Exempt Benefits Not So Exempt?

March 1, 2008

Author: Catherine M. Callery (Kate)| Louise M. Tarantino

Controversies over supposedly exempt Social Security and Supplemental Security Income (SSI) benefits continue to be in the news.  As reported in recent editions of the Disability Law News (see the May and November 2007 editions, available at www.empirejustice.org,), benefits that should be exempt from creditors under 42 U.S.C. §407 are frequently seized under various creditor schemes.  The latest one to come to light involves the use of so-called “pay day loan” agreements.

According to a recent front page article in the Wall Street Journal, pay day loan lenders have been targeting elderly and disabled recipients of SSD and SSI, since the lenders can be confident that they will have income every month.  The lenders have forged arrangements with banks, under which the SSD and SSI beneficiaries have their checks directly deposited into accounts from which the banks automatically deduct the loan repayments, plus interest and fees, before the beneficiaries get access to their checks. Some of these loans have effective annual interest rates as high as 400%.  The article, which includes many poignant stories of beneficiaries struggling to get out from under these schemes, is available on  Empire Justice’s on-line resource center as DAP #482.

There are efforts under way to bolster the effectiveness of the exemption protections.  In previous editions, we have reported on Mayers v. New York Community Bancorp, Inc., 2005 WL 2105810 (E.D.N.Y.2005), the bank restraint case in which sections of the CPLR were challenged on constitutional grounds.  Johnson Tyler of South Brooklyn Legal Services (SBLS) reports that Mayers is very much alive.  According to Johnson, Mayers was brought against North Fork Bank (NFB), Bank of America (BOA), and other banks that settled out of the case.  To avoid mootness, a class action called Sims was filed against Bank of America in September 2006 by attorneys at the New York Legal Assistance Group (NYLAG).  Sims and Mayers were consolidated in November 2007 for discovery issues.  NYLAG is  doing discovery on BOA, while SBLS and NYLAG are doing discovery on NFB.  Plaintiffs hope to file a motion for summary judgment in Mayers this summer.  NYLAG will be filing the same in Sims at about the same time. 

On the legislative front, a bill was introduced last year in the New York State legislature by Assemblywoman Helene Weinstein, Senator Volker and others that is modeled on a Connecticut statute.  It offers more protection to debtors with exempt funds, primarily by protecting from restraint the first $2,500 in an account that contains directly deposited exempt money.  Thanks to the hard work of members of New Yorkers for Responsible Lending (NYRL) and others, the bill (A.8527 /S.6203) made it through both the Assembly Judiciary and Codes committees without any negative vote or any comment.  The text of the bill and a bill summary are available at http://assembly.state.ny.us/leg/?bn=A08527. 

The bill passed the Assembly on June 21, 2007, just prior to adjournment, but was not brought to vote in the Senate.  It passed the Assembly again on March 3, 2008. Advocates are working hard to bring it to a positive vote in the Senate this session.  If you have clients willing to share their stories, or would like to join the grassroots efforts to get this bill passed, please contact Kirsten Keefe at kkeefe@empirejustice.org.