Compliance Blog

This week, credit unions have been diligently working to get the economic impact payments (EIPs) they received from Treasury out to their members. As you have all been combing through the ACH files, a few more issues have arisen. Today’s post covers payments for deceased members and posting to a different account number. The information below addresses the state of play as of today and if the IRS or Treasury issue additional guidance on these issues, NAFCU will keep members informed.

Before diving into these specific topics, let’s start with a quick reminder. The NACHA rules permit Receiving Depository Financial Institutions (RDFIs) to post ACH payments based on the account number alone. Credit unions are not required to match the name in the ACH file to the name on the account, even for these incoming EIPs. If the account number in the ACH file does not match an active account at the credit union, RDFIs are permitted to return the EIP. If the names in the ACH file do not match the names on the account, RDFIs are permitted to post the EIP to the stated account number.

Deceased Members

RDFIs just return the EIP, right? The key point here is that EIPs are considered tax credits, they are not federal benefit payments. NAFCU understands an eligibility review is being performed on the front end so EIPs can be treated similar to how an RDFI might treat tax refunds and simply post the full amount to the deceased’s account. Additionally, because of this classification as tax credits, EIPs do not appear to be subject to reclamation.

For accounts where the owner is now deceased, EIPs can be posted as long as the account number remains valid. If the account has since been taken over by a personal representative or executor, EIPs can still be posted if the account number is still valid. If the account has since been taken over by a joint owner, EIPs can be posted if the account number is still valid. In these cases, the names on the account don’t matter since RDFIs can post based on the account number alone. On the other hand, if the deceased member’s account has since been closed (such as if a credit union requires a joint owner to open a new account when the other joint owner passes away), RDFIs can return the EIPs as account closed.

Here’s another scenario: Mary and Matthew (is anyone else binging Downton Abbey?) filed a joint return in 2019 designating an account owned solely by Mary as the account for the tax refund. Matthew passes away in March. In April, an EIP in the amount of $2,400 is deposited into Mary’s account but the ACH file names Mary and Matthew. Here too, RDFIs are permitted to post the full amount of the EIP into Mary’s account. How those funds should be allocated (to Mary or to Matthew’s heirs) will be a matter of state probate law; and no federal regulation requires a credit union to determine the proper allocation of funds or to ensure those funds are distributed accordingly. RDFIs are required to post the EIP based on the information in the ACH file and are not under any obligation to sort out ownership or inheritance issues.

On a Related Note…

Hugh and Susan file a joint return in 2018 designating their joint account as the account for the tax refund. They divorce in January 2019. In February, Susan’s name is removed from their joint account and she opens a new account in her name. No 2019 taxes have been filed yet. In April, an EIP in the amount of $2,400 is deposited into the previously joint account, now solely in Hugh’s name, but the ACH file names him and Susan. Again, RDFIs are permitted to post the full amount of the EIP into his account based on the account number in the ACH file and it will be up to Hugh and Susan to sort out how those funds should be allocated.

The CARES Act also notes, in new section 6428(e)(2) of the Internal Revenue Code, half of the EIP is to be treated as being paid to each individual filing a joint return. This seems to suggest that EIPs are to be split equally to each joint filer when a married couple filed jointly, but the CARES Act does not require credit unions to determine the proper allocation and distribute the funds accordingly.

Posting to a Different Account Number

Here’s the scenario: Tom files his 2019 taxes in January designating his checking account at Downton Credit Union as the account for the tax refund. In February, his account is compromised resulting in the account being closed, and he opens a new checking account. When Downton CU receives his EIP, the ACH file states the now closed account number and Tom’s name. Can Downton CU post the EIP to Tom’s new checking account?

As the NACHA rules permit RDFIs to post by account number only, there is no requirement to attempt to identify the name on the EIP or to try find another open account to post it to. RDFIs are permitted to return the EIP when the account number does not match an active account. If a credit union wants to help ensure its member receives their funds, nothing in the NACHA rules would prohibit a credit union from contacting the member to obtain a new account number to post the EIP to. However, the credit union may want to document the member’s consent to post to a different account. Alternatively, a credit union might consider advising the member that the EIP was returned because the account was closed and that the member may want to review the “Get My Payment” tool for more information about how they will receive the funds.   

If a credit union wants to post an EIP to a different account instead of returning the funds as account closed, it may want to ensure the member’s consent is obtained within the required timeframes under the NACHA rules for making the funds available. The credit union may also want to consider whether this would allow the credit union to return the funds as account closed within the required timeframe should the credit union be unable to contact the member or the member declines to have funds posted to a different account.  

To wrap up, remember that eligibility, ownership and distribution of the funds are not issues credit unions are required to resolve. Also keep in mind the CARES Act requires a letter be sent to each EIP recipient detailing the amount of payment and how it was paid. Under section 6428(f)(6), the letter must be mailed within 15 days of the payment distribution date. So, if Susan and Tom receive the letter but did not receive any funds, they can contact the IRS or Treasury to resolve the issue.

NACHA Webinar Today! NAFCU is pleased to welcome NACHA for a free webinar this morning at 11am. NACHA will cover recent bulletins addressing processing payments during the global pandemic, government usage of the ACH Network, including EIPs, and 2020 rule changes. You can register for the webinar here. You may also want to check out NACHA’s Pandemic-Related FAQs.