Can an ACH Payment Bounce? What Happens When It Does

An Automated Clearing House (ACH) payment is a digital transfer of funds between bank accounts within the United States. These electronic payments facilitate various financial transactions, from direct deposits of paychecks to automated bill payments. An ACH payment can “bounce” or be returned, much like a paper check. This article explains the ACH payment process, common reasons for returns, and the subsequent actions and implications.

How ACH Payments Work

An ACH payment involves several key participants. The process begins with an Originator, the individual or entity initiating the payment, such as an employer sending payroll or a customer paying a bill. The Originator provides payment instructions to their bank, known as the Originating Depository Financial Institution (ODFI).

The ODFI gathers multiple payment instructions into batches and sends them to an ACH Operator, which can be either the Federal Reserve or The Clearing House. The ACH Operator acts as a central clearing facility, sorting these transactions and routing them to the correct Receiving Depository Financial Institution (RDFI), which is the bank of the Receiver. Finally, the RDFI credits or debits the Receiver’s account, completing the transaction. This batch processing system, overseen by Nacha, the governing body for the ACH network, provides a reliable method for electronic fund transfers.

Common Reasons for ACH Returns

Payments can sometimes fail, leading to an ACH return. Each return is identified by a specific “R” code, which explains the reason. One frequent reason is Insufficient Funds (R01), meaning the account lacked the necessary balance to cover the transaction amount.

Another common reason is Account Closed (R02), which occurs when a previously active account has been shut down by the customer or their financial institution. Similarly, No Account/Unable to Locate Account (R03) signifies that the provided account number does not correspond to an existing account, possibly due to a typo or an inactive account. An Invalid Account Number (R04) indicates an issue with the account number’s structure or format.

Payments can also be returned due to a Stop Payment Order (R08), where the account holder instructs their bank to halt a specific transaction. Unauthorized Debit (R10) is another significant return code, indicating that the receiver claims they did not authorize the debit entry. This can stem from fraud, error, or a dispute regarding the legitimacy of the charge. Authorization Revoked by Customer (R07) occurs when a customer who previously authorized an ACH payment subsequently withdraws that authorization.

What Happens After an ACH Payment Returns

When an ACH payment is returned, the RDFI assigns an appropriate return code and sends it back through the ACH network to the ODFI. The ODFI then notifies the Originator of the failed transaction, providing the specific return code to explain the reason. This notification helps the Originator understand why the payment did not go through and what corrective action is needed.

Financial consequences often accompany returned ACH payments. Banks may levy fees on both the Originator and, in some cases, the Receiver for the returned item. These fees generally range from a few dollars up to $30 or more per incident.

For certain return reasons, such as Insufficient Funds (R01), the Originator may be able to re-present the payment, typically up to two times within a 30-day period from the original authorization date, in accordance with Nacha operating rules. However, for reasons like Account Closed (R02) or Unauthorized Debit (R10), re-presentment is usually not permitted, requiring the Originator to obtain new payment information or resolve the underlying dispute. Consumer-initiated returns, such as Unauthorized Debit (R10) or Authorization Revoked by Customer (R07), often have an extended timeframe, allowing the RDFI up to 60 calendar days from the settlement date to return the payment.