Banks and other users of the automated clearing house network are about to start paying a new fee to support Nacha, the industry's chief rulemaker.
The electronic payments trade group has been supported in the past largely by fees from its membership, which includes a small number of banks, and the new fee has been designed to reduce the burden on these companies in favor of contributions from the entire financial industry.
The first charges reflecting the new "ACH network administration fee" will show up in the statements that go out to financial institutions this month from the Federal Reserve banks and the Electronic Payments Network, the two ACH network operators. EPN is a unit of The Clearing House Payments Co. LLC of New York.
Elliott C. McEntee, Nacha's president and chief executive, said in an interview Friday that the fee primarily would pay for the Herndon, Va., association's compliance enforcement and risk management activities.
The fee, which took effect Jan. 1 as a change to the association's operating rules and is to be officially announced today, applies to every financial company using the ACH network.
It has two components: an annual fee of $42, plus 1% of 1 cent for every ACH transaction, except for "on-us" transactions. The fee is applied to the institutions on both sides of a transaction.
Mr. McEntee estimated the fee would generate $3.4 million a year, which would be largely offset by reducing the annual fee that Nacha charges its members.
"It doesn't represent a significant increase in revenue," he said. The association had revenue of $13 million in 2006, and is projecting revenue of less than $14 million in 2007, from membership fees, this new fee, the association's conferences, training programs, publications, and other sources, he said.
"The purpose was not to increase our revenue," Mr. McEntee said. "The objective was to have a more uniform and more equitable way to compensate Nacha for its expenses."
He estimated 15,700 financial institutions are on the ACH network, including 4,000 that are members neither of Nacha itself nor of the 19 regional payment associations that make up roughly half of the group's direct membership.
Mr. McEntee said this fee was not related to the association's proposal for a "network return entry fee," which Nacha's members rejected in 2004. That levy, which was designed to fight fraudulent transactions, encountered resistance from members who feared it would impose punitive charges for simple errors. Mr. McEntee said Nacha plans to put out a new fraud-fighting proposal for comment in the next two weeks.
Gary D. Schneider, the head of global receivables at Citigroup Inc. and a member of the Nacha board, said the organization's prior dues structure was based on ACH volume, but was not as precisely measured as the per-transaction fee. "We think it's much more equitable," he said.
Several other Nacha members said they supported the change, including William Bley, the president and CEO of the Northwest Clearing House Association of Seattle. "I think you would find a vast majority of Nacha members think this is the right thing to do."
"Membership in Nacha and the regional payment associations has always been voluntary," Mr. Bley said. "Some of the financial institutions have had a free ride."
Allen Young, the executive director of the South Carolina ACH Association, said: "This is a way of making sure everybody pays into the system. It's an equality issue."
Assessing per-transaction charges is the best approach, Mr. Young said. "Those who use the system more pay more than those who don't use it so much."
Nacha calculated that based on its 2007 rate of 1% of a penny, an institution with ACH volume of 580,000 transactions a year would pay $100 per year. A financial institution would have to send and receive 9.58 million ACH transactions to generate a fee of $1,000. The fee rate will be set annually by Nacha's board of directors.
Still, for the largest banks even fractions of a cent add up. If the rule had been in effect in 2005, the latest year for which statistics have been published, it would have cost JPMorgan Chase & Co., the nation's largest ACH originator, nearly $320,000 $270,789.50 on the origination side and $48,288.67 as a receiver. JPMorgan Chase earned $8.5 billion in 2005.
A JPMorgan Chase spokeswoman would not discuss the impact the rule change will have on her company but said, "We're very supportive of Nacha and the services and support it provides to the industry."
Mr. McEntee said the 20 financial companies that are direct members of Nacha all voted for the rule change.
Some Nacha members had quibbles about the way the rule is being implemented. William M. Lynn Jr., the president of Mid-Atlantic Clearing House Association Inc. in Hanover, Md., agreed that the transaction fee is "the most equitable way" to finance the association but said he believed the group had "rushed down a path" to implement the fee and that it will be collecting fees on more than transactions.
The ACH network carries not only financial transactions but also administrative messages, Mr. Lynn said. "They're going to impose fees on both monetary transactions and nonmonetary messages," he said. He said it might have been better to wait until the Fed and EPN could modify their systems to screen the administrative messages from the transactions.
Mr. McEntee said administrative messages are "far less" than 1% of the network's volume, and he said the most common is a "pre-notification" that a new customer has enrolled for direct deposit or some other transaction service.
Rossana Salaris, a senior vice president at The Clearing House and the head of EPN, said the new line items would appear on statements that were compiled on Thursday to reflect institutions' January activity. "The operators agreed to collect this on behalf of Nacha," she said. "We have been going out with notices to all our customers. The Fed has as well, and Nacha has as well."
