CUNA Comment Letter

Federal Reserve's Modification of ACH Deposit Deadlines and Pricing Practices

July 25, 2000

Ms. Jennifer J. Johnson
Board of Governors of the
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, D.C. 20551

Re: Docket No. R-1037, Proposal to Modify Federal Reserve ACH Deposit Deadlines and Pricing Practices Relative to Private Sector ACH Operators

Dear Ms. Johnson:

The Credit Union National Association (CUNA) is pleased to comment on the notice "Modifying Federal Reserve ACH Deposit Deadlines and Pricing Practices Relative to Private-Sector Automated Clearing House Operators" (PSOs). As a national trade association, CUNA represents more than 90 percent of the nation's 11,000 state and federal credit unions and solicits the opinions of these credit unions on relevant matters. The following comments were developed by CUNA with input from credit unions and our Subcommittee on Payment Systems, led by Mr. Stan Hollen, President and CEO of The Golden 1 Credit Union in Sacramento, California. This subcommittee includes officials of credit unions from around the country, which provide financial services, including ACH services to their credit union members.

The Federal Reserve and PSOs provide automated clearing house services (ACH), which constitutes an electronic interbank payment system handling the transfer of funds between consumers and businesses. ACH transactions start when a customer initiates an ACH transaction at his or her depository institution, which transmits the payment information and exchanges funds with the recipient's depository institution. This transaction is processed by Federal Reserve Banks (Reserve Banks) or PSOs.

Representatives of the PSOs have maintained that the Reserve Banks' price structure and deposit deadlines do not permit the PSOs to compete effectively in providing ACH services to depository institutions. In response, last May the Board requested comments from the public on ways that the Federal Reserve could alter its ACH pricing practices and service deadlines. As a result of those comments, the Board is now proposing specific modifications to Reserve Banks' deposit deadlines as well as pricing structure for interoperator transactions that it believes will address the concerns of some commentators by enhancing open and vigorous competition in the provision of ACH services.

The Reserve Banks have established their delivery schedules and pricing practices for ACH services in a manner to comply with The Monetary Control Act of 1980. The Monetary Control Act and the Federal Reserve's pricing principles require that the fees for ACH operations be set so that revenues and costs match. As a result, any reduction in fees to some users of ACH services would have to be offset by a corresponding reduction in services, or an increase in fees to other users, in order to regain the equilibrium that is mandated by The Monetary Control Act.


In particular, the Federal Reserve requests comments on its proposed three-tiered pricing structure for interoperator transactions. Currently, the Reserve Banks offer depository institutions ACH services under terms established in the Reserve Banks' ACH operating circular and charge fees based on published fee schedules. The Reserve Banks charge the same prices for ACH services to PSOs, depository institutions, and third-party processors. For each transaction that they process, the Reserve Banks consider both the ODFI and RDFI to be their customers and charge each of them a per-item fee. In addition, the Reserve Banks charge a per-file fee for each ACH file they receive. The Reserve Banks also assess monthly account servicing fees to each institution whose ACH transactions they process. The Reserve Banks use their reserve account posting capability to automatically debit the account designated by each ODFI and RDFI for the purpose of settling ACH transactions and fees.

Unlike the Reserve Banks, PSOs are not able to charge both the RDFI and ODFI a fee for each item transmitted through, or received from, the Reserve Banks. The PSOs are also unable to charge the Reserve Banks a fee for each file PSOs receive from the Reserve Banks.

The new rule would modify the current price structure in four main respects. First, the Reserve Banks would charge ACH operators a monthly network access fee for each routing number they access on the Reserve Banks' ACH network. Second, the Reserve Banks would charge ACH operators per-item fees for transactions they send through the Reserve Banks' ACH network. Third, the Reserve Banks would charge depository institutions that send and receive all transactions through PSOs a monthly settlement fee rather than the current monthly account-servicing fee. In addition, the Reserve Banks would pay PSOs for transactions they send to depository institutions through those PSOs.

In light of the Reserve Banks' obligation under The Monetary Control Act, CUNA's position is that the Federal Reserve should not make any changes to the ACH price structure that could result in increased fees to depository institutions. CUNA's position on the proposed pricing changes is based on its support for maintaining the efficiency of the current system without reducing the system's accessibility through higher fees and lower service levels.

CUNA's basic concern is that the Board's proposed pricing structure changes do not incorporate concerns raised by commenters earlier, such as the suggestion that "the Reserve Banks should abolish the monthly account servicing fee for depository institutions that send and receive all of their ACH transactions through a PSO".

In addition, CUNA is generally concerned about the feature of the proposal under which the Reserve Banks would pay PSOs for commercial and government ACH transactions they deliver to RDFIs through PSOs. Specifically, the concern is that the Reserve Banks may end up increasing the fees charged to their direct customers as a result of paying such fees to PSOs.


The Federal Reserve also requests comments on altering its deposit and delivery deadline. Currently, the Reserve Banks have the same deposit deadline for all ACH transactions whether they are from a financial institution or a PSO, and the Reserve Banks deliver those ACH transactions at the same time to all institutions, including PSOs and financial institutions. Therefore, in order to meet Reserve Bank deposit deadlines, PSOs must establish earlier deposit deadlines and later delivery schedules for the customers of the PSOs. The PSOs have stated that because they must set less advantageous deposit and delivery times for their customers, they are at a competitive disadvantage.

The Board proposes that the Reserve Banks work collaboratively with ACH operators to establish interoperator deposit deadlines by which the Reserve Banks and the PSOs would exchange interoperator transactions. The Reserve Banks' preliminary recommendation is that one interoperator deposit deadline be established at 2:30 p.m. eastern time for immediate settlement items and that another interoperator deposit deadline for next-day settlement items be established at 3:00 a.m. eastern time. The Reserve Banks would accept interoperator transactions from PSOs and send interoperator transactions to PSOs at the new deposit deadlines. This would require Reserve Bank customers to deposit next-day settlement items half an hour earlier than they do today.

CUNA supports this provision of the proposal. Since CUNA's member credit unions normally submit ACH transactions to the Reserve Bank well in advance of settlement time, those credit unions would not be negatively affected by the proposed deadline of thirty minutes earlier. However, CUNA would not support moving up the deadline for delivering next-day settlement items any earlier.

CUNA also supports the proposed eligibility provision under which the deadline and price structure modifications would be limited to any intermediary that is defined as an operator under NACHA's Operating Rules.

In closing, CUNA supports the deadline and pricing changes as discussed above. CUNA believes that any revisions in ACH deposit deadlines or pricing practices should result in promotion of a fair and competitive environment. In CUNA's view, it is important for the Board to remain flexible and periodically review pricing and oversight needs in order to keep the system healthy for all participants.


Mary Mitchell Dunn
Associate General Counsel

Catherine A. Orr
Regulatory Advocacy Attorney