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Credit Union Liability for Federal Benefit Payments to Decedents

January 26, 2012

by Drew Edwards, Esq.

You may be familiar with the case of Thomas Prusik-Parkin, a Brooklyn man who disguised himself as his deceased mother in order to fraudulently accept her social security benefit payments. Between his mother’s death in 2003 and his eventual arrest in 2009, he received $115,000.00 in payments. While it seems obvious that an individual would be liable for accepting benefit payments made to a dead woman, you might be surprised to learn that financial institutions can also incur liability in these situations. Don’t assume that a deceased member’s surviving relatives are responsible for stopping federal benefit payments that are coming to your credit union: if a credit union knows that a member has died and takes no action to return ACH federal benefit payments, it is on the hook for the full amount of payments made after death. This may sound unfair, but there are certain ways that your credit union can prevent liability in these situations, as long as you understand the law.

In order to be fully liable for federal benefit payments made after death, two things must be true: the credit union must know that the member has died, and the credit union must have failed to return post-death payments to the government. In the case of Mr. Prusik-Parkin, his financial institution would not be liable to the government because he hid the fact of his mother’s death from his bank. It’s not enough, however, to simply turn a blind eye and claim ignorance. You will also be liable in the absence of actual knowledge if you failed to follow “commercially reasonable” business practices that would have alerted you to the death. The regulators made this language intentionally vague: what “commercially reasonable” means will vary depending on the size and resources of your credit union.

Once you learn that a member has died, you need to determine whether any post-death deposits were ACH federal benefit payments. Fortunately, the federal government has published a guide to federal benefits payments known as the Green Book (no relation to Muammar Gaddafi’s book of the same title) which details how to spot federal benefit ACH transactions. You can get the Green Book here: look on page 2-6 for information on identifying federal benefit payments.

Even if you limit your liability by promptly identifying and returning post-death payments once you learn of the member’s death, your liability is not reduced to zero. You are still required to return the full amount of federal benefit payments made within 45 days of the member’s death. Unfortunately, there is often no way to protect yourself against this liability. If a member dies and a joint account holder withdraws post-death federal benefit payments before you learn of the death, you are on the hook for the first 45 days of payments (with certain minor exceptions), even though you did nothing wrong. You would then have to collect these funds from the person who withdrew them.

The Green Book has several examples in its section 5, “Reclamations,” explaining the liability of financial institutions in these situations. However, truth is always stranger than fiction and you should consult with your attorney about your specific situation if you have any questions.

DISCLAIMER: The foregoing is provided for informational purposes only, and does not constitute legal advice. It is not a substitute for legal or professional advice. Any legal advice should be tailored to specific clients and their specific needs. No attorney-client relationship is created by any use of this website. You should not act on the information contained in any of the materials on this website without first consulting a competent attorney licensed to practice in your jurisdiction.

From → Credit Unions

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