Re: Request for Comment on Increasing the Same Day ACH Dollar Limit
Maribel Bondoc
Manager, Network Rules
NACHA, The Electronic Payments Association
13450 Sunrise Valley Drive
Herndon, VA 20171
Dear Ms. Bondoc:
Thank you for the opportunity to comment on the Request for Comment on Increasing the Same Day ACH Dollar Limit issued on December 7, 2020. The American Bankers Association1 appreciates your efforts to improve the ACH experience by amending the rules in response to industry demand. We look forward to working with you to make larger Same Day ACH payments possible and safer in the future.
The proposal would increase the dollar limit on Same Day ACH transactions in a series of steps starting with a change from the current $100,000 to $1 million on March 18, 2022. The second step would raise the limit to $10 million on March 17, 2023. The final increase on March 15, 2024 would make the Same Day ACH limit the same as the standard ACH limit of $99,999,999.99.
The proposal recognizes that these increases could increase fraud and operational risk for financial institutions. To mitigate the risk, the rule would allow Nacha to pause any increase to the limits for up to six months. The proposed rule would provide a 60 day notice period of any pause.
The proposal’s tiered approach allows for the network’s participants to raise the limits in three stages. This removes the administrative burden of having to pass three separate rules for each specific stage.
ABA recognizes the benefits of increasing the dollar limits on Same Day ACH transactions in a series of steps and supports these changes. However, ABA also recognizes that the potential increase in fraud and operational risk is real and the tools to mitigate that risk must be clearly outlined in any final rule change that is put to a vote.
The Same Day ACH limit increases must be accompanied by a robust “circuit breaker” that will allow Nacha to halt any future increases with short notice. Further, the circuit breaker should also allow the Same Day ACH limit to be rolled back quickly if an increase caused a sudden spike of fraud or operational risk issues.
Increasing the Same Day ACH limit will benefit the industry by allowing larger transactions to be sent faster. The first phase, increasing the limit from $100,000 to $1 million, has the strong support of ABA. However, as the allowed transaction limit grows to $10 million in 2024 and $99,999,999.99 the next year we have concerns about managing fraud and operational risk.
The fraud risk is mitigated somewhat by the ability to return transactions in the next ACH window. Another mitigating factor is that while larger ACH transactions are allowed, the Originating Depository Financial Institutions (ODFI) may set lower limits for their customers. Financial institution customers would be subject to extensive due diligence before they were granted the ability to initiate ACH credits or debits for tens of millions of dollars.
There is significant concern that very large transactions that are processed in the last ACH window may affect the funding level of the Receiving Depository Financial Institutions (RDFI). This risk may affect smaller financial institutions to a greater extent if they maintain lower balances in their Federal Reserve Master Account. For example, a healthy smaller financial institution that receives a $99 million ACH debit runs the risk of incurring a daylight overdraft where they may be granted intraday credit from the Federal Reserve for a fee if the loan is not collateralized. If the financial institution does not settle the daylight overdraft by the close of business it becomes an overnight credit that incurs higher fees. If a very large debit is received during the last ACH window of the day it becomes more difficult to fund the transaction in time to avoid an overnight credit and the fees associated with it.
It is important that Nacha provide a detailed strategy for monitoring how these proposed increases affect all banks with particular attention to smaller institutions that maintain lower balances and have a greater chance of incurring an overdraft.
ABA recommends that the proposed Same Day ACH increase to $1 million be implemented as proposed in 2022.
ABA recommends that Nacha create a comprehensive circuit breaker review process to monitor the market to determine if these transaction limit increases cause an increase in intraday overdrafts and overnight credit situations. Nacha should develop this strategy in coordination with financial institutions and the Federal Reserve prior to the second phase when the limit increases to $10 million in March 2023.
ABA recommends that the second proposed increase to $10 million be implemented as proposed in 2023 if the risk is determined to be acceptable by through the circuit breaker review process.
ABA recommends that the third proposed increase to $99,999,999.99 in 2024 be considered only after an extensive circuit breaker review process that takes into consideration the risk associated with raising the transaction limit by $90 million per transaction. If it is determined the increase will create a significant risk then implementation should be deferred.
Additionally, the revised proposal should enable Nacha, with industry and Federal Reserve input, to quickly halt any proposed increases and even to rollback limits if they are found to trigger an increase in daylight overdrafts and overnight credit situations. The ability to roll back limits was not contemplated in this proposal, but should be included in the final proposal. For example, if these increases cause significant disruption when the limit is increased from $1 million to $10 million in 2023, Nacha must be empowered to reduce the dollar limit quickly without needing to implement another rulemaking.
ABA would like to thank NACHA for the opportunity of responding to the Request for Comment on Increasing Same Day ACH Dollar Limit. We look forward to working with you to gather industry feedback on the recommendation to monitor the effect of these increases, especially if there is an increase in daylight overdrafts or overnight credits. If you have any questions about these comments, please contact the undersigned at (202) 663-5147.
Sincerely,
Stephen K. Kenneally
Senior Vice President, Payments