Signed in March 2020, the CARES Act provides Economic Impact Payments (EIPs) to qualified consumers. The government is disbursing EIPs to people based on information contained within their 2018 or 2019 federal tax returns. Both electronic and physical EIPs are distributed in weekly cycles. As these stimulus funds begin to be distributed to individuals, certain questions and risks have arisen that financial institutions need to consider.

EIP Automated Clearing House (ACH) direct deposits returned by an institution will be redistributed as a physical check payment. Use caution when an EIP is received for deceased accountholders. EIPs are not subject to reclamation of funds by the Treasury Department and should be handled in accordance with the institution’s existing controls.

There are cases where an electronic EIP is received for a closed account. An institution may risk reputational harm returning the EIP if the closed account relates to an existing customer that’s readily identifiable. However, an institution may expose itself to liability if it distributes the funds to an incorrect party. Careful analysis should be performed with proper documentation if an institution chooses not to automatically return the EIP.

As a Receiving Depository Financial Institution (RDFI), the institution is protected by safe harbor if it exactly processes and posts the EIP in accordance with the instructions accompanying the transaction entry. Any change in depositing the funds into an account other than that received in the transaction entry, or subsequently transferring the funds to another account, will create potential liability. 

EIPs are not protected from offset by the financial institution for outstanding debts or overdrafts. New York has passed restrictions prohibiting institutions from claiming EIPs for such purposes. Institutions should review their core system settings to ensure that EIPs are not automatically applied to such pre-existing negative account balances. Different systems may require different process solutions.

As EIPs have Social Security Numbers (SSN) included in the payment transaction information, institutions must review IT controls to determine whether the SSN information will carry into the recording and reporting of the EIP through its online statements, physical paper statements, and mobile banking services. Fraud may exist in the creation of fraudulent EIP checks or the fraudulent transacting of valid EIP checks. Multiple deposits of EIP checks through remote deposit capture or mobile banking channels are other concerns that should be considered. Communication and training on potential fraud and identity theft red flags will be essential in combatting these risks.

See website for complete article licensing information.