Executive order halts stimulus check garnishment; Multi-state agreement with private student lenders provides borrowers with 90-Day forbearance
SACRAMENTO, CA – Consumer Reports praised California Governor Gavin Newsom today for taking action to protect people who are facing serious financial challenges as a result of the current coronavirus crisis.
Governor Newsom announced late yesterday that he had signed an executive order that stops garnishment of funds for any individuals receiving federal, state or local government financial assistance in response to the COVID-19 pandemic. This includes recovery rebates under the CARES Act. Funds may still be garnished for child support, family support, spousal support or criminal restitution for victims.
“No one should lose out on funds that were intended to help them survive an unprecedented health and economic crisis like the COVID-19 pandemic,” said Suzanne Martindale, senior policy counsel and western states legislative manager for Consumer Reports. “We applaud the Administration for adopting a strong policy to immediately halt garnishment and return funds to consumers’ bank accounts. We urge other states to follow suit without delay.”
The order is retroactive – meaning any relief funds that banks and debt collectors have already seized must be returned. The California order is the strongest state action yet to protect consumers from abusive debt collection practices during the state of emergency. New York Attorney General Letitia James issued guidance to banks, creditors and debt collectors in the state earlier this week making it clear that stimulus payments are exempt from garnishment.
In addition, Governor Newsom announced that he had reached a negotiated agreement along with other states with most major private education lenders to provide borrowers with a 90-day forbearance. Late fees, debt collection lawsuits, and negative credit reporting are also suspended under the agreement. Borrowers must opt-into the forbearance but don’t need specific evidence of COVID-related impacts to obtain relief. In addition to California, the multi-state agreement with private student lenders includes Colorado, Connecticut, Illinois, New Jersey, Vermont, Virginia, and Washington.
The CARES Act currently provides protections for federally-held student loans, including suspending monthly payments, waiving interest, and stopping debt collection activity until September 30, 2020. CR has joined with other advocates to call on private student lenders to offer similar safeguards to their borrowers.
“All borrowers need relief now, whether they have federal or private education loans,” said Martindale. “The multi-state agreement with private student loan companies is a crucial first step in assisting borrowers who did not get relief under the CARES Act. We urge all private student loan companies to provide relief, and are disappointed that some of the biggest players – Wells Fargo, Discover, and PHEAA/FedLoan Servicing – declined to make this commitment.
Martindale continued, “Going forward, we must also ensure these borrowers do not experience a payment shock at the end of their forbearance. We strongly encourage the Administration to continue working with these companies to develop next steps that will enable borrowers to obtain affordable loan modifications, so that they can get back on their feet in the coming months.”
UPDATE: A previous version of this news release indicated that Sallie Mae was among those student loan companies that had declined to make a commitment to provide the relief contained in the multi-state agreement. On April 27, a representative from Sallie Mae emailed Consumer Reports and represented that, while they are not a part of the multi-state agreement, they are voluntarily providing similar assistance to borrowers.
Michael McCauley: michael.mccauley@consumer.org or 415-902-9537