Overview of ACH Disputes and Chargebacks with STAX

Important Terms:

ACH: ACH is an electronic funds transfer (EFT) between two bank accounts using the Automated Clearing House (ACH) network. It's a secure way to transfer money without using paper checks, wire transfers, or cash.
ACH Dispute: An ACH dispute occurs when your customer contests an ACH transaction processed through their bank. This can happen for various reasons, such as unauthorized charges, incorrect amounts, or revoked authorization.
ACH Chargeback: An ACH chargeback specifically refers to when the disputed ACH payment is refunded to your customer.

ACH Disputes Process:

Customer Dispute Process

• Customers have 60 calendar days from the transaction date to dispute an ACH payment with their bank.
• To initiate a dispute, the customer must submit a Written Statement of Unauthorized Debit (WSUD) to their bank.
• Once submitted, the bank processes the return, and the funds are automatically withdrawn from the merchant's account without prior notification.

Merchant Response & Next Steps

• If the customer attempts to dispute the transaction after 60 days, a bank may request proof of authorization from the merchant before processing a dispute. Merchants should be prepared to provide this documentation quickly.
• If the dispute is invalid or the transaction was authorized, merchants may need to recover funds via collections, legal notices, or other financial recovery methods.
• Merchants who receive a dispute will be charged a fee of $25.

Best ACH Practices for Merchants:

• Obtain a clear and documented authorization before processing ACH transactions.
• Keep accurate records of customer agreements and transactions.
• If a dispute arises, reach out to the customer immediately to resolve any concerns.
• Regularly monitor transactions to detect potential issues before they escalate.

Timeline for ACH Disputes: 

ACH disputes follow a structured process governed by NACHA (National Automated Clearing House Association) and the customer’s bank. Below is the general timeline for ACH disputes, from the original transaction to resolution.

1. Initial ACH Transaction Processing (Days 0 - 5)
   • The merchant initiates an ACH debit from the customer’s bank account.
   • The customer’s bank processes the request and debits the funds from the customer’s account.
   • The funds are settled in 4-5 business days and deposited into the merchant’s account.
2. Customer Files a Dispute (Up to 60 Days)
   • Customers can dispute ACH debits if they believe the charge was unauthorized, incorrect, or revoked.
   • Disputes must be filed within 60 calendar days of the transaction date (for consumer accounts).
   • Business accounts have only 2 business days to dispute under Commercial ACH Rules.
   • The customer files a Written Statement of Unauthorized Debit (WSUD) with their bank.
3. Bank Investigates & Returns Funds (Days 1-5 After Dispute Filed)
   • The customer’s bank reviews the dispute and checks the validity.
   • If the dispute is valid, the bank reverses the ACH transaction and returns the funds to the customer.
   • The merchant’s account is debited the disputed amount, and a Return Code is issued for the reason (e.g., R10 - Unauthorized, R07 - Authorization Revoked).
4. Merchant Notification & Response (Days 5-10)
   • The merchant may receive a notice of dispute from their payment processor or bank.
   • If the merchant has a valid authorization, they may contact the customer to resolve the issue directly.
5. Resolution & Next Steps (Days 10+)
   • • If the dispute was due to a misunderstanding, the merchant may ask the customer to issue a new payment.
     • If the dispute was fraudulent or unauthorized, the merchant loses the funds permanently.
     • The merchant may take alternative action to recover funds, such as:
       • Sending the dispute to collections.
       • Issuing a legal demand letter.
       • Filing a small claims court case.

Final Outcomes of ACH Disputes:

If the dispute is valid: The funds remain with your customer, and the merchant cannot appeal.
If the dispute was an error: The merchant must work directly with your customer for resolution.
If the dispute was fraudulent: The merchant can report the fraud and seek legal or collection action.