Disputed ACH Entries: Consumer vs. Non-Consumer

When an account holder notifies your financial institution of an unauthorized ACH entry that has posted to their account, a little bit of research must be done to determine how the entry posted and what steps should be taken. Was it a check, a debit card transaction or an ACH debit entry? Is your account holder a consumer or non-consumer?

Consumer Account:

The ACH Rules require you to obtain a completed Written Statement of Unauthorized Debit (WSUD) form requesting recredit of the entry. The completed WSUD must be dated on or after the Settlement Date of the entry. It is important to review your customers account to determine the Standard Entry Class (SEC) code used before returning the Entry to avoid processing incorrectly. Using R10 for a CCD or CTX Entry could result in an untimely dishonored Return Entry. Let’s look at the most common Return Reason Codes used when processing Consumer requests:

• R05 – Unauthorized Debit to a Consumer Account Using Corporate SEC Code
  If the account in question is a consumer account, then a CCD or CTX entry can be returned using R05. This extends the usual return timeframe for CCD and CTX entries which is basically 24 hours from Settlement. The return must be received by the ODFI by the first banking day after the 60th calendar day following the settlement date of the CCD entry.
• R07 – Authorization Revoked by Customer
  The account holder has contacted the merchant (not your financial institution in the form of a stop payment) and requested the entry to not be processed by the merchant.
• R10 – Consumer Advises Unauthorized, Improper, Ineligible or Part of an Incomplete Transaction
  The account holder did not authorize the transaction, authorized a different amount or the merchant did not properly credit the intended account.
  

Non-Consumer Account:

Corporate Standard Entry Class (SEC) codes, Corporate Credit or Debit (CCD) and Corporate Trade Exchange Entries (CTX), are entries contractually bound between two entities for transfer of funds to or from an account that is not primarily used for personal, familial or household purposes. Returning disputed corporate entries can be a bit tricky and, if done incorrectly, could cause a financial loss. Non-consumer accounts do not have the same protections as consumer accounts. ACH Return timeframes are limited to two business days.

This is where the confusion typically starts. When a CCD or CTX entry is returned using Return Reason Codes R07 or R10, it can and most likely will be dishonored as an untimely return. The only exception is when a corporate (CCD or CTX) entry posts to a consumer account, which is when R05 is used as described above. Let’s take a look at the proper Return Reason Codes to use for Non-Consumer requests:

• R29 – Corporate Customer Advises Not Authorized
  If a non-consumer account holder claims a CCD or CTX entry is unauthorized, then the entry can be returned using R29 and must be processed no later than the opening of business on the second banking day following the settlement date of the original entry. If your financial institution provides your non-consumer accounts the option for positive pay for ACH entries, using R29 as the return reason code is recommended and does not require a WSUD to be obtained.
• R31 – Permissible Return Entry
  If the non-consumer account holder requested the entry to be returned after the second banking day, then R31 return reason code would be used with permission from the Originating Depository Financial Institution (ODFI) to accept the entry.

But what if the Non-Consumer account has a PPD or some other SEC Code? Other SEC Codes (other than CCD or CTX) are considered Consumer codes and carry the 60 calendar day return timeframe, consumer Return Reason Codes above would then apply.