U.S. Senators Herb Kohl (D-WI), Max Baucus (D-MT), and Claire McCaskill (D-MO) reacted today to a report released by the Social Security Administration Office of the Inspector General (SSA-OIG) on the degree to which large and small banks are engaging in the federally prohibited practice of garnishing government benefits on behalf of creditors, and assessing fees on bank accounts into which Social Security, Supplemental Security Income (SSI), and Veterans benefits are electronically deposited. In August 2007, the Senators sent a letter to SSA's Inspector General asking him to investigate this increasingly widespread yet federally prohibited method of collecting debt from senior citizens, veterans, and the disabled. According to the report, two-thirds of America's 12 largest banks are violating federal law by garnishing accounts that contain government benefits.
"This report confirms how widespread this illegal practice has become. We need our banking regulatory agencies to start enforcing the law. Until they do, it is not right to spend taxpayer money encouraging seniors to sign up for direct deposit, which only leaves them open to illegal freezes and garnishment," Kohl said.
"Many seniors, disabled Americans, and veterans are living from one benefit payment to the next. If payments that are sent directly to their banks are garnished, these recipients do not have enough money to live on, and that is why current law prohibits such garnishments. It is outrageous that such garnishments are occurring nonetheless. We must not let this happen. I have called on the Treasury Department, the Social Security Administration, and other agencies to fix this problem, and I know that these agencies are working together to find a solution. I urge them to act as expeditiously as possible," Baucus said.
"Social Security was established to provide a safety net for senior citizens, and the garnishment of this money could take away their only significant source of income. This report confirms that we need to put in place stronger protections for seniors - without better safeguards, seniors could be left in devastating situations with no one to turn to," McCaskill said.
Despite clear protections in federal law against attachment and garnishment of Social Security, SSI and Veterans' Benefits, banks continue to freeze and garnish these safety net funds on behalf of creditors and sometimes for their own purposes. In most cases, the protected funds are taken not only by the creditor, but also by the bank through the collection of additional fees levied for "processing" the garnishment. These can include overdraft charges or insufficient fund charges, which occur as the result of the garnishment.
The SSA-OIG investigation found for the twelve largest banks during a 12-month period beginning in September 2006, more than $1 million was garnished from accounts that contained only government benefits, and more than an additional $29 million was taken from accounts in which exempt funds were comingled with other funds. The garnishments accounted for in the report only represent part of the story. Many more beneficiaries are able to avoid garnishment after their account is frozen by filing an appeal through the local court system. Unfortunately, many seniors struggle to survive while waiting for the courts to reinstate access to their exempted funds, which often serves as their only source of income.
Some banks have also been found to dip into these protected funds to cover other debts owed to the bank, such as a car loan. Many older Americans rely on Social Security benefits to pay their rent, buy groceries, and afford prescription drugs. For twenty percent of seniors over 65 years old, Social Security is their only source of income and for two-thirds it is the major source of income.
In November 2007, Senators Kohl, McCaskill, and Baucus were joined by Senators Chuck Grassley (R-IA), Gordon H. Smith (R-OR), Christopher Dodd (D-CT), Richard Shelby (R-AL), and John Kerry (D-MA) in urging the Director of the Office of Management and Budget, Jim Nussle, to play a role in resolving the matter. The letter requested that Director Nussle implore one or more of the five federal agencies with jurisdiction over America's financial institutions to issue a necessary rule clarification.
Last April, Senators Kohl and McCaskill introduced the Illegal Garnishment Prevention Act, a bill that would prevent the U.S. Department of Treasury from promoting the use of direct deposit for Social Security beneficiaries until they put a stop to the illegal garnishment of government benefits from the bank accounts of private citizens.