Some of the poorest Americans who lost their income overnight are waiting for promised government stimulus checks so they can feed their families, only to have their banks take the money and apply it to overdrawn bank accounts.
Banks can legally withhold funds that go into accounts with negative balances, and the $2.2 trillion CARES Act relief package that authorized the stimulus payments doesn’t stop them, the New York Times reported.
The $1,200 payments started showing up in bank accounts this week. While the stimulus bill Congress passed last month mostly protects the payments from state or federal debt collection, the feds have told banks there’s nothing to stop them from taking the money to pay off outstanding debts they’re owed, according to The American Prospect.
Senators are pressuring Treasury Secretary Steven Mnuchin to ensure that relief money isn’t garnished. “The phenomenon is swiftly becoming a political issue,” the Times reported.
USAA, a financial services company that serves members of the military and their families, was garnishing stimulus payments until Thursday.
A disabled Minneapolis veteran and his wife with a USAA account were counting on their $2,400 relief payments to help pay rent and buy formula for their 10-month-old daughter. The woman had to quit her job after Minnesota ordered all daycare centers closed because of the virus.
But USAA told the couple that it was keeping the money because their account was overdrawn, the Times reported.
The woman showed The New York Times screenshots of a Twitter exchange between her husband and a USAA representative who said, “any deposits to the account will go toward the negative amount owed to the bank.”
After the Times published the article on Thursday, USAA reversed itself, saying it would pause overdraft collections for the next 90 days.
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Wells Fargo, Bank of America, JPMorgan Chase and Citibank have also said they will stop grabbing the money, New York Post reported. They promised to pause collections on negative balances or give credits to people with overdrawn accounts.
USAA said the pause in overdraft collections will apply retroactively to any accounts that had negative balances when the first stimulus checks were deposited.
The Treasury Department effectively gave the green light for banks to take advantage of the coronavirus crisis to collect prior debt, The American Prospect reported.
“At a time when people are desperate to buy food, the idea that anybody would grab (the $1,200 payments), let alone the banks they trust with their money, is appalling,” said Lauren Saunders, associate director with the National Consumer Law Center.
