CUNA Comment Letter

Network Return Entry Fees

November 30, 2004

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

RE: Request for Comments: Network Return Entry Fees – Debit Entries Returned as Unauthorized

The Credit Union National Association (CUNA) is pleased to respond to the proposal by NACHA – The Electronic Payments Association on network return entry fees. The proposed revisions would assess a fee to the Originating Depository Financial Institution (ODFI) for processing ACH debits that are returned as unauthorized. If this system were established, fees would automatically be assessed to ODFIs for all unauthorized ACH debit return entries and these fees would be distributed to receiving depository financial institutions (RDFIs).

By way of background, CUNA is the largest natural credit union trade association representing approximately 90 percent of the 9,400 state and federal credit unions in this country. This letter was prepared under the auspices of CUNA’s Payment Systems Subcommittee, which is chaired by Lindsay Alexander, President and CEO of National Institutes of Health FCU, Rockville, Maryland.

Summary of CUNA’s Position


NACHA is requesting comments on its proposal to assess a fee to an Originating Depository Financial Institution (ODFI) for processing ACH debits that are returned as unauthorized. The fees would automatically be assessed for all unauthorized ACH debit return entries and would be distributed to the Receiving Depository Financial Institutions (RDFIs).

The ODFI and the Originator are both active participants in the origination of an ACH transaction. The Originator chooses to utilize the ACH Network for payments processing and the ODFI provides the channel through which ACH transactions enter the payments system. If the identity of the Receiver is not properly authenticated, or the entry is not validly authorized, unauthorized debits may be transmitted and the RDFIs bear the customer service and operational costs. Additionally, the ODFI warrants that all entries transmitted into the ACH Network have been properly authorized, and it assumes all responsibility and liability for each transaction it originates into the ACH Network. As such, NACHA is proposing to shift the financial responsibility for unauthorized ACH debit entries from the RDFI to the ODFI by charging fees to the ODFI for all unauthorized debit entries.

Network Return Entry Fees

This proposal would amend the NACHA Operating Rules to include Network Return Entry Fees (NREFs). The proposal would be part of the existing rules governing the National System of Fines. Some of our members strongly oppose the concept of charging fees to participants as a means of reducing risk and feel that charging fees to ODFIs for unauthorized ACH items would not be effective in reducing risk in the ACH Network.

NACHA is proposing to assess the NREF for every unauthorized ACH debit regardless of the Standard Entry Class (SEC) Code. Most of the fee would be transferred to the RDFI and the remainder would accrue to NACHA to cover its costs.

Through the services of a consulting firm, NACHA sampled twenty-two RDFIs to determine the costs associated with the return of unauthorized entries. Two factors would be considered when determining the amount of the NREF. The first would be the costs incurred by the RDFI for handling the unauthorized returns and the second would be the costs incurred by NACHA for administering the program and managing ACH Network risk. We believe that before proposal is implemented, a more comprehensive study with a much larger sampling size should be conducted to more accurately assess the fees associated with unauthorized entries for both the RDFI and NACHA. There is likely a variation in costs between different credit unions depending on the size of the credit unions’ processing business and the way in which it is run. A more comprehensive study on the costs to credit unions and other financial institutions would better assess the actual costs incurred by a wide range of financial institutions.

Return Entry Fee Panel

NACHA is proposing to establish a Return Entry Fee Panel (Panel) that would determine the dollar amount of the NREF. The Panel would be comprised of members representing different industry participants including two representatives each of large asset size financial institutions (greater than or equal to $10 billion) and small asset size financial institutions (less than $10 billion), one representative each of a regional payments association, and a public and private sector ACH Operator. Panel members would be nominated by the NACHA membership and approved by the NACHA Board of Directors. We support the composition of the panel and the method by which the panel is selected.

The panel would review the fees annually to determine if any adjustments were necessary. A vote in favor of any decision must be made by two-thirds or more of the panel members present for approval. NACHA’s Board of Directors would have the authority to veto a fee determined by the panel. We support the frequency of reviewing the fees but suggest a system be established for evaluating the fee structure and updating the fee.

Written Statement Under Penalties of Perjury

NACHA Operating Rules require an RDFI to warrant that it has obtained the consumer’s written statement under penalty of perjury prior to transmitting a return for an unauthorized entry. NACHA is seeking comment on a process developed to address an RDFI’s failure to obtain the consumer’s written statement. The process would require the ODFI to pay an administrative fee of $100 to NACHA to submit a claim that the RDFI failed to produce a copy of the written statement after a request by the ODFI. Once NACHA receives the ODFI’s claim and administrative fee, it would request a copy of the written statement from the RDFI. If the RDFI could not provide a copy of the written statement, the NREF would be deducted from the RDFI and the RDFI would be charged a $200 fee. The NREF and $100 administrative fee would be refunded to the ODFI. If the RDFI produces a copy of the written statement, there would be no refunds.

We support the practice of obtaining a consumer’s written statement prior to transmitting a return for an unauthorized entry. Consumers would carefully consider their assertion that an entry is unauthorized, and final liability for any subsequent authorization dispute would shift away from the RDFI to the ODFI, Originator, and Receiver who are the parties directly involved in the transaction. However, obtaining a written statement under penalties of perjury is a paper-based process that is time-consuming and is cumbersome in today’s electronic payments environment. We suggest developing an electronic process to obtain a written statement from the consumer that streamlines the process and offers alternatives to the RDFI when obtaining a written statement is not possible.

Additionally, an administrative fee that is much higher than the typical debit entry for which a written statement is requested is not cost effective to the ODFI and would discourage any claim submissions. The proposed process would not be effective because it would not encourage an RDFI to produce a consumer’s written statement when asked by the ODFI. The RDFI could simply produce the copy when requested by NACHA without penalty. This would also create an additional recordkeeping burden on the RDFI since the ODFI has up to one year after the settlement date of the entry to request a copy of the written statement. Once the request is made, the ODFI must wait 60 days before filing a claim with NACHA. This would require RDFIs to keep written statements for at least 14 months after settlement to ensure compliance with NACHA’s rule.


If NACHA is determined to adopt the proposed amendment, a more comprehensive study should first be conducted to more accurately assess the actual costs incurred by the RDFI and by NACHA to base the amount of the Network Return Entry Fee. 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.


Lilly Thomas
Assistant General Counsel