Don’t Touch My Check! New Rule Protects Seniors, Veterans, and the Disabled From Creditors

By Klaus Sitte, MLSA Litigation DirectorJohn and Mary are “closely approaching advanced age,” in Social Security parlance, age 64 and 63 respectively. Because of a serious heart condition, John is disabled and receives Social Security Disability benefits of $1280 per month. Mary retired at age 62 because of John’s failing health. Mary gets about $850 per month Social Security retirement payments. Both John and Mary’s Social Security benefits were direct deposited into their local bank account. Like many Montanans living near the poverty line, somehow they get by.Late last year, John’s doctor prescribed a much more expensive medication. As a result, John and Mary fell behind on their payments to SuperBank Credit Card which, unfortunately, they were using to finance other debts. SuperBank was unwilling to wait for payments and turned their account over to American Collection Services who, in turn, eventually filed a collection case. John and Mary wanted desperately to pay their bills, but were unable to do so. John and Mary defaulted on the court action since, as John said, “We owe the money.”John and Mary were aware that their Social Security benefits could not be garnished, since doing so is prohibited by federal law. So John was shocked when he received a notice from his bank that his latest check to Montana State Utilities was returned for non-sufficient funds and a fee was being imposed for the NSF check by both MSU and the bank for the overcharge. ACS had indeed tried to seize their bank account. Suddenly, John and Mary’s precarious financial situation has taken a turn for the worse.As advocates for Montanans living in poverty, MLSA frequently receives calls from folks like John and Mary. Despite the prohibition against seizing exempt funds, like Social Security, creditors often attempt garnishment from the recipients’ bank accounts nonetheless. True, eventually, John and Mary will get their money back, but not until additional fees for NSF checks and other charges further reduce their monthly resources.Effective May 1, however, this all-too-common scenario faced by John and Mary should no longer occur. Banks and other financial institutions are required to determine whether an account holder received public assistance benefits. Using a 60-day “look back” period, the bank must ensure that the account holder has full access to exempt funds. Covered benefits include Social Security, Supplemental Security Income [SSI] and Veterans Benefits. Temporary Assistance to Needy Families [TANF] is not included, however.The new regulations are not perfect, to be sure, since the bank can still impose fees despite any inappropriate garnishment attempt. Nevertheless, the new regulations go a long way to provide protection to folks like John and Mary. For details of the new regulation, see http://edocket.access.gpo.gov/2011/pdf/2011-3782.pdf.

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