APA Backs Same-Day By Curtis Tatum, Esq.
ACH Settlement Option
In September, the APA and NACHA -- The Electronic Payments Association, conducted a survey to determine the level of support among payroll professionals for a same-day ACH settlement option. The survey results indicated broad support for the proposal. In December, NACHA released its same-day ACH proposal. At the same time, NACHA also issued a request for comment concerning the proposal. The APA, through its Electronic Payments Committee, reviewed the plan and responded with comments that both supported the proposal and provided some recommendations to improve the proposal as it relates to payroll professionals.
Broad Support for Faster Payments
During National Payroll Week®, NACHA and APA conducted a Trendline Survey to determine the level of support among payroll professionals for same-day ACH transactions. In a November 24 press release, NACHA stated that: "More than 90% of respondents indicated that same-day ACH would help them in meeting their payroll needs."
Additional survey results highlighted by NACHA include: "97% of respondents identified same-day ACH as a service that would add value to their organizations, and more than 86% confirmed that same-day ACH capabilities would benefit their organizations beyond payroll functions."
APA's Executive Director Dan Maddux interpreted the results, stating, "'APA members overwhelmingly support the concept of same-day ACH settlement, which will allow businesses greater flexibility when making payments and correcting errors and to maintain compliance without reverting to paper checks.'"
NACHA's Same-Day ACH Settlement Proposal
Currently, ACH payments are settled on the next business day. NACHA's proposal would add additional settlement windows so that ACH transactions could be processed on a same-day basis. NACHA intends to implement the capability in a "phased approach." The first phase, effective September 16, 2015, would allow for processing of credits and would establish same-day ACH processing windows at 10 a.m. and 3 p.m. ET. The second phase would expand the processing capability to both credits and debits and would be effective on September 15, 2017. The final phase, effective March 16, 2018, would introduce a new settlement time of noon ET, in addition to the existing 5 p.m. ET settlement.
NACHA's proposal would limit some of the transactions that are eligible for same-day settlement. Under the current proposal, single transactions over $25,000 would be barred from same-day settlement. International ACH transactions (IAT) would also not be processed on a same-day basis. For additional information about technical aspects of the proposal, see NACHA's webpage devoted to same-day ACH.
In its comment letter, the APA reiterated its support for same-day settlement of ACH transactions and noted that "there are certain payroll transactions that employers may especially appreciate being able to process on a same-day basis. These transactions include off-cycle direct deposits, termination pay, and remittance of tax payments on the due date." It is also important to note that this will be an added feature of the payment system; those not wishing to use the same-day ACH settlement process would not be required to do so.
While the APA supports the move toward a faster payment system, it did provide some suggestions to improve the proposal. The current proposal requires that RDFIs make funds available at 5 p.m. local time for same-day ACH transactions. Because of the desire to process payments faster, the APA noted that, for transactions that settle at noon, "some APA members would benefit from having funds available earlier than 5 p.m."
Another element of the proposal that could slow down payment transactions, especially for payroll service providers, involves the phased implementation plan. Payroll service providers would benefit from same-day settlement of both credits and debits in the first phase, rather than just credits. This is because "the payroll processor may be able to credit an employee more quickly, but will be limited by the time it takes to debit the employer's account."
The APA also recommends that NACHA remove the $25,000-per-item limit on same-day settlement transactions. The APA stated that the limit "will prove to be an impediment for employers (or their payroll processors) paying highly compensated employees. While NACHA estimates that 98% of all ACH payments fall below that threshold, the remaining 2% would amount to more than 400 million transactions per year (based on NACHA reports that ACH volume exceeded 21 billion transactions in 2012). As an example, the $25,000 limit can be expected to interfere with same-day ACH payments made to executives, entertainers, and professional athletes."
While the APA recommended some changes to the same-day ACH settlement proposal, it strongly supports the move to a faster payments system. The APA noted that its recommendations are "intended to help with the implementation of the proposal and are not meant to detract from the goal of faster ACH transactions."
The Future of Same-Day ACH Settlement
In its Same-Day ACH RFC Update, NACHA noted that it received more than 200 responses to its request for comment. Once it conducts a thorough review of the responses, it will provide a summary of the comments. NACHA also made clear its intention to continue with its standard rulemaking process and to move forward with the implementation of same-day ACH transactions. NACHA expects to modify the proposal based on the comments it has received, and its goal is "to issue a ballot to adopt the refined Same-Day ACH Rule in Q2 2015." The APA's Electronic Payments Committee will continue to monitor the implementation of the same-day ACH settlement process and will provide additional suggestions as warranted.