Guidance on American Rescue Plan Stimulus Payments

The Office of the New York State Attorney General (OAG) is hereby issuing guidance to make clear that emergency stimulus payments authorized by the American Rescue Plan are exempt from garnishment under New York law, any creditor or debt collector that garnishes such payments has violated New York and federal law, and our office will aggressively prosecute such violations. This guidance follows a similar guidance issued by the Attorney General in April 2020 with respect to CARES Act stimulus payments.

Background

On March 11, 2021 President Biden signed the American Rescue Plan Act of 2021 ("American Rescue Plan") to provide direct and immediate economic assistance to the millions of individuals and businesses who have been adversely effected by the COVID-19 pandemic and accompanying national emergency. To that end, Section 9601 of the American Rescue Plan authorizes the U.S. Department of the Treasury to issue "Recovery Rebates," one-time cash payments to eligible individuals up to $1,400 for an adult and $1,400 for a child. These means-tested payments are intended to help struggling Americans provide for their basic needs during the COVID-19 crisis.

Notwithstanding the emergency and life-sustaining purposes of these payments, the American Rescue Plan does not explicitly designate the payments as exempt from garnishment, as other government payments are.

American Rescue Plan Payments Are Exempt from Garnishment Under New York Law

Under New York law, certain types of property are exempt from execution, levy, attachment, garnishment, and other legal process by a judgment creditor seeking to satisfy a monetary judgment, including public benefits such as public assistance, social security, and veterans' and retirement benefits. The New York Court of Appeals has held that exemption statutes "are to be construed liberally in favor of debtors" because exemptions "serve the important purpose of protect[ing] the debtor's essential needs." The statutes exempting public benefits are not intended to be an exhaustive list of types of income exempt from garnishment; instead, they compiled the types of payments already deemed exempt by other statutes and granted additional protections to debtors with those types of income.

American Rescue Plan payments are similarly aimed at a consumer's essential needs, and therefore should not be subject to garnishment and similar legal process. Banking institutions are advised that they should treat American Rescue Plan payments as subject to the same protections as statutorily exempt payments.

The OAG Will Treat – and Prosecute – Garnishment of American Rescue Plan Payments As a Violation of Local, State, and Federal Law

New York Executive Law § 63(12) authorizes the OAG to bring an action "[w]henever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business." Similarly, Section 349 of New York's General Business Law declares unlawful "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state," and authorizes the OAG to bring an action "to enjoin such unlawful acts or practices and to obtain restitution of any moneys or property obtained directly or indirectly by any such unlawful acts or practices." It is the OAG's position that American Rescue Plan payments are exempt from garnishment, and therefore any person who garnishes or attempts to garnish these payments has engaged in fraudulent or illegal conduct under Executive Law § 63(12) and deceptive conduct under General Business Law § 349.

The OAG's position is that garnishment of American Rescue Plan payments would constitute "illegal acts" because such garnishment would violate:

  • The New York City Consumer Protection Law's prohibition of false, deceptive, and misleading conduct. In addition, rules issued under the law prohibit "the representation or implication that nonpayment of any debt will result in . . . the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to pursue such action," and "the threat to take any action that cannot legally be taken or that is not intended to be taken."
  • New York General Business Law 601(8)'s prohibition of "claim[ing], or attempt[ing] or threaten[ing] to enforce a right with knowledge or reason to know that the right does not exist."
  • The Fair Debt Collection Practices Act's prohibition of false, deceptive, or misleading conduct, including "[t]he representation or implication that nonpayment of any debt will result in the . . . seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action," and "[t]he threat to take any action that cannot legally be taken or that is not intended to be taken."
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111–203, 124 Stat. 1376 (2010) ("Dodd-Frank"),which prohibits unfair, deceptive, and abusive acts or practices, and authorizes State Attorneys General to enforce these prohibitions. Under Dodd-Frank, an act or practice is unfair if it "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers" and "such substantial injury is not outweighed by countervailing benefits to consumers or to competition." An act or practice is abusive if it:
  • Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
  • Takes unreasonable advantage of –
  • A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
  • The inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
  • The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

The OAG will treat garnishment of American Rescue Plan payments as unfair and abusive under Dodd-Frank. In addition, any person who knowingly or recklessly provides substantial assistance to a creditor or debt collector in garnishing American Rescue Plan payments will face aiding and abetting liability under Dodd-Frank.

Under certain circumstances, New York law may permit a bank to seize funds in a consumer's account at the bank to pay a debt owed to the bank. This is known as a bank's right of setoff. It is the OAG's position that, because American Rescue Plan payments are exempt from garnishment, they are also exempt from setoffs, and such setoffs would be unfair and abusive. The OAG urges all financial institutions to follow the lead of the nation's largest financial institutions, which have committed to ensuring that consumers are able to access the full value of their stimulus payments.

Scope of This Guidance

This guidance only addresses the exemption for payments authorized by the American Rescue Plan. This guidance does not express an opinion on any other exemptions, the meaning of the term "public assistance" in other statutes, or the status of American Rescue Plan payments in other contexts.

This guidance does not apply to any actions taken by the State of New York, including, but not limited to, any actions to collect past due child support.

COVID-Related Tax Relief Act of 2020 Stimulus Payments

On December 27, 2020 the President signed the Consolidated Appropriations Act, 2021, which included the COVID-Related Tax Relief Act of 2020. This is the second stimulus package enacted by Congress, following the March 2020 CARES Act.

The COVID-Related Tax Relief Act of 2020 directs the IRS to send emergency stimulus payments (also called "recovery rebates" and "economic impact payments") to individuals to provide for their basic needs. .

The IRS has not yet released any information about the payments, and we will update these FAQs as more information becomes available. You can also check for updates at https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments

How much are the stimulus payments?

Eligible adults will receive up to $600 ($1,200 for married couples), plus $600 for each child age 16 or under.

Who is eligible to receive stimulus payments?

  • U.S. residents who are not claimed as a dependent, have a Social Security number, and have adjusted gross income for 2019 up to $75,000 for individuals, $112,500 for head of household filers, and $150,000 for married couples who file jointly.
  • Married couples are only eligible for $1,200 payments if both people are U.S. residents. If only one is a U.S. resident, the couple will receive $600 (unless one person is in the military, in case the couple will receive the full $1,200).
  • Recipients of Social Security, Railroad Retirement, disability, veterans, or Supplemental Security Income benefits.

What do I need to do to receive a stimulus payment?

  • The IRS has not yet released any information about distribution of the payments. Based on the way the IRS distributed CARES Act stimulus payments, it is likely that most people do not need to do anything to receive a payment. No action is likely needed for:
    • Individuals who received a CARES Act stimulus payment.
    • Individuals who filed tax returns in 2018 or 2019.
    • Recipients of Social Security, Railroad Retirement, disability, veterans, or Supplemental Security Income benefits.
  • We will update these FAQs once the IRS releases more information.

How will I receive my stimulus payment?

  • The IRS has not yet released any information about distribution of the payments. Based on the way the IRS distributed CARES Act stimulus payments, it is likely that you will receive your payment the same way you receive benefits and tax refunds (direct deposit or paper check by mail).
  • We will update these FAQs once the IRS releases more information.

When can I expect to receive my stimulus payment?

  • The IRS is expected to begin sending the payments within weeks, but has yet to release any timelines.
  • We will update these FAQs once the IRS releases more information.

Can a creditor or debt collector take my stimulus payment because of an old debt?

  • No. The Act prohibits creditors and debt collectors from taking (or "garnishing") stimulus payments for unpaid debts, and requires financial institutions to comply with federal regulations requiring financial institutions to treat the payments as exempt in the same manner as other public benefit payments.
  • If you believe your stimulus payment was unlawfully taken, you should file a complaint with our office.

I'm on Medicaid and live in a nursing home or assisted living facility. Can they take my stimulus check?

  • No! Even if a government program such as Medicaid covers part or all of your nursing home bills, your nursing home cannot take your stimulus payment.
  • If your nursing home or assisted living facility took your stimulus payment (or tried to take it), you should file a complaint with our office.

Protecting CARES Act Stimulus Payments from Debt Collectors

Guidance issued by the Attorney General's Office is based on multiple state and federal consumer protection laws and clarifies that any attempt to garnish Coronavirus Aid, Relief, and Economic Security Act (CARES Act) stimulus funds from New Yorkers will be treated as a violation of these laws.

Under New York law, certain types of property — including public benefits like public assistance, Social Security, and veterans' and retirement benefits — are exempt from execution, levy, attachment, garnishment, or other legal process by a judgment creditor seeking to satisfy a monetary judgment. The New York State Court of Appeals has held that exemption statutes "are to be construed liberally in favor of debtors" because exemptions "serve the important purpose of protect[ing] the debtor's essential needs."

CARES Act payments are similarly aimed at debtors' or borrowers' essential needs and — under this guidance — will therefore be treated and are subject to the same protections as statutorily exempt payments, and will not be subject to garnishment — a legal mechanism that typically involves the "freezing" of funds in a bank account by creditors or debt collectors. The OAG guidance advises banking institutions that CARES Act payments will follow similar legal processes as other public benefits, and any person or entity that garnishes or attempts to garnish these payments will have violated multiple state and federal consumer protection laws.