CUNA Comment Letter

CUNA Generally Supports NACHA's Proposal To Stiffen Fines And Streamline The Enforcement Process.

January 31, 2001

Mr. William Colbert
Network Services Associate
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 proposed changes to the rules enforcement procedures for automated clearing house transactions. As a national trade association, CUNA represents more than 90 percent of the nation’s 10,600 state and federal credit unions. Our comments reflect the opinions of those credit unions.

Summary of CUNA's Views
CUNA has the following comments regarding the preliminary recommendations:

Discussion
CUNA recommends that NACHA adopt a fee structure that deters violations without disproportionately penalizing smaller institutions by using fee schedules based on the asset size of the offending financial institution. CUNA understands that NACHA wants to adopt a fee structure that will result in few violations and repeated infractions. Toward that end, NACHA has asked for comments on two sets of fee structures, each of which would apply to all financial institutions regardless of whether their asset size was $1 million or $1 billion. This one-size fits all structure would fail to adequately deter larger institutions and may disproportionately harm smaller financial institutions. CUNA notes that often regulators take into account the ability of financial institutions to pay when they sets fines for civil monetary penalties. See e.g., 12 U.S.C. 1818(i) (2) (G). For that reason, we recommend that NACHA seek additional comments on a tiered approach with the following possible steps.

Asset Size Fines for first, second, third and fourth offenses
$0 up to $50 million $250 $750 $1000 $2,000/mo
$50 up to $500 million $1,000 $2,500 $5,000 $10,000/mo
$500 million up to $ 1 billion $2,500 $5,000 $10,000 $15,000/mo
$ 1 billion and over $5,000 $10,000 $15,000 $20,000/mo

In the absence of a tiered fee schedule that takes into account the asset size of a financial institution, CUNA recommends the smaller level of fines ($250, $500, $1,000, and $5,000), so smaller institutions do not receive draconian penalties.

CUNA supports the recommendations in this proposal that would assist with the early detection and punishment of fraud. In that regard, NACHA should be able to bring egregious violations directly to the ACH Rules Enforcement Panel for quick review without waiting for a certain number of recurrences to be reported. In order to ensure that this power is reserved for appropriate cases and consistently and fairly applied, egregious violations should be defined in the NACHA Operating Rules with regard to quantity and the nature of the infraction. In addition, ACH operators should be able to provide return data to NACHA on a monthly basis to help resolve potential fraud problems. This would make NACHA proactive in dealing with issues of fraud and violations of a large magnitude. From this reporting, NACHA and the Regional Payments Association would have greater access to data. As a result, NACHA and the Regional Payments Associations should be able to report alleged violations under the National System of Fines, even when they are not directly involved in an ACH transaction. Other ACH participants do not have access to this type of information, so they should not be able to submit violations, if they are not a party to the transaction.

CUNA supports changing the definition of a recurring violation to include those violations that occur within 12 months and that have the same financial institution, originator and third-party service provider. Currently a violation is only considered a repetitive, recurring offense if it occurs within six months. The longer time frame will encourage financial institutions that have violated the rules to keep an eye on ACH submissions and retrain their personnel where needed. Currently, a recurring violation must only have the same financial institution and originator. CUNA supports tailoring this definition so that a violation also must have the same third–party service provider. This clarification would hold each third-party service provider responsible for its own actions, especially since correcting the problem may lie in the hands of the third-party service provider.

CUNA supports the 90-day deadline for reporting an infraction and supports a streamlined enforcement process. This reporting period for alleged violations allows sufficient time for a consumer or financial institution to act on a problem. Credit union members would have 60 days from the date of their statements and the credit union would have another 30 days to investigate and report the violation. The rest of the enforcement process, however, should be streamlined. NACHA should choose among its suggestions, implementing all of its suggestions to reduce the processing time would lead to an enforcement approach that was too aggressive. Currently, for the first offense the NACHA Operating Rules give a financial institution 15 days to respond to the first notice and 10 days to respond to the second notice. NACHA asks for comments both on eliminating the second warning letter and shortening the response time to 10 banking days. CUNA believes that NACHA should initiate one change, but not both at the same time. Most credit unions agree that NACHA should either eliminate the second letter and keep a 15-30 day time frame or NACHA should keep the second letter and quicken the process so that instead of allowing 25 days to respond to the letters the period is shorter. However, if the second letter is eliminated, then the first warning letter should be sent to a designated individual at the financial institution to ensure that the financial institution can respond quickly.

The implementation date for the new rules should be June 14, 2002 or longer if there is not enough time to publicize the new rules. This early deadline is reasonable because there are no software changes that ACH participants have to make to comply with the rules.

CUNA commends NACHA for examining ways to improve the ACH system through the ACH enforcement process. 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