Compliance Blog

Categories: Consumer Lending

Stimulus Payments FAQs

In the midst of the ongoing national emergency and after the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), NAFCU has received some questions from its member credit unions regarding the direct payments eligible members will receive via direct deposit or check as part of the relief measures in the act.

The CARES Act provides for a $1,200 stimulus check to adults earning up to $75,000. Couples earning up to $150,000 may receive $2,400. This is based on 2019 adjusted gross income (or 2018 AGI if a person has not yet filed a 2019 tax return). In addition, eligible families receive an additional $500 for each child under the age of 17. People with higher incomes may receive smaller rebates. This blog addresses two of the most common questions credit union are asking regarding processing these payments for their members.

Can a Federal Credit Union Allow its Members to Deposit US Treasury Checks via Remote Deposit Capture (RDC)? 

While we are not aware of any regulation or guidance addressing this, it may be a contractual issue. We understand that some RDC agreements prohibit the deposit of US Treasury checks via RDC. Credit unions may be able to modify their RDC agreements to allow for this type of check to be deposited to avoid requiring member to come to a branch to deposit the funds.

If a credit union decided to make such a change, considering that Regulation CC does not apply to remotely deposited items, credit unions may have to make a risk-based business decision as to how long to place holds on remotely deposited US Treasury Checks, provided they follow their state law and contractual provisions. We are aware certain credit unions don’t allow remote deposit of this type of check because of endorsement and liability concerns (i.e. any potential liability resulting by inappropriately endorsing a check made payable to for example two members).

Credit unions evaluating this business decision may also want to take into account any increased fraud risks (identity theft, scams, stolen, counterfeited and forged checks) as a result of the pandemic and the overall national crisis.

What Happens if a Federal Credit Union Receives a Stimulus Payment via Direct Deposit for a Closed Account?

NACHA rules allow for returns when a previously active account has been closed. Alternatively, it is possible that a credit union’s account agreement may explicitly authorize the credit union to take the action of re-opening an account. However, doing so may present compliance, reputation and  UDAAP risks.

In 2019, the CFPB entered into a Consent Order with USAA Federal Savings Bank and one of the violations related to re-opening accounts without the consumer’s prior authorization or without notice the account had been reopened:

“Findings and Conclusions as to Unfairly Reopening Closed Depository Accounts

33. Until November 2016, when USAA received certain types of debits or credits to accounts previously closed by the account holders, the Bank reopened the accounts without obtaining consumers’ prior authorization and providing timely notice to consumers informing them when their accounts had been reopened.

[…]

35. When USAA reopened an account to process a credit, creditors had the opportunity to initiate debits to the account and draw down the funds, possibly resulting in a negative balance and the accumulation of fees.

 […] 

37. USAA’s practice of reopening consumer accounts without obtaining consumers’ prior authorization and providing timely notice caused substantial injury to consumers that was not reasonably avoidable or outweighed by any countervailing benefit to consumers or to competition.” 

Credit unions may want to review their account agreements to determine whether they are contractually able to re-open any closed accounts to deposit the stimulus checks. Local counsel may be able to provide additional guidance based on the specific facts after taking into account any applicable state law provisions.

Have more questions? NAFCU members can find more in our Compliance, Risk, & BSA Network. It is also a great place to share ideas and resources with peers. 

About the Author

Alma Calcano, NCCO, NCBSO, Regulatory Compliance Specialist, NAFCU

Alma joined NAFCU in February 2019.  As part of the Regulatory Compliance Team, she provides daily compliance assistance to member credit unions on a variety of topics. 
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