Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
Federal Reserve Web Sites
Other Bank Regulatory Sites
December 16, 2013
Is It the Right Time for Lower ACH Return Rate Thresholds?
Monitoring return rates for automated clearing house (ACH) transactions is an important element of a bank’s risk mitigation program for its business and third-party clients. Recently, NACHA issued a request for comment (RFC) that addresses proposed changes to return rate thresholds included in the NACHA Operating Rules.
The NACHA Operating Rules currently identify a return rate threshold for unauthorized debit entries of 1 percent. The threshold is intended to reduce unauthorized entries transmitted over the ACH network. The NACHA Operating Rules hold an originating depository financial institution (ODFI) that has an originator or third-party sender with an unauthorized return rate over 1 percent subject to ODFI reporting and possible fines if the rate of returns is not reduced in a timely fashion.
According to the RFC, the unauthorized debit return rate declined due to several risk management efforts—including the 1 percent threshold, established in 2008—from 0.06 percent in 2005 to 0.03 percent in 2012. These reduced numbers demonstrate that the monitoring of return rates by banks and other network participants helps to identify issues and leads to fewer problematic transactions.
This RFC proposes three changes to how the NACHA Operating Rules currently address return rate thresholds.
- A reduction in the return rate threshold for unauthorized debit entries from 1 percent to 0.5 percent.
- Establishment of a return rate threshold for data quality debit entries (such as invalid account number) of 3 percent.
- Implementation of an overall debit return rate threshold of 15 percent.
NACHA had issued an RFC in spring 2011 that proposed changes similar to the first two listed items, but ACH participants did not provide sufficient support then and the changes were not implemented. It seems that the time may now be right. The RFC indicates that the environment for this proposal appears to have changed, with ACH participants expressing interest in looking at new thresholds. And the proposal for an overall debit return threshold stresses the need for banks to focus on their overall return rates in addition to specific return reasons.
Regardless of which thresholds are included in the NACHA Operating Rules, banks should monitor for any increase in returns. They should also understand the underlying cause and remedies that their business or processor customers are implementing. A bank focus on return issues is one element of a robust risk management program that helps to ensure the bank’s origination of high-quality payment transactions.
With this proposal on return rate thresholds, is your institution rethinking its internal policies for return rate monitoring?
By Deborah Shaw, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
TrackBack URL for this entry:
Listed below are links to blogs that reference Is It the Right Time for Lower ACH Return Rate Thresholds?:
- A Presumption of Innocence
- The Hill Tackles Cybersecurity
- Keeping Up with the Criminals: Improving Customer Authentication
- Not Seeing a Tree for the Forest
- Fed Survey Shows Mobile Banking on Rise in Southeast
- Leaving a Cybersecurity Legacy
- What Can Parenting Teach Us about Data Security?
- Safely Motoring the Payments Highway
- Balancing Security and Friction
- Squeezing the Fraud Balloon
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- account takeovers
- ATM fraud
- bank supervision
- banks and banking
- card networks
- check fraud
- consumer fraud
- consumer protection
- cross-border wires
- data security
- debit cards
- emerging payments
- financial services
- identity theft
- law enforcement
- mobile banking
- mobile money transfer
- mobile network operator (MNO)
- mobile payments
- money laundering
- money services business (MSB)
- online banking fraud
- payments risk
- payments study
- payments systems
- phone fraud
- remotely created checks
- risk management
- Section 1073
- social networks
- third-party service provider
- trusted service manager
- Unfair and Deceptive Acts and Practices (UDAP)
- wire transfer fraud
- workplace fraud