When the Treasury Department released a
The first batches of Internal Revenue Service payments, up to $1,400 for those eligible, began to be processed on Friday, the same day of the week tax refunds are readied for distribution. But, to the frustration of cash-strapped consumers, the funds are typically not available until five days later as they make their way from the Treasury to the Federal Reserve and, finally, to financial institutions.
Some financial technology companies, like Chime, are dealing with the delay by advancing customers the funds and will be reimbursed when the money arrives from the government. But banks with many more accounts to fill are not always able to make the advances and have borne the
“Banks are caught in the middle between a public that reasonably expects money to move faster than Amazon, and a system run by the Federal Reserve that uses Blockbuster technology in a Netflix world,” said Aaron Klein, a senior fellow in economic studies at the Brookings Institution.
Speeding up the movement of money through the U.S. financial system was a topic of debate even before the COVID-19 pandemic struck and has taken on more urgency over the past year as frustrations mounted over why much-needed aid took days or even weeks to reach struggling households.
On Tuesday, a collection of industry groups, including the Clearing House and the American Bankers Association, said in a joint statement that the IRS, not banks, is to blame for the lag between the time funds go out until the time they land in bank accounts.
‘While the IRS could have chosen to send the funds via Same Day [Automated Clearing House] payments or provided for an earlier effective date, it chose not to do so,” the groups said. “It is up to the sender, in this case the IRS, to decide when it wants the money to be made available and the IRS chose March 17.”
Banks will not receive the funds needed to make the deposits until 8:30 Wednesday morning, according to a
“There is no mystery where the money is from the time the first payment file was transmitted on Friday, March 12 to when all recipients will have access to the money on Wednesday — it is still with the government,” Nacha said.
In a statement to American Banker late Wednesday, the IRS said chose to send the stimulus payments under the same system — and timeline — the it uses for tax refunds. This was done to give financial institutions time to accept and deposit the stimulus payments without disrupting the tax refunds already going out, an IRS spokesperson said in an email. This same system was also used for the two previous rounds of stimulus payments.
"Leveraging existing processes contributed to the success of this distribution," the IRS spokesperson said. "Keeping in mind that many financial institutions don’t process payments on weekends or holidays, some banks may deposit payments into bank accounts earlier than the official settlement date."
A Fed spokesman declined to comment on the process for sending out stimulus payments.
The Fed said in February that a real-time payment system the central bank has been building, FedNow, would be ready in 2023. While the new timeline is a full year sooner than previously expected, the initiative “does nothing to solve the problems faced by Americans today,” Klein said.
“We are a year into COVID and these are the third emergency direct payments Uncle Sam has made,” Klein said. “Yet the Federal Reserve, Treasury and Congress have not solved the problem of how slowly the money actually gets to people.”
Fintechs have gained an upper hand by advancing the deposits to accounts ahead of the scheduled transfers from the government. Chime, for instance, has sent $3.5 billion from this round of stimulus payments to its customers as of Monday, a spokesperson said. Another fintech, Varo, processed $150 million in payments on Friday alone.
“Any time we have the opportunity to accelerate funds to get payments to our members faster, we will do that,” a Chime spokesperson said.
Some banks are providing other kinds of relief to customers who most urgently need stimulus payments.
For those customers whose balances are negative, the $466.7 billion-asset PNC Financial Services Group in Pittsburgh is temporarily making those accounts whole so that when the stimulus funds arrive customers can have access to the full amount, a spokesperson said. The bank plans to automatically deduct the previous negative amount owed from the account in 30 days.
“PNC appreciates the importance of Economic Impact Payments to our customers and we stand ready to help them access their funds,” the spokesperson said.
Russ Waterhouse, the executive vice president of product development and strategy at The Clearing House, has said the Treasury has elected to use the existing system to get the money out as soon as it could, but broader changes could be taken up once the pandemic wanes.
"There’s clearly a desire among people we interact with to see things move faster,” Waterhouse said. “There are people within Treasury, who ... would love to see a modernization."
This story has been updated to include comments from the IRS.
