Besides the super-obvious reputation risk, does anyone have any legal or compliance concerns to point out, regarding this plan?

When stimulus check is received into an account that was previously charged off due to overdrafts, we will make the funds available to that person after we have collected the amount owed to the bank.

For example, customer wrote a $300 check a few months ago. We paid it, although it put them $200 into the negative. We applied our fees and they didn't pay it back and we ended up with an account that is $295 into the negative, all fees included. If they receive $1200 today electronically from IRS, when they ask us for it, we plan to tell them that they owed us $200, and still owe us some fees, but that they can have the remaining $1,000.

Second question: Is anyone else doing this??

If the account has been charged off, then the account is closed and you have to return the ACH - so your question is moot.

OP here. Thanks, RLC and also I just noticed my question is a duplicate of this other thread - anyone else with a response can just chime in over there...

https://www.bankersonline.com/forum...oronavirus-stimulus-payments#Post2234281

Actually that other thread was about offsetting against other loans. Yours is a totally different situation.

I have heard of banks that are opting to reopen the account, post the transaction, collect their amount owed, and make the remainder available to the customer. I have heard of other banks that are returning as account closed so the person would get a check from the IRS and have access to the full amount. Along a similar line, if an account is negative but still open a number of banks have said they will "temporarily negate the negative balance" so the customer has full use of the funds. others have said they will post and customer gets whatever is left after bringing account positive.

bottom line, your banks call how they want to deal with this, just be aware that the media is already doing stories on the bad banks that aren't allowing people access to the full amount.

For those opting to "reopen the account" I hope they are obtaining an new customer agreement giving them the legal authority to do so. Reopening an account once the agreement is terminated without a customer's consent is part of what contributed to the USAA Bank enforcement action.

https://www.consumerfinance.gov/policy-compliance/enforcement/actions/usaa-federal-savings-bank/

Have not been in BSA for a while, but if an account was closed, wouldn’t you need to get all new KYC information?

Not to mention that reopening an account violates both NACHA and Treasury rules.

What's the enforcement process for those rules? For instance does FDIC examine banks for compliance with NACHA and Treasury rules?

Enforcement? - refer to the lawsuit that Brian quoted above. NACHA could also revoke your right to participant in ACH transactions or fine you.

The CFPB action from Brian referred to a bank that had significant consumer harm from a pattern or practice of having payday lenders continuing to debit an account that had been charged off then reopened via a credit the bank could have rejected.

As far as NACHA fines and banning a bank, how often does NACHA actually do that? And bear in mind, you're preachin' to the choir here, but I just have to find something to convince the powers that be...

Everyone makes their own bed they wish to lie in. If management wants to violate NACHA and Treasury requirements and say - hey, we will wait for them to just come and get us - then more power to them. An unfair practice is constituted by one action and not many. While there were many in that consent order, each one stands by themselves.

Specifically: 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.

Who does re-opening the account benefit in this situation - the bank itself and only the bank.

Agree, Randy. I've had arguments with management on semantics this week.

"Oh, the bank didn't close the account. It still shows a negative balance with a 'charge off' status. There's a different status code for 'closed' so we didn't actually terminate the account agreement."

All I could give them is that common sense and the entries made to the general ledger and ALLL equate 'charge off' with 'closed' and suggest that if they can find legal counsel willing to bless an unfair practice with that argument, more power to them.

One way to test that premise is if a check was presented on that account, what reason are they using for returning the item - "NSF" and they assess another overdraft fee or "Account Closed" and are they also continuing to send them at least quarterly account statements under Regulation E?

Thanks, Randy. I like that!

this is the most concise argument I've seen yet to bring the point home, thanks

I agree with previous comments by the gurus regarding the handing of stimulus payments.

Anyone aware of any new information that should be considered during this 2nd round of stimulus payments for either argument (applying stimulus payment to charge off acct vs. not applying stimulus payments to charge offs)?

Regarding the USAA consent order, it mentions "accounts previously closed by the account holders." Would charge offs fall into this category of "accounts previously closed by the account holders?"

That would fall into the category of "accounts previously closed by the bank." However, the effect is the same. The account is closed and you no longer have a deposit contract which means no setoff rights.

If an ACH credit comes into a closed account, you have to return it. It doesn't matter who closed the account.

Thanks to both of you. Appreciate your time.

More info for anyone still researching with this.

"Because of the speed at which IRS issued this second round of payments, some payments may have been sent to an account that may be closed or no longer active. By law, the financial institution must return the payment to the IRS, they cannot hold and issue the payment to an individual when the account is no longer active."

Economic Impact Payments on their way, IRS.gov

One other related thing -- The EIPs via ACH in the second round are coded with the "XX" to make them subject to Treasury's regulation on garnishments. They are, according to law, not subject to garnishment except in the case of unpaid delinquent child support payments.

We had a customer that had closed their account where the stimulus check is going into; however, they re-opened a different one (a while ago). Is it okay to accept it into their new account or should it be returned as "account closed?"

i would make this change and accept the payment. my "spirit of the law" on closed accounts is that if they have an account at your bank, you can put it in there, not much different than if they transposed the account number on the account, you could fix and post. the "return if closed" is really more that you don't reopen the closed account and they have no other accounts with you.

we used this same methodology with last round of EIP and it presented no issues.

That's what we were thinking. Thank you HappyGilmore!