Some Banks Keep Customers’ Stimulus Checks if Accounts Are Overdrawn - The New York Times

For some struggling Americans, the arrival of a deposit from the Treasury Department to help with basic expenses like rent and groceries during the coronavirus crisis was something to count on — until their financial institutions got in the way.

That was what happened to Benji Pedro of Columbia, S.C. Because his account at Safe Federal Credit Union was overdrawn by $2,650, he had planned to ask the Treasury Department to mail him a check. But before he could, the agency deposited $1,200 into the overdrawn account on Wednesday, and a representative of the credit union told him that it was keeping all of it, Mr. Pedro said.

Mr. Pedro, a 24-year-old recording artist who lives with his girlfriend and their child, said his account had been overdrawn because of subscriptions to two music services that he had forgotten to cancel.

Representatives of Safe Federal Credit Union had no immediate comment.

The phenomenon is swiftly becoming a political issue, with Treasury Secretary Steven Mnuchin fielding calls from senators urging him to ensure that relief money isn’t garnished. Banks are legally allowed to withhold funds that go into accounts that have negative balances, and no specific provision in the CARES Act, the $2 trillion relief package that authorized the stimulus payments, prevents banks from taking customers’ stimulus money to cover debts.

The practice isn’t limited to small institutions. A Minneapolis woman said that she and her husband, a disabled veteran, had been anxiously awaiting help but that their bank, USAA, a financial services company that serves members of the military and their families, told them on Wednesday that it was keeping the money because their account was overdrawn. They had lost access to that account because they couldn’t afford to pay off what they owed.

The woman, who did not want to be identified by name out of concern that her financial troubles could harm the careers of family members, showed The New York Times screenshots of a Twitter exchange between her husband and a USAA representative. Using USAA’s verified Twitter account, the representative explained that if the family’s bank account had a negative balance, “any deposits to the account will go toward the negative amount owed to the bank.”

“If there are funds remaining after the negative balance is satisfied, depending on the account status, a check will either be mailed with the remaining amount or the account will allow you to access the funds,” the representative added.

The woman had to quit her job after being unable to find child care when Minnesota ordered all day care centers to close because of the virus. She had been counting on $2,400 — the sum being distributed to married couples — to help pay rent and buy formula for her 10-month-old daughter. She and her young family had just moved into their own apartment after living with their extended family while they struggled to get out from under thousands of dollars of debt.

“Currently, a stimulus payment could be reduced when we execute legal garnishment or lien requirements,” said Matthew Hartwig, a USAA spokesman, in an email to The Times. “A reduction can also occur in circumstances when the stimulus payment is deposited into an account with a negative balance.

“To better support our members, we are continuing to examine ways to address such occurrences during this pandemic,” added Mr. Hartwig, who wouldn’t comment on specific cases.

The government checks are meant to cushion the pandemic’s financial blow to some of the hardest-hit Americans. Anyone who earns up to $75,000 in adjusted gross annual income and has a Social Security number will receive $1,200. Married couples who file joint tax returns will receive $2,400 if their adjusted gross income is under $150,000. The amount declines for those who make more.

In a March 2018 survey, the Pew Charitable Trusts, a nonpartisan research institute, found that more than 39 million Americans had incurred overdraft fees within the past year, with people essentially using overdrafting as credit.

Several politicians are calling for banks to stop garnishing stimulus payments. On Wednesday, Senators Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, both Democrats, implored the head of a bank trade group to tell its members to halt the practice.

“For weeks, we have pressed the Treasury Department to exercise its authority and ensure that Americans receive the full amount of their stimulus payments,” the senators wrote in a letter to Rob Nichols, the chief executive of the American Bankers Association. “While Treasury has refused to follow congressional intent, that does not give banks license to steal the stimulus payments from their customers.”

By contrast, the CARES Act specifically prohibits garnishing stimulus money for state or federal debts, except for court-mandated child support.

Not every bank is keeping its overdrawn customers’ money. Bank of America, JPMorgan Chase, Citibank and Wells Fargo — the nation’s four biggest banks — are pausing their collections on negative account balances to give customers access to the stimulus.

“We are temporarily crediting the overdrawn amount for customers, giving them full access to their stimulus payment,” said Anne Pace, a spokeswoman for Chase, in an email to The Times on Wednesday. “We hope this gives them a chance to catch their breath.”

On Monday, a group of 25 state attorneys general also registered their disapproval of garnishing relief checks. “During this public health and economic crisis, the states do not believe that the billions of dollars appropriated by Congress to help keep hardworking Americans afloat should be subject to garnishment,” they wrote in a letter to Mr. Mnuchin.

The American Prospect this week unearthed an audio recording of a Treasury official discussing with banks how stimulus money should be handled when there are outstanding loans or other debts. The official, Ronda Kent, said that “there’s nothing in the law that precludes that action” and that it was up to the discretion of the banks.

Progressive watchdog groups have seized on the issue to criticize the Trump administration’s handling of the economic crisis, describing it as a giveaway for banks.

“This money should be going toward food, rent and medicine — it’s not the time to hand out favors to debt-collection industry donors or pad some big bank’s bottom line,” said Jeremy Funk, a spokesman for Allied Progress. “Secretary Mnuchin needs to ensure that these $1,200 checks go straight into Americans’ pockets, where they belong.”

The Treasury Department had no comment.

Another hopeful stimulus recipient described having to fight for hours with her credit union on Wednesday before it would release the full $2,400 deposit. Initially, the institution, Digital Credit Union, which is based in Marlborough, Mass., kept $1,000 to make up for the customer’s overdrawn account balance.

The customer did not want to be identified because she was worried that the lender would close her accounts or penalize her for speaking publicly. She and her husband have four children. His hours at a group home for children were recently cut to three days a week, she said. She is out of work.

She said that after multiple calls, a representative had agreed to return the $1,000 to her. She said she was sharing her story because she was worried that other people would not have the stamina to fight for the money the way she had.

Edward Niser, a spokesman for Digital Credit Union, said in an email that the institution could not comment on individuals, citing privacy reasons.

“In these difficult times,” he said, “we are there to support our members and we are making every possible effort to follow evolving federal and state guidance.”

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