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Blog

Think Twice Before Using Relief Funds to Settle Old Debts

4/15/2020

 

Ben Jackson

IPA COO


​An article in The American Prospect reported that the Treasury’s Bureau of the Fiscal Service told banks that they could take relief funds from recipients’ accounts to settle old debts.
​
The IPA’s advice to its members is simple: think twice before using relief funds to settle old debts. While using those dollars to cover outstanding balances might seem like a good idea, it nonetheless carries a number of risks to an institution.

First, the primary purpose of these funds is to help our economy get up and running again. While keeping companies solvent is important, financial services providers need their customers to have sound financial footing for long term success. Customers who feel like their providers have helped them are more likely to stick with their provider over time and repay whatever they might owe. From a big picture perspective, the sooner we can get the economy up and running, the better it will be for us all.

Second, taking stimulus funds will cause reputational risk and eat up business resources at a time when they are scarce. If customers do not see the full amount of their payments, they will be calling customer services lines looking to yell at live agents. At a time when resources are already under pressure from people being ill and facilities being closed, adding a rush of customer service requests that would ultimately end with unhappy customers and exhausted employees will not be worth the money gained.

Finally, while there is nothing in the CARES Act that prevents taking the funds, several states have said that laws on their books prevent taking this money to cover old debts. In particular, Ohio’s attorney general and Massachusetts’ attorney general have both said that these funds are protected from creditor under laws in their respective states. In addition, a letter from 25 states’ attorneys general and a bipartisan letter from two senators to Treasury Secretary Steve Mnuchin have urged him to protect these funds from debt collectors. So, there are some legal stops in place, and seizing funds now could lead to a political and regulatory backlash in the future.
Working through this crisis is going to require the industry to think a little differently about problems and opportunities. A recurring lesson is that short-term sacrifices likely will lead to long-term gains. By looking at the big picture and keeping this lesson in mind, companies can work to ensure their future profitability.

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