The new formats the electronic payments association has introduced in recent years were designed to make the ACH system more accessible to consumers and drive up volume, but they also have made it easier for criminals to exploit the system. Though fraud has risen, executives say that it has not yet reached a crisis point, and that the proposal is aimed at heading off the problem before it does.
Elliott C. McEntee, the Herndon, Va., trade group's president and chief executive, called the proposal "the most comprehensive thing we've done in risk management, probably, in the history of Nacha."
One of the proposal's key elements will be a fee for banks that originate unauthorized ACH payments - a fee that Nacha members rejected two years ago. The idea behind the "return network entry fee" then was to compensate receiving banks for the time and effort spent reviewing and reversing payments that other banks created and sent.
A majority of Nacha members supported the controversial proposal, but it did not get the two-thirds vote needed to pass.
Mr. McEntee said some members voted against the fee because they wanted it to be incorporated into a more comprehensive antifraud program. "They wanted us to more clearly identify what steps would be taken from a risk management perspective and how that fee would fit in," and Nacha is working on that now.
Leonard J. Heckwolf, the product executive in Bank of America Corp.'s payments and receipts unit, called the upcoming proposal "a stewardship issue" for the industry. Under the current rules, receiving banks must bear the costs of reviewing and correcting ACH payments that their customers say were not authorized; none of the costs may be passed on to the originating bank. Mr. Heckwolf called the setup a "structural flaw in the ACH network."
As long as transactions were confined to regular payments between known parties - such as direct deposit of wages into employees' accounts, or online bill payments - the error rates were low, and once a mistake is fixed, it generally stayed fixed.
However, some of the newer formats, which let consumers use the ACH network to make spontaneous, one-time payments, have increased risk. Mr. Heckwolf said the WEB and TEL formats, which let people initiate payments over the phone or online simply by providing a bank account number and a bank routing number, are particularly vulnerable to misuse, which has increased the number of unauthorized transactions that B of A must correct.
"This is very disruptive," he said. "I think the industry has got to solve this problem."
Mr. Heckwolf was the chairman of Nacha when the return entry fee was rejected, and he expressed some frustration with that outcome.
"We didn't do a good job of communicating the benefit to the receivers," he said.
However, Nacha says the upcoming proposal will give the industry the chance to evaluate both the fee and the broader issues that have led to increased ACH fraud risk.
Last year B of A was the top ACH recipient and the No. 2 originator. The number of payments it received rose 18.4% from a year earlier, to 972.6 million, and the number it sent rose 19.8%, to 879.1 million.
JPMorgan Chase & Co. was the top ACH originator by far last year, when the number of payments it sent rose 17.7%, to 2.7 billion. Mr. Heckwolf left JPMorgan Chase in March to join B of A.
