Answer:
There may not be anything illegal about John Jones having his pay direct deposited to Sam Smith's checking account, but that doesn't mean it's wise to do it. John and Sam may be best friends and Sam may be willing to let John use his account this way and even agree to withdraw the cash and give it to John on payday, but ....
What happens if John's purpose in having his pay deposited to Sam's account is to avoid having his funds tapped by a creditor or by the state child support enforcement agency? What happens if Sam isn't around on payday and John tries to get "his" money directly from the bank, by himself? What if the child support enforcement agency discovers John's ruse and subpoenas from the bank copies of statements on Sam's account?
It takes cooperation amongst four parties to arrange for direct deposit of John's pay to Sam's account -- John, Sam, the Originator and the RDFI (your bank). John, Sam and the Originator may agree to do it, but your bank doesn't need to buy into the deal. If it gets a pre-authorization (non-dollar) transaction to confirm the arrangement, it should refuse it based on the mismatch of name and account number. If it only learns of the arrangement later when it sees entries with name/account mismatches, it should return them.
First published on BankersOnline.com 6/4/12
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