When Does Your Credit Union Make ACH Credits Available?

June 9, 2021 at 9:50 am 1 comment

The repeated rounds of stimulus checks and the practices of many FinTechs have underscored the fact (subscription required) that there is often a time lapse between the time a credit union receives ACH credits and the settlement date that the originator (ODFI) stipulates those funds be made available.  Does your credit union make these funds available immediately?  If so, is it increasing its own risk?

These are the questions NACHA is asking financial institutions to consider as it analyzes the existing payment framework and considers placing more responsibility on financial institutions that choose to credit accounts prior to the specified settlement date. 

Here is a very basic example of what I am talking about.  The federal government sends out a high volume of ACH credits reflecting payments on tax refunds, social security payments and those stimulus checks.  According to NATCHA, the settlement date can often be three or four business days after these funds are received by your credit union.  My sense is that many credit unions make these funds immediately available.  Technically, however, the credit union is actually advancing its own money assuming that it can simply reclaim its advances when the credits actually become effective.  Legally, this assumption is a safe one to make.  While there are exceptions to every rule, a bedrock principle of the NATCHA system is that the originator of an ACH is warranting that the money will be available on the settlement date.  (See NATCHA rules Subsection 2.4.1) 

Crucially, these warrantees are made at the time that a file is transmitted, not at the specified settlement date.  This means that if a receiving depository financial institution advances its own funds to make funds such as directly deposited paychecks available sooner than the settlement date, it has recourse against the originating institution in the event there are insufficient funds at settlement. 

In its request for comment, NATCHA is asking if the existing rules do not adequately allocate the risk of loss.  It points out, for example, that files are occasionally sent in error and creating lag time between when a file is transmitted and when it becomes available for use gives the originating institution time to request that its payment be reversed.  But this is a classic example of a seemingly arcane compliance debate that has big implications for consumers and customer service.  It seems to me that there are now millions of consumers out there who expect payments to be made available to them immediately.  The existing framework creates a black and white rule putting the originating financial institution on notice of its responsibilities the second it hits the send button. 

But this is just the opinion of one middle aged attorney who is distracted by dreams of watching his Islanders beat the Boston Bruins tonight.  The Association will be sending out a request for comments on this proposal to gauge credit union sentiment.  We’re curious to learn your thoughts.

Entry filed under: Regulatory, Technology. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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