As you conduct transactions, you may occasionally encounter terms like “ACH returns” and “card chargebacks.” Here’s what you need to know about each, including the key roles involved, return windows, and how they might impact your experience.

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What Are ACH Returns?

returns occur when an electronic payment, such as a direct bank transfer or direct debit, cannot be completed successfully. Common reasons include:

  • Insufficient Funds: The determines there are not enough funds in the recipient’s account.
  • Account Closed: The RDFI identifies that the recipient’s account is no longer active.
  • Incorrect Account Information: The RDFI cannot locate the account due to incorrect account or routing numbers provided by the .
  • Authorization Revoked: The account holder notifies the RDFI that they have canceled permission for the transaction.

When an ACH return happens, the RDFI sends the return information to the ODFI, which reverses the transaction and returns the funds to the party that was debited.

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Key Roles In ACH Transactions

  • ODFI: Initiates ACH entries on behalf of the sender (Originator), ensuring accurate transaction details.
  • RDFI: Receives ACH entries on behalf of the receiver (Recipient), validating and processing incoming transactions.

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ACH Return Limits

ACH return windows vary depending on the reason code:

  • Administrative returns (e.g., account closed, invalid account number): Must be returned within two banking days.
  • Unauthorized debit entries (e.g., R05, R07, R10, R29): Can be returned within 60 calendar days from the settlement date.
  • Extended returns (e.g., R51): Can also be returned within 60 calendar days if supporting documentation is provided.

For a full list of ACH returns and all pertinent information including descriptions, category, account types, and timeframes, please refer to Return Codes and Card Chargeback Network Reasons

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Nacha Program Thresholds For Return Rates

monitors return activity to detect abuse and enforce network rules. The following thresholds are in place:

  • Unauthorized Return Rate (codes R05, R07, R10, R29, R51): Must not exceed 0.5%.
  • Overall Return Rate (all return codes): Must not exceed 15.0%.
  • Administrative Return Rate (codes R02, R03, R04): Must not exceed 3.0%.

Merchants and ODFIs exceeding these limits may be subject to investigation or enforcement action.

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What Are Card Chargebacks?

Card chargebacks occur when a cardholder disputes a transaction made on their credit or debit card. Common reasons include:

  • Unauthorized Transactions: The issuing bank verifies the cardholder did not approve the purchase.
  • Goods or Services Not Received: The cardholder informs the issuing bank that the product or service was never delivered or provided.
  • Duplicate Charges: The issuing bank confirms the cardholder was charged multiple times for a single transaction.
  • Fraud: The issuing bank suspects the transaction may be fraudulent based on the cardholder’s dispute.

During a chargeback, the issuing bank temporarily or permanently returns the transaction amount to the cardholder. The merchant’s acquiring bank is informed, and the merchant may dispute the chargeback by providing evidence of the transaction’s validity.

For a full list of chargebacks and all pertinent information including, descriptions, category, and timeframes, please refer to Return Codes and Card Chargeback Network Reasons.

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Key Roles In Card Transactions

  • Acquiring Bank: The financial institution that processes credit and debit card transactions on behalf of the merchant, communicating with the issuing bank during the chargeback process.
  • Issuing Bank: Issues the credit or debit card to the cardholder, processes disputes, and manages communications between the cardholder, acquiring bank, and merchant.

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Visa & Mastercard Chargeback Time Limits

  • Visa: Most chargebacks must be initiated within **120 calendar days **from the transaction processing date. In some cases, the timeframe may be 75 days depending on the reason code and transaction type.
  • Mastercard: Typically allows up to 120 calendar days from the transaction date, though some chargebacks may need to be filed within 45 or 60 days, depending on the reason code.

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Visa & Mastercard Dispute Monitoring Program Limits

Visa and Mastercard monitor chargeback activity to identify high-risk merchants:

Visa Chargeback Monitoring Program (VCMP):

  • Early Warning: 0.65% ratio and 75 chargebacks per month.
  • Standard Threshold: 0.9% ratio and 100 chargebacks per month.
  • Excessive Threshold: 1.8% ratio and 1,000 chargebacks per month.

Mastercard Excessive Chargeback Program (ECP):

  • Early Warning: 1.0% ratio and 100 chargebacks per month.
  • Excessive Threshold: 1.5% ratio and 150 chargebacks per month.

Merchants exceeding these thresholds may face fines, increased fees, or termination of processing privileges.

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Key Differences

  • ACH returns involve bank account transactions, facilitated by ODFIs and RDFIs
  • Chargebacks involve credit/debit card transactions, managed primarily by issuing and acquiring banks.
  • ACH returns can occasionally result from disputes or suspected fraudulent activities (Unauthorized Returns), but most commonly arise from administrative issues such as insufficient funds or incorrect account details. Chargebacks, on the other hand, frequently involve disputes or fraud allegations.

Understanding these terms, timelines, thresholds, and roles helps you manage your transactions more effectively. If you have questions about ACH returns or card chargebacks, please reach out to [email protected] for support.

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