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Nacha's Limitation on Warranty Claims Rule

3/18/2021 - By Janice Weisz, AAP

Under the current Nacha Rules, an ODFI warrants that an ACH entry has been properly authorized by the Receiver. The Rules allow extended returns for unauthorized entries for limited periods but do not establish a time limit on the ODFI’s warranties. That time limit is determined by statutes of limitations, which vary from state to state, and can be as long as ten years. 

Effective June 30, 2021, Nacha’s Limitation on Warranty Claims Rule will expressly limit the time in which an RDFI may make a claim against the ODFI’s authorization warranty.

For an entry to a consumer account, the limit will cover two time periods:

  1. The RDFI may make a claim for two years from the settlement date of the entry. In other words, the RDFI can make a claim for unauthorized debits settling within the most recent two years from the date of the RDFI’s claim.
  2. Additionally, if more than two years have elapsed, an RDFI may make a claim for entries settling within 95 calendar days from the settlement date of the first unauthorized debit to a consumer account. The 95-day time period is designed to allow RDFIs to make claims for all cases where they may be liable to their consumer customers under Regulation E, which requires a consumer to report unauthorized transfers within 60 days of the financial institution’s transmittal of a statement to avoid liability for subsequent transfers.

For an entry to a non-consumer account, an RDFI may make a claim for one year from the settlement date of the entry.

The June 30, 2021 effective date applies to an RDFI’s ability to make a claim and not to the settlement date of the entries.

RDFI’s please note, this rule does not have any impact on the ACH network’s return time frame for unauthorized debits; it only applies to warranty claims.  An RDFI returning an unauthorized debit to a consumer account must still transmit the return in such time and manner that the return entry is made available to the ODFI no later than the opening of business on the banking day following the 60th calendar day following the settlement date of the original entry. The RDFI is required to execute a Written Statement of Unauthorized Debit (WSUD) for these returns. An RDFI returning an unauthorized debit to a non-consumer account must still transmit the return in such time and manner that the return entry is made available to the ODFI no later than the opening of business on the second banking day following the settlement date of the entry.

Impact to Participants

ODFIs and Originators

ODFIs and Originators may see a reduction in warranty claims that fall outside the time periods established by this rule and may see liability for some older transactions shift to RDFIs and Receivers.

RDFIs

RDFIs should examine their processes for handling warranty claims for unauthorized transactions. RDFIs may need to make changes to ensure that they only claim entries settling within the time periods permissible under the Rules.

Receivers (Consumers and Non-Consumers)

Receivers should review their statements and report unauthorized activity to their RDFI in a timely manner.

For more information, you can visit Nacha’s website.

Staying in compliance can be challenging, if you have any questions or need assistance preparing for these new Nacha Rules, email me or a member of our Financial Institutions Team so we can help.

About the Author | Janice Weisz, AAP
Janice is a consultant in the Financial Institution Advisory Group at Saltmarsh, Cleaveland & Gund. Janice has been working with financial institutions since 2001 with an emphasis on operations, compliance, audit and internal controls. She currently provides ACH compliance, NACHA compliance, internal audit and other consulting services to the firm’s financial institution industry clients. Connect with Janice on LinkedIn!


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