Just when I thought that I understood all there was to understand about ACH transactions, I came across an article by Payliance that explained the whole process, particularly that part of the ACH transaction when there are (i) insufficient funds, (ii) a stop payment order, or (iii) incorrect account information.  Any of these events will result in a failure of the transfer of funds.  I got permission from Payliance to share some information with you.  Their blog article can be found here.  

For those who may be unfamiliar with an “ACH,” know that the letters stand for “Automated Clearing House.”  The Automated Clearing House is an electronic means for transferring funds that allows consumers to make payment for goods and services.  Many finance company customers choose to use ACH as a means to make regular monthly repayment of debt.  (Recall that requiring an ACH payment is problematic under the proposed CFPB Small Dollar Loan Rule. See my article from June 24, 2019, about that issue here.)

The ACH process appears seamless enough.  But, it is actually pretty darn sophisticated, with many transitional steps and processes to assure that settlements occur as intended.  Occasionally, there are interruptions in the process, particularly when there are insufficient funds in the consumer’s account to complete the authorized payment.  As Payliance points out, there are actually 80 different reasons why an ACH payment may be rejected!

We get most concerned when we experience an ACH return.  That means that the money intended to come to us doesn’t.  So, what then?

Well, of course, the finance company reverses any “credit” applied to the customer’s account if, after re-initiating the withdrawal up to two additional times, the funds remain uncollected.  This “two times” rule is applicable to returns coded R01—Insufficient Funds or R09—Uncollected Funds only.

Most states permit “bad check” charges to be applied to ACH returns since an ACH return is the equivalent of a bounced check.  Before applying such a charge to a customer’s account, however, be certain that the law of your state permits this.

And, what about a merchant who is selling goods and accepting an ACH payment? Well, if the goods are gone, and the ACH is returned, the fun is just beginning… Let’s just say that it may be best to delay delivery until after the payment has cleared!

Now you know a little bit more about the ACH process and ACH returns.  

Please note: This is the eighty-fourth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.