Consumer Economic Relief in the CARES Act

Guest article by C/A's sister company, Review Alliance

On March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act. This legislation is aimed at providing relief for individuals and businesses that have been negatively impacted by the coronavirus outbreak. The Senate unanimously voted on the stimulus bill that will help Americans during the Coronavirus Pandemic. The vast majority of Americans will be receiving checks from the federal government as part of the $2 trillion stimulus package. Americans who pay taxes will receive a one-time direct deposit of up to $1,200 and married couples will receive up to $2,400. In addition, $500 per child younger than age 17 will be included. So, what do financial institutions need to be prepared for?

The IRS has stated that for people who have already filed their 2019 tax returns, the economic impact payment will be deposited directly into the same banking account reflected on the return. For those who have not yet filed their return for 2019, the IRS will use information from the 2018 tax return. In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail. So, what happens if the bank account listed is now closed and the customer has not updated the IRS portal? Until new guidance has been issued, banks need to continue to follow their current NACHA guidelines for ACH returns, including considering using the Same Day ACH capabilities to return ACH payment exceptions more quickly.

The bank may choose to reopen closed accounts, keeping in mind the pros and cons associated with this. The pros of opening these accounts include, but are not limited to, enabling the bank to give their customers easier access to these funds in order to pay essential bills, such as their mortgage, rent and utilities, as well as buying groceries for their family. Some of the cons associated with this practice could include hardships on the limited number of employees who would be responsible for reopening multiple closed accounts, as well as possible reputational and UDAAP risks. In addition, it is currently at the bank’s discretion how they will handle these economic impact direct deposits into accounts that are overdrawn or charged off.

Reputational risk in banking is a hidden threat that can literally erupt out of nowhere and even without warning. It is often intangible and hard to measure; however, the impact is very real and could potentially create a negative public perspective of the bank during a natural disaster. This can cause adverse impacts on the bank’s revenue, customer base and key employees as well as lead to negative content in web search results. If you, as the financial institution, find yourself susceptible to reputational risk it will be very important to mitigate this risk and help prevent further damage by demonstrating business integrity and focusing on a positive customer experience.

Furthermore, Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) can also cause significant financial injury to financial institutions and its customers. For example, in 2019, the Consumer Financial Protection Bureau (CFPB) entered into a consent order with a federal savings bank. This bank violated the Consumer Financial Protection Bureau Act of 2010 by reopening deposit accounts consumers had previously closed without obtaining the consumers prior authorization or providing notice that the account had been reopened. Under the terms of this consent order, that particular bank was required to provide approximately $12 million in restitution and pay $3.5 million in civil money penalties, among other provisions. 

When reopening closed accounts, it is imperative that the bank ensure proper authorization has been obtained from the customer. Banks must also continue to adhere to their current BSA and CIP obligations as well as remain alert for fraudulent schemes, such as those that occur during natural disasters. Fraudsters may attempt to infiltrate other programs being implemented under the CARES Act, creating further challenges for financial institutions. For security reasons, the IRS plans to mail a letter about the economic impact payment to the last known address within 15 days after the payment is paid. This letter will provide information on how the payment was made and how to report if the payment was not received. Banks should encourage their customers to visit if they are unsure whether the letter is legitimate or not, to help protect both the bank and the customer from scam artists.

In the midst of this unexpected pandemic, we realize that information is coming out at a rapid pace and there are still a lot of unanswered questions. No one knows for sure what is coming, but what we do know is that banks should be providing their customers with the most updated information available and following the most current guidelines that have been implemented by regulators and government agencies. We at Compliance Alliance and Review Alliance, a division of Bankers Alliance, will continue to stay abreast of all updated changes and will provide additional articles, webinars and huddles as new information is published.