Members Reject NACHA’s Return-Fee Proposal, But NACHA Still Backs Idea

A proposal to impose an estimated $17 per-transaction fee on banks that enter automated clearing house transactions on behalf of payees for items returned as unauthorized has been rejected by the membership of NACHA, the Herndon, Va.-based rules-setting body for the ACH. According to a notice NACHA sent to its membership yesterday, more than 57% of members voting approved the new fee, falling short of the 67% approval NACHA rules require for such a proposal to take effect. “There is a substantial amount of support in the banking industry for network return entry fees,” says a NACHA spokesman in an e-mail sent in response to inquiries from Digital Transactions News. “The NACHA board remains committed to the original goals of NREFs: improving the quality of the ACH network and compensating financial institutions for the costs they incur due to unauthorized debits. Over the next week, NACHA will be working with its board and members to determine a course for advancing this important initiative.” Indeed, some observers point out that the members' rejection of the current NREF proposal, which has stirred considerable controversy in the ACH community (Digital Transactions News, Oct. 8, 2004), doesn't mean the idea is dead. “You'll see [a proposal like] this again within a few months,” says Larry De Palma, principal of The De Palma Group Inc. a payments consultancy based in Hudson, N.H. NACHA The NREF proposal would have required banks that originate ACH debits for client retailers and other businesses to compensate consumers' banks?the so-called receiving banks?each time they send through a transaction that must be returned because the consumer didn't authorize it. The charges, officially known as network return entry fees, would be triggered automatically and would be tied to actual costs incurred by receiving banks in handling returns and in customer service. A study conducted last year by NACHA indicated receiving banks incur costs ranging, on average, from $12 to $17 per return. Had the proposal become effective, an independent panel would have set the fee based on its best estimate of actual costs borne by receiving banks. Because ACH volume is growing, unauthorized debits as a percentage of total volume are declining, but the sheer volume of such returns is increasing. NACHA said last fall the volume of unauthorized debits had increased 68.5% over the past three years, though such returns as a percentage of volume has dwindled to 0.07%. In addition to compensating receiving banks, the new fees were intended to provide originating banks with an added incentive to make sure debits are authorized according to ACH rules. Under NACHA rules, originating banks must issue a legally binding warranty that all payments are authorized. The fees would have applied, for example, in cases where returns are triggered by transactions entered in the wrong amount, settled on the wrong date, originated after a consumer has revoked an ACH debit authorization, or entered as a result of fraud. The fee would not have applied to items returned because of invalid account numbers. Industry observers say the proposal is controversial because it would introduce a new cost for originating banks at a time when the ACH is enjoying increasing volumes and is attracting favorable attention from merchants weary of the rising cost of credit and debit card acceptance. They add the fact that the fees would be automatic also troubles some institutions. While all banks are receivers, some originate large volumes of transactions and would presumably have shouldered the largest share of the new fees.