Unauthorized Return Rates

To say the number of transactions occurring across the ACH Network is growing would be quite the understatement. According to the National Automated Clearing House Association, more than 5 million transactions occurred across the ACH Network in the first quarter of 2016—that’s a 6.1 percent increase from exactly one year ago.

Unfortunately, with the meteoric increase in transactions, the return rates for failed payments have also increased, prompting NACHA to decrease the unauthorized return rate threshold from 1% to 0.5%.

Unauthorized returns include the following codes:

R05:        Unauthorized Debit to customer’s account
R07:        Authorization revoked by customer
R10:        Customer advises not authorized
R29:        Corporate customer advises not authorized
R51:        Item is Ineligible, Notice Not Provided, Signatures Not Genuine, Item Altered or Amount of RCK Entry not Accurately Obtained From the Item

So what does that mean for the business owner? According to NACHA, this change basically helps a business by compelling it to closely monitor their return rates. The numbers will show whether or not a merchant sees unusual amounts of payments returned as unauthorized.

Exceeding the threshold would result in fines for the processing bank, or Originating Depository Financial Institution (ODFI), which could then be passed on to the merchant.

Fortunately, iCheckGateway.com has the tools and resources available to help merchants tackle this thorny side of business.

“iCheckGateway.com is committed to helping merchants keep their unauthorized return rates in compliance,” said iCheckGateway.com’s Sarah Wainright. “In addition to providing information on proper authorization types to help merchants reduce the number of transactions returned as unauthorized, we can also turn on check verification to provide online, real-time access to positive and negative account information. Our check verification services identify items at the point-of-sale, which assists in the elimination of potential fraud and reduces the likelihood of returning unpaid items.”

The following steps in iCheckGateway.com’s Online Terminal make it easy to calculate return rates for continued compliance monitoring:

  1. Select the Export Transaction Details Report in the Online Terminal (Reports>Export Transaction Details).
  2. Set Payment Method to Checks and select a desired time period (generally, the preceding sixty days or two calendar months).
  3. Be sure to select Exclude Voids for Transaction Type.
  4. Click Export Data and an Excel spreadsheet is generated.

Then the math begins.

To calculate your Unauthorized Return Rate, you can use Excel’s count, sort and subtotal features to divide the total number of debit entries with codes of R05, R07, R10, R29 and R51 by the total number of debits. If the resulting number is less than 0.5%, the unauthorized return rate is in compliance.

By regularly calculating the Unauthorized Return Rate, businesses can track return rate trends and be ready to take action if needed.


By ICG Digital
July 12, 2016
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