Nacha same-day ACH plan could force changes to Fedwire
Nacha's request to the Fed to extend submission times for its Same-Day ACH network was far from routine for two organizations that had worked together for decades.
To accept the request, the Fed would have to make significant changes to its Fedwire Funds and National Settlement Service [NSS] operations. Thus, the Fed chose to delay the request until it could fully research the implications and risks.
"In terms of their rules process in this case, it is the first time we have ever had a Nacha rule change that had implications for other services, so we are a little bit in uncharted territory in terms of all of the pieces that need to come together to fit into this puzzle," said Susan Stawick, Federal Reserve Board spokesperson. "And it takes time, making sure we are diligent and thoughtful over a number of dimensions."
Nacha says its request for a new window, essentially seeking the payments submission times be extended by two hours from the current last submission time of 2:45 p.m. ET to 4:45 p.m. ET to better serve west coast banks, would not alter the Same-Day ACH network in terms of individual payment timing. It would just add another time frame for batch payments and move the transactions along within hours on the day of submission, as opposed to west coast banks waiting until the next day due to their time zone.
However, it would result in the Fed needing to extend its hours for Fedwire and the NSS, changing hours that have been in place for decades.
The Fed's determination to delay the rule change to initiate further review and get public comments in effect extends Nacha's timetable for the new window from what it had hoped would be a September 2020 launch to one in March 2021.
While the Fed notice delays what Nacha views as a successful implementation of Same-Day ACH with more than 75 million transactions per quarter, it still plans to cooperate.
“Nacha has been very transparent about the proposals to expand Same-Day ACH and the process and timelines for approval and implementation," said Michael Herd, senior vice president of ACH network administration for Nacha.
"We’re disappointed in the delay, but understand that the Fed has its own processes to complete," Herd added. "We are going to move forward with the new date and work with the industry as it continues to capitalize on the current success of Same-Day ACH.”
A February letter to Nacha from Federal Reserve Board director Matthew Eichner explained the proposed change "could have significant downstream impacts for the financial system."
Expanding operating hours for Fedwire Funds Service and NSS would compress end-of-day functions for both the Reserve Banks and financial institutions, the letter noted. It also stated "the risk implications of these changes for individual financial institutions and the broader financial system are significant, and require careful consideration."
A change in hours also calls for banks to implement staff, and deploy technical and business changes as well as some rewriting of Fed board policies and adjustments for private sector financial institutions, the letter said.
All of this preparation has to unfold in addition to the Federal Reserve requesting public comment before committing to a third Same-Day ACH processing window.
A Nacha press release this week explaining the delay noted that the organization was not aware of a timetable for a Fed public hearing.
"Federal Reserve staffers are actively working on a Federal Register notice to seek public comment and, subject to board member approval, expect to have it out relatively soon," Fed spokesperson Stawick said.
A year ago, Nacha completed its third and final phase of the faster ACH payments launch with a directive requiring banks and credit unions to make Same-Day ACH funds available to depositors by 5 p.m. local time.
Requesting a new payments window is considered an enhancement to the overall process, in the same manner as past discussions about increasing dollar amounts that can be transferred via Same-Day ACH, and exploring whether ACH processing on weekends or bank holidays would be feasible.