If the funds necessary to settle a Return Entry from an RDFI are no longer in the Originator’s account, settlement must be made by the ODFI. Due to the timeframes for the return of debit entries, incoming funds previously made available to an Originator could be potentially reduced subsequent to the settlement date. The second way ODFIs are subject to credit risk is through ACH debit origination. The quantity of these potential losses could be for the entire amount of the ACH File. The impact of this risk exposure could vary from minor losses from delays in settlement to substantial losses should an Originator declare bankruptcy or otherwise be unable to provide the necessary funds. For most credit files this means the ODFI is financially responsible for one to two days until funds settlement. This period of exposure is the equivalent of an unsecured, short-term loan. The longer the period between delivery of the credit file to the ACH Operator and settlement of the funds, the greater the risk to the ODFI. ODFIs are subject to credit risk for the period between the submission of an ACH credit File to the ACH Operator until settlement by the ACH Operator with all applicable RDFIs. The primary and greatest risk from a financial loss perspective is through credit Entry origination. ODFIs are subject to credit risk in two ways. ODFIs should take the appropriate means to identify, mitigate, monitor and report credit risks in its ACH origination activities. The potential obligation of an ODFI to have to fund originated ACH transactions is one of the greatest risks associated with being an ODFI. That responsibility includes the settlement of ACH Entries originated through an ODFI when the funding is unavailable from Originators and/or Third-Party Senders. The ACH Rules dictate that ODFIs are responsible for all Entries originated through the ACH Network. The transaction is an ACH origination Entry (debit or credit) and the party bearing the risk is the Originating Depository Financial Institution (ODFI). By: Matthew Wade, AAP, APRP, CPA, Manager, Advisory ServicesĬredit risk, as it pertains to ACH origination activities, is defined as the risk that a party to a transaction will be unable to provide the necessary funds for the settlement of that transaction.
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