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California and Federal Officials Can Stop Creditors Collecting Debts from Funds Intended for Meeting Basic Needs

Friday, April 17, 2020
Marisabel Torres

Oakland, CA – As people en masse are losing their jobs and income, creditors are taking from desperately needed stimulus checks in order to collect on debts. The Center for Responsible Lending today continued its call for state and federal officials to take immediate action to protect this emergency funding.

Marisabel Torres, Center for Responsible Lending’s Director of California Policy, issued the following statement:

The CARES Act stimulus checks are meant to help people meet basic needs like food, housing and medicine – not to pay off creditors. As it stands, a bank could take $1,000 in overdraft charges out of a $1,200 check even if the individual thought that bank account was closed. Policymakers at the federal and state level have the authority and responsibility to act immediately to safeguard these funds from creditors.

The Treasury Department should designate these checks as exempt from garnishment by debt collectors, just like Social Security and VA benefits are. The Attorney General of Massachusetts is protecting its state’s residents’ funds by marking them exempt from collection and California’s leaders should do the same. The Governors of Illinois and Washington are temporarily suspending wage garnishments for a period of time during the crisis, which will also protect stimulus checks, and Governor Newsom should do the same.

Congress should make clear in new legislation that Treasury doesn’t just have the power to shield these funds from creditors, the agency must do so. This crisis also highlights that Congress should also rein in abusive bank overdraft practices and cap the interest rates charged by lenders.

While the onus is on policymakers, consumers should be aware of options that might be on net beneficial for their situation. People can order a stop to payments, change automatic payments to manual payments, and call their creditors to try and arrange a longer-term payment plan. If the money has already been taken, they can request it back from the creditor and file a complaint with the California Attorney General or the Department of Business Oversight, the regulator of that creditor, the Federal Trade Commission, and/or the Consumer Financial Protection Bureau. They can also seek help from a local legal aid attorney, which is free depending on income eligibility, or get legal help through a local bar association.

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Press Contact: matthew.kravitz@responsiblelending.org