Can ACH Payments Bounce and What Happens When They Do?

Automated Clearing House (ACH) payments are a common method for electronic money transfers between bank accounts in the United States. These transfers facilitate various financial activities, including direct deposits for payroll and electronic bill payments. While ACH transactions are generally efficient, they can sometimes encounter issues. In such instances, an ACH payment can be “returned,” which is the industry term for a “bounced” payment.

Understanding ACH Payment Returns

An ACH return occurs when an electronic payment, initiated through the ACH Network, cannot be processed and is sent back to the originating bank. This mechanism is similar to a traditional check bouncing, but it happens electronically. The process involves the Receiving Depository Financial Institution (RDFI), the bank receiving the payment request, rejecting the transaction and returning the funds to the Originating Depository Financial Institution (ODFI), the sender’s bank. This return includes a specific code indicating the reason for the failure.

The ACH Network, governed by Nacha, facilitates these transactions and their returns. Nacha establishes the rules that all participating financial institutions must follow for transfers and returns. These rules dictate the timeframes for processing and returning payments, ensuring a standardized approach across the financial system. The return process ensures that if a payment cannot be completed, the funds are routed back to the sender.

Reasons for ACH Payment Failures

Many factors can lead to an ACH payment being returned, each identified by a unique alphanumeric return code. One frequent reason is insufficient funds (R01), meaning the account lacked the necessary balance to cover the transaction. Another common issue is a closed account (R02), which occurs when the destination account has been shut down. Payments can also fail due to an inability to locate the account (R03) or an invalid account number (R04), often stemming from incorrect banking details provided by the payer.

Authorization issues represent another category of returns. This includes situations where the customer advises that the transaction was unauthorized (R10) or revoked authorization (R07). A payment might also be returned if a stop payment order (R08) was issued. Less common issues include uncollected funds (R09), where funds are present but not yet cleared. Administrative errors, such as incorrect routing numbers or issues with the transaction’s timing or formatting, can also trigger returns.

Actions After an ACH Payment Return

When an ACH payment is returned, the originating bank (ODFI) notifies the originator of the failed transaction, often including the specific return code and its explanation. This helps understand why the payment failed. Financial institutions impose fees for returned ACH transactions, which can range from $2 to $5 per return. If the return is due to insufficient funds, the payer’s bank may charge an additional non-sufficient funds (NSF) fee, which can be between $15 and $35.

For payments returned due to insufficient or uncollected funds (R01 or R09), the originator may have the option to re-attempt the transaction. Nacha rules permit re-initiation up to two more times within a specified period, often within 30 to 180 days of the original settlement date, provided the initial authorization remains valid. However, for other return reasons, such as a closed account or unauthorized transactions, re-attempting the payment without first resolving the underlying issue is not advisable or permitted.

Businesses processing ACH payments must adhere to Nacha’s return rate thresholds to maintain compliance. The overall return rate for ACH debits should remain below 15%. More stringent limits apply to specific return types; for instance, administrative returns must be below 3%, and unauthorized returns must be below 0.5%. Timely resolution of returns is important, with most requiring action within two banking days, although unauthorized consumer debits can have a longer return window of up to 60 days from the transaction date.