× Expand Jake May/The Flint Journal via AP USAA, which primarily serves active-duty military members and veterans, has prevented some customers from accessing coronavirus stimulus payments sent to their bank accounts.

UPDATE: USAA has changed its policy and will return the stimulus funds. Read this story for more information.

USAA, the veteran-serving financial institution, took $3,400 in CARES Act payments from the family of a disabled veteran to offset an existing debt, denying the family emergency funds during a time of personal economic stress. Text messages from USAA customers show that this is not an isolated incident. In fact, USAA is using a boilerplate statement to respond to customer complaints about taking their payments.

According to the wife of the veteran, a USAA representative told her in a phone conversation that they “shouldn’t have gotten into debt in the first place,” and refused to give back the $3,400 CARES Act payment.

“I’m out of work and my husband is injured and can’t work,” said Carrie, whose emergency economic payments were taken by USAA. “We don’t know where rent is going to come from now. It was going to help my 18-month-old get her meds. I’m at a loss for words, they don’t care.”

In a statement, USAA spokesperson Matthew Hartwig acknowledged that “a stimulus payment could be reduced when we execute legal garnishment or lien requirements … a reduction can also occur in circumstances when the stimulus payment is deposited into an account with a negative balance.” Hartwig added that USAA is “continuing to examine ways to address such occurrences during this pandemic.”

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Carrie, a 22-year-old mother of two from Minneapolis whose husband served in the military and now receives disability after being injured while serving, asked that the Prospect not use her family’s real names, as they try to work out the issue with USAA. She said that they had been anticipating the CARES Act payments for weeks, which at $1,200 per adult and $500 each for the two kids comes out to $3,400.

In the recent past, the family had struggled with a “rough patch,” but they had just moved into a new apartment, and Carrie earned her credentials to work in child care. With stay-at-home orders, however, Carrie was laid off, and her husband is unable to work due to his injury.

“It happened so suddenly,” Carrie said of the changes. “I got this new teaching job, things were going well, not even three weeks later I’m out of a job.” The CARES Act money would “give us a chance to stay on top of the bills,” she added.

After logging in to the IRS website that tracks the payments Monday night, Carrie found that “it went into one of my old accounts that I haven’t had access to in over a year.” The account, which was previously used for a 2018 IRS refund, was with USAA.

Carrie explained to me that her family did run up some debt and get overdrawn after her husband was injured. But they also experienced fraudulent use of the USAA account. The bank concluded that the family did not have sufficient proof of fraud claims, and would be liable for $8,000 in charges.

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A year ago, Carrie abandoned the USAA account, which was “charged off,” an accounting term meaning that the bank did not expect the debt to be recovered. Carrie now banks with a small community lender in the Minneapolis area. However, the IRS had the USAA account on file for the family, so it sent their $3,400 payment there.

After discovering that USAA had the money, “I called the bank, and said ‘Hey, do charged-off accounts take that [CARES Act] payment?’” Carrie explained. “They said the money went into their account to cover part of that debt.”

A text message provided by Carrie bluntly explains USAA’s rationale. “Thank you for reaching out to us,” reads the message from a USAA representative identified as Robyn. “If a balance is owed the deposit will be used to offset the amount owed.” Carrie replied to the text, asking, “But if its [sic] closed and charged off will you still take it? … so much for supporting families in need thought yall where [sic] one of the good banks.” Robyn responded, “If the account is charged-off the deposit will post to the account and pay off any balance that is owed.”

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This is precisely the scenario sketched out by banking officials to the Prospect on Tuesday. A charged-off account with overdraft fees or other debts attached to it could receive the IRS payments, and then use them to offset those debts. Treasury officials told bank compliance officers in a webinar last week that “there is nothing in the law that precludes that action,” seen as a green light to enable banks to take the CARES Act payments.

Treasury Secretary Steven Mnuchin knew about this for two weeks, after being directly informed by Sen. Sherrod Brown (D-OH). The Treasury Department has the authority under the CARES Act to write a rule exempting the direct payments from private debt collection by financial actors, including banks like USAA. Treasury has so far chosen not to do so.

USAA spokesperson Matthew Hartwig said that his bank would be supportive of “legislative or administrative action to exempt such future payments from these legal requirements.” But that has not stopped USAA from doing as they please with the CARES Act payments now, in the absence of such action.

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Other texts forwarded by Carrie show other USAA customers making the same complaints, and getting the exact same response from USAA. “USAA … STIMULUS CHECK DID SHOW UP ... but you all wont [sic] let me collect on it cause of a negative balance,” writes one customer whose name has been redacted. USAA responded with the same boilerplate, that any deposits into the account will offset the negative amount owed to the bank.

Carrie stated that she has heard from several people who have spent hours on the phone with USAA, trying to retrieve their CARES Act payments. A friend’s husband, she told me, is stationed on the USS Theodore Roosevelt, the ship that has experienced an outbreak of COVID-19 infections, with one death confirmed. That family’s payment has also been “stopped for a bit,” Carrie said, though she could not confirm whether the family had received it yet.

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“People like me have been on hold for hours,” Carrie said. “It affects more than just me, but many military families. Especially right now, with millions of people laid off, the money shouldn’t be going into [USAA’s] pockets.”

USAA, which primarily serves active-duty military and veterans, has over 13 million members and $76 billion in deposits, making it one of the top 30 banks in the United States. Hartwig noted that the bank has offered assistance to communities during the coronavirus crisis, including curbside meal and grocery pickup for employees, credit card and consumer loan payment deferrals, and the return of $520 million in auto insurance premiums, due to people driving less during the crisis.

In a statement, Sen. Brown’s office said, “It’s outrageous that any bank would exploit the Covid-19 pandemic to fleece their customers. Treasury can and must fix this immediately.” Brown’s office added, “The CFPB and our financial regulators should also warn banks that they will come after them for this type of unfair and abusive conduct.”

Brown has sent two letters, including one bipartisan one, to the Treasury Department, asking it to exempt the CARES Act payments from private debt collection or bank offsets. The House of Representatives is also readying a letter, initiated by Congresswoman Judy Chu (D-CA).

On Wednesday, Brown and Sen. Elizabeth Warren (D-MA) sent letters to the nation’s leading banking associations, urging them to inform their members not to use CARES Act payments to offset existing debts. “While Treasury has refused to follow congressional intent, that does not give banks license to steal the stimulus payments from customers,” the senators wrote.

In a statement to the Prospect, Congresswoman Ilhan Omar (D-MN), Carrie’s elected representative in Congress, called USAA’s conduct “shameful. This money was supposed to go to Minnesotans who are struggling and instead the administration is using it to help big banks who don’t need the cash. I, along with my colleagues in Congress, are doing everything we can to put an end to this. The Treasury Department and the IRS have the authority to prohibit this cruelty, and they should.”

State lawmakers are also getting involved in the issue. A letter from 13 state senators to Gov. Andrew Cuomo (D-NY) asks him to issue an executive order to exempt the CARES Act payments from private debt collectors or creditors. “This is money that should be used to keep individuals and families safely sheltered and fed—not immediately seized by creditors,” the senators wrote.

Meanwhile, many major banks have not publicly announced their decisions on how to handle CARES Act payments and outstanding debts, after the Treasury Department gave them the green light to commandeer them. JPMorgan Chase spokesperson Anne Pace indicated that the bank would return CARES Act payments delivered to charged-off accounts, rather than use them to offset debts. However, Pace stressed that this policy “was in regards to charged off accounts (closed accounts) only,” leaving open the possibility that someone with an active account at Chase and a delinquency on some other consumer loan or fee could see their payment used to cover that debt.

Jim Seitz, a spokesperson from Wells Fargo, gave this statement to the Prospect: “To do our part to provide our customers access to the stimulus payment funds, Wells Fargo is pausing for 30 days the collection of negative balances existing at the time when stimulus payments are deposited.” This protects the payment for a period of time, but presumably the payment would have to be spent or transferred out of the account within a month to avoid Wells Fargo taking it to cover a debt thereafter. JPMorgan Chase and Bank of America announced a similar policy on Wednesday.