Tony Webster/CreativeCommons License
U.S. Bank seems to be playing games on the CARES Act payments.
First Response
Yesterday was interesting, beginning with reporting on USAA Bank taking coronavirus emergency funds from military families and ending with the bank reversing its policy. The work goes on, however, because there are 4,562 commercial banks in the United States, and all of them were given the green light by the Treasury Department to use these payments as offsets for existing debts. Ultimately only Washington can force a solution, but in the meantime, I have some more information on this problem, and several others, with the CARES Act payments:
U.S. Bank: The nation’s fifth-largest commercial bank initially started to offset coronavirus payments, according to multiple customers. After I inquired, spokeswoman Cheryl Leamon told me in a statement that the bank “is working to ensure customers have access to their full Economic Impact Payment.” But the next thing she said was a little confusing. “For customers with a negative balance at the time of deposit, we have refunded fees incurred since the passage of the CARES legislation and are providing a temporary credit for the amount overdrawn.”
That sounded like they would temporarily make customers whole for “the amount overdrawn,” as in all the money they owe. But Trenton Wicklund, a 28 year-old warehouse worker from Nixa, Missouri, had a different experience. He lost his job due to the outbreak and racked up several overdraft charges before the CARES Act passed on March 27. “My account was set up for a lot of automatic payments,” Wicklund explained to me, and with no balance in his account, the overdraft charges hit. He had closed his U.S. Bank account but the IRS still had it on file and sent his $1,200 payment there, and U.S. Bank used it to cancel out the negative balance, for a total of $650.
When I informed Trenton about this, he called U.S. Bank back, and the customer rep told him that refunds of negative funds only apply to March 27 or later. “Any negative funds that happened [earlier], they’re keeping that money,” Trenton told me. I reported back to U.S. Bank with this information but they have not responded.
At best, U.S. Bank’s customer reps aren’t being trained to keep up with a fast-moving situation. At worst, U.S. Bank is trying to have it both ways: telling the media and the public that they are being compassionate and will not garnish emergency funds, while using artificial timelines and dates to keep as much of the money as possible. The bank should clarify their position.
Radius Bank: This is a mostly online bank out of Massachusetts. A customer showed me images from an online chat they had with a customer service representative at the bank. The customer asked what Radius’ policy was on handling the CARES Act payments, and whether they would garnish them. “Thank you for contacting us!” the representative responded. “The stimulus check is from the IRS and deposited into your account to be made available the same day. Please be aware that if your account is negative then we will have to properly take care of the negative balance first and the rest would be available to you.” (Emphasis mine) So that’s an admission that Radius Bank plans to take the money.
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I asked Radius Bank, which is part of the fintech firm Lending Club, about this, but have not heard back. UPDATE: Radius Bank has clarified their policy, you can read that update here.
Bank trade groups: I recognize that banks were not put in the best spot. Because the CARES Act payments were not flagged as unavailable for private debt collection, and because bank systems are automated, the computer systems are probably just canceling out negative balances as they would with any other funds. It takes some manual decision to reverse them on these specific payments. And that’s for the scrupulous banks who want their customers to have emergency funds for basic necessities during a crisis.
But the industry trade groups are being so disingenuous about the whole thing that you cannot feel any sympathy for them. Here’s a joint letter from all of the major banking groups, sent directly to Congress (not Treasury, who can write a rule to protect the payments). They ask Congress to “clarify that future stimulus payments responding to this public health emergency are exempt from otherwise legally binding garnishment orders.” They explain that payments sent through direct deposit can be coded with a unique identifier that exempts them from debt collection, and that’s what’s needed. “Unless Congress takes action to provide legal certainty, banks are legally required to provide garnishments to third-party creditors,” the letter concludes.
If you’re not well-versed in the lingo, you’d think the banks want to do right by their customers. But they’re only referring here to “garnishment orders” and “third-party creditors.” Garnishment orders are legal judgments from private debt collectors, which can require banks to disburse any funds from a customer bank account to settle a third-party debt. That has nothing to do with the bank itself offsetting negative balances. The trade groups just wrote that entire issue out of the equation.
They also made it seem like only Congress can exempt the payments from private debt collection. While Congress certainly could have, so can the Treasury Department—under the law it’s authorized to write rules to that effect—and obviously that’s the quicker solution, with the CARES Act payments already arriving via direct deposit. There’s also a canny reference to “future stimulus payments,” intimating that nothing should be done on the current ones, which banks are grabbing.
It would be better if the bank groups were being at all honest, and it would be better if Treasury just stepped up and did their job.
Odds and Sods
I was on the BradCast again with Brad Friedman talking about a number of issues. You can listen here.
I was on Background Briefing with Ian Masters talking about the “banks steal the checks” scandal. You can listen here.
Vice and the Military Times referenced our coverage of the steal the checks scandal yesterday.
New Frontiers in Coronavirus Check Problems
Meanwhile, there are bunches of other ways that this check disbursement has been screwed up. I referenced one of them in my initial story. People who use tax preparers often go through a procedure known as refund anticipation checks, or RACs. The tax preparers set up temporary bank accounts, usually through affiliates of the tax software company, to take in customer refunds. When the refund arrives, the tax preparer takes out their fee and sends along the check to the customer.
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These temporary bank accounts are then closed. But that’s the account the IRS has on file for these customers. So the CARES Act payments could be sent to these zombie bank accounts. The tax preparer might not know what they’re for, and they’re certainly under no obligation to credit the customer, if they can even track them down. I know of at least one customer this has happened to, and that simply can’t be isolated: 21 million filers used RACs to finance tax preparation in 2018. We’re likely to hear a lot more about this.
ProPublica has also reported that tax software companies like Intuit are setting up websites to help people file mini-returns to get their payments, steering them to paid services in the process.
Meanwhile, another problem was brought to my attention by a reader named Zachary Calhoun. He claims that the IRS is defaulting the payments to bank accounts used in 2018, “even in cases where individuals have already updated their bank information for their 2019 taxes.” We know from reporting on the steal the checks scandal that old and charged-off bank accounts are being credited, but Mr. Calhoun is the first person to suggest that this is being done systematically, because the IRS is using an older list of accounts.
Calhoun, of Ames, Iowa, says this happened to him. His previous bank closed his account in 2019 after it was overdrawn. He filed taxes this year with a new account, but the IRS still credited the old, closed account with the CARES Act payment. If the account is truly closed, the bank is obligated to return that payment to the IRS. If the account is merely charged-off, as we’ve seen, the bank can use the payment to offset the debt.
Calhoun claims that nobody at the IRS is available to help him remedy the situation. There is no automated option to update banking information either. The agency is not taking phone calls. “I have been totally left in the dark,” he told me. A non-trivial number of people change bank accounts in a calendar year, and if the IRS is sending payments to accounts that are closed and defunct, it can be difficult to retrieve them. Some commenters in this post express similar frustration to Calhoun.
I tried to contact the IRS media office about this yesterday, but like millions of Americans, I didn’t hear back.
This botched rollout reflects the rickety infrastructure used to provide ordinary Americans relief, as opposed to the lavish service bestowed upon big banks and corporations. The IRS, if anything, is the best system we have to serve ordinary Americans, and it's still overmatched. “As far as I can determine, this is a systemic failing on the part of the IRS,” Calhoun said. “It really impacts everyone who has switched banks in the last year, for any reason at all. And there is no evidence that the IRS is spending any effort to acknowledge or fix this problem.”
Today I Learned
- COVID-19 is causing mass need for kidney dialysis? (Politico)
- Great piece from the authors of the COVID Tracking Project about the testing plateau. (The Atlantic)
- Unfortunately this is framed around stock prices, but remdesivir is showing early promise as a treatment for the virus. (Reuters)
- Justice Department waiving financial penalties for corporations during the pandemic; wasn’t the cash settlement already a waiver? (The Hill)
- House of Representatives taking tentative steps toward remote voting. (HuffPost)
- Lone Ranger Bharat Ramamurti on the initial assembly of the Fed money cannon. (New York Times)
- The first quarter of negative GDP in China since recordkeeping began nearly 30 years ago. (Reuters)
