Risks of Early Funds Availability
Nacha requests comments and feedbacks (Request for Information) on whether a Rules proposal should be developed to adjust the allocation of risk when RDFIs make funds from ACH credits available early, before the settlement date of the ACH credit.
A Request for Information is not a proposal to amend the Nacha Rules. In this case, the purposes of the RFI are to raise awareness of the issue and its risks, and to start industry thinking and dialogue on whether a Rules proposal should be considered or pursued. Nacha requests that industry stakeholders provide comments and perspectives on the topic, its scope, and the potential benefits and impacts of various options.
Should the Nacha Rules support the ability or provide an opportunity for an ODFI to recover funds in limited circumstances when an RDFI has made funds available prior to the settlement date?
Current Rules and Risk Environment
Currently, the Nacha Rules provide that Originators and ODFIs have no right to recall, require a return, or to stop the payment or posting, once an ACH credit entry has been sent to an ACH Operator.
The Rules, however, give an Originator the ability to specify the date on which it intends settlement to occur – the Effective Entry Date
RDFIs have deadlines under the Rules to make funds from ACH credits available to Receivers
- While these deadlines are closely tied to the settlement date and time, they occur after settlement
- The existing Rules do not prohibit an RDFI from making funds available earlier than a given deadline
Anecdotally, some RDFIs make funds from ACH credits available prior to the settlement date
- By definition, this is earlier than the date intended by the Originator
- When an RDFI makes funds available early, it is advancing its own funds to its accountholders, and then recovers the amounts at settlement
Historically, some RDFIs – especially smaller institutions – have done this due to the lack of the capability to internally warehouse (i.e., store) ACH credits until the settlement date
More recently, other RDFIs have implemented early availability as a benefit for their consumer and business account holders (the Receivers)
For example, an employee’s payday is Friday, but the RDFI makes funds available to the employee on Thursday
Other examples include
- A small business receives early access to funds for an invoice payment
- A beneficiary receives access to Social Security benefits before the official payment date
Some RDFIs likely view this practice as a benefit for their account holders that has little or no risk of the ACH credit not being settled
While providing access to funds prior to settlement is a benefit for Receivers, it also can create or increase several risks:
- The risk of a loss by the ODFI (or its Originator) when an ACH credit was initiated erroneously, or fraudulently, and less time is available to attempt to recover the funds
- The risk of a loss by the RDFI in the event that the scheduled settlement does not occur
RDFI does not receive settlement for the ACH credit, and cannot recover funds from the account holder
Should the Rules support the ability or provide an opportunity for an ODFI to recover funds in limited scenarios when an RDFI has made funds available prior to settlement?
Potential approaches could include a spectrum from “do nothing” to “prohibit early availability.” Other potential approaches to reallocating risk, and/or providing a mechanism for recovery, could include:
- Prohibiting an RDFI from returning a reversal for insufficient funds (R01 or R09) if both the original ACH credit and the reversal are received before the settlement date
- Making the RDFI liable to the ODFI for the amount of an ACH credit, if it made funds available prior to settlement, and the ODFI shows it could have corrected an error or recovered the amount of the credit
Under risk reallocation, an RDFI would not be prohibited from making funds available early; but it could introduce a risk management component into a decision to make funds available early
Anticipated Benefits of Risk Reallocation
- Address a specific pain point for ACH Originators, and help keep ACH credits as an attractive payment option (e.g., a company has better success at correcting payroll errors)
- Provide a way for an Originator/ODFI to recover funds from an error or fraud prior to settlement
- Certain approaches might better balance risk between ODFI and RDFI
Potential Impacts of Risk Reallocation
- Solutions could be difficult to implement or administer (i.e., the solution is worse than problem)
- Certain approaches could be viewed as anti-consumer if some RDFIs change early availability practices
- Certain approaches might shift risk away from ODFI and Originators who were responsible for the underlying error