The National Automated Clearing House Association is getting tougher as an enforcer.
The Herndon, Va.-based association, the private-sector rulemaking body for the paperless payments that flow through automated clearing houses, will for the first time impose financial penalties for misuse or noncompliance.
"We had to put some teeth in the rules," as regional automated teller machine networks have done, said Nacha chairman Hal Piotrowski.
The enforcement measures are designed to prevent the costs and delays that result when banks and corporations at either end of a transaction, such as a direct salary deposit or business trade payment, fail to follow the rules.
The policy, which takes effect Dec. 18, should make bankers, corporate officers, and consumers more confident about the system, said Mr. Piotrowski, who is senior vice president of Charter One Financial Corp., Cleveland.
He said the change ensued from the association's 1997 strategic planning report, Vision 2000, which made numerous recommendations for boosting volume through the system and further exploiting its cost advantages over checks.
Mr. Piotrowski said the system of fines has received support from Federal Reserve Vice Chairman Alice Rivlin, who headed a Fed committee last year that made a similar recommendation.
"We don't expect many fines to be levied, because the process is designed to achieve compliance, and therefore gives flexibility," said Larry Snow, assistant vice president at the American Clearing House Association in Phoenix, one of four operators of automated clearing houses. The others are the Federal Reserve, New York Clearing House Association, and Visa U.S.A.
Nacha officials said they will not immediately impose penalties. During an interim educational period they plan to review offenses and inform violators of what their penalties would have been under the new rule.
Nacha officials could not quantify the extent of violations. One common problem, they said, is a failure to acknowledge a notification of change, which results in transactions sent to closed or inappropriate accounts.
Collection of a fine will be initiated when a bank or corporation submits a report detailing grievances to Nacha's rules enforcement panel, which is now in formation. Nacha would review the report and, if warranted, send a letter to the offending party with a request for explanation.
A positive response with assurances to correct the problem would close the case.
If Nacha were not satisfied with the response, it could impose a fine of $100. A repeat offense involving the same payer and payee would cost $250. (A violation by the same institution but with a different counterparty would be considered a $100 first offense.)
A third violation involving the same parties would result in a $500 fine, a fourth $1,000. Thereafter, willful disregard would result in a fine of $1,000 per month until the problem is fixed.
ACH operators, banks, regional clearing house associations, Nacha officials, and affiliate members of the automated clearing house are to be represented on the enforcement panel.
Nacha is itself an association of 35 regional and bank-owned ACH operations, through which it reaches more than 13,000 financial institutions.