By John B. C. Porter, Partner
The Department of the Treasury, the Social Security Administration, the Department of Veterans Affairs, the Railroad Retirement Board and the Office of Personnel Management (“Agencies”) published a proposed rule on April 19, 2010, to address concerns related to the garnishment of certain exempt Federal benefit payments direct deposited into consumers deposit accounts. On February 23, 2011, the Agencies published an interim final rule. This final rule, effective June 28, 2013, amends certain provision of the interim final rule to address certain issues, as described below.
With respect to which account or accounts are subject to the account review, the final rule clarifies that the account review applies to the deposit account to which a Federal payment is routed and credited. For credit unions, it is the individual sub-account to which the Federal payment is routed and credited, and not the master account, that is subject to the account review and lookback.
The interim final rule defined a benefit payment as a Federal benefit payment “with the character ‘XX’ encoded in positions 54 and 55 of the Company Entry Description field of the Batch Header Record of the direct deposit entry.” The final rule codifies subsequent guidance from the Agencies, which requires that the numeral “2” appear in position 79 of the “Originator Status Code” of the Batch Header Record.
The final rule revises the definition of “garnishment order” to include orders or levies issued by a State or State agency or municipality and to include “an order to freeze the assets in an account.” In the interim final rule, the Agencies intentionally removed the phrase “to enforce a money judgment” from the definition of “garnishment” to ensure that the rule is not limited to civil money judgments.
To address concerns regarding how the account balance should be computed when conducting an account review and establishing a protected amount, the Agencies amended the rule to provide that the relevant account balance is the account balance when the account review is performed, so that the balance will include intraday items such as ATM or cash withdrawals.
With respect to garnishment fees, the final rule maintains that garnishment fees may only be offset against non-protected funds in an account. The Agencies are, however, amending the interim final rule to provide credit unions with an opportunity, for 5 days following the account review, to impose a garnishment fee in the event that non-protected funds become available following the account review. If funds other than a benefit payment are deposited into an account during the 5 business days following the date of the account review, the credit union may charge or collect a fee from the additional funds, if they were otherwise unable to do so at the time the account review was performed.
The interim final rule required a notice be sent to the account holder if protected funds were in the account under review. The Agencies are revising the rule to require a notice to an account holder only in cases where there are funds in the account in excess of the protected amount. With regard to the delivery of notices, the Agencies believe it is acceptable for credit unions to mail the notice to the address of record, but any method of delivery for notices agreed to between the credit union and its member, including electronic delivery, is acceptable.
Hopefully, the final rule will provide some clarity and specific guidance to credit unions and decrease, albeit nominally, the burden on credit unions in complying with this relatively new regulation.
John is a partner of Consumer Collections managing the Columbus Credit Union Group and the Columbus office of Weltman, Weinberg & Reis Co., LPA who can be reached at 614.857.4488 and firstname.lastname@example.org.