Reg E states that a customer has until "no later than 60 days" after the statement date in which the error first occurred to report an error. NACHA rules are "60 days from the settlement date." This could leave a gap given the date on the statement vs. the posting of the ACH item. I've been told that we cannot contractually shorten the Reg E time. How do we fill in the gap? Is the bank liable, since it will be most likely sent back as a late return.

This is a sort of "black hole" as it relates to Reg E. vs. the ACH Rules. Unfortunately, there is nothing you can do to shorten the gap or reduce your liability during this period. Depending on your statement cycles, you could feasibly have a gap of up to 29 days of exposure.

At the last NACHA conference this issue was again brought up (it has been discussed at every NACHA conference I've been to) and NACHA made it pretty clear they will not be budging on this.

A bank can pursue this in other legal ways with the originator, but sometimes the cost just isn't justified. It's a frustrating situation to be stuck holding the bag.

I suspect that NACHA focuses on the settlement date of the item because that gives a concrete date by which the return must be processed. NACHA has no idea when a Reg. E conforming statement will be issued on the Receiver's account.

At this point, it is just something that you have to accept as a cost of doing business. Just keep in mind that other institutions are affected by the same "black hole", so although you have to absorb losses related to Reg E/NACHA black hole transactions, there are chargebacks that you are not getting back from other institutions for the same reason. You just have to assume you end up even or better...