The ACH Rules are not prescriptive and at times don’t deal with a specific pain point you might have, and we at UMACHA have been hearing about one particular situation more and more all the time. The question is; should we (bank, credit union, etc.) return ALL payments, commercial and government, after we learn of the death of one of our account holders. For Government the answer is often yes but then they get to write their own Rules. It’s not an issue in the commercial world if it’s a joint account and the other party is still alive but what do you do when that’s not the case. For those non-government transactions, let’s break it down.
Many times those entries are debits (most institutions continue to post commercial credit entries) for things like a house payment, an insurance premium, an electric bill, or something similar. Let’s say you return the house payment with an R15 – beneficiary deceased code. The mortgage company only knows that an entry has been returned and therefore that mortgage is now in arrears. Depending on the state and the credit condition of that individual it’s possible that foreclosure proceedings can begin fairly quickly. If the executor of the individual’s estate isn’t on top of this, it could get very messy. The question that comes up in court is, so who authorized the return of that entry (assuming there was money in the account to cover the payment). If that somebody is your institution, it could put you on the hook for any expenses incurred because of that decision.
Let’s use another example; you’ve returned the homeowners insurance policy payment and subsequently the insurance is cancelled. A couple of days later the house is damaged in a fire. The same question is asked, who authorized the return of that payment, and again, if it’s your institution you could be on the hook for repairing or replacing the house and its contents.
Just because your customer is deceased doesn’t mean those payments shouldn’t occur. Clearly, the personal representative or executor should get involved as soon as possible to ensure the estate is handled correctly but that doesn’t always happen right away which is why we’re getting calls about this. UMACHA has talked to a number of lawyers and legal representatives about this and we’re getting conflicting answers. There are tough issues on both sides of the question.
There are circumstances where an institution should not allow a payment. Transactions completed at the point-of-sale or at an ATM should not be honored, those access devices should be cancelled at date of death. As always UMACHA recommends your institution review its policies and procedures dealing with payments after death with your legal counsel. But when it comes to these recurring payments it becomes a business decision on your part. How well do you know the customer, have these payments been going on for a long time? What do you think your potential for loss is if you allow these payments to continue for some period of time? And how long do you allow them to continue to post, it shouldn’t be too long!
So what about Federal Government benefit payments? They’re covered by a different set of laws that are codified and explained in the Green Book and are different from the requirements in the ACH Rules. Be sure you’re familiar with that publication and you manage those payments correctly. If you don’t, even as a receiving financial institution, you can be liable for to total value of those payments, and that can be significant! For more information about Federal Government payments you can go to https://fiscal.treasury.gov/fsreports/ref/greenbook/greenbook_home.htm.
Fred Laing II, AAP, CCM, NCP President & CEO, UMACHA
For further clarification or if you have any questions please feel free to contact UMACHA at 800-348-3692 or an email@example.com.