ACH Returns and Disputes
Related Pages: Merchants | ACH Transaction Status Lifecycle | ACH Returns and Disputes | Same Day ACH | Customer Payee Verification Status
Table of Contents
How ACH Returns Work
An ACH return is, put simply, a message that lets the ACH processor know the ACH Network couldn’t collect funds from or deposit funds into a Receiver’s account. Typically, an ACH return comes from the Receiving Depository Financial Institution (RDFI), but in some instances the Originating Depository Financial Institution (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.
What Causes ACH Returns?
Oftentimes there are a set of situations where the RDFI can quickly identify when a return needs to be initiated.
Insufficient Funds (R01). In this situation, there aren’t enough funds in the receiving party’s account to cover the transaction.
No Account (R03). In this situation, 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 ACH Processor 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.
Primary ACH Return Codes
REASON FOR RETURN
RETURN CODE
LIKELY CIRCUMSTANCE
Returned NSF
Payment failed due to the customer not having enough funds to cover the debit
R01
Mcardit’s bank connected balance check shows sufficient funds prior to submitting the transaction, but other debits to the customer’s account have depleted available funds prior to the same day ACH pull.
Admin Return
Payment failed du to administrative resons (account closed, frozen, etc)
R02
R16
Mcardit’s bank connection and bank verification services typically prevent the customer from being able to connect or verify a closed or frozen account, but an account previously connected or verified could become closed or frozen at a later date.
Chargeback
An ACH returned by the customer after funds were deposited to the merchant
R05
R07
R10
R29
The customer contacted their bank to dispute the debit to their account.
Failed Connection
Customer was unable to connect their bank account
CFailure
Mcardit’s bank connection failed. This is a pre-processing failure.
Failed Verification
Customer was unable to verify their bank account
VFailure
Mcardit’s bank verification failed. This is a pre-processing failure
Common ACH Return Codes
REASON FOR RETURN
RETURN CODE
SEC CODE
TIME FRAME
ACTION BY ORIGINATOR
Insufficient Funds
Available balance not sufficient to cover amount of debit entry
R01
ALL
2 Banking Days
Account Closed
Previously active account has been closed.
R02
ALL
2 Banking Days
No Account
Account number structure is valid, but doesn’t match individual or open account.
R03
ALL
2 Banking Days
Invalid Account
Account number structure is not valid; edit of check number failed.
R04
ALL
2 Banking Days
Payment Stopped
The customer has requested the stop payment of a specific ACH debit entry.
R08
ALL
2 Banking Days
Uncollected Funds
Sufficient ledger balance exists, but value of uncollected items brings available balance below amount of debit entry.
R09
ALL
2 Banking Days
Account Frozen
Entry Returned per OFAC Instruction.
Access to the account is restricted due to action by RDFI por by legal action.
R16
ALL
2 Banking Days
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
Non-Transaction Account
Entry RDFI policies or regulations restrict activity to account indicated.
R20
ALL
2 Banking Days
Duplicate Entry
Entry is a duplication. The trace number, date, dollar amount, etc match another entry.
R24
ALL
2 Banking Days
Unauthorized ACH 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.
REASON FOR RETURN
RETURN CODE
SEC CODE
TIME FRAME
ACTION BY ORIGINATOR
Unauthorized Debit to Consumer Account Using Coroporate 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
WEB
60 Days
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
WEB
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 re-initiation attempts).
R11
PPD
WEB
60 Days
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
Dependent upon Notification By Customer
Obtain customer authorization prior to reinitiating the entry.
Corporate Customer Advises Not Authorized
Corporate customer had notified RDFI that a specific entry is not authorized.
R29
CCD
2 Banking Days
Merchant Proof of Authorization (B2C)
Merchant 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).
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