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Stimulus Checks Can Be Seized By Private Debt Collectors

Banks have the power to seize the $1,200 coronavirus pandemic relief checks to settle debt outstanding.
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Banks have the power to seize the $1,200 coronavirus pandemic relief checks to settle debt outstanding, according to a news report. 

The $2.2 trillion Coronavirus Aid, Relief, and Economic Security, or Cares, Act includes funds to help laid-off or sidelined workers during the current economic shutdown. 

Over the past three weeks, 16.5 million Americans filed for unemployment and are anxiously awaiting stimulus funds. 

But the American Prospect said that Congress did not exempt Cares Act payments from private debt collection, and consumers'  payments could transferred to their creditors, potentially leaving them with nothing.

Banks would be first in line to grab the payments to offset a delinquent loan or past-due fees. 

Even if an individual thinks their account with that bank is closed, if the payments post there, the bank could conceivably use them to cover old debts.

The American Prospect said it obtained audio of a Treasury Department webinar that was held last week.  

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Ronda Kent, chief disbursing officer with Treasury’s Bureau of the Fiscal Service, can be heard explaining that banks had asked her “whether these payments could be subject to collection from the bank to which the money is deposited, if the payee owes an outstanding loan or other payments to the bank.” 

Kent said twice that “there’s nothing in the law that precludes that action,” while counseling that the banks’ compliance officers should consult with their legal offices about what policies their banks will implement. 

“You will want to know for your bank what your bank has decided to do,” Kent said.

Congress exempted individuals from debt collection if the debt is owed to federal or state agencies, unless the debt involves a child-support payment. 

But Congress did not extend this exemption to private debt collection. 

The payments are defined as tax credits and not federal benefits, making them subject to garnishment, in which a debt collector that wins a judgment in court can seize anything of value held by the debtor.

On Monday 25 state attorneys general asked the Treasury Department to issue regulations to protect Cares Act payments from garnishment. 

The Treasury Department did not immediately respond to a request for comment.