First 100: Why Can Debt Collectors Take Your $1,400 Check? Blame Everyone

One phrase you never hear from a journalist is “I forgot about this one.” We’re supposed to be all-knowing and all-seeing, and it’s just not possible for things to slip our mind. But we had a collective slip on a critical issue involving the American Rescue Plan that didn’t come to light until it was too late.

I mentioned in last Friday’s edition that the $1,400 payments can be garnished by private debt collectors, who most certainly did so as the payments hit bank accounts starting over the weekend. First of all, my only advice to anyone evading a debt collector, many of whom might not know whether they have a debt judgment against them, is to take that money out of the bank as soon as it hits the account. A study from 2014 found that 1 in 3 adults have debt in collections, so the universe of people who might need to heed that advice is quite large.

The bigger questions are: why did nobody realize this until last week, and what can Congress do about it now?

I’ve been tracking this issue longer than most, going back to the first Economic Impact Payment (EIP) in the CARES Act, and I have to dole out blame to a lot of people: both houses of Congress, the White House, our ridiculous legislating structure, the media. Even myself; I didn’t anticipate this happening because I thought it was a solved issue.

Let’s go back in time. The CARES Act included protections for its $1,200 payment from IRS garnishment or government seizure (except in the case of child support payments), but did not have a restriction on private debt collectors. There was language in the bill allowing the Treasury Department to write rules blocking the payments from debt collection but they opted not to do so. In fact, Treasury gave guidance to banks enabling them to use the payments to offset existing debts from overdraft or delinquent consumer loans.

This caused an outcry. Even the banking industry rallied to tell Congress to protect the emergency payments, which was a clever move; they didn’t want the increased labor cost of transferring payments to debt collectors, while they kept quiet about how they could take the money. Sens. Ron Wyden (D-OR) and Chuck Grassley (R-IA) introduced a bill to protect the payments last May; it passed the Senate unanimously.

Unbelievably, Nancy Pelosi’s House never passed the bill, because they had included the protection language in the Heroes Act, and I guess they wanted to keep maximum pressure on Mitch McConnell. This was absurd, since Wyden-Grassley dealt with payments that were already out the door. It’s unknown how many people had their payments garnished because of Pelosi’s stubbornness, but the pandemic did likely prevent one potential consequence; debt collectors filing judgments en masse that gave them access to debtors’ bank accounts. With courts mostly not open, that was less likely to happen.

Fast forward to December, and the second relief bill with payments, this time $600. The protections do get into that bill. At that point, everyone (certainly me) lets their guard down. Congress figured out that if you send out emergency checks, you have to code it so debt collectors can’t siphon the money off. Problem solved.

Except the latest bill presented a problem. Budget reconciliation has special rules, where everything must have a budgetary impact. Protecting the public’s money from private debt collectors wouldn’t qualify. So the Senate had to leave that part out. At that point there were a few options. They could try to pass Wyden-Grassley again, as they did unanimously in the past, to protect all future Economic Impact Payments. They could ask the House to pass that bill, to put pressure on the Senate. They could ask the White House to highlight the issue, maybe work with banks and debt collectors to prevent it.

Instead, none of this happens. The Senate passes their bill with unprotected payments. It’s not until March 8, the day before House passage, that interest groups and the banking industry bring this to light. The House doesn’t react, just passing the Senate bill. The White House could have held up the payment delivery until Congress passes language protecting the payments, because the way a debt judgment works is that, as soon as money fills a targeted account, debt collectors can drain it. But instead the IRS speeds through to start sending the money through direct deposit on the weekend.

Wyden, meanwhile, announced on March 9 that he “will be introducing standalone legislation to ensure families receive their much-needed relief payments.” It’s March 15 and it hasn’t been introduced. My sources in the Senate tell me that Wyden’s building support for the bill. But we’re way too late here. Those with judgments have likely already been dinged or will be soon. (Wells Fargo and JPMorgan Chase’s delay until Wednesday on these payments is actually a GOOD thing in this context, but only if Congress reaches a solution by then.) The only thing a legislative fix helps now is preventing a flood of new judgments, which is more possible under the relaxed environment of the pandemic.

So we all failed. The media and the interest groups didn’t raise the issue soon enough. The Senate waited too long to make this a priority. The House has completely checked out. The White House was more interested in showing “efficiency” than protecting the payments.

There’s an undercurrent of commentary about how the Biden win brought competency back to Washington, and how there’s now a moment to act in the public interest. Well, there appears to be some residual cluelessness in D.C., and millions of debtors will pay the price.

When Neera Tanden’s nomination hit the rocks, our Robert Kuttner, based on intel he had for a few months, pointed out that Gene Sperling, the veteran of the Clinton and Obama presidencies who had drifted left over the years, was the White House’s top choice to take the job at the Office of Management and Budget. That news was confirmed last night, though Sperling isn’t getting the job.

Sperling will become the point person for implementing the American Rescue Plan, but only because Congressional leaders revolted when Biden, predictably, sought to make him OMB director. “The White House had indicated to lawmakers that it wanted him in the top slot at OMB,” Politico writes, but that “received major pushback from the Hill,” because it wouldn’t look good to “name a white man to replace Tanden, who would have been the first Indian American to hold the position.” Instead, it’s very likely Shalanda Young, an African American congressional staffer who’s currently the deputy OMB nominee, will get the job.

I don’t have anything against Young, though I haven’t heard a universally positive reaction. And Sperling is not exactly perfect either. But this is a classic case of identity taking precedence over perspective and vision. And actually it’s more of a mask for the real agenda of Congressional Democrats: getting someone at OMB who shares their parochial interests.

I don’t particularly care if it’s a Black woman using cost-benefit analysis to weaken a methane gas regulation or a white man. I care about the regulation. ARP implementation is an important job, so you can say that all ends well here. But I wish ideas were more important.

The U.S. economy will grow 8 percent this year, according to Goldman Sachs. (Axios)
Is there a path to reforming the filibuster? Wake me when it actually happens. (NBC News)
As a third COVID wave sweeps across Europe, we see the value of placing a priority on vaccination. (The Guardian)
To that point, the U.S. should relinquish domestically produced doses of the AstraZeneca vaccine to Europe, where AZ is having production issues. We don’t need them. (Wall Street Journal)
Vaccine apartheid is also something the Biden team can do something about, by ending IP protections. (Common Dreams)
White House readying a vaccination PR campaign to persuade skeptics. (Stat News)
States and cities should be in a position to pursue real advances for their communities, thanks to federal dollars. This isn’t a bad thing. (New York Times)
The grad student right to organize rule has bounced back and forth. Now they’re allowed again. (Washington Post)