Consumer Finance Litigation

On Monday, April 13, 2020, the Attorneys General of 25 States submitted a letter to the U.S. Department of Treasury urging Secretary Mnuchin to take action to ensure that relief payments issued to consumers pursuant to the CARES Act will be exempt from garnishment by creditors and debt collectors. The letter states that, “in what appears to be a legislative oversight,” the $1,200 stimulus checks payable under the Act to those adults with income under $75,000 are not explicitly designated as exempt from garnishment like other federal benefits such as disability and veterans’ benefits.

The CARES Act does not contain any provisions allowing a bank to disregard a court garnishment order to pay private creditors. Therefore, if a court order is entered requiring payment to a private creditor, the bank has no discretion on whether to comply, absent state or federal prohibitions on collecting them. Many States, such as Massachusetts and Ohio, have already taken aggressive action to halt debt collection of CARES Act benefit payments and other debts.

In their letter, the Attorneys General express concern that garnishment of the CARES Act payments “would undermine the purpose of the CARES Act,” which was intended to provide relief to consumers during the financial crisis imposed by the coronavirus outbreak. The Attorneys General further write that their States “do not believe that the billions of dollars appropriated by Congress to help keep hard-working Americans afloat should be subject to garnishment.”  The letter therefore requests Secretary Mnuchin to act pursuant to the CARES Act’s delegation of authority to the Treasury and issue a regulation or guidance making clear that CARES Act payments are “benefit payments” exempt from garnishment under 31 C.F.R. §§ 212.2(b) and 212.3.  These regulations require creditors to take certain actions to protect certain SSA benefits, VA benefits, Railroad Retirement Board benefits, and certain federal retirement benefits from being garnished.

The request of the Attorneys General echoes a similar request made last week by Senators Sherrod Brown and Josh Hawley to Mnuchin.  In their own letter, the lawmakers likewise requested the Treasury Secretary to protect CARES Act benefit payments from private debt collectors.

In a perhaps rare act of unity, the American Bankers Association joined the Consumer Bankers Association and other industry groups this week also urging Congress to clarify that the stimulus payments cannot be garnished.  The letter notes that, without such federal guidance, the banks remain “legally required to provide garnishments to third-party creditors.” Unless and until Congress steps in, banks should closely monitor state orders on debt collection during the COVID-19 pandemic.