STIMULUS RECOVERY CREDIT ONE KID IN ONE KID OUT

That's correct.  They really shouldn't have received it for the 17 year old so it counts as being for the newborn.

To make them feel better, tell them the proposed legislation for the EIP#3 allows $1,400 for ALL dependents.  

This is a quirk in the law that happens often when a tax year tax credit is pre-paid during that same tax year. Since the credit is really for 2020, and the child does not qualify in 2020, they should not get it for 2020.

But it was pre-paid during 2020 based on 2019 facts.

However, if there was no baby born in 2020, they would not have to repay it for the now 17 year old!

One kid in one kid out.  

Sounds like word problem back in grade school math.

+1-1=0

The math seems to work just fine.

See if this Restatement helps you: "They received the first stimulus and the second stimulus for that dependent that turned 17."

No.

They got Advanced Funds against a Projection of what 2020 would look like. But the advances are based on 2019 or 2018 tax forms. The 2020 tax info is the Actuals info used to reconcile what you are qualified to get against what you already got paid to you.