The Automated Clearing House, known as “ACH,” is a system that processes electronic fund transfers. You’ll know that one has been transacted in your bank account if you see “ACH memo” on your bank statement, typically when you access it via online banking. It can be a credit or a debit from your account balance that is being processed (or that has been processed) electronically through an ACH authorization.
“Memo” simply means that a temporary debit or credit has been applied to your account, according to the U.S. Department of the Treasury. It’s a reminder to everyone that the transaction is in process. It’s typically finalized when the bank does its end-of-day processing. The term “memo” should then drop off your online bank statement.
ACH Debit Transactions
You probably engage in ACH debit transactions as a matter of course without even realizing it. You’re authorizing one whenever you engage in a debit card transaction, when you pay a bill online, or if you set up regular recurring bill payments to be debited from your checking account. You’ll provide your savings or checking account information in this case, including your bank’s routing number and your account number, so the amount of money you’re authorizing can be electronically drawn from your account.
The Consumer Financial Protection Bureau indicates that you can revoke your ACH permission at any time. Call and write to the company you were paying this way and call or write to your bank or credit union as well.
ACH Credit Transactions
You’ll see an ACH credit or “memo” on your statement when a deposit is made to your bank account. Government payments, such as Social Security benefits and IRS tax refunds, are typically transmitted this way if you’ve requested direct deposit of the funds. Also, many employers transfer paychecks this way via direct deposit.
How Long Does an ACH Transaction Take?
The process of an ACH network transaction as it proceeds from a memo to an ACH debit or credit shouldn’t take more than one business day. The memo is entered during the day, and the transfer is finalized that night, so it’s technically occurring on the same day. It’s a much speedier transaction than the processing of a paper check, according to the Office of the Comptroller of the Currency.
But the Consumer Financial Protection Bureau warns that this is how it happens in a perfect world. The process can take up to a few days to complete because the banks and financial institutions in question must guard against money laundering and fraud.
However, deposited funds should be made available to you immediately in the “memo” stage depending on your bank. Likewise, ACH payments you’ve authorized can usually be debited from your account at this time as well.
Unauthorized Debit Transactions
Yes, banks and credit unions are required to take utmost care to ensure that these transactions are fraudproof, but this isn’t to say that someone you’re paying through an ACH transaction won’t take liberties with your bank account or proceed with a transfer for which you’ve revoked your ACH authorization.
The Consumer Financial Protection Bureau suggests that you back up the withdrawal of your authorization to a payee by also placing a stop payment order with your bank for the transaction. Ideally, you should do this at least three days before the transfer of money is scheduled to take place.
You can also report the bank, credit union or the entity you’ve paid to your state attorney general and/or to the Consumer Financial Protection Bureau either online or by telephone at 855-411-2372. You’ll also want to immediately notify your financial institution, your state and the Consumer Financial Protection Bureau if a transaction you don’t recognize or have never authorized is subtracted from your account balance.
Incomplete Credit Transactions
Problems can also occur with money you’re expecting to receive. Your bank may actually have the money and not realize it yet. The U.S. Department of the Treasury has indicated that almost 75 percent of “missing” funds issued by the federal government are indeed at the bank in question. The memo may have been internally posted but not yet credited to your account.
Call the issuing agency, such as Social Security or the IRS, if you were expecting money that hasn’t been credited yet. You can file a claim of nonreceipt and let them deal with it.
The issue can be trickier if your paycheck hasn’t yet been directly deposited. It’s possible that your employer is a small business and had insufficient funds in its account, so the ACH system transfer would create an overdraft if it was honored. Reach out to the payer in this case too.
- U.S. Department of the Treasury: Green Book: A Guide to Federal Government ACH Payments
- Consumer Financial Protection Bureau: What Is an ACH?
- Consumer Financial Protection Bureau: I Was Asked To Sign An “ACH Authorization” To Allow Electronic Access To My Account In Order To Repay A Payday Loan. What Is That?
- Consumer Financial Protection Bureau: How Can I Stop A Payday Lender From Electronically Taking Money Out Of My Bank Or Credit Union Account?
- Office of the Comptroller of the Currency: Checking Accounts - Understanding Your Rights
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.