As an Accredited ACH Professional (AAP), part of my job is to answer questions from clients and coworkers about the logistics and rules of ACH processing. While ACH return codes may not be the most exciting topic, it’s imperative that participants in the ACH Network understand how the ACH return process works.
Some of the most common questions I get with the ACH returns process are:
- What are ACH return codes?
- Why am I receiving an ACH return?
- What are the return codes and their respective time frames?
- What are return rates?
- What is my recourse for a return that I don’t agree with?
I’ll be the first to admit that the ACH returns process is complex—at best. In an attempt to make it easier to understand, I’ve answered these questions and provided some of the more common ACH return codes.
What are ACH Returns?
An ACH return is a credit or debit entry that is typically initiated by a Receiving Depository Financial Institution (RDFI) that returns a previously originated credit or debit entry to the Originating Depository Financial Institution (ODFI) within the time frames established by Nacha rules.
The ODFI is the financial institution Dwolla uses to process ACH transactions on behalf of our customers.
Why Would I Receive an ACH Return?
ACH returns are a normal part of ACH processing and allow receivers and RDFIs to notify originators and ODFIs when a transaction does not go as intended. These are indicated by a three character alphanumeric return code.
Common ACH Return Codes
There are nearly 70 unique return codes, which help the originator of the transaction determine why an item has been returned. Each return code is specific to certain entry types and has specific time frames for return (more on that later).
The most common ACH return codes in the Dwolla network are:
|Reason for Return||Return Code||Description||Entry Type||Time Frame|
|Insufficient Funds||R01||Available balance is not sufficient to cover the dollar value of the debit entry.||ALL||2 banking days|
|Account Closed||R02||Previously active account has been closed.||ALL||2 banking days|
|No Account / Unable to Locate Account||R03||Account number structure is valid, but doesn’t match individual identified in entry or is not an open account.||ALL||2 banking days|
|Invalid Account Number||R04||Account number structure is not valid.||ALL||2 banking days|
|Unauthorized Debit to Consumer Account Using Corporate SEC Code||R05||A debit entry was transmitted to a consumer account that was not authorized by the Receiver. Written Statement is required.||CCD, CTX (consumer only)||60 calendar days|
|Authorization Revoked by Customer||R07||Consumer who previously authorized entries has revoked authorization with the Originator. Written Statement is required.||PPD, TEL and WEB||60 calendar days|
|Payment Stopped||R08||The Receiver has requested the stop payment of a specific ACH debit entry.||ALL||2 banking days|
|Uncollected Funds||R09||Sufficient balance exists, but value of uncollected items brings available balance below amount of debit entry.||ALL||2 banking days|
|Customer Advises Originator is Not Known to Receiver and/or Originator is Not Authorized by Receiver to Debit Receiver’s Account||R10||Receiver has no relationship with the Originator or has not authorized the Originator to debit the account.Written Statement is required.||ALL DEBIT ENTRIES (except CCD, CTX and RCK)||60 calendar days|
|Customer Advises Entry Not in Accordance with the Terms of the Authorization||R11||The debit entry was inaccurate or improperly initiated. Other reasons include source document was ineligible, notice was not provided to the receive or amount was inaccurately obtained. Written statement is required.||ALL DEBIT ENTRIES (except CCD, CTX and RCK||60 calendar days|
|Account Frozen||R16||Funds unavailable due to action by the RDFI or legal action.||ALL||2 banking days|
|Non-Transaction Account||R20||RDFI policies/regulations restrict activity to account.||ALL||2 banking days|
|Corporate Customer Advises Not Authorized||R29||Receiver has notified RDFI that corporate debit entry transmitted to a corporate account is not authorized.||CCD, CTX||2 banking days|
Explaining the Entry Types & Time Frames for an ACH Return
Another way to classify ACH transactions is by something called a Standard Entry Class (SEC) Code. This is a three-letter code enabling a financial institution (FI) to identify the purpose of a transaction. The majority of Dwolla clients are set up as either WEB (a credit or debit entry initiated online or via mobile device to a consumer’s account) or CCD (a credit or debit entry used to facilitate business-to-business payments).
Some ACH return codes apply to all SEC codes, while others are specific to certain types.
In general, the majority of return codes have a two banking day turnaround time. However, unauthorized debits to consumer accounts typically have a 60 calendar day return time frame, meaning a consumer can dispute a transaction as unauthorized during this time period.
Banking regulations are typically very consumer-friendly, which is why this time frame is longer for an unauthorized debit to a business account using a CCD SEC Code (two banking days).
What if my customer claims a transaction was unauthorized and I receive a return for an item, but I believe the transaction was in fact authorized?
According to the Nacha rules, as long as the consumer signs a Written Statement of Unauthorized Debit for certain return types (see chart above), the RDFI must return the item and the ODFI must accept the return.
If you believe the transaction was authorized, refer to your user agreement to see what recourse you have. At that point, collections must be settled outside of the ACH Network.
How do I know if we receive an ACH Return?
Using Dwolla’s webhook subscriptions allows a business to systematically receive a notification with links to additional information when certain activities—such as ACH returns—occur.
A webhook will also be received when transactions are initiated and complete.
Is there anything else I need to be aware of in regards to ACH returns?
Yes. According to Nacha, ACH debit returns must stay below specific thresholds:
- Administrative Returns must stay below three percent. 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 percent. 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 percent. This percentage is calculated based on ACH debit returns for the preceding 60 days and includes all return reason codes.
- NSF Returns have no specific threshold by themselves; however, these returns contribute to the Overall Return rate (see above) and make up the largest number of returns, by volume. NSF Returns include R01 and R09.
Dishonoring ACH Returns
Dwolla is able to request the ODFI send back (or dishonor) a return if it meets any of the following qualifications:
- Was Untimely (not within the proper time frames for return)
- Contained Incorrect Information
- Was Misrouted
- Was a Duplicate
- Resulted in an Unintended Credit to the Receiver Related to the Reversal Process.
A dishonored return must be transmitted within five banking days of the settlement date of the return. Please be aware that the RDFI is able to contest a dishonored return, in which case recovery of the funds would need to happen outside of the ACH Network.
Return codes can happen, regardless of how many safeguards are in place. At Dwolla, we help our clients understand the ACH returns process so they’re able to utilize our payments platform to its full potential.