Loophole allows debt collectors to take stimulus money from consumers’ bank accounts

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Lawmakers are trying to fix the situation, but time may be running out

If you’re waiting for the mailman to deliver your $1,400 stimulus check, it’s on its way. However, if you’re in debt, that $1,400 might be gone before you ever see it.

The Internal Revenue Service (IRS) is not allowed to offset the amount of the stimulus check to pay various past-due federal debts or back taxes, but that’s where the agency’s authority ends. Other forms of debt -- such as state taxes, credit card bills, and medical bills -- remain unprotected. 

To make matters worse, those stimulus funds can be taken out with no questions asked. All a debt collector has to prove is that they have obtained a judgment against the debtor to collect on those accounts.

Lawmakers try to remedy the situation

While the stimulus plan offers many benefits -- from a Child Tax Credit of up to $3,600 per child, $20 billion for rental assistance, and $4.5 billion for energy bills through the Low Income Home Energy Assistance Program -- the loophole that gives creditors access to in-debt consumers’ bank accounts is ominous.

Some of the stimulus checks have already landed in people’s bank accounts, and some of the larger banks are expecting a landslide of deposits this Wednesday. That means the opportunity to remedy the situation with debt collectors is closing quickly. However, lawmakers are stepping in to try to fix the issue as quickly as they can.

Sen. Ron Wyden (OR-D) said he plans to introduce legislation that would safeguard the stimulus money from being garnished so that debt collectors can’t prevent those in need from getting access to emergency funds.

Different check, but same loophole

Wyden is not alone, and this isn’t the first time that this loophole has been left open.

“The stimulus is an essential shot in the arm to help families pay for food, rent, medicine, and auto loans, and stay connected to essential utility services,” said National Consumer Law Center Associate Director Lauren Saunders. 

But Saunders noted that the new bill, unlike the December stimulus bill, fails to prohibit debt collectors from garnishing bank accounts to grab stimulus payments. “Now Congress must take immediate action to ensure that the economic stimulus payments feed families as intended rather than debt collectors,” he said.

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