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Many Americans are waiting anxiously for $1,200 in stimulus money to land in their bank accounts but, when the payment arrives, there’s a risk others—namely private debt collectors—could grab it first.
The federal law known as the CARES Act, which authorizes the stimulus, says federal and state governments may not seize the payments to satisfy tax debts, but there isn’t a similar provision for private debts. This means that debt collectors, under a court arrangement known as garnishment, could ask banks to turn over the money to satisfy debts for medical bills, student loans, car payments, or other overdue bills.
In response, a coalition of attorneys general led by New York’s Letitia James sent a letter asking treasury secretary Steven Mnuchin to issue regulations barring debt collectors from seizing the payments. This would put the one-time stimulus payments in the same category as Social Security payments, which are likewise mostly exempt from seizure.
In Michigan, attorney general Dana Nessel became aware of the risk of the payments being seized after hearing of a man whose unemployment check was taken by a debt collector. This spurred her to sign the letter in hopes the Treasury Department takes action before the stimulus payments land in people’s bank accounts in coming days.
“These payments are not a windfall but a bridge to help people pay for groceries and rent,” said a spokesperson for Nessel.
In order to prevent seizures, the Treasury Department could issue the payments with a code instructing banks to ensure third parties could not obtain them. It’s unclear, however, whether this could be done in time to ensure debt collectors could not seize the first wave of payments.
The Treasury Department did not immediately reply to a request for comment.
The letter from the state attorneys general suggest the failure to exempt the stimulus payments from seizure was an oversight. Meanwhile, a bipartisan letter from Sen. Sherrod Brown (D-OH) and Josh Hawley (R-MO) likewise stated the purpose of the CARES Act would be thwarted if the payments went to debt collectors rather than letting recipients use the funds to buy basic necessities during the global pandemic.
For those worried their stimulus payment will be seized, consumer advocates told NPR that people should quickly withdraw the money or try to direct the funds to a different bank account.
Update: On April 18, governors in New York and Oregon issued orders barring debt collectors from seizing stimulus checks.
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