Unemployment rates across the US are at an all-time high since the Great Depression. The landscape of automatic deposits is changing.

As a credit union, you have a few new responsibilities. Online security is more important than ever, so you’ve probably had to step up your game. You must manage an influx of remote interactions with social distancing measures in place. And you must keep an eye out for new fraud schemes.

Here at Redboard, we want you to have stress-free and efficient audit season. Unemployment schemes are adding an extra layer of potential complications, but they can be managed. Here are a few questions you might have about fraudulent ACH deposits and how they can be returned.

Our member already withdrew a portion of their fraudulent ACH deposit. Can the remaining partial amount be returned?

The short answer is no, fraudulent ACH deposits must be for the full amount. Operating rules say that the dollar amount of return funds have to be an exact match.

If you have captured partial amounts, you will need to work with the state(s) to determine how they would like the funds returned. The ACH could be used, but your credit union would be the ODFI and could create a CCD or CTX entry to send the funds back to the state. However, they may ask you to cut a direct check instead. (More on this later.)

But there is a caveat...

Is the RDFI credit union liable when a member withdraws fraudulent unemployment funds?

If partial unemployment insurance funds have been withdrawn, the receiving depository financial institution (RDFI) is not liable.

According to the NACHA, the originating financial institution (ODFI) warrants that the deposited funds are correct and authorized. Credit unions have a new slew of expectations, so it’s nice that the pressure is off of you for this one.

If you can only capture a partial amount of the original deposit, get in touch with the issuing state. There a couple of common directions:

  • They may instruct you to return the funds with a check.
  • They may allow a return ACH deposit. You would need to create a separate credit. In this case your credit union would be considered the ODFI.

Return reason codes for suspected fraudulent unemployment insurance deposits

Returning fraudulent unemployment insurance benefits may be new territory for you. Maybe you’ve handled a couple of cases before, but not frequently enough to develop a protocol.

NACHA says that if you can’t find an exact match for a return reason code, the RDFI is permitted to select the code that is the closest match for the reason for the return.

Here are a few of the potential codes the NACHA has provided:

  • Return Reason Code R03: No Account/Unable to Locate Account
  • Return Reason Code R17: File Record Edit Criteria/Entry with Invalid Account Number Initiated Under Questionable Circumstances. If you decide to use this code, regulations state that the term “questionable” be in the first 12 positions of the Addenda Record.
  • Return Reason Code R23: Credit Entry Refused by Receiver

The Short Version

With unemployment on the rise, so are unemployment fraud schemes. Dealing with an influx of safety measures, new operations, and new risks to members can be difficult for credit unions.

If your institution suspects fraudulent ACH activity regarding unemployment insurance, the NACHA has provided some direction.

First, know that if you catch a fraudulent deposit and a portion of it has already been withdrawn, you cannot return the partial amount. ACH returns must match the received dollar amount exactly.

Reach out to the paying state and let them know you’re in possession of partial finds so they can provide you direction. They may prefer to agree on a new ACH credit entry. Some states may prefer a check.

Get familiar with return reason codes. If you can’t find one that exactly matches your reason you can use the code that most closely describes the situation. The NACHA has provided a couple of suggestions for approximate codes.

Rest easy knowing your institution is not liable for fraudulent unemployment deposits and subsequent withdrawals.

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Additional Resources

The most important thing is that you’re doing your due diligence. Keep your eye on regulations as they’re updated and you’ll feel prepared for your next audit season.

If you’d like to know more about how COVID-19 is changing the regulatory landscape, check out these related articles:



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