The Wall Street Journal has posted an article about a group of legislators who are pushing for the Treasury Department to close a banking “loophole.” This loophole allows for creditors to automatically garnish funds, such as Social Security or disability payments, from debtors’ bank accounts.
Federal law says creditors can’t take Social Security, disability, veterans’ and children’s survivor benefits to pay a debt. But the federal law doesn’t say how money deposited directly into bank accounts is to be protected — a gap that has given banks the ability to seize such funds.
Ellen E. Schults, author of the article, says that banks freeze customers’ accounts when they receive notice from creditors to do so, and then charge fees for freezing the account and then overdraft fees. People often don’t know that their benefit money isn’t supposed to be seized.