About


Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

Take On Payments

« Let’s Talk Token: Authenticating Payments | Main | Let's Talk Token, Part II: Distinguishing Attributes »

September 22, 2014


New ACH Return Rate Threshold on the Horizon

In a December 2013 post, we asked the question, Is it the right time for lower ACH return rate thresholds? We can now say that the answer is "Yes." The voting membership of NACHA-The Electronic Payments Association recently approved a NACHA Operating Rule amendment that will reduce the unauthorized debit return rate threshold.

The process of returning payment transactions is a pain point for the receiving financial institutions that incur the costs of exception processing, which includes handling customer service inquiries and the returns. Unauthorized transactions are also a pain point for customers who have experienced such postings to their accounts. For the financial institution originating transactions on behalf of businesses and third-party customers, ongoing and proactive monitoring of return rates can help them quickly identify potential problems and determine if those problems have been addressed.

The NACHA Operating Rule amendment will reduce the threshold for returns of unauthorized debit entries from 1 percent to 0.5 percent, effective September 18, 2015. An originating depository financial institution will be subject to possible reporting and fines if they have an originator or third-party sender whose return rate for unauthorized debits exceeds the current threshold.

As NACHA states in its information on the new rule, this 0.5 percent threshold is more than 16 times higher than the average network return rate of 0.03 percent for unauthorized debit entries in 2013. This new threshold will continue to emphasize the importance of institutions focusing on high return rates and working with their customers to bring any excessive rates down. The amendment also establishes a review process for when returns for "administrative" or "overall return" reasons exceed certain levels. For administrative returns, this will be 3 percent, and for overall returns, it will be 15 percent. Administrative returns include debits returned for reasons such as closed account, invalid account number structure, or the account number not corresponding to an existing account. Overall returns for ACH debits include unauthorized and administrative reasons, as well as others such as insufficient funds and stop payments.

Unlike the unauthorized return threshold, breaching return rate levels for administrative and overall return reasons will not result in an automatic requirement to reduce the return rate or undergo a rules enforcement proceeding. Instead, exceeding these return rates will lead to a process to determine if the origination practices of a given originator or third-party sender need to be modified to achieve lower exception levels.

The timeframe for implementing this rule allows originating financial institutions to look carefully at their current return monitoring processes and determine whether customers are near these return rates and to put into place practices that would address problem areas. Will this new rule affect your due diligence processes? Does your current monitoring already show that your customers' return rates are lower than the new thresholds?

Photo of Deborah ShawBy Deborah Shaw, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

September 22, 2014 in ACH , debit cards , regulations | Permalink

TrackBack

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a01053688c61a970c01b7c6dede57970b

Listed below are links to blogs that reference New ACH Return Rate Threshold on the Horizon :

Comments

What is the current NACHA guideline "threshold of returns for insufficient funds", the percentage?

Posted by: Bob Lewis | March 11, 2015 at 01:58 PM

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in

Google Search



Recent Posts


Archives


Categories


Powered by TypePad