CUNA Comment Letter

Proposed Guidance on Garnishment of Federal Benefit Payments

November 27, 2007

Ms. Mary Rupp
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Dear Ms. Rupp:

This letter responds to the request for comments from the National Credit Union Administration Board regarding Proposed Guidance on Garnishment of Exempt Federal Benefit Funds, issued in conjunction with the other federal financial institution regulatory agencies. By way of background, CUNA represents approximately 90 percent of our nation’s 8,400 state and federal credit unions, which serve close to 87 million members. The positions reflected in this letter were developed under the auspices of CUNA’s Federal Credit union and Consumer Protection Subcommittees.[p>

Summary of CUNA’s Position

Discussion of CUNA’s Points

The agencies’ proposed guidance seeks to address the problematic situation that arises when a financial institution receives a garnishment order from a court under state law that could affect federal benefit funds, such as Social Security benefits, Supplement Security Income benefits, Veterans’ benefits, Federal Civil Service retirement benefits and Federal Railroad retirement benefits, despite the fact that such funds are exempted from garnishment by federal law. While financial institutions are aware they must comply with federal law, institutions have understandably not wanted to ignore enforceable garnishment orders from state courts, particularly since in some states they may be liable for funds withdrawn by the consumer/debtor after the receipt of the order.

To address the complex intersection between state and federal law, the regulators have proposed nine best practices to guide financial institutions as they wrestle with their overlapping compliance responsibilities.

We strongly agree that financial institutions must comply with all applicable laws, including the federal statutes that exempt certain federal benefits from garnishment. We also agree that institutions should have reasonable policies to deal with the processing of garnishments. Nonetheless, we have a number of concerns about the agencies’ approach to the treatment of garnishments and the nine directives that have been proposed. We discuss our issues below.

However, before we discuss the details of the guidance, we recommend the agencies consider another approach. From a public policy standpoint, we think the burden of policing garnishment orders should not be the responsibility of financial institutions, which after all are third parties to the process and are buckling under too many rules and guidelines already.

Rather, we believe this is primarily a state issue and recommend that federal policymakers coordinate with the National Conference of State Legislators to address concerns through model statutory language that all states would be encouraged to adopt, if they haven’t already. We think the objectives of such language would be to encourage greater uniformity in garnishment proceedings; ensure adequate notice is provided to consumers by the courts that are reviewing the claims for garnishment; that such notices spell out the exemptions for federal benefit funds; and that the courts should work with the parties through the hearing or review process to develop garnishment orders that recognize the amount of such funds that are exempt.

In short, we believe consumers should be fully informed of their rights and the significance of the exemptions but financial institutions cannot and should not assume all of the responsibilities the best practices outline.

Regarding the specific practices the regulators are recommending, we have the following comments.

In closing, financial institutions should be encouraged to develop and maintain sound policies for dealing with garnishments in a pro-consumer manner, recognizing the practical constraints on their operations. However, we believe that a number of legal concerns regarding the processing of garnishments are more appropriately the purview of state courts and the parties to the garnishment proceeding, rather than the third party financial institutions. Credit unions want to uphold the law and make every effort to do so but should not be expected, even through best practices, to assume responsibilities that belong to others.

We would welcome the opportunity to discuss our views if you have questions and thank you for the opportunity to comment.


Mary Mitchell Dunn
Senior Vice President
and Deputy General Counsel