Where is the voice? First shoot the debt collectors

The Wall Street Journal, not one of those liberal magazines that is trying to imitate flashy magazines with multiple colors and cartoons, reports: Federal law says creditors can't garnish Social Security and Veteran's benefits to pay debts, yet the practice is widespread. Worse: There are no procedures in place for enforcing the federal prohibition.

When banks receive a garnishment order, they freeze the customer's account. Banks say it's not their job to check whether accounts contain cash from exempt sources. Debt collectors surely don't see it as part of their job. So the burden falls on Social Security recipients, typically elderly or disabled, who have suddenly lost access to their bank accounts.

The Wall Street Journal provides several tales of vulnerable people whose last dollars have been garnished by debt collooters added by banks, which are make your blood boil, at least mine.

James Cain, a terminally ill Florida veteran, finally received his first Social Security disability payment. However, the Wall Street Journal, reports “before he could withdraw any of it to pay for his medicine or mortgage, his bank took it out of his account.” The same happened to his wife’s Social Security. The bank applied both monies “to make payments to itself on a car loan the bank had made to the Cains.”

Federal law says Social Security can't be taken to repay debts. Section 207 of the Social Security Act reads, “none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.” However, banks claim the federal ban on capturing Social Security benefits to repay debts doesn't apply to them. They cite the doctrine of "set-off," which says banks can collect money that customers owe them by taking it out of customers' accounts.

The Wall Street Journal adds another case in point that speaks volumes all by itself:

“Heart surgery halted Viola Sue Kell's work sewing carpets in a rug mill in 2001. It was the end of 40 years of cleaning motel rooms, restaurant jobs, "just hard stuff," says Mrs. Kell, a 64-year-old widow. She applied for Social Security disability, and her monthly $827 benefit now is her only income. However when Mrs. Kell tried to pay her mortgage and electric bills in 2004, her checks bounced. Every cent of the Social Security check, which went straight to her bank each month, had been taken by a debt collector that had garnished her bank account.”

The Social Security Administration washes its hands from the whole matter claiming that the “responsibility for protecting benefits from legal process ends when the beneficiary is paid." A spokeswoman states that if benefits are taken as part of a legal process, beneficiaries can cite the exemption "as a defense against such actions." Worsening the problem is direct deposit of benefit checks, which became mandatory in 1999 unless beneficiaries opt out. It makes it cheaper and easier for collectors to go after the elderly or disabled.

To add insult to injury the Wall Street Journal reports:

“While collectors can take many of the steps to garnish an account electronically, it's up to seniors and the disabled to file physical papers to prove their benefits are exempt. As a practical matter, if they don't get help from a lawyer, they may not know their funds are exempt. And depending on the state they live in, if they don't claim an exemption in time -- generally between 10 and 30 days -- benefits that were garnished can be lost for good.”

Where is the voice?

You would expect that such reports, from very reliable news departments, from one of our leading newspapers, would generate an immediate outcry. The set up is right out of Charles Dickens novel. On the one side are many millions of the more vulnerable members of society, the sick, the elderly, and those who worked all their lives and now live modestly off Social Security. On the other side is a small number of debt collectors (and banks acting as debt collectors). You would expect Congress and state legislatures, to haul these unseemly characters, those who prey on the poor and ill, to testify at hearings. And long before a week passed, new laws be drafted and enacted, that would stop such outrageous practices.

But you do not hear a pip. Even the most populist political candidates have not responded. Frankly, I am at lost as to why. I understand that the candidates and the legislators are surrounded by staff and consultants who carefully filter what they read and choose to what they react. I can see that these—many of whom I know in person—cannot make much hay out of this issue. The problem is so obvious, so are the solutions. But for crying out loud, will someone have the basic human decency and stop these inhumane practices?

This posting draws heavily on Ellen E. Schultz’s reporting in the Wall Street Journal, her pieces are "The Debt Collector vs. The Widow" and “Banks Tap Social Security Funds Too” from April 28, 2007.

Amitai Etzioni is a professor of international relations at George Washington University. His most recent book is Security First: For A Muscular, Moral Foreign Policy just published by Yale University Press.

Comments

[Devon Noll]

It is not only banks. In the state of New York, the child support collection department attaches the recipient's payment for the dependent child support payments in addition to allowing the custodial parent to claim the dependent's benefits, so that in essence the children of non-custodial Social Security recipients get to pay double child support. Attempts to stop this, in Jefferson County, NY, at least where non-custodial parents who are paying their child support, but are the prey of corrupt child support collection officers who do not believe that child support or federal debt collection laws apply to them, fail because the Superior Court judges that hear family court issues are unfamiliar with both Social Security law and child support laws, and Family Court judges deny non-custodial parent's rights to a fair hearing by telephone when the Social Security recipient lives out of state.

The only way a recipient can protect him/herself from such financial duplicity is to get a very specific order denying their children the collection from the primary payment and limit them only to the dependent portion, a fact that many recipients and their attorneys are unaware of until it is too late. It can then take months of repeated hearings to stop the double collection, during which time the money that has been wrongful seized is being paid to the unscrupulous custodial parent and spent with no hope of retrieval. In the end it can cost the recipient parent so much with no results that they do not even try. It is not just debt collectors for bills or banks, in the State of New York, it is also government agencies who violate this law with the help of ignorant judges.

[DE]

As I understand it, dependent ssn is a benefit to which the child is entitled, whether the parents are married or divorced. If a noncustodial parent has an income of, for example $40,000 from his/her own ssn benefit ( not disability) pension and part-time work, should it not be subject to to the 20% mandatory withholding? In this case, I do not think it is double payment as the benefit belongs to the child. If my understanding is in error, I would appreciate comments regarding such a situation.

[Payday Loan Advocate]

One of the biggest targets for politicians, as far as economics are concerned, is becoming the payday loan industry. Governors across the country are trying to rid their states of the industry altogether, and so far, Georgia, North Carolina, and Oregon have succeeded. The result was that bankruptcies, foreclosures, and also the number of overdraft fees due to bouncing checks went through the roof, which doesn’t do anything for the citizens afflicted in these turbulent times, and only is really good for the banking industry. Despite these negative effects, other states are looking to follow the example and do the same. Even at the national level, presidential candidate Barack Obama, is weighing in his own agenda on the issue, and advancing his own intentions on getting rid of the industry in the United States completely. If these measures, both on state levels and nationally, are successful, the results are going to be increased unemployment, more debt, more foreclosures, and an even worse economy.

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