Written by Katie Porter
One of the great lessons of consumer law is the gap between the law on the books and the law of the land. Recent activity around public benefits illustrates this phenomenon. Under federal law, a variety of public benefits, such as social security disability payments, are exempt from garnishment by creditors. The policy idea is straightforward–these benefits are generally means-tested and we are paying them to people because they need the money for subsistence. Several years ago, the federal government began to direct deposit benefit payments, generating substantial cost savings from lower administrative costs. But when that money hit the bank accounts, creditors succeeded in garnishing it. Banks took the position that it was their duty to honor the garnishment order and that they need not look at the nature of the deposits before handing over the money to the creditors. The result, especially for people whose sole source of income is benefits payment, was devastating. With their money gone, they bounced checks, incurred more fees, harmed their credit, and suffered privations. All when Congress clearly stated this money shouldn’t be paid to creditors.
Spurred on by the National Consumer Law Center, federal regulators have announced proposed regulations to address the situation. Prof. Mark Budnitz, Georgia State, has written letter from law professors in support of the regulations. More information about how to sign on is at my regular blog home, Credit Slips. Protecting public benefits, received by many of America’s most vulnerable citizens, is a social justice issue that should be of interest to SALT members.