Earlier this week, millions of Americans began receiving direct deposits from the federal government as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law last month. Although meant to provide relief to consumers feeling the impact of furloughs and pay cuts as a result of the coronavirus (“COVID-19”) pandemic, a growing number of people are concerned that private debt collectors will take this opportunity to garnish stimulus money from delinquent borrowers.
While certain protections against debt collection were built into the CARES Act, including the inability of the federal government and Internal Revenue Service to recoup funds owed on defaulted federal student loans and delinquent taxes, many states and municipalities like Washington, D.C. and New Jersey, perceiving a potential gap in consumer protections, have taken further measures to put a moratorium on all debt collection activities during the pandemic.
Lawmakers and state attorneys general are urging the United States Department of the Treasury to shield consumers further from debt collection activities that could prevent consumers from receiving the stimulus funds that they so desperately need. A bipartisan letter to the Secretary of the Treasury, authored by Sen. Sherrod Brown (D-Ohio), Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, and Sen. Josh Hawley (R-Mo.), urges Secretary Steven Mnuchin to take immediate action because “the CARES Act direct payments are at risk of being seized by debt collectors.” The senators assert how “[t]hat is not what Congress intended.” Instead, they ask that the applicable Treasury rules regarding Social Security, Supplemental Security Income, and other federal payments be extended to the CARES Act direct payments. Currently, Social Security and other federal payments are protected from garnishments to recover on a judgment.
Similarly, New York Attorney General Letitia James, and 22 other state attorneys general also wrote a letter on April 13 to Secretary Mnuchin urging that he issue “regulation[s] or guidance designating CARES Act payments as ‘benefit payments’ exempt from garnishment.” The requested regulation from the Treasury would be authorized through built-in mechanisms within the CARES Act for rectifying such apparent oversights.
The attorneys general sent an additional letter directed to the Consumer Financial Protection Bureau, demanding that the agency enforce the provision of the CARES Act that provides consumers credit protection should they obtain temporary debt relief. The CFPB responded by asserting that it remains committed to ensuring that consumers are protected during the COVID-19 pandemic by providing guidance on credit reporting to creditors. Additional information on the CFPB’s response can be found here.
As stimulus payments continue to be rolled out, it appears that consumer advocates and lawmakers alike are steadfast in their resolve that stimulus funds should be exempt from debt collection.