By Jon Hill

Law360 (March 17, 2021, 8:12 PM EDT) -- The Consumer Financial Protection Bureau's acting director said Wednesday the agency is on the lookout as the latest round of stimulus checks begins making its way to consumers, flagging concerns about creditors stepping in and laying claim to money intended for pandemic relief.

In a statement, acting CFPB Director Dave Uejio urged banks and debt collectors to refrain from garnishing or otherwise seizing funds from the stimulus payments of up to $1,400 each that Congress authorized earlier this month in the $1.9 trillion American Rescue Plan Act.

The U.S. Treasury Department has begun disbursing those payments and will continue to do so over the next several weeks, during which time Uejio said the CFPB will be "looking carefully" at the rollout as part of its efforts to address the pandemic's impact on struggling consumers.

"The bureau is concerned that some of those desperately needed funds will not reach consumers, and will instead be intercepted by financial institutions or debt collectors to cover overdraft fees, past-due debts, or other liabilities," Uejio said.

The statement came as the Treasury Department announced Wednesday that it has sent out an initial batch of 90 million stimulus checks via direct deposit and mail. Those payments are collectively worth more than $242 billion and represent more than half of the total projected dollar amount of stimulus money destined for taxpayers in this third round of pandemic relief.

But while the last round of checks was shielded from garnishment in most cases when Congress authorized more relief money in December, the limitations of the budget reconciliation process meant the American Rescue Plan didn't include the same protections for these latest stimulus payments.

That's raised fears of a repeat of what happened last spring with the first round of stimulus checks, which also went out without explicit federal protections against private garnishment. Consumer advocates warned at the time that creditors might use the opportunity to go after funds needed by struggling consumers, while banks bemoaned the lack of legal certainty about how to proceed.

Earlier this month, an array of consumer groups and banking industry trade associations called on Congress and the Biden administration to enact legislation that would provide the current round of stimulus checks with garnishment protections on par with those that applied to the second round.

Uejio said Wednesday many industry groups have also told the CFPB that they will be taking "proactive measures to help ensure that consumers can access the full value of their stimulus payments."

"If payments are seized, many financial institutions have pledged to promptly restore the funds to the people who should receive them," Uejio said. "We appreciate these efforts, which recognize the extraordinary nature of this crisis and the extraordinary financial challenges facing so many families across the country."

Uejio also expressed support for actions that states have taken since last spring to restrict private garnishment of stimulus payments and prohibit banks from applying the relief funds toward recipients' overdrafts and other debts. The CFPB has previously identified compliance with these state-level protections as an area where its examiners have had concerns at some financial institutions.

"The bureau will continue to closely monitor consumer complaint data and other information that will help us to better understand how these issues are affecting consumers," Uejio said. "The bureau will stay closely engaged on this issue as the COVID relief payment rollout continues."

--Editing by Janice Carter Brown.

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