Banks Sneaking Into Elders' Social Security Benefits To Recoup Debts

Federal law mandates that banks can’t take your Social Security to pay debts, but some banks are doing exactly that, endangering the ability of sick and dying elderly to pay for their health costs. WSJ reports:

The Cains, of Palm Coast, Fla., took out a $31,000 loan from a SunTrust bank to buy a Ford Expedition in 2005. But last summer, Mr. Cain was diagnosed with bladder cancer and soon was unable to work. His wife, Elna, tried to find someone to take over the $690 monthly payments but couldn’t, so she surrendered the SUV to the bank this January. After selling it at auction for $16,000, the bank told the Cains they owed it a balance of $15,703, which included late charges, repossession expenses and interest.

Mrs. Cain, 63, says she told the bank her husband’s cancer had spread and he was confined to a wheelchair. They lost their health coverage when he had to quit working. A Vietnam vet, Mr. Cain has applied for veteran’s benefits, but isn’t yet receiving them.

He also applied for Social Security disability. On March 14, both his first disability check, $1,343, and Mrs. Cain’s $1,161 regular Social Security hit their SunTrust account through direct deposit.

The same day, SunTrust took $1,924 out of their account. The next week, the Cains got a letter from SunTrust Recovery Department, dated March 15, thanking them for their payment.

What do you think? Poll inside…


Banks defend this practice by pointing to “set-off” clauses in the customer agreements, which allow them to collect money owed from an account. While this makes sense for routine charges, it seems devious for banks to use it to circumvent the federal laws against raiding citizen’s Social Security benefits. — BEN POPKEN

Banks Tap Social Security Funds Too [WSJ] (Thanks to Chris!)


Gawker Media polls require Javascript; if you’re viewing this in an RSS reader, click through to view in your Javascript-enabled web browser.

Comments

Edit Your Comment

  1. xkaluv says:

    I’m sure many have an opinion about Social Security and our government’s welfare system. Mine on this issue is simple. Social Security is designed to help keep people alive when they can no longer work at the end of their lives. I DON’T PAY-INTO SOCIAL SECURITY SO SOME GREEDY BANK CAN COLLECT ON A DEBT!!!

  2. wreckingcru says:

    Err…could there be some kind of collusion in the auction?
    A $31,000 car is sold for barely 50% worth in a year? That’s some insane depreciation.

    I just wonder if the bank wanted to sell the SUV at the lowest price possible, so that they could still charge this family interest, late-fees, and essentially make them “long term cash cows”.

  3. xkaluv says:

    @wreckingcru: No, the banks don’t purposely do this… they simply don’t care. They put them to auction where thousands of cars are sold in one day by dealers. The bank doesn’t care how much they get out of the car because they will be able to recover most of the value anyway.

    They borrow (9x their holdings) from the Federal Reserve. Then they loan out the money, collecting interest for the length of the term. Then they sell the car after they repo. Then they add addional fees and expenses. Then they write off the loss as “unpayable” on their taxes. (Keep in mind, it’s money they never really had.) Then they SELL the note to a debt collector.

    The banks almost NEVER loose.

  4. mantari says:

    I don’t think I’m qualified, nor do I have enough information to answer the poll. Should I select “Evil” ?

  5. Falconfire says:

    Christ, $690 car payments! I bitch that mine is $241.

    Looks like a bunch of evil bastards all around,the dealership for selling a truck they obviously didnt need given their ages, and the bank for letting people with such poor means of income actually HAVE a 30,000 dollar loan. Thats 15k less than my paycheck, and there is no way in hell even with the amount of moving around of stuff I do at work (in tech support your always carrying computers) I would ever spend that much on a truck.

    Even better lets get to the details of this loan. They got it in 2005. After a year of paying they should have payed into it 8280. Subtract 16000 on the loan, and that leaves 6720 left not counting interest. to have a balance of 15,703 left that has to be some fucking INSANE interest (almost predatory) or the family isnt telling the whole truth about the payments, OR someone at the bank is fucking with the numbers.

  6. @mantari: That’s up to you but in my opinion the fact that taking someone’s Social Security is against the law invalidates the other two options.

    Banks are not within their rights to break the law and the third option implys that it’s at most unethical when really it isn’t even legal.

  7. parabola101 says:

    Banks are out of control and need to have some consumer based boundaries put in place. But how can anyone revolt against their usery practices? Customer service for the average person is non-exsistant, but is available to those with $250K >$1M in they accounts.

  8. etinterrapax says:

    Thirty grand for a car? What on earth were they thinking?

    I can see it both ways. On the one hand, things have gone to hell for them and they’ve lost income and assets. That’s horrible, and would put most people into financial straits. On the other, they financed a large purchase of a car that they probably didn’t absolutely need, and didn’t plan for the distinct possibility that at their ages, they could suffer this kind of setback. Okay, you can’t foresee everything, but a less frugal choice for people in late middle age, I cannot fathom. Maybe if it involved real estate, although that doesn’t typically depreciate. I don’t know, I’m having so much trouble wrapping my mind around the fact that this is all over a needlessly enormous, gas-sucking, and probably brand-new car purchase that I can’t even bring myself to care about the rest of it. It was a poor, poor financial decision, and some things just can’t be undone.

  9. nala714 says:

    OK so as a former Bank employee in a fraud department, back office I have a little insight on this topic. I can tell you that we would regularly encounter customers who owed the bank money who some how still had a bank account with funds.

    As we located these accounts we were instructed to hold the amount owed the bank even if that was the entire balance, and send a letter to the customer. In doing such research we were also required to see where the funds came from.

    If the customer had SSI Direct Deposit, our hands were tied and we could take no action. It is the law, I can only imagine if they went to speak to a supervisor and could prove where the funds originated they could be refunded the monies.

    Also I would recommend opening an account at a financial institution were you do not have a debit, just to keep this same incident from occurring in the future. If at any time they do deposit monies from another source, the bank would be in the right to seize the assets to settle the debit.

  10. joeblevins says:

    This a case of someone buying something they couldn’t afford, at interest rates that reflected thier poor ability to pay back the loan. Just like the underwriters guessed, these people were higher risk. And they defaulted.

    Sure we should feel sorry for them, but they owe the money. Why should the bank eat the 15k?

  11. nakmario says:

    They should have declared bankruptcy.

    Perhaps even gone to the dealership itself and traded in the car for a much much cheaper one. With depreciation they may have gotte like 20-25k on the car.

    The bank is EVIL but then again that is how the system is set up. It seems ironic that he lost his health insurance because he could no longer work – because he was not healthy.

  12. B says:

    @joeblevins: The bank justified the high interest rate by assuming they were a bad risk. When the loan was defaulted and the bank sold the SUV, they forfeit any rights to collect on the debt, so, yea, the bank should just eat the 15k, and make it up by giving out more loans to high risk borrowers.

  13. Falconfire says:

    @nakmario: less ironic and more typical. A friend of mine had the same thing happen, she was hurt at work, had to be out for a decent amount of time, was fired, then dropped on health insurance which was paying for her rehab.

    She’s suing, but that doesnt pay the bills.

  14. exkon says:

    @joeblevins:

    No doubt the people owe debt, but that’s not the point of the story.

    “Federal law mandates that banks can’t take your Social Security to pay debts.”

    That’s the point of the story, the law itself states that banks can’t use your Social Security to pay debts, so in reality the bank is breaking the law.

  15. Buran says:

    It doesn’t matter whether we think it’s OK or not. Social Security, as I understand it, isn’t something debt collectors are supposed to be able to touch, is it?

  16. oeolycus says:

    @etinterrapax

    I have to agree with you. At least by the information we have to go by, these people financed something well beyond their means–and that’s always a bad situation to be in.

    A few things don’t make sense though: if he lost his job, why didn’t he take advantage of the benefits under COBRA? If the bank issued a 30k loan to people their age, what were they expecting? Was the couple wealthy (before medical expenses)? Are their beneficiaries wealthy?

    I’m not sure if I have sympathy or not. It’s certainly posed as a story to get your blood all riled up, but I have a lot of questions. What’s illegal is illegal, though–and I guess a court will have to rule if the bank acted improperly.

  17. Buran says:

    @Falconfire: Depends on the value of the vehicle and the length of the loan. Maybe it was a 3 year loan.

  18. enm4r says:

    I find this to be a pretty cut and dry issue. If it’s illegal, then they shouldn’t be touching the money. Simple enough.

    Whether or not I agree with that is something entirely different. I’m sure we could all talk about high risk loans and why they defaulted, how much they should owe, etc. I don’t know how bad I feel for them, because we aren’t really given anything to judge how much/where the blame should be placed.

    @Rectilinear Propagation:

    Not really. I voted for 3rd option not because I think the bank is in the right, seems to me they’re acting illegally, but because I don’t find it evil. Wrong? Sure, but they do owe the debt. Which is the whole point of the third option.

  19. Buran says:

    @etinterrapax: That is average cost for a vehicle these days when you look at the wide variety of vehicles available. I’m buying something in that price range in June — although I admit I’m paying 30% down so the loan will not be for the full amount.

  20. sleze69 says:

    Time to switch banks!?

  21. ShadowFalls says:

    Social Security benefits can only be garnished based upon child support, alimony, and unpaid federal taxes. Even if you they were collecting on unpaid taxes, the IRS can only take 15 percent of your check. The only other debts that apply are regarding other federal agencies.

    No creditors are allowed to touch funds from Social Security at any time, to do so, is against the law. Suntrust better be careful as such actions are taken seriously. These people should immediately report Suntrust to their Social Security and their Congressman’s office. Also, open up a new bank account and change their direct deposit.

  22. mac-phisto says:

    @B: this changes from state to state, but generally, what you’re saying is false. even if collateral is reposessed, a bank can recover the remainder of the balance (depending on applicable state laws) from the debtor.

    this is unfortunate, but i would instruct ppl that if you default on a debt at an institution, be smart: close all of your accounts & move them elsewhere. it is much more difficult for a bank to recover money from outside their walls. of course, if you live in florida, it’s not that easy NOT to bank with suntrust.

    i would imagine that they could take suntrust to small claims & recover their money. ssi is specifically protected from this.

  23. Canadian Impostor says:

    It’s illegal and scummy, but I don’t have a lot of sympathy for the victims. This should be a lesson that maybe we don’t all need brand new gigantic gas wasting SUVs. Maybe financial security is more important than a big stupid truck.

  24. thrillhouse says:

    “What do you think?”

    This is not a plan. This is why I drive paid for cars and will continue to do so. This is why you save when you are young and put money away. This is why I don’t want to owe anyone a dime. Because life happens. As I’m sure the Cains now know, the borrower is truly servant to the lender.

    I’m no expert in this area, but the bank may have been with in their rights. When money hits the account, they are going to take it. If federal law protects those monies, then they should be able to dispute.

    What the bank did is no different than if you gave a debt collector electronic access to your account to deduct “monthly installments”. Unless you have a written agreement for a specific amount, then can zap your account for the total amount owed. And no judge will stop them.

    There is an entire series of errors on the part of the Cains here. What this really boils down to is a lot of poor advice. Advice likely received from their bank (bad idea) or some broke relative (worse idea). I do have sympathy for this family. Cancer is bad enough to go thru let alone compounding that with money issues. But they’ve made a lot of mistakes here.

  25. loueloui says:

    Although I do think people should pay their debts, I am not so naive to think that predatory lending does not exist.

    The greediness of the bank, who lent them the money, and the car dealer also are a factor.

    I believe there should be some form of means testing to prevent this, say if someone’s debt-to-income ratio was more than X amount, or their credit score was less than Y points you could only collect Z percentage if they default. This would stop the predatory scumbags cold, and prevent loans to people who really should not be borrowing money to begin with.

    As it stands right now the bankruptcy, and credit laws are so unfavorable to the consumer that anyone can get a loan for practically any reason almost without regard for how they will pay it back. They know that eventually they will get their money, and if they charge enough interest maybe they’ll cover themselves enough to make a profit before the person even defaults.

  26. rhombopteryx says:

    @All the people who apologize for the bank/advocate for paying back loans:

    As several other posters have already tried to point out it makes NO difference if the loan was good, bad, secured, low-rate, or blue – Social Security benefits can’t be taken away by anyone other than the government…

    Its teh law: http://caselaw.lp.findlaw.com/scripts/ts_search.pl?title=4

    if your link finger is too lazy :
    “[SS Benefits shall not be] subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”

    Collect the debt some other way, perhaps, but not by touching that magic SS money.

  27. Timewalker says:

    I think they will get away with it because once the money has been deposited, it’s no longer SS money. The bank isn’t garnishing the income, they are taking something from a balance in one of their deposit accounts. When this bad stuff started happening (as soon as the SUV went back to the bank) they should have changed their direct deposit to another bank).

    And for the person who suggested bankruptcy, not with the new laws. It’s much more difficult to declare bankruptcy these days. Even though the Democrats tried to include a provision for people with medical expenses like this.

  28. quail says:

    It reads as though the money hit their bank account, the same bank that held their car loan, and then the money automatically came out due to the fine print in the car loan. Most banks will set up their loans in such a way. No, don’t like the idea of their social security being garnished. But they should have realized the hassle involved in having a bank account open with a bank they owed money to.

    Rule #8 when not paying back a bank debt: don’t keep open any accounts with the bank.

  29. DingoDigger says:

    The price they got for the SUV is not surprising — SUV’s are not worth very much these days, and Fords depreciate really quickly.

  30. Techguy1138 says:

    The people who are pulling out the “they must be stupid to have not saved more”card REALLY REALLY don’t undersand medical costs.

    1st the guy gets cancer and can’t work. All of his income is gone.

    2nd he lost health insurance while suffering from CANCER. Medical treatment is expensive it more than 2x as expensive without indurance.

    He lost his job, thus all of his income and was most likey incurring 2-4k a month of medical expenses.

    How the hell do you plan for that? I’m being cautious to say a year of cancer treatment can be had for 24-48k. I know people who spent close to that WITH insurance picking up some of the bills.


    The banks are being pure evil in this case. They can’t garnish the SS check but once they get the money it’s no longer actually SS funds. So long as their loan stated the bank can suto transfer funds it’s up to the couple to fight the banks in all the free time they have going to and from doctors.

  31. Jmarsh04 says:

    “The next week, the Cains got a letter from SunTrust Recovery Department, dated March 15, thanking them for their payment.”

    How do I nominate this bank for one of those “above and beyond” awards you guys talk about?

  32. Erik_the_Awful says:

    I’d send ‘em a letter saying they’ve got 7 days to put it back before I lawyer up and sue Bank and Collections Agent Jointly and Severally (sic?) for original amount, additional damages and lawyer fees.

    Quote the law. Mention you expect any overdraft charges caused by this issue to be waived or refunded or it’s gonna be lawyer time again.

  33. DougBB says:

    Seems to me that the ‘evil’ tag is a bit harsh here. I know it’s trendy to want to blame lenders for people who aren’t able to pay off their debts (and ‘predatory’ is a nice value-loaded word that gets used by those who’ve already made up their minds), but as others have said, there are some decisions that seem strange on the Cains’ part that contribute to their hardships – even allowing for the fact that the cancer diagnosis was obviously unexpected.

    First off, where’s the financial safety net? Anyone who’s paying $30K+ for a vehicle based SOLELY on future income is taking a risk.

    Second, once the job is lost, why not trade down in vehicle? Giving up a vehicle for auction has to be the lowest expected-value transaction. Obviously SUVs aren’t getting great money on the used car market, but I’d be shocked if auction value was the best that could be had.

    I’m not a lawyer, but is a bank obliged (or able) to verify the source of income for every transaction that passes through it? Obviously a SS Direct Deposit might have some degree of transparency, but perhaps not to the department that is doing the loan repayment transaction.

    So my vote is ‘underhanded, but…”

    Americans seem to think anymore that debt (and low-priced debt at that) is a right, rather than a privelege, and if you can’t pay it off, well, the mean old banks should’ve consulted their crystal balls better…

  34. Anitra says:

    Definitely evil. Doesn’t absolve this couple of their responsibility, but the bank has the bigger problem here.

  35. synergy says:

    @oeolycus: I don’t know about other places, but I’ve been laid-off from a job and gotten the “option” of COBRA. Yeah. It was several hundreds of dollars a month. Hundreds I didn’t have, couldn’t afford because, ya know, I was unemployed.

  36. LeopardSeal says:

    Ding Ding Ding! It’s a tie between Falconfire and DingoDigger for the most ignorant comment in this thread.

    @Falconfire: Dealerships are not there to tell people what car to buy or not buy. How would you like it if you went to buy a car and the dealer said “I’m sorry sir, but that car is way too good/expensive for you. We do, however, have a nice little 10 year old subcompact that would better suit your income/social status.”

    You also seem to have no real grasp how loans and interest work. After some quick figuring, it would seem that they had at least a 60 month loan. You assume they had been paying it for 2 years, but it was proably more like 18 months. Do you really think that they would have paid off 1/2 the value of the principle in 18 months, even without interest being a factor?

    @DingoDigger: You sound like someone who likes to post ignorant comments merely to see your own pseudonym on the page. It’s amazing how you can be so very wrong on so many points in one single sentence.

    Back to the topic at hand, I agree with the “Evil” designation for the bank. Everyone needs money to live, and taking away someone’s only means to feed and shelter themselves is about as evil as it gets.

  37. Elvisisdead says:

    Yeah, FYI, COBRA for my family plan is close to $1200 per month.

    There was no indication given as to Mr Cain’s level of income or expenses before he lost his job (when they bought the vehicle). Anyone ever think that they could afford it when they bought it, but through a crappy turn of events lost it?

    @Falcon
    If they borrowed $31k at 7% interest for 48 months, the payment would be $724 per month, not inclusive of Tax, title, registration. That brings the total amount to be paid to $35,631.00. So it was probably a longer term or a smaller rate. Either way, far from “predatory”. Realistically, it all depends on when they bought it in ’05. If it was late ’05, and they paid on it for maybe 6-8 months, it would add up. They may have only paid 5K or so of the total. Throw back in late fees for 6+ months, repo fees, etc. and the dollar amount is there. Bluebook on a 2yo used SUV is probably half the price of new. The numbers work out.

  38. LuvJones says:

    All of you who are saying they were wrong for buying the vehicle are not seeing the part where the bank took funds that legally they are not allowed. To argue about how the debt came to be is moot. The bank is not allowed to touch the funds REGARDLESS of how the debt came to be.

  39. Brilluminati says:

    I vote for EVIL. Down here in Florida, Sutrust is of the devil anyway. They are the worst in service, regardless of how much you open balance you have on your credit or how much money you have saved with them.

    The simple fact is Suntrust is collecting the monies from the acccount. It would appear that they are garnishing wages (or SS income) to offset the remaining balance on the repossesed vehicle, but they arent taking it from the check (because they’re not allowed). They are taking it directly from the account…which is probably the same account that the payments were originally paid from.

    Its no different than an auto debit for cable, electric or credit card…they are all designed to pay a bill or debt – only in this case, the debt is a repoed car AND the borrowers are in a very bad spot and cannot afford to pay it back at the rate that the bank is trying to collect.

    I strongly suggest that they close their SUNTRUST account COMPLETELY and open an accout with a different bank. If the husband is vet, he’s eligible to open an account with USAA for very little. No more unauthorized debits will occur and problem will be solved!

    Meanwhile, SUNTRUST can rot in hell.

  40. MommaJ says:

    I also am inclined to think that once those SS payments hit someone’s account and are potentially intermingled with other funds, they become general, fungible assets subject to offset by the bank. The law sounds like it’s meant to prevent redirection of SS payments before they get into the retiree’s hands, either by a voluntary assignment or legal process. After all, with money moving in and out of a bank account, how exactly are SS benefits to be identified and segregated? The Cains seem to be totally at sea about finances (looks like bankruptcy would have been the best route), but that’s hardly the fault of the car dealership, the bank, or anyone else. The bank has an obligation to its shareholders to collect on debts and enforce the terms of its loans. Nothing “evil” about it.

  41. CumaeanSibyl says:

    @Elvisisdead: NO JOKE. How do we know this guy wasn’t making $100K a year before he got sick? There’s no reason to assume that he didn’t, so there’s no reason to assume he couldn’t afford the payments on a $31K car. I thought that was the whole point of the story — that the bank screwed over a couple who found themselves in a bad situation through no fault of their own.

    I also love the moralizing going on here — basically saying that no one should ever buy anything at all on credit or they deserve what happens to them, especially old people who ought to know they’re going to get cancer at some point. Taking out a loan is not automatically stupid or irresponsible, folks, no matter how much you dislike SUVs.

  42. Ah'm Tha Sharaff says:

    Are we to assume that the only money deposited in that bank account recently was social security money? Knowing what type of money makes up the entirety of the account really seems to be an essential prerequisite to making any sort of an objective judgment.


    Of course, this website has never held itself out to advocate objectivity. It, and most of you, are unconditinally pro-consumer.

  43. OnceWasCool says:

    NEVER EVER TURN A CAR/TRUCK BACK IN! They can sell it for 100 bucks to their friends if they want, and you have to pay the balance.

    Make them repo it!