CUNA Regulatory Comment Call


May 30, 2000

Price and Deadline Changes in Federal Reserve ACH Services

(MAJOR RULE)

EXECUTIVE SUMMARY

The Federal Reserve System (Board) requests comments on proposed changes modifying the Federal Reserve Banks’ (Reserve Banks) pricing practices and deposit deadlines for ACH transactions they exchange with ACH operators from the private sector. Comments are due by July 25, 2000. Please submit your comments to CUNA by June 16, 2000, by fax to CUNA at 202/371-8240 or e-mail to CUNA’s Assistant General Counsel Michelle Profit at mprofit@cuna.com. This notice was published in the Federal Register on May 26, 2000.

BRIEF BACKGROUND

The Reserve Banks collectively are the largest ACH operator. They process more than 80 percent of the commercial interbank ACH transactions as well as all ACH transactions initiated by the federal government. The remaining transactions are processed by private-sector ACH operators (PSOs) that typically provide services similar to those offered by the Reserve Banks. PSOs use the Reserve Banks’ ACH services for processing transactions in which either the originating depository financial institution (ODFI) or receiving depository financial institution (RDFI) is not their customer.

RULE

The Board has proposed the following modifications to its ACH pricing services and deadlines.

A.Deposit deadlines

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.

If the Reserve Banks’ preliminary recommendation for interoperator deposit deadlines were adopted, the Reserve Banks would require their customers to deposit next-day settlement items half an hour earlier than they do today. The recommended deposit deadlines would require no change in deposit times for Reserve Bank customers depositing immediate settlement items.

As a result, ACH operators, including the Reserve Banks, would need to establish their own deposit and delivery deadlines for their customers. PSOs should be able to offer their customers competitive deposit and delivery deadlines. Further, the PSOs could establish other deadlines by which they would exchange interoperator transactions among themselves.

B. Pricing structure for interoperator transactions

The Reserve Banks plan to maintain the current fee structure for their depository institution customers and do not anticipate any increases in fees resulting from this proposal.

The Board proposes a new three-tiered pricing structure for interoperator transactions, however, that are processed by the Reserve Banks. Under the proposed structure, the Reserve Banks would charge PSOs and their customers fees (1) to access the Reserve Banks’ ACH network, (2) to process interoperator transactions they receive from PSOs, and (3) to settle interoperator transactions for depository institutions that send and receive all their transactions through a PSO.

Specifically, the Board proposes the following fee structure based on preliminary cost analyses by the Reserve Banks. First, the Reserve Banks would charge the PSOs a monthly network access fee of between $5 and $10 for each routing number to which they send transactions on the Reserve Banks’ ACH network. Second, the Reserve Banks would charge PSOs a per-item fee of between $0.002 and $0.004 to process interoperator transactions sent to RDFIs on the Reserve Banks’ ACH network. And third, rather than the current monthly account servicing fee, the Reserve Banks would charge depository institutions that send and receive all their transactions through PSOs a monthly settlement fee per routing number (projected to be about $20) to settle interoperator transactions. The Reserve Banks would no longer provide customer service to depository institutions for transactions they send or receive through a PSO. These institutions would have to direct transaction and service-related inquiries to their PSOs. The Reserve Banks, however, would continue to provide customer service on settlement-related questions.

Another feature of the Board’s overall proposal is that the Reserve Banks would pay PSOs for commercial and government ACH transactions they deliver to RDFIs through PSOs. These fees would compensate the PSOs for the services they provide to Reserve Banks by delivering transactions to RDFIs on their networks. An unresolved issue is how the fees that PSOs charge Reserve Banks could be restrained.

C. Eligibility

The Board proposes that the deadline and price structure modifications be limited to any intermediary that is defined as an operator under NACHA rules. According to the Board, the primary distinction between ACH operators and other intermediaries is that operators provide clearing, delivery, and settlement services for intraoperator transactions and exchange interoperator transactions with other operators. Third-party processors typically do not provide settlement services for transactions they process while correspondent banks typically do not provide the comprehensive clearing and delivery services provided by operators. Thus, the Reserve Banks tend to compete with PSOs, and not third-party processors or correspondent banks, in providing services to depository institutions. Further, because NACHA’s operator definition does not preclude other entities from becoming new operators, it is possible that some of the larger correspondents or third- party processors might become operators to compete with the established operators.

QUESTIONS REGARDING THE CURRENT SYSTEM

  1. The Board requests comment on whether the proposed modifications enhance competition in the marketplace? Why or why not?














  2. The Board requests comments on how the interoperator fees that ACH operators charge might be restrained to encourage the continued growth of the ACH network. First, the Board considered limiting the interoperator fees Reserve Banks would pay to PSOs to the PSOs’ published fees. In practice, however, because a PSO’s published customer fee structure may be different from its interoperator fee structure and because not all operators publish fees or charge all of their customers their published fees, it would be difficult to verify whether the interoperator fees charged by an operator are reasonable. Second, the Board considered allowing the Reserve Banks to pay PSOs the same fees they charge PSOs. This mechanism, while creating parity, would require PSOs to adopt the Reserve Banks’ pricing structure, which may not be reflective of the PSOs’ cost structures. The Board believes that maintaining low, cost-based interoperator fees would enhance the continued growth of the ACH network. Do you think that the Board should use either the first or second option to restrain interoperator fees? If so, which one should the Board use and why? What could CUNA argue to overcome the Board’s objections? Is there another alternative the Board could use to restrain fees. Please explain.

















  3. Does your credit union use the ACH services of the Reserve Banks or the PSOs?














  4. Would credit unions be negatively affected by the proposed requirement that the ACH customers for Reserve Banks be required to submit next-day settlement items half an hour earlier than they do today? Why or why not?

















  5. What would be the affect of the proposed price changes, good or bad, on your credit union?

















  6. Should the Reserve Banks pay PSOs for transactions they send to depository institutions through those PSOs?

















  7. Should the Reserve Banks charge ACH operators a monthly network access fee for each routing number and per-item fees for transactions they send through the network? Should the Reserve Banks charge depository institutions that send and receive all their transactions though PSOs a monthly settlement fee rather than the current monthly account-servicing fee?

















  8. Should CUNA support this proposal in its entirety or only specific aspects? Please explain. Please provide any additional comments you may have.














Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com