Alex Brandon/AP Photo
Treasury Secretary Steven Mnuchin negotiated the CARES Act, but claimed ignorance that the direct payments could be grabbed to offset existing debts.
First Response
Treasury Secretary Steven Mnuchin was told directly in a phone call on April 1 that the $1,200 CARES Act payments to individuals were not protected from private debt collection. Senator Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, informed Mnuchin that the payments could be garnished by private debt collectors, or used by banks to offset existing debts that an individual had with their financial institution.
The payments are going out this week, two weeks after Mnuchin was first informed about the issue. And under the CARES Act, the Treasury Department has the ability to write rules protecting that payment from being taken by financial actors. But Treasury has done nothing of the sort. On Tuesday the Prospect reported that a top Treasury official, on a webinar with bank compliance officers, gave them an effective green light to use the CARES Act payments to offset debts, saying twice that “There’s nothing in the law that precludes that action.” The official also addressed garnishment by private debt collectors, which can commandeer payments if they have a judicial order, saying, “We do understand that concerns have been raised about this legal requirement, but it is a legal requirement at this time,” failing to add that Treasury can suspend that legal requirement through regulatory action.
“On a call with Secretary Mnuchin on April 1, Senator Brown raised the garnishment issue to Secretary Mnuchin, who at the time was not aware of the issue,” according to a statement from Senator Brown’s office. Mnuchin negotiated the CARES Act directly, and it passed a week before Brown confronted him over the garnishment issue. So Mnuchin claimed in this phone call that, a week after crafting the legislation, he was unaware of how CARES Act payments, intended to provide food, medicine, and basic necessities to millions of Americans in an emergency, could instead pass into the hands of creditors.
Senator Brown’s office added: “Treasury has the power to fix this and they should.”
After the April 1 phone call, Brown on two occasions urged Mnuchin to write regulations to flag the CARES Act payments and prevent financial actors from taking them. On April 3, he joined Senators Ron Wyden (D-OR) and Elizabeth Warren (D-MA) in a letter. Then on April 9, he wrote a bipartisan letter with Senator Josh Hawley (R-MO).
In the parlance of Washington, if a member of Congress writes a letter to an executive branch official, it often means that they are trying to get public attention to an issue they have already raised privately. That appears to be the case here. We do not know what Mnuchin said in response to Senator Brown on that phone call, but his actions indicate that he did nothing. And the rapid deployment of a letter suggests that Mnuchin ignored Brown’s request in that moment, and Brown decided to go public to pressure the Treasury Department to act.
A few states, like Massachusetts, have moved to stop garnishment orders from private debt collectors on these CARES Act payments. Ohio Attorney General Dave Yost announced on Monday that the payments would be protected from bill collectors in Ohio, and he included “financial institutions” in that order. These actions are helpful, but only a Treasury Department regulation can ensure that all recipients of the payments will have them protected from being used to cover old debts.
A request for comment from Treasury has not yet been returned.
Odds and Sods
I want to thank our readers for checking out my little scoop about banks and the $1,200 CARES Act payments in the Prospect yesterday. We received about 15 times the traffic of a normal day for that item, and picked up coverage in the Washington Post, Political Wire, Vanity Fair, the New York Daily News, the Staten Island Advance, and Common Dreams. There will be much more to come on this story, beyond what I wrote above.
In addition to that, over at the Prospect today, Candace McCoy writes about the impact of the pandemic on crime, which is actually not what you think (more about white-collar crime than petty theft). Also Marcia Brown reports that a Cameroonian asylum seeker she wrote about previously has been released from ICE detention after three years, winning a temporary order to protect her health during the outbreak.
You can find all of our coronavirus coverage at prospect.org/coronavirus.
Flying to the Rescue
The first big bailout agreement has been secured between the government and the airline industry. After a couple weeks of talks, airlines announced the terms of their agreements, which are broadly similar. American will get $4.1 billion in grants that will go toward maintaining payroll and a low-interest loan for $1.7 billion. Southwest will take $2.3 billion in grants and a $1 billion loan. Delta gets $3.8 billion in grants and a $1.6 billion loan. JetBlue gets $680 million in grants and $251 million in loans. United and other airlines will announce their terms soon.
Airlines agreed to maintain payroll for employees through September 30, though some carriers like United and Delta have signaled that furloughs and layoffs will likely immediately proceed on October 1. The Treasury Department prohibited share buybacks and dividends for airlines receiving aid, but only for a year, until September 30, 2021. There are limits on executive compensation for two years but they’re pretty weak, based on lofty 2019 figures.
Finally, Treasury secured warrants that can be used to acquire stock in the companies. The warrants will get the government 1 percent of Delta and 2.6 million shares in Southwest.
While several airline unions released a statement slamming the government for turning some of the dedicated grants into loans, and obtaining warrants on them, I thought the whole problem that the unions had with that scenario was that it would threaten the agreement. If the airlines agreed to it, with the same terms for workers, I don’t see the problem in obtaining equity stakes; in fact, it’s preferred. It does defy Congress, which intended this first tranche of support to be grants and the second tranche loans, but the government should get something for its money. I suppose workers may be endangered by increasing the long-term debt of the companies, but the companies are signaling that they’re poised to toss out workers anyway; the promise of only six months without furloughs wasn’t enough.
Sara Nelson, president of the Association of Flight Attendants-CWA, was more cheerful in a statement to CNBC: “This is an unprecedented accomplishment — a truly workers-first stimulus that keeps people connected to their jobs and provides stability and hope to millions of aviation workers and sets a template we must now work to extend to every worker.”
Meanwhile, it would be nice, as bailout money gets passed around, if there were more than one person on the five-member bailout oversight panel, who is reduced to mouthing off on Twitter with no staff or resources.
Ridiculous D.C. Invite of the Week
You may not have known that D.C. Fintech Week is coming! Really, it should be on your calendars by now, it happens every year. Fintech Week doesn’t hit until October, but fortunately you can get a head start today (like Christmas in July) with an exciting webinar: “How Can Fintech Help Small Businesses and Workers?”
I’ll back up. “Fintech” stands for financial technology; it’s an attempt by Silicon Valley types to “disrupt” banking. The way they’re doing this is by setting up online lenders that are typically backed with investment bank money and partnered with commercial banks for lending. So really “disruptive.”
Fintech has been attempting, with some success, to horn its way into the CARES Act recovery by making PPP loans. There’s some financial reward for that, but more important it would establish a working relationship between fintechs and hundreds of thousands of small businesses, which the fintech lenders would hope to stick. Top executives from Paypal, Stripe Capital, Plaid, and Kabbage are all on hand at this “virtual town hall” today, as well as an official from the Small Business Administration and the founder of D.C. Fintech Week (really a founding father).
These are just lobbying events dressed up as “town halls” or whatever. The idea is to promote the idea that fintech is a prominent force. There’s no reason for it to exist as a public event other than to influence policymakers.
Today I Learned
- We’re “reopening the country” on May 1! Also we aren’t. (Washington Post)
- Important analysis of excess mortality, which could be “at least twice the scale” of the official count of COVID-19 deaths. (Talking Points Memo)
- See also the “spike in people dying at home” in several coronavirus-stricken areas. (ProPublica)
- Trump’s name is going on the printed CARES Act checks, which I care a little less about than which financial predators can grab them. (Political Wire)
- Elon Musk promised ventilators to California, and will never deliver, and that’s just how Elon Musk rolls. (Sacramento Bee)
- What is this proposal from the Democrats, to pay out COBRA premiums for laid-off workers? Those are top-dollar premiums. That’s a huge windfall for the insurance industry. (Vox)
- The saga of the Central Park mobile hospital, and Franklin Graham demanding that health workers there oppose gay marriage, is insane. (New York Times)
