When the U.S. Department of Treasury authorized the Coronavinus Aid, Relief and Economic Security Act (CARES Act), eligible Americans struggling as a result of the economic fallout from COVID-19 were being offered a federal financial lifeline.
The CARES Act authorized the Treasury Department to issue emergency stimulus payments of up to $1,200 for eligible adults and up to $500 for eligible children to help offset the costs of essentials like housing, groceries, car payments and other necessary expenses. But as those checks were being issued, no provision was in place exempting them from garnishment, allowing debt collectors to potentially benefit before consumers. New York Attorney General Letitia James recently took action to protect millions of New Yorkers and block debt collectors from raiding billions of dollars in emergency stimulus payments authorized by the CARES Act. James issued official guidance to New York State banking institutions, creditors and debt collectors, making clear that financial relief provided through stimulus payments are exempt from garnishment under New York law.
“As the coronavirus crisis continues to wreak havoc on our society, I will do everything in my power to protect the wallets of every New Yorker,” James said. “We are taking concrete action to ensure debt collectors keep their hands off New Yorkers’ stimulus payments. This official guidance makes clear that banks and debt collectors cannot freeze or seize stimulus funds that are on their way to New York families and any institution that violates this guidance will face swift legal action from my office.”
James’ legal action is based on multiple state and federal consumer protection laws and clarifies that any attempt to garnish stimulus funds from New Yorkers will be treated as a violation of these laws. The guidance also addresses what are known as “setoffs”—where a bank seizes funds in a consumer’s account at the bank to pay a debt owed to the bank. CARES Act payments are now exempt from this practice, and James is urging all financial institutions to follow the lead of the nation’s largest banks and halt collection on negative account balances to give their customers access to vital stimulus payments.
Under New York law, certain types of property—including public benefits like public assistance, Social Security and veterans’ and retirement benefits—are exempt from execution, levy, attachment, garnishment or other legal process by a judgment creditor seeking to satisfy a monetary judgment. The New York State Court of Appeals has held that exemption statutes “are to be construed liberally in favor of debtors” because exemptions “serve the important purpose of protect[ing] the debtor’s essential needs.”
CARES Act payments are similarly aimed at debtors’ or borrowers’ essential needs and—under James’ guidance—will therefore be treated and are subject to the same protections as statutorily exempt payments and will not be subject to garnishment—a legal mechanism that typically involves the freezing of funds in a bank account by creditors or debt collectors. James’ guidance advises banking institutions that CARES Act payments will follow similar legal processes as other public benefits, and any person or entity that garnishes or attempts to garnish these payments will have violated multiple state and federal consumer protection laws.
After Congress passed the law, but still left vulnerable Americans susceptible to predatory creditors, James led a bipartisan coalition of 25 states in calling on Treasury Secretary Steven Mnuchin and the Trump Administration to ensure CARES Act payments would be exempt from garnishment, but, to date, the Treasury Department has refused to do so.