A coalition of consumer and banking groups is urging Treasury Secretary Janet Yellen to take action to close a loophole in the recently passed $1.9 trillion pandemic relief bill that allows the $1,400 direct payments to American families to be seized by debt collectors.
The economic impact payments (EIP), as the stimulus checks are formally known, were shielded from garnishment under previous COVID-19 rescue bills. But the American Rescue Plan, which President Joe Biden signed into law on March 11, does not explicitly prevent debt collectors from seizing those funds.
Democrats advanced the American Rescue Plan through Congress under the budget reconciliation process, which allowed them to pass the bill without having to win over Republicans, who opposed the bill as wasteful and packed with spending priorities unrelated to the pandemic—and all voted against.
“Unless Congress immediately adopts legislation to address this issue, the second and third EIPs will be treated inconsistently—those in the second round were exempt but those in the third round will not be exempt,” the groups wrote.
“Allowing economic impact payments to be garnished could impose significant burdens on some families, especially those in communities of color, facing unprecedented circumstances,” the organizations wrote, adding that depository institutions—and even many debt collectors—believe the stimulus checks should be exempt from garnishment.
Unless Congress passes a standalone bill to close the loophole, deposit-taking institutions like banks and credit unions will be forced to comply with garnishment orders and will have to pay some creditors who try to freeze bank accounts and seize owed funds.
“We believe it is imperative that Congress ensure that these next stimulus payments are treated as ‘benefits’ subject to the federal exemption from garnishment,” the coalition said. “Otherwise, the families that most need this money—those struggling with debt and whose entire bank accounts may be frozen by garnishment orders—will not be able to access their funds.”
Sen. Ron Wyden (D-Ore.) chairman of the Senate Finance Committee, said in a statement that he plans to introduce a standalone bill that would shield the money from debt collectors.
“While Democrats intend to protect the third payment from private debt collectors, Senate rules did not allow us to include that protection in the American Rescue Plan,” Wyden said in a statement on Monday. “I will be introducing standalone legislation to ensure families receive their much-needed relief payments.”
Wyden urged Republicans, who opposed the American Rescue Plan, to support the standalone bill that would shield the stimulus checks from garnishment.
The White House said that the economic impact payments will be seen in some bank accounts as soon as this weekend.
People earning less than $75,000 are eligible to receive the full $1,400 amount, which ramps down to zero at an incomes of $80,000 and above.
