CUNA Regulatory Comment Call
April 27, 2010
Proposed Rule on Garnishment of Accounts Containing Federal Benefit Payments
- The Department of the Treasury, the Social Security Administration, the Department of Veterans Affairs (VA), the Railroad Retirement Board, and the Office of Personnel Management (collectively the "Agencies") have issued a proposed rule to implement the current statutory restrictions on the garnishment of Federal benefit payments. The proposed rule would establish procedures that financial institutions must follow when a garnishment account order is received for an account in which there is a direct deposit of Federal benefit payments. The proposed rule would not apply to Federal benefit paper checks that are deposited into these accounts.
- The proposal would require financial institutions that receive a garnishment order for an account to determine whether any Federal benefit payments were deposited to that account within 60 days prior to the receipt of the order. If there were such deposits, the financial institution would be required to ensure that the account holder has access to an amount equal to the sum of such payments or the current balance, whichever is lower.
- Comments in response to the proposed rule are due on or before June 18, 2010. Please submit your responses to CUNA by June 9, 2010.
- Although these rules would be issued by the Agencies, the National Credit Union Administration would have enforcement authority over federally-insured credit unions. Privately-insured credit unions would be covered under these rules but it appears that no Federal agency would have enforcement authority.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at email@example.com and to Senior Assistant General Counsel Jeff Bloch at firstname.lastname@example.org; or mail them to Mary and Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rule. You may also access a copy of the proposed rule at the following address:
The Agencies administer a variety of Federal benefit payments and have issued this proposed rule to address the garnishment of accounts that include these payments, which includes Social Security benefits, Supplemental Security Income Benefits, VA benefits, Federal Railroad retirement benefits, Federal Railroad unemployment and sickness benefits, Civil Service Retirement System Benefits, and Federal Employees Retirement System benefits. These are generally exempt under Federal law from garnishment orders and the claims of judgment creditors.
Currently, it is difficult for financial institutions to determine whether an account contains Federal benefit payments that are exempt from garnishment when both exempt and non-exempt funds are deposited into the account. The intent of this rule would be to provide straightforward, uniform procedures for financial institutions to follow when they receive these orders and claims.
BRIEF DESCRIPTION OF THE PROPOSED RULE
The proposed rule would require a financial institution to take certain actions when it receives a garnishment order. If these actions are followed, the institution will be protected from the risk of liability, contempt of court, or civil actions in these situations. However, this rule would only apply to payments made by direct deposit and not when these deposits are made by paper check.
The first step is to determine if the United States is the plaintiff that obtained the order against the account holder. This rule would not apply in situations in which a Federal entity is the creditor. In these situations, the financial institution would follow its current, customary procedures for these types of garnishment orders and any current exemptions to these types of garnishment orders would still apply. For these orders, the institution may rely on the naming of the "United States of America," "United States," or "U.S." as the plaintiff in the caption of the order or may rely on a standard certification that a Federal entity attaches to the order.
The second step is for the financial institution to review the account history during the 60-day period that precedes the receipt of the garnishment order. If during this "lookback period" one or more exempt Federal payments were made by direct deposit, the institution must then allow the account holder to have access to an amount that is equal to the sum of such exempt payments, or the balance of the account on the date of the review, whichever is less. If no exempt benefit payments were deposited to the account during this lookback period, then the institution would follow its current, customary procedures for handling these garnishment orders. When conducting this account review, the institution does not have to consider the existence of co-owners on the account or whether benefit payments to multiple beneficiaries have been deposited to the account.
For accounts in which exempt Federal payments were deposited during the lookback period, the financial institution must then notify the account holder of the rights and protections from garnishment that apply to these exempt funds. The notice must be sent within two business days after the completion of the account review. The proposal provides a model form for financial institutions to use. Those that use this form will be in compliance with these notice provisions. These notices must be delivered separately from the periodic statement, but they may be included with other garnishment notices and forms required under state or local law.
The proposed rule would prohibit financial institutions from placing freezes or other restrictions on these protected funds, and institutions may not require the account holder to assert any rights or take other actions to access these funds. However, parties seeking to garnish these Federal benefit payments for alimony or child support may recover against these amounts since they can garnish these payments before they are made by the Agency issuing the payment. Also, the requirement that the account holder has access to these funds would be subject to funds availability limitations, such as holds permitted under Regulation CC.
The institution may also follow an account holder's express instruction to use the protected amount to satisfy the garnishment order. This instruction must be in writing and must be delivered after the date in which the institution received the garnishment order.
If an individual has multiple accounts at the institution, the proposed rule would require, for each account, a separate review and separate calculation of the amount that is protected from the garnishment order. If an exempt payment is deposited into one account and funds from that account are then transferred to another account, the institution would have no requirement to trace these funds into the second account or to establish a protected amount in the second account as a result of the transfer. An account review on that second account would be performed independently, based on an examination of Federal benefits that are deposited into that account.
The Agencies will make the following changes to help financial institutions to determine if there were direct deposits of exempt funds into an account during the "lookback period."
- The Department of the Treasury will encode an "X" in position 20 of the "Company Name" Field of the Batch Header Record for each Agency exempt benefit Automated Clearing House (ACH) Payment. This coding, along with the current practice of encoding a "2" in the "Originator Status Code" Field in the Batch Header Record to designate payments originated from the Federal government, will allow financial institutions to identify Federal exempt payments through either manual or systems inspection.
- The Agencies will publish a list of unique "Entry Detail Description" Fields in the Batch Header Record for all of their exempt benefit payments. The Department of the Treasury will also update the Green Book, "A Guide to Federal Government ACH Payments and Collections," to reflect these mechanisms for identifying exempt Federal payments.
A financial institution that receives a garnishment order for an account that receives exempt Federal benefits would have no continuing obligation to garnish accounts deposited or credited to the account following the date of the account review and would not be permitted to take any action to freeze any amounts subsequently deposited or credited, unless served by a separate garnishment order. This would, to some extent, preempt certain state laws that allow for the issuance of a "continuing" garnishment order in which the institution would have this obligation to monitor and remit funds on an ongoing basis. Under this proposal, the institution would be prohibited from complying with these ongoing requirements, and this prohibition also applies when the institution receives the same garnishment order more than once. However, creditors and courts may continue to obtain and issue discrete new garnishment orders against the same account over time.
The proposal would also preempt other state or local laws or rules that are inconsistent with the proposed rule, but only to the extent of the inconsistency. For example, a state law that protects funds in an account to a greater extent than this proposed rule would not be preempted.
The proposed rule would prohibit financial institutions from charging garnishment fees against the amount that is protected from the garnishment order, as calculated under the procedures described above. Any such fees may only be charged against funds in excess of this protected amount and only if the institution customarily charges all other account holders a similar garnishment fee in the same amount. Also, the institution must charge the fee on the date of the account review. The fee may not be assessed after this date as a means to defer the fee until future deposits are received in the account.
Financial institutions would be required to maintain records of account activity and actions taken in handling garnishment orders to the extent sufficient to demonstrate compliance with this rule. Although these rules would be issued by the Agencies, the National Credit Union Administration would have enforcement authority over federally-insured credit unions. Privately-insured credit unions would be covered under these rules but it appears that no Federal agency would have enforcement authority.
QUESTIONS TO CONSIDER REGARDING THE PROPOSED GARNISHMENT RULE
(The Agencies have specifically requested comment on the issues raised in these questions.)
- Do you have any comments on the proposed review process for determining the amount of funds that the account holder may have access to, including the 60-day "lookback period?"
- Under the proposal, the amount protected from garnishment would be the sum of all exempt Federal benefit payments that are deposited to the account during the 60-day lookback period, or the balance in the account on the day the financial institution reviews the account, whichever is less. Do you agree with this approach for determining the protected amount?
- Instead of the proposed review process, the Agencies had considered using a flat amount that the account holder would have access to, as opposed to reviewing the amount of exempt Federal payments that were deposited in the account over a 60-day period. Specifically, the Agencies considered requiring access to an amount that was the lesser of $2,200 or the balance in the account on the date of the account review. Do you prefer this approach, the proposed approach, or a different approach?
- An additional review would not be required when funds are transferred to a second account. A separate review process would be required for each account that the account holder has at a specific financial institution, which includes a separate calculation for the amount that would be protected from garnishment. Do you agree with this approach?
- The proposed rule would not apply to garnishment orders that are obtained by the United States. Do you agree with this exclusion and how it would be implemented under this proposal?
- Other comments?
Eric Richard General Counsel (202) 508-6742 email@example.com |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 firstname.lastname@example.org
Jeffrey Bloch Assistant General Counsel (202) 508-6732 email@example.com
Luke Martone Senior Regulatory Counsel (202) 508-6743 firstname.lastname@example.org