Under changes to the National System of Fines that went into effect on Dec. 21, the defined threshold for entries returned as unauthorized (R05, R07, R10 and R29) will be 1 percent within a 60-day period. Violations could result in multiple fines or termination.
New ODFI reporting requirements will become effective March 21.
Lee Falls, CEO of Internet payment processing provider Electracash, said the fines for failing to meet certain thresholds could be as high as $500,000 per month. If implemented, he said, it could force banks to stop providing ACH origination services because of the monetary risk.
"This consequently could force many third-party processors and thousands of merchants who depend upon this service out of business," he told AVN Online. "At the very least, it could potentially cause a significant loss of business. Many consumers will also be denied a way to pay for goods and services via the Internet."
According to a news release, the implementation of the Network Enforcement Rule, the first rule change under NACHA's comprehensive risk-management strategy, is projected to give NACHA and the ACH Rules Enforcement Panel greater ability to enforce NACHA's operating rules.
"The ACH network is a safe, high-quality payments system that has operated for close to 35 years," said Roy DeCicco, senior vice president of JPMorgan Chase and chairman of NACHA's Risk Management Advisory Group. "NACHA, its members and the ACH operators consider implementing a comprehensive risk strategy a high industry priority. The approval of the Network Enforcement Rule is a key component to ensuring the ACH network continues to provide high-quality, cost-effective payment options for financial institutions, businesses and consumers."
The rule modifies the structure of the National System of Fines and increases the amounts of the fines that may be levied by the ACH Rules Enforcement Panel. It also permits the ACH Rules Enforcement Panel to direct an ODFI to suspend an originator or third-party sender, and creates a new rule-compliance tool based primarily on return rate for unauthorized reasons transaction reports.
"As we have overcome the hurdles of reducing charge-backs to a 1 percent level for credit cards, the industry will be able to do the same for ACH transactions," Netbilling owner Mitch Farber owner told AVN Online. "Providing quality products [and] services, as well as giving the customer an easy way to cancel and inquire about transactions, will help reduce charge-backs.
"Unfortunately, there is no real-time authorization with ACH as there is with credit cards, so it is even more difficult. However, many companies in the industry that process ACH who provide good scrubbing and excellent customer service will be able to stay within the new guidelines and keep our merchants profitable."
Falls said he thinks NACHA is arbitrary in its processes and rule making and has a hidden agenda that discriminates against third-party processors and merchants that originate ACH transactions.
"NACHA puts pressure on banks by pressuring bank regulators into examining banks that have, in NACHA's opinion, high return rates on ACH items that they originate," he said. "Most of these banks are small banks who do not think the regulatory pressure is worth the business. They are literally scared to death. This has severely limited the banks that will originate for processors and certain large merchants.
"Larger banks tend to regard processors as competitors, and we believe these larger banks are part of NACHA's agenda, using the return thresholds as a way to limit competition and/or force transactions to more profitable credit cards. However, given the current credit crunch and unavailability of credit lines for certain consumers, many consumers will be blocked out of the system entirely."
Falls predicted that transaction volume will go down and costs will go up.
"In certain instances, adult merchants will be blocked from participating in the ACH network altogether," he said. Electracash is doing everything it can to mitigate the impact, but there will be tough choices to make."
According to Steve Ellis, executive vice president of Wells Fargo and chairman of the NACHA board of directors, quality improvements and comprehensive risk reduction can be accomplished through the series of prudent changes to the rules that have been identified by the industry.
"Participants in the ACH network should consider this rule change as one component in the broader context of the whole strategy," he said.
NACHA, led by member depository financial institutions and payments associations, manages the development, administration and governance of the ACH network.