Blogs

Like a broken record, I am sure you have heard repeatedly that you should be providing your Originators with ongoing education. But deciding on what specific education to provide can become puzzling. Here are a couple of my favorite topics I recommend while I am conducting audits and risk assessments.

It is no secret regulators have had a focus on consumer NSF fees as well as reinitiated entries (see Supervisory Guidance on Multiple Re-Presentment NSF Fees) this past year. Financial institutions got the memo, but did you pass along the memo to your Originators? The typical response I receive to that question is, "Our Originators do not reinitiate entries, we charge those entries back to the Originator's account and we do not initiate return fees". I always prompt a deeper discussion by asking, "Do you know how the Originator of debit entries recovers the funds from the returned entry, and is it possible that the Originator could be charging the consumer/receiver for the returned entry through the ACH Network?"

It's not uncommon for authorizations to include disclosures to consumers that they may be charged an additional fee for a Returned Entry, which means Originators may be charging fees without your knowledge, and it is near impossible to police every ACH Entry your Originator sends through the network. So, as always, your best line of defense is education to ensure they know the Rules! So, as always, your best line of defense is education!

How can you determine if your Originator is processing reinitiated entries or return fee entries? Easy! Simply ask them questions such as "How do you recover funds after receiving a return?" and "When you receive a return do you impose a return fee to the receiver/consumer?" But, at the end of the day, it is still best to go ahead and educate them on the ACH Rules and potential regulatory consequences. Just because it isn't a practice currently in their processes, doesn’t mean it won't be in the future.

When educating Originators on the reinitiation of returned entries be sure to include:

• The situations when the entry may be reinitiated, such as:
• The entry was returned for insufficient (R01) or uncollected funds (R09).
• The entry was Returned for stopped payment and reinitiation has been separately authorized.
• The Originator has taken corrective action to remedy the reason for the return.
• The timeframe in which the reinitiated entry must occur.
• 180 days after the settlement date of the original entry.
• How many times they may reinitiate an entry.
• Maximum of two times following the return of the original entry.
• Formatting Requirements
• Reinitiated Entries must be submitted as a separate batch that contains "RETRY PYMT" in the company entry description field.
• The contents of the company name, company identification and amount fields of the reinitiated entry must be identical to the contents of the original entry.
• Improper Reinitiation Practices
• Initiating an entry to the same receiver in an amount greater than the amount of the previously returned entry in payment.
• Initiating one or more entries to the same receiver in an amount less than the original entry.
• Reinitiating any entry that was returned as unauthorized.

For more information, including Rules for Reinitiation of RCK entries, please reference Subsection 2.13.4 Reinitiation of Returned Entries, within the ACH Rules.  

Return Fees

When educating Originators on return fees be sure to include:

• The situations when a return fee may be imposed.
• The entry must have been returned for insufficient or uncollected funds under the return codes R01 or R09.
• For a return fee entry based on the return of a check, the returned check must be marked to indicate that it was returned due to “Not Sufficient Funds”, “NSF” or “Uncollected Funds”.
• Authorization Requirements
• Must provide notice at the time that the underlying Entry is authorized, or the original item is accepted.
• The notice must include:

§  “If your payment is returned unpaid, you authorize us to make a one-time electronic fund transfer from your account to collect a fee of [$ ];” or

§  “If your payment is returned unpaid, you authorize us to make a one-time electronic fund transfer from your account to collect a fee. The fee will be determined [by/as follows]: [ ].”

• Formatting Requirements
• A return fee entry authorized by notice must use the standard entry class code “PPD.” A return fee entry authorized in a manner other than by notice must use the standard entry class code appropriate to the manner of authorization.
• Must submit return fee entries as a separate batch that contains the words “RETURN FEE” in the company entry description.
• The company name field of a return fee entry must contain the same name of the Originator as identified in the company name field of the underlying entry.
• The Individual Name/Receiving Company Name must identify the receiver of the return fee entry.
• Other Requirements
• An Originator may impose only one return fee for each underlying entry.
• Must have a settlement date within 45 days of the settlement date of the return entry.

For more information, including, Additional ODFI Warranty for Return Fee Entries, reference Section 2.15 Return Fee Entries.

With Regulators focusing on these representments or reinitiated entries, I recommend that organizations play it safe. You may not be able to police your Originators, but by providing adequate and efficient education, you are mitigating your risks. Make sure they know the Rules around reinitiated entries and return fees. Don’t allow that broken record to blindside you. Get ahead of the game and ahead of those risks!

Want a second set of eyes on your organization’s current practices or any other payments-related issue? Reach out to our team of experts at advisoryservices@epcor.org. We would love to assist you!