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March 13, 1984
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To the Depository Institution Addressed?
Our Circular No„ 9644, dated February 24, 1984, announced a
revised fee schedule for Federal Reserve automated clearing house (ACH)
services and a.plan to reduce and price ACH float over the next year. The
new fee schedule becomes effective on March 29, 1984.
Enclosed is a copy of the official notice in this matter, issued
by the Board of Governors of the Federal Reserve System. Also enclosed is
a copy of Appendix A, revised effective March 29, 1984, to this Bank’s
Operating Circular No. 10, containing the time schedule and new fee schedule
for ACH services.
Questions on this matter should be directed to Andrew Heikaus,
Manager, Funds Transfer Department (Tel. No. 212-791-5565).
Circulars Division
FEDERAL RESERVE BANK OF NEW YORK
ACH F E E S C H ED U LE AND F L O A T R ED U C TIO N P LA N
E ffe c tiv e M a r c h 2 9 , 1 9 8 4
F ixed A CH F ees
Deposit fees:
[Docket Wo. R-0482]
$3 per tape.
File processing........................... $1 per file.
Receiver handling fees:2
$1.75 per delivery.
Electronic 3.._............................. $0.75 per transmission
Telephone advice fees:
Telephone advices, including ten $2.50.
pieces of informatioa
Each additional piece of infor- $0.05.
mation.
Night time deposit surcharges:
Debits originated......................... 6 cents.
Credits originated (next-day set- 3 cents.
tlement only).
Fee Schedules for Federal Reserve
Bank Services
AGENCY: Board of Governors of the
Federal Reserve System.
a c t i o n : Fee Schedule and Float
Reduction Plan for the Automated
Clearing House Service..
SU M M A RY : The
Board of Governors of
the Federal Reserve System (“Board”),
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:
B asic ACH T ransaction F e e s
Inter-ACH
IntraACH
Debits originated
(cents).................
Debits received
(cents)............. ....
Credits originated
(cents)........... .....
Credits received
(cents).................
[Ref. Cir. No. 9644]
Unsort Presort
ed
ed
deposit deposit
1.5
3
25
.5
1
1
.5
1
1.5
3
.5
3
New
York 1
2.5
.5
.5
2.5
1These 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 re
ceive ACH transactions via data transmission or receivers
that pick up ACH transactions at the Federal Reserve.
e f f e c t iv e
© a t e : March
29,1984.
FOR FURTHER IN FO RM A TIO N CONTACT:
Elliott C. McEntee, Associate Director
(202/452-2231) or Florence M. Young,
Program Manager (202/452-3955),
Division of Federal Reserve Bank
Operations: Gilbert T. Schwartz,
Associate General Counsel (202/4523625) or Elaine M. Boutilier, Attorney
(202/452-2418), Legal Division, Board of
Governors of the Federal Reserve
System, Washington, D.C. 20551.
SU P PLEM EN T A RY INFO RMATION: The
MCA requires that fee schedules be
developed for Federal Reserve Bank
services based on pricing principles
established by the Board. In 1982, the
Board determined to phase out its
incentive pricing policy for ACH
services. Accordingly, the ACH fee
schedule, established on December 30,
1982, provided for recovery of 40 percent
of the costs of providing commercial
ACH services. Consistent with the
phase-out of incentive pricing for
commercial ACH services, in September
1983, the Board requested public
comment on a restructured fee schedule
which would recover 60 percent of
commercial ACH costs. 48 FR 44650
(September 29,1983). In addition, the
Board requested comment on plans for
eliminating and/or pricing ACK 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 above. The schedule is a national
schedule, includes only per item fees,
and assesses fees only to receivers of
funds—institutions sending debits to
collect payments and institutions
receiving credits, such as salary
payments.
The proposed fee schedule differed
from the current fee schedule in several
significant respects. First, the majority
of fees were set at the district rather
than national level. Second, per item
fees were supplemented with fixed fees
to recover the costs associated with
handling deposits, preparing
transactions for delivery and delivering
them, and advising institutions of the
receipt of ACH payments by telephone.
Third, two surcharges were proposed
that would be assessed to all
originators. One, a low volume receiver
surcharge, was intended to recover a
portion of the costs incurred in
providing services to a large number of
small institutions. The other, an
interregional surcharge, w as intended to
recover the costs of processing ACH
transactions that must be handled by
two Federal Reserve offices. In each
case, the surcharge was based on the
benefits to originators from being able to
send transactions to many depository
institutions throughout the country.
Finally, it w as proposed to assess
privately operated ACHs the same fees
charged to other users, when they use
the same services.
Proposed ACH Fee Structure
Public commenters discussed a
number of issues concerning the
proposed ACH fee structure. Their
concerns fell into three broad categories:
(1) The pricing principles underlying the
fee structure; (2) the specific fees
proposed; and (3) 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 its phase-out of incentive
pricing as planned. Accordingly, the
new fee schedule will recover 60 percent
of the costs of commercial ACH services
for 1984.
The concept of value pricing has been
employed, to some extent, since ACH
fees were originally implemented in
August, 1981. A majority of respondents
that discussed the concept of value
pricing indicated that the Federal
Reserve should base its fees solely on
the costs it incurs in providing services.
A slight majority of commenters that
specifically discussed the concept of
benefit-flow pricing also indicated that
it was inappropriate for the Federal
Reserve to make judgments about
perceived benefits. Several commenters
stated that the use of value pricing was
inconsistent with the intent of the MCA
and would inhibit private sector
competition.
After taking into account the ACH
incentive pricing policy, the proposed
ACH fees were 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:
O ver the long run, fees shall be estab lish ed
on the b a sis of all direct or indirect co sts . . .
including interest in item s credited prior to
actual collection , overhead, and an allocation
of im puted co sts w h ich takes into accou n t the
taxes that w ould h ave b een paid and the
return on capital that w ould h ave b een
provided had the services b een furnished by
a private b u sin ess firm. . . .
The use of value pricing has a sound
basis in economic theory. Scale
economies exist in the provision of ACH
services. The use of value pricing assists
in the realization of the scale economies
and saves real resources, because it
stimulates demand by establishing
prices that reflect various users’ demand
elasticities, that is, the relative benefits
users 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 have the
additional benefit of earlier credit for
payments than they would receive in
payments by check. Conversely, 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 reasons for the Federal
Reserve’s involvement in the ACH was
to provide support for the development
of an electronic payments service 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 the early 1970s. The
Federal Reserve’s pricing policies are
consistent with its historic efforts to
promote the ACH. Further, to the extent
that Federal Reserve commercial ACH
fees are set at levels that stimulate
12 U.S.C. 248a(c)(3).
2
demand for ACH services, the Federal
Reserve’s use of value pricing should
assist depository institutions in their
efforts to increase ACH usage among
their customers since the fees reflect the
relative demand for ACH services.
Similarly, the use of value pricing by
the Federal Reserve should not inhibit
private-sector competition. The private
sector has as much or more flexibility in
setting prices as the Federal Reserve,
and, 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 and indirect costs.
Further, users of payments services,
including ACH services, consider a
number of criteria, such as service
levels, quality, and price, in determining
the supplier from which to obtain
services. Therefore, price is not the only
basis upon which service suppliers
compete. Users of payments services are
frequently willing to pay higher fees for
higher 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 all direct and indirect costs plus
the PSAF, after taking into account the
Federal Reserve’s incentive pricing
policy. Further, because scale economies
exist in ACH operations, the use of
value pricing should stimulate demand
for ACH services and, thereby, provide
for a more efficient use of real resources.
Therefore, the Board determined that
the ACH fee schedule continue to
incorporate value pricing concepts.
Nearly 60 percent of the commenters
discussed the proposal to assess fees
that varied by Federal 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 1983, approximately 60 percent
of all ACH transactions originated were
interregional payments. Therefore,
based on the composition of ACH
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 electronic mechanism is
accomplished, unit processing cost
differences among Federal Reserve
offices should be reduced. 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.
The Board decided that it is premature
to implement regional ACH fees.
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 longrun cost structure of the ACH. However,
as the ACH service matures, the Federal
Reserve may determine that a regional
rather than a national fee structure is
more appropriate.
Proposed Fee Schedule—Commenters
discussed the overall impact of the
proposed fee schedule as well as the
individual fees. A number of
commenters suggested that the proposed
fee schedule, with its various
surcharges, would inhibit future volume
growth. Several commenters 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.
First, all ACH participants would be
assessed fees, not just receivers of funds
(originators of debit transactions and
receivers of credit transactions). Second,
the fees that would be assessed to the
various participants did not reflect the
relative benefits realized by each. Under
the proposal, fees assessed to receivers
of credits were lower than the present
fees, even though they achieve the
greatest benefit from the ACH. On the
other hand, the charges to originators of
credit transactions increased the most
although these participants realize a
lesser benefit from the ACH due to the
loss of float. From the standpoint of
originators of credit transactions, the
level of the proposed charges could have
negatively affected volume growth.
The Board has determined that the
use of value pricing (and thus benefitflow pricing) assists in stimulating ACH
volume growth, yet at the same time, the
use of these concepts does not preclude
assessing some charges to each ACH
participant, provided that the overall
impact of the fee schedule reflects the
relative benefits realized by each
participant. Therefore, 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 schudule were to be assessed for
each file 5 an ACH originator deposited
with the Federal Reserve.
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.
The costs involved in handling the
magnetic tapes containing ACH deposit
as well as processing the files included
on the tapes or files transmitted to the
Federal Reserve are essentially the
same regardless of the number of
transactions indued in the deposit.
Since deposit handling costs are fixed,
operating costs cannot be recovered
effectively through the use of
transaction fees alone. Further,
experience in the check collection
service has indicated that fixed fees
provide an incentive for 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 low
volume originators than for high volume
originators. However, the per
transaction impact of any fixed fee
declines sharply as volume increases.
Finally, some commenters indicated
5 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 several Federal Reserve offices.
3
that tape handling was more costly than
file processing because tape handling is
a labor-intensive activity and file
processing is an automated function. A
detailed analysis of the 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 fee. 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
electronic 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 fees 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.
Currently, about 20,000 depository
institutions participate in the ACH.
However, ACH transactions are
delivered to about 10,000 endpoints,
since many smaller institutions have
their ACH transactions intercepted by
correspondent banks or service bureaus.
Based on 1983 ACH volume and 10,000
endpoints, the average ACH participant
received over 60 transactions per day.
Thus, the impact of the proposed
receiver handling fee would have ranged
from less than 1.0 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 benefit from being about to
provide the ACH services their
customers demand and also from
achieving operating cost savings through
use of the ACH. As a result, the impact
of the proposed receiver handling fee
should not be a significant factor in
smaller institutions’ decision to
participate in the ACH.
The Board has determined that a fixed
receiver handling fee is necessary to
enable the Federal Reserve to recover
the costs of providing ACH services to
low volume institutions. By assessing
the fee on a delivery point, or endpoint,
basis, as proposed, its impact on smaller
institutions whose ACH transactions are
processed by correspondent banks or
service bureaus will be reduced. Finally,
the receiver handling fees in the original
proposal were set at a lower rate for
electronic receivers than for non
electronic receivers. Because of the
efficiency of electronic delivery
mechanisms, this differential is included
in the final fee schedule. In addition, a
number of depository institutions
located in Federal Reserve cities, pick
up their ACH transactions at the local
Federal Reserve office. Because these
arrangements reduce transportation
costs, 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. Because the amount of
information requested may vary, a fixed
fee for the first ten pieces of information
and a variable fee for each additional
piece of information was proposed. A
majority of respondents supported these
proposed fees.
The provision of telephone advice
services is a labor-intensive activity and
fixed costs are incurred in accumulating
data and in placing telephone calls.
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 in the fee schedule as
proposed.
Basic Transaction F e e -U n d e r 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 the ACH was originally
conceived as a substitute for paper
checks, fees for ACH services were
established on a com parable basis, that
is, 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 could not obtain through
paper-based payments services, such as,
increased certainty, convenience, and
security. Thus, as commenters pointed
out, all participants derive benefit from
the ACH. 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
surcharge would inhibit volume growdh
because it would have a significant
impact on originators of credit
transactions. Further, commenters
indicated that originators of ACH
transactions do not influence the
destination of transactions. Rather,
consumers and receiving companies
seslect their receiving depository
institutions. Finally, commenters
indicated that the'low volume receiver
4
surcharge was an operationally complex
proposal both from the perspective of
depository institutions and the Federal
Reserve.
W hile 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 benefit from a broad base
of receiving institutions. However, given
the current state of ACH development, 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 differential that is assessed
on a benefit-flow basis to originators of
debit transactions and receivers of
credit transactions. The fee schedule
that w as published for public comment
proposed assessing the interregional
differential, or surcharge, to originators
of both debit and credit transactions. In
addition, a lower surcharge was
proposed for transactions included in
presorted deposits than for transactions
included in unsorted or mixed 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 betw een originators and receivers
of ACH transactions.
Assessing the interregional surcharge
to all ACH originators, in conjunction
with assessing them fixed deposit fees
and the low volume receiver surcharge,
was determined to be inconsistent with
the concept of benefit-flow pricing.
Therefore, the fee schedule was
modified to reflect more closely the
relative benefits realized by ACH
participants. This was done in part, by
assessing the interregional differential
to all ACH participants in the same way
as basic transaction fees. Further,
because less processing is required
when presorted desposits are received,
a lower fee will be asessed 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 indicated that the night
time deposit surcharges should reflect
only the specific costs associated with
night time operations and that these
costs would logically be the same for
both debit and credit transactions.
As indicated in the discussion of
value pricing, it is appropriate for the
Federal Reserve to adjust fees for
individual components of priced
services so that they reflect the relative
benefits realized by users. 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 time deposit
deadline is additional processing time.
Furthermore, there is also a cost basis
for assessing different fees, because the
majority of float generated as a result of
delayed 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 to 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
trade payments ("CTP”) were being
processed through the ACH, the
proposal issued for public comment
indicated that the CTP fee schedule
implemented on June 2,1983, would
remain in effect until more experience
was gained with the application. Very
few commenters discussed this aspect of
the proposal, but those that did
generally agreed that the current fee
schedule should not be modified at this
time. Accordingly, the current fee
schedule will remain in effect, with the
exceptions that fixed deposit, receiver
handling, and telephone advice fees will
apply to all ACH applications, including
the CTP application.
Proposed Fees for Privately Operated
ACHs—Fees currently assessed to New
York Automated Clearing House
Association (“NYACH”) are based on
the same concepts underlying the
present national fee structure. The basic
transaction fees, however, are lower
than the fees assessed to other ACH
participants, because the New York
Federal Reserve Bank does less
processing than Reserve Banks that
operate a commercial ACH. 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 ("NYCH”) 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,
and customer support services. Thus, the
NYCH concluded that ACH fees for
privately operated ACHs had not been
sufficiently unbundled. However, in
discussing the proposal to unbundle the
settlement services provided to NYACH,
the Clearing House questioned the fee
because it “is not assessed against any
Federal Reserve operated ACH.”
Finally, the NYCH indicated that the
proposed, unbundled deposit,
settlement, and delivery fees were
higher than comparable fees in other
Federal Reserve Districts.
The question of whether the proposed
fee schedule required NYACH to pay for
services ihat it does not use can be
addressed by reviewing the individual
elements of the fee schedule. First,
NYACH deposits interregional ACH
transactions in files that are presorted
by receiving Federal Reserve office. The
Reserve Banks plan to make this 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, the basic transaction fees for
debits originated and credits received
were the same as the fees proposed in
other Federal Reserve Districts. A3
indicated above, this is appropriate for
presorted debit transactions. However,
in the case of credits received, the
5
proposed fee schedule did not reflect the
fact that the New York Bank does less
processing. In regions where the Federal
Reserve does not operate a commercial
ACH, transaction fees assessed to
privately operated ACHs for 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 does not process any of the
underlying transactions. 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 to NYACH, it is considered to
be appropriate to continue to recover
the costs the New York Bank incurs
through transaction fees, for the present.
The handling of settlements that
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 sheet. 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 ACH. (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 Federal R eserve’s
net settlement fees.)
Fourth, it was proposed to assess
fixed deposit fees and a combined
settlement and ground delivery fee to
privately operated ACHs. The fixed
deposit fee and the ground delivery fee
were set on the same basis as the fees
for all ACH participants because the
services provided to depository
institutions and private-sector ACHs are
essentially identical. The NYACH’s
primary concern was the level of the
fees. Because the Board determined that
the ACH should continue to be
considered a national service, 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 fees.
ACH Software —The proposal issued
for public comment also indicated that
ACH associations washing 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
package is currently being developed by
Federal Reserve staff and should be
completed during the fourth quarter of
1984.
Commenters indicated their belief that
the National Automated Clearing House
(“NACHA”) as well as the Federal
Reserve has propiertary rights of the
ACH-84 software, since the current
ACH software is jointly owned by the
Federal Reserve and NACHA. 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
Reserve to assess a licensing fee.
Finally, a few commenters questioned
the Federal Reserve’s legal authority to
sell software. Because of the broad
range of issues raised, additional
analysis will be conducted before the
Board determines whether to adopt the
licensing and maintenance fees.
order to comply with the terms of the
MCA,the Reserve Banks proposed to: (1)
Reduce ACH float to the extent possible
through operational improvements: (2)
eliminate certain types of ACH float by
modifying settlement procedures: and (3)
price the remaining float.
Delayed Interregional Transmission
Float—The primary cause of ACH float
is delayed transmissions of interregional
transactions between Federal Reserve
offices. During 1983, delayed
transmission float amounted to
approximately $36 million on a daily
average basis and accounted for 53
percent of total ACH float. The Reserve
Banks are 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. It was proposed to
incorporate the annualized value of
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
operational inefficiencies and that such
a step would remove the incentives for
further improving operations.
Inclusion of this float in the
commercial ACH cost base is consistent
with the MCA, since it prices Federal
Reserve float remaining after
implementation of operational
improvements Furthermore, this action
will increase the Reserve Banks’
incentives for improving operational
procedures because including the value
of this float in the cost base results in
higher ACH fees. Therefore, the
annualized value of projected, fourth
quarter, 1984, delayed interregional
transmissions float will be included in
the 1984 commercial ACH cost base.7
Return Item Float—Float resulting
from the inability to process ACH paper
return items within the current
availability schedules is the second
largest source of ACH float. During 1983,
return item float amounted to nearly $18
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 receiving
depository institution’s account.6 In
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 of clearing account
is not credited on the settlement date, credit float is
generated.
e Originators of debit transactions are receivers of
funds and their accounts are credited on settlement
7Using a 9.5 percent Federal funds rate, the value
of this float amounts to $855,000.
6
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
AGH 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. In
conjunction with this action, to
encourage greater use of the automated
ACH return item process, the Reserve
Banks plan to change the current
availability schedule for automated
return items deposited at the morning
deposit deadline from next-day to sameday settlement. 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 are
set.
M idweek 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 the week
(midweek closings) or on non-standard
holidays amounted to about $4.0 million
on a daily average basis in 1983. 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.
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, the Board
determined that it is appropriate to offer
these institutions the same options as
these recently adopted for the check
collection service. 49 FR 4196 (January
30, 1984).
W ith respect to ACH 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
account 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. Under
the second option, depository
institutions may pay for float explicitly
through one of the following procedures:
(1) Payment may be made through an
“as o f’ 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
charge. In the case of ACH credit
transactions, depository institutions’
accounts will be credited for
transactions that settle on midweek
closing days.
With respect to float arising from
institutions’ observing non-standard
holidays, to the extent operationally
feasible, Reserve Banks will defer
debiting or crediting originators of ACH
transactions that are 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 remainder
of ACH float, approximately 15 percent,
amounting to about $11 million, is due to
Reserve Bank operating procedures,
processing or intraterritory
transportation delays, and reserve
adjustments. Because this float can be
reduced substantially through
operational improvements, it was
proposed that operational improvements
be implemented during 1984 and that
any residual float that cannot be
eliminated be included in the ACH cost
base the next time ACH fees are set.
One respondent suggested that delaying
the pricing of residual ACH float created
a competitive advantage for the Federal
Reserve.
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 included in the ACH cost
base until operational improvements
can be 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.
Praps8®d Service Ernhsuacememte
Based on a review of the current
features of the ACH service, several
service enhancements were identified. It
as proposed to: (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
institution(s); and (3) conduct an
analysis of offering same-day settlement
for ACH transactions, 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, the commenters offered
many suggestions and raised numerous
issues. At this time, 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 with implementing the
revised ACH fee schedule, it was
proposed that the following alternative
telephone advice services be offered to
depository institutions: (1) Advice of
ACH settlement totals; (2) advice of all
debit transactions; (3) advice of debit
transactions above a specified dollar
amount;8 (4j advice of all credit
transactions; (5) advice of credit
transactions above a specified dollar
amount: (6) advice of next-day
settlement credit transactions only; or
(7) a combination of these alternatives
selected by a depository institution. In
providing these services, the Reserve
Banks would provide sufficient
information about transactions so that
depository institutions would be able to
post the transactions to their customers’
accounts. This proposal was supported
8 A specific dollar amount will be determined
jointly by representatives of the Federal Reserve
and each depository institution.
7
by the majority of respondents that
discussed it.
Because ACH transactions processed
at night cannot be delivered to remotely
located institutions via ground
transportation by the settlement date,
the proposed telephone advice services
will be made 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 Reserve offices accept only
mixed, or unsorted, ACH deposits. Since
a number of depository institutions
possess the capability to sort ACH
transactions and are believed to be
interested 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 local
Reserve office or to deliver presorted
deposits directly to the receiving
Reserve office.
A majority of commenters supported
the Federal Reserve’s offering a
presorted deposit option, indicating that
this proposal was a positive step for
improving the efficiency of the ACH
mechanism. Several commenters,
however, noted that deposit deadlines
were not identical at all Federal Reserve
offices.
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, during
1983, total recoverable commercial ACH
costs, including the PSAF, amounted to
$6.2 million. 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. Specifically, the Reserve
Banks projected that recoverable
commercial ACH costs would amount to
$5.7 million and that total revenues
would amount to $3.0 million. The
primary reason for the differences in
both commercial ACH costs and
revenue w as the fact that commercial
ACH volume exceeded projections. The
Reserve Banks estimated that
commercial ACH volume would amount
to 151 million transactions. Preliminary
volume data indicate that approximately
150 million commercial ACH
transactions were processed during
1983.
The Reserve Banks project that
recoverable commercial ACH costs,
including .fee P3A F and the float that
will be included in fee cost base, will
amount to $10.3 million during 1984.
Based on the recommended ACH fee
schedule, revenues are expected to
amount to $11.1 million, resulting in a
net revenue surplus of $500 thousand.
The increase in costs reflects the
change from a 40 percent to a 00 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. In 1984,
8
commercial ACH volume 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 o f the Board of G overnors o f the
Federal R eserve S ystem . February 15,1984.
William W. Wilaa,
S e c re ta r y o f th e B o a rd .
[FR Doc. 84-45S3 g&ed
8:45 am]
F e d e r a l R e s e r v e B amk
o f N ew Y o r k
Appendix A to
Operating Circular No. 10
Effective March 29, 1984
TIME AND FEE SCHEDULES
Automated Clearing House Services
To All Depository Institutions in the Second
Federal Reserve District, and Others Concerned:
As announced in our Circular No. 9644, dated February 24, 1984, a new
fee schedule for automated clearing house (ACH) services will go into effect on
March 29, 1984. In order to reflect the new schedule in Operating Circular No.
10, Appendix A to that operating circular is amended to read as follows:
Delivery schedule
The schedule below shows the cut-off hours for receipt by us of ACH
files:
Day Cycle
(Monday through Friday)
Night Cycle
(Sunday through
Thursday)
8:00 a.m.
11:00 p.m.
5:00 p.m.
4:00 a.m.
Interoffice ACH Service
Cut-off for receipt of
ACH files for Interre
gional Transmission
Intra-Office ACH Service
Cut-off for receipt of
ACH files for local
courier delivery . . . .
Settlement statement schedule
This schedule shows cut-off hours for receipt by us from a local ACH
association of settlement statements:
Type of Settlement
Day Cycle
Night Cycle
Supplemental
Truncation
[Ref. Cir. No. 9644]
Receipt Deadline
(Day of Settlement)
11:00 a.m.
11:00 a.m.
3:00 p.m.
5:00 p.m.
(OVER)
Fee Schedule
We charge a local ACH association the following fees for our ACH services:
Day Cycle
Debits Originated — Presorted deposits1
Debits Received
2 .H
0.5tf
Credits Originated — Presorted deposits 1
Credits Received
0.5£
2 .H
Fixed ACH 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
Night Cycle Deposit Surcharges
Debits Originated
Credits Originated
(Next-day settlement only)
6.0t
3.0(Z
Effect of this Appendix on previous Appendix
This Appendix A supersedes Appendix A, effective December 30, 1982,
to Operating Circular No. 10.
A
nthony
M.
Solom on,
P re sid e n t.
1 Presorted deposits consist of files of interregional transactions presorted by receiving Fed
eral Reserve Office.
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 by data trans
mission or receivers that pick up ACH transactions at the Federal Reserve Bank.
@FedFRASER