The Automated Clearing House (ACH) system is a network through which banks send each other batches of electronic credit and debit transfers. Federal government agencies also use the ACH system to make payments, intermediated through the Department of Treasury (“Treasury”) Bureau of Fiscal Service (“BFS”). See BFS Green Book at 1. The ACH system is made up of two operators, FedACH—which is run by the Federal Reserve Banks—and the Electronic Payment Network (“EPN”)—which is run by The Clearing House, a private entity.
Each ACH transaction involves an originator, a receiver, an Originating Depository Financial Institution (“ODFI”), and a Receiving Depository Financial Institution (“RDFI”). The originator initiates the transaction, and may transmit a credit or a debit to the account of the receiver. A credit pushes funds from the originator’s account to the receiver’s account, and a debit pulls funds from the receiver’s account into the originator’s account. When the originator initiates a transaction, the ODFI processes an ACH file and routes it to an ACH operator. The ACH operator then routes each entry in the ACH file to the designated RDFI. An ACH file might be composed of multiple batches, which contain one or more transactions or entries. Each batch belongs to the same originator, while a file can include batches from multiple originators. ACH operators allow ODFIs to send multiple transactions or entries originated by multiple customers all rolled into one file, and the operator then sends those transactions to the appropriate RDFIs.
Unlike FedWire, the other payment system run by the Federal Reserve, ACH payments do not settle immediately. Rather, the Federal Reserve Banks settle ACH files according to a pre-arranged settlement schedule. As further explained below, an ACH payment can be reversed even after settlement in some narrow circumstances.
FEMA’s reversal of the $80.5 million deposit to New York City’s central treasury account raises several questions for further research:
1. Under current law, could an administration engage in administrative agency rulemaking revising 31 C.F.R. Part 210 to allow ACH reversal entries for entries that are improper for reasons other than duplication or error? Could they pursue more expansive definitions that increase their legal discretion without engaging in administrative agency rulemaking? How extensive would revisions need to be if administrative agency rulemaking is required?
2. The governmental use of the ACH system to accomplish policy goals is largely mediated by Nacha, an industry trade association. What are the full legal implications and scope for executive branch discretion that this provides given what appears to be quite significant executive discretion to promulgate rules that preempt Nacha rules?
3. What are the implications of the recently established “Major Questions Doctrine” for the legal discretion provided to the executive branch in making more extensive use of payment reversals and the possibility of regularly utilizing the operational capacity to issue separate debit entries without clear authorization from non-ACH law statutes?
4. Under current ACH rules, whose accounts can the government debit without specific authorization for each entry? What changes to statutes, regulations, agency guidance, or Nacha Rules would be required for agencies to debit the accounts of individuals who have not previously consented to receive ACH entries from the government?
Add new comment