‘Negligent, Unlawful’: CUs Outraged Over SHAZAM Payments ‘Error’

On Tuesday, national debit network, processor and core provider SHAZAM errantly processed an old Automated Clearing House (ACH) file from 2015 that caused an untold number of credit union members to discover their individual accounts were missing up to thousands of dollars, thus causing credit unions around the country to scramble to try and fix the problem.

In an email to CU Times from the $242 million LorMet Community Federal Credit Union in Amherst, Ohio, Director of Marketing Andrew Krieger said, “Over the past 48 hours, credit unions and credit union members across the country have been scrambling to recover from an error by SHAZAM Inc, which errantly processed an ACH file from over five years ago. This mistake caused credit unions and community banks that may not have been affiliated with SHAZAM for years to receive thousands of large transactions from individuals who may have already closed their accounts.”

According to Krieger, more than 1,800 of LorMet’s current and former members were impacted by the ACH mishap. LorMet’s call center has been inundated with calls from its members since Tuesday. Of note, LorMet has not been associated with SHAZAM for more than five years.

Krieger continued, “Credit union members were left without their hard-earned money (sometimes thousands) for more than a day, while SHAZAM withheld communication from the financial institutions that were bombarded with calls from frustrated current and former members.”

Krieger said it’s hard to believe this happened, but “when SHAZAM processed this one ACH file, they took up to 12 months of payments from each of these victims. In nearly all of our cases, these were car loan payments or mortgage payments. You can imagine what 12 months of car loan payments might look like for the average individual. SHAZAM’s error left the victims without those financial resources for at least 12 hours.”

In a statement posted to its Facebook page Tuesday, SHAZAM said, “This morning, an Automated Clearing House (ACH) file was sent in error on behalf of some SHAZAM Inc. financial institution clients. As a result, some accountholders may see inaccurate activity. SHAZAM is working to correct the issue and expects it to be resolved by tomorrow (Wednesday, April 26).

“Customers are encouraged to contact their financial institution with account inquiries. We apologize for any inconvenience or confusion this may have caused.”

There was no mention of the ACH issue on SHAZAM’s website.

CU Times reached out to the Des Moines, Iowa-based SHAZAM for comment and to find out if the ACH problem has been resolved. We have not received a response.

In a statement, LorMet President/CEO Daniel R. Cwalina expressed how upset he is by the situation.

“While we are doing everything we can to remedy this, we want our members to know that we were utterly powerless, as Shazam chose not to promptly disclose information during its negligent, unlawful and unauthorized conversion of our current and former members’ funds. Upon learning of this, LorMet immediately investigated the matter and determined that Shazam was responsible for this devastating occurrence. Regrettably, after we contacted Shazam’s customer support, they told us that Shazam could not share any information regarding this matter with LorMet, although the scope and magnitude of this incident were known, and should have been known to or determinable by Shazam,” Cwalina said.

It remains unclear how many credit unions were impacted by SHAZAM’s ACH error.

A statement posted Wednesday by Community 1st Credit Union in Ottumwa, Iowa ($939.1 million in assets, 66,995 members) read, “Shazam has reversed the ACH transactions generated in error. Community 1st Credit Union is in the process of refunding overdraft fees and overdraft transfer fees charged because of the issue. They will be refunded by 5:00 pm today (April 26, 2023).”

One member alerted Community 1st of multiple payments (five) of $13.99 each made for a magazine subscription they haven’t had in years. Several members reported their accounts had upwards of 10 payments made to Ottumwa’s Water Department on the same day. “They better get this straightened out soon,” one member wrote.

According to Krieger, “SHAZAM has not taken the initiative to resolve the collateral damage for these victims, instead leaving it up to the credit unions and community banks like us who never authorized this in the first place.”

All of the credit unions impacted by the ACH issue that CU Times was able to identify ranged in asset size from $100 million to nearly $900 million and were located in Iowa, Ohio and surrounding states.

CU Times also contacted the NCUA to ask if it was aware of the ACH problem, as this situation appears to be connected to Board Chairman Todd Harper’s push for the agency to have third-party vendor authority. We will update this story with those details as they become available.