California Credit Law Blog

A new federal rule effective May 1, 2011, vastly strengthens protections for Social Security, SSI, VA, federal retirement checks, and certain other federal benefits from seizure by creditors. Heretofore, in theory such benefits were protected, but not in practice. Under the current rules, creditors could seize the consumer's bank funds and it was up to the consumer to hire an attorney to challenge the seizure or garnishment. Needless to say, hardly any consumer successfully challenged the seizures leaving many consumers unable to pay the rent.

The new rule requires all banks and credit unions to determine whether exempt federal benefits have been electronically deposited within the past preceding two months. If so, the bank must protect the money deposited in that period. Under the new rule, the consumer need not take any steps to assert an exemption. The bank has an unconditional obligation to make the protected money available to the consumer. The bank is even prohibited from complying with any state order to pay the protected funds to the creditor.

Exempt funds delivered by paper check are not covered, which is another reason all beneficiaries should switch to electronic deposits. Beneficiaries may also obtain a MasterCard issued by Comerica Bank to receive exempt funds.

The National Consumer Law Center in Boston, MA, played a leading role in the four-year effort to win the new protections for consumers receiving federal benefits.

The FTC reports that identity theft was the number one consumer complaint it and other federal agencies it and they receive from consumers in 2010. The agency annually publishes what it calls the Sentinel Network of consumer complaints. Last year, 6,460 California residents reported they were the victims of identity theft, which was 17% of all consumer complaints. Younger consumers were victims more often than older persons. California was # 3 in the U.S. in terms of complaints of identity theft among the states adjusted for population.

Today, the FTC and Fed Reserve announced that lenders will be required to provide free credit scores to borrowers when the lender uses a credit report to set high interest rates or other loan terms that aren't the best available. The new rule will likely go into effect in July 2011.

Lenders will also need to provide credit scores when they deny credit, change the terms of an existing credit arrangement or refuse to grant credit in the amount or on the terms requested.

Various types of credit scores are marketed to consumers, but those scores aren't necessarily the ones banks and other lenders are using to make credit decisions according to experts. Under the new rule, consumers will see the actual credit scores creditors are using to make decisions. The rule will apply to financial products such as mortgages, credit cards and auto loans.