CUNA Comment Letter

Proposed Changes to ACH Authorizations and Returns

November 7, 2008

Maribel Bondoc
Manager, Network Rules
NACHA – The Electronic Payments Association
13450 Sunrise Valley Drive, Suite 100
Herndon, VA 20171

Re:      Authorization and Returns Proposal

Dear Ms. Bondoc:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on NACHA’s Request for Comment on proposed changes to its rules regarding claims of unauthorized Automated Clearing House (ACH) debits. This comment letter was developed under the auspices of the CUNA Payments Policy Subcommittee, which is chaired by Terry West, President and CEO of VyStar Credit Union, Jacksonville, Florida. By way of background, CUNA is the largest credit union trade organization in this country, representing approximately 90 percent of our nation’s 8,200 state and federal credit unions, which serve more than 90 million members.

Summary of CUNA’s Views

NACHA is proposing to clarify the requirements for obtaining authorization of an ACH payment and amend its rules regarding the process by which receiving depository financial institutions (RDFIs) handle claims of unauthorized debits. Additionally, the proposal would modify the ACH codes used to classify a return (return reason codes) to more effectively identify the reason an unauthorized debit is returned.

Discussion of CUNA’s Views

NACHA is proposing to clarify the requirements for obtaining a receiver’s authorization for an automated clearing house (ACH) payment by stating that any purported authorization that is unclear, deceptive or otherwise invalid under applicable law is not a proper authorization. NACHA Operating Rules (rules) currently require an authorization to “clearly and conspicuously state its terms.”

By stating that an “unclear” or “deceptive” authorization does not satisfy the requirements of a valid authorization, the rules highlight the essential elements of a proper and valid authorization. However, the terms “unclear” and “deceptive” are vague and subject to different interpretations. We believe the terms should be defined so that originators and receivers have an objective standard by which to obtain valid authorizations.

A receiving depository financial institution (RDFI) must obtain a signed written statement under penalty of perjury (WSUPP) before returning an entry that a consumer believes to be unauthorized or improperly originated. The proposal would omit all references to the phrase “penalty of perjury” regarding the statement, which would include renaming the current WSUPP to “Written Statement of Unauthorized Debit” (statement). Certain information regarding the disputed transaction would be required in the statement.

We fully support deleting the term “penalty of perjury” in the rules as well as in the statement’s name. The rules do not require a WSUPP to be notarized. However, reference to the term “penalty of perjury,” as well as the requirement that consumers declare their claims under oath may raise concerns that certain states or jurisdictions require notarization for the penalty to be valid. This could be costly and burdensome to the consumer. A “true and correct” assertion, as proposed, is more understandable to a consumer, and makes clear that notarization is not required, enabling RDFIs to offer the statement electronically, thereby increasing operational efficiencies.

NACHA is also proposing to require certain information be included in the statement. The information that would be required is currently collected by credit union RDFIs to identify the transaction in dispute. We support setting minimum information requirements and believe they would standardize the statement and facilitate research and accuracy of the returned items while minimizing additional compliance burdens.

NACHA recommends shortening the length of time within which an RDFI must produce a copy of a statement from 60 days to 10 banking days. We agree with this recommendation and believe the shorter timeframe will expedite resolution of disputes.

Return reason codes are used to identify why an entry is returned. If a specific reason for a return is not listed, the code that most closely classifies the return should be used. NACHA is proposing to revise the descriptions and technical specifications of two return reason codes and to require the use of established subcodes in conjunction with these codes.

We believe consolidating the return reason codes for unauthorized entries and establishing subcodes will more accurately identify the reason for a return and reduce the number of situations in which one code is used for multiple conditions. However, as it considers a new subcode structure, NACHA should take into account the overall ACH framework and draft proposals with flexibility to accommodate future technological changes.

NACHA is requesting comments specifically on a proposed subcode option that would be used when a consumer (receiver) does not recognize the name of the originator. We believe this subcode would not achieve its intended effect and would be unnecessary due to the recently adopted rule requiring originators to use a name that is readily recognized by the receiver.

A two-phase implementation process is being proposed. An earlier effective date of December 18, 2009 would apply for amendments not requiring software modifications, while software changes would be effective March 19, 2010. We believe an effective date of September 2010 for all amendments would enable credit unions to make the appropriate system changes and fully comply with the new rules without unreasonable burdens.

Thank you for the opportunity to express our views on the proposed revisions to the rules regarding authorizations and returns. If you have questions about our letter, please do not hesitate to give Senior Vice President and Deputy General Counsel Mary Dunn or me a call at 202-508-6733.


Lilly Thomas
Assistant General Counsel