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

Similar documents
Presented by: Jen Wasmund, AAP, NCP Vice President of Education and Compliance. Jordan Morell, AAP, NCP Associate Director of Education Services

Get on First Base with Same-Day ACH Risks

Same Day ACH: What Does It Mean to Your Financial Institution?

Navigating the ACH Rules

Same Day ACH: Preparing for Debits. Presented by Laura Nelson, AAP NCP Education Specialist/Auditor

Same Day ACH: Moving Payments Faster

ARE YOU READY FOR SAME DAY ACH??

Risks with Same-Day ACH. Presented by Kevin Olsen, AAP NCP Senior Vice President, Payments Education

RISKS WITH SAME DAY ACH

Same Day ACH Transaction Risk

INTRODUCTION TO SAME-DAY ACH

Session 8: ACH. New York Bankers Association-Community Bank Auditors Group Internal Audit Training-June 6-8, 2016

Same-Day ACH A New Rule; A New World. August 21, 2015 Puerto Rico Same Day ACH Symposium

NACHA Rulemaking Process Update

Same Day ACH and PEP+ Opportunities. August 21, 2015

Expanding Same Day ACH

Managing Third Party Risk in the ACH Network

Authorizations & Agreements. Presented by Laura Nelson, AAP NCP Education Specialist/Auditor

Key Components of an RDFI. Mini Deck

5/2/2017. Mini Deck. Disclosure

UMACHA 2014; All rights reserved 2

ACH FUNDAMENTALS: UNDER THE MICROSCOPE. Heather Spencer, AAP Implementation Coordinator, MY CU Services, LLC. Disclaimer

ACH Risk: Is It a Myth or Reality. Mary Gilmeister, AAP, NCP President WACHA Fred Laing, II, AAP, CCM, NCP President UMACHA

The ACH Network: Progress and Pathways to Faster Payments

Same Day ACH Progress Report Looking Ahead. Ryan Waterman, AAP, AVP, Risk & Regulatory Compliance

Same Day ACH: It s Here, You Need to Prepare

Wire Transfer & ACH Origination. What will you learn? Wire Transfer Origination. After this course, you will be able to:

Expedited Processing and Settlement (EPS)

ACH Management Policy

Treasury Management Services Product Terms and Conditions Booklet

Introduction. Page 1. Introduction

Treasury Management Services Product Terms and Conditions Booklet

UCC (Uniform Commercial Code) Article 4A. Mini Deck

UCC (Uniform Commercial Code) Article 4A

Same Day ACH, Third-Party Sender Registration and Other Payments Initiatives, Oh My! Discussion. Faster Payments. Central OK AFP March 23, 2017

2015 NACHA COMPLIANCE SUMMARY GUIDE

ACH Audit and Risk Assessment: Choose Your Own Adventure

New Rules & Faster Payments

ACH Industry Update, Audit Weaknesses and Emerging Payment Trends

NOTICE OF AMENDMENT TO THE 2016 NACHA OPERATING RULES SUPPLEMENT #1-2016

Behavioral Biometrics: Making a Business Case for Same-Day ACH Payments

Old Point ACH Services Annual Training 2014

Performed by: The Payments Authority, under the oversight of AuditLink. October 22, 2013

Treasury Management Services Product Terms and Conditions Booklet

Important Compliance Dates December 2017

Risk Exposure Management: Best Practices and Survey Results

Re: Risk Management Enhancements, Request for Comment/Information, April 29, 2011

Applied Risk Management

The State of ACH. MAAFP January 2017

UCC 4A and the ACH Network. Presented by Wanda Downs, AAP Director of Payments Education

What Do You Need to Know to Know Your Customer? SFE Conference MaY 3, 2017 Biloxi MS

Business to Business Payments

Pain Points in the Rules Phase Two Request for Comment and Request for Information. Executive Summary and Rules Description June 27, 2011

2016 Annual ACH Audit CU*Answers

NACHA Third-Party Sender Certification Program Criteria

International ACH Transaction (IAT) Exception Handling. Presented by Laura Nelson, AAP, NCP Auditor/Education Specialist

Paying the Employee Section 5

MEMORANDUM. December 7, CU*Answers Executive Council CU*Answers Board of Directors. From: Patrick Sickels Internal Auditor CU*Answers

Bringing the benefits of Same-Day ACH to your business.

Important Compliance Dates as of April 2018

Retail Payments Office of the Federal Reserve System 1000 Peachtree Street, N.E. Atlanta, GA

This is designed to provide those who are not familiar with the ACH Network with a basic understanding of the fundamentals of the ACH Network.

Automated Clearing House

Re: Request for Comment and Request for Information, Compliance and Operational Topics

Regulatory Compliance Update

Account Disclosures. RDFI should review and update account disclosures to address:

Same Day ACH FAQs. Overview. Types of transactions. Opting in now or later

CASH MANAGEMENT SCHEDULE. AUTOMATED CLEARING HOUSE SERVICES for Originators & Third-Party Senders

Copyright 2017 Lakeland Bank. All rights reserved. This material is proprietary to and published by Lakeland Bank for the sole benefit of its

ACH Primer for Healthcare. A Guide to Understanding EFT Payments Processing

IAT Modifications Request for Comment. Executive Summary and Rules Description August 15, 2012

Glossary of ACH Terms

REGULATION GG YOUR NEW OBLIGATIONS TO STOP UNLAWFUL INTERNET GAMBLING

Commercial Banking Online Service Agreement

A2A EXTERNAL FUNDS TRANSFER SERVICE ADDENDUM TO ONLINE BANKING SERVICES AGREEMENT

NACHA Operating Rules Update: Healthcare Payments

February 6, 2015 BY COURIER AND ELECTRONIC DELIVERY

KEYBANK BUSINESS ONLINE PAY WITH ACH SERVICE

GOLD Credit Union User Agreement & Disclosure for External Account to Account (A2A) Transfer Service

P2P, A2A Payments: Perils to Protection. WACHA Conference 2016 Kimberly W. Rector, AAP

New ACH Stop Payment and Written Statement of Unauthorized Debit Requirements

CORPORATE USER ACH QUICK REFERENCE CARD

Agenda. New ACH Stop Payment and Written Statement of Unauthorized Debit Requirements. ACH Stop Payment Requirements Regulation E

21 Billion ACH Transactions: Yep, Something s Going to Go Wrong!!! WACHA Conference 2014 Kimberly W. Rector, AAP MACHA

NACHA Operating Rules: What Do They Mean to You?

Payment System Rules and Regulations. What will you learn? After this course, you will be able to:

ACH Origination Agreement (Company) has requested that Easthampton Savings Bank (bankesb) permit it to initiate Entries to Accounts maintained at the

Funds Transfer Services

Re: Pain Points in the Rules, Request for Comment, August 17, 2010

Improving ACH Network Quality by Reducing Exceptions Request for Comment and Information

Chapter 13 Payroll Accounting, Taxes, and Reports

ODFI ORIGINATION AGREEMENT

Media Release For immediate publication

BSA/AML Hot Topics and UIGEA Daniel Hastings Financial Institution Examiner - FDIC

Matching Payments to Services Delivered

ACH Positive Pay Manual

ACH Credit a transaction through the ACH network originated to pay a receiver (deposit funds into an account).

Enhancements to ACH Applications ARC, BOC, POP, TEL and XCK; Collection of Service Fees Request for Comment

June 30, RE: Enhancements to Federal Reserve Bank Same-Day ACH Service; Docket No. OP Dear Mr. Frierson:

Electronic Payments and the ACH Network: Everything a Controller Needs to Know

Transcription:

ACH Credit Risk: The Credits, The Debits and The Same Day ACH Effect Jennifer Wasmund, AAP, NCP, Vice President of Education and Compliance, UMACHA www.neach.org 2016 NEACH. All rights reserved. Jen Wasmund, AAP, NCP Vice President of Education & Compliance UMACHA 1

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

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

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

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

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

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 13 1 2 3 4 5 SD 7 8 9 10 11 12 13 6 1 2 3 Last day to receive timely extended return 14 15 16 17 4 18 5 19 6 20 7 8 9 10 1 2 3 21 22 23 24 11 25 12 26 13 27 14 415 516 617 7 8 9 10 28 29 30 31 18 19 20 21 11 22 12 23 13 24 14 15 16 17 Last day to receive timely normal return 25 26 27 28 18 19 20 21 22 23 24 25 26 27 28 29 30 14 7

30 25 20 Number of Returns 15 10 5 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 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

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 = $70,000 17 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

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

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 90-120 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

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

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

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

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

Jen Wasmund, AAP, NCP jenw@umacha.org (800)348-3692 www.umacha.org 31 16