The Treasury Department has proposed new regulations that would prevent banks from freezing accounts containing money from Social Security, Supplemental Security Income and veterans’ benefits, a long overdue step.

Current law is supposed to prohibit banks from freezing and garnishing accounts that contain Social Security and veterans’ benefits upon creditors’ requests. However, the absence of clear regulations has allowed many banks to freeze the accounts anyway. The two Democratic and Republican leaders of the Senate Finance Committee praised the new proposed regulations on Wednesday.

“Americans pay into Social Security their entire lives, and when the time comes, they have a legal right to access those benefits,” said Senate Finance Committee chairman Max Baucus, D-Mont. “The Administration’s proposal is a welcome step toward ending these outrageous practices and protecting the benefits seniors and veterans depend on to make ends meet.” 

“Social Security benefits are supposed to be protected from debt collectors.  People who need that income for food and shelter are meant to have access to it, even as they pay off debts,” said ranking member Charles Grassley, R-Iowa. “These changes are intended to strengthen current law to be clear that banks are not allowed to freeze protected federal benefits, causing harm to beneficiaries and forcing the beneficiaries to try to remove the freeze after the damage has already been done.”

The proposed regulations should be put into place as soon as possible. Apparently they have been in the works for years. Senate Special Committee on Aging Chairman Herb Kohl, D-Wis., and Senator Claire McCaskill, D-Mo., introduced legislation last year to prevent the Treasury Department from promoting the use of direct deposit for Social Security beneficiaries until the department put a stop to the illegal garnishment of government benefits, and in May of 2009 they sent a letter to the Treasury urging the department to enact a rule clarification to end illegal freezing and garnishments. 

It’s good to see some bipartisan agreement on these regulations. Let’s just hope there will be a similar sense of bipartisanship in getting the financial regulatory reform effort finally accomplished.