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F ed er a l R e s e r v e Ba n k



C ircular No. 79-91
May 22, 1979


The Board of Governors of the Federal Reserve System has approved
a new automated clearing house service which w ill reduce collection time for
electronic cash concentration transfers. This new service w ill allow more cor­
porations to economically convert from paper-based transfer systems to electronic
The Board also approved a schedule change which w ill provide finan­
cial institutions with an additional five hours for initiating debit and cred it
applications such as d irect deposit of payroll and pre-authorized b ill payments.
Printed on the following pages is a copy of the Board's press release.
Any questions may be directed to L a rry J . Reck of our Payments Mechanism
Department, E xt. 6337.
Sincerely yours,
Robert H . Boykin
First Vice President

Banks and others are encouraged to use the following incoming W ATS numbers in contacting this Bank:
1-800-492-4403 (intrastate) and 1-800-527-4970 (interstate). For calls placed locally, please use 651 plus
the extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (




'?fjAL 1S&£‘

For immediate release

May 14, 1979

The Federal Reserve Board today announced actions to improve its
automated clearing house services, where electronic fund transfers are cleared
and settled.
The improvements are intended to provide better services to consumers,
financial institutions and corporations using Federal Reserve automated clearing
house (ACH) facilities.
The revisions in its ACH operations approved by the Board give users of
ACH services more time to get certain types of their payments instructions to
Federal Reserve ACHs, and will result in earlier availability to financial insti­
tutions of the funds being paid.

Financial institutions can thus credit the

accounts of their customers at an earlier time.
These improvements in ACH services follow upon the linkage, approved
by the Federal Reserve in April 1978, of 36 ACHs into a national network.
Automated clearing houses move money by electronically transmitted
payment instructions that take the place of movement of funds by paper checks. For
example, an employer may transfer payroll payments instructions through an ACH
from the employer's account in a financial institution to financial institutions
where the employees have accounts.
The improvements in ACH services adopted by the Board will be subjected
to a pilot test and subsequently phased in over a period of several months.


the pilot program, three to five ACHs will exchange payments to test the feasibility
of the new time schedules. The remaining ACHs will be phased into the new
procedures according to schedules to be determined by the local Federal Reserve
Bank and the local A C H Association.

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The Board believes that the electronic transfer of funds made possible
by ACHs is superior to payment by cash or check in many instances, due to enhanced
security, convenience and reliability of payment.

As volume develops, electronic

transfer can become substantially cheaper than other forms of payment.
The time schedule improvements announced today are of two kinds.


first will provide financial institutions with five additional hours for initiating
debit and credit payments, such as direct deposit of payroll and preauthorized
bill payment, and cash concentration.

For example, if payday is Friday and the

employee is to have access to his wages on that day, the financial institution
that is initiating the payments on behalf of the employer must deposit the payments
instructions at the ACH by 5:00 a.m. Thursday.
between ACHs

This interval covers transmission

and time for the receiving bank to credit the employee's account.

The second improvement allows some types of payments, such as cash
concentration transfers made in the interests of improving cash management, to be
handled even more expeditiously. For example, a financial institution collecting
funds on behalf of a corporate customer from another financial institution can
initiate debits to those accounts as late as 9:00 p.m. Thursday for Friday settle­
ment. At present, cash concentration transfers must be initiated at the same time
as other ACH payments.

This schedule change will allow corporations to collect

funds from any financial institution in the nation on an overnight basis.
At present, some 6,000 corporations, governments and other entities
are making use of ACH services.

The Federal Reserve, with the assistance of the

National Automated Clearing House Association, has consulted with corporate
officials and others to identify the ways in which they can best make use of the
more economical and more secure movement of funds made possible by ACH services.
Larger corporations interviewed in the course of formulating the changes
announced today indicated they are making use of ACH services for the electronic

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transfer of one or more of the following types of payment:

direct deposit of

managerial salaries and retirement benefits, the collection of preauthorized
insurance premiums and credit card bills and payments or collections made to
Improve cash management.

Such corporations include:

Allied Chemical Corporation
International Business
Aluminum Company of America Machines Corporation
American Express Company
Life Insurance
American Motors Corporation
The Dow Chemical
NCR Corporation
Equitable Life Insurance
United States Postal
General Motors
United States SteelCorporation
Westinghouse Electric Corporation
Xerox Corporation
Allied Chemical, American Motors and General Motors are now using the
ACH services for direct deposit of management payroll and are planning to use it
for direct deposit of retirement benefits.

Alcoa, Dow Chemical, and IBM are also

using A C H services for their management payroll and are exploring its application
to hourly payroll.

NCR and U.S. Steel also have their direct deposit payroll

payments sent through ACH.

NCR is considering ACH services for direct deposit

of dividend payments while U.S. Steel is considering electronic transfer payments
through ACHs for cash management purposes.
Among other major firms, American Telephone and Telegraph Company,
Southern Pacific Company, and Standard Oil Company of California are actively
studying the use of electronic payments.
* * * * * * * * * * *

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102