The American Prospect’s David Dayen says the feds allowed banks to seize customer’s coronavirus stimulus checks to payoff outstanding debt.
Jaisal Noor: Welcome to The Real News. I’m Jaisal Noor. The bank USAA says, it will stop seizing coronavirus stimulus checks from customers with debt and says it will refund all the money they’ve confiscated so far. That’s after the American Prospect broke the story titled, The Coronavirus Check is Coming. Your Bank Can Grab It. Regulators have given banks the green light to use stimulus funds to pay off debts that individuals owe them. Now joining us to discuss this is the author of that story, David Dayen, who is the executive editor of the American Prospect. Thank you so much for joining us.
David Dayen: Absolutely. Thanks for having me.
Jaisal Noor: So first of all, congratulations on this week you’ve had where, first of all, you broke this initial story that federal regulators basically had said banks can take that stimulus check if you have an outstanding debt. Something they didn’t allow everyone to do. You followed up with USAA. They resulted in changing their policy on this. So let’s start off by, if you can talk about how you got this tip that the federal regulators had made this move and sort of snuck it into this bailout package.
David Dayen: So a source passed me this audio of a conference call that was being held between the Treasury Department regulators and bank compliance officers, and they were talking about these checks. They’re known within the government as Economic Impact Payments or EIPs. They were talking about what kind of debt collection could be done on these EIPs.
There is the designation in the law, a federal benefit designation such that no public or private debt collectors can actually garnished those funds for their purposes. That includes Social Security payments, two months worth, I believe, veterans benefits, disability payments, things like that, that people need to survive on and to live on. Debt collectors can’t take those payments.
So the question was raised on this call, what about the EIPs? What about these $1,200 checks for most adults? Can those be used to offset bank debt or to for a private debt collector? It turns out those EIPs are designated as tax credits. That’s formally how they are looked at by the government. They are a tax credit that you’re getting early from next year’s taxes and because of that, they are eligible for private debt collection.
There was a provision in the CARES Act law that said that public agencies, state and federal agencies that collect debt, could not collect on these payments. However, that was not extended to private debt collectors or to banks. The Treasury Department has the opportunity under the law to write a regulation to flag those payments and say those can’t be used for this. But, what we found on this conference call is that Treasury was passing the buck.
The woman who said, who was talking about this said, “There is nothing in the law that precludes you,” banks, “from taking this action to offset any kind of debts that an individual has with these Economic Impact Payments.” And that was really seen as a green light for banks to use their own discretion and do whatever they want with these, with this money. What we subsequently found is that, that’s exactly what they did.
Jaisal Noor: And so, USAA mostly serves veterans and families of veterans, which makes it, it’s already horrible, but makes it even worse in a lot of people’s eyes.
David Dayen: Yeah. They serve veterans, military families. They have about 13 million members, one of the largest banks in the country. They were pretty systematically telling people, if you have a negative balance on your account, we’re going to use that money that’s coming in to offset that negative balance.
I talked to a woman whose husband served and was injured while serving, so he’s on disability. She was a daycare worker who lost her job in the coronavirus crisis. They have two young children. They were expected to get $3,400 from these payments. What happened was they had outstanding balances with USAA. They claim it’s fraud. USAA claims it was not fraud on their account and they owe several thousand dollars to them. They left the bank. They abandoned the account. This was a charged off account, which is an accounting term that means that USAA did not expect to recover any money from this ever again. And so, they were banking with a different bank.
But, the IRS uses whatever they had for somebody, a direct deposit that they did to give refunds out in the 2018 tax year and that happened to be this old USAA account. And so, the money went into the USAA account and USAA took all $3,400. Now, this is a couple who was expecting to use this for rent, for medicine, for a small child, to keep them surviving while this crisis continues and that’s true of many, many people.
The woman tried to protest it on the phone. She was told that you shouldn’t have gotten into debt in the first place. That was what the customer service rep told her there. I saw text messages where they, USAA, bluntly said, “This is our policy. We’re going to take this money if it’s available to us.” And they said this not just to this woman, but to multiple individuals. I saw a text to this effect.
And so, we broke the story and obviously there was a lot of public pressure around this, not just because of the veteran aspect, but just because the idea that you would take these payments that are supposed to be economic lifelines for people during a pandemic is appalling. Within a few hours, USAA succumbed to that pressure and they changed their policy and retroactively credited the accounts of all people, including this woman who is going to get that money wired to her.
Jaisal Noor: Now, have you heard from any other banks?
David Dayen: I have. So the big banks, that’s Wells Fargo, JP Morgan Chase, Bank of America and Citibank, they got out on front on this and said, they would pause for 30 days any collection on overdue balances, which essentially is a race against time. It gives people 30 days to get that $1,200 out of their account or otherwise, it could potentially be taken if they have a negative balance.
US Bank, I heard from a customer who said his money was garnished by US Bank because he had some past due overdraft charges. US Bank told me that they were trying to make whole all customers, but they said that they were canceling all overdue payments as of the passage of the CARES Act, which was March 27th. This customer had incurred these charges prior to March 27th and according to him, they were not taken off. So I’m still looking into whether US Bank is honoring what they said is their intent, which is to get all of these payments over to these individuals in full.
There is another bank called Radius Bank that someone sent me a message, a chat that they had with a customer service representative where that customer service rep said, “If you have a negative balance, we will take that from your account.”
There are something like 4,500 banks across the country. I haven’t talked to all of them, but it seems like one by one, it’s really at the discretion of the bank as to whether they’re going to use this emergency funds for payment on past debts.
Ultimately, the only real solution is for the Treasury Department at this point to write rules saying, you, these payments are protected and you need to retroactively credit anyone who you took money from out of this payment.
Jaisal Noor: So we know, again, as you mentioned, this bailout money, this $1,200 that’s been going to individuals and more for children and for families, that is really going to be a lifeline for people. There is at least 22 million people out of work, millions more are in dire economic straits. They’ve lost other income or if you hadn’t been able to go to work and support their families.
You’ve reported on this overall bailout and how and who it’s helping and if we’ve learned the lessons of the past in the previous financial bailout of 2008. It’s just beyond the pale because now you have the same people that put forth this inadequate bailout for working people and yet, and have given this unlimited something, you reported something like $6 trillion in total amount, and they’re the same ones that are calling for the economy to reopen because the economy is suffering, but they’re the same ones that haven’t done anything about it. Can you just talk more broadly where this country is right now and what can be done?
David Dayen: Yeah, I mean, I think what you’re getting at is the disproportionality of the response in the CARES Act. So you have these $1,200 one time payments, which are subject to potential garnishment by private debt collectors. You have a boost in unemployment. There is supposed to be a $600 weekly boost in unemployment, but state unemployment systems are absolutely buckling. People who have tried to make claims for unemployment going back a month still haven’t gotten through, so that’s a rickety part of the system.
You have these small business loans, but within a week they’re all cashed. They’re all out the door. It was $350 billion and that helped maybe 1.5 million small businesses and there are about 30 million small businesses in America, so that helped a very small fraction of those who are suffering. A piece in the Wall Street Journal in the beginning of April said that, “About half of all small businesses didn’t pay their rent in April,” so obviously not enough for what is needed. And it was very confusing as to who would get it and how they would get it.
You contrast all of that with the $500 billion dollars that’s appropriated in the bill, which the Federal Reserve can then take and leverage up to about $4.5 trillion dollars for the largest corporations in America with very few conditions. These are very low interest loans. And if you’re a good businessman, you know what to do with free money. Even if you have to pay it back, you’re going to be making a lot of money, especially when it looks like we’re going to see so many small businesses go under, which we’ll just concentrate power within these large businesses, which will be dominant in many sectors of the economy. So who gets nursed back to health, who gets the proportionality of a response and who gets the concierge service, right?
So you had these rickety systems helping individuals and small businesses and the Federal Reserve just handing out money to anyone who wants it through these lending programs that they’ve set up for really large corporations. So it certainly shows you that where you stand in America depends on who’s serving you and how much power and wealth and importance and influence you have.
I mean, in terms of reopening the economy, you really can only do that if we have the proper public health measures in place, the proper testing and things like that. There was almost no money in this pandemic response bill to actually respond to the pandemic to actually bulk up testing and surge it, so that you actually could reopen the country. It seems like there was much more emphasis on a no strings bailout for giant corporations, kind of a bailout over the last 10 years of their irresponsibility as much as it was over the coronavirus and crumbs for everybody else that’s time limited and temporary. So I think if you look at this, it’s a stark reminder of who matters in Washington and who doesn’t.
Jaisal Noor: And finally, this is obviously an election year. The stakes are extremely high for the Democrats. Now obviously, they control the House, so they have some negotiating power. We know that some members of the Democratic Party in Congress have been critical of this bailout.
Alexandria O.: What did the Senate majority fight for? One of the largest corporate bailouts with as few strings as possible in American history. Shameful. The greed of that fight is wrong for crumbs for our families. And the option that we have is to either let them suffer with nothing or to allow this greed and billions of dollars, which will be leveraged into trillions of dollars to contribute to the largest income inequality gap in our future. There should be shame about what was fought for in this bill and the choices that we have to make.
Jaisal Noor: We know people like Ilhan Omar and other progressives have had their own proposals to go further. Do you think that Democrats are doing enough right now to really help out working America?
David Dayen: I don’t. This is a bill that passed 96 nothing in the US Senate. Bernie Sanders voted for it. Elizabeth Warren voted for it. In the House, there was no recorded vote and there was an attempt by only one member, Thomas Massie, who is a libertarian Republican to actually get a recorded vote and no one gave him a second, no Democrat, not Ilhan Omar, not AOC, not anyone. This was just an institutional failure, I believe on the part of the Democrats. They did get a little bit of relief for, relative to the initial bill that Mitch McConnell put out, but they really did not use their power.
Now, they’re coming back and saying, well, we need another bill when all the leverage is gone. I mean, the corporate bailout was what was important to the Republicans and now that that’s actually out the door, what’s in it for Republicans to come back and give more relief to people? So I think that the Democrats misplayed their hand and I think it should cause some soul searching on the left about what kind of power really exists within the Progressive Movement? If every member who purports to be progressive went along with the largest no strings bailout in American history, I mean, what does that mean and what needs to be done to build more power on the left to ensure that these kinds of things don’t happen again?
Jaisal Noor: It’s not always fair to compare politics in the US with Europe, but if you look at the thousands that many European countries are giving out, plus they’re, the fact they were way better prepared, many of them, to contain this and to enact it much quicker, you really see that contrast there.
David Dayen, thank you so much for joining us. We’ll link to all your reporting on this story at therealnews.com and congratulations on this great work. Thank you.
David Dayen: Thank you very much for having me.
Jaisal Noor: And thank you for joining us at The Real News Network.
Production: Genevieve Montinar
Studio: Cameron Granadino
Post-Production: Oscar León