Creditors Use Loophole To Seize Benefits
Bill Collectors Have Found Way To Collect Social Security, Veterans' Payments
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(CBS/AP)
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Lawmakers from both parties who have been pressing the Treasury Department for years to close the loophole with new regulations are growing impatient. The Obama administration is now promising action but has offered no timetable for developing the new rules.
Federal law has long protected Social Security and veterans benefits from most creditors, with a few exceptions for child support, alimony, unpaid federal taxes and debts to other federal agencies. But creditors have been seizing the payments anyway by getting court orders to freeze and garnish bank accounts that receive the benefits through direct deposit.
Activists say the issue has festered for years, but has intensified as more recipients get their benefits deposited directly into bank accounts.
Many people who receive Social Security or veterans benefits can't afford to have their bank accounts frozen for even a short period of time, said Margot Saunders of the National Consumer Law Center. It's hard to hire a lawyer to get your money back when all your resources are frozen, she said.
"They take all your money, and they take it illegally," Saunders said. "But when you live on $700 or $800 a month and have all that money garnished, there's very little recourse."
Over a 12-month period in 2006-2007, an estimated $178 million was garnished from bank accounts that included a mixture of Social Security benefits and other deposits, according to the Social Security Administration's inspector general.
"Some banks are doing the right thing to protect their customers by denying creditors' requests to freeze and garnish accounts with Social Security funds, but too many banks are not," Sen. Herb Kohl, D-Wisc., chairman of the Senate Special Committee on Aging, said this week.
"We need our banking regulatory agencies to recognize this widespread problem and start enforcing the law," he said.
Kohl and other lawmakers have introduced a bill that would stop further promotion of the direct deposit programs for Social Security and veterans' benefits until the Treasury Department issues rules to protect the benefits from creditors. More than 80 percent of the 51 million Social Security recipients get their payments through direct deposit.
Assistant Treasury Secretary Michael Barr was asked by lawmakers to commit to new regulations last month, before he was confirmed by the Senate.
"I am fully committed to ensuring that federal anti-garnishment statutes are given full force and effect," Barr said in a written response to questions from Kohl. But he said he also wanted to do it "without imposing burdens or shifting liabilities to financial institutions."
A Treasury official said this week the department has already reached policy agreements with the agencies that issue protected benefits. The next step is to write formal rules, said the official, who spoke on condition of anonymity because she was not authorized to publicly discuss the rulemaking process.
In a related issue, the California Supreme Court ruled Monday that Bank of America could recoup overdrafts and insufficient funds fees from accounts that include Social Security payments. The court said it based its ruling on state law.
The American Bankers Association said in a letter submitted for the inspector general's report that banks are often confronted with court orders to freeze or garnish accounts that include deposits from multiple sources - including money that is not protected from creditors.
Under the current system, the only "fair" response is for banks to freeze or hold the disputed amount to "provide the parties with time to work things out," the trade association said.
"Banks would welcome clear rules," the letter said.
© MMIX, The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Michelle Obama tells how her role as the First Lady has changed her perspective.





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See all 26 CommentsI keep hope things will change. I still have faith and hope in President Obama that he will come around. We all know he had a lot to deal with when he came into office he inherited from the Bush Administration.
Posted by emh1701 at 4:44 AM : Jun 4, 2009
You can call your cell phone company and ask for a new number--explain what is happening, they usually will not charge for this. YOu can also ask for a number that has not been recycled for up to 24 months..finally, you can have your cell phone number placed on the Do not call registry--when any caller calls you unsolicited, tell them they have reached a do not call number and hang up--if your phone has the feature, block their calls.
Posted by ghwab1949 at 7:57 AM : Jun 3, 2009
We learn best by example. If huge corporations, banking and mortgage institutions, automakers, airlines and others can just throw away their debts, start over and get massive amounts in bailout money--why not each American? The "law" is equal is it not? If you can stomach all of these institutions getting hand outs and jettisoning debt and employees with no repercussions, why do you censor avg citizens? Are you a diletante? or a traitor?
Free money for all!!! Freedom of debt for all!!!! If the big guys no longer have their old debts and can get multimillion dollar bonuses from Tax payer bailouts--then fork over each consumer's share--the big companies lost billions and squandered and will never repay a lot of that debt--what is good for the goose is also good for the gander.
F 'em all. Pay no taxes, pay no debts back....you can't allow a free ride for so many (the elite) then expect the little guy to tow the line--after all, maybe Chrysler, GM, Lehman Brothers, Wells Fargo, Banc of America and others should have looked into borrowing from friends and charities to recoup their losses too--huh? LMAO
I meant everything because I knew that the banksters were broke and that not even the United States taxpayer had enough money to bailout over 1.4 quadrillion in worthless derivatives and credit-default swaps.
Nobody listened, instead they laughed at me and said I was 'crazy' and that their personal situation was just fine.
Well I would like to hear from those same people today and tell me if you still think the same way.
Folks, if you haven't listened to me or Lyndon Larouche up till now, NOW is the time.
We're passed time to put the Federal Reserve System into RECEIVERSHIP and BANKRUPTCY RE-ORGANIZATION.
Soon our imploding economy will turn into an irreversible catastrophe if we do not take the advice of Lyndon Larouche and get these fascistst Hitler-clowns surrounding the President OUT!
larouchepac.com
Wall Street has failed.
Globalization has failed.
Anglo-Dutch Financial and Monetary System of Private-Central-Banks has failed.
Do we want to go down to hell with these dumb idiots?
Posted by gohan31 at 10:44 PM : Jun 2, 2009 ***************** The dollar is no more, anyway. bamy sold us to the Chinese. Nice job, Your Lordship. Or was that Messiah. I forgot.
Posted by YouCantBSirius at 4:11 AM : Jun 3, 2009
That was your buddy the shrub who sold us to China. Now the real President has to figure out how to clean up the mess all the GOP crooks and idiots made.
Sheesh, outsourcing and deficit spending using China as the bank for 8 years and you blathering neowacks try to spin it around and make it President Obama's fault. Get real.
It gets pretty hard to pay that electric bill or buy a loaf of bread then!!!
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See all 26 Comments