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Sending Banks and Receiving Banks 84 Originating Company Refund Guarantee 86 Risk Management in Transmission Links. Transfer and error rules 103 Last link in the chain of transfer of funds 103 Beneficiary and beneficiary bank 104.
Preface
I first became familiar with these systems and their risks in the 1970s when I worked on the first online systems for a large savings and loan company and its multi-user data processing services company. I understood the structure, requirements and risks of bank payment systems as we deployed our online customer systems, including single and multi-institution ATMs and ACH payment processing. I hope that the practical explanations of the issues and risk management of corporate payment systems in this book will be a useful guide.
I hope that the format of this book and its content provide the practical, basic desktop reference that is so often needed. We both thank James Caldarella, former head of systems development for payment systems with a major global bank, for his insight into the risks of corporate payment systems and his perspectives as a highly experienced senior banker.
M ANAGING THE
R ISKS OF
P AYMENT S YSTEMS
We Didn’t Know” Is No Excuse
CHIPS (Clearing House Interbank Payment System) of the New York Clearing House Association and participating banks. The ACH (automated clearing house) system of the National Automated Clearing House Association, using the processing facilities of the Federal Reserve System. Automated Clearing House (ACH) transfers are also governed by the ACH rules of the National Automated Clearing House Association.
The treasury manager must know that these rules can be changed by the agreement of the parties. However, the effect of the requirement may be to impose liability on the customer for fraud or error, even when the bank was at fault and the customer's conduct was blameless.
Payment Systems Survey
In the early nineteenth century, New York City banks settled their accounts by employing porters who traveled from bank to bank, exchanging checks for bags of gold coins or "species." The number of banks increased and porter exchanges became a daily occurrence. The Federal Reserve System (“Fed”) guarantees (under Regulation J) payment to the receiving bank and assumes the credit risk of insufficient funds of the sending bank. The importer instructs his London bank to debit his account for the US sterling equivalent and pay the exporter to New York bank "B". The London bank needs to transfer $1 million from its account at a New York correspondent bank "A" to an account at a second New York correspondent bank "B". Banks "A" and "B" are both participants in CHIPS.
As part of the Monetary Control Act of 1980, private sector ACH operators were encouraged to compete with the Federal Reserve Banks. It must be written on the draft and may consist of the draftsman's signature alone." U.C.C.
Checks and the Risk of Fraud
The custodian bank gives the seller a provisional credit and presents the check to the payer's bank. The payee of the check - the seller who supplied the fraudulent goods - does not deposit the check in his bank. The new holder can in due course collect the amount of the check from the unhappy drawer.
The basic rule generally applies to fraud and forgery on the check form. OddlyNamedPayee.” A customer may claim that the bank did not exercise ordinary care in paying the check.
Wire Transfers: Originator to Its Bank to Receiving Bank
Normally, the purpose of a fund transfer is to fulfill an obligation of the originator to the beneficiary. However, once the payment order has been executed by the originator's bank, it cannot be canceled or modified except with the agreement of the bank. However, if the receiving bank fails to take any action upon receipt of the payment order, the bank may incur an interest obligation towards the originator.
If the intermediary bank has not yet executed the payment order from the originator's bank, the sender's bank and the intermediary bank may agree to unravel the transaction. If the receiving bank uses another intermediary bank, the expectations of the receiving bank may not be realized. Suppose the sender's bank uses an intermediary bank, and the intermediary bank deducts its fees from the amount of the payment order it sends to the recipient's bank.
If this is done, the amount of the payment order received by the beneficiary's bank will be slightly less than the amount of the author's payment order. For example, an intermediary bank deducts a $25 funds transfer fee from the amount of the payment order sent to the Beneficiary's Bank, with or without the Originator's authorization. Issuance of a payment order that does not comply with the terms of the author's payment order.
The sender of the payment order is obliged to pay the amount of the order to the receiving bank when the latter receives the order. If the ordering party's bank has already been paid, the bank will have to refund the amount of the order to the ordering party. The originator bank's remedy would be to seek reimbursement from the intermediary bank.
In this second link, the originator's bank is a sender and the bank that accepts the payment order from the originator's bank is a receiving bank. The payment date is the date on which the order amount is payable to the beneficiary at the beneficiary's bank.
Wire Transfers: Completing the Transfer and Rules for Errors
Instead, the beneficiary's bank can reject or "accept" the payment order for credit to the beneficiary's account. In these circumstances, the beneficiary's bank has the right to recover its payment to the beneficiary.7. However, when the sender pays the payee's bank, passive acceptance occurs upon receipt of payment.
However, the recipient's bank can prevent such acceptance by timely rejecting the payment order. However, Article 4A is more restrictive in relation to payment orders issued to the beneficiary's bank. The beneficiary within a reasonable period of time after receiving the bank's notification of receipt of the payment order.
Section 4A- 406(a)] states that the payee is paid by the originator when the payee's bank accepts a payment order for the payee's benefit. The sender receives the notification of the rejection of a payment order from the beneficiary's bank after the date of payment of the order, 39. The beneficiary's bank does not give the requested notification to the beneficiary about receiving the payment order from the bank. 43.
When the payment order reaches the beneficiary's bank, the bank ignores the name and processes the payment order based on the number. The beneficiary's bank is responsible for the loss when the bank knows that the name and number refer to different persons. If the bank processes the payment order based on the name and the incorrect description results in a loss, the beneficiary's bank is responsible for the loss. 61.
Risks of Automated Clearing House Payments
The ACH operator notifies the receiving depository financial institution (RDFI) of the transaction, and the RDFI notifies the recipient and makes the funds available to the recipient. However, instead of making the funds available to the recipient, the RDFI debits the recipient's account. The credit granted by RDFI to the recipient is temporary until final payment is received by RDFI, and.
The credit extended by the RDFI to the recipient is provisional until the RDFI receives the final settlement, and. The ODFI is expected to provide the guarantees to the RDFI, the ACH operator and the affiliated associations of NACHA. The information sent with the entry is payment related and meets the record format specifications of Appendix Two of the ACH Rules.
If the ACH operator is an originating ACH operator, the notification is given to ODFI.39. After RDFI returns an entry to ODFI, the Originator's right to resume entry is limited. The ACH rule is that a timely return must be made available to the ODFI at the opening of business on the second business day following the settlement date of the original item.
Second, the Receiver may return a credit entry to the RDFI instead of posting the credit to the Supervisor's account. Payment information is then passed on to the Federal Reserve Bank in the RDFI's region. The ACH rules and the deadlines are aimed at controlling return items.
The notices required to be given by ODFI to Producers are given in accordance with § 4A-405(c) and (d) of Article 4A. Rule 2.2.3 of the ACH applies to ODFI's liability in the event that ODFI breaches any of its warranties.
