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Bank of America Allowed to Deduct Fees From Social Security Benefits

This article was written by in Banking. 8 comments.

Bank of America 1, Retirees 0.

In 2004, Bank of America was ordered to pay $284 million to 1 million customers in a settlement. The bank was charged with using funds from social security or other government benefits in customers’ accounts to cover bounced check fees. The California Supreme Court overturned this ruling yesterday.

Federal law indicates that creditors are not permitted to seize government benefits to pay for debt. The bank’s argument is that fees charged to a bank account are not debt. The fees are debits like any other withdrawals and government checks are credits like any other deposits. According to the law in California, bank accounts tally debits and credits.

The balance of a savings or checking account is a running tally. If a bank charges a fee, the balance is reduced by the amount of a fee, even if the reduction forces the balance to dip below zero. The next deposit would increase that balance, regardless of the source of the deposit, government or otherwise. How would a bank account logistically not apply any deposit to offset a fee?

Kathy Chu and Taylor McGraw, USA Today, June 4, 2009

Published or updated June 5, 2009.

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Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 4 comments… read them below or add one }

avatar 1 Anonymous

Very interesting ruling. What part of FOOD/CLOTHING/SHELTER does that judge not understand when it come to Social Security?

Due to ID theft in 1992 I have had many collecters hound me for money I do not owe for 17 years- WAY over the Statute Of Limitations.

What a screwy ruling!

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avatar 2 Anonymous

Seems they are charging people not for “lack of money to pay” but for customers either not caring, or not bothering to check if there is enough money in their bank (i.e. not staying on top of their finances), so I don’t really see a problem with this ruling. If the issue was the bank charging too high of interest or fees for services (taking money away from people), that would be one thing, but to me it seems that they’re just punishing bad behavior.

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avatar 3 Anonymous

While your comment seems reasonable on the surface, I personally know and work with several people with serious mental and emotional challenges who receive SSI and SSD who have lost hundreds of dollars to Bank America in these overdraft fees.

In one particular instance a young woman had $35 ‘confiscated’ from her government benefits because she accidentally overdrew her account by three cents. Since she didn’t expect that overdraft fee it triggered another overdraft on a three dollar purchase which resulted in another $35 charge.

Discipline and attention to financial health are laudable goals, but some people really need a helping hand when they make a mistake, not a slap in the face.

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avatar 4 Anonymous

THANK GOD,,,,some body has open the door to a very bad situation. these banks are too aggressive when it come to over draft fees. i am with wachovia and i had a bad situation it took pay check of 800.00 in over draft fees. i was so distraunt when i saw this happening, but they cedited back 35.00 and said this was all they coud do. i am in such a financial hardship now. I HOPE SOMEBODY CAN PUT A CAP ON THIS OR AT LEAST SLOW IT DOWN.

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