NACHA Rules on Fraud Claim Time Limit

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Question:

I have a customer that pays his utility bill by direct debit. He has informed us that he just noticed on his banking (checking) statement that 2 ACH debits are debited from his account monthly by my company, and have been for the past 7 years. He never noticed the second debit because he keeps a large balance in his checking account. Upon review we found that the second monthly debit was a direct debit charge from a different consumer. He claims this is fraud and the debits were unauthorized for 7 years. They want to recover all of the unauthorized funds stating there is no time limit and we should follow the States statue limitations of seven years. Is this correct? I can't find any time limits in any of the NACHA rules.

Answer:

I can read this question in two ways. It could come from a utility company that's being called by its customer after seven years of an ongoing error. Or it could come from a bank that is awaking to this nightmare with a customer who's been hit for seven years with an extra debit.

Let's first assume the question is from the utility company. In that case, I'd suggest that the company ought to have some sort of procedure in place for addressing this sort of problem. If it doesn't (I can understand how a company would not plan on a 7-year running error like this), it ought to contact its legal counsel for advice on how to proceed. I am sure that the customer will contact someone like his state's attorney general or utility rate-setting commission (or worse, a TV station's investigative reporter) if the company doesn't resolve the problem pretty quickly!

Now, let's consider an answer for a bank that finds itself in the position of hearing this sad tale from its depositor. This is a Regulation E question if the account is for personal, family or household purposes and the owner is an individual. The customer would not be limited on how far back he can claim fraud, but the bank would only have to reimburse him according to the limits in section 1005.6 -- the bank eats the first two or three fraudulent payments going back seven years, but the consumer is responsible for the rest. And that would place the monkey back on the utility's desk, where it belongs.

Even Regulation E recognizes a consumer has a responsibility to review his bank statements.

First published on BankersOnline.com 7/01/13