The League’s compliance department occasionally receives calls about payday lenders and certain other businesses continually resubmitting ACH debit entries that the credit union has previously returned unpaid. NACHA recently released an ACH operations bulletin (which you can find here) reminding us that there are limits to the number of times such debit entries may be resubmitted. The bulletin is definitely worth reviewing.
NACHA Rules allow returned ACH debit entries to be reinitiated (i.e., resubmitted for payment from the member’s account) only as follows:
- If the credit union returned the original debit entry because of NSF (return code R01) or uncollected funds (return code R09), then the originator and its financial institution (called the “Originating Depository Financial Institution” or “ODFI”) may reinitiate the entry up to 2 times;
- If the credit union returned the original debit entry because of a stop payment (return code R08), then the originator and its ODFI may not reinitiate the entry unless it was specifically reauthorized by the credit union’s member after the member placed the stop payment on the transaction. (The credit union is authorized to request a copy of the reauthorization from the ODFI);
- If the credit union returned the original debit entry because the member’s authorization was revoked (return code R07), then the originator and its ODFI are prohibited from reinitiating the debit entry, and they must instead get a completely new authorization to submit a completely new debit entry to the member’s account;
- If the credit union returned the original debit entry for any other reason, then the originator and its ODFI may reinitiate the entry if they fix the issue that caused the return.
Even if the originator and its ODFI are authorized to reinitiate an ACH debit entry, the NACHA Rules include a very specific deadline for doing so: No ACH debit entry may be reinitiated more than 180 days after the settlement date of the original debit entry.
The compliance department has also heard many tales about payday lenders and other businesses altering the information on a returned debit entry for purposes of disguising it and making it look like a new debit entry. The NACHA bulletin reminds us that just as it is a violation of the NACHA rules to reinitiate a returned debit entry when the rules prohibit it, it is also a violation of the NACHA rules to alter a previously returned entry to make it look like a new debit entry.
So what are the consequences for breaking the rules? The NACHA bulletin reminds us that all participants in the ACH network have agreed to comply with the NACHA rules, and if an ACH originator and its ODFI break the rules by reinitiating transactions too many times, or disguising transactions, they may be liable for any resulting losses to an affected credit union and its members. If a credit union or its member is injured by the violation of any NACHA rules, the credit union can proceed by consulting with its regional payments association for advice, consulting with the ODFI to resolve the matter (ODFIs are required under the NACHA rules to investigate apparently wrongful conduct of their originators), consulting with an attorney regarding legal action, and/or (within 90 days of the rules violation) submitting a complaint through NACHA’s formal rules enforcement process, which is known as the National System of Fines and which can be found on the web here: https://www.nacha.org/NSfines
One last point: Credit unions and their members should keep in mind that if a member legitimately owes money to the originator, then even if the originator is prohibited under the NACHA rules from reinitiating a returned item, the originator ultimately will still be able to collect from the member. It will just have to do so outside of the ACH network.