Prepaid Program Managers Take the Blame for the Problems of the ACH

If you visit web sites that enable consumersto complain about prepaid products, you will find a litany ofissues that are pinned on prepaid that are actually directlyrelated to the limitations associated with the automatedclearinghouse. If there was a web site where prepaid programmanagers and processors could complain, I am confident it wouldalso be dominated by the problems generated by the inability tocoordinate parties involved in payments implemented over theACH.

Easily the most common complaint from consumers are lost funds;funds that are not deposited as expected. The comedy of errors thatgenerates this complaint starts here: a consumer directs someentity to deposit funds onto their prepaid card by identifying theprepaid card routing number and dollar amount on a form. The errorsthat prevent this apparently simple request to be performed arelegion and yet there is almost no information that can becommunicated to the consumer regarding what will happen next. Theyare then left with an expectation that everything will be fine andthat they need to do nothing more.

Of course, in the best possible scenario they are more or lesscorrect; funds will appear in the consumer’s prepaid account onsome random day in the future. Exactly what day is impossible toindicate because it is unlikely the sender knows exactly when thefunds will be sent. This is a gray area because pay cycles varysignificantly from employer to employer, exact send dates oftenvary depending on where a particular date falls in relation to theweekend or bank holidays, the length of time it takes to traversethe ACH network can vary from same day to three days, and the timeit takes for the prepaid program manager to credit the account alsocan vary. Sometimes the program manager will enable funds sooner byabsorbing some of the ACH risk, sometimes later by waiting untilgood money is received and then batch updating the prepaid accountat midnight or the next day. As a result, it is impossible to tella cardholder when they will receive their funds. But that’s wheneverything goes right; when things go bad, it gets muchworse.

Unfortunately, there are so many areas where things can go wrong itis almost impossible to document them all. Perhaps the individualentered the wrong routing number, or the routing number wastranscribed incorrectly, or maybe the payee sent a small value testto make sure that the account was owned by the recipient but therecipient either wasn’t notified to look for it or forgot torespond appropriately. If the funds were from the U.S. Treasury,other problems often arise. It is not uncommon to have a mismatchbetween the data the program manager has on a payee versus the datathe Treasury holds. When this happens, the program manager musthold the funds until the differences are rectified. Regrettably,once funds are sent, the Treasury tends to consider their job alldone, and so there are very limited resources assigned to helpresolve these errors. This is a huge problem for program managerssince this makes it appear as if they stole the cardholder’sfunds.

If everyone in the value chain knew exactly what to expect and hadthe ability to communicate these expectations, then many of theproblems associated with the ACH could be alleviated before drivingthe cardholder to complain. But the ACH was designed as abank-to-bank payment network, not as a consumer-payments network,and so it lacks any such communications capabilities.

Imagine a different scenario. Imagine if an ACH regulationrequired any payment going to a consumer required the originator tooffer the consumer a messaging service that would notify thatconsumer the moment the payment was initiated on the ACH with anote that the funds should be in the consumer’s account withinthree-to-four days. This simple rule change could greatly reducethe problems being experienced today and make the ACH more consumerfriendly. So alerted, the consumer and program manager could takecorrective action much sooner in the event of an error. But thereappears to be little incentive for ACH operators to address any ofthe issues. Since prepaid program managers take the blame, why fixthe problem?