Compliance Blog

Welcome to the first Compliance Blog post of 2021! This new year should be an interesting one, given the change in presidential administration and efforts to end the COVID-19 pandemic.

Speaking of the pandemic, President Trump signed a new coronavirus stimulus bill on December 27^th, 2020. See here for a summary of this new stimulus bill, which is exclusive to NAFCU members. This new law includes provisions for more Economic Impact Payments (EIPs), also known as stimulus payments.

ACH payments have already begun to go out and must be made available by today (January 4^th, 2021). The Treasury Department has sent a notice to financial institutions which states that EIPs sent via check will have a payment date of January 6, 2021. Treasury will honor checks presented before the 6th if credit unions choose to accept them.

Here are some things to note as credit unions continue to process this round of EIPs:

The Amount. Section 272 of the bill states that eligible individuals will receive $600 and joint filers will receive a combined $1,200, although those amounts could be reduced depending on the recipient’s gross income. Additionally, a filer can receive $600 per qualifying child. In Spring 2020, EIPs were twice as large.

Identification of Payment. One major change from last time around is that this new round of ACH EIPs will bear certain information that will make them readily identifiable as stimulus payments. This is an improvement over the previous round of EIPs, which looked identical to a tax refund file. The inability to distinguish an EIP from a tax refund made it more difficult for credit unions to identify EIP funds that needed to be protected from, for example, garnishment.  

According to Nacha, things will be different this time around. “EIPs by ACH will be identified with a Company Name of ‘IRS TREAS 310’ and a Company Entry Description of ‘XXTAXEIP2’.” Nacha has explained that the “XX” signifies that the payments are exempt from garnishment (see below); the term “TAX” shows that the payment originated from the IRS and is treated as a tax rebate under the stimulus bill, and “EIP2” shows that these payments are part of the second round of EIPs.   

As for checks, Treasury has issued a notice to credit unions indicating the check symbol and MICR line information that will indicate the check is an EIP. The Treasury Check Verification Application (TCVA) tool will indicate whether the check was issued for the amount indicated, whether the check is already paid, whether the amount doesn’t match, or if there’s no record of the check. Whereas the TCVA allows for single queries, a separate system – the Treasury Check Verification System (TCVS) – will allow for batch queries.

Protections from Legal Process. Section 272 of the stimulus bill states that these new EIPs shall not be subject to garnishment, execution, levy, attachment or other legal process. EIPs received via ACH direct deposit will receive these protections automatically via the company entry description (discussed above), whereas members can request the protections for EIPs received via check or other methods. The law also provides a safe harbor from liability for credit unions that receive a garnishment order but which rely in good faith upon the bill’s protections from garnishment and other legal process.

Notably, the bill does not explicitly address a federal credit union’s (FCU) right of offset (aka a statutory lien), which is covered by section 701.39 of the NCUA regulations. Section 701.39 allows an FCU to impress a statutory lien on a member’s account without requiring a credit union to go through a court proceeding. However, section 272 of the bill also states that EIPs “shall not be transferable or assignable, at law or in equity” – language that is similar to federal statutes addressing government benefits. Whether that language prohibits credit unions from enforcing a statutory lien on EIPs may be the subject of litigation, which means credit unions that choose to impose a statutory lien on a member’s EIP may face litigation risk. Additionally, enforcing a statutory lien on EIP funds could create reputation risk, such as negative press coverage. Most credit unions have voluntarily chosen not to enforce a statutory lien on EIP funds. Also keep in mind some states may have passed laws protecting EIPs from a statutory lien.

Deceased Individuals. One question that the Compliance Team frequently received during the first round of EIPs involved payments to deceased individuals. As discussed in this post in the Compliance Blog, the IRS eventually provided guidance on this topic, stating that individuals who died before receiving an EIP were ineligible to receive the payment. The IRS guidance stated that payments to deceased individuals should be returned, but did not place any requirements or obligations on credit unions to return the funds. Instead, the guidance was directed toward the person who received the EIP. The Nacha rules and IRS guidance do not prevent a credit union from returning an ACH transaction as “account holder deceased” if the credit union’s procedures instruct it to do so. On the other hand, the Bureau of the Fiscal Service stated last Spring that credit unions may post EIPs for deceased individuals, so long as the account number is still valid.

The following resources may be helpful to credit unions when dealing with the various compliance challenges posed by EIPs:

• The IRS has put out a press release, which also includes some frequently asked questions.
• The IRS also has an information center for EIPs, which answers several FAQs.
• The IRS Get My Payment Portal will provide the most accurate information for each recipient.
• The Bureau of the Fiscal Service has EIP FAQs that are available here.
• This NACHA FAQ may be useful to credit unions with ACH-specific questions regarding these EIPs.
• This post on NAFCU’s Compliance, Risk & BSA Network discusses several key takeaways for this new round of EIPs, from a December 30^th, 2020 “Ask the Fed” webinar.
• This post in NAFCU’s Compliance Blog from April 2020 examines considerations for using remote deposit capture (RDC) for stimulus checks, as well as possible options for handling EIPs received for closed accounts.
• This post discusses some frequently asked questions for EIPs, including: What if a married couple filed their 2018 taxes jointly, but have since divorced? If a credit union receives an EIP for a member’s account that has been closed, can the credit union post it to a different account owned by that member?
• This post provides analysis of a CFPB interpretive rule, which clarified that EIPs are not “government benefits” for the purposes of “compulsory use” provision in section 1005.10(e)(2) of Regulation E.
• This post discusses considerations for EIPs sent as an actual physical check, including the use of remote deposit capture (RDC) and the applicability of Regulation CC’s funds availability rules to EIPs. 

As always, NAFCU’s Compliance Team is ready to answer EIP-related compliance questions from NAFCU member credit unions.