CUNA Regulatory Comment Call

February 23, 2000

Rule To Use ACH for Securities Transactions



NACHA - The Electronic Payments Association requests comments on a rule that allows consumers to purchase securities and commodities with an ACH debit. These types of purchases would be designated by a newly credited standard entry class code (SCT). They would not be subject to regulation E, but would fall under Securities Exchange Commission (SEC) rules. If passed, this rule amendment would be effective on September 2001.

Under this rule the following provisions would apply:

Credit unions may help CUNA prepare comments, which are due by March 15, 2001. Please submit your comments to CUNA by March 8, 2001. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at or to Assistant General Counsel Michelle Profit at or mail them to Mary Dunn or Michelle Profit in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, DC 20005.

Credit unions may also respond directly to NACHA by completing NACHA's survey on the proposed rule as well. Click for a copy of that survey. This survey and other credit union comments can be submitted directly to NACHA c/o William Colbert, Network Services Associate, NACHA, 13665 Dulles Technology Drive, Suite 300, Herndon, VA 20171, faxed to (703) 787-0996, or sent via e-mail to


Currently, a securities or commodities broker may debit a consumer's account for the purchase of securities or commodities through the origination of a PPD debit entry. When a consumer uses this format, they are protected under the existing NACHA Operating Rules. Those rules require that consumers receive a prompt recredit if the debit entry was unauthorized and the consumers provide a written affidavit verifying that the debit was unauthorized. Because this debit entry is for the purchase of securities or commodities, the transactions is not covered under Regulation E, but it is regulated by the Securities Exchange Commission or the Commodities Futures Trading Commission.

Because the value of the securities may fall after purchase, the securities industry is concerned about the long return time frame allowed under NACHA's Operating Rules.

In 1992, the securities industry attempted to address this concern by changing NACHA's Operating Rules. A rule was proposed that would have excluded securities transactions from the automatic right to recredit and the 60-day extended return deadline for unauthorized ACH entries. Under this rule, a financial institution would not have been permitted to immediately recredit the consumer, when the consumer claimed that the account debit was unauthorized. Instead, the receiving depository financial institution (RDFI) would have been required to request from the originating depository financial institution (ODFI) a copy of the consumer's written authorization for the debit. If the requested authorization were not provided, then the RDFI would have been permitted to return the entry. If the authorization was provided, then the RDFI could not have recredited the account, but would have to direct the consumer to the broker for dispute resolution. This rule did not pass because of concerns regarding (1) an increase in the operational burden placed upon RDFIs to verify proof of authorization and (2) the placement of the RDFI into a dispute involving a broker and a member.


The securities industry has asked NACHA to change its rules to reduce the ability of securities purchasers to fraudulently use the recredit and extended return deadlines in the ACH system.

This proposed rule requires the establishment of unique procedures for both ODFIs and RDFIs. The ODFI would have to establish with each merchant a process that would allow the ODFI to respond to requests from RDFIs for the consumer's authorization of the debit. The ODFI would be required to respond to RDFI requests for this authorization within four days. The ODFI would have to make a warranty that the underlying transaction was not subject to the Electronic Fund Transfer Act or Regulation E. On the other side, an RDFI would not be permitted to automatically recredit the consumer's account and return an SCT entry. A RDFI would first have to initiate an authorization verification process, whereby the RDFI would contact the ODFI to request verification of the consumer's authorization for the payment. The ODFI would have to respond within four business days of the RDFI's inquiry concerning the entry by providing a copy of the consumer's authorization.

A RDFI would recredit a member if, (1) the members sends or delivers to the RDFI a written affidavit as required by the NACHA Operating Rules, (2) the affidavit is sent or delivered to the RDFI within 15 calendar days from the date the RDFI sends or makes available to the member information relating to the purchase, and (3) the RDFI does not receive within four business days of its request to the ODFI a copy of the member's authorization or confirmation from the ODFI that the transactions was authorized. Once the confirmation of authorization is sent, RDFI's would not be permitted by the NACHA Operating Rules to recredit the member and return the debit entry.

These rules appear to add more liability to the RDFI in several instances. For example, if an RDFI did recredit its customer before the verification process was complete, then the RDFI would be liable for any losses if the ODFI later provides verification. Moreover, if the RDFI chooses to accept a member affidavit near the end of the 60-day deadline for returns, the response to the ODFI may come after the deadline for returns as elapsed. In that case, again, the RDFI would be unable to return the debit. And, the RDFI would be liable for any recredit that it mistakenly conducted in violation of this rule. For instance, if a RDFI did not obtain an affidavit then the RDFI may be held liable.

The unique procedures required by the SCT rule also require special handling by credit union personnel. This rule requires RDFIs to engage in a manual exception process to verify and confirm authorization. Also, the rule restricts the ability of RDFIs to resolve customer services issues for their members, by prohibiting them from using an automatic recredit in certain instances. In those cases where the credit union could not give a recredit, it would have to direct the member to address any subsequent dispute over an SCT directly with the broker under SEC rules. According to NACHA, this proposal would also benefit RDFIs, by allowing them to retain member funds that would be transferred to a brokerage account for future trading.

The SCT rule would require ODFIs and RDFIs to modify their software to recognize the new SCT debit. Under the proposed deadline for implementation, credit unions would have to modify their software within eight months.


  1. Should CUNA support or oppose the proposed rule overall? Please explain.

  2. Should CUNA support the provision in the proposed rule that eliminates the automatic recredit requirement for consumers under the NACHA Operating Rules?

  3. Should CUNA support the adoption of a prequalification procedure that requires RDFIs to confirm verification and rely on that verification in accepting or rejecting recredit requests from consumers? Would credit unions be able to contact ODFIs? Is this prequalification procedure burdensome? Please explain.

  4. Is four days for the verification process the appropriate amount of time? Should it be longer or shorter? Please explain.

  5. The rule makes RDFIs liable in the following instances: if they mistakenly make a recredit during prequalification; if they recredit a member who the ODFI can confirm authorized the transaction; or if confirmation arrives after the return deadline. Do you support these liability provisions? Please explain

  6. Should CUNA support the additional warranty that ODFIs must make that a securities transaction is correctly labeled and not a transaction subject to Regulation E? Please Explain.

  7. Should CUNA support the current process that consumers use to purchase securities in the ACH network? Currently, a debit to purchase securities is designated a PPD entry and treated like any other PPD debit (i.e., the automatic recredit and extended return time frame apply).

  8. Should CUNA support the addition of a distinct Standard Entry Class (SCT) Code for securities purchases, as a stand alone provision, with no other changes to the rules?

  9. Do you have any other comments?

Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 •
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •