Bill Would Protect Stimulus Checks From Creditors

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Creditors may not be able to feast on the latest round of direct stimulus payments for much longer, after a group of Democratic senators introduced a bill Wednesday that would add protections to the government’s latest stimulus package.

The legislation would make it illegal for private debt collectors to garnish the stimulus payments that came as part of the American Rescue Plan (ARP), as well as add special coding to any new payments directly deposited to accounts so banks can identify them as not up for garnishment.

Key Takeaways

  • Senators introduced a bill Wednesday that would bar debt collectors from seizing debtors’ stimulus payments.
  • The Consumer Finance Protection Bureau (CFPB) said it was working to shield consumers’ payments until the bill’s protections come into force.
  • Earlier rounds of stimulus included language that protected people’s payments from creditors, but the Senate’s rules prevented similar clauses from being included this time.

Those who receive their payments before the bill passes—which is a lot of us—can request that their bank set aside the amount of their stimulus payment as exempt from garnishment. The IRS and Department of Treasury have sent out approximately 90 million stimulus payments in the first week since President Joe Biden signed ARP into law.

The new bill does not make it clear what would happen should someone have their stimulus payment taken from them by debt collectors before protections are put in place. A spokesperson for the Senate Committee on Banking, Housing and Urban Affairs had no immediate comment. 

The second round of stimulus checks passed in December included protections against garnishment, such as the identifying coding on direct deposits. However, because Democrats used a procedural loophole called “budget reconciliation” to pass the ARP (narrowly), protections against private debt collectors could not be added.

Sen. Ron Wyden (D-Oregon), the chair of the Senate Finance Committee and co-sponsor of the bill, promised in the days before ARP became law that those protections would come in separate legislation.

On Wednesday, Wyden called for the Senate to pass the legislation as soon as possible.

“Relief payments are intended for struggling families, not predatory private debt collectors,” he said, in a statement. “Our legislation would ensure help gets to the folks who need it to pay rent and buy groceries. Senate Republicans supported this critical protection in the December relief package, and we hope to pass our bill right away.”

The legislation was also sponsored by Sens. Sherrod Brown (D-Ohio and chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs), Bob Menendez (D-N.J.), and Chris Van Hollen (D-Maryland).

The Consumer Financial Protection Bureau (CFPB) also vowed to step in on Wednesday. Acting director Dave Uejio said the CFPB and financial industry trade associations have discussed proactive measures financial institutions can take to ensure that consumers hold on to their full stimulus payments. And, should private debt collectors seize the payments, financial institutions have pledged to promptly restore the funds to the people who should receive them, Uejio said.

“We appreciate these efforts, which recognize the extraordinary nature of this crisis and the extraordinary financial challenges facing so many families across the country,” he said in the statement.

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  1. 117th Congress. "To Amend the American Rescue Plan Act of 2021 to Provide for Protection of Recovery Rebates."

  2. IRS. "IRS, Treasury Disbursed 90 Million Economic Impact Payments from the American Rescue Plan."

  3. National Consumer Law Center. "Consumer Law Implications of the American Recovery Plan Act."

  4. United States Senate Committee on Finance. "Wyden Statement on Shielding Economic Relief Payments From Private Debt Collectors."

  5. United States Senate Committee on Banking, Housing, and Urban Affairs. "Brown, Colleagues Introduce Bill to Protect Stimulus Checks from Debt Collectors."

  6. Consumer Financial Protection Bureau. "Consumer Financial Protection Bureau Encourages Financial Institutions and Debt Collectors to Allow Stimulus Payments to Reach Consumers."

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