News & Resources


APA Supports Nacha’s Proposals to Prevent Improper Use of ACH Reversals

BY: Curtis E. Tatum, Esq. | 06/24/20

Nacha recently requested comments on a set of proposals intended to prevent the improper use of ACH reversals. Nacha is proposing the changes, at least in part, due to a high-profile incident last year that involved the improper use of reversals of direct deposit payroll transactions. Due to the harm that an improper reversal can have on consumers, financial institutions, and the reputation of the ACH network, Nacha wants to clarify when reversals are permissible and increase the penalties when improper reversals occur. If adopted, the rules would become effective on January 1, 2021.

APA Support

APA’s Electronic Payments Committee reviewed the proposed changes to the rules and sent a letter on June 19 to Nacha supporting the proposals. “The proposed rules will create additional safeguards to prevent improper reversals and provide Nacha with enforcement measures that will serve to deter future bad actors. This will strengthen the ACH network and provide greater confidence in payroll direct deposit,” APA said.

ACH Reversals

The Nacha Operating Rules already define when a reversal is proper. The proposed changes to the rules would clarify that reversals made for any reason other than those specifically outlined in the rules would be improper. The rules would provide specific examples of circumstances in which the reversals would be improper. APA supports these changes and expects they “will provide guidance to participants in the ACH network and serve to prevent improper reversals.”

Expanded Enforcement

The proposed rules would authorize Nacha to enforce “egregious violations” – violations impacting at least 100 financial institutions or affecting entries in the aggregate amount of at least $1 million. The penalties would increase by treating the egregious violation as a Class 1 or 2 violation, which could result in a $500,000 fine per instance and a suspension from participation in the ACH network. APA generally supported these changes and suggested Nacha consider extending the definition of an “egregious violation” to 100 affected accounts because of the harm that an improper reversal can have on small businesses and employees being paid by direct deposit.

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Curtis E. Tatum, Esq., is Director of Federal Payroll Compliance for the APA.