Re: Request for Information on the Risks of Early Funds Availability
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 Information (RFI) on the Risks of Early Funds Availability issued on May 21, 2021. The American Bankers Association1 appreciates Nacha’s efforts to seek feedback from industry participants on this matter as to whether a new rule proposal should be considered to adjust the allocation of risk when a Receiving Depository Financial Institution (RDFI) makes funds available before the settlement date.
Originating Depository Financial Institutions (ODFIs) have the ability to designate the settlement date for ACH credit entries. An ODFI may sent a credit entry on Monday for settlement on Wednesday. Wednesday is the Effective Entry Date when the ODFI transfers the funds to the RDFI settle the transaction. Under the current rules, the RDFI must make the funds by Wednesday, but there are no prohibitions against making the funds available even earlier. Making funds available early can increase risks to the ODFI and the RDFI in certain circumstances.
Some RDFIs choose to offer early funds availability as a customer service. These RDFIs may make funds available as soon as receiving the credit entry prior to the settlement date. In effect, these RDFIs are advancing their own funds to their customers with the expectation that the ODFI will send the funds on the settlement date. Some RDFIs use this practice as a marketing tool and highlight this service in advertisements. In this situation, the RDFI accepts the risk that the ODFI will not fund the transaction. In the ACH network, settlement risk is very, very low. This is particularly true of federal government benefit payments where many RDFIs see negligible risk.
There are other scenarios where making funds available early increases risk to ODFIs. Condensing the period between receiving the credit entry and making the funds available makes it more difficult for ODFIs to reverse transactions.
For example, an error or outright fraud can result in ACH credit entries originations. An ODFI may identify the error/fraud and initiate a reversal before the settlement date, but if the funds were released early the ODFI would absorb the loss. If the RDFI made the funds available on the settlement date, instead of earlier, the ODFI would have had more time to correct the error or stop the fraud.
The RFI considers whether Nacha should propose a rule that would prohibit RDFIs from returning a reversal for insufficient funds if the reversal were received before the settlement date. This would reallocate risk to the RDFI if it made funds available early. The RDFI would be required to send funds back to the ODFI and the RDFI may not be able to collect those funds back from its customer who received the credit.
Similarly, the RFI asks for feedback on whether it should consider a rule change that would make RDFIs liable to the ODFI for the amount of an ACH credit if it made funds available early and the ODFI can demonstrate that it could have corrected an error before the settlement date.
We recognize that making funds available early may increase risk to the ODFI if it made the credit entry in error or was the victim of fraud. There is also risk to the RDFI if funds are made available early and the ODFI fails to fund the transaction on the settlement date. However, at this time we do not believe the risk in any of these circumstances is significant enough to recommend that Nacha consider a proposal to change the current rules.
First, while there are many anecdotes of early availability increasing liabilities there is no statistical evidence presented for consideration. We cannot recommend rule changes to mitigate risk when that risk is not measured. We would need to know how often reversals are returned to ODFIs due to the funds being made available early and how large the losses to determine if a rule change proposal is warranted.
Second, reallocating liability to RDFIs making funds available early may lead some to change their policies and revert to making funds available on the settlement date. This would create the misperception the ACH system is becoming slower. ABA supports faster payments and at this time opposes any changes that may appear to slow a recipient’s receipt of funds.
ABA would like to thank Nacha for the opportunity of responding to the RFI on the Risks of Early Funds Availability. This is an important issue that will need continual monitoring, but we do not recommend Nacha pursue further rule changes at this time. If you have any questions about these comments, please contact the undersigned at (202) 663-5147.
Sincerely,
Stephen K. Kenneally
Senior Vice President, Payments
