The possibility of Covid-19 stimulus checks — $1,200 for most Americans — ending up in the pockets of banks and bill collectors instead keeps popping up in the headlines, with much of the reporting driven by David Dayen of the American Prospect e-zine.
Dayen has posted that Treasury Secretary Steven Mnuchin was aware a technical problem with the massive CARES stimulus bill that would potentially allow dunning companies to snatch debtor’s stimulus payments as soon as they hit banks, if they were to act fast enough when the payments start to go out in April 2020.
According to Dayen’s post in the Prospect’s blog, Democratic US Senator Sherrod Brown of Ohio clued Mnuchin in to the flaw on April 1st, just five days after the massive bailout package became law. Brown and other legislators worried that there was no protection form collection agencies seeking to time garnishment orders for past due debts for the weeks when the stimulus payments will start hitting debtor’s bank accounts.
Mr. Dayen, who appeared on Julie Mason’s SiriusXM Press Pool show on satellite radio as well, has also been exploring a sub-section of this story: namely the possibility that banks may get a windfall when the stimulus checks land in overdrawn accounts, and they are allowed to “set-off” the funds to recoup the deficit. On April 16th, American Prospect reports that USAA, a credit union serving military personnel and veterans, is in fact setting off the government payments against bounced checks.
How much of a problem this becomes nationwide remains to be seen, but it is not a danger for Massachusetts debtors, because the state has enacted temporary bans that should prevent stimulus snatching.
According to Mr. Dayen’s reports,Massachusetts senator Elizabeth Warren and Ohio Senator Sherrod Brown have both been writing letters to US Treasury officials, trying to get a national regulation prohibiting the seizures put in place.
However, until — and if– it does, debtor’s should try to be proactive in updating their banking information, so that stimulus payments don’t end up in old accounts with negative balances.