Help Protect Grandma’s Social Security from Predators

Social Security would like your help. Predatory lenders in some places have found a way to, in effect, take control of Social Security payments and collect fees from that meager stipend essentially forever. The Social Security Administration is taking public comments until June 20, 2008 about what they should do, if anything.

Here’s where the “free market” gets obscene. It has been reported that payday lenders and other high-interest and high-fee services, like check cashing outlets, will make loans to folks on Social Security. Of course normally a payday lender is looking to the next paycheck to cover the loan. In this case, the lender will make the loan if — and it is a big “if” — granny will have her Social Security check deposited to an account they can draw their repayment from.

Now that doesn’t sound so bad, right? They want to be sure they get paid. But the reality is far more complex. The bank they ask you to deposit the benefits into may be in another city or state. That’s not necessarily bad. But what if the bank doesn’t offer the customer checking privileges or an ATM card? How will granny draw her money to live on? Well that’s easy: The neighborhood payday and check-cashing service!

The Birmingham News in Alabama described folks lining up at the lender’s offices each month to get their “allowances” sometimes for years. Although a recipient can change the direct deposit information with Social Security, the least sophisticated consumers — the ones most likely to become entangled with small loan operators and not understand how costly the loan is — are unlikely to be aware of this unless the lender tells them. And you so rarely see thieves telling victims their gun might be unloaded.

Social Security benefits are supposed to be protected from levy — collection — by commercial creditors in essentially every way. Lenders cannot garnish a Social Security check at the source, in the mail, or in the bank. Even in bankruptcy it is protected. (The rules are different for money owed the government, of course.) The idea is that these benefits are so important to keeping the elderly and disabled out of poverty — or at least at a minimal standard of living — that no one should be able to touch any part of the money from beginning to end.

Predatory lenders have found a way — with friendly banks — to help themselves to a share of that money without ever having to go to court and, in the process, take away the last vestige of independence and pride Social Security beneficiaries may have. The thought of elderly men and women standing in line to ask for their allowance should gall anyone.

Here is the information from Social Security about the issue and requesting the public’s input on the problem. They will likely receive some substantive comments with suggestions how they could better protect at-risk beneficiaries.   The payday lending industry will also no doubt chime in to warn that capitalism as we know it will fail if they can’t milk our grandparents like so many Guernsey cows. They need to know addressing this  is important and should not be put on the back-burner.

The FDIC and Federal Reserve have, in the past, discouraged the banking industry from becoming involved with payday lending. Of course not because it’s unsavory — but only because of the risk! But the next step would be for those institutions to take a moment from saving Wall Street to consider protecting the least among us from the sharks.