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Q.) In March of this year, a sizeable ACH credit posted to an account within our financial institution. In early May, the ODFI discovered that the intended recipient never received their credit and when tracing the transaction discovered the account number used was incorrect, resulting in the transaction posting to a different account than the Originator intended. The ODFI has asked us to return the transaction but the funds are no longer available. Can the ODFI initiate a reversal? If so, can we return it? Do we have any liability?
A.) Under the ACH Rules, an RDFI may rely solely on the account number contained in an ACH entry for posting, even if the name on the account does not match the name in the entry (2021 Nacha Operating Rules, Page OR 45, Subsection 3.1.2). When an erroneous entry occurs, the ACH Rules allow for Originators to initiate a reversing entry to correct the erroneous entry but must do so in such time that it is made available to the Receiving Depository Financial Institution (RDFI) within 5 banking days following the settlement date of the erroneous entry (2021 Nacha Operating Rules, Page OR32, Section 2.9, Reversing Entries). So a reversal is no longer an option for this Originator/Originating Depository Financial Institution (ODFI).
An ODFI may also request a return of an erroneous entry or unauthorized credit entry (2021 Nacha Operating Rules, page OR 36, Subsection 2.12.2). An ODFI that requests a return indemnifies the RDFI under the Nacha Operating Rules. In addition, financial institutions may use the Nacha standard Indemnification Agreement if the RDFI desires a written indemnification agreement in addition to the indemnity in the Nacha Rules. Note that RDFIs are not required to comply with an ODFI’s request to return the funds, and are not liable to the ODFI or Originator for the transaction if they decide not to.
If the reversal window has passed, and the RDFI does not comply with the ODFI’s request to return the funds, the Originator may wish to communicate directly with the unintended recipient of the payment, or pursue a legal claim to recoup the funds since the recipient was not entitled to them.
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