Exception Processing

1. Exception Processing UMACHA August 14, 2007 1:00 – 2:30 PM, CT New Directions

2. Exception Processing Agenda • Returns • Unauthorized, Improper • and Revoked • Notification of Change • Stop Pays • Reversals

3. What are Exception Items? • Entries that do not post to receiver’s accounts • RDFI action • Manually post the entry • Manually post the entry and initiate a NOC • Return the entry • All ACH entries must be posted in a timely manner or returned in the proper time frame and with a valid return reason

4. Timing of GeneralReturn Entries • General Returns • Available to the ODFI on the morning of the second banking day following the settlement date of the original entry

5. MOST COMMON RETURNS • R01 - NSF • R02 - Account closed • R03 - No Acct./Unable to locate account • R04 - Invalid account number • R05 - Unauthorized Debit to Consumer Account Using Corporate SEC Code • R06 - Returned by ODFI’s Request • R07 - Authorization revoked

6. MOST COMMON RETURNS • R08 - Stop payment • R09 - Uncollected funds • R10 - Customer advises not authorized • R14-Representative Payee • R15 - Beneficiary or Account Holder • R20 - Non-transactional account

7. Other Return Reason Codes • R11 - Check Truncation Entry • R12 - Branch sold to another F.I. • R16- Account frozen • R17 - File record edit criteria (specify) • R21 - Invalid Co. I.D. # - CIE only • R22- Invalid Individual I.D. # - CIE & MTE only • R23 - Credit entry refused by biller

8. Other Return Reason Codes • R24- Duplicate entry • R29 - Corp. customer advises not authorized • R31 - Permissible return entry • R33 - Return of an XCK entry • R37 - Source Document Presented for payment (ARC, BOC & POP) • R38 - Stop Payment on Source Document (ARC & BOC) • R39 - Improper Source Document (ARC, BOC & POP)

9. RCK Returns • R50- State Law Affecting RCK Acceptance • R51 - Item is Ineligible, Notice Not Provided, Signature Not Genuine, Item Altered, or Amount of Entry Not Accurately Obtained From Item • R52- Stop Payment on Item - RCK • R53 - Item and ACH Entry Presented for Payment - RCK

10. Reinitiation of Return Entries • For all entries except RCK entries, an entry that has been returned cannot be reinitiated unless: • The entry has been returned for insufficient or uncollected funds • The entry has been returned for stop payment and reinitiation has been authorized by the Receiver • The ODFI has taken corrective action to remedy the reason for the return • Effective March 16, 2007 – the entry is reinitiated within 180 days after the settlement date of the original entry • Entries may not be reinitiated more than two times following the return of the original entry

11. Returns – Corporate Entries • Identified by SEC code • CCD or CTX • All valid return reasons • R29 for Unauthorized Corporate Debits • “24 hour” return time deadline • Unless it is posting to a consumer account • R05 with WSUPP (60 calendar days) • Option beyond 24 hours • RDFI may contact ODFI to ask for permission to send a late return • R31 – ODFI Agrees to Accept Late Return

12. Adjustment Entries • For all entries to a Consumer account (except ARC, BOC, POP, and RCK) after receiving a completed WSUPP …… • An RDFI may transmit an adjustment entry in the amount referred to in the WSUPP provided… • No error was made by the RDFI in debiting the entry to the Receiver's account • The completed WSUPP (Written Statement under Penalty of Perjury) was sent or delivered to RDFI • The RDFI transmitted the adjustment entry to be made available to the ODFI no later than opening of business on the banking day following the 60th calendar day from the settlement date of the original entry

13. Written Statement Under Penalty of Perjury • A written statement is currently required when a consumer desires to be recredited for an unauthorized or improper debit entry. • To execute the Written Statement, the consumer must complete and sign the document. • While the ACH Rules have never required that an affidavit be notarized, some state laws obligate them to have any affidavit executed before a notary.

14. 60 Timing of Adjustment Entries • Unauthorized, Authorization Revoked, or Improper Entries • RDFI right to adjustment for 60 calendar days from the settlement date of the original entry

15. Unauthorized Entry • An ODFI or Originator can not dishonor a returned entry because they have an authorization • The ODFI or Originator can dishonor an entry if the return was incorrect or untimely • They need to go outside of the ACH Network to receive restitution from the receiver

16. Dishonored Return Codes • R61 - Misrouted Return • R67 - Duplicate Return • R68 - Untimely Return • R69 - Multiple Errors • R70 - Permissible Return Entry Not Accepted

17. Dishonored Returns • ODFI May Dishonor a Return If • It can substantiate that the RDFI failed to meet the time deadlines for the return entry • Causing either the ODFI or Originator to suffer a loss • The return entry contained incorrect or erroneous information • Timeframe - Five Banking Days After Settlement Date of the Return Entry • Special Return Codes – (R61 – R70)

18. Contested/Corrected Dishonored Return Codes • R71 - Misrouted Dishonored Return • R72 - Untimely Dishonored Return • R73 - Timely Original Return • R74 - Corrected Return

19. Corrected/Dishonored ReturnsContested/Dishonored Returns • RDFI may transmit a corrected return entry within TWO banking days of settlement date of the dishonored return • ODFI must accept corrected return entry • Return Code – R74 • A Return Dishonored As Untimely • RDFI may initiate a contested dishonored return entry within two banking days of the settlement date of the dishonored return • RDFI Warrantees that entry WAS returned timely • ODFI must accept contested dishonored return • Special Return Code – R73

20. Return Reason Codes R75 & R76 • R75 - Original Return Not a Duplicate • Used by an RDFI to contest a return entry dishonored by the ODFI as R67 (Duplicate Return) • R76 - No Errors Found • Used by an RDFI to contest a dishonored return when the original return information was correct

21. Who Has The Last Right of Return PPD debit entry Account Closed-Return ODFI RDFI Return entry ODFI RDFI Return is late! Dishonored Return Return was NOT late!!! ODFI Contested Dishonored Return

22. Notification of Change • Non-dollar entry initiated by an RDFI • NOCs are optional • Identifies that the entry has been received by the RDFI • Indicates specific information that is incorrect • Provides the correct information in the addenda record so the Originator may make the change • Can be used on a pre-note or live dollar entry • Entry needs to be returned EXACTLY as it came in! • With necessary change code and correct information for the specific field that you are requesting to change

23. NOC – RDFI Warranties • RDFI Warranties and Indemnification • Information in NOC is correct • Receiver has authorized any change to the account number • Liability • Shifts from Originator to RDFI

24. NOC CODES • C01 – Incorrect Account Number • C02 – Incorrect Routing Number • C03 – Incorrect RTN and Incorrect Account Number • C04 – Incorrect Individual Name/Receiving Company Name • C05 – Incorrect Transaction Code • C06 – Incorrect Account Number and Incorrect Transaction Code • C07 – Incorrect RTN, Incorrect Account Number and Incorrect Transaction Code • C08 – Incorrect Foreign Receiving DFI Identification (CBR and PBR only) • C09 – Incorrect individual Identification Number • C13 – Addenda Format Error

25. Notification of Change • NOC Deadlines for RDFI • Transmit within two banking days of settlement date of the entry or prenote to which the NOC relates

26. ODFI Action upon receipt of Notification of Change • ODFImust provide information to the Originator within two banking days of settlement date of NOC • Originatormust make changes requested within 6 banking days of receipt of notification or prior to the initiation of the next entry

27. Company Name Company ID Company Entry Description Effective Entry Date DFI Account Number Individual Name Individual ID Change Code Original Entry Trace Number Original RDFI Identification Corrected Data NOCs - Minimum Information to the Originator

28. March 2006 ACH RDFI sends NOC Originator Corrects ODFI Delivers to Originator Transaction

29. NOCs Refused by ODFI or Originator • Processed but not able to be handled due to the reason defined on the refused NOC • 15 calendar days • Change codes • Corrected NOCs

30. Refused NOC’s • C61 Misrouted Notification of Change • C62 Incorrect Trace Number • C63 Incorrect Company Identification number • C64 Incorrect Individual Identification Number/Identification Number • C65 Incorrectly Formatted Corrected Data • C66 Incorrect Discretionary Data • C67 Routing Number Not From Original Entry Detail Record • C68 DFI Account Number Not From Original Entry Detail Record • C69 Incorrect Transaction Code

31. What is a Stop Payment? • A verbal or written notification to the RDFI at least three (3) banking days before the scheduled date of transfer • For ARC, RCK, POP, TEL and Single-entry WEB transactions: • The Stop Payment Order must be provided to the RDFI at such time and in such manner as “to allow the RDFI a reasonable opportunity to act upon” the Stop Payment prior to acting on the debit entry”

32. Consumer’s Right to Stop Payment • Both Regulation E and the ACH Rules allow for a consumer to put a stop payment on any ACH entry. • As an Originator you need to contact your customer as to why they stopped the payment. • It is advisable to cease all electronic payments until you speak to your customer.

33. Stop Payment Return Reason Codes • R08 – Stop Payment (24 Hours) • R38 – Stop Payment on Source Document (ARC & BOC - 60 days) • R52 – Stop Payment on Item (RCK - 60 days)

34. Reversals • Reversing File • Initiated to reverse an entire file of duplicate or erroneous entries • Reversing Entries • Initiated to reverse a single erroneous or duplicate entry • Time frame • Must originate ‘reversal’ within 5 banking days following settlement date of the erroneous entry • ODFI Request for Return • RDFI not obligated to comply if funds are not available • Reversals are for forward items ONLY • Cannot do a reversal on a return item The word REVERSAL in Company Entry Description

35. Questions?

36. Resources • Your 2006 ACH Rule Book • Contact your Local Regional Payments Association OR • Today’s Speaker, Donna Olheiser @ UMACHA • 800-348-3692 • 763-549-7000 • donnao@umacha.org