New Garnishment Rules.

By John B.C. Porter

Effective May 1, 2011, financial institutions will have to do much more by way of analysis when in receipt of garnishment orders than simply forwarding all but $425 to the court. The Department of the Treasury recently released its interim final rule to implement statutory restrictions on the garnishment of Federal benefit payments (Social Security benefits, Supplemental Security Income (SSI) benefits, VA benefits, Federal Railroad retirement benefits, Federal Railroad unemployment and sickness benefits, Civil Service Retirement benefits, and Federal Employee Retirement System benefits). The rule establishes procedures that financial institutions must follow when they receive a garnishment order against an account holder who receives Federal payment benefits by direct deposit. This rule can be found in part 212 to Title 31 of the Code of Federal Regulations.

The new procedure will look something like this: Within two business days of receiving a garnishment order, the financial institution will need to ascertain whether the United States or a State child support enforcement agency has attached or included a Notice of Right to Garnish Federal Benefits. If this Notice of Right to Garnish Federal Benefits is included in the garnishment order, then the financial institution will follow its otherwise customary procedures for handling the order. If a Notice of Right to Garnish Federal Benefits is not included with the garnishment order then the financial institution must perform an account review. If the account review demonstrates that a Federal benefit payment was not direct deposited into the account during the “lookback period,” then the financial institution shall follow its otherwise customary procedures for handing the garnishment order. The “lookback period” is defined as the two month period that begins on the date before the date of the account review and ends on the corresponding date of the month two months earlier. For example, if the financial institution receives a garnishment order on Thursday, March 17, and performs the account review the same day, the lookback period begins on Wednesday, March 16, and ends on Sunday, January 16.

If the account review demonstrates that a Federal benefit payment was direct deposited into the account during the lookback period, then the financial institution must ascertain the “protected amount.” The “protected amount” is defined as the lesser of the sum of all Federal benefit payments posted to an account between the close of business on the beginning date of the lookback period and the open of business on the ending date of the lookback period, or the balance in an account at the open of business on the date of account review. The financial institution shall immediately calculate and establish the protected amount for an account. The financial institution shall ensure that the account holder has full and customary access to the protected amount, which the financial institution shall not freeze in response to the garnishment order. For any funds in an account in excess of the protected amount, the financial institution shall follow its customary procedures for handing garnishment orders. Further, the financial institution may not charge or collect a garnishment fee against the protected amount. For example, a financial institution receives a garnishment order against an account holder for $8000 on December 2. The date of account review is the same day, December 2, when the opening balance in the account is $5000. The lookback period begins on December 1, the date before the date of account review, and ends on October 1, the corresponding date two months earlier. The account review shows that three Federal benefit payments were direct deposited to the account during the lookback period totaling $4500, one for $1500 on December 1, another for $1500 on November 1, and a third for $1500 on October 1. Since the $4500 sum of the three benefit payments posted to the account during the lookback period is less than the $5000 balance in the account at the open of business on the date of account review, the financial institution establishes the protected amount at $4500 and seizes the remaining $500 in the account consistent with State law. The financial institution could then assess its garnishment fee on the $500 amount in excess of the protected amount.

As if this isn’t burdensome enough (especially in light of all the other regulatory burdens recently heaped upon financial institutions), the financial institution shall also issue a notice to the account holder named in the garnishment order. The notice must be sent in cases where: (1) a Federal benefit payment was direct deposited into the account holder’s account during the lookback period; and (2) the balance in the account on the date of account review was above zero dollars and the financial institution established a protected amount. The financial institution shall notify the account holder named in the garnishment order of the following facts and events in readily understandable language: (a) the financial institution’s receipt of an order against the account holder; (b) the date on which the order was served; (c) a succinct explanation of garnishment; (d) the financial institution’s requirement under Federal regulation to ensure that account balances up to the protected amount are protected and made available to the account holder; (e) the account subject to the order and the protected amount established by the financial institution; (f) the financial institution’s requirement pursuant to State law to freeze other funds in the account to satisfy the order and the amount frozen; (g) the amount of any garnishment fee charged to the account; (h) a list of the Federal benefit payments exempt from garnishment; (i) the account holder’s right to assert against the creditor that initiated the order a further garnishment exemption for amounts above the protected amount, by completing exemption claim forms, contacting the court of jurisdiction, or contacting the creditor; (j) the account holder’s right to consult an attorney or legal aid service in asserting against the creditor that initiated the order a further garnishment exemption for amounts above the protected amount; AND (k) the name of the creditor, and, if contact information is included in the order, means of contacting the creditor. There is a model notice provided in Appendix A to Part 212. Use of this model notice is recommended as proper use of the model notice is deemed to be in compliance with the notice requirement of Part 212. This notice must be sent by the financial institution to the account holder within three business days from the date of account review.

Part 212 would not, however, prevent a financial institution from honoring an account holder’s express written instruction, that is both dated and provided by the account holder to the financial institution following the date on which it has been served a particular garnishment order, to use an otherwise protected amount to satisfy the order.

This is an interim final rule. The rule’s effective date is May 1, 2011, but the comment period is open until May 24, 2011. Take advantage of this timeframe to inform the Department of Treasury how this new burdensome rule will affect your financial institution. Determining the exempt status of funds on deposit with financial institutions should be the province of the courts, not of individual financial institutions.

 

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7 thoughts on “New Garnishment Rules.

  1. For the financial institution to have to write a letter of explanation, how absurd! We have enough governmental burdens to stop our work totally!

  2. You could mention that one of the purposes of this rule is to prevent debt collectors from taking an old lady’s Social Security deposit so she has no money to buy food or pay the rent and no clue or resources to fight the federally illegal seizure. Sorry if this seems inconvenient to you and that the welfare of defenseless senior citizens is none of your business or ethical responsibility. Banking mentality at it’s worst.

    • Samlam,
      My post was geared toward credit unions who will need to comply with the new rule from an operational perspective. This is not a consumers’ rights blog. Further, your proverbial old lady would have had due process rights and a chance to fight her judgment in the courts before it ever got to the credit union. Should credit union members bear the costs associated with determining whether her Federal benefit payments are subject to garnishment on a judgment for a debt she failed to pay? When credit unions receive garnishment orders from courts, they are simply responding to the court order. Credit unions are not the bad guy in this scenario.

  3. The answer to your question is yes, just as we all have to pay for things we may not use like schools if we have no children or taxes which pay for aid to disabled people. I never said the credit unions or the banks were the bad guys in this case just that this rule is a good and moral one. Your rationale about the old lady’s legal rights doesn’t hold water when her account is frozen and she has no practical way to pursue them and perhaps even the physical and mental ability to do so and in the meantime has no food due to what is basically an illegal action.
    Besides I doubt if obeying it will be a big deal that can’t be solved with a few lines of code.
    Sorry if you feel that ethics, morality and social responsibility are dispensable if inconvenient to business in this case.

  4. At what point does it end? I am receiving an obscene amount of garnishments per day. Instead of spending my time helping responsible members try to save their homes and vehicles by way of modifications etc., I am spending the majority of each day filling out disclosures for garnishments. That doesn’t include the screaming phone calls from members who claim they don’t owe the money to the plaintiff in the first place. The new rules are going to increase the already numerous hours spent on irresponsible members. On a good note; I guess we should all find comfort in the fact that someday we will be elderly and not be held responsible for any of our actions, or the actions of our children/family that do not look after us to make sure our financial affairs are in order if we are unable to do so ourselves. What’s next you may ask? Perhaps the courts will extend the 14 day objection period and order financial institutions to hand deliver the disclosure instead of mailing it to the member.

  5. I think the better answer/response is to charge the institution that is requesting the garnishment a fee. There request shouldn’t be free of charge. However, at this point, with the new rules, there should be less request.

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