CUNA Regulatory Comment Call


December 4, 2002

New Warranties on Return Rates for Telephone ACH Entries

(NOT A MAJOR RULE)

EXECUTIVE SUMMARY

NACHA-The Electronic Payments Association has issued a request for comments on a proposal that would require originating depository financial institutions to measure return rates for ACH entries conducted over the telephone (TEL entries) and take action for high rates of unauthorized TEL entries. Comments on the proposal are due by December 20, 2002. The NACHA proposal would:

Please send your comments to CUNA by December 17, 2002. The time to respond is so short because NACHA wants to act quickly on this problem. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Assistant General Counsel Michelle Profit at mprofit@cuna.com; or mail them to Michelle c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, D.C. 20004.

In addition, CUNA recommends that all credit unions respond directly to NACHA because NACHA tabulates results to its surveys. If you would like to respond directly to NACHA and copy CUNA you may do so by using the NACHA survey form at please click here. Comments sent directly to NACHA should be sent to William Colbert, Network Services Manager, NACHA, 13665 Dulles Technology Drive, Suite 300, Herndon, VA 20171, fax: (703) 787-0996 or email: wcolbert@nacha.org, no later than Friday, December 20, 2002. Please provide CUNA a copy by sending your comments to Michelle Profit at mprofit@cuna.com.

BACKGROUND

A merchant that obtains the consumer’s authorization verbally using the telephone initiates a TEL entry. A TEL entry may be transmitted only in circumstances in which (2) there is an existing relationship between the merchant and the consumer, or (2) there is not a n existing relationship between the merchant and the consumer, but the consumer has initiated the telephone call to the merchant.

NACHA proposed this modification to that ACH application because of complaints regarding the disproportionately high TEL return rates. According to NACHA, complaints came from several sources including the Federal Trade Commission (FTC), the Federal Bureau of Investigation (FBI), and Postal Inspectors. According to NACHA, these high rates seem to be caused by a few merchants, with incredibly high rates of return.

NACHA proposes modifying the rules to address the problem. Under the new rule:

4QUESTIONS REGARDING THE PROPOSAL

  1. Does your organization support this proposal? Why or why not?













  2. Does you organization agree with the proposal to add an ODFI warranty that the ODFI will monitor the unauthorized return rates for TEL entries for their merchants?













  3. The proposal recommends 2.5 percent as the threshold for an ODFI to cease originating for any merchant that has an unauthorized return rate higher than the threshold? Does your organization agree with this threshold? If not, what other threshold would you agree with? The threshold is the same as a similar threshold used by VISA and MasterCard and it is nearly double the average return rate of TEL, which 1.34 percent.













  4. The proposal requires that an ODFI report any merchant exceeding the threshold to NACHA within 10 business days of determining that the unauthorized return rate has exceeded the threshold. Does your organization agree with the reporting requirement? Why or why not?













  5. The proposal requires the ODFI to identify the merchant, any third parties, the type of business to which the TEL entries relate, contact information of the merchant and any third parties, and the return rate. Does your organization agree that the ODFI should report that specific information? Should the ODFI be required to report on more or fewer items?













  6. The proposal includes that non-reporting of the required information would be considered willful disregard of the NACHA Operating rules and would be subject to the National System of Fines. Does your organization agree with this proposal? If yes, why? If not, is the punishment too harsh? Should the fine be for a 1st, 2d, or 3d offense? The fine for a first violation is $250; for a second recurring violation $750; for a third recurrence of the violation $1,500; and for continuous, willful disregard of the rules $10,000 per month until the problem is resolved.













  7. Would this proposal result in costs or benefits to your organization? Please explain.













    Please submit your address and phone number.







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