Hello BankersOnline,

I have a legal question concern NACHA SEC codes: Does a debit transaction processed without the correct NACHA SEC code, lack proper authorization on that basis alone? Does it breach warranty between the ODFI and RDFI, even if no claim of unauthorized activity is raised by the receiver?

you'll need to elaborate more. are you talking about a commercial account being hit with a code that is only valid for a consumer account? Web instead of TEL? something else?

Thank you for your prompt response and consideration.

We have a consumer deposit account holder whose account has been debited by an originator with the CCD entry class code.

I realize that, even in this case, the transaction could have been timely returned if done within the "extended" 60-day+1 business day return window.

Where it gets complicated, however, is that our customer asked us to return this item many months after the transaction settled on the account.

We hope to convince the ODFI, a major national institution, to accept a late return (R31, or perhaps without entry if not through FedACH). We believe the CCD against a consumer account breaches the warranty between the ODFI and RDFI.

Our early attempt at a late using just the R05 return, led to an automatic rejection-- and a brief follow-up that the originator believes the underlying transaction was otherwise properly authorized by our customer.

And that's where the other part of my question comes in.

Since this appears to be a future point of contention, can we argue also that the use of an improper SEC code, in and of itself, rendered the transaction unauthorized (or, at least, "not properly authorized"), without even having to become a middleman in whatever dispute exists between our customer and the originator as to authorization?

The amount of the CCD debit is large enough that we would not reasonably absorb it as a courtesy write-off, and it appears that Regulation E may not even necessarily apply here.

We are left looking for a solution for our customer on the basis of the NACHA rules and legal remedies alone.

The transaction should have been processed as a WEB or PPD, but originator used CCD, whether due to clerical error or for some other reason (e.g., an effort to shorten the return window with overworked and less attentive banks).

it sounds as if you are outside of any prescribed return timeframe by Nacha, so perhaps a Rules Violation Claim against the ODFI "may" get your customer relief. "A brief follow-up that the originator believes the underlying transaction was otherwise properly authorized by our customer." Ask for proof of authorization, they have 10-days to comply. If they don't or can't provide, ask for permission for a late return or a rule violation will be filed.

Otherwise, i think you need to refer them to an attorney to pursue the Originator and ODFI, take your bank out of this.

You may also want to look at your ACH/core system to see if you can flag that consumer accounts should not be received CCD and auto-returning them.