Banks can snatch stimulus checks before landlords see a dime

Lawmakers across country urge Treasury to change policy

National /
Apr.April 15, 2020 08:30 AM
(Credit: iStock)

(Credit: U.S. Dept. of the Treasury, iStock)

Legislators fast-tracked the federal stimulus package to provide “fast and direct relief,” but allowed banks to garnish the checks from individuals in debt.

The checks, which can be as much as $1,200 for a single person and $500 for each dependent, were seen as a lifeline for residential landlords, too — allowing their tenants to pay rent. But now, those checks could be consumed by overdraft charges or other outstanding debt.

Even without the garnishment, $1,200 only goes so far in an expensive city. Barely half of tenants in New York and a third in San Francisco could pay their rent with $1,200, an analysis from brokerage Redfin showed.

That percentage could drop even further if the Treasury does not reverse its policy, which elected officials from across the nation are demanding.

In a letter to Treasury Secretary Steve Mnuchin, New York State Attorney General Letitia James and her counterparts from more than two dozen other states urged the Treasury to immediately amend the policy.

“During this public health and economic crisis, the States do not believe that the billions of dollars appropriated by Congress to help keep hard-working Americans afloat should be subject to garnishment,” the letter reads. “We request the Treasury’s assistance in ensuring Americans are able to retain that monetary relief.”

Gov. Andrew Cuomo sent a similar letter to Mnuchin, noting the funds are intended for housing, food and other essentials. “Exempting the stimulus payments from seizure by creditors will maximize the impact they will have on our fragile national economy, protect these funds from becoming simply a windfall to creditors, and throw more Americans a bigger life preserver,” he wrote.

Last week, a treasury official told bank regulators on a conference call — a recording of which was obtained by The American Prospect — that nothing in the federal Coronavirus Aid, Relief and Economic Security Act precluded banks from garnishing the checks, as they are barred from doing with veteran, disability and Social Security benefits.

“Social Security payments are intended to enable older Americans to buy food and keep a roof over their heads, and the law explicitly protects this,” said Eileen Appelbaum, senior economist at the Center for Economic and Policy Research. “The stimulus checks now being sent out are similarly intended to keep people in their homes and make it possible for them to buy food.”

Landlords are also concerned that banks will seize the checks before they reach struggling tenants — especially given reports of rent being withheld by those with the means to pay.


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