80 FR 30246 - Enhancements to Federal Reserve Bank Same-Day ACH Service, Request for Comments

FEDERAL RESERVE SYSTEM

Federal Register Volume 80, Issue 101 (May 27, 2015)

[Federal Register Volume 80, Number 101 (Wednesday, May 27, 2015)]
[Notices]
[Pages 30246-30248]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-12739]


=======================================================================
-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

[Docket No. OP-1515]


Enhancements to Federal Reserve Bank Same-Day ACH Service, 
Request for Comments

    The Board of Governors (Board) is requesting comment on 
enhancements that the Federal Reserve Banks (Reserve Banks) are 
considering to their current same-day automated clearing house (ACH) 
service. The enhancements would require receiving depository financial 
institutions (RDFIs) to participate in the service and originating 
depository financial institutions (ODFIs) to pay a fee to RDFIs for 
each same-day ACH forward transaction. The Board believes that these 
changes may have a significant longer-run effect on the nation's 
payment system. Interested persons may express their views in writing 
to the Board, by any of the methods indicated below. Comments must be 
received no later than July 2, 2015.

ADDRESSES: You may submit comments, identified by Docket No. OP-1515 by 
any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452- 3102.
     Mail: Robert deV. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    All public comments are available on the Board's Web site at http://www.federalreserve.gov/apps/foia/proposedregs.aspx as submitted, 
except as necessary for technical reasons. Accordingly, your comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
3515, 1801 K Street NW. (between 18th and 19th Street NW.), Washington, 
DC 20006 between 9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Ian C.B. Spear, Senior Financial 
Services Analyst (202/452-3959); Anjana Ravi, Financial Services 
Analyst (202/530-6286); or Samantha Pelosi, Manager (202/530-6292), 
Division of Reserve Bank Operations and Payment Systems; for users of 
Telecommunication Devices for the Deaf (TDD) only, contact 202/263-
4869.

SUPPLEMENTARY INFORMATION:

I. Background

    The ACH network serves as a ubiquitous, nationwide mechanism for 
processing batch-based credit and debit transfers electronically. The 
private sector and the Federal Reserve jointly developed the ACH 
network as an electronic alternative to checks, the growth of which in 
the late 1960s and early 1970s was creating operational and cost 
burdens. Initially used for government payments and recurring payments 
such as payroll disbursements, the ACH network evolved with user needs 
and now facilitates many types of transactions. The time it takes to 
settle transactions, however, has not changed materially since next-day 
settlement was introduced nearly four decades ago.\1\
---------------------------------------------------------------------------

    \1\ ACH transactions using the Federal Reserve Banks' current 
same-day service and some transactions conducted outside of the 
traditional ACH network, such as ``on us'' transactions in which the 
originator and receiver both have accounts at the same bank, or 
proprietary ``on we'' networks between financial institutions, 
settle in less than one day.
---------------------------------------------------------------------------

    NACHA, whose membership consists of insured financial institutions 
and regional payment associations, establishes network-wide ACH rules 
through its Operating Rules & Guidelines. As an ACH operator, the 
Reserve Banks, through Operating Circular 4, incorporate NACHA's 
Operating Rules & Guidelines as rules that govern clearing and 
settlement of commercial ACH items by the Reserve Banks, except for 
those provisions specifically excluded in the Operating Circular.\2\
---------------------------------------------------------------------------

    \2\ Operating Circular 4, Section 1.4, https://www.frbservices.org/files/regulations/pdf/operating_circular_4_11042013.pdf.
---------------------------------------------------------------------------

A. Current Federal Reserve Same-Day ACH Services

    To address growing market demand for faster, intraday ACH 
processing and settlement, the Reserve Banks began offering an optional 
FedACH[supreg] SameDay Service (FedACH SameDay Service) to Reserve Bank 
ACH customers in 2010. The service allows ODFI participants to 
originate same-day payments to all RDFI participants that agree to 
accept such payments.\3\ As part of the FedACH SameDay Service, the 
Reserve Banks charge participating ODFIs a per-item surcharge on the 
normal ACH processing fee and provide RDFIs a discount on the normal 
ACH processing fee for receipt of forward items.\4\ There is no fee 
paid by ODFIs to RDFIs.\5\
---------------------------------------------------------------------------

    \3\ The service accommodates all non-government ACH credits and 
debits except International ACH Transactions (IAT), Check Truncated 
Entry (TRC), and Check Truncated Entries Exchange (TRX). Forward 
items may be sent between 2:15 a.m. and 2:00 p.m. with settlement at 
5:00 p.m. Returns of eligible forward items may be sent between 2:00 
p.m. and 4:30 p.m. with settlement at 5:30 p.m. All times in this 
notice are Eastern Time unless otherwise noted.
    \4\ The per-item forward surcharge ranges from $.003 to $.0035, 
and the per-item discount is $.0025.
    \5\ Additional information on the FedACH SameDay Service is 
available at https://www.frbservices.org/serviceofferings/fedach/sameday_service.html.
---------------------------------------------------------------------------

    In the five years since its introduction, the FedACH SameDay 
Service has experienced limited adoption; fewer than 100 depository 
institutions are currently using the service. A number of factors may 
account for this. RDFIs typically need to upgrade internal processing 
capabilities to post same-day transactions. ODFIs may be able to 
realize value from the service through enhanced ACH product offerings, 
such as emergency bill pay, although these services may be unappealing 
to originators because of low RDFI participation and corresponding 
limited receiver reach.

B. 2011 NACHA Same-Day ACH Proposal

    In 2011, NACHA identified faster and more flexible ACH clearing and 
settlement capabilities as important to the long-term viability of the 
ACH network, and proposed creation of a network-wide, same-day 
framework called Expedited Processing and Settlement (EPS). Through 
amendments to NACHA's Operating Rules & Guidelines, EPS would have 
required RDFIs to credit a receiver's account by the end of the RDFI's 
processing day when an originator properly specified same-day 
processing.\6\ EPS failed to receive the number of votes required for 
adoption under NACHA voting rules. According to NACHA, the proposal 
failed because it provided insufficient value to originators, caused 
uncertainty around funds availability, and created significant 
implementation costs for

[[Page 30247]]

RDFIs without adequate options to offset those costs.\7\
---------------------------------------------------------------------------

    \6\ Originators would have been required to specify same-day 
processing in compliance with EPS, ODFI deadlines, and ACH operator 
requirements. NACHA proposed a single submission deadline of 2:00 
p.m. for all same-day payments, excluded IATs, and limited 
transaction amounts to $25,000 or less. The requirement that RDFIs 
credit a receiver's account by the end of the RDFI's processing day 
would have been satisfied as long as the receiver's account was 
credited ``as of'' the settlement date.
    \7\ Membership feedback also indicated that the timing of 
proposed same-day ACH schedules was not useful for west coast users, 
that risk concerns surrounded the inclusion of debits in same-day 
processing, and that the Federal Reserve's National Settlement 
Service (NSS) closing times limited flexibility of the service.
---------------------------------------------------------------------------

C. 2015 NACHA Same-Day ACH Amendments

    In December 2014, NACHA requested comment on a new same-day ACH 
proposal. Like EPS, the 2014 proposal would amend NACHA's Operating 
Rules & Guidelines to enable the network-wide processing of same-day 
ACH payments.\8\ On May 19, 2015, NACHA announced that its voting 
members approved amendments to NACHA's Operating Rules & Guidelines 
(amended operating rules) to allow ODFIs to send same-day ACH 
transactions to accounts held at any RDFI.\9\ Unlike the Reserve Banks' 
current FedACH SameDay Service, the amended operating rules require all 
RDFIs to participate in the same-day service, and ODFIs to pay a fee to 
RDFIs for each same-day ACH forward transaction (interbank fee).\10\ A 
summary of these amendments is available on NACHA's Web site.\11\
---------------------------------------------------------------------------

    \8\ Unlike EPS, once fully implemented the amendments (1) 
require RDFIs to make funds available from same-day ACH credits by 
5:00 p.m. local time, (2) offer two submission deadlines at 10:30 
a.m. and 3:00 p.m., and (3) assess a fee paid by ODFIs to RDFIs for 
each same-day forward transaction.
    \9\ The amendments become effective over three phases beginning 
in 2016. Next-day settlement will also remain available.
    \10\ The amended operating rules refer to the interbank fee as 
the ``Same Day Entry Fee.''
    \11\ https://www.nacha.org/content/same-day-ach. The amended 
operating rules contain other elements that would require 
modifications to the Reserve Banks' current FedACH SameDay Service. 
The Board believes these changes are operational in nature and will 
not have significant longer-run effects on the nation's payment 
system. These include updated submission and settlement windows (a 
morning submission deadline at 10:30 a.m. ET, with settlement 
occurring at 1:00 p.m. and an afternoon submission deadline at 3:00 
p.m. ET, with settlement occurring at 5:00 p.m.). IATs and 
transactions above $25,000 cannot be completed via same-day service.
---------------------------------------------------------------------------

II. Request for Comment

    The Reserve Banks' incorporation of the amended operating rules 
into Operating Circular 4 and implementation of a mandatory same-day 
service would reflect a significant change to the Reserve Banks' 
current ACH services. In considering new services and major service 
enhancements to existing Reserve Bank services, the Board requires the 
following criteria be met: The service must enable full long-run 
recovery of costs by the Reserve Banks; the service must yield a clear 
public benefit; and the service must be one that other providers alone 
cannot be expected to provide with reasonable effectiveness, scope, and 
equity.\12\
---------------------------------------------------------------------------

    \12\ Clear public benefits include promoting the integrity of 
the payments system, improving the effectiveness of financial 
markets, reducing the risk associated with payments and securities-
transfer services, or improving the efficiency of the payments 
system. Federal Reserve System (1990) ``Federal Reserve in the 
Payment System,'' http://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm.
---------------------------------------------------------------------------

    The Board believes that the introduction of a FedACH same-day 
service with mandatory participation by RDFIs and an interbank fee 
would not adversely affect the Reserve Banks' ability to recover the 
cost of providing the ACH service over the long run. Specifically, 
there would be minimal technological and operational investment 
required by the Reserve Banks to implement the service, and any 
operating costs can be recovered through fees charged for using the 
Reserve Banks' ACH services.
    The Board also believes that a same-day ACH service offers clear 
public benefits. A ubiquitous same-day ACH service would enhance the 
efficiency and integrity of the ACH network and the broader U.S. 
payment system, consistent with the strategic goals identified in the 
Federal Reserve's Strategies for Improving the U.S. Payment System 
paper (Strategies Paper).\13\ NACHA identified a number of use cases 
that would benefit from a ubiquitous same-day ACH service, including 
faster person-to-person payments, expedited bill payments, enhanced e-
commerce transactions with faster collection of funds and release of 
goods, accelerated check collection to decrease non-sufficient funds 
returns, and same-day payroll payments. To realize the benefits of 
same-day transactions, however, the service must achieve ubiquity among 
depository institutions in order to reach any banked receiver and 
provide a useful service to originators. Without adoption by the 
Reserve Banks, a significant number of depository institutions 
receiving ACH services from the Reserve Banks may not participate. 
Further, absent the ability to reach any RDFI in the ACH network, it 
may not be possible to implement an effective same-day ACH service and 
any corresponding public benefits would be limited. The Board therefore 
believes that the private sector cannot be expected to provide the 
service alone with reasonable effectiveness, scope, or equity.\14\
---------------------------------------------------------------------------

    \13\ The Strategies Paper communicates desired outcomes for the 
payment system and outlines the strategies the Federal Reserve will 
pursue, in collaboration with stakeholders, to help the country 
achieve these outcomes. One of the specific strategies for improving 
the U.S. payment system in the Strategies Paper is enhanced Reserve 
Bank payment, settlement, and risk-management services through 
promoting greater use of same-day ACH capabilities. Federal Reserve 
System (2015), ``Strategies for Improving the U.S. Payment System,'' 
(Federal Reserve System, January), fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf.
    \14\ When it considers changes to an existing service, the Board 
also conducts a competitive impact analysis to determine whether 
there will be a direct and material adverse effect on the ability of 
other service providers to compete effectively with the Federal 
Reserve in providing similar services due to differing legal powers 
or the Federal Reserve's dominant market position deriving from such 
legal differences. The Board believes that there are no adverse 
effects to other service providers resulting from adoption of the 
amended operating rules. Changes to the Reserve Banks' existing 
service as a result of adoption would be to conform to industry-wide 
ACH operating rules, and not the result of differing legal 
differences or the Federal Reserve's dominant market position.
---------------------------------------------------------------------------

    The Board believes that the service may have a significant longer-
run effect on the nation's payment system through increased efficiency 
and integrity of the ACH network. Therefore, the Board requests comment 
on the Reserve Banks' adoption of an enhanced same-day ACH service with 
mandatory participation of RDFIs and an interbank fee by incorporating 
NACHA's amended operating rules into the Reserve Banks' Operating 
Circular 4 governing their ACH service.

A. Mandatory Participation of RDFIs

    Unlike the Reserve Banks' current FedACH SameDay Service, under 
NACHA's amended operating rules RDFIs cannot refuse same-day ACH 
transactions and must make funds available from same-day ACH credits to 
their depositors by 5:00 p.m.\15\ The limited adoption of the Reserve 
Banks' current FedACH SameDay Service demonstrates that achieving 
ubiquity without such a mandate is unlikely, and the Board believes 
that mandatory participation by RDFIs is critical to the success of a 
same-day ACH service. The Board recognizes that this may require 
operational changes to the normal processing procedures and schedules 
used by RDFIs. The Board requests comment on making receipt of same-day 
ACH transactions mandatory for all RDFIs. If commenters believe that 
participation by RDFIs should not be mandatory, the Board requests 
comment on why the Reserve Banks' same-day ACH service should remain 
optional and whether there are non-mandatory alternatives to achieving 
ubiquity.
---------------------------------------------------------------------------

    \15\ RDFIs' local time.

---------------------------------------------------------------------------

[[Page 30248]]

B. Interbank Fee

    The Board recognizes that both ODFIs and RDFIs will need to make 
investments in systems and operations to facilitate same-day ACH 
transactions. ODFIs have the choice of offering a same-day ACH service 
to originating customers and may be able to offset their investment 
through additional service offerings and higher fees for same-day 
processing. RDFIs, in contrast, would not be able to refuse receipt of 
same-day ACH transactions under a mandatory participation requirement 
and may incur same-day settlement costs that they are unable to fully 
offset through incremental revenue. As a result, RDFIs may lack an 
effective method of offsetting the investment and ongoing costs of 
same-day ACH settlement.
    In light of this potential effect on RDFIs, NACHA designed the 
interbank fee to allow RDFIs to offset costs associated with the up-
front investments and ongoing operating costs necessary for accepting, 
posting, and making funds available from same-day transactions. The 
initial interbank fee under NACHA's amended operating rules is 5.2 
cents per forward transaction.\16\ The amended operating rules provide 
that the interbank fee would be reduced if actual same-day transaction 
volume exceeds original projections by more than 25 percent during 
regularly required review periods.\17\ Ten years after the final phase 
of implementation is effective, and every ten years thereafter, NACHA 
will reevaluate the interbank fee.\18\ In no instance may the interbank 
fee be increased from its initial level of 5.2 cents per forward 
transaction.
---------------------------------------------------------------------------

    \16\ In the amended operating rules, the interbank fee per 
transaction is equal to RDFIs' estimated costs of same-day ACH (plus 
a rate of return equal to 12.2%), divided by projected same-day ACH 
volume. To create the methodology for and the calculation of the 
interbank fee, NACHA engaged a consultant who surveyed and 
interviewed both RDFIs and ODFIs to determine implementation and 
ongoing costs. The final interbank fee does not include the 
allowance for lost opportunity costs that was included in NACHA's 
December 2014 proposal. The original fee calculation proposed by 
NACHA considered opportunity costs that included the profits lost by 
RDFIs if some transactions migrated to same-day ACH from other 
higher-margin payment methods.
    \17\ Same-day ACH volume will be reviewed five years and eight 
years after the final phase of implementation is effective.
    \18\ NACHA's reevaluation will not include recovered 
implementation costs, and will be based on the average costs 
incurred by RDFIs, same-day ACH volumes, projected future 
developments, and the extent to which the fee satisfied RDFI costs.
---------------------------------------------------------------------------

    The Board requests comment on whether the interbank fee included in 
NACHA's amended operating rules equitably reapportions the initial 
implementation costs and ongoing operating costs between ODFIs and 
RDFIs.

    By order of the Board of Governors of the Federal Reserve 
System, May 21, 2015.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2015-12739 Filed 5-26-15; 8:45 am]
 BILLING CODE 6210-01-P