National Automated Clearing House Association members have voted to maintain the 10-day delay in initiating payment services for consumers, killing a controversial proposal to bypass their mandatory waiting period.
For more than a decade, some payment industry officials have tried to eliminate the 10-day delay, deeming it an unnecessary inconvenience that diminishes consumer interest in clearing house services.
But supporters of the rule won the upper hand in a two-month balloting period that concluded last month. More than half the association's 42 members opposed the initiative, while only 11 "no" votes were needed.
The initiative to end the waiting period seems dead, said William Nelson, the association's senior director of network services "It doesn't appear to be an idea who's time has come."
The association, based in Herndon, Va., is a consortium of regional and bank clearing house associations that sets rules for payment networks nationwide.
These networks are designed to provide electronic processing for low-dollar, high-volume payments, such as payroll direct deposits.
Under clearing house rules, the 10-day waiting period commences when an originating bank sends an electronic form - called a "prenote" - to a bank on the receiving end of an automated transaction.
Time for Verification
The message tells a bank that a consumer has authorized perodic electronic credits or debits against his or her account, and lists the account to which funds will be credited or debited.
Banks are supposed to verify the prenote to stop fraudulent or erroneous transactions before they can affect the consumer. The waiting period is mandated to ensure that receiving banks have enough time for verification.
But critics contend that the prenote and associated waiting period are unnecessary.
Opponents' View of Prenotes
"This is the only payment mechanism in the world where you tell banks what you're going to do in advance of doing it," said James J. Hopes, president of Chase Automated Clearing House Inc., New York, and a member of the National Automated Clearing House Association's executive committee.
Mr. Hopes said that banks guarantee the validity of clearing house transactions each time they put them through, making a prenote unnecessary.
Additionally, nearly one-third of the prenotes banks send out are ignored, Mr. Nelson said. Critics argue that this means little, if any, extra security is generated by a procedure that represents a serious inconvenience to consumers.
Exceptions to the Rule
Mr. Hopes added that the federal government, which sets its own rules for electronic payments, does not use prenotes. And the National Automated Clearing House Association doesn't require prenotes for some corporate payments.
Mr. Hopes said that no significant problems have cropped up with either type of transaction.
But supporters of the rule for consumer accounts maintained that prenotes are worth the inconvenience, even if they catch errors only occasionally.
Keeping Consumers Contented
"A consumer that has his electronic paycheck rejected the first time is not going to be left with a good taste in his mouth," said Norman Robinson, executive director of the Virginias Automated Clearing House Association, Richmond. "He may stop using the service and may not recommend it to anyone else."
Mr. Robinson conceded, however, that banks need to be more vigilant in examining prenotes. Mr. Nelson said the national association is working to promote this goal.
Mr. Robinson added that the Virginias association would support cutting the prenote waiting period to seven days.