bobbyw24
04-14-2010, 04:24 AM
By ELLEN E. SCHULTZ
The Treasury Department is seeking to plug a loophole that has allowed banks to drain millions of dollars in fees from the Social Security benefits of elderly and disabled customers.
At issue are the accounts of customers whose Social Security benefits are deposited directly from the government to banks. When banks receive garnishment orders from creditors, many freeze the customers' accounts, even when accounts contain only Social Security.
Floyd Morell, a 57-year-old disabled church musician, with his dog Papi outside his home in Loxley. Ala.
Federal law bars creditors from taking Social Security to recover a debt, but when they send garnishment orders seeking money in people's bank accounts, the rules currently don't specify what banks should do.
The predicament has hurt people like Floyd Morell, a church musician in Loxley, Ala., whose only income is $831 a month in Social Security. He has been unable to touch his benefits since Jan. 4, when his bank froze his account after receiving a garnishment order.
Freezing accounts can be lucrative for banks: Such moves trigger overdraft, bounced-check and other fees. In recent years, advocates for seniors say, banks have withdrawn billions in fees from Social Security and disability benefits, and other deposits that are exempt from creditors, including pensions, payments to disabled veterans, and survivors' benefits for children.
Customers can file an exemption claim and get the money released, but the process can take weeks or months, and banks generally keep some or all of the fees.
Banks say it isn't their job to see if the money is exempt, and that the benefits often are commingled with nonexempt money. "Banks have no choice but to put a hold on the account," says Mark Tenhundfeld, a senior vice president at the American Bankers Association.
Some banks, however, return garnishment orders if the only money in an account is from Social Security, and others, including US Bancorp, do so when there isn't enough money in the account to cover the fee the bank would charge the customer for freezing it.
New Treasury rules are expected to resolve the issue by requiring banks that receive garnishment orders to check the customers' accounts to see if they received a direct deposit of Social Security or Veterans benefits within the past 45 days. If so, the bank must take steps to protect the exempt funds, such as not freezing a certain amount, such as $2,200.
"This will ensure that low-income recipients have basic living expenses," says Margot Saunders, a lawyer with the National Consumer Law Center, which pushed for the new protections.
A Treasury spokesman declined to comment. In a Dec. 31, 2009. letter to the House and Senate Appropriations Committees, the Treasury said that eight federal agencies had commented on the rules, and that "we have resolved all but one significant legal issue." The letter said the Treasury expected to publish the proposed rules "in approximately two weeks."
Continue:
http://http://online.wsj.com/article/SB10001424052748704479704575061702246038506.html (http://online.wsj.com/article/SB10001424052748704479704575061702246038506.html)
The Treasury Department is seeking to plug a loophole that has allowed banks to drain millions of dollars in fees from the Social Security benefits of elderly and disabled customers.
At issue are the accounts of customers whose Social Security benefits are deposited directly from the government to banks. When banks receive garnishment orders from creditors, many freeze the customers' accounts, even when accounts contain only Social Security.
Floyd Morell, a 57-year-old disabled church musician, with his dog Papi outside his home in Loxley. Ala.
Federal law bars creditors from taking Social Security to recover a debt, but when they send garnishment orders seeking money in people's bank accounts, the rules currently don't specify what banks should do.
The predicament has hurt people like Floyd Morell, a church musician in Loxley, Ala., whose only income is $831 a month in Social Security. He has been unable to touch his benefits since Jan. 4, when his bank froze his account after receiving a garnishment order.
Freezing accounts can be lucrative for banks: Such moves trigger overdraft, bounced-check and other fees. In recent years, advocates for seniors say, banks have withdrawn billions in fees from Social Security and disability benefits, and other deposits that are exempt from creditors, including pensions, payments to disabled veterans, and survivors' benefits for children.
Customers can file an exemption claim and get the money released, but the process can take weeks or months, and banks generally keep some or all of the fees.
Banks say it isn't their job to see if the money is exempt, and that the benefits often are commingled with nonexempt money. "Banks have no choice but to put a hold on the account," says Mark Tenhundfeld, a senior vice president at the American Bankers Association.
Some banks, however, return garnishment orders if the only money in an account is from Social Security, and others, including US Bancorp, do so when there isn't enough money in the account to cover the fee the bank would charge the customer for freezing it.
New Treasury rules are expected to resolve the issue by requiring banks that receive garnishment orders to check the customers' accounts to see if they received a direct deposit of Social Security or Veterans benefits within the past 45 days. If so, the bank must take steps to protect the exempt funds, such as not freezing a certain amount, such as $2,200.
"This will ensure that low-income recipients have basic living expenses," says Margot Saunders, a lawyer with the National Consumer Law Center, which pushed for the new protections.
A Treasury spokesman declined to comment. In a Dec. 31, 2009. letter to the House and Senate Appropriations Committees, the Treasury said that eight federal agencies had commented on the rules, and that "we have resolved all but one significant legal issue." The letter said the Treasury expected to publish the proposed rules "in approximately two weeks."
Continue:
http://http://online.wsj.com/article/SB10001424052748704479704575061702246038506.html (http://online.wsj.com/article/SB10001424052748704479704575061702246038506.html)