U.S. Treasury Inquires About Missing EIP Payments

Recently, credit unions may have received inquiries from the U.S. Department of the Treasury’s Bureau of Fiscal Services regarding Economic Impact Payments that recipients claim they did not receive direct deposits for.

The Treasury uses FS Form 150.1 for these inquiries. The IRS and Treasury sent funds to accounts that taxpayers previously used to receive tax refunds for all three Economic Impact Payments (EIP). Per NACHA Rules Subsection 3.1.2, “An RDFI may rely solely on the account number contained in an Entry for the purpose of posting the Entry to a Receiver’s account, regardless of whether the name of the Receive in the Entry matches the name associated with the account number in the Entry.”

A credit union’s response will depend on information related to the EIP that was received.

  • If the payment was correctly posted to a member’s account, choose the first option in the response, and complete the Customer’s Copy (page 3 of FS Form 150.1)
  • If the credit union had returned the payment, such as when an account was closed, choose that option.
  • If the payment was unable to be posted and had not yet been returned, choose that option, and return the payment to the Treasury.
  • Finally, there is an option for when the account owner’s name does not match the name of the person to whom the payment was sent.  For example, if someone used their friend’s or relative’s account for previous tax refunds or cases of exes. With the final option, a credit union can return the payment through ACH per Reason Code R06 (Requested per the ODFI) if there are enough funds available. If there are no funds available for the return, choose that option.

The form also requests financial institutions provide the account holder information when the person whom the payment was intended for was not listed on the account. Credit unions may provide that information since the form does highlight the exceptions to the Right to Financial Privacy Act in 12 USC 3413(k):

(2) Nothing in this chapter shall apply to the disclosure by the financial institution of information contained in the financial records of any customer to any government authority that certifies, disburses, or collects payments, where the disclosure of such information is necessary to, and such information is used solely for the purpose of —

(A) verification of the identity of any person or proper routing and delivery of funds in connection with the issuance of a Federal payment or collection of funds by a government authority; or

(B) the investigation or recovery of an improper Federal payment or collection of funds or an improperly negotiated Treasury check.

Question of the Week

Q. Is there a requirement that the credit union matches the names on a tax refund received through direct deposit to the name(s) on the account?

A. NACHA does not require financial institutions to match names on incoming ACHs. It is important that credit unions not try to change the intended destination if they do discover the names don’t match because this could put them on the hook for any losses associated with the transaction.
That being said, FinCEN has released some guidance that sort of contradicts NACHA rules. FinCEN recognizes that there is a growing issue of tax refund scams that often are a result of identity theft. FinCEN put together a list of red flags that credit unions should carefully review to determine if any of their account holders might be attempting to commit fraud.

Red Flags:

  • Multiple direct deposit tax refund payments, directed to different individuals, from the United States Department of the Treasury or state or local revenue offices are made to a demand deposit or prepaid access account held in the name of a single accountholder.
  • Suspicious or authorized account opening at a depository institution, on behalf of individuals who are not present, with the absent individuals being accorded signatory authority over the account. The subsequent deposits are comprised solely of tax refund payments. This activity often occurs with fraudulent returns for the elderly, minors, prisoners, the disabled, or recently deceased.
  • A single individual opens multiple prepaid card accounts in different names, using valid TINs for each of the supplied names and having the cards mailed to the same address. Shortly after card activation, ACH credit(s) from Treasury, state, or local revenue offices, representing tax refunds, occur. This is followed quickly by ATM cash withdrawals and/or point-of-sale purchases.
  • Business accountholders processing third-party tax refund checks in a manner inconsistent with their stated business model or at a volume inconsistent with expected activity. Similarly, individuals processing third-party tax refund checks through a personal account with no business or apparent lawful purpose.
  • Business accountholders processing third-party tax refund checks and conducting transactions inconsistent with normal business practices, which may include:
    • A large volume of Treasury refund checks or bank checks being deposited, in contrast to other checks, such as payroll checks;
    • A large volume of refund checks bearing addresses of customers who reside in another state;
    • Multiple refund checks for the same or almost the same dollar amount;
    • Treasury refund checks or bank checks representing electronic refunds with sequential or close to sequential numbers; or
    • The dollar amount of checks being deposited is not commensurate with the amount of currency being withdrawn to cover the cashing of these refund checks.
  • Multiple prepaid cards that are associated with 1) the same physical address [individuals involved in criminal activity may also contact the customer service department requesting to change their address for their permanent prepaid card shortly after opening their temporary prepaid card account online]; 2) the same telephone number; 3) the same e-mail address; or 4) the same Internet Protocol (IP) address, which receive tax refunds as the primary or sole source of funds.
  • The opening of a business account for a check-cashing business at a financial institution, which subsequently processed a high volume of tax refund checks issued to individuals from other states.
  • A sudden increase in volume involving the cashing of tax refund checks issued to individuals from across the United States, moving through the account of an existing check cashing service.
  • Individuals using bank accounts where the majority of the transactions are ACH federal tax refunds or refund anticipation loans.
  • Individuals attempting to negotiate double-endorsed Treasury tax refund checks with questionable identification.
  • Individuals accompanying multiple parties to the bank to negotiate Treasury tax refund checks. Such items may or may not be double-endorsed checks.
  • The freezing or closure of a personal or business account due to suspicious activity involving either Treasury tax refund checks or ACH Treasury deposits.
  • The signature/endorsement on the back of the check(s) does not match the identification of the individual conducting the transaction.
  • The same signature/endorsement is used on multiple checks, with multiple names.
  • Employees of financial institutions may also facilitate tax refund fraud by conducting transactions inconsistent with normal activity through the following practices:
  • Tellers who regularly process large quantities of Treasury tax refund checks. This may include one or more tellers during a specific time frame.
  • Bank employees who open multiple bank accounts that received a large quantity of Treasury tax refund checks.
  • Bank employees who did not follow proper identification procedures or accepted apparent fraudulent identification when opening an account.

Additionally, if a credit union does suspect tax return fraud, they should look to FinCEN’s guidance on how to prepare a SAR.

Related Link

FinCEN FIN-2013-A001

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Office of Foreign Assets Control

OFAC has updated the SDN list as of July 22. The last update prior to this was July 2.

Questions? Contact the Compliance Hotline: 1.800.546.4465; compliance@nwcua.org.

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