Reversals and Enforcement
Nacha requests comment on a set of proposals that is intended to deter and prevent, to the extent possible, the improper use of reversals and the harm it can cause to consumers, RDFIs, and to the reputation of the ACH Network; and to improve Nacha’s ability to enforce the Rules in instances of egregious violations.
Although the Rules already define only a limited number of permissible reasons for Reversals, this proposal would further specifically state that the initiation of Reversing Entries or Files for any reason other than those explicitly permissible under the Rules is prohibited.
It would also explicitly define within the Rules non-exclusive examples of circumstances in which the origination of reversals is improper:
- The initiation of Reversing Entries or Files because an Originator or Third-Party Sender failed to provide funding for the original Entry or File
- The initiation of a Reversing Entry or File beyond the time period permitted by the Rules
This proposal would provide Nacha with the authority to take enforcement action with respect to an Egregious Violation of the Nacha Operating Rules. It would define an Egregious Violation as a willful or reckless action that impacts at least 100 Participating DFIs, or affects Entries in the aggregate amount of at least $1 Million.
The proposed change would also allow the ACH Rules Enforcement Panel to classify Egregious Violations as a Class 2 or 3 Rules Violation. (The maximum sanction for a Class 3 violation is $500,000 per occurrence and a directive to the ODFI to suspend the Originator or Third-Party Sender). In addition, it would expressly authorize Nacha to report Class 3 Rules violations to the ACH Operators and industry regulators.
This proposal would establish formatting requirements for reversals, beyond the current standardized use of the Company Entry Description field (“REVERSAL”) using the same approach as the formatting requirements for Reinitiated Entries.
- The Company Name, Company ID, SEC Code, and Amount fields of the reversal must be identical to the original entry.
- The contents of other fields should be modified only to the extent necessary to facilitate proper processing of the reversal.
Although proper reversals do not need to be authorized by the Receiver, the proposal would explicitly permit an RDFI to return an improper Reversal. The appropriate Return Reason Codes would be R11 for improper reversal to a consumer account, and R29 for improper reversal to a non-consumer account.
Separately, Nacha proposes to expand the list of permissible reasons for a reversal to include the reversal of an entry that orders payment on a date different than intended by the Originator.
Originators, Third-Party Senders, and ODFIs should have a clear and 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.
Nacha will have the authority to better enforce the Rules for egregious violations
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 would 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
For many ACH participants, the proposal primarily addresses what should be existing practices. Nacha does not anticipate any required systems or technology impacts. Therefore, Nacha proposes a relatively short implementation period to accommodate industry communication and education.
The proposal changes impact only Nacha’s internal Rules enforcement process and practices. Therefore, Nacha proposes that the rule should become effective shortly after the anticipated ballot period, allowing some time for industry communication and education.
Proposed effective date for both proposals – January 1, 2021