Returns and disputes
An ACH return is, put simply, a message that lets ACHQ know the ACH Network couldn’t collect funds from or deposit funds into a Receiver’s account. Typically, an ACH return comes from the RDFI, but in some instances the ODFI or even the ACH Operator itself might send such a message. You can think of a return being similar to a chargeback for credit cards - it is something that as a business you hope to avoid, but at times can be unavoidable. Returns being initiated by the RDFI can only be initiated during specific timeframes, due to rules set by the Nacha operating guidelines.
Why do ACH returns happen?
Oftentimes there are a set of situations where the RDFI can quickly identify when a return needs to be initiated. Think about the situations where there might not be enough funds in the receiving party's account or even in an example where the legal name on the account doesn't match with the legal name included within a payment. The RDFI will want to act in short order to ensure that these returns are highlighted and can be sent quickly to the ACHQ to handle accordingly.
However, there are other situations where the receiving party can reach out to their bank to request a return on a payment. This scenario might include times when the receiving party has alerted the RDFI that they had not initially provided permission for a payment to occur on their account.
There are around 70 unique return codes, which help the Originator of the transaction to identify the reason for a return. Each return code is specific to certain entry types and has specific time frames for return.
Common Return Codes
|REASON FOR RETURN||RETURN CODE||SEC CODE||RETURN TIMEFRAME||ACTION BY ORIGINATOR|
|Insufficient Funds—Available balance not sufficient to cover amount of debit entry.||R01||ALL||2 Banking Days||May initiate a new ACH entry; must remain within reinitiation limits outlined in Article 2 of the ACH Rules and be reinitiated within 180 days of the Settlement Date of the original entry.|
|Account Closed—Previously active account has been closed.||R02||ALL||2 Banking Days||Stop initiation of entries. Contact customer to obtain authorization for another account.|
|No Account—Account number structure is valid, but doesn’t match individual or open account.||R03||ALL||2 Banking Days||Stop initiation of entries. Customer should be contacted for correct account information.|
|Invalid Account—Account number structure not valid; edit of check digit or number failed.||R04||ALL||2 Banking Days||Stop initiation of entries until account number/ structure is corrected.|
|Payment Stopped—The customer has requested the stop payment of a specific ACH debit entry.||R08||ALL||2 Banking Days||Contact the customer to identify the reason for the stop payment and obtain authorization before reinitiating the entry.|
|Uncollected Funds—Sufficient ledger balance exists, but value of uncollected items brings available balance below amount of debit entry.||R09||ALL||2 Banking Days||May initiate a new ACH entry; must remain within limits for reinitiating entries outlined in Article 2 of the ACH Rules and be reinitiated within 180 days of the Settlement Date of the original entry.|
|Account Frozen/Entry Returned Per OFAC Instruction— Access to the account is restricted due to action by RDFI or by legal action.||R16||ALL||2 Banking Days||Stop initiation of entries. Terms of authorization may offer recourse outside the ACH Network. OFAC may have instructed the payment be returned.|
|File Edit Record Criteria/Entry with Invalid Account Number Initiated Under Questionable Circumstances—Fields edited by the RDFI cannot be processed or RDFI suspects payment may be fraudulent.||R17||ALL||2 Banking Days||Identify and correct errors prior to initiation of further entries. Errors are identified in the Addenda Information field of the Addenda Record. If this field contains ‘QUESTIONABLE,’ investigate validity of transaction.|
|Non-Transaction Account—RDFI policies or regulations restrict activity to account indicated.||R20||ALL||2 Banking Days||Stop initiation of entries. Contact customer for new account information.|
|Duplicate Entry—Entry is a duplication. The trace number, date, dollar amount, etc. match another entry.||R24||ALL||2 Banking Days||If entry is a duplication, accept the return. If the entry has already been reversed, your company should work with your ODFI to contact the RDFI to determine a solution.|
Unauthorized Return Codes
An unauthorized return for an occurs when the RDFI asks for the amount debited from the bank account of the Receiver to be returned to the account from which it was withdrawn. In most situations, the return is initiated when the Receiver submits a signed statement to their bank in which they claim that the transaction is not authorized. These returns have a far longer "return window" - the Nacha rules allow for automatic reversal of unauthorized transactions for up to 60 days.
If a consumer completes a Written Statement of Unauthorized Debit, the RDFI will return the debit entry as Unauthorized. If the you can can prove that there is, in fact, valid authorization to debit the account, you should pursue the issue outside of the ACH Network. This could be requesting a copy of the signed statement from the RDFI and seeking legal advice on how to handle the collection of authorized funds from the consumer.
|REASON FOR RETURN||RETURN CODE||SEC CODE||RETURN TIMEFRAME||ACTION BY ORIGINATOR|
|Unauthorized Debit to Consumer Account Using Corporate SEC Code—A debit entry that uses a corporate SEC code was transmitted to a consumer account but was not authorized by the consumer.||R05||CCD||60 Days||Stop initiation of entries.|
|Authorization Revoked—Customer who previously authorized an entry claims authorization has been revoked.||R07||PPD|
|60 Days||Stop initiation of entries until new consumer authorization is obtained. Depending upon the terms of the original authorization, your company may have recourse for collection outside the ACH Network.|
|Customer Advises Originator is Not Known to Receiver and/or Originator is Not Authorized by Receiver to Debit Receiver’s Account—Receiver doesn’t know or have a relationship with the Originator. No authorization provided. Signature on source document or written authorization is not authentic, valid or authorized.||R10||PPD |
|60 Days||Stop initiation of entries.|
|Customer Advises Entry Not in Accordance with Terms of the Authorization—Authorization obtained, but error in payment (e.g. wrong amount; debit date before authorized; incomplete transaction; improper source document or exceeds reinitiation attempts).||R11||PPD|
|60 Days||Your company may initiate a new entry to correct the underlying error without obtaining a new authorization. Corrected entry must be originated within 60 days of the Settlement Date of the R11 return entry.|
|Credit Entry Refused by Receiver—Customer declines transaction because amount is inaccurate, results in overpayment, account is in litigation or Originator is not known to the Receiver.||R23||ALL CREDIT ENTRIES||Dependent Upon Notification by Customer||Obtain customer authorization prior to reinitiating the entry.|
|Corporate Customer Advises Not Authorized— Corporate customer has notified RDFI that a specific entry is not authorized.||R29||CCD||2 Banking Days||Stop initiation of entries until subsequent authorization has been obtained. If a valid authorization exists, your company may have recourse outside the ACH Network.|
ACH Return Thresholds
Nacha rules require that each Originator maintain a percentage of ACH debit returns under specific thresholds:
- Administrative Returns must stay below 3%. This percentage is calculated based on ACH debit returns for the preceding 60 days on the following return reason codes: R02, R03 and R04.
- Unauthorized Returns must stay below 0.5%. This percentage is calculated based on ACH debit returns for the preceding 60 days on the following return reason codes: R05, R07, R10, R29 and R51.
- Overall Returns must stay below 15%. This percentage is calculated based on ACH debit returns for the preceding 60 days and includes all return reason codes. This includes NSF (non-sufficient funds) returns (reason codes R01 and R09).
Updated 6 months ago