Why it matters

Continuing its efforts to modernize the U.S. payments infrastructure, the Federal Reserve Board of Governors announced that effective September 23, 2016, receiving depository financial institutions (RDFIs) who participate in the FedACH network will be required to accept same-day automated clearing house (ACH) transactions. In addition, originating depository financial institutions (“ODFIs”) will be required to pay RDFIs an initial fee of 5.2 cents per same-day ACH transaction. “Same-day ACH capability will facilitate the use of the ACH network for certain time-critical payments, accelerate final settlement, and improve funds availability to payment recipients,” the Federal Reserve said in a statement. “The board believes that these capabilities will in turn provide a more efficient electronic payment option for person-to-person payments, expedited bill payments, same-day payroll payments, and other types of transactions.” Some credit unions and smaller banks opposed the change, expressing concern that they would be left with an unfair cost burden as they only process a small number of requests on a given day, but the Board said the rule had to be applied consistently to all entities in order to achieve the ubiquity necessary for success of same-day ACH service.

Detailed discussion

Emphasizing the importance of modernizing the payment system, the Federal Reserve Board of Governors announced final approval to a rule mandating acceptance of same-day ACH service by RDFIs who participate in FedACH.

Currently, same-day service is optional under a program that was introduced in 2010. But over the last five years, just 78 financial institutions (i.e., less than 1% of participants) have adopted the service. To encourage the adoption of same-day service, NACHA announced changes to its operating rules that would allow same-day clearing and settlement. The Federal Reserve followed with a proposed mandatory rule in May and requested comment from industry.

The new rule provides for an interbank fee, not to exceed 5.2 cents, to be paid by originating depository financial institutions (ODFIs) for each same-day transaction they send to RDFIs. The fee is meant to help RDFIs offset operating costs for accepting, posting, and making funds available for same-day transactions. If same-day ACH volume exceeds projections by more than 25 percent during one of the regularly scheduled review periods, the fee will be reduced. Ten years after implementation is effective—and every ten years thereafter—NACHA will reevaluate the interbank fee.

The majority of the comments on the proposal were positive, the Board said, with 27 of the 39 commenters on the issue of a mandatory rule agreeing they were required for the success of same-day ACH service. Others expressed concern about the cost of the mandatory rule. Some credit unions and smaller banks told the Federal Reserve that the technical and operational changes necessary to receive same-day ACH transactions would be overly burdensome and they would be unable to offset the associated costs of receiving the transactions because of their lower same-day volume.

Two of the credit unions proposed exempting smaller depository institutions from the mandatory receipt requirements, but the Fed disagreed, stating that “the benefits of same-day ACH service outweigh the costs institutions would incur to implement such a service.” Ubiquity was also necessary to achieve the benefits of the service, as the limited adoption of the optional program “demonstrates an optional service cannot achieve the ubiquity necessary to establish a successful same-day ACH service,” the Federal Reserve explained. “The Board agrees with the majority of commenters that mandating receipt of same-day ACH transactions is the only practice method to achieve that necessary ubiquity and the corresponding benefits.”

The interbank fee also drew comment from the industry, with 32 of the 34 commenters in support of a charge and 21 of those agreeing that 5.2 cents per transaction was a reasonable fee. Some of the commenters (credit unions and one bank holding company) backed an interbank fee but argued the 5.2 cent amount was too low for smaller institutions to recover their costs in a reasonable amount of time. Two comments suggested a tiered fee structure instead of a flat fee.

Again, the Board stuck with the proposed rule as a needed business justification for mandatory adoption, noting that the current optional program does not include an interbank fee and has resulted in a low adoption rate by FedACH participants. As for the amount of the fee, the Federal Reserve said it reviewed the methodology used by a NACHA consultant to calculate the amount and found the data and analysis provided a reasonable basis for the fee.

“The Board believes that the lower interbank fee of 5.2 cents, combined with regularly scheduled reviews to determine any necessary reduction in the fee in pre-calculated intervals, allow cost recovery … over time while maintaining the attractiveness of the same-day service,” the Fed said.

The same-day ACH service will roll out in three phases, beginning Sept. 23, 2016. Phase I will provide for same-day processing of ACH credit transactions to include hourly payroll, person-to-person payments, and same-day bill payments. The second phase will add ACH debits to same-day processing as well as consumer bill payments and Phase III will require RDFIs to provide faster ACH credit funds availability.

Some industry members hailed the final rule, including NACHA and the Independent Community Bankers of America, which called same-day capability “a significant improvement for the nation’s payment system.”

“With the Federal Reserve’s support of the NACHA rule, the industry’s commitment to modernizing the payments system and enabling a ubiquitous faster payment option can be fully realized,” NACHA President Janet O. Estep said in a statement. “Same Day ACH is a game changer as it will enable new options for consumers, businesses and government entities that want to move money faster, and will serve as a building block for enabling payments innovation in the development of new products and services.”

Others expressed concern about the potential costs. “While NAFCU and our members believe that ubiquitous Same-Day ACH capability represents an improvement for the nation’s payment system, we continue to have significant concerns regarding the board’s inadequate interbank fee and for credit unions to affordably receive, process and settle those payments in near-real time,” said Carrie Hunt, senior vice president of Government Affairs and general counsel for the National Association of Federal Credit Unions.

To read the Federal Reserve’s Federal Register notice about the rule, click here.