This week, the federal government began sending out the first of the $1,200 checks from the coronavirus stimulus package. With unemployment offices backed up across the country, many people who have lost their incomes are desperately waiting on the money to cover basic necessities like food and rent. But as David Dayen reported in The American Prospect on Tuesday, the money might fall in the hands of banks and private debt collectors before some people can spend it on the things they desperately need, creating a bastardization of the stimulus’ original intent that will only further hurt an already deflated economy.
The CARES Act, as it’s known, doesn’t allow stimulus checks to be garnished because of federal or state debts. But the same can’t be said when it comes to private debts. On that issue, Congress punted the decision to the Treasury Department, which declined to write rules that would have barred private collectors and banks from taking money out of the stimulus checks. This means that if checks are deposited into a bank account, banks can collect first. As Dayen explains, “Banks would be first in line to grab the payments to offset a delinquent loan or past-due fees. Even if the individual thinks their account with that bank is closed, if the payments post there, the bank could conceivably use them to cover old debts.”
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Lisa Stifler, director of state policy at the Center for Responsible Lending, explained to VICE that any type of private debt could apply. That includes auto loans, payday loans, bank account overdrafts, and private student loan debt. We’re already seeing this happening—one man in Chicago told local television station WGN9 that $1,200 was deposited into his account. Four hours later, Pioneer Credit Recovery, a subsidiary of Navient Corporation, had taken out $575 for payment on his student loan. (Navient spokesperson Paul Hartwick told VICE after this post was published that the man had previously authorized the company to charge him and that "Pioneer does not levy or garnish bank accounts, so this payment had nothing to do with the man’s stimulus payment.")
“These payments are meant to help people pay their rent, get medicine, and put food on the table,” Stifler told VICE. “When creditors or other third-parties put themselves first in line ahead of that, they are essentially saying ‘we’re more important than allowing people to get by.’”
The National Consumer Law Center published an article on Wednesday with detailed guidance on how at-risk people can try to avoid having their money seized by creditors, such as monitoring their accounts and taking it out as soon as it arrives. Some states and local governments are taking proactive steps and issuing emergency orders to stay the enforcement of some or all garnishment orders. Ohio sent a notice reinforcing that under their state laws, the stimulus checks can’t be taken by private debt collectors, although, as Dayen pointed out, it’s “unclear whether that will apply to banks offsetting funds delivered into their lap.” But so far, these orders have been few and far between.
Most workers across the country that we’ve spoken to over the last few weeks have told VICE that $1,200 is already not enough to cover their expenses. Melissa Love, an hourly Walmart employee who is now providing for her father after he got laid off at his job, estimated that the check would last them “maybe a few weeks” at most. The fact that some people might see their one-time payments taken away by creditors cuts into what’s already insufficient relief for workers.
Besides the obvious maliciousness in banks and private debt collectors seizing relief checks, the federal government allowing them to do so undermines the whole point of a stimulus in the first place. As University of California, Los Angeles economics professor Till Von Wachter told the Los Angeles Times, “The idea is if the economy is down, people don’t have as much money in their pockets. They’re very likely to spend that [stimulus check] money instead of saving it, so that money is going to help the economy.”
But if the money goes to creditors, it won’t actually be spent by people on the goods they need. As Stifler put it, “It is very much opposite of intent of what these payments are for.”
This post has been updated to include information provided by Navient Corporation.