An aspect of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes economic impact payments (EIP) to be paid to most individuals. Payment processing began as early as April 6, 2020 and at the time of this article’s publication the EIP program is in full effect, as administered by the Department of the Treasury (Treasury) and Internal Revenue Service (IRS). This article will discuss various aspects of EIPs to assist banks processing these payments and answering customer questions.
Form of Payment
In most instances, an EIP will appear as a standard tax refund direct deposit payment through ACH. The IRS is committed to processing as many payments electronically as possible, but in instances where this is not possible, checks will be issued as well and are discussed below. For individuals who file taxes, IRS will send the payments using the direct deposit information provided in 2018 or 2019 returns. For 2019 filers, that information cannot be changed. 2018 filers may change their direct deposit information electronically.
For individuals who are not required to file taxes and did not and will not file, IRS will still attempt to process the EIP electronically. In these cases, IRS will process EIP based upon information it may have from benefit payments such as Social Security retirement, disability (SSDI), survivor benefits, Supplemental Security Income, or Railroad Retirement and Survivor Benefits. In these cases, the direct deposit will appear as an ACH similar to the benefit payment.
For those eligible for an EIP who are not automatically paid through their tax return, benefit payment, or other means, IRS has prepared a form, available electronically online, to provide payment info. The form will direct the user to create an account, where they will be able to provide and verify information (including name, driver’s license, social security number, bank account number, type, and routing number) which IRS will use to process the EIP.
In some cases, EIPs will be issued by check. The first check file came from the IRS on April 16, and the postal service began picking up payments on April 18, with a pay day of April 22. The postal service will continue to pick them up daily until all are in the mail. Checks have begun arriving for delivery as early as April 20 and are expected to continue to arrive at least two times a day. The checks will use the same treasury tax stock as tax refund. EIP checks will have specific identification in the bottom left, stating “economic impact payment” on the first line and will contain the president’s name on second line. These checks will also be signed by a fiscal service disbursing official.
Treasury has encouraged banks to work with their customers in helping them to understand the information IRS needs to deliver their EIP. Banks may want to consider working proactively with their customers to direct them to IRS’s webpage which walks through the above, and provides FAQs. Additionally, not all customers may be familiar with their account number or bank’s routing number and should be reminded where to find these. Customers will likely have further questions about how to get their payment, when it is coming, or why it has not appeared yet.
Considerations for Banks
One of the most frequently asked questions regarding EIPs is whether they are subject to garnishment or offset. Generally speaking, the CARES Act does not exempt EIPs from garnishment whereby a third-party creditor seeks, through legal process, to collect funds owed to them. Thus, if a bank receives a legal process item such as a garnishment order it is required by law to comply with, the EIP amount would not be exempt.
However, EIPs cannot be intercepted by the government for any tax debts. The only exception is for child support. Meaning, delinquent payments collected through the treasury offset program (where tax refunds, for example, would be automatically collected) apply to EIP only for delinquent child support payments. As a result, banks may see EIPs arrive in odd amounts, depending on the amount of child support that may have been offset by Treasury.
Banks have also asked whether funds from an EIP can be used to offset balances due to the bank. The CARES Act does not exempt payments from that type of collection. However, banks should review their policies and consider potential reputational harm before deciding to pursue debt collection in this manner. As with all matters involving offset, WBA recommends considering consultation with bank’s legal counsel as well.
Banks have also already begun seeing situations where an EIP is received unexpectedly. For example, a payment to a deceased individual or a joint EIP to a divorced individual. At time of this article’s publication, it is WBA’s understanding that banks are to process valid payments received in accordance with the payment instructions, similar to the tax refund process. Note that if the account is closed, that procedure means the payment should be rejected. Banks are also reminded that Treasury has no authority to mandate compensation from the bank so long as the payment was posted properly based upon the account number.
To that extent, banks must be prepared for these scenarios, with procedures in place. Bank will want to document the payment order and confirm that the payment is valid, for example, by matching the account to the social security number in the payment order. The procedure under 31 CFR part 210 provides that if bank becomes aware it has received a payment for a payee whose name does not match the payee information, bank must notify IRS. Treasury has recommended that, given the challenges that IRS is facing, banks send a notice of change which would satisfy that requirement.
In addition to the above procedures, banks should be prepared for how they will handle paper checks. As discussed above, some EIPs will be sent by check, and may have already arrived at time of this article’s publication. Banks will want to review their existing policies and risk management systems for paper checks and consider whether they should be updated for incoming EIPs. For example, banks should consider whether they have accommodations for and will permit remote deposit capture or ATM deposit, what fraud protection and other security features are in place, and whether they will cash EIP paper checks for non-customers. These are ultimately business and customer experience considerations that each bank must determine individually.
Banks should also familiarize themselves with the Treasury check stock, including not only the EIP aspects above, but additional security features such as microprinting, watermarks, etc. These security features can be reviewed through the Treasury Check Information Verification System which includes a Treasury Check Verification Application. This application is a tool that provides data to help make banks make a decision on whether check is valid or not.
Banks have likely already received EIPs through direct deposit and checks will be arriving soon if they have not already. EIPs will continue to be processed as IRS distributes payments through the means discussed above, and customers provide the required information. Banks are again encouraged to share the tools such as the IRS FAQs and portal with their customers in addition to making the operational considerations presented in this article.
Birrenkott is WBA assistant director – legal. For legal questions, please email email@example.com.
Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution’s attorney for special legal advice or assistance.