True Cost Of ACH Outage Unknown
Corporate credit unions affected by the shutdown of U.S. Central's ACH processing capabilities are now awaiting the mailing of month-end statements to members of natural-person CUs to determine the true cost of reimbursing people for costs incurred for checks that shouldn't have bounced.
To date, those costs have been minimal, corporates across the U.S. told The Credit Union Journal, and one person said the real cost isn't financial-it's about credibility. In the meantime, NCUA declined any comment on safety-and-soundness-related issues resulting from the ACH meltdown, while several of the corporates interviewed indicated they have learned a number of lessons from the two-day outage, and are making some changes.
As The Credit Union Journal was the first to report, a line of code in U.S. Central's APEX ACH software that neither the corporate nor its software provider, ACI International, knew about created a limit on the number of batches a financial institution can process. On April 4, U.S. Central hit that limit, triggering a total shutdown of the system that serves 25 corporate credit unions and 2,200 natural person credit unions. When the corporates' corporate went to switch over to its backup system, it discovered that "operator error" had corrupted the back-up data as well. The system was down or partially down for about 48 hours.
"I don't believe there are any major safety and soundness issues, and the total fallout for all 188 [of SunCorp's natural person CUs] is at about $2,000 in overdraft fees to date. In my view that is not a huge impact," said SunCorp CEO Eric Kenealy. "But there's no question that credit unions' credibility took a hit on this one, and we have got to do a much better job. This has alerted us to some of the weaknesses in our recovery systems."
Perhaps the good news is that CUs may have dodged the bullet of bounced checks that were expected as a result of the two-day ACH outage, but the real proof will come with April statements.
"We're not seeing much bounced check activity, it was much lower than expected," said Sileshi Dereje, vp-electronic payment services at Western Corporate CU, San Dimas, Calif. "We're not hearing much from our member credit unions about bounced checks, but that could change when April statements go out because some members may not even realize they've bounced any checks, yet. Of course, we did hear about some members standing in the lobbies and at teller windows asking, 'where's my money?' But so far it has been relatively quiet. Certainly, I expect more to come once the statements go out."
Mid-States Corporate CU, Warrenville, Ill., also saw little change in returned check volume. "Certainly, our members didn't enjoy the process, but overall, we didn't get a lot of negative feedback," said Mike Thomas, VP-marketing at Mid-States. "We had a number of compliments about how we handled the situation...U.S. Central was very good about keeping us informed, and every time we heard from them, we in turn were communicating with our members. Our members weren't in the dark."
"Our members understand that these things can occur... We kept up a fairly regular dialogue, even if it was just to tell them that we still didn't know the answer to a question they had for us," related SunCorp's Ed Beckmann. "They were very understanding, but even so, they still do want to know what we are going to do in the future."
That's not to say that there weren't any lessons learned. "I'm not sure we realized the gravity, the magnitude of the problem initially," Kenealy related. "It probably took about six to eight hours for us to fully grasp the true magnitude of this situation, and we definitely need to improve that timeline."
"We certainly found something new to put on our list to check," Thomas commented. "But overall we didn't get a lot of negative feedback from our members, so we're not anticipating any major changes to our back up or communication plans. I was surprised by how complimentary our members were, because this certainly had the potential to be a major disaster for our members."
SunCorp, Arvada, Colo., said its members also were largely pleased with how the corporate handled the situation but is still exploring ways to improve its response to such a situation.
"One thing we are doing is we are putting together a 24-hour contact list for our members so they will always know whom to contact and how to get in touch with us," Beckmann offered. "We want to make sure we are more accessible to our members."
The corporate is also working on establishing its own contingency plan. "In the past, we always just relied on U.S. Central, and U.S. Central's back-up plan and we were dependent on that," he commented. "But this is something that affects our members, so we are looking at what we can do in the way of contingency planning."
U.S. Central pledged to make its members whole and to ensure that natural person credit unions and their members would be reimbursed for any negative financial impact as a result of the outage, and that process has already begun.
"U.S. Central stepped up to the plate and promised to contact the various originaotrs and receivors on behalf of natural person credit unions, centralizing the process instead of having to get 25 corporates to contact them separately," Dereje explained.
Mid-States has asked its members to submit claims, as well. "That process is underway," Thomas offered. "As for our costs, we are looking at how much staff time was taken up by this and other financial impact we may have had, but we are holding off on filing any of our own claims with U.S. Central at this time. Right now, we just want to make sure our members are happy."
One of the major complaints natural person credit unions had during the outage was why their regional corporates didn't have back-up systems of their own in place for just such an occasion. But at least two corporates told The Credit Union Journal that although they had the capability of switching over to their own FedLine terminals to continue processing ACH transactions, they chose not to do so.
In the case of WesCorp, the decision was made in order to avoid duplication of items once U.S. Central's systems were back online-a situation that could have caused a whole lot more heartache in the long run, suggested WesCorp's Walter Laskos.
An Even Greater Concern
But SunCorp's Kenealy pointed to an even greater concern. "Sometime in the last year the Fed consolidated its system into two locations, and the indications we had from the Fed is that it was not equipped to reroute such large numbers of ACH files in so short a time frame," he explained. "So, if we had a repeat of this kind of situation, even though we have the ability to switch to our own system, it's uncertain that the Fed would be able to reroute 2,200 endpoints. We were very close to cutting over to our back-up system when U.S. Central brought its system back online. We were right on the cusp when we got the call."
While measuring the financial impact in pure dollars and cents will eventually be easy enough, it's difficult-if not impossible-to measure how badly the credit union reputation was hit by this episode.
"I believe that what separates great companies from good companies is how we handle problems," Kenealy suggested. "I think we did a fairly good job responding to this problem, but the credibility question will be why this was not restored more quickly. I have all the confidence in the world in U.S. Central, they wear the white hats in this industry. This is just an unfortunate episode, and they will learn from it."