by James A. Bacon

When credit card companies, hospitals and other debt collectors try to collect the money they’re owed, they often target the bank accounts “of people who are already in crisis,” Radio IQ informs us.

“When a creditor garnishes a bank account, it can really be devastating,” Jay Speer at the Virginia Poverty Law Center tells public radio. “The account holder is notified that their funds are frozen, and then you can’t pay your rent and you can’t pay your utilities. And so for some people it becomes a downward spiral.”

That’s why Delegate Phil Hernandez, D-Norfolk, is introducing a bill that would preserve the last $5,000 in a bank account.

Why does Hernandez hate poor people?

Forgive my hyperbole. Hernandez doesn’t really hate poor people. He just seems ignorant of economics and heedless of unintended consequences. The predictable result of his bill, should it pass: Lenders will curtail credit to the lower-income people he wants to help.

Hernandez’s proposal does highlight a real problem. Thousands of Virginians live paycheck to paycheck, and allowing creditors to freeze their bank accounts can create havoc in their lives. Explains Radio IQ:

He says current law already allows for protecting the last $5,000 of a bank account, although most people have to hire a lawyer to make it happen. His bill would make it automatic, so people who are already struggling to make ends meet won’t have to hire a lawyer to have some breathing room.

Fine. But $5,000?

If someone has $5,000 in a bank account, why the heck aren’t they paying off their credit cards?

If someone has $5,000 in a bank account, they’re probably not living hand to mouth. People who live paycheck to paycheck don’t even have checking accounts. They live in a cash economy, and when they need emergency money, they go to payday lenders (which do-gooders want to put out of business).

With the $5,000 exemption, some people will game the system, racking up debt with a half-dozen credit card companies, stiffing them all, while keeping their nest egg protected. Such a law would be an open invitation to scams and frauds.

But credit-card companies aren’t stupid. They’ll protect themselves from defaulting debtors by tightening the credit they extend lower-income people. Cheaters will prosper while honest debtors will be punished. The consequences are entirely foreseeable.

The same logic applies to other types of lenders such as auto-loan financiers.

There is one category of creditor from whom lower-income Virginians might warrant bank-account protection: healthcare providers. Medical bills are a major cause of financial distress and bankruptcy. Unless poor people are running up bills by undergoing cosmetic surgery, odds are pretty good that they have little control over their healthcare expenditures. They get sick, they go to the hospital, there is no price transparency, and even if there was, they have no control over what hospitals spend on their care. Such situations are not remotely comparable to running up a credit card on shopping and dining out. If people want to game the system, getting ill and checking into a hospital is not the way they normally go about it.

(There are plenty of doctors, or people posing as doctors, who cheat the healthcare system. Medicare fraud is a $100 billion-a-year business. But that’s a problem crying out for a very different solution.)

If Hernandez wants to help poor and working-class people, he should amend his proposal to protect their checking accounts against medical bill collectors, not against credit card companies, auto lenders, or loan consolidators. Even then, he’ll have to reckon with the fact that uncollected medical debts don’t magically go away. Someone else ends up footing the bill.