Same Day ACH Readiness
By Brian Stearns, AAP, NCP, AVP, Risk & Regulatory Compliance, WesPay
Posted: June 7, 2017
WesPay attended the Federal Reserve Bank of Atlanta’s (FRB) Same Day ACH (SDA) Readiness Forum, convened to coordinate efforts of industry participants and better prepare for the September 2017 introduction of SDA debits. This event was attended by ACH Operators, software developers and other payments industry leaders to discuss critical pre-implementation issues including, erroneous SDA Entries, FedACH system functionality, and upcoming testing dates. The following are my key takeaways from the meeting.
Stale Dated Items
Fed’s research has shown that approximately 15% of SDA eligible debits in the ACH Network have a stale or invalid Effective Entry Date. With the implementation of SDA debits on September 15, 2017, these entries would be processed as SDA, whether the Originator intended them to settle same-day or not. This could result in debits posting to Receiver’s accounts earlier than they authorized them, which is a reason that a Receiver can request the Entry be returned. These unintentional SDA debits could also expose the Originator to higher SDA per entry fees charged to them by their ODFI.
ODFIs will need to determine how they will handle erroneous Effective Entry Dates and communicate those processes and responsibilities to their Originators. These processes may include Effective Entry Date edits or holding files until after the Fed’s SDA processing windows have passed.
We advise all ODFIs who plan on originating SDA debits to test with their ACH Operator to identify and correct potential issues before going live. ODFIs can also use the Fed’s Eligible Debits FRB Report to identify items they are currently originating that would become Same Day Debits with Phase 2 implementation.
Unchanged from SDA Phase 1, RDFIs will still be able to rely upon the Settlement Date of a received Entry to determine its posting date. RDFIs may experience an initial spike in Receiver unauthorized claims due to this unintended early debit phenomenon.
FedACH System Functionality
The Federal Reserve provided the following update related to SDA:
Financial institutions that use the FedACH Derive Returns function should be aware that only prior day Entries are available for deriving returns using this function. Returns for SDA Entries are not eligible to be returned via the FedACH Derive Returns function until after the Entry's Settlement Date.
RDFIs using the FedACH Derive Return function to return ACH Exception Entries will not be able to return these Entries on the Settlement Date of the entry. In such instances, the RDFI would need to wait until the banking day after Settlement Date to perform the return. This delay in returning the Entries may increase the operational risk related to returns and therefore increase the need for controls to mitigate the risk.
The Federal Reserve will be conducting testing of SDA with financial institutions in several phases. The Federal Reserve will notify financial institutions of their testing window via a letter sent out 4 to 6 weeks in advance of the testing window.
Below are links to two important communications we recently received from the Federal Reserve. These communications contain links to important resources.
April 18, 2017 Communication
June 5, 2017 Communication