What is an ACH Dispute?

June 23, 2023/ Jarrod Wright /

ACH (Automated Clearing House) disputes are a part of the ACH network’s process to ensure accurate and fair transactions.

A dispute is initiated when a customer or a bank identifies an ACH transaction that seems incorrect or fraudulent. This provides an opportunity to recover the misplaced funds.

The governance of the ACH network and the establishment of Operational Rules and Guidelines for banks to adhere to when processing ACH transactions and disputes fall under the purview of the National Automated Clearing House Association (NACHA).

How Does the ACH Dispute Process Work?

If an ACH transfer is actioned without the approval of a customer, they or their bank have the ability to issue a Written Statement of Unauthorized Debit (WSUD) to trigger an ACH dispute. Here’s a general overview of the process:

Dispute Initiation

The process begins when an individual or a bank notices a suspicious or incorrect transaction. The individual can report the issue to their bank, which can then decide whether it’s appropriate to dispute the transaction.

Bank Review

Once a dispute is initiated, the bank reviews the details of the transaction. This includes examining the transaction’s context, history, and specific reasons for the dispute.

Bank Decision

After reviewing the details, the bank makes a decision. If they decide in favor of the customer, they’ll initiate the ACH return process. If they find that the dispute is not valid, they’ll deny the dispute and inform the customer.

Return Process

If a dispute is valid, the bank can send a return to the originating (originator’s) bank, along with a Return Reason Code that indicates the nature of the problem. The ACH network facilitates the return of the transaction amount. The originator’s bank will then likely contact the originator (the entity that initiated the original transaction) about the returned transaction.

Resolution

Finally, once the return has been processed, the disputed funds are usually returned to the customer’s account, effectively reversing the disputed transaction. The exact resolution, however, may depend on the specific situation, including the type of transaction and the policies of the involved banks and companies.

The timeframe for disputing an ACH transaction is usually 60 days from the date the statement containing the questionable transaction was sent. However, it’s always better to report a disputed transaction as soon as possible.

Valid Reasons for an ACH Dispute

There are several reasons for which an ACH transaction may be disputed. These generally revolve around issues of error, fraud, or authorization, including but not limited to the following:

• Unauthorized Debits: This occurs when a transaction has been processed without the account holder’s knowledge or consent. In other words, money has been taken out of an account without the permission of the owner.
• Incorrect Amounts: If the transferred amount differs from what was authorized, this could be grounds for a dispute. This could be due to a clerical error or a system malfunction.
• Duplicate Transactions: Sometimes, the same transaction might be processed more than once in error. This could result in the account holder being charged twice for the same product or service.
• Insufficient Funds: If a transaction was processed when there were insufficient funds in the account, causing overdraft fees, a dispute can be initiated.
• Goods or Services Not Delivered: If an individual or business paid for goods or services that were never delivered or were not delivered as described, they might dispute the transaction.
• Revoked Authorization: If the customer had previously authorized a company to make ACH withdrawals but then later revoked that authorization, and the withdrawals continued, that’s a legitimate reason for a dispute.
• Incorrect Entries: Any entries that were made to the wrong account, or processed on a date earlier than agreed, could be disputed.

Note: The exact policies and rules may vary by bank and by situation, so it’s always a good idea to consult directly with your bank if you believe you have a reason to dispute an ACH transaction.

Invalid Reasons for an ACH Dispute

Just as there are valid reasons for disputing an ACH transaction, there are also circumstances where disputes might not be considered valid. These can depend on the specific policies of a bank or financial institution, but some general examples include:

• Buyer’s Remorse: If a customer simply changes their mind about a purchase or regrets the transaction, it usually doesn’t warrant a legitimate dispute.
• Forgetting to Cancel a Subscription: If the customer forgot or neglected to cancel a recurring payment or subscription, a bank generally will not consider this as a valid reason for a dispute. It’s the responsibility of the account holder to manage their subscriptions and recurring payments.
• Disputing Quality of Goods or Services: While you may be unhappy with the quality of a product or service you’ve received, this is typically not seen as a valid reason for an ACH dispute. These issues are usually considered a matter between the buyer and seller and should be resolved directly with the merchant.
• Personal Disputes: If a personal dispute arises between a customer and a merchant (e.g., disagreements over a contractor’s work), it’s typically not considered a valid reason for an ACH dispute.
• Transactions Beyond the Dispute Deadline: If an ACH transaction is disputed after the time limit set by the bank or NACHA (usually 60 days from when the statement containing the transaction was sent), it generally won’t be considered valid.
• Authorized Transactions: If the customer provided consent for the transaction (either explicitly or as per the terms and conditions of service), it’s usually not a valid reason for an ACH dispute, even if the customer later disagrees with the charges.

Please note that these are just general examples, and the exact details can vary depending on the bank’s policies and other factors. Always consult with your bank or financial institution for advice about specific transactions.

How Should Merchants Respond to Active ACH Disputes?

Merchants should always respond promptly and professionally to ACH disputes to minimize potential damages, maintain a good business reputation, and uphold customer relations. Here’s a general procedure a merchant might follow when dealing with ACH disputes:

1. Review the Dispute

When a dispute is received, carefully review the details. Try to understand why the dispute was initiated. It might be due to an unauthorized transaction, incorrect amount, duplicate transaction, etc.

2. Gather Evidence

Assemble all the relevant documentation that can help in clarifying the situation or validating the transaction. This could include receipts, invoices, contracts, email correspondences, or anything else that demonstrates the transaction was legitimate and authorized.

3. Communicate With Your Bank

Engage with your bank to understand the nature of the dispute and what options are available. Banks typically have departments dedicated to handling such situations and can guide you through the process.

4. Respond Promptly

Respond to the dispute within the timeframe provided by your bank. Use the evidence you’ve gathered to present your case. The bank will then review the information and make a decision.

5. Review Your Processes

If you’re receiving a lot of disputes, it might be a sign that something’s wrong with your processes. Are your authorization methods clear and transparent? Are you communicating effectively with customers about transactions? It’s crucial to identify and rectify any recurring issues.

6. Engage with the Customer

If appropriate, reach out to the customer to understand their concerns and see if the dispute can be resolved directly. For example, if a customer didn’t recognize a charge because it was listed under a different company name, you might be able to clear up the confusion simply by communicating.

7. Accept or Appeal the Decision

Once the bank has made a decision, you’ll either need to accept it or, if you believe the decision is incorrect, appeal it. Keep in mind that appeals may require additional time, documentation, and potentially fees.

Merchants Can Prevent ACH Disputes

Remember, the best way to handle ACH disputes is to try to prevent them in the first place. Clear communication, transparent business practices, and excellent customer service can go a long way toward minimizing disputes.

Preventing ACH disputes from happening in the first place involves implementing robust business practices, clear communication, and proactive customer service. Remember, though: every business is unique, so it’s important to assess your specific situation and needs when implementing these best practices. However, these general principles should go a long way in helping prevent unnecessary disputes.

Last Update: June 23, 2023