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Over the course of three rounds of economic impact payments (EIP) authorized by Congress during the COVID-19 pandemic, the federal government sent more than 373 million direct deposit payments totaling $654 billion via the automated clearing house network to Americans in need. Every single one of these direct deposits made funds available to beneficiaries as instructed by the IRS, without delay. Yet Aaron Klein of the Brookings Institution said that the U.S. Treasury's use of the ACH "led to millions of Americans going without food for days." Quite the contrary, the industrial-strength ACH put money in people's bank accounts on time, as instructed by the IRS, to help take care of their most immediate needs, like feeding their families. To be clear, it was the IRS and not the payment system that dictated when to make funds available to beneficiaries.
The federal government uses the ACH network because it is highly efficient, moving vast quantities of payments at an extremely low cost. The U.S. sends and receives more than 1.5 billion ACH payments every year to pay government workers and retirees; deliver tax refunds; provide Social Security, veterans and other benefits; and collect taxes, among many other uses. During the pandemic, the U.S. government sent several forms of assistance, including EIPs and advance child tax credit (ACTC) payments, through the ACH.
When the U.S. government needs to send and deliver funds to beneficiaries within a single day, the modern ACH network can do that. In September 2021, the IRS used Same Day ACH to send 430,000 families an ACTC payment that it had originally missed, getting these families their money on a Friday before the weekend. Same Day ACH has been available for ACH users for more than six years, delivering $3 trillion through nearly 2 billion payments since its inception.
A government-provided direct deposit into a bank account is also a path forward for greater financial inclusion. At the onset of the pandemic, Jonathan Mintz, founding president and CEO of Cities for Financial Empowerment Fund, a New York-based nonprofit that sets national standards for low-fee bank and credit union accounts through its Bank On initiative, noted that there was a "strong demand for direct deposit to obtain federal funds. … It's led to a huge volume of new people opening up these [Bank On] accounts and entering the account data into the IRS portal so they could get their stimulus payments."
A recent analysis by the Bank Policy Institute found a net increase of roughly 1.25 million Bank On certified accounts occurred in 2020 during the pandemic. One of the main purposes, and perhaps the primary purpose, of opening such an account is to receive a direct deposit of benefits from the U.S. government for EIPs and tax refunds, or from a state government for the direct deposit of unemployment benefits.
As Mr. Klein and others have noted, the ACH cannot settle payments over weekends and holidays. This is because the Federal Reserve's National Settlement Service is closed. Nacha and others in the payments industry, such as the Payments Risk Committee (itself an advisory group to the Federal Reserve Bank of New York), have provided the Federal Reserve with numerous comments over the years on the benefits to the payment system and the broader economy of expanding settlement hours. Yet even as the Federal Reserve has moved to establish a 24x7x365 instant payment system, it has made no real progress on its commitment published in the January 2015 report "Strategies to Improve the Payments System" to move interbank settlement towards 24x7x365 availability.
At the height of the pandemic, many Americans were stretched thin. They had trouble making rent, paying for groceries and keeping up with all their regular expenses. They needed help, and they needed it fast. By sending direct deposits through the ACH network, the U.S. government was able to provide that help quickly. Nacha will continue being a strong partner with the federal government to enable fast, timely and accurate direct deposits to help American families, many of whom received money by direct deposit into a bank account for the first time.
