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“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,” NY AG James said.
By Forum Staff
Financial relief provided through economic impact payments are exempt from garnishment under New York law, State Attorney General Tish James declared Saturday in an official guidance issued to NY banking institutions, creditors, and debt collectors.
The Coronavirus Aid, Relief, and Economic Security (CARES) Actauthorized the U.S. Department of Treasury to send billions of dollars to Americans struggling as a result of the economic fallout of the COVID-19 public health crisis; Treasury is in the process of issuing stimulus checks 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.
However, these emergency impact payments were not designated as exempt from garnishment—a legal mechanism that typically involves the “freezing” of funds in a bank account by creditors or debt collectors, allowing collectors to potentially benefit before consumers, James noted.
“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,” the NY AG said,“and any institution that violates this guidance will face swift legal action from my office.”
James indicated that the guidance issued last weekend 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.
According to the attorney general, under Empire State 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 creditor seeking to satisfy a monetary judgment. The 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.”
According to James, 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.
After Congress passed the CARES Act, but still left vulnerable Americans susceptible to predatory creditors, James led a bipartisan coalition of 25 states in calling on Treasury Secretary Steve Mnuchin and the Trump administration to ensure CARES Act payments would be exempt from garnishment, but, as of Saturday, the Treasury Department had refused to do so.
James said that the guidance issued last weekend is in response to Treasury’s inaction.
James also pointed out that the guidance addresses what are known as “setoffs”—in which 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 “abusive and unfair practice,” James noted; and she has indicated that she 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 the economic impact payments.
