Closing the Benefits Loophole

[question everything]

June 1, 2009

Closing the Benefits Loophole

By ELLEN E. SCHULTZ
WSJ

A bipartisan group of legislators is pressing the Treasury Department to close a loophole that has allowed banks to seize Social Security and disability benefits from customers' accounts despite federal rules intended to protect these benefits from creditors. The loophole also has enabled some banks to seize from customers their recent $250 Economic Recovery Payments, payments to disabled veterans, and supplemental benefits to impoverished individuals from the Social Security Administration.

Federal law says creditors can't take Social Security, disability, veterans' and children's survivor benefits to pay a debt. But the federal law doesn't say how money deposited directly into bank accounts is to be protected -- a gap that has given banks the ability to seize such funds. And when banks receive garnishment orders from debt collectors, they freeze customers' accounts and collect fees, including a charge to freeze the account, as well as overdraft and other charges -- all of which can be taken from Social Security benefits.

The Treasury and Social Security Administration, along with banking regulators, developed proposed regulations early this year that close the loophole. But the regulations are in limbo. In separate letters in May to Treasury Secretary Timothy Geithner, members of the Senate Special Committee on Aging as well as House members including Barney Frank urged that the Treasury issue regulations to stop banks from freezing benefits and seizing fees.

In a recent hearing before being confirmed as the Treasury's assistant secretary for financial institutions, Michael Barr said one of his first priorities will be to issue "a joint regulation to solve the problem of account freezes and garnishment of exempt funds." Mr. Geithner wasn't immediately available for comment.

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Bank of America Corp. froze the accounts of Ellistine and Roosevelt Thompson, a disabled couple in their 60s in Macon, Ga., whose only source of income is from Social Security. Because the Thompsons had no access to their money, they couldn't retain a lawyer. Bank of America turned over all the benefits, some of which they set aside for their burial, to a debt collector pursuing a debt from the mid-1990s. The couple learned from a TV news program that creditors can't take Social Security benefits. They contacted Georgia Legal Services Program, which last year sued the bank seeking the return of the couples' money.

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http://online.wsj.com/article/SB124361324245066727.html (subscription)

Printed in The Wall Street Journal, page C1

Steps to protect your Social Security, disability, veteran's or pension benefits:

* Don't commingle Social Security and exempt benefits with nonexempt funds.
* Don't get a loan or credit card from the bank where your Social Security or pension is deposited.
* If sued, go to court and demand proof of the debt.
* If your bank account is frozen, file an exemption claim within 10 days.

[question everything]

1. It has become our habit to separate

the banks were direct deposits go, the one that holds the mortgage and the one issuing credit card.