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ACH: Limitations of Warranty Claims and Reg E

Published on Friday, March 26, 2021

ACH: Limitations of Warranty Claims and Reg E

As of June 30, 2021, there will be a new limitation on Warranty Claims (i.e., Breach of Contract) in the ACH Network. This new Rule limits the ODFI and Originators' liability for unauthorized ACH debits. Depending on the RDFI's current error resolution processes for claims of unauthorized ACH debits, the new claim windows could impact both the RDFI and their account holder.

 

Sound like a lot to manage? NEACH has you covered. To share more information and help members with these changes, on March 31, NEACH's Sandy Ortins, Senior Vice President, Operations and Rayleen M. Pirnie, Director, Risk & Fraud will examine issues during a webinar, such as friendly fraud causing rifts between RDFIs and ODFIs and how to use the breach of warranty claim consumer windows.

 

In advance of the webinar, we sat down with Rayleen to discuss issues with the new Rule, what FIs can expect to learn, and get a sneak peek of the March 31 webinar.

 

How do these changes impact financial institutions?

The information will vary depending on the participant. If you are an RDFI, it's going to limit what you can file against an ODFI and their Originator regarding Breach of Contract. Every state has their own breach of contract law; Nacha is trying to standardize liability under the Rules. The Breach of Contract will be transactions that a consumer says are not authorized. Prior to this Rule going into effect, RDFIs were having trouble recovering funds from ODFIs without going to a legal level. Under Regulation E or Reg. E, the RDFI is responsible for investigating, and the consumer is protected for the first 60 days of unauthorized activity; that could be 2-3 months' worth of payments. This offers standardization.

 

Is this a big change?

That depends. It's a big change for the RDFI that didn't even know there was such a thing as Breach of Contract. It has always been an option, and it was state law: It just wasn't written in the Nacha Rules.    

 

Why is this change happening now?

We just had a call with Nacha's legal counsel, and this question came up. As far as the timing, this is just when they were able to research and write the Rule. It's not like they were trying to head off something else, it just took a while to figure out how to balance Reg E and the timing of when they had the Rule finalized, approved, and then ready to release.

 

Are there aspects of this Rule that users might find difficult or challenging?

It's going to alter an RDFI's handling procedures for consumers and corporates who claim unauthorized transactions. For RDFIs, it's mostly understanding operational handling of consumer or corporate claims or unauthorized transactions. On the ODFI side, they may need to consider their overall risk and the time where Breach of Contract can be filed and review their contracts.

 

Join us to dive deeper into case studies and more information on this new Rule and how it might affect your institution. Learn more and sign up here.

 

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Author: Meagan Norlund

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