CUNA Comment Letter
CUNA supports NACHA Rules to Promote Operational Efficiency
May 15, 2002
Mr. William Colbert
Network Services Manager
NACHA The Electronic Payments Association
13665 Dulles Technology Drive
Herndon, Virginia 20171
Dear Mr. Colbert:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on various proposed changes to the NACHA Operating Rules (Rules) developed by Rules Work Group # 52 in its effort to improve operational efficiency within the automated clearing house (ACH) network. CUNA, a national trade association, represents more than 90 percent of the nations 10,600 state and federal credit unions. Our comments were developed under the auspices of CUNAs Payment Systems Subcommittee and our credit unions members as well.
Summary of CUNA's Views
CUNA has the following comments on the changes proposed by NACHA:
- The Individual Name Field-- could be turned into an optional field consistent with the data requirement rules for other types of ACH entries. This change, however, may produce consumer service problems.
- The establishment of separate return reason codes for stop payment orders that have different return time frames is reasonable.
- The check or share draft that is used to create a Re-presented Check entry should be required to contain a pre-printed check serial number.
- The originating financial institution (ODFI) warranties for accounts receivable entries should be expanded and the standard ODFI warranties for Internet-Initiated Entries (WEB entries) should be included in the Rules. However, these clarifications and corrections to inadvertent editing errors are crucial to restoring the integrity of the ACH system. As a result, the implementation date for these warranties should be much earlier and, if possible, as early as June 14, 2002.
- The change codes should be removed, as long as there are other change codes that receiving financial institutions (RDFIs) could use for these types of errors.
In addition to these changes, CUNA would also like to propose that NACHA submit to a rules work group the following issues that produce operational inefficiencies in the Rules:
- A rules work group should research and present to the ACH family a proposal to modify its return rules to require ODFIs to accept returned corporate ACH entries that post to consumers accounts. Additionally, the time frame for returning these ACH entries should be consistent with NACHAs return timeframes for consumer ACH entries.
- A rules work group should research and present to the ACH family a proposal to change the Rules so that the error resolution timeframes in Regulation E match the time an RDFI has to return an unauthorized item. Otherwise, NACHA Rules create a situation where there is a period of time where RDFIs must take full liability for an unauthorized ACH transaction, even if they are not the party at fault.
NACHA has proposed to eliminate the requirement that the merchant include the consumers name in the Individual Name Field on account receivable entries (ACH entries that are created by merchants when a consumer mails or drops off checks to pay bills ARC--), and to make this change effective by March 14, 2003. CUNA does not oppose this change, which would make ARC consistent with the data requirements for the point-of-purchase entries (ACH entries created by merchants when consumers use checks at the sales counter POP--). It appears that this change would still provide receiving depository financial institutions (RDFIs) with the option to return entries that do not have an appropriate account number with the return reason code R04 (Invalid Account Number). The omission of this information, however, would make it more difficult for RDFIs and ODFIs to research disputed items. In addition, it may make it more difficult for RDFIs to refresh the memory of consumers, who might forget they they originally authorized the transactions. According to credit unions, when confronted with the name, consumers sometimes remember transactions that they had forgotten.
CUNA supports NACHAs proposal to delineate separate return reason codes, so that a single return code does not have multiple deadlines associated with it. Specifically, return reason code R-08 is currently used for stop payment orders placed on a check related to an ARC entry that can be returned within 60 days and stop payment orders placed on ACH debits that must be returned in two days. After the change, R-08 would be the code for stop payment orders placed on ACH debits, and a new return reason code would be created for stop payment orders that are placed on ARC entries and POP entries. CUNA supports this change because it would eliminate the confusion that is currently caused by using the same code for stop payments orders placed on different ACH entries with different return time frames.
CUNA also supports NACHAs proposal to make the Re-presented Check (ACH items created from bounced checks RCK--) data entry requirements consistent with other check conversion applications, by introducing the requirement that all converted checks must contain pre-printed check serial numbers. CUNA requests, however, that the implementation date for this revision be changed from September 13, 2002 to March 14, 2003, to give affected ACH participants sufficient time to modify their procedures and systems.
NACHA also proposes expanding the ODFI warranties for ARC and including the standard ODFI warranties for WEB entries. NACHA would clarify that an ODFI is liable for a breach of warranty that causes a RDFI to violate the Electronic Fund Transfer Act or Regulation E with respect to ARC entries, and NACHA would add that ODFIs are liable for breaches of standard ACH warranties with respect to WEB entries.
CUNA supports the inclusion of these warranties, which clarify the existing rules and address errors in the drafting process. CUNA believes that these Rule changes are critical to maintaining the integrity of the ACH system. Without these explicit ODFI warranties in the Rules, RDFIs and other ACH participants that rely on these warranties are disadvantaged. If an error occurs, these parties are without the explicit protections that are provided elsewhere in the Rules for ACH applications. This situation should be remedied as soon as possible. As a result, CUNA requests that NACHA accelerate the effective date for these rules from the proposed September 13, 2002 to the earliest feasible date, June 14, 2002, if that is possible. An earlier effective date is also justified because this rule change does not require ACH participants to adjust their procedures or software.
CUNA supports the elimination of notification of change codes that RDFIs use to notify ODFIs of needed changes to the ACH entry. These changes codes are supposed to be used when the merchant name is encoded incorrectly, a rare occurrence, according to NACHA, that RDFIs usually do not know about. CUNA supports this change if RDFIs that correctly use the codes have an alternative method for processing these types of items after the codes are eliminated.
CUNA asks that NACHA and its rules work groups address other operational inefficiencies that RDFIs and ODFIs currently experience when they return corporate entries (CCD or CTS entries) that post to consumers accounts. The adjustment entry rules in Article Seven do not require ODFIs to accept corporate ACH items that are returned after 24 hours of posting to a consumers account. While an RDFI can return a corporate ACH entry as unauthorized after the 24-hour period, the process is burdensome and inefficient. Currently, when a corporate entry is posted to a consumers account, the RDFI must contact the ODFI to request permission to return the corporate ACH entry. If the ODFI refuses to accept the return, the RDFI and ODFI must perform research to determine whether the transaction was authorized or not. CUNA recommends that NACHA modify its adjustment entry rules to require ODFIs to accept returned corporate ACH entries that post to consumers accounts. Additionally, the time frame for returning these ACH entries as adjustment should be consistent with NACHAs return timeframes for consumer ACH entries.
Finally, CUNA asks that NACHA and its rules work groups address operational inefficiencies RDFIs and ODFIs experience due to the inconsistency between NACHAs return rules for consumers entries and Regulation Es error resolution rules. NACHAs Rules require that RDFIs return consumer ACH entries within 60 days from the settlement date of the transaction, while Regulation E requires that consumers notify financial institutions of errors within 60 days from the statement date. The settlement date is often earlier than the periodic statement date. Consequently, an RDFI must honor a consumers right to claim that a transaction is incorrect or unauthorized for a time period that is often longer than the RDFIs right to return an ACH item in NACHAs rules. This inconsistency leads to significant operational inefficiencies for both RDFIs and ODFIs. To return an item as unauthorized outside of NACHAs 60-day right of adjustment period, an RDFI must contact an employee at the ODFI to request permission to return the ACH entry. If the ODFI refuses to accept the return, both the RDFI and ODFI must research the transaction to determine whether it was authorized. CUNA urges NACHA to present to a rules work group and ACH participants a proposal that would match the error resolution timeframes in Regulation E with NACHAs adjustment return timeframes for ACH transactions. This would reduce the operational inefficiencies experienced by both RDFIs and ODFIs when returning items outside NACHA's current 60-day right of adjustment period, but within Regulation Es 60-day error resolution period.
CUNA commends NACHA for examining ways to improve the operational efficiency in the ACH system through changes in the Rules. CUNA asks that NACHA place the additional suggestions to improve operational efficiencies mentioned above before the appropriate bodies that can transform these suggestions into proposed rules that would improve the ACH network. 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.
Michelle Q. Profit
Assistant General Counsel