Changes To The Way ACH Transfers Are Coded & The Ramifications For Bank Bonuses

In March of 2014 the NACHA (who are responsible for development, administration, and governance of the ACH Network) released a number of new rules for how P2P (person to person) transactions would be handled, among other things. You can read the full changes here. The main change we are interested in is as follows (emphasis mine):

• Establishes standardized formatting requirements for such a WEB credit and ensures that for WEB credits – and WEB debits if used to fund P2P transactions – the Company Entry Description in the Company/Batch Header Record contains a value that lets the Receiver know that the entry is a P2P transaction
• …therefore these institutions must be able to recognize the WEB credit transaction to extract and provide the sender’s name, as required under the regulation

That sounds complicated, so I’ll help illustrate with an example.

• Before the rule changes, most ACH transfers would look like this: <BANK NAME> 000000453453453
• After the rule changes, ACH transfers will look like this: <BANK NAME> <YOUR NAME> P2P 000000453453453

Whilst the new rules were introduced in March of 2014, originators are not mandated to use this new system until 20th of March of 2015.

Ramifications For Bank Bonuses

Most financial institutions that run bank bonuses require consumers to direct deposit money into their new account to receive the bonus, the fine print usually specifies that this direct deposit has to be employer payroll or government benefits. Consumers have been able to get around this by using ACH transfers from other bank accounts. Potentially financial institutions could write code that excludes anything with P2P in the description counting as a direct deposit. There are a couple of reasons as to why financial institutions might not do this:

• Financial institutions were already able to see a name in some cases, they could have coded it so if there was a match or partial match between the ACH transfer and the account holder that it wouldn’t trigger the direct deposit requirement. Very few, if any banks have actually done this. Usually they verify it is a government or employer payroll via other means (e.g requiring paystubs to be faxed), although almost no financial institutions verify it at all.
• Some small employers still use P2P payments to pay their employees. Not all businesses use a business account, some small businesses just run it through their personal accounts. If bank automatically excluded all P2P payments, then people who should be eligible would be automatically denied. This could lead to an increase in complaints with the CFPB and the associated cost and bad will of dealing with these complaints if the fine print doesn’t specifically included P2P payments.
• Banks haven’t made this change already. These new rules were introduced in March of 2014, I don’t know of any banks that are using the P2P identifier to deny direct deposit requirements.
• Banks don’t use the number of new account sign ups as a qualifier. At the moment it’s possible for banks to check ChexSystems and see how many accounts they’ve recently opened. If they were concerned about bank bonus chasing, they would deny based on the number of new accounts.

The simple fact is that running checking or savings account bonuses is profitable, financial institutions might be able to trim some fat from people chasing these bonuses but there are downsides as well. Banks that run these promotions know that some consumes will sign up just for the bonus, but that is a loss they are willing to take, the thing is that the amount of people doing this is statistically insignificant so it’s not a priority for them (whilst reducing fraud is). It’s the same reason as why credit card issuers let people sign up for cards more than once, or sign up for multiple cards in a short period of time.

I’m sure some financial institutions will tighten the rules on bank bonuses, but that’s nothing new. Even if financial institutions do start coding against this, there will still be a few options for consumers to get around this fine print. Transfers from brokerage accounts should not code as a P2P transfer for example.

Thanks to staff writer, Chuck for originally making me aware of these changes.