If you have debt, your coronavirus stimulus check could be taken to pay it off

Just as millions of Americans are receiving $1200 emergency coronavirus relief checks from the IRS in their bank accounts, many are facing an unwelcome surprise: Debt collectors can take the money to satisfy certain types of debt.

Experts estimate that millions could see their stimulus checks taken by creditors in the coming weeks, a process known as garnishment, just as the need for the relief money becomes dire.

"The folks who owe people money, who are disproportionately poor, are the ones at greatest risk. Ironically, those are the same folks who are most in need of the checks and may be most in need of assistance to provide their families shelter, food and medicine," said Brent Adams of the Woodstock Institute, a Chicago-based economic development agency.

While the CARES Act, the $2 trillion emergency relief package passed by Congress in March, protects borrowers with federal student loans or unpaid taxes from having their stimulus checks garnished, it does nothing to stop private lenders.

"We are seeing debt collectors and creditors trying to seize bank accounts, because they know money is coming in," said Lauren Saunders, associate director of the National Consumer Law Center. "Policymakers should have been more clear that this money is intended to go to people who are struggling. They should have made clear to people it's for their basic needs, and it's not intended to feed debt collectors, or defeat overdraft fees."

A group of 25 attorneys general wrote Treasury Secretary Steve Mnuchin a letter this week, urging him to exempt the stimulus payments from garnishment for those types of debt.

"Unfortunately, in what appears to be a legislative oversight, the CARES Act does not explicitly designate these emergency stimulus payments as exempt from garnishment, as similar government payments (such as social security, disability and veterans' benefits) are," the letter says. The AGs cite a line in the CARES Act that they say would allow Mnuchin to direct banks to refrain from garnishing the payments: "The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section," referring to the distribution of the payments.

Lawmakers have been fighting to stop the practice as well. Sen. Sherrod Brown (D-OH) says he called Mnuchin on April 1 to urge him to use his authority to exempt the payments from private debt collectors. Brown followed up with letters from Sens. Elizabeth Warren (D-MA) and Ron Wyden (D-WA) as well as a bipartisan effort with Sen. Josh Hawley (R-MO). Senator Kamala Harris (D-CA) also wrote a letter to the Treasury Friday, asking Mnuchin to provide a remedy timeline for the issue by April 24.

So far, Mnuchin has not acted to change the guidelines. The Treasury Department did not respond to ABC News' inquiries.

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The senators are now appealing directly to banks and credit unions. "While Treasury has refused to follow congressional intent, that does not give banks license to steal the stimulus payments from customers," Brown and Warren wrote in a letter directed to banks' trade associations. "We ask that your member banks do the right thing -- for their customers, our country, and our economy -- and publicly commit that they will not offset their customers' stimulus payments to pay for any fees, charges, or allegedly past due debts."

Some banks have complied. Wells Fargo said in a statement the bank is "pausing for 30 days the collection of negative balances existing at the time when stimulus payments are deposited." CitiBank has adopted a similar policy.

But some banking and finance trade associations say the onus is on Congress, not the Treasury Department, to protect borrowers' relief payments from debt collectors. Several groups, including the Bank Policy Institute and the American Bankers Association, wrote a letter to House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell, asking congressional leaders to fix the issue.

"Under the CARES Act, Congress exempted these payments from offset for debts owed to federal and state agencies, except in the case of child support, but did not exempt them from court-ordered garnishment to pay creditors," the letter says. Unless Congress takes action to provide legal certainty, banks are legally required to provide garnishments to third-party creditors. We urge Congress to provide this certainty to ensure that American families are receiving these benefits as intended."

On the local level, some governors have also acted to protect borrowers. Governor Pritzker of Illinois announced Tuesday he would suspend the laws that allow garnishment. Massachusetts and Washington D.C., have also issued orders to shield checks from debt collectors.

Another issue for some recipients of the stimulus checks: overdrawn accounts. Charlie Chadwick, a corrections officer from Arizona, told ABC News his bank account balance was negative when his stimulus payment arrived due to auto payment of bills. While Chadwick is still working and considered essential, his girlfriend, who works in retail, is out of work, leaving Chadwick supporting them both.

"I knew that as soon as the check got here, that it would be ... gone," Chadwick told ABC News' Steve Osunsami.

"Whatever the number of people who are over-drafting would be, it's going to be higher after March because the ramp up of layoffs and furloughs was really rapid and really fast," said J. Michael Collins, the faculty director of the Center for Financial Security at the University of Wisconsin-Madison.

On Thursday, the Department of Labor announced over 5 million Americans filed for unemployment in the past week, bringing the total for the month to 22 million.

ABC News's Steve Osunsami and Stephanie Wash contributed to this report.

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