ACH Returns and Disputes

Related Pages: Merchants | ACH Transaction Status Lifecycle | ACH Returns and Disputes | Same Day ACH | Customer Payee Verification Status

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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

May initiate a new ACH entry; must remain within reinitiation limits outlined in Article 2 of the ACH Rules and be reinitiated within 180 days of the Settlement Date of the original entry.

Account Closed
Previously active account has been closed.

R02

ALL

2 Banking Days

Stop initiation of entries. Contact customer to obtain authorization for another account.

No Account
Account number structure is valid, but doesn’t match individual or open account.

R03

ALL

2 Banking Days

Stop initiation of entries. Customer should be contacted for correct account information.

Invalid Account
Account number structure is not valid; edit of check number failed.

R04

ALL

2 Banking Days

Stop initiation of entries until account number/ structure is corrected.

Payment Stopped
The customer has requested the stop payment of a specific ACH debit entry.

R08

ALL

2 Banking Days

Contact the customer to identify the reason for the stop payment and obtain authorization before reinitiating the entry.

Uncollected Funds
Sufficient ledger balance exists, but value of uncollected items brings available balance below amount of debit entry.

R09

ALL

2 Banking Days

May initiate a new ACH entry; must remain within limits for reinitiating entries outlined in Article 2 of the ACH Rules and be reinitiated within 180 days of the Settlement Date of the original entry.

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

Stop initiation of entries. Terms of authorization may offer recourse outside the ACH Network. OFAC may have instructed the payment be returned.

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

Identify and correct errors prior to initiation of further entries. Errors are identified in the Addenda Information field of the Addenda Record. If this field contains ‘QUESTIONABLE,’ investigate validity of transaction.

Non-Transaction Account
Entry RDFI policies or regulations restrict activity to account indicated.

R20

ALL

2 Banking Days

Stop initiation of entries. Contact customer for new account information.

Duplicate Entry
Entry is a duplication. The trace number, date, dollar amount, etc match another entry.

R24

ALL

2 Banking Days

If entry is a duplication, accept the return. If the entry has already been reversed, your company should work with your ODFI to contact the RDFI to determine a solution.

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

Stop initiation of entries until new consumer authorization is obtained. Depending upon the terms of the original authorization, your company may have recourse for collection outside the ACH Network.

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

Your company may initiate a new entry to correct the underlying error without obtaining a new authorization. Corrected entry must be originated within 60 days of the Settlement Date of the R11 return entry.

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

Stop initiation of entries until subsequent authorization has been obtained. If a valid authorization exists, your company may have recourse outside the ACH Network.

Merchant Proof of Authorization (B2C)

If a consumer completes a Written Statement of Unauthorized Debit, the RDFI will return the debit entry as Unauthorized. If the you can can prove that there is, in fact, valid authorization to debit the account, you should pursue the issue outside of the ACH Network. This could be requesting a copy of the signed statement from the RDFI and seeking legal advice on how to handle the collection of authorized funds from the consumer.

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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