NACHA Adopts Same-Day ACH Rule

Update: The Federal Reserve received forty comments in response to its request.   A majority of the commenters supported both mandatory participation by RDFIs and the same-day fee payable by ODFIs to RDFIs.  Many commenters agreed with the Federal Reserve’s assessment that the ubiquity necessary to establish a successful same-day ACH service could not be achieved without mandating receipt of such transactions.  However, a number of commenters remained concerned over the amount of the mandatory interbank fee and its potential for future increase, similar to what has been observed in the card industry.  Others argued for a sliding scale fee inversely proportional to RDFI size, as larger RDFIs would recover their costs more quickly given a flat fee.  The Federal Reserve examined the assumptions, inputs and methodology used by NACHA to calculate the 5.2¢ amount and declared itself satisfied that the amount of the fee, as well as the schedule under which the fees may be reduced in future, were both reasonable.  As a result, the Federal Reserve approved enhancements to its existing same-day ACH service to incorporate NACHA’s amended operating rules.   The enhancements will become effective Sept. 23, 2016.

(Post from June 5, 2015 below)

On May 19, NACHA adopted a rule enabling the same-day processing and settlement of most types of ACH payments (same-day rule). In 2012, NACHA had proposed an Expedited Processing and Settlement (EPS) rule providing for a single additional clearing window that was voted down by NACHA members. We analyzed that proposal in an earlier PLA post. NACHA’s explanation for the failure of the EPS proposal was that the proposal did not provide enough new functionality for Originating Depository Financial Institutions (ODFIs) and their Originators to support same-day ACH use cases, such as for same-day payrolls and for West Coast users; and that there was an insufficient business rationale for Receiving Depository Financial Institutions (RDFIs) to justify their required investments.

The newly adopted rule addresses the issues that caused the failure of EPS and enables same-day ACH payments (in addition to the existing next-day settlement framework) by making the following operational changes:

• ODFIs will be able to submit files of same-day ACH payments through two new clearing windows:
  • A morning submission deadline at 10:30 am, with settlement occurring at 1:00
  • An afternoon submission deadline at 3:00 pm, with settlement occurring at 5:00

In addition, the existing clearing window with a submission deadline of 2:15 am and settlement at 8:30 am (credit) or 11 am (debit) will continue to operate (all times EST unless otherwise noted).

• All RDFIs will be required to:
  • Receive same-day ACH entries.
  • Make funds from same-day ACH credit transactions available to depositors by 5 pm in the RDFI’s local time.
• ODFIs will pay RDFIs a same-day fee of 5.2¢ per transaction, subject to review and revision by NACHA.

Domestic transactions above $25,000 and international ACH transfers will be ineligible for same-day processing; however according to NACHA these currently account for less than 1% of ACH transactions. The interbank fee was critical to the ubiquitous adoption of the same-day rule, with 57% of RDFIs that responded to NACHA’s request for comment stating that they would not support adopting same-day ACH without such a fee. All banking organizations supported the inclusion of the interbank fee, indicating that ODFIs intend to pass through the fee to originators in a manner similar to interchange costs for card transactions. Predictably, merchants objected to the size of the fee (8.2¢ in NACHA’s first proposal, as opposed to the current cost of approximately 0.25¢ for participating financial institutions to receive or send a transaction). Merchants also objected to the concept of network price-setting generally, asserting that banks should be allowed to compete on pricing. They also found NACHA’s calculation methodology problematic, as it originally included compensation for RDFI opportunity costs for migration from other, higher-margin payment methods, in addition to RDFI investment and operational costs. In response to these concerns, NACHA changed its calculation methodology (including removing RDFI opportunity costs), resulting in the 5.2¢ fee in the final rule. The tables below summarize the general submission and settlement times for ACH credits under the same-day rule and the legacy NACHA rules. Adoption of the same-day rule will give businesses and consumers greater flexibility in making and receiving payments, particularly in the payroll, invoice and bill payment contexts where late payments may result in severe consequences.

ACH Credit Transaction Settlement Timeframes

Post-Same-Day Rule

Submission Timeframe	Effective Entry Date = Day 0	Effective Entry Date = Day 1
Before 10:30 am on Day 0	Settles at 1 pm on Day 0; Available by 5 pm on Day 0	Settles at 8:30 am on Day 1; Available by 9 am on Day 2
After 10:30 am on Day 0, Before 3 pm on Day 1	Settles at 5 pm on Day 0; Available by 5 pm on Day 0	Settles at 8:30 am on Day 1; Available by 9 am on Day 2
After 3 pm on Day 0, Before 2:15 am on Day 1	Settles at 8:30 am on Day 1 Available by 5 pm on Day 1	Settles at 8:30 am on Day 1; Available by 9 am on Day 2
After 2:15 am on Day 1	Settles at 1 pm on Day 1; Available by 9 am on Day 2	Settles at 8:30 am on Day 2; Available by 9 am on Day 3

 

ACH Credit Transaction Settlement Timeframes

Pre-Same-Day Rule (Current)

Credit Submission Timeframe	Effective Entry Date = Day 0	Effective Entry Date = Day 1
Before 10:30 am on Day 0	Settles at 8:30 am on Day 1; Available by 9 am on Day 2	Settles at 8:30 am on Day 1; Available by 9 am on Day 2
After 10:30 am on Day 0, Before 3 pm on Day 1	Settles at 8:30 am on Day 1; Available by 9 am on Day 2	Settles at 8:30 am on Day 1 Available by 9 am on Day 2
After 3 pm on Day 0, Before 2:15 am on Day 1	Settles at 8:30 am on Day 1; Available by 9 am on Day 2	Settles at 8:30 am on Day 1 Available by 9 am on Day 2
After 2:15 am on Day 1	Settles at 8:30 am on Day 2; Available by 9 am on Day 3	Settles at 8:30 am on Day 2 Available by 9 am on Day 3

Bank Implementation of the Same-Day Rule

The same-day rule is scheduled to be rolled out in three phases, contingent on receiving confirmation from the Federal Reserve to support the rule:

• Phase 1 will become effective on September 23, 2016. During this phase:
  • Only same-day ACH credit transactions will be enabled (no same-day debit);
  • Same-day credits need not be made available for withdrawal on the settlement date (however the next-business day availability requirement imposed by Regulation CC on electronic payments will still apply).

• Phase 2 will become effective on September 15, 2017. During this phase:
  • Both same-day ACH credit and debit transactions will be enabled;
  • Same-day credits still need not be made available for withdrawal on the settlement date.

• Phase 3 will become effective on March 16, 2018. During this phase:
  • Same-day credits must be made available for withdrawal no later than 5pm in the RDFI’s local time on the settlement date.

ACH Operator Implementation of the Same-Day Rule

Implementation of the same-day rule is dependent on adoption of the revised clearing windows by one or both of the existing ACH Operators (currently the Federal Reserve and the Electronic Payments Network). On May 21, the Board of Governors of the Federal Reserve announced its intention to incorporate the amended NACHA operating rules into Operating Circular 4 and implement the mandatory same-day service. The Board seeks comments on two key aspects of the same-day rule:

1. Whether participation by RDFIs should be mandatory (in contrast to the Federal Reserve’s FedACH SameDay Service, which has seen limited adoption) and if not, whether there are non-mandatory alternatives to achieving ubiquity; and
2. Whether the proposed same-day fee equitably reapportions the initial implementation costs and ongoing operating costs between ODFIs and RDFIs.

Comments may be submitted until July 2, 2015 through the Federal Reserve site. Earlier this year, the Federal Reserve issued a white paper on Strategies for Improving the U.S. Payment System following public input on a consultative paper on the same topic, which we analyzed in an earlier PLA post. In the white paper, the Federal Reserve identified a real-time payment system as one of its top desired outcomes, which we analyzed in an earlier PLA post. The Federal Reserve has recently named a Payments Strategy Director with responsibility for leading the payment system improvement initiatives described in the white paper. Implementing same-day ACH transactions is an important step to creating a faster and more efficient domestic payment system.