regulation e vs. the nacha operating rules
TRANSCRIPT
Regulation E vs. The NACHA Operating Rules
Presented by Michele Barlow, AAP NCP Vice President
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Presented by: PAR/WACHA-The Premier Payments Resource
Michele Barlow, AAP, NCP Vice President
262-345-1245 or 800-453-1843 www.wacha.org
[email protected] 2017
� WACHA, through its Direct Membership in NACHA, is a specially recognized and licensed provider of ACH education, publications and support. � Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. � NACHA owns the copyright for the NACHA Operating Rules & Guidelines. � The Accredited ACH Professional (AAP) is a service mark of NACHA. � This material is derived from collaborative work product developed by NACHA ─ The Electronic Payments Association and its member Regional Payments Associations, and is not intended to provide any warranties or legal advice, and is intended for educational purposes only. � This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only. � This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information contained herein. � No part of this material may be used without the prior written permission of WACHA/PAR © 2017 PAR/WACHA All rights reserved
Disclaimer
� Coverage � Electronic Check conversion � Service Fees � Statement Requirements � Unauthorized and Error Resolution � Stop Payments � Change in amount
Agenda
� National Automated Clearing House Association � Governs the exchange and settlement of electronic fund transfers through ACH
� NACHA Operating Rules only apply to transactions sent to or received from one or more ACH Operators
NACHA Rules
� Implements the requirements of the Electronic Fund Transfer Act (EFTA) of 1978
� The Board of Governors of the Federal Reserve System issued Regulation E � (12 CFR 205)
� Now under Consumer Financial Protection Bureau (CFPB)
� http://www.consumerfinance.gov/eregulations/1005-3/2013-19503#1005-3-c-6-ii
The Regulation
� Carry out the goals of the Electronic Fund Transfer Act � Sets forth the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services and the financial institutions that offer such services.
� Consumer protection when engaging in electronic fund transfers
Regulation E - Purpose
� General (Subpart A) � Applies to any EFT that authorizes a FI to debit or credit a consumer’s account
� EFT defined � The term EFT means any transfer of funds that is initiated through an electronic terminal, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing an FI to debit or credit a consumer’s account
� ACH (PPD, ARC, BOC, POP, TEL, WEB) � Must disclose that one-time EFTs initiated using information from a
consumer’s check are a type of transfer consumer can make � Debit Card Transactions (Pin & Signature) � ATM Transactions � Other consumer EFTs (P2P, Cross-border remittance)
Regulation E - Coverage
• Checks (unless converted) • Wires
– Except consumer international transfers covered in subpart B
• Telephone transfers – Between consumer & FI AND does not take place under a telephone bill-
payments plan in which recurring transfers are contemplated
• Securities or Commodities • Automatic transfers:
– Between consumers’ accounts within a financial institution – From a consumer’s account to an account of a member of the consumer’s
family held in the same financial institution; or – Between a consumer’s account and an account of the financial institution
• Small Institutions (under $100 million)
Exclusions from Coverage
� Check Conversion � Regulation E applies to transactions where information from a check is used to initiate a one-time electronic fund transfer from a consumer’s account � POP, ARC and BOC (notice)
Regulation E - Coverage
� A person initiating a transfer with information for a consumer’s check must provide notice that the transaction will be processed as an EFT and obtain the consumer’s consent � A consumer consents to such a one-time EFT when: � He or she receives the required notice and � Goes forward with the underlying transaction
Notice Obligations 1005.3.b.2
� A point-of-sale notice must be posted in a prominent and conspicuous location, and a copy must be provided to the consumer at the time of the transaction.
Example: “When you provide a check as payment, you authorize us either to use the information from your check to make a one-time electronic fund transfer from your account or to process the account as a check transaction.
Notice Obligations
� ARC/Accounts Receivable entry � BOC/Back Office Conversion entry � POP/Point of Purchase entry � Notice = Authorization � Multiple Payers to a bill notice is implied
� Model Language in Reg E � Rules require originator to use language in NACHA rules or substantially similar language
NACHA - Electronic Check Transactions
� Reg E commentary states that notice would be sufficient for services on returned checks if collected electronically � There is model notice language
� The ACH Rules require a clause within the initial authorization � “Return Fee Entry” rule
Regulation E - Service Fees
� Return Fee Entry � Used only for collecting return fees � ACH debits to Consumer Accounts that are return NSF/
Uncollected funds (R01 & R09)
� Qualifying checks returned NSF � Notice at authorization � “RETURN FEE” in the Company Entry Description field � Company name same as original entry � Check serial number if related to a check � In the Individual Identification Number field � Not required to be on statements
� One return fee per entry � even if original entry returned NSF multiple times
� Return fee returned NSF can be re-initiated � Within 45 days of return of original entry
Collection of Return Fees
• PPD – PPD entry permits notice as authorization
• Other SEC Code – Other SEC Codes may be used to collect Return Fees
– Return fee can also be authorized using authorization requirements specific to that SEC Code • For example, Return Fee could be transmitted as a TEL entry if the authorization was obtained using TEL authorization requirements
Standard Entry Class Code Use for Return Fee Entry
� Must provide a periodic statement for each monthly cycle in which an electronic fund transfer has occurred
or � Shall send a periodic statement at least quarterly if no transfer has occurred
� Only applies to accounts to or from which electronic fund transfers can be made
Periodic Statements 1005.9(b)
Must disclose: � Transaction information (amount, date, type, and,
as applicable, terminal location and identity of third parties)
� Account number � Fees � Balances (at beginning and end of statement
period) � Address and telephone number for inquiries (and
preauthorized transfers)
Periodic Statements
� Periodic Statements � RDFI must provide a statement to all consumer accounts � Company name & description � Date & amount � Terminal City & State (POP & Card-related entries)
� Check Serial Number (ARC, BOC, RCK, POP, XCK)
NACHA Statement Requirements
� Preauthorized electronic fund transfer � An electronic fund transfer authorized in advance to recur at substantially regular intervals
� Unauthorized electronic fund transfer � An electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit
Electronic Fund Transfers
Error means: � Unauthorized electronic fund transfer � Incorrect EFT to or from consumer’s account � Omission of an EFT from a periodic statement � A computational or bookkeeping error made by the financial institution
� Consumer’s receipt of an incorrect amount of money from an electronic terminal
� An Incorrectly identified electronic fund transfer � Consumers request for documentation
Error Resolution 1005.11
� Routine inquiry about account balance � A request for tax or other bookkeeping purposes � A request for duplicate copies of documentation
Errors Do not Include:
� Authorization not obtained in accordance with the rules (SEC codes defines how the entry is to be authorized)
� Amount different than what was authorized � The receiver was debited earlier than what was authorized
� The authorization was not clear and conspicuous � The company failed to credit the agreed upon account
NACHA’s Definition of Unauthorized Debit
� Regulation E provides rules that protect consumers in regards to “errors” in electronic transactions.
� If a consumer claims that an error has occurred, the financial institution is required to: � Take ACTION by: � INVESTIGATING the error � Providing a RESOLUTION to the consumer and, � COMMUNICATING the resolution to the consumer
Error Resolution
� Must be received no later than 60 days after the institution sends the periodic statement on which the alleged error is first reflected � Must identify the consumer’s name and account number � Must indicate why the consumer believes an error exists � Type, date, and amount of the error
Notice of Error from Consumer 1005.11(b)
� If the consumer notifies the financial institution within 2 business days after learning of the loss or theft of the access device, his or her liability shall not exceed the lesser of: � $50 or � The amount of unauthorized transfers that
occurred before notice
Consumer Liability for Unauthorized Transfers
� If the consumer gives notice between the 3rd & 60th day, the liability shall not exceed the lesser of:
� $500 or � The sum of $50 or the unauthorized transaction within 2 business days (whichever is less), plus the amount of unauthorized transfers from day 3 through notice to the financial institution
Consumer Liability for Unauthorized Transfers
� Writing PIN on Piece of Paper Attached to the Card � Failure to Protect Card � Agreement of the Consumer cannot limit Liability � The $50.00 and $500.00 limitation do not apply if the unauthorized transfer is made without an access device
Consumer Negligence Cannot Be Used to
Impose Greater Loss
� If consumer gives notice beyond 60 days, consumer’s liability will not exceed the amount of the unauthorized transfer that occur after the close of 60 days and before the notice and that would not have occurred had timely notice been given � This is the consumer liability! � FI is still liable for unauthorized EFTs within the first 60 days
Timeliness of Error Notice Reg. E 1005.6.3
� Notice is given when a consumer takes steps “reasonably necessary” to provide the pertinent information
� Notice may be in person, by phone, or in writing � Written notice is given when the consumer mails the notice or delivers it for transmission • Whether or not “a particular employee or agent of the institution actually receives the information.”
Notice
� If the consumer’s delay in providing notice was due to extenuating circumstances (e.g. vacations and hospitals) � Institution shall extend notice periods by a reasonable amount
Notice Extensions
� A financial institution may require the consumer to give written confirmation of an error within 10 business days of an oral notice. � Must inform the consumer of this requirement and provide address where written notice is to be sent
Notice of Error from Consumer
� General Returns � Available to the ODFI on the morning of the second banking day following the settlement date of the original entry
� CCD & CTX � “2 day” return time frame with exceptions
� Improper or Unauthorized Returns � 60 days from settlement date
ACH Return Timeframes
� ACH items may be returned 60 days from settlement date • Could possibly return beyond the 60
days by contacting the ODFI
� Obtain a Written Statement of Unauthorized Debit (WSUD)
� RDFI must be prompt in crediting the account of the receiver
NACHA Rules � Error Resolution procedures
� Consumer must notify the FI within 60 days of the transmission date of the statement containing alleged error
� Provisional credit becomes final after investigation concludes that an error occurred
Regulation E
Consumers Right to Re-credit
The rights of the Receiver under the NACH A Operating Rules are in addition to any rights under Regulation E
� ODFI warranty does not run out after the return time frames for unauthorized items � Requesting a copy of the authorization from the ODFI may be the investigation � Don’t have the authorization = Warranty Breach � Produce the authorization= take back credit after
notifying the consumer
NACHA Rules and Regulation E
� Regulation E deals with the banking relationship between the RDFI and the Receiver when dealing with unauthorized entries � Regulation E does not provide a mechanism for the RDFI to recoup the provisional credit � There is no conflict between the NACHA return time frame and Regulation E ..they do not do the same thing
NACHA Rules and Regulation E
� Resolution process for each error should be logged
� ACH Unauthorized/Improper returns should be logged
� Written Statement of Unauthorized Debit (WSUD)
� Notice of Final Credit for those transactions requiring a WSUD
Error Resolution Log
Ten Days: � A financial institution must determine whether an error occurred within 10 business days of receiving a notice of error � Investigation
� Have 3 business days to report results to consumers after completing investigation
� Must correct error within 1 business day after determining that an error occurred
Investigating Alleged Errors 1005.11(c)
Forty-five days: � If unable to complete investigation within 10 business days,
� Financial institution may take up to 45 days from receipt of notice of error to investigate
� Must provisionally credits the consumer’s account within 10 business days of receiving notice
� Must include interest where applicable
Investigating Alleged Errors
� For Unauthorized EFT � May withhold the maximum of $50
� Need not provide provisional credit if: � FI does not receive written notice of error within 10 days of the oral notice � Error involves a Reg T account
� Securities Credit by Brokers & Dealers
Provisional Credit
� Corrects the error within 1 business day after determining an error occurred
� Informs consumer within 2 business days after giving provisional credit of the amount and date credited
� Gives full use of funds
� Reports results to consumer within 3 business days after completing its investigation
� Notice that provisional credit is final
Investigating Alleged Errors
� 10 business days becomes 20 business days if the alleged error involves an EFT to or from the account within 30 days after the first deposit to the account was made � Account opening
Exceptions 1005.11(c)3
� 45 days becomes 90 days if the alleged error involves an EFT that � Was not initiated in a state � Resulted from a point-of-sale debit card
transaction � Occurred within 30 days of the first deposit
Exceptions
45 90
� Provide written report of investigation to consumer � Explanation of findings � Consumer the right to request documents the institution relied on
� Written notice of Debiting Provisional Credit
No Error 1005.11(d)
• Debiting Provisional Credit • Must provide notice to consumer:
• Of date and amount of debit • That you will honor checks, drafts, or similar
presentments for five business days after notification • Without charge for resulting overdrafts
• You need only honor items that you would have paid if the provisional credit had not been reversed
• Reassertion • If a financial institution has complied with these steps, it has no obligation if a consumer reasserts the same error
Reversing Provisional Credit 1005.11(d)2
� Bank does not re-credit within 10 days � Bank did not make good faith investigation � Bank did not have reasonable basis for refusal to re-credit, or
� Bank knowingly or willfully concluded consumer’s account was not in error when the evidence does not support Bank’s conclusion
Treble Damages
ACH Perspective
� RDFI may return entries for any reason, provided it used an appropriate Return Reason Code…. If no appropriate Return Reason Code is specified, the RDFI shall use the code which most closely approximates
ACH Return Items
� What is the Standard Entry Class (SEC) Code? � Is this a consumer or corporate account? � What if the Originator used a Consumer SEC on a Corporate account?
� What if the Originator used a Corporate SEC code on a Consumer account?
� What is the Settlement Date?
ACH Unauthorized Return Item Questions
� A written statement is currently required when a consumer desires to be re-credited for an unauthorized or improper debit entry � Written statement must be signed and dated on or after the Settlement Date of the entry(ies) � More than one entry from a specific Originator may be on one form � All details for each entry on each form
Written Statement Of Unauthorized Debit
Receiver’s Name_______________________________________________________________________ Receiver’s Account Number ______________________________________________________________ Date and Amount of Debit ___/___/___ $________ Date and Amount of Debit ___/___/___ $_________ Date and Amount of Debit ___/___/___ $________ Date and Amount of Debit ___/___/___ $_________ Originator/Company Debiting Account _________________________________________________________ Note: This form can only be used for one Originator/Company (Not Multiple Originators) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
~~~~~ State of ________________________________County of ____________________________________ I, (the undersigned) state that I have examined my statement (or other notification) from [Financial Institution name]
indicating that the ACH debit entry/entries listed above was charged to my account and that the entry was unauthorized or improper and the following to the reason for this conclusion:
Section I. I further state that: (check one) q Unauthorized – (R10; R05) I did not authorize the Company listed above to debit my account. q I Authorized but – I authorized the Company listed above to originate the specified debit entry to my account, but:
q (R10) The amount debited is different than the amount I authorized. The amount I authorized is $___________, or; q (R10) The debit was made to my account on a date earlier than the date on which I authorized the debit to occur. I authorized the debit to be made to my account on (or no earlier than) ______________ (MM/DD/YY). q (R10) The company failed to credit the agreed upon account.
q Authorization Revoked – (R07) [PPD] [TEL] [WEB] & [IAT] I authorized the company listed above to originate the specified debit entry to my account, but on
_____________________ I revoked that authorization by notifying the Company.
Written Statement of Unauthorized Debit
Check(s) Converted to ACH are improper due to the following reason – q (R10, R51) I was not provided the required notice. [ARC] [BOC] [POP] & [RCK] q (R10, R51) The signatures on the item are not authentic or authorized, and/or the item has been altered.
[ARC] [BOC] [POP] &
[RCK] q (R10, R51) The amount of the entry is different from the amount of the check. [ARC] [BOC] [POP] & [RCK] q (R10, R51) The item is ineligible to be initiated as an ACH entry. [ARC] [BOC] [POP] & [RCK]
q (R37, R53) Both the check and the ACH entry posted to my account. [ARC] [BOC] [POP] & [RCK]
Section II. (For Corporate Accounts Only) q Corporate advises unauthorized (24 hour return time frame) – (R29) [CCD] [CTX]
I did not authorize the above listed Company to originate the specified debit entry to my account at this financial institution.
I further state that the debit transaction was not originated with fraudulent intent by me or by any person acting in concert with me, I am an authorized signer or have authority to act on this account, and the signature below is my own proper signature. I certify [under penalty of perjury] that the foregoing is true and correct.
Date: ____________________________Signature _________________________________________________
� RDFI does not need to confirm the truthfulness of the consumer’s statement when the consumer claims an item was unauthorized
� ODFI has the right to a copy of the signed WSUD for up to 1 year from the date the WSUD was signed
� RDFI must provide copy within 10 Banking Days if requested by ODFI
Written Statement of Unauthorized Debit
� R10 – Unauthorized � Consumer SEC Only, Not CCD or CTX � 60 days from Settlement � WSUD
� Consumer did not authorize the debit either in writing, verbally or electronically with the Originator
� Improper Item (RCK/ARC/BOC transactions only) � Different amount or date � The company failed to credit the agreed upon account � 60 day ACH Return Vs. 60 day Regulation E Dispute � What can the RDFI do?
R10 - Unauthorized Returns
� R07 - Authorization Revoked � PPD, TEL & WEB � consumer who has previously authorized entries has revoked authorization with the Originator � 60 days from Settlement � WSUD
R07 - Authorization Revoked
R05 – Unauthorized � CCD or CTX to a consumer account � 60 days from Settlement � WSUD
� Consumer did not authorize the debit either in writing, verbally or electronically with the Originator � Authorized different amount or date
R05 – Unauthorized Debit to Consumer Account Using Corporate SEC Code
� R51 Customer Advises Not Authorized (RCK) � Notice Not Provided � Item Ineligible � Signature Not Genuine � Item Altered � Amount of Entry Not Accurately Obtained From Item
� Written Statement of Unauthorized Debit required � 60 day return time frame
Customer Advises Unauthorized (RCK)
� R37 Source Document Presented for Payment � for ARC, BOC & POP
� R53 Source Document Presented for Payment (RCK) � When both the check and ACH are presented for payment
� Written Statement of Unauthorized Debit required � 60 day return time frame
Improper Entries
� Star FI called the WACHA office and explained that a consumer has come in and said that a TEL transaction from 10 months ago is Not Authorized. The FI explained to the consumer that he is out of the 60 day ACH and Reg E time frames. The consumer then requests a copy of the authorization. Star FI contacted the ODFI and requested a copy of the authorization for the TEL transaction. The ODFI tried to get the copy but the company that originated the transaction is now out of business.
� What should be done? � Is this a Regulation E Claim?
� If so next steps
� Does this involve the NACHA Rules? � How should the error resolution proceed?
Case Study----Unauthorized TEL
Meet Edna
§ Dec 9th - Edna receives call about overdraft activity
§ Dec 10th - Claims unauthorized ACH debits since March 2
§ Statement cut – 1st of every month
§ $2,000 total - $200 each month ü (10 payments-Feb thru Dec)
§ What is Edna’s liability?
Edna
Mar Apr May June July Aug Sept Oct Nov Dec
Edna: Liability
Dec
Statement Date 1st monthlyTransaction Se8lement 2nd monthlyEdna Claims Unauthorized Dec. 10th
What is Edna’s liability?
Apr May June July Aug Sept Oct Nov Dec
Edna: Liability
Mar
Dec Oct Nov
8 days 38 days 69 days
Oct Nov Dec
Apr May June July Aug Sept Oct Nov Dec
Edna: Liability
Mar
Twist: What if … the ODFI cannot provide proof of authorization?
$1,200
Apr May June July Aug Sept Oct Nov Dec
Edna: The Twist
Mar Apr May June July Aug Sept Oct Nov Dec Mar
If the ODFI cannot provide proof of authorization? – Edna owes nothing – and neither does the RDFI
$0
� Consumer may stop payment of a preauthorized EFT � By notifying the financial institution � Orally or in writing � At least three business days before the scheduled date of the transfer
� Financial institution may � Require written confirmation of stop payment orders � Within 14 days of oral notification � Oral notices cease to be binding after 14 days (if properly disclosed to consumer)
Reg E Stop Payment 1005.10(c)
� The RDFI may require � Up to 3 business days to accept a verbal or written stop payment order
� Order be in writing within 14 days of accepting a verbal order
� Exceptions to 3 day rule – ARC , BOC, POP, RCK – IAT, PPD, TEL or WEB (single entries) � All commercial entries � Stop payment order must be provided to the RDFI in such a manner as the RDFI has a reasonable opportunity to act
ACH Stop Payments
� If a consumer revokes authority for all further payments from a particular payee, the institution must make arrangements such that no further debits originated by that payee are made to the consumer’s account � However, the Board notes that under comment 10(c)-2 institutions may require the consumer to provide a copy of a written notice sent to the payee, revoking authority for the payee to originate debits to the consumer’s account
� If the consumer does not provide the copy within 14 days, the institution is not required to continue stopping payments to the payee
Reg E - Stop Payment Revocation of Authorization
• Recurring Payments – 3 banking day notice provided
by the receiver
• Non-Recurring Payments – Must give the RDFI a reasonable
opportunity to act upon the request
• Stop Payment stays in effect – Until all items related to the stop
payment have been rejected – Receiver lifts the stop payment
order
• May be required in writing
• If the consumer wants all future payments stopped RDFI may require them to provide confirmation
ACH Rules
� ACH Transfers – 3 banking day notice
provided by the consumer
� Stop payment stays in effect – Until receiver lifts the stop
payment order (Includes the blocking of resubmitted items)
� May be required in writing
� If the consumer wants all future payments stopped RDFI may require them to provide confirmation
Regulation E
Stop Payments
� When a preauthorized EFT will vary in amount � Must send written notice to the consumer of the amount and date of transfer
� At least 10 days before the scheduled date of transfer
� A consumer may elect to receive notice for all varying transfers, or only those outside a specified range of amounts
Amount Change Reg E & ACH Rules
� Change in Date � The company must notify the receiver 7 days prior to the date of the debit
� Change in Dollar Amount � The company must notify the receiver 10 days prior to the date of the debit � Receiver can choose a specific range – with no notice
ACH Rules: Changes to Original Authorization
• Regulation E – Not Covered – Payment Systems Rules
• ACH Rules – Subsection 2.4.2 – Does NOT cover goods and
services – ODFI Warranty
I Ordered the GREEN Tie!
• Regulation E – Not Covered – Payment Systems Rules
• ACH Rules – Subsection 2.4.2 – Does NOT cover goods and
services – Receiver Action
I’m Not Happy!
QUESTIONS
Regulation E vs the NACHA Operating Rules This session is worth 1.8 credits
AAP Continuing Education Credits
� PAR/WACHA- The Premier Payments Resource � HELP DESK � Phone: 262-345-1245 � Toll Free: 800-453-1843 � Fax: 262-345-1246 � [email protected]
Resources
Michele Barlow, AAP, NCP
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