Stimulus Checks: Banks Can Seize Your Payment, But Treasury Department Might Be Taking Action

There is currently a dispute over whether or not banks or other debt collectors are entitled to seize stimulus checks. According to The Telegraph, a source spoke anonymously, revealing that there is currently a review being conducted by legal counsel at the Treasury Department on the legality of such action. However, no decision has been made at this time.

Not long after the first round of stimulus payments started showing up in bank accounts across the country came reports that these payments were being routed to banks and private debt collectors if the intended recipients had overdraft fees, delinquent loans or other debts. The action has led to bipartisan opposition in Congress, with both Republicans and Democrats indicating that the money should be used by those whose life has been impacted by the coronavirus. While there's been no concrete resolution, some larger banks like Bank of America and Wells Fargo have announced they'd stop garnishing the stimulus payments following the backlash.

Due to current Treasury policy, millions of U.S. citizens could end up having their stimulus payments, with nearly one-third burdened with a debt currently in collections. Lauren Saunders, associate director of the National Consumer Law Center, has called on the agency to act out given the extenuating circumstances.

"Congress authorized these payments because people have lost their jobs and are desperate for money for food," Saunders said. "The money needs to go to food, not the debt collectors or back bank fees. I hope Treasury reverses itself immediately because every day that goes by that people can't access their money, they are wondering how they are going to eat."

However, it's also being reported that some Treasury officials have privately told outside advisers that new legislation from Congress would be required to make sure the payments would be protected from debt collection. The American Bankers Association, the Consumer Bankers Association and the Financial Services Forum urged Congress to revise the Cares Act in an open letter to lawmakers to ensure these provisions are put into law.

The issue is another in a bumpy rollout of stimulus checks, which has included payments being made into invalid accounts and the IRS website crashing after a spike in users hoping to track their payments. There's also been talk of a second round of stimulus payments, which has also received bipartisan support, albeit nothing has been confirmed.