[caption id="attachment_533" align="alignleft" width="300" caption="Courtesy: Flickr-ncindc"]Courtesy: Flickr-ncindc[/caption] Banks, these days, are about as popular as politicians are. So, news about the growing number of Social Security beneficiaries losing their benefits to bank fees and garnishments certainly won't win the industry any more friends or allies. The Wall Street Journal provides a detailed description of a banking loophole, which has allowed many banks to seize Social Security funds from seniors' accounts, even though federal law says creditors can't take these protected funds to pay a debt.  
"In April, for instance, U.S. Bancorp seized the Social Security survivor benefits of two children in Kalispell, Mont., when a creditor garnished the account for the children's unpaid medical bills (the family has no health insurance). The benefits are the family's primary source of income, following the death of the children's father in 2007. Unaware that the account was frozen, the children's mother, Nicole Murphy, 32, used a debit card to pay for gas and groceries for Easter. Each purchase triggered an insufficient-fund fee of $37.50. When the children's account fell below zero, the bank debited a negative balance fee of $8 a day.  A lawyer with Montana Legal Services Association helped Mrs. Murphy unfreeze her account. But the bank again froze the account. On May 7, the U.S. Treasury deposited into the account a $250 Economic Stimulus payment, which the government sent to low-income households. But the payment was unavailable to the family because the account was frozen, and because the bank's fees had created a negative balance."
Again, federal law says creditors can't take Social Security, disability, veterans' and children's survivor benefits, so how does this happen?  It happens because the law doesn't say how banks should protect direct deposit checks coming from SSA and other federal sources.  According to the Social Security Administration's Inspector General two-thirds of America's 12 largest banks are violating federal law by garnishing over $30 million from accounts containing government benefits. Unfortunately, all of this is also leading some seniors to opt out of using Social Security's highly promoted (and cost saving) direct deposit program.   Yesterday, the California Supreme Court ruled that the Bank of America does not have to pay a $1.6 billion verdict in a customer suit claiming the bank illegally took overdraft fees out of Social Security direct deposits.  Bank of America argues this practice isn't debt collection but simply balancing the books.  Senators Herb Kohl and Claire McCaskill have written Treasury Secretary Timothy Geithner urging the administration to draft a rule protecting seniors from illegal bank garnishment.   In a similar letter to Secretary Geithner, four House Committee chairs also urge the administration to intervene immediately: 
"...the economic downturn has also caused my distress among the most vulnerable Americans, such as retirees and people with disabilities.  Thus, the problem of aggressive and illegal debt collection practices targeting Social Security, SSI beneficiaries and veterans deserve immediate attention."