Unauthorized and Questionable ACH Returns – New R11 Return Code Effective April 1, 2020

On April 1, 2020, Nacha’s Differentiating Unauthorized Return Reasons Rule took effect. This rule is designed to help Originating Depository Financial Institutions (ODFIs – aka, Merchant’s ACH Bank) and Originators (the Customer/Merchant), differentiate between Returns (ACH transactions that have come back unpaid),  related to a consumer’s claim that there was no authorization for payment vs. a consumer claim that an error occurred with a properly authorized payment. This will allow Nacha to more precisely measure the volume of Unauthorized Returns within the ACH network and provide Originators with the option to fix and resubmit debits that were returned for containing errors.

Details

This rule re-purposes Return Reason Code (R11) for use when a Receiver (the Customer/Merchant),  claims that there was an error with an otherwise authorized entry. Currently, Return Reason Code R10 is used as a catch-all for various types of underlying unauthorized return reasons including some for which a valid authorization exists, such as a debit on the wrong date or for the wrong amount. In these types of cases, a Return of the Debit still should be made but the Originator (the Merchant), and its customer (the Receiver), might both benefit from a correction of the error rather than the termination of the original authorization. The use of (R11) enables a Return that conveys this new meaning of “error” rather than “unauthorized.”

R10 – Customer Advises Originator Is Not Known to Receiver and/or Originator Is Not Authorized by Receiver to Debit Receiver’s Account

• The bank account is a Consumer Bank Account only;
• This code should be used for all returns of an unauthorized debit to a consumer account.

R11 – Customer Advises Entry Not in Accordance with Terms of the Authorization. This Code Should Be Used When:

• The bank account is a Consumer Bank Account only;
• The amount is different than that authorized by the receiver;
• Payment posted earlier than authorized by the receiver;
• Incomplete transaction (i.e., a payment to an intended third-party payee that was not made or completed by the originator);
• Improperly reinitiated entry;
• Improperly originated ARC, BOC, or POP entries.

R17 – Questionable (Effective: June 21, 2019)

• An RDFI would use R17 to return an entry that does not have a valid account number and the RDFI believes the entry was initiated under questionable circumstances. See Nacha, Return for Questionable Transaction
• RDFIs returning entries as R17 “QUESTIONABLE” must transmit the return under the standard 2-day return timeframe.
• Although not expressly required by the Rules, there are a number of steps that ODFIs should consider regarding receipt of R17 “QUESTIONABLE” returns. These steps may help mitigate their risk of originating potentially fraudulent entries:

1. Establish the ability to monitor and track R17 “QUESTIONABLE” returns received by Originators.  Each ODFI should set these monitoring/tracking parameters at a level that is relevant to its particular circumstances.
2. Educate Originators on the Network’s use of the R17 “QUESTIONABLE” return, including why RDFIs may believe that certain transactions were questionable.
3. Contact Originators when the number of R17 “QUESTIONABLE” returns crosses above a threshold that the ODFI has designated in its monitoring and tracking parameters.

Please Note

To return an Entry R10 or R11, the Receiving Depository Financial Institution (RDFI) must still obtain a signed Written Statement of Unauthorized Debit (WSUD) from the Receiver and return the Entry the ODFI no later than the opening of business on the Banking Day following the sixtieth calendar day following the Settlement Date of the entry.

WesPay offers more information on this rule change and its potential impact on your organization via the following webcast: ACH Returns R10 vs. R11 Return Codes: What’s the Difference (new login required).

Sources: WestPay, NACHA