Banks are taking stimulus checks to cover overdrawn accounts

[Demovictory9]

https://www.nytimes.com/2020/04/16/business/stimulus-paychecks-garnish-banks.html

Some Banks Keep Customers’ Stimulus Checks if Accounts Are Overdrawn

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.

Frustrated customers say banks have been seizing some, or all, of their relief payments because their accounts are overdrawn, in some cases as a result of pandemic-caused hardship.

Joseph James Davis Jr. said his bank in Mena, Ark., took more than $2,000 after he fell victim to a check-cashing scam in a moment of desperation.

“I’ve never been scammed before,” said Mr. Davis, 41.

Mr. Davis said the work for his landscaping business had dried up because of the coronavirus crisis, so he responded to an online ad that promised payment to anyone who would agree to put advertising decals on a vehicle.

Mr. Davis was sent a check, but was told he had to pay for the decals with some of the money. After he sent off the payment, his bank, Union Bank of Mena, told him the check had been bogus and he had to repay it $2,784.

He couldn’t. And on Wednesday, Mr. Davis saw the $3,400 relief payment — $2,400 for himself and his wife and $500 for each of his two stepchildren — land in his bank account. The bank kept all but $611.

https://www.nytimes.com/2020/04/16/business/stimulus-paychecks-garnish-banks.html

[mr_lebowski]

1. I would suppose that's a totally automated function, and I'd bet very few banks would put it back

in your account ... I doubt many of their systems are set up to handle a scenario like this.

BUT it's worth calling to try.

[trc]

2. The trumpleforeskin administration gave permission to the banking industry

To seize stimulus money to pay debts owed by account holders. Basically a bank bailout to balance accounts of the bank.

[mr_lebowski]

3. Most people who have liens against their bank account don't owe money to the bank itself

So the bank is just going to send it to the creditor, not balance their own accounts. This is most likely due to your being sued and the court ordering a % of your funds be made available to ... whoever you owe money to. Quite often that lien-holder will be Child Support Services or a similar entity.

There are of course unusual circumstances such as the one in the OP where a bank cashes a check for you while failing to confirm that the check is real, leaving you with a big negative balance i.e. owing the bank itself, but those are pretty rare.

And when you signed up for a bank account, you almost surely agreed in writing that if your account becomes in arrears, that the bank will be paid back immediately upon money going into your account. Your bank account is different from a credit account. That's why you can get one even with bad credit. Cause they don't give you credit.

Sucks, to be sure. But I don't see any of this as especially nefarious, nor in particular beneficial to the banks.

[progree]

4. Its not just money you owe your bank, it's also money owed to private 3rd party debt

The federal government won’t garnish for back taxes or student loans

If you owe taxes, don’t worry. The IRS will not take any of the stimulus money for back taxes. If anyone approaches you claiming to be from the IRS saying that your stimulus payment will need to go to the taxes you owe — that’s a scam. The government is also not permitted to take your stimulus money for defaulted student loans. If you happen to owe child support, though, your check will be reduced to cover your late child support payments.

But experts warn banks could take your stimulus money

Unfortunately, the above applies only to federal and state debt. Experts have warned that banks may be able to garnish your stimulus payment for private debt collection, with a top U.S. Treasury official reportedly telling banks that “there’s nothing in the law that precludes that.”

If you have outstanding loans or owe bank fees, your bank could automatically take the money to offset those debts. Because the stimulus payments are categorized as refundable tax credits and not federal benefits, they can be garnished for debt. Congress made an exemption on garnishment for federal and state debt when it passed the CARES Act, and it also gave the Treasury the authority to write additional exemptions for private debt. Senators Sherrod Brown of Ohio, Elizabeth Warren of Massachusetts, and Ron Wyden of Oregon wrote a letter to Treasury Secretary Mnuchin on April 3rd informing him that private debt collectors can garnish stimulus money. So far, the department has made no move to write an exemption protecting the checks

More: https://finance.yahoo.com/news/pay-back-stimulus-check-money-182637807.html

[Indykatie]

5. Money Should be Applied to Any Overdrawn or Negative Bank Account Amount

That's how bank accounts work. Unfortunately people run up NSF fees because of desperation. Sometimes the NSF fee is higher than the small purchase made using an ATM card. I have a niece who had done this and got hit with a $35 fee on $15 worth of gas. I'm convinced this is where banks make the majority of their profits.

[Demovictory9]

6. years ago, the banks got dinged for how they applied the small purchases

someone has $50 in their account and charges $10, $10, $10 and $$45. the banks would put the $45 thru first and then charge $35 three times on the other charges.

Rather than clearing the three $10 charges first. It was their business model until they got caught.

[Mariana]

7. Don't they still do that?

I thought they still fucked people over that way. Was it made illegal?

[Demovictory9]

8. I thought some banks stopped when they got caught...not sure about law