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Social Security reclamations could mean CU losses
MADISON, Wis. (1/24/13)--Social Security reclamations could result in potential uninsurable  losses for credit unions, said a risk alert sent Friday by CUNA Mutual Group to its bond policyholders.

The situation occurs when a member dies, and the joint account surviving spouse continues to receive Social Security payments for the deceased person via automated clearinghouse (ACH) and withdraws the funds.

For example, a husband and wife have a joint account at the credit union, and his Social Security benefits are sent via ACH to that account.  He dies, but the credit union doesn't know that. His Social Security direct deposits keep arriving into the account for several months, and the wife withdraws the funds.

The Treasury Department can send a notice of reclamation to recover the payments issued after the death. In some cases, credit unions voluntarily return the funds, even though the money is no longer in the account, said the risk alert.

In other cases, if the credit union does not respond to the reclamation notice within 60 days, the Treasury automatically debits the amount from the credit union's Federal Reserve or correspondent's account.

A credit union responding properly and in time qualifies for limited liability, but that liability may be limited to the amount of post-death benefit payments received within 45 calendar days after the death., said CUNA Mutual.

If the credit union is aware of the member's death, any post-death payments should be returned.

The alert advised credit unions to refer to the Treasury Department's reclamation rules in its Green Book for proper handling procedures.
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