Northwest Arkansas Democrat-Gazette
Garnishment of stimulus funds reviewed
WASHINGTON — The Treasury Department is reviewing whether it has the legal authority to prevent banks and private debt collectors from seizing $1,200 government stimulus payments, according to a person familiar with the internal deliberations, as criticism builds over private lenders clawing back parts of the emergency financial relief package.
The review is being conducted by legal counsel at the Treasury Department, said the person, who spoke on the condition of anonymity to discuss agency process. It was unclear when a determination about the payments would be made.
Earlier this month, the Trump administration began directly depositing stimulus checks in the bank accounts of 80 million Americans to help them survive the economic downturn caused by the coronavirus. But reports quickly surfaced that some of these payments were being redirected to banks and private debt collectors from people who have overdraft fees, delinquent loans, or other debt obligations.
These garnishments have sparked a bipartisan backlash in Congress, with lawmakers arguing the money should be walled off from collection by banks and private debt collectors. Several large banks have also announced they would stop taking the money amid public criticism. USAA, which services veterans and military families, announced last week it would return the stimulus funds and change its policy after The American Prospect reported the bank took $3,400 in payments from the family of a disabled veteran to offset an existing debt.
The seizure of stimulus checks by private lenders threatens to further undermine the rocky rollout of the $2.2 trillion coronavirus relief package, as a number of obstacles have blocked swift access to the direct payments, a massive increase in unemployment benefits, and emergency loans through the Small Business Administration. The Trump administration has defended its implementation of the law, saying it sent out 80 million checks within three weeks with an error rate of under 1% and has successfully disbursed hundreds of billions in small business aid.
Millions of people stand to have their stimulus payments garnished under the current Treasury policy as nearly a third of Americans have a debt in collection, although the exact number affected is unclear, according to Lauren Saunders, associate director of the National Consumer Law Center, a nonpartisan advocacy group.
Several of the largest banks, such as Bank of America and Wells Fargo, have said they will not collect these payments regardless of Treasury policy. Thousands of smaller banks and credit unions may still be doing so, and some debt collectors are trying to grab these payments.
“Congress authorized these payments because people have lost their jobs and are desperate for money for food. The money needs to go to food, not the debt collectors or back bank fees,” Saunders said. “I hope Treasury reverses itself immediately, because every day that goes by that people can’t access their money, they are wondering how they are going to eat.”
Some Treasury officials have privately told outside advisers that Congress would have to pass new legislation to give them the authority to ensure the payments are not garnished, according to two people familiar with the conversations. The people spoke on the condition of anonymity to discuss private conversations. A joint letter signed by the American Bankers Association, the Consumer Bankers Association, and the Financial Services Forum urged Congress to revise the Cares Act to ensure the stimulus checks not be redirected to certain garnishments.