Governor protects federal stimulus checks against debt collections

Individuals who received a check from the federal CARES Act have complained the money simply went to debt collectors. On Thursday, Gov. Gavin Newsom put a stop to that practice in California.

"A lot of those checks, if you had debt, were garnished by debt collectors," Newsom said in the opening minutes of his regular weekday lunchtime news conference about the coronavirus. "I have signed an executive order, quite literally moments ago, where that will no longer be the case...It's also retroactive. So if you're a debt collector and you did garnish those contributions, those checks, you've got to give them back."

The order explicitly bars three kinds of debt from protection: child support, spousal support and victim restitution payments.

The order also expanded protections for student loan borrowers.

Newsom gave a nod to the attorneys in his office while indirectly acknowledging it's possible that some of these changes might be challenged in court.

"I want to just thank my legal team for organizing that framework over the last few days while we have been putting together that executive order," he said.

A new release sent out a short time later with the text of Executive Order N-57-20 states these changes were intended to address a loophole in the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Act suspended payments on "monthly payments, interest, and involuntary collection activity" related to federal student loans through the end of September.

"However, the CARES Act did not address millions of student loan borrowers with federal loans that are not owned by the U.S. government as well as loans made by private lenders," the governor's release stated.

People with those types of loans will now be eligible for credit protections, assistance programs, 90-day forbearance and waiving of late fees.

There have been numerous legislative fights in the Capitol in recent years as some legislators have sought to put new limits on debt collection practices. Many of these have been led by Sen. Bob Wieckowski, D-Fremont, an attorney. Last year Newsom signed his SB 616, which protects the last $1,724 in a debtor's bank account in order to cover basic living expenses.

In February, Wieckowski introduced SB 908, a bill that would require licensing for debt collectors. It has been stalled with the Legislature on recess due to the virus. But last week he amended it to include disclosure requirements for debt collectors when they contact people who owe money.

Much of the opposition to these bills has been led by the California Chamber of Commerce. The group did not respond to an email seeking comment.

"I applaud the Governor's action to prohibit debt collectors from taking CARES Act funds from Californians," Wieckowski said in an email. "It is the right thing to do and it will ensure that people who desperately need this money can use it for groceries and other necessities."

The order builds on the state of emergency Newsom announced on March 4. He also took several other actions this week, including temporarily suspending a requirement for Native American tribes to file reports under the California Environmental Quality Act.