Unholy Alliance of BANK AND COLLECTION AGENCY
Fleeces Social Security Recipients by Laura Rowley
No, we're not sunbathing, you idiot! They took
our car, our money, our house. We're HOMELESS!
Virginia grandmother Ruby Fauntleroy, 74, knew something was wrong when her rent payment bounced shortly after her Social Security check had been direct-deposited into her bank account. Fauntleroy went to the bank, where a teller told her that the account was frozen following notice of a court judgment and garnishment order by Capital One. Fauntleroy had been trying to pay off this $4,000 credit card debt for years, but dropped her monthly payment to $100 after her husband died and her income declined. Capital One sued, and won a judgment.
"I was just numb, I couldn't believe this could happen," said
Fauntleroy. "I told the bank, 'You know nobody is supposed to take a
government check,' but they did. I couldn't sleep at night, I couldn't
eat. I thought, why are they doing this to me when I was trying to pay
When Exempt Isn't
Legal aid agencies across the country say they've been flooded with
calls from seniors and disabled people whose accounts have been frozen
by bill collectors. This is happening even though the federal government
specifically prohibits the garnishment of exempt funds such as Social
Security and veterans benefits.
In the worst cases, seniors go hungry or without medication because they
have no access to funds -- in some cases, for months at a time. "People
can really bumble around for months trying to get their accounts
unfrozen because the procedures they have to follow are so Byzantine,"
says Claudia Wilner, attorney with the New York-based Neighborhood
Economic Development Advocacy Project (NEDAP), which handles about 200
such cases a year.
In August, three senators asked the inspector general of the Social
Security Administration to investigate the extent of the problem,
querying the nation's largest banks on how often the practice occurs.
The Senate Finance Committee held hearings on the issue in September.
Slow to Respond
The problem comes amid enormous growth in consumer debt, and changes in
technology that make it easier and cheaper for creditors to seize bank
accounts. Although banks can tell whether an account contains exempt
funds before they issue a freeze, they argue that ignoring a restraining
order would leave them in contempt of state court.
But even when both the creditor and the bank agree a mistake has been
made, bureaucracy can leave seniors in limbo for weeks. Laurie Doran,
staff attorney for South Jersey Legal Services, had a client who
discovered the levy on her account when she went to buy medication.
"They zapped both her savings and checking, and she didn't have access
to any funds," says Doran. "She came over from the pharmacy in an
Although attorneys for both the creditor and the bank immediately agreed
to lift the freeze, it couldn't be done because the levy officer -- a
liaison between the court and the bank -- was unresponsive. It took two
weeks to unravel, during which the elderly woman's health deteriorated.
Death by a Thousand Fees
Moreover, some banks are making a profit off these account holders
through exorbitant fees. Banks typically charge a non-refundable legal
processing fee of $100 to $150 for the freeze itself. Then, when the
consumer, unaware of the freeze, pays their bills, they can incur
significant overdraft fees.
In one case, Chase Bank froze the checking account of a New York retiree
-- whose only income was from Social Security -- following a $920
judgment for an unpaid dental bill. The woman had $929.54 in her
account, but the dentist never got anything. "Chase Bank managed to grab
the entire account," says her attorney, Jim Baker of the Northern
Manhattan Improvement Project.
The 72-year-old wrote nine checks against the account without realizing
it had been frozen; several of those checks were presented twice for
payment. Chase charged $30 each time. In addition, the bank was debiting
45 cents a month from her account for credit insurance. "Every time the
first of month rolled by and Chase couldn't debit its 45 cents, they
charged her another $30," says Baker. In four months, the account was
empty. BOA does it too. SEE BANK OF AMNESIA.
Even when a freeze is lifted and garnished funds are restored, banks
often refuse to refund fees. "The banks say they have the right to
charge fees because it's a deposit agreement," says Wilner. "They say
they are not acting through the legal process, but through a contractual
agreement, so the regulatory exemption doesn't apply to them."
Trolling for Delinquencies
The problems are becoming more frequent because of the burgeoning debt
collection industry. In 2005, $110 billion in face-value debt was
purchased by third-party debt buyers, 90 percent of it credit card
receivables, according to the Association of Credit and Collection
In New York City, the number of consumer debt cases filed in civil court
has grown 300 percent in 5 years, to 320,000 cases in 2006, according to
a new report from the Urban Justice Center. Ninety percent were brought
by third-party debt buyers. Almost $1 billion in claims were made
against New York City residents, and creditors obtained judgments of
nearly $800 million, the center estimates.
Once a default judgment goes through, the creditor's attorney sends an
electronic information subpoena and restraining notice, which has the
same power as a court order. The cost is minimal. "The volume of
collection activity is way up," says Baker. "Creditors used to have to
have some reason for thinking someone had an account at a specific bank.
Now they simply send out a blanket email to every bank in the tri-state
area, and say, 'If so-and-so has an account, freeze it.'"
On the consumer side, the problem is compounded by direct deposit: This
year, 85 percent of Social Security recipients received their payments
electronically, up from 41.5 percent in 1985. Someone who encounters a
freeze may have subsequent checks slip into the account before they're
able to find their way through the legal maze.
Frozen and Refrozen
Meanwhile, creditors who are rebuffed often turn around and file a new
claim for the same debt. New Yorker Waverly Taliaferro, 70, worked for
decades as a photographer before retiring in 2001. He and his wife lived
off of his Social Security payment and her income. In 2003, when she was
laid off, they fell behind on a credit card bill. Their account was
frozen in 2006, which Taliaferro discovered on his way to the grocery
store. Over the next 23 days, he says, he and his wife survived on a
10-pound bag of brown rice.
After his lawyer was able to remove the freeze, Taliaferro began
receiving his check by mail, and paying $23 to a check-cashing service
to cash it. Six months later, his attorney told him that Chase Bank had
issued a policy not to freeze exempt funds, so Taliaferro opened an
account -- and received a $100 bonus from the bank for using direct
deposit. The account was frozen 16 days later because it contained
non-exempt funds -- what was left of the bonus money from Chase.
"Absolutely nothing will stop that debt buyer from trying to freeze it
again," says Taliaferro's attorney, Johnson Tyler of South Brooklyn
Legal Services. "When a credit card company sells off a debt, they don't
sell it with a red flag that says, 'We tried to collect and she's on
Social Security.' It's sold as part of a bundle of debt. We have cases
where the debt buyer froze the account three times in a row on a client
who is homeless and mentally impaired. A judge ordered them to stop and
they still did it."
A Modern-Day Debtors' Prison?
Consumer advocates say Congress should adopt federal legislation modeled
after a California law that prohibits a restraint on the first $2,500 of
any account into which Social Security funds are directly deposited.
"That would simplify things for the banks, and essentially effectuate
the whole purpose of what Congress wanted to accomplish with exemption
laws," says Tyler.
For her part, Fauntleroy says she's done with credit cards, although she
still gets daily offers in the mail. "They keep trying, but I won't bite
-- I even got one from Capital One," she says. "Either they're crazy or
they think I am!"
Like Fauntleroy, many seniors try to make good on their debts, legal
advocates say. "Many of our clients made payments for years until they
couldn't do it anymore," says Patricia Duecy, a paralegal with Legal
Services of Northern Virginia who worked on Fauntleroy's case. "Some of
them did pay them off -- if you looked at what they actually charged,
outside of late fees and interest.
"A long time ago the country made a decision that when a person is old
or poor, they should have a subsistence income to pay for rent, food,
and medicine," Duecy adds. "The money is supposed to be going to their
basic needs and not going into the hands of debt collectors. If we can't
protect the most vulnerable among us, what are we doing?"
READERS WRITE IN: GOOD STUFF, TOO!
Banks and collection companies are the biggest whores in the world. In
many cases the Banks own the collection agencies that skirt federal
laws. Some states have solved the problem by simply banning the practice
of garnishing paychecks and bank accounts for consumer debts. If all 50
states got on board with this practice, the debt-buying business would
dry up. If the only way to collect on a debt was to hold a Sheriff's
sale on property, the costs would outweigh the benefits to these
vultures and they would simply go away. It's bad enough that they ruin
your credit score with these collection accounts, but then they turn
around and try to entice you into new credit cards as a sub-prime
borrower. The cards carry 22-28% interest rates and are loaded with
hidden onerous fees. I appreciate the comment about how the devil
controls the money, however, we have been given choices. Capital One
sent me a late notice for a statement I received the same day.
Ridiculous. Then extracted the payment from my checking account with
authorization. I decided that no amount of CC debt was tolerable and
paid them all off. My choice. I went without in other areas of my life
to do it. So for those of you that go into debt and are now whining
about it. TO BAD. Choose to NOT go in debt and pay off the debt your
have. In every example in the article, "A CC debt they got behind on" is
mentioned. Make better choices, otherwise your no better than a caged
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