A Second Round of Stimulus Checks?

by C/A Staff

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law on March 27th, 2020. As part of the CARES Act, stimulus checks were issued to over 150 million individuals of up to $1,200 for each qualifying adult, and an additional $500 per qualifying dependent. As the COVID-19 disaster continues to spread across the country, Congressional leadership on both sides of the aisle along with White House officials all agree a second round of stimulus checks is necessary. It’s uncertain how much these payments would be for, who would receive the checks, or when they would be sent. However, the current momentum seems to suggest a second round of stimulus checks is coming. So, let’s take a look at a few key issues that plagued the first round, and how they may affect a potential second round of stimulus checks.  

Deceased Customers

In the mad dash to get the stimulus checks issued, the IRS mistakenly sent a substantial number of payments to deceased individuals. According to a recent Government Accountability Office report, more than 1.1 million checks, totaling nearly $1.4 billion, were sent to dead people through the end of April. This led to a massive amount of uncertainty for financial institutions on how to properly handle these payments. In response to the confusion, the Treasury stated it had performed eligibility screening for the issued checks, and that banks should continue to post them according to the payment instructions. However, the most recent guidance suggests this will not be a problem in future rounds of stimulus payments. As of July 10th, the Bureau of Fiscal Services and the IRS had cancelled all outstanding checks issued to deceased individuals. The guidance also says the agencies took action to prevent future payments to any deceased individuals. So, the good news here is that your Bank can safely assume this won’t be an issue during the second round of stimulus payments. Nevertheless, if any checks are incorrectly issued again, they should be returned to the IRS. 

Protected Funds

One of the most common questions we encountered was concerning debt collection and whether these payments were protected from garnishment. Unlike Social Security and disability benefits, the stimulus checks only had minimal protections. Specifically, the CARES Act limited the initial offsets of the payments to past-due child support. No other Federal or state government debts reduced the checks. However, once received and deposited by consumers, the payments were not protected from garnishment by creditors. Moreover, once the funds were deposited into customers’ accounts, banks had the green-light to offset unpaid fees or other delinquent debt.  

For a second round of stimulus checks, it’s uncertain whether this would be the case. On July 23rd, the Senate passed bill S.384, which protects stimulus checks paid out under the CARES Act from garnishment by debt collectors. For now, the legislation is essentially retroactive for all intents and purposes as it only applies to the CARES Act, and has only been passed by one chamber of Congress. However, it’s safe to assume that in a second round of stimulus payments, there will be some sort of strengthened protections for the funds.

So What Now?

For now, that’s about the extent of what we know. But rest assured the Compliance Alliance team is staying attuned to all the potential upcoming changes, and we’ll be here to guide you through whatever challenges come your way.