Fed’s Same-Day ACH Rule Draws Criticism
The Federal Reserve Board put its stamp of approval on same-day ACH Wednesday, but not without objections from members of the credit union industry.
A review of letters sent to the Fed during the public comment period highlights two of the most controversial parts of the new rules: The requirement that receiving depository institutions accept same-day ACH transactions, and the cost of those transactions.
Paul Guttormsson, the director of compliance services and regulatory counsel for the Wisconsin Credit Union League, said mandatory participation will strain the already thin ranks of small credit unions.
“Wisconsin credit unions – as small institutions – would incur greater expenses from this proposal than larger ACH participants would incur,” Guttormsson wrote in a letter to the Federal Reserve. “As of March 2015, Wisconsin’s 159 credit unions had a median asset size of just $32 million. At that size, a credit union is likely to have only about 10 employees in total (full- and part-time). Yet those employees are expected to handle not only ACH processing, but to provide all of the credit union’s other member services.”
Guttormsson and Cherie Monson, who is general counsel and vice president of legal services at Eastman Credit Union, also said credit unions should have the choice to opt into sending and receiving same-day ACH. The $3.2 billion Eastman Credit Union is headquartered in Kingsport, Tenn. and has 161,000 members.
“Since the inception of the FedACH SameDay Service in 2010, RDFI participation has been optional,” Monson wrote. “According to the Board, fewer than 100 depository institutions use the service. ECU believes lack of participation is ultimately due to an industry-wide belief that the benefit of such service is outweighed by the increased operational and financial costs required to process same-day transactions.”
Not everyone had a problem with mandatory participation, however.
“If Same Day ACH was optional, and should largest financial institutions be the only participants utilizing Same Day ACH, smaller institutions such as PCFCU would see a significant impact to the ability to service our members,” James Morrell, president/CEO of Peninsula Community FCU in Shelton, Wash., wrote. “The relative impact on rural communities such as those we serve would be even greater.” Peninsula FCU has $158 million in assets and 18,000 members.
Commenters also spoke out about the $0.052 interbank fee per transaction for originating depository institutions.
Guttormsson said with that rate, which is about 37% lower than what the Fed originally proposed, it will take close to 16 years for financial institutions to recover their costs of implementing same-day ACH.
“That is hardly an acceptable return on investment for any credit union,” he added.
The Missouri Credit Union Association, the Indiana Credit Union League and the Georgia Credit Union Affiliates expressed similar concerns.
Even Navy Federal, the nation’s largest credit union at $70 billion in assets and with 5.7 million members, appeared skeptical.
In its letter to the Federal Reserve, President/CEO Cutler Dawson said, “Navy Federal is among the largest ACH receivers by volume in the U.S.; however, even at our volume, the (same-day ACH) volumes projected by NACHA are likely to be insufficient to generate income to cover our one-time and ongoing expenses.”
Some have all but written the costs off.
“RDFIs will likely never fully recover their initial expenses,” AlaskaUSA Federal Credit Union’s vice president of electronic services, Joel Swanson, wrote. “It is more likely that existing technological changes already in progress will result in other (non-ACH) interconnected networks providing immediate, good-funds based financial transactions in the near term (far less than 15 years).” His credit union has $5.9 billion in assets and 543,000 members.
“To fully understand what can occur in 15 years, one only need remember that just 10 years ago none of the following technologies existed: Smartphones, tablets, NFC mobile payments, Low-Energy Bluetooth, EMV, P2P payments, QR codes, Apple Pay and so on,” he said.
The new rules will begin to take effect almost exactly one year from now.