Why This Week is an Important One For Your Credit Union

July 12, 2021 at 9:56 am Leave a comment

This is not your average July week, especially for those credit unions located in the great state of New York.

July 15th is the target date for eligible members to start receiving child tax credits under the American Rescue Plan (ARP). That means that your credit union may already see federal government ACH payments being sent to your member’s accounts. This also means that your credit union has to decide both operationally and on a policy level how it is going to handle these payments.

In March, President Biden signed the American Rescue Plan. The Act increased the child tax credit from $2,000 to 3,000 and raised the age limit from 16 to 17. This year the tax credits will come in the form of advance monthly payments. Unlike the previous round of stimulus funding, Congress passed this measure using budget reconciliation and could not exempt these funds from Levy and restraint as a matter of federal law.

In March, New York State passed a law (S5923-A) that exempted federal stimulus check payments as well as tax refunds, recovery rebates, refundable tax credits, and any advances of tax credits for under the ARP from Levy and restraint under NYS law. The law does not protect child support payments. The language is intentionally written broad enough to include the tax credits that some of your members are going to begin to receive this week. In addition, the law prohibits state chartered financial institutions from the right of set off against these funds.

Against this backdrop, neither federal nor state credit unions have the legal authority to Levi or restrain these funds on behalf of third parties. In addition, state chartered credit unions don’t have the authority to set off these funds to satisfy delinquencies. Since federal credit unions have explicit authority under federal law to exercise a right of set off then they can set off these funds. Whether it’s smart to do so is an entirely different question.

The anticipated payments also underscore NACHA’s concern with the availability of payments under its existing rules. As I explained in this recent blog, financial institutions frequently receive ACH credits days before the sending entity wants the credits posted for payments. Right now, however, there are no penalties imposed against receiving institutions which make money immediately available to account holders. Later this week comments are due to NACHA about whether or not the existing regulations should be changed. The association would love to get your feedback on this issue.  

Entry filed under: Compliance, COVID-19, Federal Legislation, New York State. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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