS NETWORK RETURN ENTRY FEES
NACHA is seeking comments on a proposal that would amend the NACHA Operating Rules (Rules) to assess a fee to the Originating Depository Financial Institution (ODFI) for processing unauthorized ACH debits. ODFIs should bear these costs because they are warranting to all Network participants that the Receiver properly authorized each transaction. The primary objectives of this proposal are to improve the overall quality of the ACH Network and compensate Receiving Depository Financial Institutions (RDFIs) for their costs related to the return of unauthorized debit entries.
NACHA would assess a fee to ODFIs that would be part of the NREF. The NREF would be automatically assessed to the ODFI for every ACH debit that is returned as unauthorized regardless of Standard Entry Class (SEC). Most of the fee would be transferred to the RDFI to cover its costs and the remainder of the fee would go to NACHA to cover its costs. An agent would transmit the ACH debit and ACH credit transaction for the fees and cost compensation. The agent’s fee would be included as part of NACHA’s portion of the fee.
Two factors would be considered when determining the amount of the fee – costs incurred by the RDFI and by NACHA. The costs incurred by the RDFI are estimated to be in the $12 - $17 range and costs incurred by NACHA are estimated to be between $1 - $1.50. Therefore, the fee that would be charged to the ODFI would be in the $13 - $18 range for each unauthorized debit.
The rules enforcement mechanisms within Appendix Eleven of the NACHA Operating Rules would be expanded to create an additional process under which ODFIs would automatically be assessed a fee for each unauthorized debit entry returned to it by the RDFI and bearing a Return Reason Code R05, R07, R10, or R29 . The fee would be charged regardless of the Standard Entry Class (SEC) code. The fee schedule would be published in the ACH Rules: A Complete Guide to Rules and Regulations Governing the ACH Network.
Process for Collection and Disbursement of Fees
The ACH Operators would track and provide to NACHA the number of entries returned as unauthorized transmitted by each RDFI and received by the ODFI. NACHA, or its agent, would initiate a CCD debit or credit to each financial institution based on that financial institution’s net position. An ACH debit entry would be initiated if the ODFI were in a net debit position. ODFIs would not be able to return the entries initiated for the collection of return entry fees. Once collected, NACHA would initiate credit entries to RDFIs that are in a net credit position for their portion of the fees. To identify these debits or credits, the word “RETURNFEES” would be entered in the Company Entry Description Field of the Company/Batch Header Record.
There would be no advance notice of the net amount of the payment. However, ODFIs should be able to track their return volume for unauthorized entries to determine the amount they would owe. If a financial institution is acting as both an ODFI and RDFI it would receive two transactions per month – a debit for any return entry fees it owed and a separate credit entry for any fees owed to it.
The depository financial institution would be able to contact NACHA if it believed the amount of the fee had been incorrectly calculated. The depository institution would be able to contact NACHA in writing, within five days of the settlement date of the entry related to the NREF.
Return Entry Fee Panel
NACHA would establish a Return Entry Fee Panel (Panel) that would determine the dollar amount of the NREF using cost data. The Panel would review the fees annually for any necessary adjustments. The Panel members, who would be nominated by the NACHA membership and approved by the NACHA Board of Directors, would be comprised of members representing each of the following industry participants:
- Two representatives of large asset size (greater than or equal to $10 billion) commercial bank, savings institution, or credit union;
- Two representatives of small asset size less than $10 billion) commercial bank, savings institution, or credit union;
- One representative of a public-sector ACH Operator;
- One representative of a private-sector ACH Operator; and
- One representative of a regional payments association.
Written Statement Under Penalty of Perjury
The NACHA Operating Rules require an RDFI to warrant that it has obtained the member’s written statement under penalty of perjury prior to transmitting a return for an unauthorized entry. This is so that members would carefully consider their assertion that an entry is unauthorized. Additionally, any liability for future disputes over authorization would shift away from the RDFI and to the ODFI, Originator and Receiver who are directly involved in the transaction.
If an RDFI fails to get a written statement, it is in violation of the Rules and the failure can be addressed through the National System of Fines. NACHA is considering a rules enforcement process that expands the current National System of Fines to address return entry fees when an RDFI fails to require its consumer to get a written statement.
The process would operate starting with the ODFI paying an administrative fee of $100 to NACHA for submission of a claim that, when requested, the RDFI failed to produce a copy of the written statement. The ODFI would have to provide proof that it requested a copy of the written statement in accordance with the NACHA Rules and waited the requisite time before filing its claim. When NACHA receives the ODFI’s claim and fee, it would request a copy of the written statement from the RDFI. If the RDFI produced the written statement, the NREF charged to the ODFI would stand. If the RDFI does not produce a copy to NACHA, the return entry fee would be deducted from the RDFI and refunded to the ODFI. The ODFI would also be refunded its administrative fee and the RDFI would be charged a $200 administrative fee.
QUESTIONS TO CONSIDER REGARDING THE PROPOSAL
- Does your credit union believe that there is a problem within the ACH Network
regarding the amount of unauthorized (R05, R07, R10, R29) returns?
Yes _____ No _____
Please explain below:
- Does your credit union agree with the concept to charge ODFIs a Network Return Entry
Fee for unauthorized account returns that are received?
Yes______ No________
Please explain below:
- Does your credit union believe that this proposal would cause your credit union,
as an ODFI, to more carefully review your Originators’ authorization and authentication
practices?
Yes _____ No _____
Please explain:
- Does your credit union believe that NACHA’s compensation for its costs associated
with managing ACH Network risk should be borne by the party responsible for originating
entries into the Network, i.e. the ODFI?
Yes _____ No _____
Please explain:
- Does your credit union agree with the proposed process by which NREFs would be collected
and distributed?
Yes _____ No _____
Please explain and specify any alternate suggestions for a different process:
- As an RDFI, if your credit union can provide a cost estimate for handling unauthorized
entries, please indicate it here and explain.
- Would your credit union be supportive of the establishment of the dispute resolution
process discussed in this Comment Call to specifically address entries returned as unauthorized
where the RDFI has allegedly failed to obtain a Written Statement Under Penalty of Perjury from
the member/receiver? This includes willing to pay the administrative fee of $100.
Yes _____ No _____
Please explain and provide alternate rules enforcement procedures if applicable:
- Does your credit union agree with the proposed composition of the Return Entry Fee Panel?
Yes _____ No _____
Please explain:
- Would there be a substantial operational impact to your organization associated with this proposal?
Yes _____ No _____
Please explain:
- Does your credit union agree with the proposed descriptive statement RETURNFEES for Company Entry
Description field?
Yes _____ No _____
Please explain:
Does your credit union agree with the proposal to require any disputes on the amount of the NREF (i.e., mathematical error in calculation) to be submitted to NACHA in writing within 5 banking days of the Settlement Date of the entry?
Yes_____ No _____
Please explain:
- If the NREF proposal were implemented, would your credit union choose to provide NACHA with a
routing and account number for crediting and/or debiting NREFs for your credit union?
Yes _____ No _____
If yes, how would your credit union prefer to provide the information?
- Does your credit union agree with the recommended implementation date of June 17, 2005 for
this rule change?
Yes _____ No _____
Please explain:
- Would your credit union be supportive of adding a requirement to the Written statement Under
Penalty of Perjury that the RDFI must counsel the Receiver on contacting the Originator prior to
having a debit returned as authorization revoked or unauthorized?
Yes _____ No _____
Please explain:
- Should Return Reason Code R51 (Item is Ineligible, Notice Not Provided Signature Not Genuine,
Item Altered, or Amount of Entry Not Accurately Obtained From Item) be included in the NREF proposal?
Yes _____ No _____
Please explain:
- Would your credit union be supportive of an automated way for RDFIs to submit a request for
a copy of an authorization or for an ODFI to submit a request for a copy of a Written Statement
Under Penalty of Perjury for a consumer entry returned as unauthorized?
Yes _____ No _____
Please explain:
- Other comments?
¹ R05- Unauthorized Debit to Consumer Account Using Corporate
SEC Code; R07 – Authorization Revoked by Customer; R10 = Customer Advises Not Authorized,
Notice Not Provided, Improper Source Document, or Amount of Entry Not Accurately Obtained
from Source Document; R29 – Corporate Customer Advises Not Authorized.
² According to NACHA Rules, the ODFI must request a copy of the written
statement under penalty of perjury within one year of the settlement date of the entry, and
the RDFI has 60 days to provide the copy once it receives the written request.
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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 Lilly Thomast • Assistant General Counsel • (202) 508-6733 • lthomas@cuna.com |
