Ms. Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551

Re:Docket No. R-1037; Modifying Federal Reserve ACH Operations and Pricing Practices Relative to Private-Sector ACH Operators

Dear Ms. Johnson:

The Association for Financial Professionals (AFP) welcomes the opportunity to comment on the proposed modifications to the pricing practices and deposit deadlines for Automated Clearing House (ACH) transactions exchanged with private-sector ACH operators.

AFP represents more than 14,000 finance and treasury professionals who, on behalf of 5,000 corporations and other organizations, are significant participants in the nation's payments system, and particularly in the ACH Network. Organizations represented by its members are drawn generally from the Fortune 1,000 companies and the largest of the middle market companies. AFP members bear primary responsibility for the receipt and disbursement of their organizations' payments and thus have a sizeable stake in the maintenance of a secure and efficient payment system.

AFP has long supported the federal government's efforts to encourage the migration from paper to electronic payments. In the Association's view, the electronic delivery of payments and payment-related information enhances the productivity and competitiveness of the American economy by providing a cost-effective, safe and efficient means of transacting business. We also believe strongly that a thriving environment of competition in the provision of ACH operator services by multiple service providers is key to innovation and efficiency in the entire system.

The Federal Reserve Banks currently account for more than 85 percent of commercial ACH volume, and 100 percent of federal government ACH transactions. These statistics indicate that change is needed if a private sector alternative to the Federal Reserve is to have a viable future.

The ACH network is one of the nation's primary electronic payments systems. The network's ability to innovate and its responsiveness to user needs have a critical bearing on the growth of electronic commerce. The Federal Reserve Board stated in its initial request for comment that it "historically has stressed the benefits of competition in the provision of payment services." AFP agrees with this principle, in the belief that a competitive marketplace leads to innovation, cost-savings and higher quality service. Regulatory action that strengthens competition in the ACH Network on which AFP members rely so heavily for the origination and receipt of electronic payments has the strong support of the Association.

The Federal Reserve Board's current proposal addresses three important areas that have been of concern to private-sector ACH operators (PSOs):

1. Different exchange deadlines for PSOs exchanging transactions with the Federal Reserve (FRO interoperator exchanges) so that PSO customer financial institutions are not subjected to earlier deadlines than FRO customers;
    
2. Eligibility for FRO interoperator exchange services established through reliance of the National Automated Clearing House Association (NACHA) Operating Rules definition of "ACH Operator;" and
    
3. A new pricing structure for FRO interoperator transactions and PSO customers.

Exchange Deadlines and Eligibility: AFP supports the proposed adoption of NACHA's definition of "ACH Operator" for the purpose of determining eligibility for interoperator exchange services. We also support the Federal Reserve Board's commitment to work collaboratively with ACH operators to establish interoperator exchange deadlines. Both proposed actions provide excellent starting points toward achieving consensus among current ACH Operators on exchange issues, and eliminating earlier deadline disadvantages for PSO customers.

Interoperator Pricing: The Federal Reserve Board proposes a new pricing structure with three components:

1. A fixed monthly network access fee (suggested range, $5-$10 per destination routing number) paid to the FRO by the PSOs;
    
2. A transaction fee (suggested range, $0.002-$0.004 per transaction) paid to the FRO by the PSOs; and
    
3. A fixed monthly settlement fee (suggested to be $20 per routing number) paid to the FRO by each PSO customer.

Another important aspect of the proposed structure would be the ability of the PSOs to charge the FRO for their costs incurred to process FRO interoperator transactions.

We agree with the conclusion drawn by NACHA and the Electronic Payments Network L.L.C. (EPN) that the proposed pricing structure would only exacerbate current competitive inequities. We have reviewed the analysis of the impact of the proposed pricing structure provided by NACHA and EPN to the Federal Reserve, and concur that the effect would likely be destructive to the future of PSOs. It appears that the preferred pricing methodology would be for the Federal Reserve to adopt the PSO approach of not charging other ACH operators for interoperator exchange.

We appreciate the opportunity to comment on this proposal.

Sincerely,