1

If bank B has a transfer limit of $N, whereas bank A has a transfer limit that is higher, what happens if bank A attempts to withdraw from an account in bank B more than > $N in one transaction?

Does it get denied somehow, or does it go through?

4

The transaction is denied by B.

If bank B has a transfer limit set, you bet that there is a nice reason for that. Either risk of fraud, liability, client preferences, profiling, credit scoring, etc, etc.

For a bank, the cost of denying something [1] is way lower than the potential damages and liabilities of allowing something to go through.

Regarding your concerns for the ACH, here is the summarized transaction walkthrough source:

  1. An Originator– whether that’s an individual, a corporation or another entity– initiates either a Direct Deposit or Direct Payment transaction using the ACH Network. ACH transactions can be either debit or credit payments and commonly include Direct Deposit of payroll, government and Social Security benefits, mortgage and bill payments, online banking payments, person-to-person (P2P) and business-to-business (B2B) payments, to name a few.

  2. Instead of using paper checks, ACH entries are entered and transmitted electronically, making transactions quicker, safer and easier.

  3. The Originating Depository Financial institution (ODFI) enters the ACH entry at the request of the Originator.

  4. The ODFI aggregates payments from customers and transmits them in batches at regular, predetermined intervals to an ACH Operator.

  5. ACH Operators (two central clearing facilities: The Federal Reserve or The Clearing House) receive batches of ACH entries from the ODFI.

  6. The ACH transactions are sorted and made available by the ACH Operator to the Receiving Depository Financial Institution (RDFI).

  7. The Receiver’s account is debited or credited by the RDFI, according to the type of ACH entry. Individuals, businesses and other entities can all be Receivers.

  8. Each ACH credit transaction settles in one to two business days, and each debit transaction settles in just one business day, as per the Rules.

Take heed of this like:

The Originator initiates a direct deposit/payment transaction.

In your scenario, the originator would be B. But since the transaction amount is higher than the limit, B would not even initiate the ACH transaction. The request would be denied.

So the transaction would look like this:

  • A contacts B and requests a payment.
  • B verifies the request validity, and checks the account for funds/limits.
  • B confirms that the requested amount is higher than the limit.
  • B contacts A and informs the request is denied.

[1] Usually this cost comes down to just the processing costs of the denied transaction (and it is rather fail-fast like). For the other parties involved it may have additional costs (missed deadlines, penalties for not fulfilling an obligation, fines, etc), but for the bank that is irrelevant.

  • Have you actually seen this happen? I've never seen an ACH transaction get "denied". – Mehrdad Dec 9 '16 at 11:06
  • @Mehrdad disclosure: I work at a bank. Not an US bank though. If a bank has a transfer limit set, you bet they will enforce it. the ACH nacha.org/news/… won't circunvent that. It exists to speed up the payments, give more security to the parties and cut on costs. – Mindwin Dec 9 '16 at 11:09
  • Maybe I should've mentioned this is in the United States, sorry about that. (Though hopefully the ACH tag implied that.) Sure, they would of course enforce it if it applies, but the question is whether it applies to this scenario even in the first place. For example, Bank of America has a fee for pushing money via ACH, but that fee gets bypassed if you pull from somewhere else. So I'm not really sure this is correct. – Mehrdad Dec 9 '16 at 11:12
  • @Mehrdad if your question is about a real situation, you would get a more precise answer if you provide more detail. I will expand the answer to address the ACH – Mindwin Dec 9 '16 at 11:13
  • You might want to see my answer.. – Mehrdad Dec 16 '16 at 11:03
-1

Update: it goes through just fine.

Or at least I saw it do so with Bank of America.

  • Why in the world was this downvoted? – Mehrdad Dec 16 '16 at 19:46

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