CUNA Regulatory Comment Call
July 29, 2003
ACH Returns Issues
Invalid SEC Codes and Fraudulent Entries
- NACHA The Electronic Payments Association has issued a request for information regarding the current provisions of the NACHA Operating Rules (Rules) regarding the ability to return certain types of automated clearing house (ACH) entries, specifically those that the receiving depository institution (RDFI) believes contain a Standard Entry Class (SEC) Code that is not valid for that account type or that the RDFI believes may be fraudulent. NACHA is seeking information which may be used to formulate a proposal on this issue.
- The current provisions of the Rules permit an RDFI to transmit a return for any valid reason. A valid reason would be addressed by one of the current Return Reason Codes listed in Appendix Five of the Rules. For the majority of returns, the return entry must be received by the RDFI's ACH Operator by its deposit deadline for the return entry to be made available to the ODFI no later than opening of business on the second banking day following the Settlement Date of the original entry.
- Under the Rules, an RDFI may consider an entry containing an SEC Code specified in Appendix Two as complying with the requirements of the Rules for that type of entry. Sometimes RDFIs may receive entries that are not in compliance with the requirements of that particular SEC code. For example, an RDFI may receive an entry containing PPD (Prearranged Payment or Deposit Entry), TEL (Telephone-Initiated Entry) or WEB (Internet-initiated Entry) as the SEC code and the entry is destined to a corporate account, even though those SEC Codes are limited to consumer account usage only. Another example would be a CCD (Cash Concentration and Disbursement) or CTX (Corporate Trade Exchange) entry being sent to a consumer account. Both of these two SEC Codes are limited to corporate (i.e., non-consumer) accounts only. Incorrect use of SEC Codes can affect an RDFI's ability to return an entry.
- NACHA is seeking input regarding whether a return reason code should be created to allow an entry that contains an SEC Code that is not valid for that type of account to be returned solely for that reason. NACHA believes that this would only be used to return debit entries, as the majority of RDFIs would allow credit entries to post to accounts even if the SEC Code were invalid.
- There are occasions when an RDFI receives entries that it believes may be fraudulent. Under the current Rules, the RDFI either contacts its account-holder to determine if an entry is authorized or allows the entry to post and waits for the account-holder to review his statement. If the consumer indicates to the RDFI that an entry was not authorized, and the RDFI is still within the appropriate time frame, the RDFI will obtain a written statement under penalty of perjury from the consumer and return the entry in question as unauthorized.
- NACHA has discussed these occasions and is considering proposing the creation of a return reason code that the RDFI could use to return entries it believes are fraudulent. The RDFI may believe an entry to be fraudulent because of the dollar amount of the entry, an incorrect (or obviously fictitious) name on the entry, multiple entries from the same Originator to invalid accounts at the RDFI, or for other reasons.
- NACHA has concerns, however, about an RDFI determining the validity of an ACH entry to its account-holder's account without consulting with the account-holder. NACHA is seeking input from the industry of their views on this issue.
- Comments are due to NACHA by August 18, 2003. Comments may be sent to NACHA directly to the attention of Maribel Bondoc, Network Services Assistant, NACHA, 13665 Dulles Technology Drive, Suite 300, Herndon, VA 20171, fax: (703) 787-0996, e-mail: email@example.com. Please send your comments to CUNA by August 8, 2003. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at firstname.lastname@example.org or to Senior Regulatory Counsel Catherine Orr at email@example.com; or mail them to Mary and Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. If you would like a copy of proposal, please contact us or go to NACHAs website at http://www.nacha.org/ACH_Rules/Rule_Making_Process/Rules_Work_Groups/RFI_53/rfi_53.htm.
QUESTIONS REGARDING THE REQUEST FOR INFORMATION
- If the Rules were amended to create a return reason code for an SEC Code that is not valid for that type of
account and allow the RDFI to return the entry through the ACH Network, what would be the impact on payments that
the Receiver desires to be made but are incorrectly coded? (If the RDFI returns such a debit, it could adversely
impact the Receiver who had intended a debt to be paid.)
Please explain the impact.
- Would a return for an SEC Code that is not valid for that type of account require an extended return time period
and the written statement under penalty of perjury that is usually associated with the extended return time frame?
Yes ______ No ______
Please explain why or why not.
- If the Rules were amended to create a return reason code to allow an RDFI to return an entry it believes is
fraudulent, how could the RDFI determine that the account-holder did not intend for the ACH entry to happen?
If the RDFI returns a debit, could it adversely impact the Receiver who had intended a debt to be paid?
- Could there be legal repercussions from an RDFI making a judgment call on the legitimacy of an ACH entry?
- Other comments?
How could the RDFI determine an entry is fraudulent, rather than ascertaining from its customer simply that the entry was not authorized?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Associate General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Catherine Orr Senior Regulatory Counsel (202) 508-6743 email@example.com