Debt collection and Federal benfits
I’ve seen reports from Chase customers about Chase freezing bank accounts that include direct deposit Federal benefits (Social Security) for the purpose of debt collection. By law, it is illegal for banks to dip into Federal benefits for debt collection, but direct deposit funds have been a gray area and you generally had to go through a claim process to get these funds released, a process that was not simple or accessible to many people.
Well now, according to this article in the Wall Street Journal, the Treasury Department has released new rules about what banks must go through to insure frozen funds don’t include Federal benefits. Basically, if banks freeze your funds that came from any Federal benefits, they are breaking the law, according to these new rules.
The point is that if you have this problem with Chase, you should scream loudly to the bank and to its regulators. Information on Chase’s regulators can be found here.
Legal & regulatory | admin April 14, 2010
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By coakl, January 11, 2011 @ 9:53 am
The real problem is that there’s no way to electronically differentiate the money in a checking account. A dollar from SSI is the same as a dollar from your paycheck.
There’s no way to “tag” the source of an individual dollar. Why would you? Do you treat the bills of currency in your wallet differently based on where you got them? Of course not; they’re all the same.
Strict enforcement of this law would require banks to make lives even more miserable for SSI recipients. If banks can’t use SSI deposits to pay for overdrafts and returned items, banks will only allow direct deposit of SSI into special savings accounts that have no debit card or check access.
By admin, January 11, 2011 @ 10:14 am
I disagree. By freezing the entire account, they aren’t even trying to distinguish between SSI and non-SSI funds, and are automatically blocking access to new SSI funds that are coming it. Perhaps a perfect solution isn’t possible, but they don’t seem to be even trying.