Compliance Blog

Categories: Operations

Stimulus Funds: First Comes ACH, Then Comes Check

Last week, financial institutions across the country spent countless hours processing approximately 80 million ACH files to get economic impact payments (EIPs) to consumers. I’m sure you all are working through more ACH files as the second round of EIPs are to be made available tomorrow. While you have been working on the ACH files, the IRS and Treasury have been working on getting the checks out to those eligible consumers who did not receive their EIP via ACH. We understand that some checks are already en route to your members so let’s tackle some issues credit unions might face when processing these checks.

A brief word on checks payable to spouses. Treasury rules look to state law to determine how these checks should be indorsed. Under section 3-110 of the model UCC, if a check does not clearly indicate it is payable only to both parties then the check can be paid to either. For example, checks payable to “Elsie and Charles” generally must be indorsed by both parties to be properly payable. Checks payable to “Elsie or Charles” or “Elsie, Charles” can be indorsed by one party to be properly payable and either party can deposit the check. Regardless of how a check is paid or indorsed, checks payable to spouses do not have to be deposited into a joint account. As not all states have adopted the model UCC, credit unions may want to check their state’s version to determine how this is addressed.

Remote Deposit Capture

In response to the current pandemic, many credit unions have limited access to branches, and some have closed them altogether. To ensure members do not have to come to a branch in person to deposit their EIP checks, many credit unions may want to allow members to deposit them remotely. There is no federal law prohibiting this, but we understand many RDC agreements do prohibit members from depositing Treasury checks remotely. Credit unions may want to review their agreements to determine whether this is addressed, and amendments may be necessary to allow remote deposit for EIP checks.

Another RDC consideration might be deposit limits. Amounts of EIP checks will vary but can be as high as $2,400 for married couples and higher for those with dependents. To mitigate fraud risks, credit unions usually have per item and daily dollar limits for RDC and some credit unions may have limits below $2,400. If so, some members may not be able to deposit their EIP checks remotely. Credit unions may want to review their RDC limits to determine what they are and whether any amendments are appropriate. Keep in mind that any increases in per item or daily dollar limits should be made in accordance with the credit union’s internal risk management policies.

Funds Availability

As an item of the Treasury, EIP checks may be subject to next-day availability. Section 229.10(c)(1)(ii) of Regulation CC requires next-day availability for Treasury checks deposited into an account held by the payee. However, if the check is deposited into an account held by someone else, section 229.12(b)(2) requires second-day availability, though $200 of the check must be made available the next day under section 229.10(c)(vii). Depending on the facts involved, credit unions may be able to hold funds longer if any of the exception in section 229.13 apply.

For funds availability, the clock starts ticking when the funds are deposited. Under section 229.19(a), funds deposited in a branch or on-premises ATM are considered deposited when received at the branch or ATM. This may require credit union staff to ensure they are removing deposits from on-premises ATMs on a regular basis to meet any next-day availability requirements. Funds placed in a night depository or deposited in an off-premises ATM (not on, or within 50 feet of, a branch) are deposited when removed from the depository or ATM. This rule for off-premises ATMs only applies if deposits are removed from the ATM less than three times per week.

These funds availability rules do not apply to EIP checks deposited remotely. As RDC items are still outside the scope of Regulation CC, a credit union’s RDC agreement will govern when the funds will need to be made available.

Deceased Members

NAFCU understands an eligibility review is being performed on the front end so EIP checks payable to deceased members are valid. However, Treasury provides specific rules for paying these types of checks.

Section 240.13 provides the basic requirements for indorsements of Treasury checks. Section 240.13(b)(1)(ii) explains that a check indorsed by a third party is valid as long as that party has authority to negotiate the check under the law. Section 240.13(b)(2) goes on to explain that it is the credit union’s responsibility to ensure the third party has such authority.

For deceased payees, section 240.15 provides additional indorsement requirements when the payee is deceased. While these rules specifically reference tax refund checks, our understanding is Treasury is treating EIPs as tax refunds, so these rules likely apply to EIP checks as well. Under 240.15(a)(1), if a personal representative or executor has been appointed under state law, the personal representative may indorse the check on behalf of the deceased member and the indorsement must indicate their capacity to indorse the check. The rule provides the following example: “John Jones by Mary Jones, executor of the estate of John Jones.” Under 240.15(b), if a personal representative or executor has not been appointed under state law, the check must be returned to Treasury.

Failure to obtain a proper indorsement is a breach of the presentment warranties and Treasury may then reclaim the check, leaving the credit union liable for the amount. Credit unions may want to reach out to local counsel to determine what documentation is required under state law to demonstrate appointment as a personal representative. If no estate for the deceased member will be opened, then alternate documentation may be required, such as a small estate affidavit.

These rules apply to checks paid individually and jointly (where one or both spouses are deceased). For example, if a check is paid jointly to “Mary and Matthew” and Matthew is deceased, then the rules require Mary’s indorsement and Matthew’s personal representative’s indorsement for the check to be properly payable. If Mary is his personal representative, then her indorsement may be required twice, once for her and once in her capacity as personal representative.

To help mitigate check fraud, the Treasury Check Verification Application (TCVA) may be a useful tool. Once a credit union enters its routing number, the check number and check amount into the system, the TCVA will provide results indicating the validity of the check. The TCVA is updated daily but not in real time. Credit union payments specialists may want to familiarize themselves with the TCVA before the checks starting pouring in and may also find it helpful to review the Treasury Check Security Features publication.

For more on EIPs, take a look at these other NAFCU resources:

Don’t forget to check out all of our coronavirus resources and members can also reach out to us at

About the Author

Jennifer Aguilar, NCCO, NCBSO, APRP, Senior Regulatory Compliance Counsel, NAFCU

Jennifer Aguilar, NCCO, Regulatory Compliance CounselJennifer Aguilar, NCCO, NCBSO, APRP joined NAFCU as regulatory compliance counsel in February 2017 and was named Senior Regulatory Compliance Counsel in March 2019. In this role, Aguilar helps credit unions with a variety of compliance issues.

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