Nationwide, eligible recipients who previously opted to receive tax refunds or Social Security payments via direct deposit are receiving stimulus relief checks. Although this process is slated to disburse relief funds much more rapidly than sending checks in the mail, bank fees and penalties may cause some individuals to lose part of their government-funded payment. 

According to The American Prospect, Congress did not exempt CARES Act payments from private debt collection, which means banks have the power to seize the $1,200 payment and use it to pay off outstanding debt. Last week, the Prospect shared audio from a meeting with bank officials that reveals the U.S. Department of the Treasury appeared to give banks permission to collect prior debts.

Potentially, people who expected to be in the first batch of recipients to receive the relief funds could see large portions of their payments transferred from their accounts to the pockets of the banks, limiting their ability to secure food, housing and gainful employment. 

The Treasury’s chief disbursing officer Ronda Kent is heard on the audio recording saying that banks had asked her about the possibility that these payments could be subject to collection from the bank where the money is deposited, on the premise that the recipient owes an outstanding loan or other payments to the bank.

Kent responded to the inquiries by saying “there’s nothing in the law that precludes that action" but advised them to consult the banks' lawyers about their stimulus check policy.

 "You will want to know for your bank what your bank has decided to do," Kent said.

In the Prospect’s report, an anonymous banking official also illustrated a scenario involving a “zombie” account where the direct deposit payment goes to a banking institution even though the recipient’s account there is inactive. By this interpretation, bank customers who thought they closed an account but actually left it open with a negative balance can have their stimulus funds garnished by the bank they left to pay down any fees that are still owed.

Large institutions like Citibank and U.S. Bank have yet to clarify their stances on whether or not stimulus checks would be used to pay off outstanding debts, Forbes reported

However, JPMorgan Chase, Bank of America and Wells Fargo all confirmed Wednesday they would provide relief to customers who had overdrawn checking accounts so that customers could reap the full benefits of the federal cash stimulus program.

Stimulus checks of up to $1,200 ($2,400 for married couples) and $500 for each qualifying child are being sent to people with an adjusted gross income of $75,000 or less. Those with little or no tax liability also will get a $1,200 ($2,400 for joint returns) stimulus check.