Comment to NACHA re Meaningful Modernization Topics

Maribel Bondoc
Manager, Network Rules
NACHA, The Electronic Payments Association
13450 Sunrise Valley Drive
Herndon, VA 20171

Dear Ms. Bondoc:

Thank you for the opportunity to comment on the Request for Comment and Information on Meaningful Modernization Topics and the Request for Information on Authorization Dispute Resolution for ACH Originators issued on February 18, 2020. The American Bankers Association1 appreciates your efforts to improve and simplify the ACH user experience while maintaining the efficiency of the system. We look forward to working with you to make payments more seamless and safer for all.

This proposal is part of an ongoing effort by NACHA, The Electronic Payments Association to streamline the ACH Operating Rules (Rules) and make them simpler, resulting in better compliance and fewer administrative burdens on Origination Depository Financial Institutions (ODFIs), Originators, and Receiving Depository Financial Institutions (RDFIs). ABA supports this intent and agrees that simpler, clearer Rules will lead to a better payments system for all participants.

The proposal is composed of five separate proposals for comment and one separate request for information (RFI). ABA supports each of the proposed rule changes and seeks additional data on the RFI topic to better inform us as we review the issue in greater depth.

Requests for Comment on Proposals to Amend Nacha Operating Rules

1. Explicitly define and better enable the use of ”Standing Authorizations” for consumer ACH debits to accommodate the use of new technologies and business methods that make use of frequent or occasional interactions between parties;
2. Define and allow for the use of oral authorizations of consumer ACH debits beyond telephone calls, to accommodate the use of new technologies and business methods that make use of verbal interactions and voice technologies;
3. Clarify and provide improved consistency of authorization standards for consumer ACH debits across payment authorization and initiation channels;
4. Reduce the administrative burden of providing proof of authorization of a consumer debit; and
5. Reduce the burden associated with the Written Statement of Unauthorized Debit by better facilitating the use of electronically and orally provided Statements.

The RFI seeks input as to whether Nacha should pursue developing a process or system for dispute resolution between parties when an ACH consumer debit is returned as unauthorized when the Originator holds valid proof to the contrary.

Explicitly define the use of standing authorizations for consumer ACH debits.

Currently, ACH authorizations fall into one of two categories, single or recurring. A single authorization occurs when a consumer provides authorization for their account to be debited one time. A recurring authorization would apply to payments like mortgage payments or utility bills where there is a regular cycle of payments.

The proposal of a Standing Authorization would fall somewhere in between single and recurring. For example, a consumer may not have a credit card balance due each month and this new standing authorization would allow funds to be debited when they are needed. Other examples would include transfers initiated by E-wallets or through voice activated assistants like Siri or Alexa. The Standing Authorization could also be used to initiate transfers between brokerage accounts and bank accounts when the balance reaches a defined threshold. A more concrete example would allow a consumer to authorize a state agency to debit their account whenever their EZ-Pass balance became low.

Transactions initiated under this new authorization could be coded by the Originator as either TEL or WEB (Telephone or Internet) Entries and could be received in writing, orally or via the internet. Originators will not be required to offer these new authorizations.

This proposed change will remove barriers associated with intermittent payments and those using voice activated technology to make payments. Standing authorizations would allow ACH payments to be made easily without requiring a regular schedule or multiple authorizations. “Alexa, pay my water bill by ACH” could become a common refrain.

ABA supports the creation of a new Standing Authorization.

Define and allow “Oral Authorization” as a valid method for consumer methods distinct from a telephone call.

Nacha created the TEL transaction type specific to apply to telephone initiated authorizations of consumer debits, but technology has moved well past that point. Oral authorizations can be given over personal assistants like Alexa and Sire, video chats such as FaceTime and Zoom, and could also include a Standing Authorization (See previous section) from a telephone call that later generates online transactions. There is no mandate that ODFIs offer this expanded Oral Authorization to consumers if they elect not to do so.

This new Oral Authorization will make is simpler and more efficient for consumers and ODFIs to initiate debits using newer technology.

ABA supports the creation of this new Oral Authorization as a new and valid authorization method.

Reorganize the general authorization rules to reflect the creation of the new Standing and Oral Authorizations and to make other changes for the purposes of clarity, flexibility and consistency.

These changes follow the goals of Nacha’s modernization effort by improving the authorization experience and increasing the understanding of these requirements. This change would also provide clearer guidance on what should be considered a “good authorization” for consumer debits. Reducing ambiguity and providing enhanced clarity of Nacha’s Operating Rules will improve the quality of the network.

ABA supports the reorganization of the general authorization rules.

Allow ODFIs to agree to accept the return of an entry an alternative to providing proof of authorization.

Under the Rules, RDFIs may request “proof of authorization” for debits received from ODFIs and the ODFIs must provide the documentation. Often, RDFIs return the debit even though they have received the proof of authorization by the ODFI. This amendment recognizes the burden that falls onto ODFIs that have collected the proof of authorization properly, provide it to the RDFI in accordance with the Rules, but are still subject to frequent returns.

Under the proposal, when presented with a request for proof of authorization, the ODFI may choose to simply return the payment. ODFIs may opt for this to reduce the administrative burden of providing the proof of authorization and still having the payment returned. Even if the payment is returned, the ODFI must provide the RDFI with the proof of authorization if it is requested.

The proposed change recognizes the reality that the process of providing the proof of authorization may be more expensive than it is worth the ODFI to pursue. In some circumstances it is cheaper to return the payment and close out the event. This proposal provides and alternative for ODFIs that choose to use it. It is not a directive.

ABA supports the proposal that would allow ODFIs the option of returning a payment when a proof of authorization request is received in lieu of providing the proof of authorization.

Allow RDFIs to obtain a consumer’s Written Statement of Unauthorized Debit (WSUD) electronically or orally.

Nacha Operating Rules require that RDFIs obtain a WSUD from a customer claiming that a debit is unauthorized and should be returned to an ODFI. In general, the Rules have been updated over the years to allow electronic records and signatures. However, the use of electronic means has not been addressed specifically in reference to WSUDs. This proposal recognizes that submitting claims in person or by fax with wet signatures does not reflect the common use of new technology.

The proposal will state clearly that WSUDs may be provided via electronic means and orally by the customer. This represents an increase in convenience and efficiency for both the customer and RDFI. In the times of COVID-19, it will also allow RDFIs to minimize traffic within their branch systems. RDFIs that choose to use these options will continue to be required to produce copies of the WSUDs upon request.

ABA supports the proposal to allow WSUDs to be submitted electronically and orally.

Effective Date

The Meaningful Modernization Request for Comment proposes that these five changes, if enacted, go into effect on July 1, 2021.

ABA supports an effective date of July 1, 2021.

Request for Information/Authorization Dispute Resolution

Under the current Nacha Rules, ODFIs that have collected and retained valid proof of authorization for consumer debits may still have the transaction returned by the RDFI. There is not mechanism that exists to resolve disputes between ODFIs and RDFIs in these circumstances with the ACH Network.

Nacha seeks input on the creation of a dispute resolution mechanism to address these situations with the confines of the ACH Network. The discussion is not detailed as to how this may be set up and how expensive it may be to create and maintain, but Nacha acknowledges that the costs could be substantial.

In order to provide comments grounded in facts, ABA requests that Nacha provide details on the number of repudiated transactions and the range of dollar amounts involved. If this were to be pursued, it would likely be used for larger transactions where the potential benefit would outweigh the administrative burden. ABA requests that these statistic be provided for the most recent three years to determine if these disputes are increasing.

At this point, ABA cannot provide a clear response because of a lack of data. Without the data, it is difficult to determine if the benefits of setting up and maintaining a new, and possibly expensive, dispute resolution framework within the ACH Network is preferred over the current requirement that these cases be pursued outside of the ACH Network.

ABA would like to thank NACHA for the opportunity of responding to the Request for Comment on Meaningful Modernization Topics and the Request for Information on Authorization Dispute Resolution for ACH Originators. If you have any questions about these comments, please contact the undersigned at (202) 663-5147.

Sincerely,

Stephen K. Kenneally