Compliance Blog

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, the National Automated Clearing House Association (NACHA) announced the approval of two new amendments to the NACHA Operating Rules (registration & log in required). These changes aim to improve network quality “by reducing the incidence of ACH transactions that result in exceptions and returns.” The first rule adds a new section to Article One and establishes “Unauthorized Entry Fees.” The second rule is more complicated and largely makes changes to various subsections of Article Two relating to Unauthorized Entry Return Rate Thresholds, Overall Return Rate Levels, Reinitiation of Entries, and Third Party Senders. Here are brief summaries of these amendments.

“ACH Network Quality” Rule—Unauthorized Entry Fees.

This rule will require Originating Depositary Financial Institutions (ODFIs) to pay a fee to Receiving Depository Financial Institutions (RDFIs) for returning unauthorized transactions. The goal is to “encourage many ODFIs to perform enhanced risk management and monitoring of Originators with high volumes or rates of Entries that result in unauthorized returns.” NACHA estimates that these fees will range from $3.50 to $5.50 per unauthorized Entry and will benefit RDFIs by offsetting the costs of handling unauthorized transactions while also reducing customer service contacts.

This rule will go into effect for entries with a Settlement of October 3, 2016 or later. This means the fees could apply to transactions initiated as early as August 1, 2016. For more details, NACHA included a helpful FAQ section to a webpage dedicated to the rule that is worth reviewing.

“ACH Network Risk and Enforcement” Rule.

Generally, these rule changes aim to “reduce the incidence of returned Entries and the associated costs, both financial and reputational, that such returned Entries impose…” The amendments cover five topics:

• Topic One—Reducing the Unauthorized Return Rate Threshold (effective September 18, 2015). These provisions amend Article Two, Subsections 2.17.1.1 through 2.17.2.3 addressing unauthorized Entry return rates. This change also updates the definition of “Unauthorized Entry Return Rate Threshold” in Article 8, Section 8.105.
• Topic Two—Establishing Inquiry Process for Administrative and Overall Return Rate Levels (effective September 18, 2015). These changes impact Article Two, Subsections 2.17.2.4 through 2.17.2.6 relating to ODFI responses to NACHA requests for information and the timeframes in which ODFIs must lower return rates. The changes also create a new definition for “Return Rate Level” in Article 8, Section 8.89 and amend parts of Appendix 10 relating to NACHA requests for information and inquiries.
• Topic Three—Reinitiation of Entries (effective date September 18, 2015). Reinitiation allows a Returned Entry to be resubmitted. Under the current version of the rules, reinitiation is “implicitly” prohibited outside of set circumstances under Subsection 2.12.4 such as insufficient or uncollected funds or a stop payment order. The rule will now make this prohibition explicit, consistent with ACH Operations Bulletin #3-2-13.
• Topic Four—Third-Party Senders (effective date January 1, 2015). This rule “makes explicit a Third-Party Sender’s existing obligation to monitor, assess and enforce limitations on their customer’s origination and return activities in the same manner the Rules require of ODFIs. The Rule also requires that a Third-Party Service Provider or Third-Party Sender provide proof of completion of its Rules compliance audit to its Participating DFI in order to fulfill a request from NACHA.”
• Topic Five—NACHA’s Enforcement Authority (effective date January 1, 2015). Finally, the amendments allow NACHA increased flexibility for initiating an investigation of a rule violation and allows RDFIs to voluntarily provide NACHA with information that may indicate a rule violation by other network participants.

Again, a FAQs section for this rule can be found here and is worth reviewing in full along with a summary of the expected impact of these rules and the technical changes.

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Lazy Labor Day. While some of the holiday weekend was spent working on the nursery, I also spent some quality time with Lemmy. As you can see, he really enjoyed himself!