The Treasury Department and IRS are facing increasing pressure to make sure that debt collectors don’t get access to relief checks included in the federal government’s coronavirus response.
Democratic attorneys general from 26 states sent a letter Monday to Treasury Secretary Steven Mnuchin asking him to designate relief checks under the federal stimulus law as exempt from garnishments, effectively cordoning them off from private debt collectors.
Other direct payments from the federal government, like Social Security payments, are already given such protections to ensure that money meant to pay for rent and food doesn’t go to debt collectors.
The letter from the state attorneys general follows an April 10 bipartisan letter to Mnuchin from Sen. Sherrod Brown (D-Ohio) and Sen. Josh Hawley (R-Mo.) calling for similar action.
Neither the Treasury Department nor the IRS, which is sending out the stimulus checks, responded to an April 13 request for comment.
The CARES Act, signed into law by President Donald Trump on March 27, included emergency relief payments of $1,200 to individuals and $500 for each dependent child, subject to some qualifications.
However, the law lacks a provision that would require the Treasury Department and IRS to provide the same protections from debt collectors that Social Security and other direct payments get.
The Democratic attorneys general said not providing those protections appears to be a “legislative oversight” due to the need to get the package completed quickly.
Brown and Hawley said in their letter that the support for families Congress intended could get hoovered up by debt collectors.
“We came together to pass the CARES Act to help American families pay for food, medicine, and other basic necessities during this crisis,” the senators’ letter said.
The CARES Act gives Treasury the authority to issue any regulations necessary to make sure the payments are used to support people struggling with job losses and lost wages due to the widespread economic damage for Covid-19, the disease caused by the coronavirus.
“The Treasury Department can stop suffering for millions of Americans by taking immediate action and protecting these payments before many of these payments go out,” New York Attorney General Letitia James (D), one of the state attorneys general who signed the letter, said in a statement.
Attorneys representing the debt collection industry say that calls to stop garnishments of CARES Act payments, and broader calls to cancel all private debt collection made by some more liberal lawmakers, miss out on the vital support the industry is providing during the crisis.
“Consumers are reaching out for help and the debt collections industry provides them with the best opportunity to work through appropriate options whether it be payment plans or hardship programs,” said Joann Needleman, the leader of Clark Hill PLC’s Consumer Financial Services Regulatory and Compliance Practice Groups.
‘Hard to Get Back’
Treasury could be too late to help some consumers, said Lauren Saunders, associate director of the National Consumer Law Center in Washington.
The first wave of payments are slated to roll out the week of April 13, so unless Treasury acts fast those payments will not have any protections, she said.
Congress could also step in and make those protections retroactive when it returns to work on April 20, Saunders said, adding that so far there has been no opposition to shielding CARES Act payments from debt collection from any lawmakers.
Some states, like Massachusetts, have already moved to stop garnishment orders and other local court systems have determined that they will not accept requests from debt collectors.
Massachusetts Attorney General Maura Healey (D) issued guidance on Monday barring debt collectors from garnishing federal stimulus funds rather than wait for the federal government to do so. Healey signed on to Monday’s letter from state regulators.
Other states are likely to take similar actions in absence of rules from the Treasury Department, said Stefanie Jackman, a Ballard Spahr LLP partner who leads the firm’s debt collection team.
“That’s consistent with what we’re seeing. In other areas where state regulators have felt there aren’t sufficient consumer protections, states have done that,” she said.
Any move by Congress, Treasury or state regulators would have to come quickly, Saunders said.
“Every day that goes by, it gets harder and harder. Because once debt collectors have the money, it’s hard to get back,” she said.