CUNA Comment Letter

Setoff and Isolation in the Context of Loan Participations

May 17, 2004

Ms. Maribel Bondoc
Network Services Associate
NACHA – The Electronic Payments Association
13665 Dulles Technology Drive
Suite 300
Herndon, Virginia 20171

Dear Ms. Bondoc:

The Credit Union National Association (CUNA) appreciates the opportunity to voice its strong support for the proposal to modify the provisions in the NACHA Operating Rules to allow unauthorized entries that are transmitted to consumer accounts with the incorrect corporate Standard Entry Class Code (SEC) to be returned within the extended sixty-day timeframe allowed for consumers. CUNA represents 90 percent of the nation’s more than 9,600 state and federal credit unions.

CUNA strongly supports this modification to the rules because it is necessary to ensure that financial institutions that receive incorrectly coded automated clearing house (ACH) entries have sufficient time to return them. Financial institutions that originate ACH entries may sometimes place an incorrect corporate SEC code on an ACH entry that goes to a consumer account. Under the rules, a receiving financial institution must rely on the SEC Code contained within an entry when determining which rules apply to a particular transaction. In this case, although the entry is for a consumer account, because it has a corporate SEC code, it is subject to the shorter return timeframe that governs corporate accounts. This proposal would resolve this issue by allowing the receiving financial institution and consumer to use the same rules for an unauthorized transaction to a consumer account regardless of what SEC code is used in the transaction, so all transactions to consumer accounts would receive the extended sixty-day timeframe.

CUNA supports this proposal because it reduces the inconvenience created for consumers and financial institutions when an originating financial institution incorrectly codes an ACH entry. Under the current rules, if the shorter return timeframe for corporate transactions as elapsed, the receiving financial institution cannot automatically return it. Instead, the financial institution must take an additional step and request special permission from the originating financial institution to accept the permissible return. This proposal would allow a financial institution that has a statement from the consumer that the transaction is unauthorized to use the extended timeframe normally granted to consumers without requesting special permission. As a result, this modification would help consumers and financial institutions return unauthorized items with less exception processing.

For all the reasons cited above, CUNA strongly supports this proposal. 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