NACHA Board Approves Work on ACH Quality.

SEATTLE, March 22 /PRNewswire/ -- NACHA's Board of Directors has approved work on two initiatives to improve the quality of Automated Clearing House (ACH) payments and reduce costs and risk in the ACH Network. The first is a concept called Network Return Entry Fees; the second is the development of an ACH Network quality and risk management strategy. Leonard J. Heckwolf, Senior Vice President of Bank One's Consumer Payment Solutions and Chairman of the NACHA Board, reported on the Board's initiatives today at the general session of NACHA's PAYMENTS 2004 conference.

"With the growth of the ACH Network comes the responsibility for NACHA, financial institutions and all ACH Network stakeholders to ensure that ACH payments are of the highest quality," said Heckwolf. "It is essential that the ACH Network maintain the highest quality standards possible to support the new services that have been developed and the higher transaction volume that results. Quality increases confidence in using the ACH Network, and lowers financial institutions' costs for handling exception items."

As ACH debit volume grows, the number of debits that are returned for unauthorized or administrative reasons is likely to increase, even as the percentage of debits that are returned remains steady or declines. Such exception processing is costly to ACH Network participants. With unauthorized and administrative returns, the receiving depository financial institution (RDFI) often bears the cost of exception processing and customer service when it has no fault for the return. This is what economists call economic externalities, where costs are not borne by the party that is responsible for them.

The Board's first initiative addresses unauthorized or administrative debit returns. The Board has directed NACHA to develop a concept called Network Return Entry Fees. Similar to rules that many other payment networks have implemented, a fee would be automatically assessed to originating depository financial institutions (ODFI) for every ACH payment that is returned for unauthorized reasons, and for every WEB and TEL payment returned for administrative reasons.

The Board's objectives are to improve ACH Network quality by reducing the number of returns, and to address the economic externalities caused by unauthorized and administrative returns. While there are other potential solutions that could reduce administrative and unauthorized ACH payments, no other solution both addresses the economic externalities caused by returns and improves the overall quality of the ACH Network.

At the Board's direction, NACHA issued a request for information on the Network Return Entry Fee proposal in November 2003. NACHA received more than 200 responses by the January 9, 2004 deadline, and is conducting two town hall meetings here at the PAYMENTS 2004 conference to receive additional industry input on the proposal.

The Board's second initiative will be to solicit the industry's views on a future ACH Network quality and risk management strategy. NACHA will soon issue a Request for Information that will describe three possible scenarios for such a strategy. The three scenarios are:

   1) Continue to address ACH quality and risk management issues solely      through the NACHA rulemaking process;   2) In addition to new rules, develop a set of tools that would better      enable ACH participants to comply with both existing and future rules;   3) In addition to pursuing scenarios 1 and 2, develop methods or processes      by which ACH debits could be shifted to ACH credits.  The benefits of      such a shift could be substantial, because authorization and      authentication for an ACH credit take place between a financial      institution and its depositor.  This feature of ACH credits eliminates      many of the potential problems with ACH debits.   

NACHA's Board of Directors made ACH Network quality a high priority with the establishment of the ACH Quality Task Force in 1999. The Task Force's signature accomplishments were the agreement by the ACH Operators to provide NACHA with data on ACH payment quality, and the establishment of the annual Kevin O'Brien ACH Quality Award, named in honor of NACHA's late Chairman of the Board. Another Board task force, the Next Generation ACH Task Force, which was chaired by Heckwolf, directly incorporated ACH quality proposals into its roadmap for the future of the ACH Network.

About NACHA - The Electronic Payments Association

NACHA is the leading organization in developing electronic solutions to improve the payments system. NACHA represents more than 12,000 financial institutions through direct memberships and a network of regional payments associations, and 650 organizations through its industry councils. NACHA develops operating rules and business practices for the Automated Clearing House (ACH) Network and for electronic payments in the areas of Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e- checks, financial electronic data interchange (EDI), international payments, and electronic benefits transfer (EBT). Visit NACHA on the Internet at http://www.nacha.org/.

CONTACT: Michael Herd of NACHA - The Electronic Payments Association, +1-703-561-3924, or mherd@nacha.org

Web site: http://www.nacha.org/