If you think America is a nation of laws, remember that some people think laws exist merely to be circumvented.
One example that has remained below the radar is creditors seizing Social Security and other public benefits which by law are beyond their reach. The peculiar, and permitted abuse is that banks are not required to check if funds in a customer’s account are, say, only from those sources (and for some consumers, their only deposits are wire transfers marked “SSI” or “SSA”).
Banks contend that they must execute garnishment orders. Not surprising, since that service is very lucrative to them.
Moreover, the situation has gotten worse as more lenders have targeted recipients of benefits payments. A 2008 Wall Street Journal article discussed how payday lenders not only focused on Social Security payment recipients but made illegal arrangements with banks to have funds transferred from accounts receiving only government benefit deposits to the loan companies:
One recent morning, dozens of elderly and disabled people, some propped on walkers and canes, gathered at Small Loans Inc….The crowd represents the newest twist for a fast-growing industry — lenders that make high-interest loans, often called “payday” loans, that are secured by upcoming paychecks. Such lenders are increasingly targeting recipients of Social Security and other government benefits, including disability and veteran’s benefits…
The law bars the government from sending a recipient’s benefits directly to lenders. But many of these lenders are forging relationships with banks and arranging for prospective borrowers to have their benefits checks deposited directly into bank accounts. The banks immediately transfer government funds to the lenders. The lender then subtracts debt repayments, plus fees and interest, before giving the recipients a dime.
As a result, these lenders, which pitch loans with effective annual interest as high as 400% or more, can gain almost total control over Social Security recipients’ finances….
An analysis of data from the U.S. Department of Housing and Urban Development shows many payday lenders are clustered around government-subsidized housing for seniors and the disabled…
The FDIC, Treasury, Office of the Comptroller of the Currency and other agencies have put forward a proposal to end these abuses. Since all the suggested fixes, such as providing notice to customers of their rights and when a garnishment order arrives, notifying collection agencies that an account contains exempt funds, waiving certain fees while the account is frozen, will all lower financial firm profits on accounts that are probably not very profitable to begin with, the banking industry is sure to object vociferously.
Please weigh in on this proposal. The text is here, and includes instructions on how to submit comments.