Federal law has long protected veterans, disability and Social Security benefits from being taken by debt collectors.

Having these benefits directly deposited in the recipient's bank account has been promoted as a more timely and secure means of receiving benefits than waiting for checks in the mail. More than 80 percent of the nation's 51 million Social Security recipients receive their benefits by direct deposit.

Unfortunately for countless beneficiaries, the convenience of direct deposit has given debt collectors a loophole in the debt collection exemption law. In 12 months' time ending in 2006, $178 million was garnished from bank accounts into which Social Security benefits had been directly deposited, according to an estimate from the Social Security Administration inspector general.

As detailed in reports this week from the Wall Street Journal and the Associated Press (June 3 Gazette, Page 3A), banks that complied with these garnishments also pocketed substantial fees from the customers whose money was seized.

For example, a Kalispell widow with two young children wound up with more than $600 in bank insufficient-funds and negative-balance fees after her bank froze and then transferred her children's Social Security survivors benefits to a collection agency. As reported in the Wall Street Journal on Monday, Nicole Murphy had incurred debts for her children's medical treatment when they had no health insurance. The bank also froze Murphy's $250 federal economic stimulus check, so she didn't have access to that money. Unaware that she no longer had money to use in her account, Murphy made a number of small purchases with her debit card, such as a sandwich for her son and an Easter egg dye kit. For each use of the card, she was charged a fee of $37.50 plus $8 a day for having a negative balance. After Murphy contacted Montana Legal Services Association, consumer attorney Chuck Munson successfully demanded that the collection agency return her children's money. The bank credited $674 in overdraft charges back to Murphy's account after being contacted by a Wall Street Journal reporter.

Munson of Helena, one of three consumer attorneys working for Montana Legal Services, says Murphy's case of having benefits frozen and seized isn't unusual. "It happens all the time," he told The Gazette.

Unfortunately, many of these folks, like Murphy, can't afford to hire an attorney to ensure that they are treated fairly under the law. Munson encouraged low-income Montanans to call Legal Services for help with seizure or threat of seizure of benefit funds. But he acknowledged that many people in these situations don't even know what their rights are under the law.

"Everybody should know that their public-assistance benefits are exempt," he said.

Munson and his colleagues have helped other mothers, elderly Montanans, veterans and disabled individuals recover illegally seized benefits. Recovery of bank fees can be more complex because it involves a contract between the bank and customer rather than a court action. Bank policies vary, he said.

That's why the U.S. Treasury Department has been writing rules to protect federal entitlement beneficiaries in this age of electronic banking. The proposed rules also would protect banks from lawsuits by the debt collectors who want the bank customers' money.

However, this rule-making effort has been stalled for years, according to the Wall Street Journal.

The Obama administration should expedite rules that effectively protect veterans, elders, disabled individuals and parentless children from losing the taxpayer-provided benefits they need to live. We call on our state congressional delegation to press for speedy action.