Comment by patio11
1 year ago
Does your envisioned product allow someone to direct deposit a paycheck? Then congratulations, it is a credit account, because a) we expect to spend paychecks including very soon after receiving them but b) payroll companies sometimes screw up payroll and can in some cases pull the money back.
Can you reference a law saying that the bank is obligated to force an overdraft on a non-overdraft account when the transaction is reversed? This was a screw up by neither the bank nor their client, I see all reasons to bounce it back and let the wrong party figure it out. Furthermore I saw that exact case IRL in another country and the payroll company had to settle it with the employee (not with the bank) in court.
I understand that US banking can be very different here but neither googling nor chatgpt was able to provide any specific proofs.
Some people claim online that a bank can never refuse an ACH transaction but it's obviously false, they do it easily when the account is closed, blocked or overdrawn beyond a certain limit.
This is in the article.
https://f16c0eccd54007287fb794f9a3d05f2a.cdn.bubble.io/f1698...
I read that. It's an inverse of what you describe above: bankruptcy is ongoing, all accounts are already frozen. However the debtor asks the court to unfreeze them, resume the normal operation, resume all ACH operations except for chargebacks because they suspect fraud. It never says the bank was obliged to honor reversals with insufficient funds out of pocket, it's not even close. Accounts in question have sufficient funds.
Now here's a legally binding document that actually controls reversals and returns of ACH entries: NACHA: A Complete Guide to the Rules Governing the ACH Network [1] All newer versions are paywalled but for a question you claim is essential to the US banking the 2005 version should suffice. Here's what I see after reading it for two hours.
> Except as otherwise provided for in subsection 6.1.3 (Restrictions on Right to Return), an RDFI may return an entry for any reason.
I didn't find any restrictions that disallow immediate return of the REVERSAL entry with reason code "R01 Insufficient Funds". Reversal entry of a credit entry is a normal debit entry with a word "REVERSAL" in it.
Now the originator can potentially dishonor the return:
> An ODFI may dishonor a return entry (1) if it can substantiate that the RDFI failed to return the entry within the time limits established by these rules, thus causing either the ODFI or Originator to suffer a loss, or (2) if the return entry contains incorrect information, does not include all information required by Appendix Five (Return Entries), or otherwise fails to comply with the requirements of Appendix Five. To dishonor a return entry, the ODFI must transmit a dishonored return entry complying with Appendix Five to its ACH Operator within five banking days after the Settlement Date of the return entry.
However the possible reasons for dishonoring is very limited and doesn't include "we really need that money" reason. Besides filling errors the only real reason is the time limit that doesn't apply here.
So, I can't find any concrete proof that the receiving bank must always honor the reversal ACH entry, especially at loss. The topic of losses from erroneous entries is mentioned multiple times but never in such context.
It maybe a confusion of ACH network rules with Visa/MC rules that do have this requirement in some cases, don't know.
[1] https://archive.org/stream/gov.law.nacha.ach.2005/nacha.ach....
Allowing payroll companies to pull money back is a design choice, not an immutable fact of nature, as is pretending to clear instantly. Other choices are possible. (Obviously not crypto nonsense; RTGS settling in <3 days is boring, mainstream bank plumbing in many countries. You know this)
It is the design choice of the system we have now. The post doesn't claim that it is the only possible design choice. The post doesn't even claim that the banking system was never weaponized for political reasons; it makes clear that has in fact happened. What it is at pains to point out is that the complaints of crypto-magnates about the system being recently weaponized against them are dubious, because their complaints center around longstanding properties of our system that other businesses routinely trip over.
> The post doesn't claim that it is the only possible design choice.
Not explicitly. But it's set up to mislead you into thinking that, by pretending to be a deep dive into the causes of something, while spending great effort on some of the (minor) causes and quickly skating over other, more significant causes that reflect more negatively on the author's industry.
> The post doesn't even claim that the banking system was never weaponized for political reasons; it makes clear that has in fact happened. What it is at pains to point out is that the complaints of crypto-magnates about the system being recently weaponized against them are dubious, because their complaints center around longstanding properties of our system that other businesses routinely trip over.
The post is at pains to make it all sound normal and inevitable and unintentional. Of course when the bank sends a letter saying that its decision is final this is a bald-faced lie, everyone in the banking system knows that sending bald-faced lies to your customers is normal and expected, how deceptive it is of the crypto folks to pretend to believe that the letter they were sent meant what it said. Of course people should be cut off from the financial system and told vague lies and evasions about why, that happens to everyone, why would anyone complain about that?
The post acknowledges that the financial system is set up to secretly cut people off without review or recourse, that this ability is weaponised for political reasons, and then glosses over and misdirects around the fact that this is a deliberate setup that serves that financial system's interests. It may not be malicious targeting of crypto folks in a narrow sense, but it's indistinguishable from it, by design. "Look, it really doesn't matter that our system silently cuts off people who work with our competitors and lies about the reasons, because that's just our system behaving as normal and it does exactly the same thing to bodega owners" is not, once you strip away the flourishes, a compelling defense.
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