Returns

You cannot return an entry when your customer/member is not satisfied with or has not received the goods or services to which the ACH entry relates.

ACH entries can be returned to an Originator for any valid reason just as deposited checks can be returned for any valid reason. A return entry is used when the RDFI is unable to post an ACH transaction or when an entry is being disputed. The ACH Rules allow an RDFI to return any entry for which there is a valid Return Reason Code. This may be due to incorrect information, which prevents the RDFI from identifying the correct account; a change in the account relationship, such as death or closure of an account; insufficient or uncollected funds in the Receiver’s account; or an entry the Receiver did not authorize.

In general, returns must be transmitted so that the return entry will be made available to the ODFI no later than the opening of business on the second banking day following the Settlement Date of the original entry. This timeframe is referred to as the “24-hour” deadline. Here’s how it works:

In the above example, the RDFI returned the entry on the first banking day following the Settlement Date, or within 24 hours of receipt, in order to meet the required timeframe.

Extended return entries for disputed transactions (i.e., revoked authorization or unauthorized) may be returned up to 60 calendar days from settlement. These entries require a Written Statement of Unauthorized Debit to be completed prior to the entry being returned.

Returned entries may be reinitiated if the entry was returned for insufficient funds or uncollected funds and are limited in number to two and must be initiated within 180 days of the original entry. An entry returned for stop payment, or an authorization issue, may only be reinitiated if the Originator has received appropriate authorization from the Receiver to do so. Reinitiated entries contain “RETRY PYMT” in the Company Entry Description field of the Company/Batch Header Record.

When returning an entry, always select the Return Reason Code that most accurately reflects the reason for the return. In doing so, you will effectively communicate to the ODFI and their Originator the appropriate action to take.

The Receiver must execute a Written Statement of Unauthorized Debit when an ACH entry is claimed as unauthorized, improper, authorization revoked, part of an incomplete transaction or improperly reinitiated. The Receiver must identify the reason that the entry is considered unauthorized, improper, authorization revoked, incomplete, or improperly reinitiated based upon the criteria described in the following section of this guide entitled Return Reasons by ACH Application.

The Written Statement of Unauthorized Debit Rule reinforces both the Receiver’s direct responsibility to the Originator and the Originator’s right of recourse when conditions of revocation, as clearly indicated on the authorization agreement, are not met. Once the Written Statement of Unauthorized Debit has been signed and the Receiver has been recredited, the institution has satisfied its obligation under the ACH Rules.

An ODFI may request, in writing, a copy of the Written Statement of Unauthorized Debit up to one year from the date of the extended return. Upon receipt of a timely request, an RDFI must provide a copy of the Written Statement of Unauthorized Debit within 10 banking days. The ACH Rules require the financial institution to retain the original or a reproducible copy of the Written Statement of Unauthorized Debit for one year from the Settlement Date of the extended return entry(ies). It is recommended that the RDFI retain a copy for six years along with the records of ACH activity.

Refer to the Operating Guidelines of the ACH Rules for a sample Written Statement of Unauthorized Debit or contact your Payments Association to purchase these forms.

As stated before, return entries must generally be transmitted by the institution so that the entry is made available to the ODFI no later than the opening of business on the second banking day following the Settlement Date of the original entry (“24-hour” deadline). Some reasons meeting this return deadline include:

Additionally, a Receiver (consumer) may place a stop payment on an entry by providing either verbal or written stop payment instructions to the institution at least three banking days before the scheduled date of the entry or in such time and manner to allow the RDFI a reasonable opportunity to act upon the stop payment instructions prior to acting on the debit entry. In this case, the RDFI would return the entry within the “24-hour” deadline using Return Reason Code R08—Stop Payment.

The table below represents the SEC codes that can be returned for the reasons mentioned:

*R03 may not be used to return ARC, BOC or POP entries solely because they do not contain the Receiver’s name in the Individual Name/Receiving Company Name field.

The institution has an extended return deadline for the following reasons:

If a debit entry was transmitted to a consumer account using a corporate SEC Code (CCD or CTX) and it was not authorized by the consumer, the entry may be returned using Return Reason Code R05—Unauthorized Debit to Consumer Account Using Corporate SEC Code. The institution has 60 calendar days from the Settlement Date to return the entry and must obtain a Written Statement of Unauthorized Debit.

Return entries for corporate ACH transactions must be transmitted so that the return entry is made available to the ODFI no later than the opening of business on the second banking day following the Settlement Date of the original entry (“24-hour” deadline).

The ACH Rules provide for the return of unauthorized corporate debits (CCD and CTX) with a unique Return Reason Code R29— Corporate Customer Advises Not Authorized. These transactions also have the “24-hour” deadline. However, if an RDFI receives notification from its corporate Receiver of an unauthorized corporate transaction beyond the return deadline, it may contact the ODFI and request permission to send a late return. If the ODFI agrees to accept the late return, the RDFI will return the entry using Return Reason Code R31—Permissible Return Entry. When Return Reason Code R31 is used without the ODFI’s permission, the ODFI has the right to dishonor the return using Return Reason Code R70—Permissible Return Not Accepted. The Dishonored Returns section of this Guide provides further details on dishonored returns.

An RDFI may request, in writing, proof of authorization for corporate entries. If proof of authorization is requested, the ODFI must provide within ten banking days of the RDFI’s request either a copy of the authorization or the Originator’s company name and phone number or email address for inquiries.

Given the limited and strict timeframes in which corporate entries must be returned, the financial institution may choose to offer services that would block unauthorized ACH debits. These services generally fall into two categories:

TAKE ACTION! If a mistake on a return entry is made and is rejected by the ACH Operator, the return timeframe will not be extended. Ensure that the issue is corrected quickly in order to remain within the established return timeframes.

The ACH Operator may reject entries that are submitted with errors. A rejected entry can occur from either an origination file or return item file. When a return entry is rejected at the ACH Operator level, the entry does not go any further in the process and is not passed along to the ODFI. Instead, it is returned to the submitting RDFI for corrective action. Once corrected, the entry must be reinitiated. Deadlines for returns can be affected by ACH Operator rejects. For this reason, the RDFI should review an acknowledgment report provided by the ACH Operator to confirm successful transmission and processing of files.

A dishonored return is an ACH return transmitted by an ODFI in response to a returned ACH entry that was mishandled by the RDFI for one of the following reasons:

An ODFI dishonors a returned entry in an attempt to either dispute the return for inappropriate handling or to advise the RDFI that an error in information prevents the entry from being identified. Special Return Reason Codes identify the ODFI’s reason for dishonoring a return. The addenda record of a Dishonored Return carries information that identifies the Return Reason Code and details the reason the entry was dishonored. A dishonored return must be transmitted by the ODFI within five banking days from the Settlement Date of the return entry.

Contested Dishonored Returns

The proper action required by the financial institution varies, depending on whether the dishonored return was disputed or represents a need for a correction. An RDFI may:

In either case, the RDFI must respond within two banking days of the Settlement Date of the dishonored return. If the RDFI properly contests a dishonored return (i.e., on time and without error), the ODFI must accept the entry and resolve further disputes outside of the ACH Network.

Valid Dispute of Return Entry

If the reason a return was dishonored is valid (e.g., a return disputed as untimely was, in fact, a late return), the institution must accept the entry. The RDFI may be able to collect funds from the customer/member in some cases (e.g., an account now has funds where the original entry was returned insufficient). Questions regarding the financial institution’s right to collect from the customer/member should be referred to legal counsel.

Occasionally, the financial institution will receive an ACH entry that contains incorrect information (i.e., account number, account name, etc.). While it may be able to identify the intended account holder, the error may cause the item to reject. In these instances, the RDFI may send an NOC or return the entry. The NOC application allows the RDFI to send a message requesting the correction of information without returning the value of the entry. However, the institution does warrant that the information contained in an NOC is correct. By initiating an NOC, By initiating an NOC, the RDFI warrants the information sent in the NOC is correct.

If an RDFI chooses to send an NOC, it must do so within two banking days from the Settlement Date of the original entry. Delayed processing of NOCs may make it difficult for the ODFI to match transaction information, resulting in a lack of response to the NOC. ODFIs must report NOC information to Originators within two banking days from the Settlement Date of the NOC. Originators of Recurring entries must make the specified changes within six banking days of receipt of the NOC information or prior to initiating another entry to the Receiver’s account, whichever is later. Originators of Single- Entry payments are not required to make the specified changes.

Duplicate Files

A duplication of file processing can cause a host of problems from account overdrafts and returned items to customer service charges. Duplicated credits may cause improper withdrawals and incorrectly stated balances. Duplications should be suspected when items are received with identical trace numbers or have the same dates and amounts. The following action is suggested:

ODFI Request for Return

The ODFI may request the return of an entry that was duplicated, sent in error or that was not authorized to be originated by the Originator. Although the RDFI does not have to consent to the request, it is encouraged to work with the ODFI. It is reasonable that the RDFI require a written request to document the return prior to returning it using Return Reason Code R06—Returned per ODFI’s Request. The ODFI indemnifies the financial institution against all losses that result from the origination of erroneous entries and reversals.