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Senate bill would stop garnishment of stimulus payments by debt collectors

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A bipartisan group of senators has introduced legislation to prevent private debt collectors from seizing the economic impact payments provided to taxpayers under the CARES Act.

The CARES Act, the $2.2 trillion package passed by Congress in late March to provide relief to individuals and businesses suffering from the economic fallout of the novel coronavirus pandemic, included so-called “economic impact payments” of $1,200 for individuals and $2,400 for couples plus $500 for each of their dependent children.

The new Senate bill would prevent private debt collectors from seizing the payments before they could arrive in taxpayers’ bank accounts or mailboxes. The bipartisan legislation was introduced by Senate Finance Committee Chairman Chuck Grassley, R-Iowa, Senate Banking Committee ranking member Sherrod Brown, D-Ohio, Finance Committee ranking member Ron Wyden, D-Ore., and Tim Scott, R-S.C.

“We established these recovery rebates to help individuals and families through the tough times of this pandemic,” Grassley said in a statement Friday. “We did not establish them just so debt collectors could swoop in and undermine that purpose. Our bill will add additional protections from garnishment, preserving congressional intent and shielding folks who need the help.”

The CARES Act doesn’t allow for economic impact payments to be reduced, or “offset,” to pay off past tax debts or other debts owed to federal or state governments. However, CARES Act payments aren’t protected from being garnished by private debt collectors. As a result, many families haven’t received the payments they desperately needed during the economic downturn.

The Senate bill would make sure the stimulus payments go toward helping families, not debt collectors. For any electronic payments, such as direct deposit, the bill directs the Treasury Department to encode payments so banks could identify and protect the payments from being garnished by debt collectors. For other payments, such as checks, the bill lets individuals ask their banks or other financial institutions to protect the payments from being garnished by debt collectors and authorizes the financial institutions to do exactly that.

“This is a once-in-a-lifetime economic crisis,” Wyden said in a statement. “Relief was intended for struggling families, not predatory debt collectors. Our legislation would ensure help gets to the folks who need it to pay their bills.”

The Treasury reported this week it has sent over 140 million of the expected 150 million payments, but there have been a series of problems besides the issue of garnishments. The Internal Revenue Service relied on bank information from taxpayers’ 2018 and 2019 tax returns for direct deposits to speed the delivery of the relief. But in many cases, the bank accounts were temporary ones set up by tax preparation chains for taxpayers who had signed up for refund transfers and had been closed down, so they were sent back to the IRS.

For taxpayers who usually get their tax refunds by mail, the economic impact payment checks took longer for the IRS to send out. Some payments went to deceased taxpayers or taxpayers abroad who weren’t supposed to be eligible. Other payments were stopped by the IRS because of disagreements over tax refund claims and other tax matters.

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