From the CUNA Mutual Group Protection Center

Credit unions experience situations in which a member dies, but the joint surviving spouse continues to receive the deceased person’s Social Security payments via ACH and withdraws the funds. A loss can occur when the Treasury Department reclaims the funds.

Here is a sample scenario. A husband and wife are joint on an account at the credit union. The husband was receiving his Social Security benefits via direct deposit (ACH). The husband died but the Social Security direct deposits kept coming into the account for several months, and the surviving wife withdrew the funds. The credit union did not have knowledge of the husband’s death.

The Treasury Department sends a Notice of Reclamation to recover the payments issued subsequent to the date of the husband’s death. In some cases, credit unions have voluntarily returned all of the funds, even though they are no longer in the member’s account. In other cases, credit union failure to respond to the Notice of Reclamation led to the Treasury Department automatically debiting the full amount from the credit union’s Federal Reserve account. These situations create uninsurable losses for the credit union.

Risk Mitigation Tips

Credit unions receiving a Notice of Reclamation for Social Security payments issued via ACH, should refer to the Treasury Department’s reclamation rules contained in the Treasury’s Green Book for proper handling procedures. There are circumstances in which a credit union can limit its liability. Refer to the Reclamation chapter (chapter 5) of Treasury's Green Book for details.

Credit unions must respond timely to a Notice of Reclamation (within 60 days from the date of the notice), or else the Treasury Department will debit the full amount from the credit union's Federal Reserve account (or the account of the credit union’s correspondent).

If the credit union responds properly and timely to the Notice of Reclamation, the credit union qualifies for limited liability. The credit union’s liability may be limited to the amount of post-death benefit payments received within 45 calendar days following the death. Refer to page 20 of chapter 5 of the Green Book for details.

If the credit union is aware of the member’s death, any post-death payments should be returned. Refer to chapter 5, page 8 for these details.