Can a Bank Reverse an ACH Payment?

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Today, the majority of Americans are familiar with ACH payments.

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Sometimes, for various reasons, ACH payments get reversed or sent back to their bank of origin. 

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For example, there could have been an error with ACH payment processing for a small business, or it could have been related to a lack of funds. 

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In this blog we’ll discuss when (and how) banks can reverse ACH payments, and how to avoid this outcome. 

Can Banks Reverse ACH Payments?

Yes. Banks can reverse ACH payments under certain circumstances. This process is known as an ACH return or ACH reversal. 

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Still, just because banks can reverse ACH transactions doesn’t mean they always will. It’s important to know that banks have to follow strict procedures and adhere to strict timelines when reversing ACH payments. 

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In most cases, the bank must also notify the account holder that they’re reversing the payment, and provide a reason for the reversal. In some cases, account holders can dispute a reversal they disagree with. If you ever have concerns or questions about a specific ACH reversal, reach out to your bank directly. 

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Why Would a Bank Reverse an ACH Payment?

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Here are some of the most common reasons a bank would reverse an ACH payment:  

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• Insufficient Funds: If there are not enough funds in an account to cover the ACh payment, the bank may reverse the transaction preemptively.  
• Fraud: If the bank suspects fraud or other unauthorized activity in a financial transaction, they may reverse the ACH payment. 
• Error: If the ACH payment includes incorrect information, such as an incorrect payment or incorrect account information, the bank may reverse the transaction.
• Stop Payment Request: If the account holder places a stop payment on the ACH transaction before it goes through, the bank may reverse the payment.

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Why Would a Sender Reverse an ACH Payment?

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Senders can also reverse an ACH payment. This is typically known as a “stop payment.” The reasons a sender may wish to reverse a payment are generally the same as listed above–there’s been an error. 

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Other reasons for reversals include disputes between the sender and receiver. Whatever the reason, if a sender wishes to reverse an ACH payment, they have roughly twenty-four to forty-eight hours to initiate the stop. In many cases, the sender may even stop an ACH payment online.

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After that time frame, the funds may have already been deposited and cleared. If an ACH payment is cleared into the receiver’s account, it may not be reversed. However, with evidence and an investigation, the bank may return the money via a separate transaction if fraud or other valid reason is discovered. 

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Consequences of ACH Reversal

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Depending on your bank, the sending bank may recoup a fee from the sender when an ACH payment is returned. This is because banks pay to use the ACH system, and reversing payments causes a lot of extra work. 

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The fee may be a flat dollar amount, though in some cases, banks have been known to charge a percentage of the amount sent. In addition, you may be able to get the fee reversed if you have a valid reason or it can be proven that it was the bank’s error that caused the reversal.

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