In the CARES Act, the law that authorized the $1,200 stimulus payments, Congress failed to make these payments exempt from private debt collection like most other government benefits. This means that banks are actually allowed to seize part or all of an individual’s $1,200 relief check to service any outstanding private debt. While Congress barred banks from using the stimulus checks to pay for any debt owed to federal or state agencies, private debt is still up for grabs. That means that if you hold any consumer debt that you’re behind on, your bank could legally steal your stimulus check to pay down that debt.
When directly asked if banks could legally garnish payments meant for critical economic relief in the middle of an unprecedented crisis, a Treasury Department official simply said that there was “nothing in the law to preclude that action.” That statement conveniently leaves out that Treasury has the singular power to change the law and stop this from ever happening. Although this problem was created by Congress, the Trump administration could change this rule anytime. All it would take is an order from Treasury.
At least 25 state attorneys general have written to Treasury Secretary Steven Mnuchin, urging him to exempt the payments from private debt. The five largest trade associations for the banking sector also released a joint letter begging Congress to step up pressure. So far, Mnuchin has refused to budge.
That refusal means that banks across the country have been given the green light to take an individual’s sole economic relief and hand it to their creditors, leaving countless Americans with nothing in their hour of greatest need.
Not only is this morally reprehensible — it’s also bad economics. With skyrocketing unemployment, consumer spending plummeting and markets reacting to such rapid social upheaval with extreme volatility, it’s critical for every single government dollar to be spent wisely.
As an entrepreneur who made his wealth in the gift card industry, I understand how cash flowing through our consumer-driven economy creates growth: The point of giving cash-strapped Americans a $1,200 check is for them to spend it on absolutely critical needs, like housing and food. Encouraging banks to take that vital money to pay down debt serves no functional purpose except to enrich creditors — and it risks forcing millions of people into desperation to provide for themselves and their families. In macroeconomic terms, sending money directly to people who will spend every dollar is far better than sending it to banks so they can inflate their balance sheets.
In a sane world, people — not profits — would be the first priority in a deadly pandemic. The federal government would understand that a one-time payment of $1,200 is simply not enough for Americans to survive on, and they would never offer up that pittance straight to the banks. Leaving people destitute in the middle of a massive health crisis, for no discernible reason other than greed, is shameful. Secretary Mnuchin should take immediate action to fix this issue, and if he doesn’t, Congress should act to ensure he does.
Stephen Prince is the vice-chair of the Patriotic Millionaires.
The views expressed in this article are the writer’s own.
