Banks Illegally Garnishing Social Security Benefits

In a recent report the Social Security Administration's Inspector General concludes that banks are illegally garnishing accounts that receive electronic deposits of Social Security benefits. The practice could imperil millions of low-income seniors and people with disabilities who rely on Social Security.

When people owe money to credit card companies and other types of lenders, the creditors often use garnishment as a way of gaining partial payment of the debt. In order to garnish a debtor's account, a creditor must go to court and obtain an order compelling the debtor's bank to relinquish a set portion of the account, often on a monthly basis in accordance with the debtor's deposits. However, federal law prohibits garnishment of accounts receiving direct deposit of Social Security benefits, except in very specific situations, such to collect child support or unpaid federal taxes.

Unfortunately for many indebted seniors and people with disabilities, many state courts and most banks are unaware of the federal law regarding garnishment. Therefore, courts routinely issue, and banks carry out, garnishments of accounts they have no business depleting. These accounts often hold the only source of income of a senior or person with a disability..

After they were alerted to the situation, Sens. Herb Kohl (D-WI), Max Baucus (D-MT) and Claire McCaskill (D-MO) requested that the Social Security Administration's Inspector General investigate. In a recently released report, the Inspector General found that in a 12-month period, the 12 largest U.S. banks withheld more than $1 million from accounts holding government benefits and no other funds. The banks also withheld an additional $29 million from accounts holding benefits mixed with money from other sources.

For more information about the practice of garnishment and what you can do if you think you might be a victim, see this summary in the Washington Post.

For the press release from Sen. McCaskill's office detailing the Inspector General's findings, click here.

To read the Inspector General's testimony before the House Committee on Ways and Means regarding this issue, click here.

National Public Radio recently aired a segment discussing garnishment. Audio can be found here.