NEACH Payments Management Conference ACH Credit Risk: Credits, Debits, Same Day

Transcription

1 ACH Credit Risk: The Credits, The Debits and The Same Day ACH Effect Jennifer Wasmund, AAP, NCP, Vice President of Education and Compliance, UMACHA NEACH. All rights reserved. Jen Wasmund, AAP, NCP Vice President of Education & Compliance UMACHA 1

2 Regional Payments Associations, through their Direct Membership in NACHA, are specially recognized and licensed providers of ACH education, publications and support. Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. NACHA owns the copyright for the NACHA Operating Rules & Guidelines. The Accredited ACH Professional (AAP) is a service mark of NACHA. DISCLAIMER: This presentation and applicable materials are intended for general education purposes and nothing in this presentation should be considered to be legal, accounting or tax advice. You should contact your own attorney, accountant or tax professional with any specific questions you might have related to this presentation that are of a legal, accounting or tax nature. 3 ACH Origination Program Management Transaction Risks and Mitigation Same Day ACH Effect Takeaways Questions? 4 2

3 ACH Credit Risk: The Credits, The Debits and The Same Day ACH Effect 5 Periodic Reporting Board Policy Due Diligence Procedures and Program Ongoing Monitoring Management Oversight 6 3

4 Determines strategy and risk tolerances based on overall institution goals Review and approve policy identifying allowed or prohibited ACH Origination activity Assign responsibilities across management team or departments for program oversight Identify measurable data for reporting to track performance of ACH program 7 Types of products allowed Permitted or prohibited Originators Responsible employees or departments Reporting (frequency, type, etc.) 8 4

5 Types of Originators should be identified not just for credit risk but also reputational risk ACH Policy should match or make reference to other policies regarding new accounts or restricted industries Say what do and do what you say! Reporting metrics should be tailored to program goals and risk considerations 9 ACH Credit Risk: The Credits, The Debits and The Same Day ACH Effect 10 5

6 Credit risk arises when a party to a transaction is not able to settle an obligation for full value ODFIs may incur risk if they supply funds on behalf of a credit Entry Originator and settlement does not occur on the same day Originators transmitting debit Entries pose risk as returns will be received after credit was already made available in the Originator s account 11 Wednesday Thursday Friday ACH credit File is sent from Company to ODFI Entries are effective on Friday ODFI processes File and delivers Entries to the ACH Operator ACH credits are delivered to the RDFIs by the ACH Operator ODFI s account is charged by the Fed Company declares bankruptcy ODFI has an unsecured claim for the entire amount of the ACH credit File ----ODFI s Credit Risk Exposure---- NACHA Operating Rules permit Reversals for erroneous or duplicate files ONLY 12 6

7 Monday Tuesday Wednesday Thursday Company originates an ACH file via the ODFI, entries are effective on Tuesday ODFI processes the file and delivers it to the ACH Operator ODFI credits Company s account for the total amount of the ACH debit file ACH debits are received by RDFIs An RDFI returns an ACH for insufficient funds or other admin. reason Common return reason codes: R01, R02, R03, R04, R08 ODFI receives ACH debit return ODFI charges back the ACH debit return to Company What if Company withdrew funds or their account is closed? ----ODFI s Debit Risk Exposure---- NACHA Operating Rules allow the return of an unauthorized consumer debit Entry for 60 calendar days after the Settlement Date SD Last day to receive timely extended return Last day to receive timely normal return

8 Number of Returns Calendar Days after Settlement Date 15 For Credit Entry Originators Prefunding For Debit Entry Originators Reserves Does your ACH Origination Agreement require Originators to keep their account open for x number of days after terminating service? 16 8

9 When evaluating limits, knowing frequency of Files is key! If a credit Entry Originator transmits multiple Files that settle on the same day, you must approve that number, not the maximum transmitted on either day Would a $50,000 limit be OK in this example? Wednesday Thursday Friday Payroll file transmitted for Friday: $40,000 Commission file transmitted for Friday: $30,000 NO! Must be at least $70,000 Total amount settling = $70, Credit Entries: exposure to FI ends on Settlement Date or when funds are collected from Originator Debit Entries: credit risk begins on Settlement Date until return risk is eliminated How an institution accounts for return risk is dependent on risk tolerances Do you use industry thresholds, past return rates or another calculation to assess potential exposure over multiple settlement dates? 18 9

10 Who can approve? What is needed to approved? How are they enforced? What options does your system give you? Establish over-limit transaction acceptance procedures 19 Risk Rating Originators Use loan rating system? Develop specific ACH Risk Rating Scale based on risk factors that were similar to what you used to establish their limits Frequency of files Types of SEC Codes transmitted Account balances Overall relationship Return volumes 20 10

11 Ensure your institution is aware of the NACHA Operating Rules return rate threshold and levels for debits Originated over a 60-day or two month window Unauthorized Return Rate Threshold = 0.5% Administrative Return Rate Level = 3.0% Overall Return Rate Level = 15.0% Determine if automated tracking is available or if a manual tracking method is best for your FI 21 The NACHA Operating Rules require that institutions periodically review exposure limits Frequency may vary based on FI s risk tolerances Use risk ratings to drive frequency New Originator reviews after days? Over limit exceptions triggering new review? Align with loan reviews Set guidelines on how to raise or lower limits Watch for trends Use averages or maximums? 22 11

12 ACH Credit Risk: The Credits, The Debits and The Same Day ACH Effect 23 Functionality Transaction Eligibility ($25,000 limit; IAT not eligible) Phase 1 Sept. 23, 2016 Phase 2 Sept. 15, 2017 Phase 3 March 16, 2018 Credits only Credits and debits Credits and debits New Same Day ACH Processing Deadlines 10:30 AM ET and 2:45 PM ET 10:30 AM ET and 2:45 PM ET 10:30 AM ET and 2:45 PM ET New Settlement Time(s) 1:00 PM ET and 5:00 PM ET 1:00 PM ET and 5:00 PM ET 1:00 PM ET and 5:00 PM ET ACH Credit Funds Availability End of RDFI s processing day End of RDFI s processing day 5:00 PM RDFI local time 24 12

13 ODFI RDFI ODFI RDFI RDFI ODFI 25 Credit exposure to FIs exists from release of File to the Operator until settlement occurs In today s world, this is commonly viewed as at least one day of exposure May be as long as two days for credits What happens in an intraday settlement world? 26 13

14 2:15 AM ET 8:15 PM ET 8:15 AM ET 2:15 PM ET Exposure may exist only from 10:30 AM ET to 1:00 PM ET 27 Phase 1 allow for credits only to move in a Same Day processing window On-us debits for settlement transmitted to the ACH Operator will not be processed sameday Transmitting a balanced file to the ACH Operator does not allow an ODFI to capitalize on reduced intraday credit exposure 28 14

15 All returns are eligible for Phase 1 processing until 4:00 PM ET beginning on September 23 Originators of future-dated debit Entries (and their ODFIs) should be aware of this extended window to receive Same Day returns Returns in this final window will settle at 5:30 PM ET 29 Know where and what your credit risk is Ensure this is reflected in the tone at the top Measure, manage and mitigate risk where appropriate Know how Same Day ACH, beginning with Phase 1 has the potential to affect your risk profile 30 15

16 Jen Wasmund, AAP, NCP (800)