I. INTRODUCTION
Several federal agencies that provide federal benefit payments issued a final rule to implement statutory restrictions on the garnishment of federal benefit payments. The final rule applies to directly deposited payments such as Social Security benefits, Supplemental Security Income (SSI) benefits, VA benefits, Federal Railroad Retirement benefits, Federal Railroad Unemployment and Sickness benefits, Civil Service Retirement System benefits and Federal Employee Retirement System benefits that are subject to a general statutory exemption from garnishment.
Given the availability of money once a deposit is made, banks have found themselves in a difficult position when accounts containing these payments are garnished: (1) either honor the garnishment order and risk allowing a creditor to obtain funds that it should not receive; or (2) ignore the order and allow a customer to withdraw funds in amounts that perhaps exceed the protected benefits. To avoid these outcomes, banks often have frozen accounts when a garnishment is received in order to let the debtor and creditor work out claims of priority. This has resulted in significant hardships for some depositors.
The final rule was effective on June 28, 2013.
II. SUMMARY OF FINAL RULE
Under the final rule, a financial institution that receives a garnishment order must first determine if the United States or a State Child Support Enforcement Agency is the plaintiff that obtained the order. If so, the financial institution follows its customary procedures for handling the order. If not, the financial institution must review the account history for the prior two-month period to determine whether, during this “lookback period,” one or more exempt benefit payments were directly deposited to the account. The financial institution may rely on the presence of certain ACH identifiers to determine whether a payment is an exempt benefit payment for purposes of the interim final rule.
The financial institution must allow the account holder to have access to an amount equal to the lesser of the sum of exempt payments directly deposited to the account during the lookback period or the balance of the account on the date of the account review (the “protected amount”).
In addition, the financial institution must notify the account holder that the financial institution has received a garnishment order. The notice must briefly explain what a garnishment is and must also include other information regarding the account holder’s rights. The financial institution has three business days after account review to notify the account holder, but is only required to provide the notice in cases in which there are funds in the account in excess of the protected amount. Financial institutions may choose to use a model notice contained in the rule in order to be deemed to be in compliance with the notice content requirements.
For an account containing a protected amount, the financial institution may not collect a garnishment fee from the protected amount. The financial institution may only charge a garnishment fee against funds in the account in excess of the protected amount and may not charge or collect a garnishment fee after the date of account review, except that a garnishment fee may be charged and collected at any time during the five days after the account review, if funds other than benefit payments (non-protected funds) were deposited during that time. Also, a financial institution may collect a fee from other accounts as permitted by their governing customer agreement and State law. Financial institutions that comply with the rule’s requirements are protected from liability.
Specific aspects of the final rule are discussed in greater detail below.
III. KEY DEFINITIONS
The final rule contains a number of definitions that are significant for purposes of compliance, as follows:
IV. INITIAL ACTION UPON RECEIPT OF A GARNISHMENT ORDER
A. Examination of Order for Notice of Right to Garnish Federal Benefits
V. ACCOUNT REVIEW
A. Timing of Account Review
When served a garnishment order issued against a debtor, a financial institution must perform an account review: (1) no later than two business days following receipt of (a) the order, and (b) sufficient information from the creditor that initiated the order to determine whether the debtor is an account holder, if such information is not already included in the order; or (2) in cases where the financial institution is served a batch of a large number of orders, by a later date that may be permitted by the creditor that initiated the orders, consistent with the terms of the orders.
B. No Benefit Payment Deposited During Lookback Period
If the account review shows that a benefit agency did not deposit a benefit payment into the account during the lookback period, then the financial institution should follow its otherwise customary procedures for handling the garnishment order.
C. Benefit Payment Deposited During Lookback Period
If the account review shows that a benefit agency deposited a benefit payment into the account during the lookback period, then the financial institution must follow the Rules and Procedures to Protect Benefits discussed at paragraph VI, below.
D. Uniform Application of Account Review
The financial institution must perform an account review without consideration for any other attributes of the account or the garnishment order, including but not limited to: (1) the presence of other funds, from whatever source, that may be commingled in the account with funds from a benefit payment; (2) the existence of a co-owner on the account; (3) the existence of benefit payments to multiple beneficiaries, and/or under multiple programs, deposited in the account; (4) the balance in the account, provided the balance is above zero dollars on the date of account review; (5) instructions to the contrary in the order; or (6) the nature of the debt or obligation underlying the order.
The financial institution must perform the account review prior to taking any other actions related to the garnishment order that may affect funds in the account.
F. Separate Account Reviews
The financial institution must perform the account review separately for each account in the name of an account holder against whom a garnishment order has been issued. In performing account reviews for multiple accounts in the name of one account holder, a financial institution shall not trace the movement of funds between accounts by attempting to associate funds from a benefit payment deposited into one account with amounts subsequently transferred to another account.
VI. RULES AND PROCEDURES TO PROTECT BENEFITS
The following provisions apply if an account review shows that a benefit agency deposited a benefit payment into an account during the lookback period.
(A) Protected Amount. The financial institution must immediately calculate and establish the protected amount for an account. The financial institution must ensure that the account holder has full and customary access to the protected amount, which the financial institution may not freeze in response to the garnishment order. An account holder is not required to assert any right of garnishment exemption prior to accessing the protected amount in the account.
(B) Separate Protected Amounts. The financial institution must calculate and establish the protected amount separately for each account in the name of an account holder, consistent with the requirements to conduct distinct account reviews.
(C) No Challenge of Protection. A protected amount calculated and established by a financial institution pursuant to this section is conclusively considered to be exempt from garnishment under law.
(D) Funds in Excess of the Protected Amount. For any funds in an account in excess of the protected amount, the financial institution should follow its otherwise customary procedures for handling garnishment orders, including the freezing of funds, but consistent with paragraphs VI (F) and (G), below.
(E) Notice. The financial institution must issue a notice to the account holder named in the garnishment order (See, Appendix A, Model Notice to Account Holder).
(F) One-Time Account Review Process. The financial institution must perform the account review only one time upon the first service of a given garnishment order. The financial institution need not repeat the account review or take any other action related to the order if the same order is subsequently served again upon the financial institution. If the financial institution is subsequently served a new or different garnishment order against the same account holder, the financial institution must perform a separate and new account review.
(G) No Continuing or Periodic Garnishment Responsibilities. The financial institution shall not continually garnish amounts deposited or credited to the account following the date of account review, and shall take no action to freeze any funds subsequently deposited or credited, unless the institution is served with a new or different garnishment order, consistent with the requirements of the final rule.
(H) Impermissible Garnishment Fee. The financial institution may not charge or collect a garnishment fee against a protected amount, and may not charge or collect a garnishment fee after the date of account review, except that a garnishment fee may be charged and collected at any time during the five days after the account review if funds other than benefit payments (non-protected funds) were deposited during that time. Also, a financial institution may collect a fee from other accounts as permitted by the governing customer agreement and State law.
VII. NOTICE TO THE ACCOUNT HOLDER
A financial institution must issue the Model Notice to Account Holder (See, Appendix A), in accordance with the following provisions.
(A) Notice Requirement. The financial institution must send the notice in cases where: (1) a benefit agency deposited a benefit payment into an account during the lookback period; (2) the balance in the account on the date of account review was above zero dollars and the financial institution established a protected amount; and (3) there are funds in the account in excess of the protected amount.
(B) Notice Content. The financial institution must notify the account holder named in the garnishment order of the following facts and events in readily understandable language: (1) the financial institution’s receipt of an order against the account holder; (2) the date on which the order was served; (3) a succinct explanation of garnishment; (4) 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 if a benefit agency deposited a benefit payment into the account in the last two months; (5) the account subject to the order and the protected amount established by the financial institution; (6) the financial institution’s requirement pursuant to State law to freeze other funds in the account to satisfy the order and the amount frozen, if applicable; (7) the amount of any garnishment fee charged to the account; (8) a list of the Federal benefit payments subject to this part; (9) 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, as customarily applicable for a given jurisdiction; (10) 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 (11) the name of the creditor, and, if contact information is included in the order, means of contacting the creditor.
(C) Optional Notice Content. The financial institution may notify the account holder named in the garnishment order of the following facts and events in readily understandable language: (1) means of contacting a local free attorney or legal aid service; (2) means of contacting the financial institution; or (3) by issuing the notice required by this part, the financial institution is not providing legal advice.
(D) Amending Notice Content. The financial institution may amend the content of the notice to integrate information about a state’s garnishment rules and protections, for the purposes of avoiding potential confusion or harmonizing the notice with state requirements, or providing more complete information about an account.
(E) Notice Delivery. The financial institution must issue the notice directly to the account holder, or to a fiduciary who administers the account and receives communications on behalf of the account holder, and only information and documents pertaining to the garnishment order, including other notices or forms that may be required under state or local government law, may be included in the communication.
(F) Methods Of Notice To The Account Holder. Acknowledging that a financial institution’s ability to give notice is limited by the availability of information, a financial institution may (1) mail the notice to the address of record, (2) choose to deliver notice to both account holders on a joint account, (3) use any method of delivery as agreed to between the financial institution and the account holder, including electronic delivery, and (4) give the contact information for the creditor’s attorney, where contact information for the creditor is limited.
(G) Notice Timing. The financial institution must send the notice to the account holder within three business days from the date of account review.
(H) One Notice for Multiple Accounts. The financial institution may issue one notice with information related to multiple accounts of an account holder.
(I) Not Legal Advice. By issuing a notice required by this part, a financial institution creates no obligation to provide, and shall not be deemed to be offering, legal advice.
VIII. PREEMPTION OF STATE LAW
The rule preempts conflicting state laws, including laws that allow for a continuing garnishment. A state law will be considered to conflict with the federal law if it requires a bank to take actions that contradict the federal regulation. The regulation provides that a state law that requires a bank to protect a greater amount than would be protected under the federal rule will not be preempted.
IX. SAFE HARBOR FROM LIABILITY
A bank that complies in “good faith” with the regulation will be protected from liability from any source, including the customer and the customer’s creditors.
X. COMPLIANCE AND RECORD RETENTION
Federal banking agencies will enforce compliance with the final rule. A financial institution must maintain records of account activity and actions taken in response to a garnishment order, sufficient to demonstrate compliance with the final rule, for a period of not less than two years from the date on which the financial institution receives the garnishment order. Financial institutions are expected to decide what documentation to retain, which may vary depending on the circumstances of each situation.
Appendix A to Part 212—Model Notice to Account Holder
A financial institution may use the following model notice to meet the requirements of § 212.7. Although use of the model notice is not required, a financial institution using it properly is deemed to be in compliance with § 212.7.
Information in brackets should be completed by the financial institution. Where the bracketed information indicates a choice of words, as indicated by a slash, the financial institution should either select the appropriate words or provide substitute words suitable to the garnishment process in a given jurisdiction.
Parenthetical wording in italics represents instructions to the financial institution and should not be printed with the notice. In most cases, this wording indicates that the model language either is optional for the financial institution, or should only be included if some condition is met.
MODEL NOTICE:
[Financial institution name, city, and State, shown as letterhead or otherwise printed at the beginning of the notice]
IMPORTANT INFORMATION ABOUT YOUR ACCOUNT
Date:
Notice to:
Account Number:
Why am I receiving this notice?
On [date on which garnishment order was served], [Name of financial institution] received a garnishment order from a court to [freeze/remove] funds in your account. The amount of the garnishment order was for $[amount of garnishment order]. We are sending you this notice to let you know what we have done in response to the garnishment order.
What is garnishment?
Garnishment is a legal process that allows a creditor to remove funds from your [bank]/[credit union] account to satisfy a debt that you have not paid. In other words, if you owe money to a person or company, they can obtain a court order directing your [bank]/[credit union] to take money out of your account to pay off your debt. If this happens, you cannot use that money in your account.
What has happened to my account?
On [date of account review], we researched your account and identified one or more Federal benefit payments deposited in the last 2 months. In most cases, Federal benefit payments are protected from garnishment. As required by Federal regulations, therefore, we have established a ‘‘protected amount’’ of funds that will remain available to you and that will not be [frozen/removed] from your account in response to the garnishment order.
(Conditional paragraph if funds have been frozen) Your account contained additional money that may not be protected from garnishment. As required by law, we have [placed a hold on/removed] these funds in the amount of $[amount frozen] and may have to turn these funds over to your creditor as directed by the garnishment order.
The chart below summarizes this information about your account(s):
ACCOUNT SUMMARY AS OF [DATE OF ACCOUNT REVIEW]
Account Number
Amount in Account
Amount Protected
Amount Subject to Garnishment (now [frozen/removed])
Garnishment Fee Charged
(If the account holder has multiple accounts, add a row for each account.)
Please note that these amount(s) may be affected by deposits or withdrawals after the protected amount was calculated on [date of account review].
Do I need to do anything to access my protected funds?
You may use the ‘‘protected amount’’ of money in your account as you normally would. There is nothing else that you need to do to make sure that the ‘‘protected amount’’ is safe.
Who garnished my account?
The creditor who obtained a garnishment order against you is [name of creditor].
What types of Federal benefit payments are protected from garnishment?
In most cases, you have protections from garnishment if the funds in your account include one or more of the following Federal benefit payments:
• Social Security benefits
• Supplemental Security Income benefits
• Veterans benefits
• Railroad retirement benefits
• Railroad Unemployment Insurance benefits
• Civil Service Retirement System benefits
• Federal Employees Retirement System benefits
(Conditional section if funds have been frozen)What should I do if I think that additional funds in my account are from Federal benefit payments?
If you believe that additional funds in your account(s) are from Federal benefit payments and should not have been [frozen/removed], there are several things you can do.
(Conditional sentence if applicable for the jurisdiction) You can fill out a garnishment exemption form and submit it to the court.
You may contact the creditor that garnished your account and explain that additional funds are from Federal benefit payments and should be released back to you. (Conditional sentence if contact information is in the garnishment order) The creditor may be contacted at [contact information included in the garnishment order].
You may also consult an attorney (lawyer) to help you prove to the creditor who garnished your account that additional funds are from Federal benefit payments and cannot be taken. If you cannot afford an attorney, you can seek assistance from a free attorney or a legal aid society. (Optional sentences) [Name of State, local, or independent legal aid service] is an organization that provides free legal aid and can be reached at [contact information]. You can find information about other free legal aid programs at [insert ‘‘http://www.lawhelp.org’’ or other legal aid programs website].
(Optional section) How to contact [name of financial institution].
This notice contains all the information that we have about the garnishment order. However, if you have a question about your account, you may contact us at [contact number].
Appendix B to Part 212—Form of Notice of Right to Garnish Federal Benefits
The United States, or a State Child Support Enforcement Agency, certifying its right to garnish Federal benefits shall attach or include with a garnishment order the following Notice, on official organizational letterhead.
Information in brackets should be completed by the United States or a State Child Support Enforcement Agency, as applicable. Where the bracketed information indicates a choice of words, as indicated by a slash, the appropriate words should be selected from the options.
Notice of Right to Garnish Federal Benefits
Date: ____________
[Garnishment Order Number]/[State Case ID]:_______________
The attached garnishment order was [obtained by the United States, pursuant to the Federal Debt Collection Procedures Act, 28 U.S.C. § 3205, or the Mandatory Victims Restitution Act, 18 U.S.C. § 3613, or other Federal statute]/[issued by (name of the State Child Support Enforcement Agency), pursuant to authority to attach or seize assets of noncustodial parents in financial institutions in the State of (name of State), 42 U.S.C. § 666].
Accordingly, the garnishee is hereby notified that the procedures established under 31 C.F.R. Part 212 for identifying and protecting Federal benefits deposited to accounts at financial institutions do not apply to this garnishment order.
The garnishee should comply with the terms of this order, including instructions for withholding and retaining any funds deposited to any account(s) covered by this order, pending further order of [name of the court]/[the name of the State Child Support Enforcement Agency].
Appendix C to Part 212—Examples of the Lookback Period and Protected Amount
The following examples illustrate the definition of protected amount.
Example 1: Account balance less than sum of benefit payments.
A financial institution receives a garnishment order against an account holder for $2,000 on May 20. The date of account review is the same day, May 20, and the balance in the account when the review is performed is $1,000. The lookback period begins on May 19, the date preceding the date of account review, and ends on March 19, the corresponding date two months earlier. The account review shows that two Federal benefit payments were deposited to the account during the lookback period totaling $2,500, one for $1,250 on Friday, April 30 and one for $1,250 on Tuesday, April 1. Since the $1,000 balance in the account when the account review is performed is less than the $2,500 sum of benefit payments posted to the account during the lookback period, the financial institution establishes the protected amount at $1,000. The financial institution is not required to send a notice to the account holder.
Example 2: Three benefit payments during lookback period.
A financial institution receives a garnishment order against an account holder for $8,000 on December 2. The date of account review is the same day, December 2, and the balance in the account when the account review is performed is $5,000. The lookback period begins on December 1, the date preceding 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 deposited to the account during the lookback period totaling $4,500, one for $1,500 on December 1, another for $1,500 on November 1, and a third for $1,500 on October 1. Since the $4,500 sum of the three benefit payments posted to the account during the lookback period is less than the $5,000 balance in the account when the account review is performed, the financial institution establishes the protected amount at $4,500 and seizes the remaining $500 in the account consistent with State law. The financial institution is required to send a notice to the account holder.
Example 3: Intraday transactions.
A financial institution receives a garnishment order against an account holder for $4,000 on Friday, September 10. The date of account review is Monday, September 13, when the opening balance in the account is $6,000. A cash withdrawal for $1,000 is processed after the open of business on September 13, but before the financial institution has performed the account review, so that the balance in the account is $5,000 when the financial institution initiates an automated program to conduct the account review. The lookback period begins on Sunday, September 12, the date preceding the date of account review, and ends on Monday, July 12, the corresponding date two months earlier. The account review shows that two Federal benefit payments were deposited to the account during the lookback period totaling $3,000, one for $1,500 on Wednesday, July 21, and the other for $1,500 on Wednesday, August 18. Since the $3,000 sum of the two benefit payments posted to the account during the lookback period is less than the $5,000 balance in the account when the account review is performed, the financial institution establishes the protected amount at $3,000 and, consistent with State law, freezes the $2,000 remaining in the account after the cash withdrawal. The financial institution is required to send a notice to the account holder.
Example 4: Benefit payment on date of account review.
A financial institution receives a garnishment order against an account holder for $5,000 on Thursday, July 1. The date of account review is the same day, July 1, when the opening balance in the account is $3,000, and reflects a Federal benefit payment of $1,000 posted that day. The lookback period begins on Wednesday, June 30, the date preceding the date of account review, and ends on Friday, April 30, the corresponding date two months earlier. The account review shows that two Federal benefit payments were deposited to the account during the lookback period totaling $2,000, one for $1,000 on Friday, April 30 and one for $1,000 on Tuesday, June 1. Since the $2,000 sum of the two benefit payments posted to the account during the lookback period is less than the $3,000 balance in the account when the account review is performed, the financial institution establishes the protected amount at $2,000 and places a hold on the remaining $1,000 in the account in accordance with State law. The financial institution is required to send a notice to the account holder.
Example 5: Account co-owners with benefit payments.
A financial institution receives a garnishment order against an account holder for $3,800 on March 22. The date of account review is the same day, March 22, and the balance in the account is $7,000. The lookback period begins on March 21, the date preceding the date of account review, and ends on January 21, the corresponding date two months earlier. The account review shows that four Federal benefit payments were deposited to the account during the lookback period totaling $7,000. Two of these benefit payments, totaling $3,000, were made to the account holder against whom the garnishment order was issued. The other two payments, totaling $4,000, were made to a co-owner of the account. Since the financial institution must perform the account review based only on the presence of benefit payments, without regard to the existence of co-owners on the account or payments to multiple beneficiaries or under multiple programs, the financial institution establishes the protected amount at $7,000, equal to the sum of the four benefit payments posted to the account during the lookback period. Since $7,000 is also the balance in the account at the time of the account review, there are no additional funds in the account which can be frozen. The financial institution is not required to send a notice to the account holder.