A special task force has formally asked the Federal Reserve System to modify its operating rules in order to place three private-sector automated clearing house operators on a more equal footing with the central bank.
The task force, made up of members of the National Automated Clearing House Association, recently drafted a position paper promoting more competition among public and private sector ACH operators. It was submitted to the Fed last month for consideration.
Sources said if the Fed does not respond positively to the recommendations, the issue would then be taken to the General Accounting Office, Congress' investigative arm.
That tactic could be used to force the Fed to take action on revising its ACH rules, bankers said. They pointed to a GAO study in 1992 that resulted in the Fed loosening its rules over check clearing, a processing service the central bank had historically dominated.
The task force's work is a result of the ACH association's "Fair Competition" action item, one of several recently approved items outlined in Nacha's strategic plan of 1994.
The strategic plan was adopted to meet the payment systems needs of banks and to eliminate the barriers to greater ACH usage.
The recommendations, if adopted, may very well result in the formation of additional private sector automated clearing house operators.
"It may lead to one or two more operators because there won't be disincentives to use private sector ACHs," said William B. Nelson, executive vice president with the association.
Paul Connolly, first vice president with the Federal Reserve Bank of Boston, acknowledged receiving the task force paper.
As product group director for Retail Services with the Fed's Management Committee, Mr. Connolly is responsible for the check and ACH services. He said Fed officials were busy evaluating the recommendations.
Mr. Connolly did not indicate a time when the Fed would complete the studies, but favored the "healthy competition" motives behind the paper..
"We really believe all of us should be working cooperatively on this," said Mr. Connolly, in reference to the private sector. "We'd like to focus, as our primary area of emphasis, on promoting the increased use of the ACH by business and consumers."
Elliot C. McEntee, Nacha's president and CEO, agreed that it was in everybody's interest to cooperate.
"It is important for all participants to work together to promote greater usage of the ACH network," Mr. McEntee said.
There are 13 Fed and three regional ACH operators that handle the processing of payment messages and settlements. The operators form the ACH network for transmitting payments and information to originating and receiving banks.
With market share at around 85 percent, the Fed processes the lion's share of automated clearing house transactions such as government and corporate benefits payments and direct deposit of payroll.
The task force position paper outlined three fundamental suggestions in the hopes of making private sector operators more competitive.
The first was a call for "at par" pricing. It entails only operators assessing only one charge to the bank receiving an ACH payment. Banks say operators can recover processing costs at more competitive pricing levels.
At par pricing is used by the new Private Sector Automated Clearing House Exchange, or PAX, operated by the Arizona Clearing House Association, The New York Automated Clearing House Association, and Visanet ACH, a Visa U.S.A. subsidiary.
But the Fed operator charges both the receiving and originating banks for ACH transactions to recover processing costs, regardless of whether the originating bank uses a private or Fed operator.
Since a bank invests in systems that connect with only one operator, the Fed's pricing creates a disincentive to use private sector ACH operators.
The task force also recommended the Fed should implement an automated net settlement system for private sector ACH operators in an effort to ease the burden of having a large number of institutions initiating wire transfers for settlement, a key issue to banks.
The task force claimed that reliance on Fed Wire results in settlements possibly being delayed when there are operational problems at banks.
"The recommendation would be that we send electronic entries that would be posted," said George Thomas, senior vice president with the New York Clearing House. "(The Fed) would debit Reserve accounts rather than banks actually having to wire funds from Reserve accounts to a special account."
Another motion made by the task force was to develop a consistent set of exchange deadlines between ACH operators. That would allow member banks of private sector ACH operators to send payments later in the day.
