Shame on those credit unions garnishing members' stimulus checks

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NCUA Board Member Todd Harper
NCUA Board Member Todd Harper

In 1989, Phil Collins recorded his award-winning protest song, “Another Day in Paradise,” about the plight of the homeless. The song’s haunting “Oh, think twice” refrain echoes today when it comes to some credit unions’ shortsighted decisions to garnish government stimulus checks, which Congress intended as a way to provide consumers a measure of relief in the wake of the coronavirus.

As the pandemic triggered an economic free fall, commercial activity has plummeted and layoffs have surged. In just four months, more than 50 million Americans have filed for unemployment benefits. During the steepest economic contraction in American history, more than three-quarters of households have experienced a decline in income.

Even before this economic upheaval started, far too many hardworking Americans struggled financially. Nearly four in 10 families were uncertain how they would cover an emergency expense of $400 or more. As the coronavirus-induced economic recession has taken hold, this number has certainly soared, and lower-income families have suffered the most. The hardest-hit households during this crisis are the 40% of Americans who earn less than $40,000 a year.

To assist struggling Americans, Congress sensibly provided for economic impact payments in the Coronavirus Aid, Relief and Economic Security Act. Lawmakers wanted consumers to use these payments to cover necessities like shelter, food, utilities and medicine. Unfortunately, these payments are currently unprotected from garnishment or the right of offset.

Through the garnishment loophole, some depository institutions, including credit unions, have used the CARES Act’s consumer stimulus checks to cover outstanding debts and court-ordered judgments. Because financially stressed American consumers deserve better treatment, I have urged Congress to provide legal certainty and to clarify that federal financial relief is safe from collection, garnishment or offset.

From the start, many credit unions stepped up and did the right thing by deciding against garnishing stimulus payments. In other instances, credit unions quickly overrode automatic deductions so that their members would have what they needed to ride out these difficult times.

Those credit unions that have already voluntarily protected their members’ relief payments from collection, garnishment and the right of offset did the right thing. They are truly demonstrating the “people helping people” philosophy at the heart of the credit union movement. As American consumers struggle through the economic shock inflicted by the coronavirus crisis, all credit unions should strive to live up to this foundational principle.

A small number, however, chose a different course. They took the stimulus money meant for daily living expenses from their members and dug in their heels when confronted. It’s tremendously disappointing that any credit union is inflicting additional pain on its own members in times like these. Credit unions that garnished stimulus payments should fear the reputational issues they will face if they maintain the position of adding insult to the economic injury their members are experiencing.

Additionally, no credit union should ignore the business case for protecting these relief payments. Research has shown that credit unions that lean in and focus on community development, financial inclusion and safe, responsible and affordable lending during difficult economic times often outpace their peers in future financial performance.

Said another way, credit unions that work with and accommodate the needs of their members during tough times will benefit in good times. In contrast, those credit unions that insist on robbing Peter’s account to pay themselves or others will be hurting their members, sacrificing their long-term financial viability and creating negative publicity for the entire credit union system.

As the coronavirus-induced economic devastation continues, it’s time for all credit unions to “think twice” about garnishing economic impact payments. In the true spirit of the credit union movement, it’s also time for all credit unions to heed the wisdom offered in Bill Withers’s “Lean on Me.” Credit unions that follow this sage advice will serve their members, themselves and our economy well in the long term.

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Debt collection Coronavirus CARES Act
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