Topic: Automated Clearing House (ACH) Transactions
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Some of our loan customers make their payments from checking accounts held at other banks. Our bank originates ACH transfers to pull loan payments from the borrowers’ outside checking accounts. Can we charge a fee if these payments are returned for insufficient funds (NSF)? If so, does our bank need to disclose this fee?
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Yes, your bank may charge an NSF fee, and yes, it must be disclosed and agreed to by your customers. We are unaware of any limitation on charging reasonable NSF fees for returned ACH transfers under Illinois law. The Illinois Uniform Commercial Code (UCC) generally limits returned check fees to $25, but this limitation applies…
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Under the new Illinois unclaimed property law, would auto debits for utility payments or payroll direct deposits be considered “previously authorized recurring ACH transfers,” meaning that they do not count as indications of interest?
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Yes, we believe that automatically recurring ACH credits and debits are excluded from consideration as indications of interest. The Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) provides that deposits and withdrawals are activities that count as indications of interest, but it excludes previously authorized recurring ACH debits and credits. This exclusion would cover previously…
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What are the record retention requirements for our bank’s internal records of loan account and deposit account transactions? For loans, we have the loan agreements and account statements, but our internal transaction records are harder to track down.
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Regarding your internal records for deposit account transactions, FinCEN and the NACHA rules impose record retention requirements for certain transactional records. If the FinCEN or NACHA retention periods do not apply, the record retention period for these documents would be a business decision for your bank as embodied in your document retention policy. FinCEN imposes…
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If a commercial customer issues a written stop payment order with respect to a recurring preauthorized ACH debit entry, does that stop payment order apply to all future recurring transfers indefinitely? Or does it apply only to one specific transfer and only for a period of six months? Also, can a consumer customer stop payment on a preauthorized electronic transfer any time before it posts on their account? Or can our bank require three business days’ notice?
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In our view, a commercial customer’s written stop payment order regarding a preauthorized recurring ACH transaction applies only to a single transfer and is limited in duration to six months, unless it is renewed in writing. The NACHA rules distinguish between consumer and non-consumer stop payment orders. With respect to consumer stop payment orders, the…
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A former business customer has a loan that has been charged off. An ACH credit transaction came in this morning to the customer’s old business checking account, which is now closed. Can we use the ACH payment to offset the charged off loan? Or do we have to return the payment? The transaction was a corporate credit entry (“CCD”). The business customer’s checking account was closed at our request as part of the workout regarding the overdue loan. The business customer has been dissolved and no longer exists.
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No, we do not believe that your bank may exercise a right of setoff in this situation. While your deposit account agreement and your loan agreement likely both provided for a right of setoff relative to funds your former customer had on deposit, that customer no longer has funds on deposit, precluding a right of…
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One of our customers recently reported unauthorized ACH transfers out of her deposit account. The unauthorized transactions started over five months ago. Are we liable for the last sixty days of unauthorized transactions, or for the first sixty days of unauthorized transactions?
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Your bank may be liable for the unauthorized transactions that occurred within sixty days after transmitting the first periodic statement containing the unauthorized transaction. Your customer is liable for the unauthorized transactions that occurred after the sixtieth day, due to her failure to notify your bank. Under Regulation E, when a customer fails to report…
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One of our customers had set up automatic transfers from his checking account at our bank to make loan payments (for non-credit card loans). The customer has died. Can we continue withdrawing loan payments? What other procedures should we follow?
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We recommend reviewing your bank’s agreement with the customer that authorizes the automatic loan payments. If it provides that the customer’s debit authorization expires when the customer dies, your bank should cease debiting the loan payments. If your agreement is silent on this issue, your bank may be able to continue debiting the loan payments.…
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For how long can we hold an incoming wire from a receiving bank before sending it back due to incorrect information, no account number found, closed account, etc.?
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The Uniform Commercial Code (UCC) requires your bank to accept or reject incoming wire transfers by “the next funds transfer business day of the bank following the payment date of the order.” After that time, the wire transfer is deemed accepted, and your bank will be responsible for paying your customer the wired funds —…
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Do we qualify for the safe harbor exemption from the Regulation E international remittance transfer rules? Our customers receive more than one hundred international ACH transactions (IATs) every year; do those transactions disqualify us? These IATs typically are Paypal transactions, and we are the receiving financial institution.
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No, we do not believe that IATs received by your bank would disqualify your bank from the safe harbor exemption in Regulation E. The Regulation E remittance transfer rules exempt entities that provided one hundred or fewer remittance transfers in the previous and current calendar year. A remittance transfer is one “requested by a sender…
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At a recent seminar, we were told that electronic deposits are subject to next-day availability, as with cash deposits and wire transfers. Our bank’s person-to-person (transfers between customers and recipients at other banks) and bank-to-bank transfers (transfers to an account held by the same customer at another bank) are processed as ACH debit transfers, and we place a one-day hold on such transfers before making the funds available to our customers. Are these electronic payments that would be subject to next-day availability?
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ACH Debit Transfers No, ACH debit transfers are not “electronic payments” for purposes of Regulation CC’s next-day availability requirements. In Regulation CC, an “electronic payment” includes ACH credit transfers, but not debit transfers. As explained in the Official Interpretations to Regulation CC, because an ACH debit transfer is more like a check than an ACH…