Reversals and Enforcement
The overarching purpose of these two Rules is to deter and prevent, to the extent possible, the improper use of reversals and the harm it can cause.
The two Rules will explicitly address improper uses of reversals, and improve enforcement capabilities for egregious violations of the Rules.
The Reversals rule will become effective June 30, 2021 and the Enforcement rule will be effective January 1, 2021.
This Rule will explicitly address improper uses of reversals. It will expand the permissible reasons for a reversal to include a “wrong date” error – 1) the reversal of a debit Entry that was for a date earlier than intended by the Originator, or 2) a credit Entry that was for a date later than intended by the Originator
The Rule will establish formatting requirements for reversals, beyond the current standardized use of the Company Entry Description field (“REVERSAL”)
The Company ID, SEC Code, and Amount fields of the reversal must be identical to the original entry
The contents of other fields may be modified only to the extent necessary to facilitate proper processing of the reversal
This is the same approach as the formatting requirements for Reinitiated Entries
In addition, the rules will explicitly permit an RDFI to return an improper Reversal
R11 for consumer accounts, 60-day return timeframe upon receiving a consumer claim
R17 for non-consumer accounts, 2-day return timeframe
An RDFI will be permitted to use R17 to return an improper Reversal that it identifies on its own (i.e., not based on a customer contact), 2-day return timeframe
This Rule will:
Define an Egregious Violation as
A willful or reckless action, and
Involves at least 500 Entries, or involves multiple Entries in the aggregate amount of at least $500K
Allow the ACH Rules Enforcement Panel to determine whether a violation is egregious, and to classify an Egregious Violation as a Class 2 or 3 Rules Violation
The sanction for a Class 3 violation can be up to $500,000 per occurrence and a directive to the ODFI to suspend the Originator or Third-Party Sender
Expressly authorize Nacha to report Class 3 Rules violations to the ACH Operators and industry regulators
The Reversals rule will become effective June 30, 2021 and the Enforcement rule will be effective January 2, 2021.
Originators, Third-Party Senders, and ODFIs have a clearer and more consistent understanding of when NOT to initiate reversals; in particular, with regard to the failure to fund an ACH credit file
The ability for RDFIs to return improper reversals will become more efficient. Recourse for improper reversals will be able to be handled through the ACH return process
ODFIs, Originators, and Third-Party Senders may want to review practices, policies, and controls regarding reversals. Nacha does not anticipate that systems or technology changes will be required
RDFIs that want to take advantage of the return process may need to establish policies and practices that facilitate the return of an improper reversal
Nacha will have the authority to better enforce the Rules for egregious violations
More significant enforcement will be available to be used in cases involving outlier violations
Lessens the risk to all ACH Network participants of experiencing egregious violations
Participating DFIs should be aware of the changes to Nacha’s enforcement capabilities and should consider updating and educating their customers on the changes to and potential impacts of the enforcement process
These two rules were originally proposed together in a Request For Comment in May 2020.
Industry response to this proposed change was extremely supportive
89% agreed that the proposal is appropriate to deter and prevent, to the extent possible, future instances of improper use of reversals
92% agreed with the improper uses of reversals as described
90% agreed with the proposed formatting requirements
81% agreed with the proposal to add a permissible use of reversals for when a payment is for a date not intended by the Originator
Industry response to this portion of the proposal was also very supportive.
In response to comments, the specific numerical thresholds have been modified
75% supported both the proposed definition of Egregious Violation, as well as the potential sanctions for an Egregious Violation as a Class 2 or 3 violation
In the first category, the number of impacted DFIs has been changed to the number of entries; and that number has been increased from 100 to 500 in order to better address outlier situations; several recent Excessive Harm (Class 2) cases have been for several hundred entries
In the second category, the aggregate dollar amount has been lowered from $1M to $500K; but the number of entries involved must be more than 1
Emphasis that classification and sanctions are not automatic – staff and the Enforcement Panel exercise professional judgment, just as with existing infraction classifications and sanctions