Sometimes things just don’t go according to plan, and those quick, convenient ACH payments wind up getting returned or needing to be reversed. Usually, these electronic transactions run smoothly, but at times, the funds don’t or can’t get from point A to point B.
Here, we’ll take a look at why ACH payments are sometimes returned. We’ll cover:
• What ACH turns are
• Terms to know about ACH returns
• What the difference is between an ACH return and a Notice of Change
• How to return an ACH payment
What Are ACH Returns?
Are you wondering, “Can ACH payments be returned?” The answer is, “Most definitely!” These electronic transfers of funds are not necessarily a one-way street.
While most payments are likely to go through, ACH returns occur when an ACH payment (aka an online payment transaction) fails to be completed. This can happen for a few reasons, such as:
• The originator providing inaccurate payment information or data
• The originator providing non-existent or inadequate authorization
• The originator isn’t authorized to debit the client’s account with an ACH payment
• Insufficient funds to cover the transaction (which can happen, especially if the person paying doesn’t balance a bank account regularly)
Next, let’s look at how an ACH return transpires. If a merchant wants to debit their client’s account, the merchant’s bank (at the merchant’s request) will send a request for an ACH debit from the client’s account. The client’s relevant ACH network will then receive an ACH payment request. Then the merchant’s bank will debit the client’s account and the merchant’s account will be credited with the amount of money indicated in the ACH payment request.
At this point, the ACH network should send the ACH transaction to the client’s bank. After receiving the ACH form, if all required conditions are met, they will then debit their client’s account for the amount they owe the merchant.
If for some reason the client’s bank account alerts the ACH network that they are not able to complete the transaction, the money will remain in the client’s account. That’s an ACH return.
It costs money to process an ACH return, and that cost falls on the consumer. Similar to how consumers get charged a fee when they bounce a check, the consumer will need to pay a fee if an ACH return occurs. This banking fee is fairly small and typically only costs $2 to $5 per return.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
Recommended: Average Savings by Age
Important Terms to Know About ACH Returns
To better understand how ACH returns work, it’s helpful to know a bit of the industry’s vocabulary — particularly ODFI and RDFI (which are the two parties involved in every ACH return). Here’s what these acronyms mean:
• ODFI (Originating Depository Financial Institution): The originator of the transaction who’ll send funds
• RDFI (Receiving Depository Financial Institution): The receiver of the funds
Another facet of ACH lingo that’s helpful to know are ACH return codes. Any ACH return that occurs will generate an ACH return code. These ACH return codes are made up of the letter R followed by some numerals. Each code represents a different reason for a return. These codes can be helpful because they inform the originator of why the ACH return happened.
The following ACH return codes are fairly common:
• R01 – Insufficient funds. This code means that the available assets can’t cover the debit entry (like when an account is overdrawn).
• R02 – Account closed. In other words, the client or the RDFI closed the account that should be debited or credited through an ACH payment.
• R03 – No account/unable to locate account. In this case, the return occurred because the account intended for ACH payment doesn’t exist or the account’s owner is not the one noted by the debit entry.
• R04 – Invalid account number structure. If something is wrong with the client’s bank account number or the number doesn’t pass validation, a R04 return code results.
• R05 – Unauthorized debit to a consumer account. If the receiver hasn’t authorized the originator to request an ACH transfer from their bank account, the transfer can be blocked. This ACH code will occur.
It’s worth noting that R05 return codes work a bit differently. Unlike the other ACH return codes listed, the return time frame for R05 is 60 banking days instead of two. This longer time frame gives the originator a chance to ask the receiver to allow the ACH transfer to occur or to provide them with a new bank account number to complete the transaction.
What Is the Difference Between a Notice of Change (NOC) And ACH Return?
It’s easy to confuse a Notice of Change (NOC) and an ACH return, but these are two different things. Let’s clarify the difference in these banking terms and processes. A Notice of Change, or NOC, is a method used by financial institutions to notify a federal agency to correct or change account information. It applies to an entry processed by the federal agency through the ACH. A NOC is not a form of payment in and of itself. Nor does it represent a failure to complete an ACH payment transaction. It’s a request for an edit, basically, while an ACH return actually stops a transaction.
Recommended: What is Liquid Net Worth
When Can You Request a Reversal of an ACH Payment?
For a reversal to occur on an ACH payment, certain requirements have to be met. Here are the guidelines for successfully putting the brakes on a transaction:
• The reversal entry has to be transmitted to the bank within five banking days after the settlement date of the erroneous file.
• Transmitting the reversing file has to occur within 24 hours of discovering the error.
If these criteria are met, the reversal of an ACH payment can proceed.
Why You Might Be Receiving an ACH Return
As you monitor your bank account, you may see that an ACH transaction, which usually happens so smoothly, is being returned. This can occur for a variety of reasons. For instance, the originator may have provided inaccurate payment information or may not have been authorized to debit the client’s account with an ACH payment. The codes reviewed above can also shed light on why the transfer of funds was stopped. By the way, both returned mobile ACH payments and returned ACH card payments can occur.
How to Return an ACH Payment
Returning an ACH payment involves simply stopping the payment from going through. This can happen in a couple of ways. Let’s say a bank can’t complete the transaction due to an error in the account number or the fact that the account was closed. Here’s what would likely happen:
1. The client’s bank notifies the ACH network that they can’t complete the transaction.
2. The money remains in the client’s account, and the originator will receive an ACH return code.
3. The return gets processed, usually taking two bankings days.
Another way a return could happen is a customer could, say, decide to cancel an automatic bill payment. In this case, here’s how things would probably unfold:
1. The customer would contact the business expecting payment and let them know they are ending the agreement and the company will no longer be able to access their account.
2. The customer lets the bank know they are ending the autopay. How exactly this will be completed depends on the bank. It may need to be in writing.
3. The request to end the autopay must be made at least three business days before a payment is due, to allow time for processing.
The Takeaway
While ACH payments are a super convenient payment method, sometimes a funds transfer fails to go through. In this situation, a returned ACH payment occurs. ACH returns can happen for a few reasons (such as the client’s bank account contains insufficient funds to complete the transfer). The entire process is fairly quick and is usually completed within two banking days. As more and more electronic transfers happen, it’s wise to be aware of this system that can step in if details are incorrect or one party can’t or won’t hold up their end of the arrangement.
Speaking of financial arrangements, take a moment to acquaint yourself with better banking at SoFi. We think you’ll be glad you did! With our linked Checking and Savings accounts, you’ll earn an amazing APY when you sign up for direct deposit. Plus, you’ll pay zero account fees and have access to your paycheck up to 48 hours early.
FAQ
What’s the time frame for an ACH debit return?
It usually takes two banking days for an ACH return to complete. However, there are select ACH return codes that result in a 60 banking-day return period.
How much are ACH return fees?
Fees vary, but they usually cost about $2 to $5 per return. The consumer pays this charge. It’s similar to paying a fee for a bounced check.
What are ACH return codes?
Every time an ACH return happens, the originator will be sent an ACH return code. This code is represented by the letter R and a two-figure number and explains why the return happened. For example, a R01 return code indicates that the client’s bank account contains insufficient funds to complete the transfer.
Can returned ACH payments be disputed?
Yes, ACH returns can be disputed. What that process looks like varies with the reason why the ACH return occurred. Every ACH return code has a specific return time frame associated with it. Only during that time frame can the client dispute the ACH return.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Photo credit: iStock/Nicola Katie
SOBK0322030
