ACH Returns and Reversals

KeyCorp Classification Public What is ACH?  Automated Clearing House (ACH) is a funds transfer system governed by the rules of the National Automated Clearing House Association (NACHA)  Every financial institution that participates in the Origination and/or Receipt of ACH transactions is bound by these rules  Examples of ACH transactions are:  Payroll Direct Deposit  Tax Refund Direct Deposit  Direct Withdrawal of Loan Payments  Direct Withdrawal of Utility Payments

KeyCorp Classification Public Parties to ACH Transactions  ACH Originators  Create ACH transactions to either credit or debit a receivers account  For example, the State of Ohio creates ACH transactions for the purpose of paying its employees via direct deposit  ACH Receivers  Individuals or companies whom the ACH transactions are destined for  For example, each employee expecting to receive their payroll direct deposit would be considered a receiver

KeyCorp Classification Public ACH Returns  Anytime an ACH transaction is created with incorrect account information, the transaction is may be returned by the Receiving Depository Financial Institution (RDFI).  Each transaction unable to post, must be returned within a specific timeframe as per the NACHA Rules.  The timeframe for return is referred to as the “24 hour rule”, meaning that a payroll transaction effective dated for Friday, would be required to be returned by end of day Monday.

KeyCorp Classification Public ACH Reversals  In the event an ACH Originator is informed / determines that information used to create a particular ACH transaction is incorrect, a reversal of that transaction may be attempted.  Reversals may be attempted per the NACHA Rule requirements.  A Reversal involves the creation of a transaction in the opposite of the original transaction.  For example to reverse a credit transaction, a debit transaction would be created.  Things to know about Reversals  Results are not guaranteed, reversals can and are returned for reasons such as insufficient funds, closed account, etc.  Receiving institutions are not obligated to post Reversals and return funds to the Originator.  As a result, every ACH Originator must ensure that the Reversal transaction is not being returned prior to issuing via another method of payment.