SSI Funds Not Exempt for Overdrafts

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

Things were just starting to look a bit more secure for Social Security and SSI recipients with bank accounts.  See related article on page 17 of this newsletter about Direct Express cards, and the July 2008 edition, available at www.empirejustice.org regarding New York’s new Exempt Income Protection Act, which will better protect statutorily exempt income from access by creditors.  Then the California Supreme Court reminded us that, as many of us learned when studying the Uniform Commercial Code in law school, the bank usually does win.

In Miller v. Bank of America, 46 Cal. 4th 630, 207 P. 3d 531 (2009), the court ruled that a state statute exempting Social Security and SSI funds directly deposited into a bank account from attachment does not prohibit a bank from seizing an incoming SSI deposit to reply itself for overdrafts and associated fees.

In earlier litigation challenging bank setoff of overdrafts and related fees against Social Security and SSI benefits, the Ninth Circuit Court of Appeals also upheld the practice. See Lopez v. Washington Mutual Bank FA, 302 F.3d 900 (9th Cir. 2002).  In Lopez, the court ruled that the terms of the account agreement constituted a consent to the setoff against incoming benefits; there was thus no violation of the Social Security Act anti-assignment provisions.