WASHINGTON -- House Financial Services Committee Chairman Barney Frank (D-Mass.) has written the five federal financial institution regulators, including NCUA, on compliance with the Social Security Act's prohibition on the garnishment of federal benefits.

"I am writing to inquire what actions your agency is taking to ensure that the financial institutions that you regulate comply with the Social Security Act's explicit prohibition on the garnishment of federal benefits to Veterans, the elderly and the disabled. I am also concerned about the use of the practice of 'set off' when banks remove funds owed the financial institution from these accounts," Frank wrote. "Finally, I have been made aware that some debt collectors have made use of the national banking system to circumvent state and federal law protecting consumers. While my primary concern is enforcement of the garnishment prohibition, I would like to know what guidance or other instruction your agency has provided to the institutions you regulate regarding these related practices."

Frank said that some institutions regularly freeze accounts containing benefits when they get garnishment or attachment orders, which can result in "non-sufficient fund" fees and others. The issue was explored by the Wall Street Journal this spring. He asked what steps the agencies have taken to prevent these situations.

He also stated, "It is my understanding that banks are increasingly setting off significant NSF or other fees on these exempt accounts and in some cases are seizing these funds to pay debts for auto or other loans owed to the bank."

Frank said the number of people impacted in these situations is rising and guidance appears limited. He added that, in addition to consumer protections, it could lead to beneficiaries refusing direct deposit of their benefits and increasing the costs to Treasury.

NCUA is still working on a response to Frank.