ACH System Poses Dangers to Merchants and Consumers into the Billions

Your dollars can be taken, through the ACH system without your knowledge or permission


The ACH (Automated Clearing House) was designed as a system to make transactions possible through electronic transfers. As it has evolved in recent years, giant banks and credit card companies are processing 25,000,000,000 (BILLION) ACH transactions per year, and billions of dollars of losses due to fraud and abuse result. It has become dangerous for consumers and business, with losses mounting and regulators showing little interest.

If you are a merchant, or service provider, and you set up a “Merchants Account” so that your clients can pay for your products or services by credit card, or make “on line” purchases, you may have opened a Pandora’s Box of liability. Because the ACH system is rarely fully understood by politicians, and a simple telephone poll I made of bank Presidents, suggested that few bankers know how the system really works.

But, let me teach you by a personal example, because as a former banker, and businessman I have some consulting advice for you.

ACH can remove funds with the touch of a button

At one of my banks, I had an account that was rarely used, and I kept 2 or $3000 in it. At some point we decided that our Merchant account was not being used, so we sent a notice to close the merchant account. The merchant account system is automated so rarely can you find a human to speak to.I went to the my bank, and they showed me that the “ACH system” had been taking $200 per month out of my account, plus fees and other charges. And this was on a system that we rarely used, with perhaps only one or two uses a year, it was not worth it. Just to be safe, the bank teller suggested that I close the account, before they took further funds from my account.

We closed the account.

A month later, I got a call from the bank, that said my account was overdrawn $790. I said: “Impossible, we closed that account!” They said: “When a debit comes in from the ACH system, we charge it to your account, even if it is closed. You must pay the bank now.” The bank President said: “This system is evil, no one knows how much power they have, and even most bankers don’t know all the rules. It is rarely looked at by regulators or politicians, because even they don’t know how the system works.”

We covered the charge, thinking that was the end of it, but the Credit Card clearing company continued to send “withdrawals” from our closed account for 3 more months, to the tune of several thousand dollars. We checked with regulators, bankers and lawyers, and found that we had little recourse.

What we learned is that, if you have a sophisticated bank, you can write an official letter stating: “I do not allow any ACH withdrawals from my account.” You need to send this letter before you have a problem. Some banks actually have such a notice. They will not encourage you to file it, because it makes them responsible if they let an ACH electronic signal take money from your account. But, you have the legal right to make such a restriction on your account, and it is a good idea.

As an example of how the system can work, we took a look at the account rules of Skylight Financial, posted on the Internet, U.S. Bank, N.A., and have excerpted a few points of interest showing what they can do. It is not particularly better or worse than the agreements of most banks. Look at some of their language and rights, and the lack of rights you have, and it might be enough to make you want to put your funds under your mattress, instead of a commercial bank.

The following is a synopsis of just a few points in their agreement:

1.“Whether you sign our agreement or not the agreement remains in effect”

2.“You are liable for any account shortages whether caused by you or another”

3.“You are liable for losses or shortages, you have no right to defer payment of this liability, you are liable whether you signed the item, and the liability includes our costs and legal fees.”

4.“You are liable for fees, including fees not included in any agreement”

5.“Fees may be collected by ACH at any date without prior notice”

6.“We have the right to put a hold on your account”

7.“We may change the terms of this agreement”

8.“We may close your account with or without cause at any time”

9.“Without prior notice we have the right to set off against any funds in your account against any debt you may owe us, and you hold us harmless from any liability if we do so.”

10. “We may charge expenses to your account without prior notice”

11.“Even after your death, or incompetence, we for 10 days may debit your account”

12.“ACH Provisional Payment. ACH payment to your account is considered provisional, and may be revoked. If revoked we will remove the money from your account without second notice”

13.“ACH debits or credits are subject to (NACHA) rules, and you agree to those rules.”

Read these 13 points, because they are typical of what the banking system uses, typical of ACH rules, and you can see how much risk you have, under this system. Simply put, the deck is stacked against the consumer, the businessman, and you have huge liability.

Why rob a bank, if you have ACH and a computer?

A prominent attorney who specializes in these cases, told me that there are over 200,000 cases of Internet purchase and ACH fraud upon consumers and merchants, in the banking system, per year. There are so many cases that the Justice Department and law enforcement agencies can’t review but a small fraction of them. The ACH system was put in place to make the system more efficient and profitable for giant banks and credit card companies. But losses to the American public are running into the billions of dollars now. There may be merit, to simply “Opting Out”, and may companies are do so, refusing to participate in automated, ACH transactions.

Advice from our firm as banking specialists and economic consultants.


Ben B. Boothe, Sr.

Economic Consultant Former Bank Founder and President

Bank and ACH Consulting, click here

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