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Creditors unlawfully prey on seniors' Social Security benefits

Proposed regulation would hold banks more accountable for seniors' illegally garnished Social Security accounts.

BY PAULA BURKES Published: August 15, 2010

/> Some 20 percent of the current 52 million beneficiaries nationwide — 650,000 in Oklahoma — still receive checks, he said. About 1 million without bank accounts use a debit card the administration introduced in 2008.

Banks often are caught in the middle when a consumer's account containing federal benefit payments is garnished, said the American Bankers Association in response to the inspector general study.

"On the one hand, a creditor having received a court order entitling it to payment expects a bank to comply with that order or risk incurring liability for the full amount of the judgment,” its statement read. "On the other hand, a debtor (who) receives benefit payments that are exempt from garnishment expects the bank to refuse to pay the creditor funds that are protected.”

When funds from more than one source are combined in one account, it is impossible for a bank to know what funds deposited in the account are exempt from being garnished and what should be paid to the creditor, the association said.

Elaine Dodd, vice president of fraud training for the Oklahoma Bankers Association, said she's excited about Social Security's direct deposit mandate.

"Even with a paper check, there still can be co-mingling of funds,” Dodd said. "But with direct deposit, there's less chance of your check being stolen from your mailbox or taken from your home.”

AARP will be monitoring the implementation process so that the administration understands the concerns of older Americans, Oklahoma Associate State Director Sean Voskuhl said.

"We know that some of our members simply prefer to get a hard copy of their check, whether due to their access to a bank or just because of their personal history,” Voskuhl said. "And debit card holders should be aware of what fees are going to be charged and how to avoid them,” he said.

Meanwhile, a proposed federal regulation is being considered that would place more responsibilities on banks to determine whether any federal benefit payments were deposited within the prior 60 days, not freeze accounts so quickly or garnish entire accounts.

The regulation may take effect as soon as year's end, Goralewicz said. The public comment period closed June 18.

Until and after then, the best thing a consumer can do is place protected income in a separate account and not mix it with unprotected income, said Catheryn Koss, director of the Senior Law Resource Center in Oklahoma City.

For example, if a retiree receives $1,000 a month in Social Security and $500 in rental income, the Social Security income should be in a different account than the rental income, she said.

"This will make it easier for the consumer to assert that no garnishment of the account containing protected income is allowed,” Koss said.

"It also will assist the bank in helping the customer assert this right.”