With the recent stimulus checks being sent out to Americans in response to the COVID-19 pandemic, many people have questions about whether banks can take the stimulus money to cover existing overdraft fees or negative balances. Here are some quick answers to frequent questions on this topic:
Can banks take your stimulus check?
Yes, it is possible for banks to take stimulus checks to cover overdraft fees or negative balances, but there are some protections in place for consumers.
What protections are there for stimulus checks?
The CARES Act, which authorized the stimulus checks, prevents creditors and debt collectors from garnishing the stimulus payments. However, it does not prevent banks from collecting overdraft fees or negative balances from accounts where the stimulus money is deposited.
How can banks take the money from accounts?
When a stimulus check is deposited into a bank account that has a negative balance, the bank can immediately deduct money to bring the account balance to $0. Any remaining stimulus funds would then be available to the account holder.
Banks can also take stimulus payments to cover existing overdraft fees on the account. These fees are considered outstanding debt obligations rather than new debt collection.
What if my account was closed due to negative balance?
If your bank account was closed due to a negative balance prior to the stimulus check being sent, the bank can take the stimulus money to cover that existing negative amount if you opt to re-open the closed account.
What steps can I take to protect my stimulus check?
Here are some options if you want to prevent or limit a bank from taking your stimulus check funds:
Open a new account at another bank
Opening a new checking account at a different bank would allow the stimulus money to be deposited into a fresh account with no existing fees or balances.
Ask the bank for overdraft fee refund
Contact your bank and request that they refund any overdraft or insufficient funds fees and allow the account balance to return to $0 prior to the stimulus deposit.
Cash the stimulus check instead of direct deposit
Cashing or depositing the paper check can let you avoid any account offsets. However, cashing the check may incur check cashing fees.
File a bankruptcy claim
Filing for bankruptcy would trigger an “automatic stay” that legally prohibits banks from taking stimulus funds to cover existing debts.
If the bank takes my stimulus, what are my options?
If the bank deducts money from your stimulus check, you may have options to recover the funds:
Contact the bank
Contact your bank and politely but firmly request that they refund the stimulus money that was taken. Explain your situation and financial hardship due to the pandemic.
Submit a complaint
File complaints with banking regulators such as the Consumer Financial Protection Bureau and your state attorney general’s office to advocate getting your stimulus funds returned.
Consult legal aid
Speak to legal aid organizations or consumer law attorneys to understand if any legal remedies are available to recover improperly taken stimulus funds.
Change banks
Close your account and move to a new bank that will treat you more fairly. This option won’t recover lost stimulus funds but can help avoid repeated overdrafts.
Who can banks NOT take stimulus checks from?
Banks are prohibited from garnishing stimulus funds to cover debts for the following protected groups:
Social Security recipients
Social Security benefit payments, including retirement, SSDI, and SSI cannot be garnished by banks or creditors.
Veterans and federal retirees
Veterans benefits and federal retirement payments are generally protected from bank garnishment or offset.
Child support recipients
Banks cannot take stimulus money to cover existing child support obligations or arrears.
Final considerations on protecting your stimulus
A few final tips on safeguarding your stimulus check:
- Act quickly – Move funds out of vulnerable accounts rapidly
- Review account terms – Understand bank policies on overdrafts
- Seek legal help – Consult professionals on reimbursement options
- Switch institutions – Choose banks that avoid excessive fees
- Inform regulators – File complaints and report issues
Conclusion
In summary, banks do have the ability in many cases to take stimulus payments to cover overdraft fees and negative balances. However, consumer protections are in place, and actions can be taken to avoid or recover improperly taken funds. Understanding bank policies, avoiding vulnerable accounts, and filing complaints are key steps to ensuring you retain your full stimulus amount.
