Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC staff supports NACHA’s proposed rule changes, (Jan 24, 2014)

By Edward L. Puzzo, J.D.

The FTC staff has filed a comment with NACHA-The Electronic Payments Association in support of its proposal to strengthen its rules regarding the monitoring of bank debit transactions conducted through the Automated Clearinghouse (ACH) Network (FTC letter dated January 13, 2014, FTC File No. V124402).

The comment indicates that the FTC supports NACHA’s proposal to strengthen its risk management oversight to reduce the incidence of returned ACH debits, and its proposal to lower the threshold for unauthorized returns. A high level of returned transactions might indicate problematic business practices, and high rates of returns coded as “unauthorized” by the consumer, which can trigger inquiry, investigation, or enforcement proceedings. NACHA proposes to lower the return rate threshold that could trigger such inquiry for unauthorized debits from one percent to 0.5 percent, and also proposes to establish return rate thresholds of three percent for administrative returns (for example, debits returned for invalid account numbers) and 15 percent for overall returns.

These changes, the FTC staff believes, would provide useful tools for payment processors, banks, and NACHA to identify conduct that falls substantially outside the norm that legitimate businesses experience and are most closely associated with consumer fraud. The comment supports NACHA’s proposal to set an administrative return rate threshold trigger, because excessive administrative returns may signal problematic business practices, such as the use of lists of purchased consumer account numbers. Further, the comment supports NACHA’s proposal to look more globally at all returned transactions and to monitor total return rates.

The FTC staff cautions, however, that perpetrators of fraud are increasingly employing techniques designed to mask and artificially reduce their actual return rates to avoid scrutiny, a factor NACHA should consider in setting appropriate thresholds. Finally, the comment urges NACHA to make clear that its thresholds do not “represent an acceptable level for returns,” but rather a signal that enhanced scrutiny of a merchant’s business is warranted.

News: ConsumerProtection FederalTradeCommissionNews