System of Return Entry Fees Could Create `Worst-Case Scenario' Pricing, NAFCU Tells NACHA
HERNDON, Va.-NAFCU told NACHA-the Electronic Payments Association-that it should explore alternatives to an across the board Network Return Entry Fee (NREF), such as fining originating institutions that routinely abuse the system. NACHA has issued a proposal to amend its operating rule to allow NREFs "in response to increasing costs for...
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HERNDON, Va.-NAFCU told NACHA-the Electronic Payments Association-that it should explore alternatives to an across the board Network Return Entry Fee (NREF), such as fining originating institutions that routinely abuse the system. NACHA has issued a proposal to amend its operating rule to allow NREFs “in response to increasing costs for managing risk in the ACH Network due to the rise in the number of unauthorized debit entries.” In a comment letter to NACHA, NAFCU President and CEO Fred Becker wrote, “NAFCU agrees with NACHA that the financial responsibility associated with an ACH debit that has not been authorized by the consumer should be borne by the originating financial institution (ODFI), rather than the receiving depository financial institution. Overall, NAFCU supports NACHA’s proposal. However, NAFCU has many concerns regarding the proposal.NAFCU encourages NACHA to consider other options to reduce the number of unauthorized return entries, such as an imposition of a fine for the ODFIs who routinely abuse the system and utilize a NREF as a last resort.” Under the proposal, the NREF would be automatically assessed for ODFIs for ACH debits returned as unauthorized under certain return reason codes. NACHA specifically asked if R51 (item is ineligible, notice not provided, signature not genuine, item altered, or amount of entry not accurately obtained from item) should be included. NAFCU reasoned that this code, in addition to R37 (source document presented for payment and R53 (item and ACH entry presented for payment), should be included. NAFCU agreed with the proposed composition of the Return Entry Fee Panel, made up of seven members from a range of financial service providers, and the annual review of fees. The estimated range of fees charged to an ODFI for an unauthorized debit would be between approximately $13 and $18. The RDFI would be compensated for quantifiable items like, reviewing consumer documentation and validation of date and amount of entry in dispute, among several factors. “NAFCU is concerned that the data gathered to determine the cost to the RDFI is both subjective and difficult to quantify. Furthermore, since the RDFIs who are submitting information relating to their costs associated with handling an unauthorized entry have an incentive to submit data that reflects the “worst-case scenario,” NAFCU is concerned that the amount of the fee may be too high,” Becker wrote. “Therefore NAFCU recommends that NACHA gather additional data from uninterested parties and proceed with caution before determining the amount of the fee to be assessed to the OFDI.” NACHA estimated that risk management efforts in this area this will tally nearly $3 million and NACHA believes the ODFIs should bear this cost because they warrant that the receiver has authorized the transactions. This cost would also be worked into the NREF. NAFCU also felt that uninterested parties should be consulted in data gathering to determine the fees. To collect these fees, the ACH operators could put together a monthly report for NACHA, which could then debit and credit the proper accounts based on the institution’s net position, or debits and credits could be performed separately. NAFCU supported the latter for clarity’s sake. Institutions, under the proposal, could appeal the assessment within five days of the settlement date of the entry, but NAFCU recommended extending that to 30 days. “NAFCU believes that the extended time frame will be necessary to give the DFI enough time to verify the amount of the settlement, determine if any accounting or mathematical errors have occurred, and contact NACHA, in writing, if there is a discrepancy.” Currently, NACHA requires an RDFI to state that it has obtained a written statement under penalty of perjury from the consumer before transmitting a return for unauthorized entry. NACHA asked whether the RDFI should advise the consumer to contact the originator prior to returning the debit. While NAFCU said this is “good practice,” it would be “overly burdensome and virtually unenforceable” if required. NACHA also asked if an automated system for submitting the request to an ODFI for a copy of the authorization and the ODFI to request the written statement under penalty of perjury from the RDFI would be helpful, which NAFCU supported. NAFCU also recommended modifications to the dispute resolution. According to NAFCU, NACHA’s June 17, 2005 implementation date provides credit unions “sufficient time” to update systems and operational procedures. -
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