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FED ER AL RESERVE B A *
OF M E W YO R K
[
Circular No. 9644
February 24, 1984
1
AUTOMATED CLEARING HOUSE SERVICES
— Revised Fee Schedule, Effective March 29
— New Telephone Advice and Presorted Deposit Option Services
— Plan To Reduce and Price ACH Float
T o A ll D e p o s i t o r y I n s titu tio n s in th e S e c o n d
F e d e r a l R e s e r v e D is t r i c t , a n d O th e r s C o n c e r n e d :
The following statem ent was issued by the Board o f G overnors o f the Federal R eserve System:
The Federal Reserve Board has approved a revised fee schedule for its automated clearing house (ACH) service and a
plan to reduce and price ACH float over the next year. The revised ACH fee schedule becomes effective March 29, 1984.
The revised fee schedule is as follows:
Inter-ACH
U n s o r te d
P r e s o r te d
I n tr a -A C H
D e p o s it
D e p o s it
N ew Y o rk 1
Debits Originated
Debits Received
1.50
0.50
3.00
1.00
2.50
1.00
2.50
0.50
Credits Originated
Credits Received
0.50
1.50
1.00
3.00
0.50
3.00
0.50
2.50
Fixed AC H Fees
Deposit Fees:
Tape Handling
File Processing
$3.00 per tape
$1.00 per file
Receiver Handling Fees:2
Non-Electronic
Electronic3
$1.75 per delivery
$0.75 per transmission
Telephone Advice Fees:
Telephone Advices,
Including Ten Pieces
of Information
$2.50
Each Additional Piece
of Information
$0.05
Night Time Deposit Surcharges
Debits Originated
6.00
Credits Originated
3.00
(Next-day settlement only)
1 These fees would apply where the Federal Reserve does not operate a commercial ACH.
2 Receiver handling fees will be assessed once a day per endpoint when ACH transactions are delivered.
3 Electronic endpoints are defined as endpoints that receive ACH transactions via data transmission or receivers that pick up ACH transactions
at the Federal Reserve.
(OVER)
In conjunction with implementing the revised fee schedule, the Reserve Banks will offer two new services — a
presorted deposit option and telephone advice for night cycle transactions. Under the presorted deposit option, ACH origi
nators will be assessed lower fees or be able to deposit transactions later if they sort transactions according to the receiving
Federal Reserve office.
Telephone advice service will be provided by Reserve Banks to depository institutions whose ACH night cycle trans
actions cannot be delivered by ground transportation in time for settlement. The Reserve Banks will provide sufficient
information about the transactions so that depository institutions will be able to post the transactions to their customers’
accounts on the settlement date.
In addition to the revised ACH fee schedule, the Board also approved a plan to reduce and price ACH float over the
next year. ACH float is generated whenever reserve or clearing accounts of the originators of ACH transactions are credited
or debited before the offsetting debit or credit is posted to the receiving depository institution ’s account.4 In order to comply
with the terms of the Monetary Control Act, the Reserve Banks proposed to reduce ACH float to the extent possible through
operational improvements, eliminate certain types of ACH float by modifying settlement procedures, and price the re
maining float.
A major factor in ACH float is delayed transmissions of interregional transactions between Federal Reserve offices.
By implementing operating improvements, the Reserve Banks expect to reduce this float to approximately $7.0 million by
the fourth quarter of 1984. The annualized value of this float is included in the cost base of the 1984 fee schedule.
Float resulting from the inability to process ACH paper return items within the current availability schedules is an
other source of ACH float. ACH paper return item float will be reduced by changing the current availability schedule for
interregional ACH paper return items from same-day to next-day settlement. Any residual float will be included in the
ACH cost base the next time ACH fees are set.
Midweek closing and nonstandard holiday ACH float results from an inability to post ACH transactions to the ac
counts of depository institutions that are closed during the middle of the week (midweek closings) or on nonstandard holi
days when the Reserve Bank is open. With regard to midweek and nonstandard holiday ACH float, the Board determined
to follow the same procedures that were recently adopted for midweek and nonstandard holiday check float.
4 Originators of debit transactions are receivers of funds and their accounts are credited on the settlement date. If the receiving depository
institution’s reserve or clearing account is not debited on the settlement date, debit float is generated. Originators of credit transactions are
payors of funds and their accounts are debited on the settlement date. If the receiving depository institution’s reserve or clearing account is not
credited on the settlement date, credit float is generated.
The B oard’s official notice in this m atter will be published in the Federal Register, and copies will be m ailed to
depository institutions in due course. Copies will also be furnished upon request directed to our Circulars D ivision
(Tel. No. 212-791-5216).
Questions on this m atter should be directed to Andrew H eikaus, M anager, Funds Transfer D epartm ent (Tel.
No. 212-791-5565).
A
nthony
M . S olom on,
President.
FEDERAL RESERVE SYSTEM
Docket No. R-0482
FEE SCHEDULES FOR FEDERAL RESERVE BANK SERVICES
AGENCY:
ACTION:
Board of Governors of the Federal Reserve System.
Fee
Schedule
and
Float
Reduction
Plan
for
the
Automated Clearing House Service.
SUMMARY:
The Board of Governors of the Federal Reserve System
(nBoard°)f pursuant to the requirements of the Monetary Control
Act of 1980
(°MCA°) (12 U.S.C.
§ 248a)* has adopted a revised
fee schedule for its automated clearing house
(°ACH°)
services
and a plan to reduce and price ACH float over the next year.
The revised fee schedule is as follows:
Basic ACH Transaction Fees
Intra°ACH
__________ Inter°ACH______________
Unsorted Presorted
Deposit
Deposit
New York.!/
Debits Originated
Debits Received
1.5*
0.5*
3.0*
1.0*
2.5i*f
l.OC
2.5*
0.5*
Credits Originated
Credits Received
0.5*
1.5*
1.0*
3.0*
0.5*
3.0*
0.5*
2.5*
Fixed ACH Fees
Deposit Fees:
Tape Handling
File Processing
$3.00 per tape
$1.00 per file
1/ These fees would apply where the Federal Reserve does not operate a
commercial ACH.
[Ref. Cir. No. 9644]
r
-2-
V__
Receiver Handling Fees:.?./
Non=Electronic
Electronic.?/
Telephone Advice Fees:
$1.,75 per delivery
$0«75 per transmission
Telephone Advices,
Including Ten Pieces
of Information
$2o50
Each Additional Piece
of Information
$0o05
Night Time Deposit Surcharges
Debits Originated
6„0^
Credits Originated
3 o0^
(Next=day settlement only)
EFFECTIVE DATE:
March 29, 1984*
FOR FURTHER INFORMATION CONTACT:
Director
(202/452=2231)
(202/452=3955),
Elaine
Division,
Mo
or Florence M 0 Young,
Division of Federal
Gilbert To Schwartz,
or
Elliott Co McEntee, Associate
Reserve
Associate General
"Boutilier,
Attorney
Board of Governors
Program Manager
Bank
Counsel
Operations;
(202/452=3625)
(202/452=2418),
Legal
of the Federal Reserve System,
Washington, Do Co 20551o
SUPPLEMENTARY INFORMATION :
The MCA requires that fee schedules
be developed for Federal Reserve Bank services based on pricing
principles
established
by
the
Board0
In
1982,
the
Board
determined to phase out
its incentive pricing policy for ACH
services0
the ACH fee schedule,
Accordingly,
established on
December 30, 1982, provided for recovery of 40 percent of the
2/
Receiver handling fees will be assessed jsnce a day per
endpoint when ACH transactions are deliveredo
3/ Electronic endpoints are defined as endpoints that receive
ACH transactions via data transmission or receivers that pick
up ACH transactions at the Federal Reservec
-3-
costs of providing commercial ACH services.
Consistent
with
the phase-out of incentive pricing for commercial ACH services,
in September ,1983,
the Board
restructured fee schedule
commercial ACH costs.
requested
which would
48 F.R. 44650
public
recover
comment
on a
60 percent
of
(September 29, 1983).
In
addition, the Board requested comment on plans for eliminating
and/or pricing ACH float, and potential near-term and long-term
service enhancements.
A total of 123 comments were
received
from the public.
Background
The
ACH
fee
schedule
that
was
implemented
on
December 30, 1982, was based on an incentive pricing policy, as
noted alcove.
only per
The
schedule
item fees, and
funds-=institutions
is a national
assesses
sending
schedule,
fees only
debits
to
includes
to receivers
collect
payments
of
and
institutions receiving credits, such as salary payments.
The proposed fee schedule differed
fee
schedule
in
several
significant
from the
respects.
current
First,
the
majority of fees were set at the district rather than national
level.
to
Second, per item fees were supplemented with fixed fees
recover
preparing
advising
the
institutions
with
handling
deposits,
of
the
receipt
of
ACH
them,
payments
and
by
Third, two surcharges were proposed that would be
to
surcharge,
associated
transactions for delivery and delivering
telephone.
assessed
costs
all
was
originators.
intended to
One,
recover
a
low
volume
a portion
of
receiver
the
costs
-4-
incurred
in providing
institutions.
The
services
other,
intended to recover
an
to
a large
number
interregional
of
surcharge,
from
was
the costs of processing ACH transactions
that, must be handled by two Federal Reserve offices.
case,
small
In each
the surcharge was based on the benefits to originators
being
able
to
send
transactions
institutions throughout the country.
to assess privately operated ACHs
to
many
Finally,
the same
depository
it was proposed
fees charged
to
other users, when they use "the same services.
Proposed ACH Fee Structure
Public
commenters
discussed
a
number
concerning the proposed ACH fee structure.
into
three
broad
categories:
underlying the fee structure;
and
(3)
(1)
of
issues
Their concerns fell
the .pricing
principles
(2) the specific fees proposed;
the approach for pricing
the ACH services
used
by
privately operated ACHs.
Less than half of the commenters discussed the use of
incentive pricing for the ACH service.
All but two of these
respondents supported the planned phase-out of the policy and
indicated that an immediate move to full-cost pricing for the
Federal
Reserve's
commercial
ACH
services
would
negatively
affect ACH volume growth.
Therefore, the Board has determined
to continue
of
Accordingly,
its phase-out
incentive
pricing
the new fee schedule will recover
the costs of commercial ACH services for 1984.
as planned.
60 percent of
-5-
The concept of value pricing has been
some extent,
August,
since ACH
1981.
fees
A majority
concept of value pricing
were
of
to
implemented
in
that discussed
the
originally
respondents
indicated
employed,
that
the
Federal
Reserve
should base its fees solely on the costs it incurs in providing
services.
A slight majority of commenters
that
discussed the concept of benefit-flow pricing
that
it was
inappropriate
for
the
judgments about perceived benefits.
Federal
specifically
also
Reserve
indicated
to make
Several commenters stated
that the use of value pricing was inconsistent with the intent
of the MCA and would inhibit private sector competition.
After
policy,
taking into account the ACH
the proposed
ACH
incentive pricing
fees w-ere set so that
they would
recover the total costs, plus the PSAF, of providing commercial
ACH services.
Therefore,
the proposed
ACH
fee
schedule
is
consistent with the MCA, which specifies that:
Over the long run, fees shall be established
on the basis of all direct or indirect
costs...including interest on items credited
prior to actual collection, overhead, and an
allocation of imputed costs which takes into
account the taxes that would have been paid
and the return on capital that would have
been provided had the services been
furnished
by
a
private
business
firm, o . o J/
The use of value pricing has a sound basis in economic
theory.
services.
y
Scale
economies
in
the
provision
of
ACH
The use of value pricing assists in the realization
12 U.S.C. § 248a(c)(3)
exist
-6-
of the scale economies and saves
real
resources,
stimulates demand by establishing prices that
users8 demand
elasticities, that
is,
the
because
it
reflect various
relative
benefits
user^s realize,,
An update of the analysis performed in 1982 indicated
that receivers of funds still derive greater benefits from the
ACH than payors of funds,,
Although all participants appear *to
be able to realize some operating cost savings through the ACH,
receivers' of
funds
credit
for payments
checko
Conversely,
have
than
the
additional
they would
benefit
receive
of
earlier
in payments by
payors of funds are charged for payments
earlier than they would be if they made payments by check„
The
opportunity costs associated with the value of float that
is
lost when
the ACH
is used
has
been
one
of
the principal
deterrents to ACH volume growth.
One
of
the
involvement
in
the
development
of
an
reasons
ACH
for
was
to
electronic
the
Federal
provide
payments
Reserve’s
support
service
for
the
that
would
improve the efficiency of the nation's payments mechanism.
The
Federal Reserve has played an active role in promoting the ACH
since
its
inception
during
Reserve's pricing policies
efforts
to promote
Federal
Reserve
the
1970s.
The
are consistent with
the A C H „
commercial
early
Further,
ACH fees
to
the
are set
its
Federal
historic
extent
at levels
that
that
stimulate demand for ACH services, the Federal Reserve’s use of
value pricing should assist depository
institutions
in their
-7-
efforts to increase ACH usage among their customers since the
fees reflect the relative demand for ACH services.
Similarly?
the use of value pricing
Reserve
should
not
inhibit
private-sector
private
sector
has as much
or
prices as the Federal Reserve?
more
and?
by the Federal
competition.
flexibility
in
The
setting
in fact, value pricing is
often used by depository institutions in pricing their payment
services.
The Federal Reserve has adopted pricing principles
that require the Reserve Banks to match costs and revenues for
each
separately
priced
service.
This
requirement
is
more
stringent than the requirement in the MCA, which only indicates
that all Reserve Bank services must be explicitly priced and
that
fees must* be based on all direct
Further?
users of payments services,
and
indirect
costs.
including ACH services,
consider a number of criteria? such as service levels? quality,
and price?
in determining
services.
Therefore, price is not the only basis upon which
service
suppliers
frequently willing
the supplier
compete.
to pay
Users
higher
of
from which
payments
fees for
to obtain
services
higher
are
levels of
service or to pay a premium for a high quality of service.
Accordingly?
the
Federal
Reserve's
use
of
value
pricing satisfies the requirements of the MCA, provided that
the fees established are intended to recover
indirect costs plus the PSAF?
Federal Reserve's
scale economies
after
taking
all direct
and
into account
the
incentive pricing policy.
exist
in ACH
operations,
the
Further?
use
of
because
value
-8-
pricing should stimulate demand for ACH services and,
provide for a more efficient use of real resources.
thereby,
Therefore,
the Board determined that the ACH fee schedule should continue
to incorporate value pricing concepts.
Nearly
proposal
to
60 percent
assess
fees
of
the
that
commenters
varied
by
discussed
Federal
the
Reserve
District.
Approximately one-half of the commenters favored the
proposal,
while
the
other
half
preferred
national
fees.
Opponents of regional fees indicated that they would encourage
geographic
volume
shifts
that
might
create
a
competitive
imbalance among depository institutions and exacerbate the unit
cost differentials between high and low volume Federal Reserve
processing facilities.
During
transactions
Therefore,
1983,
approximately
originated
were
60
percent
interregional
based on the composition
of ACH
of
all
ACH
payments.
transactions,
it
appears that the ACH service is primarily national in character.
Because
the
ACH
is
still
an
emerging
payments
mechanism, as ACH volume levels increase and the transition to
a
primarily
processing
electronic
cost
mechanism
differences
Should be reduced.
among
is
accomplished,
Federal
Reserve
unit
offices
To the extent that higher ACH fees in lower
volume Federal Reserve Districts could act as a deterrent to
volume growth, such a move would be inconsistent, at this time,
with the Federal Reserve's broader goal of promoting the ACH.
-9-
The Board decided that it is premature
regional ACH fees.
to implement
Because the ACH is not a mature payments
service and has not yet reached its potential
as a primarily
electronic mechanism, the use of regional fees may not reflect
the long-run cost structure of the ACH«
service
matures,
the
regional
rather
than
Federal
a
Reserve
national
fee
However,
may
as the ACH
determine
structure
that
is
a
more
appropr iate.
Proposed
overall
Schedule--Commenter s
impact of the proposed
individual
proposed
inhibit
Fee
fees.
fee
A number
schedule,
future
volume
fee schedule
of commenters
with
its
growth.
discussed
as well
suggested
the
as the
that
various
surcharges,
Several
commenters
the
would
also
indicated that the overall impact of the proposed fees resulted
in a departure from benefit-flow pricing.
A comparison of the overall impact of the proposed fee
schedule with the existing fees indicated that the proposed fee
schedule departed from the concept of pure benefit-flow pricing
in two ways.
fees,
not
First,
just
transactions
and
all ACH participants would be assessed
receivers
receivers
of
funds
of credit
(originators
of
transact ions) .
debit
Second,
the fees that would be assessed to the various participants did
not reflect the relative benefits realized by eacho
Under the
proposal, fees assessed to receivers of credits were lower than
the present fees, even though they achieve the greatest benefit
-10-
from the ACH.
credit
On the other hand, the charges to originators of
transactions
increased
the
most
although
these
participants realize a lesser benefit from the ACH due to the
loss of float,.
transactions,
From the standpoint of originators of credit
the level
of the
proposed
charges
could
have
negatively affected volume growtho
The Board has determined that the use of value pricing
(and
thus
benefit-flow
pricing)
assists
in stimulating
ACH
volume growth, yet at the same time, the use of these concepts
does
not
preclude
participant,
schedule
provided
reflects
participanto
assessing
the
that
some
the
relative
Therefore,
charges
overall
benefits
to
impact
each
of
realized
ACH
the
by
fee
each
the ACH fee schedule was modified to
retain the concept of benefit-flow pricing but also to assess
fees to all participants„
Fixed Deposit Fees— The fixed deposit fees included in
the proposed fee schedule were to be assessed for each file— ^
an
ACH
originator
deposited
with
the
Federal
Reserve0
Approximately 60 percent of the commenters that discussed fixed
deposit fees supported the concept.
Respondents that opposed
the fees indicated that they discriminated against low volume
originators.
!/ A file is defined as a group of transactions addressed to
a specific Federal Reserve office.
All unsorted deposits are
addressed to the local Federal Reserve office? presorted
deposits would include files addressed to sever al Federal
Reserve offiees0
-1 1 -
The
containing
costs
ACH
involved
deposits
included on the
tapes
as
or
in
handling
well
files
as
the magnetic
processing
transmitted
the
to the
tapes
files
Federal
Reserve are essentially the same regardless of the number of
transactions included in the deposit,,
costs
are
fixed*
effectively
Further*
operating
through
experience
the
in
use
the
costs
of
Since deposit handling
cannot
be
transaction
check
recovered
fees
collection
alone,,
service
indicated that fixed fees provide an incentive
for
has
users of
payments services to use them efficiently,,
Some commenters pointed out that
fixed deposit
fees
would affect originators of ACH transactions differently,,
It
is true that the per transaction impact of the proposed fixed
deposit fee would be greater
for
high
volume
for low volume originators than
originators.
However*
the per
transaction
impact of any fixed fee declines sharply as volume increases.
Finally*
some commenters indicated that tape handling
was more costly than file processing because tape handling is a
labor-intensive activity and file processing
function.
A
detailed
analysis
of
the
is an automated
costs
incurred
in
processing incoming ACH deposits indicated that the fixed costs
of handling
tapes are approximately three times greater
than
those for file processing.
Because the costs incurred in handling magnetic tapes
and processing files do not vary in relation to the number of
transactions
deposited*
the
Board
approved
a fixed
deposit
-12fee.
However? as the costs of handling magnetic tapes are
considerably higher than the costs of processing files?
the
proposed deposit fee? which was originally based solely on the
number of files deposited?
was modified to include a tape
handling fee and a file fee.
These fees will apply on a per
processing cycle basis for each magnetic tape and each file an
originator deposits? unless an originator deposits more than
one magnetic tape or file at the request of the Federal
Reserve.
In this case?
the fee may be waived.
For ACH
originators that deliver deposits via data transmission only
the file fee would apply.
Fixed
Receiver
Handling
Fees— The
proposed
fixed
receiver handling fees were to be assessed on the basis of
delivery points? or endpoints? and reflected the higher costs
of serving non-eleetronie versus electronic receivers.
About
half of the respondents that discussed the receiver handling
fee'supported the concept.
However? a number of commenters
indicated that the fees could potentially have a negative
impact on low volume ACH participants.
As in the case of the fixed deposit fee? the fixed
receiver handling fee was intended to recover the fixed costs
associated with generating
ACH
output?
preparing
it
for
delivery? and effecting delivery over the road or via data
communications.
Since these costs are comparable over wide
volume ranges? the fixed receiver handling fee parallels the
Reserve Bank's cost structure.
-13-
Currently,
participate
delivered
in
to
about
institutions
have
correspondent
volume
and
the
about
20,000
ACH.
However,
10,000
their
banks
10,000
or
depository
ACH
endpoints,
ACH
transactions
since
transactions
service bureaus.
endpoints,
the
many
are
smaller
intercepted
Based
average
received over 60 transactions per day.
institutions
ACH
on
by
1983
ACH
participant
Thus, the impact of the
proposed receiver handling fee would have ranged from less than
lo0 cent per transaction to about
3.0 cents per
transaction.
Although the effect of a receiver handling fee would be greater
for very low volume
institutions,
these
institutions
from being about to provide the ACH services their
benefit
customers
demand and also from achieving operating cost 'savings through
use of
the ACH.
receiver
As a result,
the
impact
of
the proposed
handling fee should not be a significant
factor
in
smaller institutions0 decision to participate in the ACH.
handling
recover
The
Board
fee
is necessary
endpoint,
correspondent
as
to enable
whose
banks
proposed,
ACH
or
the receiver
were set at a lower
non-electronic
that
ACH
a
fixed
receiver
the Federal Reserve
services
to
low
to
volume
By assessing the fee on a delivery point,
basis,
institutions
determined
the costs of providing
institutionso
Finally,
has
its
impact
transactions
service
are
bureaus
on
smaller
processed
will
or
be
by
reduced.
handling fees in the original proposal
rate
receivers.
for electronic receivers
Because
of
the
than for
efficiency
of
-1 4 -
electronic delivery mechanisms,
in the final fee schedule.
institutions located
this differential
is included
In addition, a number of depository
in Federal Reserve cities pick up their
ACH transactions at the local Federal Reserve office.
these arrangements reduce transportation costs,
Because
the electronic
handling fee rather than the non-electronic handling
fee will
be assessed to these institutions.
Telephone Advice Fees°°In conjunction with permitting
all types of ACH transactions to be deposited at the night time
deposit
deadline,
the
Reserve
Banks
also
expanded
their
telephone advice services for depository institutions that do
not receive these night cycle transactions on the settlement
date.
fixed
Because the amount of information requested may vary, a
fee
variable
proposed.
for
fee
the
for
first
each
ten
pieces
additional
of
piece
information
of
and
information
a
was
A majority of respondents supported these proposed
fees.
The
provision
labor“intensive
of
activity
telephone
and
fixed
advice
costs
services
are
is
incurred
accumulating data and in placing telephone calls.
a
in
However, the
amount of data provided to each receiving institution may vary
due to differences in transaction volumes or the needs of the
receiving institution.
As a result, there is some variability
in the costs of this service.
Therefore,
the Board determined
that the telephone advice fee should be included
schedule as proposed.
in the fee
-15-
Basic Transaction Fees— Under the proposal,
the basic
transaction fees were intended to recover the costs of editing
and sorting transactions and were to be assessed to originators
of debit
transactions and
receivers of
credit
transactions.
Several commenters suggested that all ACH participants realize
benefits from the ACH and suggested that transaction fees be
assessed to both parties to a transaction,
like they are for
the wire transfer of funds service.
Because
substitute
for
the
paper
ACH
was
checks,
originally
fees
for
established on a comparable basis,
conceived
ACH
that
as
services
is,
a
were
they have been
assessed to receivers of funds and to only one party.
However
the ACH is an electronic payments service that offers its users
many
benefits
they
payments services,
and
security.
participants
could
not
such as,
Thus,
derive
as
obtain
through
paper-based
increased certainty,
commenters
benefit
from
pointed
the
ACH.
convenience,
out,
all
Therefore,
transaction fees will be assessed to all ACH participants, but
the
benefit-flow
concept
will
be
retained
to
reflect
the
relative benefits of each participant.
Low Volume Receiver Surcharge°°The proposed low volume
receiver surcharge was to be assessed to ACH originators for
each transaction sent to an ACH participant that received fewer
than 500 transactions per day.
This element of the proposed
fee structure was opposed by 101 commenters and was supported
by
only
four
respondents.
Commenters
indicated
that
the
-16-
surcharge would inhibit volume growth because it would have a
significant
Further,
impact
on
commenters
originators
indicated
of
that
credit
transactions.
originators
of
ACH
transactions do not influence the destination of transactions.
Rather,
consumers
receiving
and
receiving
depository
indicated
that
operationally
the
companies
institutions.
low
volume
Finally,
receiver
complex proposal
select
their
commenters
surcharge
was
an
both from the perspective
of
depository institutions and the Federal Reserve.
While it is true that neither depository institutions
originating
ACH
transactions
nor
their
corporate
customers
determine the institution that will receive an ACH transaction,
originators
do
institutions.
development,
benefit
However,
from
a
given
broad
the
base
current
of
receiving
state
of
ACH
it appears the costs and potential complexity of
implementing the low volume receiver surcharge could negatively
impact
future
volume
growth.
Therefore,
until
additional
analysis is done, the low volume receiver surcharge will not be
implemented.
Interregional Surcharge— The current ACH fee schedule
includes an interregional
benefit°flow basis
differential
to originators
receivers of credit transactions.
published
for
interregional
both
debit
public
comment
differential,
and
credit
or
that
of debit
is assessed on a
transactions
and
The fee schedule that was
proposed
surcharge,
transactions.
assessing
the
to originators
In addition,
a
of
lower
-1 7 -
surcharge was proposed for transactions
included
deposits than for transactions
in unsorted or mixed
included
in presorted
deposits.
A
majority
of
commenters
supported
the
proposal.
However, a few commenters indicated that the surcharge should
continue
to
be
assessed
on
a
benefit-flow
basis.
Other
commenters suggested that the surcharge should be split between
originators and receivers of ACH transactions.
Assessing
originators,
the
interregional
surcharge
to
all
ACH
in conjunction with assessing them fixed deposit
fees and the low volume receiver surcharge, was determined to
be
inconsistent
Therefore,
the
closely the
This
was
with
fee
the
concept
schedule
was
relative benefits
done
in
part,
by
of
benefit-flow
modified
to
realized by
assessing
reflect
ACH
the
pricing.
more
participants.
interregional
differential to all ACH participants in the same way as basic
transaction fees.
Further, because less processing is required
when presorted deposits are
received,
a lower
fee
will
be
assessed to originators depositing presorted transactions.
Night
Time
Deposit
Surcharges--The
proposed
fee
schedule, like the current fees, included surcharges that would
be
assessed
to
originators
of
both
debit
and
credit
transactions deposited at
the night
time
deposit
deadlines.
Commenters
the night
time
deposit
surcharges
indicated
that
should reflect only the specific costs associated with night
time operations and that these costs would
same for both debit and credit transactions.
logically be the
-1 8 -
As indicated in the discussion of value pricing,
appropriate
for
the
Federal
Reserve
to
adjust
individual components of priced services so that
the relative benefits realized by users0
fees
it is
for
they reflect
Originators of debit
transactions realize substantial benefits from the use of night
time
operations
through
improved
funds
availability.
Conversely, the only benefit derived by originators of next-day
credit transactions from the night
additional processing time.
generated
as
a
deadline
is
Furthermore, there is also a cost
basis for assessing different
float
time deposit
fees,
result
of
because
delayed
the majority of
interregional
transmissions is due to debit transactions processed at night.
Because originators of debit and credit transactions
realize different benefits
and because
there
are processing
costs differences, a higher night time deposit surcharge will
continue be assessed to originators of debit transactions than
to originators of next-day settlement credit transactions.
No
night time deposit surcharge will be assessed to originators of
two-day settlement credits.
Corporate Trade Payment Fees°°Because very low volumes
of
corporate
through
the
indicated
trade
ACH,
payments
the
(°CTP°)
proposal
that the CTP fee
were
issued
schedule
for
being
processed
public
implemented
comment
on June 2,
1983, would remain in effect until more experience was gained
with
the
application.
aspect of the proposal,
Very
few
commenters
discussed
but those that did generally
this
agreed
-19-
that the current fee schedule should not be modified at this
time.
Accordingly,
effect,
with
handling,
the
and
applications,
the
current
exceptions
telephone
fee schedule will
that
advice
fixed
fees will
remain
deposit,
apply
in
receiver
to
all
ACH
including the CTP application.
Proposed
Fees
for
Privately
Operated
currently assessed to the New York Automated
ACHs°°Fees
Clearing House
Association (0NYACHf’) are based on the same concepts underlying
the present
national
fees, however,
participants,
structure.
The basic
transaction
are lower than the fees assessed to other ACH
because the New York Federal Reserve Bank does
less processing
ACH.
fee
than Reserve Banks that operate a commercial
The following changes in this philosophy were proposed:
(1) when privately operated ACHs use the same services that are
used
by
depository
institutions,
the
same
fee
should
be
assessed and (2) when unique services are provided to privately
operated ACHs, they should be priced separately to reflect the
actual costs incurred in providing the services.
In its response, the New York Clearing House
(QNYCH")
indicated that the nature and level of the proposed fees would
discourage
competition
with
the
Federal
Reserve
and
might
affect the Clearing House's ability to continue to operate an
ACH.
Specifically,
the NYCH indicated that the fee structure
required■NYACH to pay for services that it does not use, such
as, commercial ACH processing, ACH return item processing,
customer support services.
and
Thus, the NYCH concluded that ACH
-2 0 -
fees
for privately
unbundled.
operated
ACHs
had
not
been
sufficiently
Howeverf in discussing the proposal to unbundle the
settlement
services
questioned
the
provided
fee because
to
it
the
Clearing
°is not assessed
Federal Reserve operated ACH.°
that the proposed?
NYACH?
Finally?
unbundled deposit?
the
House
against
NYCH
settlement?
any
indicated
and delivery
fees were higher than comparable fees in other Federal Reserve
Districts o
The
question
of whether
the
proposed
fee
schedule
required NYACH to pay for services that it does not use can be
addressed
by
schedule..
in
the
individual
elements
of
the
fee
First? NYACH deposits interregional ACH transactions
files
office.,
reviewing
that
are
presorted
by
receiving
The Reserve Banks plan to make
Federal
this
Reserve
deposit
option
available to all ACH originators when the new ACH fee schedule
is implemented.
Accordingly?
it was proposed
that NYACH be
assessed the same transaction fees and interregional surcharges
as any presorted depositor.
In this case?
it is clear
that
NYACH receives the same service as other ACH originators?
and
this element of the proposal treats NYACH equitably.
Second?
originated
proposed
above?
the
and credits
in other
basic
transaction
received
Federal
were
Reserve
fees
the
same
Districts.
this is appropriate for presorted debit
However?
in the case of credits
received?
for
debits
as
the
fees
As
indicated
transactions.
the proposed
fee
schedule did not reflect the fact that the New York Bank does
= 21-
less processing.
operate
a
In regions where the Federal Reserve does not
commercial
AC H *
privately operated ACHs for
transaction
fees
assessed
to
receiving ACH transactions
should
be lower than the fees assessed to ACH participants where the
Federal Reserve operates an ACH.
Third*
a settlement
charge consisting
of a fee per
settlement statement as well as a fee per settlement entry was
proposed.
This fee was intended to recover costs incurred in
processing
settlements
for
NYACH.
Since
commercial
ACH
transactions are processed by all other Reserve offices*
the
settlement of transactions is not a separate activity but an
integrated processing step.
As such* the costs associated with
settlement are recovered through basic transaction fees.
The
Federal
Reserve has defined
its
net
settlement
services as the posting of net debit or net credit entries to
the reserve or clearing accounts of institutions participating
in clearing arrangements where
the Federal Reserve
process any of the underlying transactions.
does not
In the case of net
settlements processed for the NYACH, the net entries represent
both local ACH transactions* which the Federal Reserve is not
involved
in processing*
and
interregional
ACH
transactions,
which the Federal Reserve is involved in processing.
Because
of the unique nature of the settlement services provided
NYACH*
it
is considered
to be
appropriate
to
continue
to
to
recover the costs the New York Bank incurs through transaction
fees*
for
the
present.
The
handling
of
settlements
that
-2 2 =
combine transactions that the Federal Reserve has not processed
with those it has been involved in processing is a complex
issue,,
In addition*
it is an increasingly important issue
because procedures currently in place result in float generated
by privately operated ACHs being reflected on the Federal
Reserve’s balance sheeto
Therefore* a comprehensive analysis
is being conducted of the issues concerning accounting and
settling for ACH transactions in regions where the Federal
Reserve does not operate a commercial ACH0
(It should be noted
that if a privately operated ACH requested net settlement
services for ACH transactions that the Federal Reserve is not
involved
in processing*
it would be assessed the Federalj
Reserve’s net settlement fees„)
Fourth* it was proposed to assess fixed deposit fees
and a combined settlement and ground delivery fee to privately
operated ACHs0
The fixed deposit fee and the ground delivery
fee were set on the same basis as the fees for all ACH
participants
institutions
identical,,
feeso
because
and
the
services
private°seetor
provided
ACHs
to
are
depository
essentially
The NYCH’s primary concern was the level of the
Because the Board
determined
that
the ACH
continue to be considered a national service*
should
the concerns
raised by many commenters* including NYCH* regarding the.range
of the proposed fixed fees have been addressed by the adoption
of uniform fixed fees0
“ 23-
ACH Software--The proposal
issued for public comment
also indicated that ACH associations wishing to use the Federal
Reserve's new ACH software package, ACH-84, would be assessed a
licensing fee as well as an annual maintenance fee.
The ACH-84
software
Federal
package
is
currently
being
developed
by
Reserve staff and should be completed during the fourth quarter
of 1984 .
Commenters
Automated
Clearing
indicated
House
their
("NACHA®)
belief
that
as well
as
the National
the
Federal
Reserve had proprietary rights to the ACH-84 software,
the
current
ACH
software
Reserve and NACHA.
is
jointly
owned
by
the
since
Federal
In addition, because costs associated with
software development are
included
in the cost base
used
in
setting commercial ACH fees, respondents believed that it was
inappropriate for the Federal
fee*
Finally,
a
few
commenters
Reserve's legal authority
broad
range
of
conducted before
issues
Reserve
to sell
raised,
the Board
to assess
questioned
software.
additional
determines
a licensing
the
Federal
Because
analysis
whether
to
of the
will
be
adopt
the
licensing and maintenance fees.
ACH Float
ACH float
is generated whenever
reserve or
clearing
accounts of the originators of ACH transactions are credited or
debited before the offsetting debit or credit is posted to the
-24receiving
depository
institution's
comply with the terms of the MCA,
to;
(1)
reduce
operational
ACH
float
improvements;
float by modifying
to
the
account.-^
In order
to
the Reserve Banks proposed
extent
possible
(2) eliminate certain
settlement procedures;
and
through
types of ACH
(3) price
the
remaining float.
Delayed
Interregional
Transmission Float°°The primary
cause of ACH float is delayed
transactions
delayed
between
Federal
transmission
float
transmissions of interregional
Reserve
amounted
offices.
to
During
1983,
approximately
$36
million on a daily average basis and accounted for 53 percent
of total ACH float.
The Reserve Banks azle in the process of
implementing operating improvements that are expected to reduce
this float to approximately $7.0 million by the fourth quarter
of 1984.
of
It was proposed to incorporate the annualized value
projected,
fourth
quarter,
1984
delayed
interregional
transmission float in the cost base used to derive the revised
ACH fees.
A majority
of
respondents
indicated
that
it
is
inappropriate for the Federal Reserve to charge for its
§./
Originators of debit transactions are receivers of funds
and their accounts are credited on settlement date.
If the
receiving depository institution's reserve or clearing account
is not debited on the settlement date, debit float is
generated.
Originators of credit transactions are payors of
funds and their accounts are debited on settlement date.
If
the receiving depository institution's reserve or clearing
account is not credited on the settlement date, credit float is
generated„
.
.
-25-
operational
inefficiencies and that such a step would
remove
the incentives for further improving operations.
Inclusion of this
base
is consistent
Reserve
float
with
remaining
improvements.
float
the
MCA,
after
Furthermore,
i.n the commercial
since
it
prices
implementation
this
action
will
of
ACH
cost
Federal
operational
increase
the
Reserve Banks0 incentives for improving operational procedures
because
including the value of this
results in higher ACH fees.
projected,
fourth
float
in the cost base
Therefore, the annualized value of
quarter,
1984,
delayed
interregional
transmissions float will be included in the 1984 commercial ACH
7 /
cost base.—
!
1
Return Item Float— Float resulting from the inability
to
process
availability
float.
ACH
paper
schedules
During 1983,
return
items
is the second
within
largest
the
current
source
of
ACH
return item float amounted to nearly $18
million on a daily average basis and accounted for 26 percent
of total ACH float.
The request for public comment proposed to
eliminate the majority of this float by changing the current
availability schedule for interregional ACH paper return items
from
same-day
to
next-day
settlement.
The
majority
of
respondents supported this proposal, and it has been adopted by
the Board.
V
In conjunction with this action, to encourage
Us ing a 9.5 percent .Federal funds rate,, the value of this
float amounts to $655,000.
= 26 =
greater
use of
the automated
ACH
return
item process,
the
Reserve Banks plan to change the current availability schedule
for automated return
deadline
from
items
next-day
deposited
to
same-day
at the morning
settlemento
deposit
It
is
anticipated that the majority of return item float should be
eliminated by these modifications.
Any residual float will be
included in the ACH cost base the next time ACH fees are set,
Midweek Closings and Non-standard Holiday Float-°Float
resulting from the inability to post ACH transactions to the
accounts of depository institutions that are closed during the
middle
of
holidays
the
week
amounted
basis in 1983 0
(midweek
closings)
or
on
non-standard
to abcfut $4.0 million on a daily average
As a means of eliminating this float,
it was
proposed to debit or credit the reserve or clearing account of
the closed institution as though the institution were open for
business.
A majority of commenters
supported
the
proposal,
although some respondents stated that accounts should not be
charged when state law requires depository institutions to be
closed o
Although a majority of the respondents supported the
proposal to charge the accounts of institutions closed during
the middle of the week as though they were open,
determined that it is appropriate to offer
the
same
options
as these
collection service.
recently
these
adopted
for
the Board
institutions
the
49 F.R, 4196 (January 30, 1984).
check
-27-
Wit h respect
to
ACK
debit
transactions,
depository
institutions that elect to close during the business week will
be offered the following options;
(1) having the Reserve Bank
debit its accpunt for items that are made available to it and
would normally be settled on that day if the institution were
open for business; or (2) paying for the value of float that is
generated.,
may pay
Under
for
the second
float
procedures:
(1)
option,
explicitly
payment
depository
through
may
be
one
made
of
institutions
the
through
following
an
°as
ofra
adjustment to an institution's reserve or clearing account to
correct for float after it has occurred; or (2) payment may be
made
by
an
explicit
transactions,
charge.,
depository
In
the
case
institutions'
of
ACH
accounts
credit
will
be
credited for transactions that settle on midweek closing days.
With
respect
to
float
observing
non-standard holidays,
feasible,
Reserve
originators
of
Banks
ACH
will
arising
from
institutions'
to the extent
defer
transactions
debiting
that
are
operationally
or
crediting
destined
for
institutions that will be observing a non-standard holiday on
the settlement date.,
The value of any remaining non-standard
holiday float will be recovered under the fee schedule.,
Residual
ACH
Float°°The
approximately 15 percent,
due
to
Reserve
Bank
remainder
of
ACH
float,
amounting to about $11 million,
operating
procedures,
processing
is
or
intraterritory transportation delays, and reserve adjustments.
Because
this
float
can
be
reduced
substantially
through
= 28 =
operational
improvements, it
was
proposed
that
operational
improvements be implemented during 1984 and that any residual
float that cannot be eliminated be included
base the next time ACH fees are set.
that delaying
the pricing
of
in the ACH cost
One respondent suggested
residual
ACH
float
created
a
competitive advantage for the Federal Reserve0
Because much of this
float
results
from operational
inefficiencies inherent in the current ACH software
that will
be corrected when the ACH=84 software is implemented later this
year,
this float will not be
until joperational
included
improvements
can be
in the ACH
cost base
realized.
Since
the
majority of ACH float will either be included in the 1984 ACH
cost base or be eliminated,
this procedure does not create a
competitive advantage for the Federal Reserve.
Proposed Service Enhancements
Based on a review of the current features of the ACH
service, several service enhancements were identified.
proposed to;
It was
(1) offer several alternative levels of telephone
advice services to depository institutions for items deposited
at the night time deposit deadline that cannot be delivered on
the settlement date?
(2) offer
depository
institutions
lower
prices and/or later deadlines for deposits that are presorted
by receiving Federal Reserve District and are delivered either
to the
local
Federal Reserve
office or
the
Federal Reserve
office serving the receiving i n s t i t u t i o n s ) ? and. (3) conduct an
analysis of offering same=day settlement for ACH transactions,
-29-
expanding
the
ACH
value-dating
concept
or
providing
a
warehousing service, modifying the ACH to serve as a mechanism
to facilitate interbank clearing and settlement of electronic
payments,
converting ACH paper
return items to automated form
at the Federal Reserve office of first receipt, and offering a
separate ACH return item service.
With respect to the proposed service enhancements,
commenters
issues.
offered
many
At this time,
suggestions
and
raised
the
numerous
only the telephone advice service and
the presorted deposit option can be implemented in conjunction
with the revised ACH fee schedule.
Before considering whether
the other proposed service enhancements should be offered,
a
complete analysis of their potential impact on the ACH service
will be conducted.
Telephone
Advice
Service--In
conjunction
implementing the revised ACH fee schedule,
with
it was proposed that
the following alternative telephone advice services be offered
to
depository
totals?
debit
advice
institutions:
(1)
advice
of
ACH
(2) advice of all debit transactions;
transactions
of
all
above
credit
a
specified
transactions;
transactions above a specified
dollar
dollar
(5)
(3)
advice of
8
amount;—
advice
amount;
settlement
of
/
(4)
credit
(6) advice of
next-day settlement credit transactions only; or (7) a
J/
A specific dollar amount will be determine jointly by
representatives, of the Federal Reserve and each depository
institution.
= 30 =
combination
of
institution0
these
alternatives
In providing
selected
these services,
by
a depository
the Reserve Banks
would provide sufficient information about transactions so that
depository institutions would be able to post the transactions
to their customers"
accountSo
This proposal was supported by
the majority of respondents that discussed it.
Because ACH transactions processed at night cannot'be
delivered
to
remotely
located
institutions
transportation by the settlement date,
advice
services
will
be
made
via
ground
the proposed telephone
available
to
depository
institutions by all Reserve Banks where there is a demand for
such services beginning March 29, 1984.
Presorted Deposit Option— Currently, Federal
offices accept only mixed, or unsorted, ACH deposits0
number
of depository
institutions possess
sort ACH transactions and are believed
Reserve
Since a
the
capability
to be
interested
to
in
reducing the costs associated with participating in the ACH, a
presorted deposit option was proposed.
Under this option, ACH
originators would be permitted to deposit transactions sorted
by receiving Federal Reserve office with their
office
or
to
deliver
presorted
deposits
local Reserve
directly
to
the
receiving Reserve office.
A
majority
of
commenters
supported
R e s e r v e d offering a presorted deposit option,
the
Federal
indicating that
this proposal was a positive step for improving the efficiency
of the ACH mechanism.
Several commenters, however,
noted that
= 31 =
deposit deadlines were not
identical
at all
Federal Reserve
of f ices.
Since the presorted deposit option offers originators
of ACH transactions a meaningful way to reduce
costs or
to
benefit from later deposit deadlines and should contribute to
ACH volume growth,
the Reserve Banks will begin offering the
presorted deposit option on March 29, 1984.
In addition,
each
Federal Reserve office will make a schedule of all ACH deposit
deadlines available to originating institutions that desire the
schedules.
Cost, Volume, and Revenue Projections
Based
on
preliminary
data,
recoverable commercial ACH costs,
during
1983,
total
including the PSAF, amounted
to $6.2 Total revenues amounted to $6.6 million, resulting in a
net revenue surplus of $400 thousand.
These results compare
favorably with the projections that were used in setting the
current ACH fees.
that
recoverable
Specifically,
commercial
the Reserve
ACH costs
would
Banks projected
amount
to $5.7
million and that total revenues would amount to $6.0 million.
The primary reason for the differences in both commercial ACH
costs
and
exceeded
revenue was
projections.
commercial
ACH
transactions.
approximately
volume
The
156
fact
million
that
Reserve
would
Preliminary
processed during 1983.
the
commercial
Banks
amount
volume
commercial
to
data
ACH
ACH
volume
estimated
151
that
million
indicate
that
transactions
were
-32 =
The Reserve Banks project that recoverable commercial
ACH costs,
including
the
PSAF
and
the
float
that
will
be
included in the cost base, will amount to $10.6 million during
1984 .
Based on the recommended ACH fee schedule,
expected to amount to S l i d
revenues are
million, resulting in a net revenue
surplus of $500 thousand.
The increase in costs reflects the change from a 40
percent
to a 60 percent
recovery rate,
the inclusion of ACH
float in the cost base for the first time, as well as a slight
increase in the proportion of commercial ACH volume to total
ACH
volume.
During
1983,
commercial
ACH
transactions
constituted approximately 39 percent of total ACH volume.
1984,
commercial ACH volume
In
is expected to reach a level of
187.8 million transactions to account for nearly 42 percent of
the
estimated
452.4
million
government
and
commercial
ACH
transactions.
By order
of
the Board of Governors
of the Federal
Reserve System, February 15, 1984.
(s ig n e d )
W illia m
W. W i l e s
William W. Wiles
Secretary of the Board
@FedFRASER