The Right Bank Account for the Formerly Incarcerated

by
Adam Rust

If you are transitioning to life on the outside or if you are helping someone to do so, you may be researching for a bank account.

A bank account is a foundational tool for modern life. Most people want to shop online, swipe a card at the point of sale, and send money through P2P services like Venmo or Cash. Most retailers recognize that they have to take credit and debit cards to remain viable. You can get along without a bank account, but it will be much harder to do so. Living without a bank account means accepting the risk of keeping cash, of spending hours to transact, and paying fees to non-bank alternative financial service agents at each step of the way.

People returning from incarceration are no different – a bank account can make their life much more manageable. A bank account helps for all the reasons listed above but also for some of the unique payment needs faced by the reentry community.

Having a bank account smooths the rails.

Rather than trek across town during working hours to make a payment at the courthouse, a person can use a bank account to set up an electronic ACH payment. Timed saved – twenty minutes to two hours. Ditto for paying child support or restitution.

Other policies to ask about when you apply for an account:

Does your bank charge a fee when the USPS returns a paper statement because it was not deliverable? Find out if they do – because paying an extra $25 just because you moved is no fun.

Early account closure fee: Recently, some banks will debit the balance when a consumer closes a recently-opened account. For example, one local credit union charges $25 if an account is closed less than six months after the account holder first established it.

Wage Garnishment

Having established why the formerly incarcerated stand to benefit from a bank account, the next thing to understand is that not all bank accounts suit the particular needs of the justice-involved. It isn’t just that some banks are universally better than others. No, the key takeaway is that some banks are better for this specific population.

For example, many banks charge a fee for processing a wage garnishment order.

Under Title II of the Consumer Credit Protection Act, garnishments cannot exceed the lesser of twenty-five percent of disposable income or the difference between pay and thirty times of the local minimum wage. In other words, if a worker earns $600 per pay period, then under the disposal income test the maximum garnishment would be $150 but under the minimum wage test in a locality with a $7.25 per hour minimum wage, the maximum garnishment is $382.50 ($600 minus $7.25 times 30). Therefore, in this example, the maximum garnishment under federal law is $150.

However, the wrong bank account adds to that misery.

Picture of card
Picture of card
Picture of card

Resource – A list of legal process fees at the nation’s largest banks:

Many banks charge legal process fees when they receive a request to pay a legally-ordered item. Examples would include wage garnishments, tax liens, injunctions, and subpoenas.

Bank of America charges a “legal process fee” of $125.

Wells Fargo applies the same fee, but they cap the costs at $250 per month.

BB&T has the same policy as Bank of America.

• As does Citibank - $125:  

• PNC Bank and Comerica Bank charge a fee of $100 to any withdrawal subject to a legal process

• However, Fifth Third only charges $80.

• Processing of garnishments and other legal payment orders cost $75 at JPMorgan Chase.

The right account will have a lower charge for all legal process orders.

About debt collection on funds deposited to prepaid debit cards

Officially, debt collectors can garnish funds deposited to a prepaid debit card.

However, it less likely that they will be able to garnish. Why? Because of differences in how prepaid debit cards work.

When you deposit funds to a prepaid debit card, the bank places them in a select group account referred to as a “pooled account.” It is a difference that matters not to most consumers, and in fact, few probably know that it is going on. Funds held in pooled accounts receive an alternative form of FDIC insurance. It is called “pass-through” insurance.

Second, banks do not check credit when they decide to approve or reject an application. They don’t check credit because they are not extending credit. True, a regular checking account is not a credit card, but it can become a credit vehicle if the account owner overspends and then the bank has to try to collect the overage.

The important thing to take away from this post is that some bank accounts charge exorbitant fees to process court-ordered payments. Not all consumers need the same bank account, as not every consumer has the same use cases for an account. Any individual with a garnishment – be it someone who recently exited prison as well as those who have never been involved with our justice system – should pay attention to how a bank charges for garnishments.

Note: Protection from garnishment is contextual and not an actual legal construct. Debt collectors can still garnish these accounts. If you tell the debt collector, then they will place a garnishment. Moreover, I am not a lawyer; you should not rely on these comments as a substitute for consulting a lawyer, and I am not endorsing any effort at avoiding your legal obligations.

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