The final garnishment rule includes a clarification that could conflict with certain law enforcement agencies’ expectations.
In the supplementary information section to the final rule, the agencies addressed a commenter’s question whether the rule applied to seizures in criminal actions. The agencies responded by noting that an earlier draft of the rule had defined “garnishment” as “execution, levy, attachment, garnishment, or other legal process to enforce a money judgment,” but that the italicized phrase was removed from the interim rule (and final rule). The definition of “garnishment” now includes an order or levy “issued by a State or State agency or municipality,” and “an order to freeze the assets of an account” (the latter change is to clarify inclusion of restraining orders).
The foregoing interpretation could raise conflicts between banks and law enforcement officials such as sheriffs and police departments if, as expected, they are unaware of the federal rule. The final rule allows a bank, when served with a covered garnishment order, two business days to review the account to confirm that the subject of the order is the account holder and to determine the presence of covered benefit payments. A law enforcement official who is in possession of a valid court order to seize assets might not be aware of the bank’s duties and the need to wait to satisfy the order.
During this review period, the bank is required to grant the account holder unimpeded access to the account. Law enforcement officials might expect accounts or other assets to be not just immediately surrendered but also made inaccessible to the account holder. However, if the bank ascertains the presence of protected benefit funds, it is required to send a written notice to the account holder disclosing a number of things, including that the account is subject to an order in the name of the “creditor.” Law enforcement officials might object to the bank notifying the account holder of the seizure as well as to the protection of benefit funds.
The Department of Treasury has provided the summary set forth below for financial institutions to utilize to apprise state or federal law enforcement or courts, state agencies, municipalities, and municipal corporations of the new federal rule affecting garnishment orders.
UNDER A NEW FEDERAL RULE, THIS FINANCIAL INSTITUTION HAS UP TO TWO BUSINESS DAYS TO REVIEW ACCOUNTS IN ORDER TO PROTECT FEDERAL BENEFIT PAYMENTS FROM GARNISHMENT ORDERS, INCLUDING SEIZURE ORDERS, ISSUED OR CAUSED TO BE ISSUED BY A STATE AGENCY, MUNICIPALITY, MUNICIPAL CORPORATION, STATE OR FEDERAL LAW ENFORCEMENT AGENCIES, OR COURTS.
What is this new federal rule?
On June 28, 2013, a new federal rule was issued by the Department of the Treasury, the Social Security Administration, the Department of Veteran Affairs, the Railroad Retirement Board, and the Office of Personnel Management to implement statutory restrictions on the garnishment of certain exempt federal benefit payments.
The rule, 31 C.F.R. Part 212, establishes procedures that financial institutions must follow when they receive a garnishment order against an account holder. Upon receipt of a garnishment order a financial institutions must conduct an account review (1) to identify and protect exempt federal benefit payments which may have been deposited in the account in the past two months, and (2) to determine the amount of funds, which may be $0, that can be garnished.
When served a garnishment order, including garnishment orders issued or caused to be issued by a state agency, state or federal courts or law enforcement, municipal corporations, or state municipalities, a financial institution (1) must perform an account review, and (2) has up to two business days following the receipt of the garnishment order to complete the account review.
What does this new law mean for local law enforcement attempting to seize funds?
#1. The financial institution, by operation of federal law, cannot surrender any funds under the garnishment order before the account review is complete. Also by operation of federal law, the financial institution has up to two business days to complete the account review. When served a garnishment order (including seizure orders), a financial institution must perform an account review no later than two business days following the receipt of (a) the garnishment order; and (b) sufficient information to determine whether the debtor or defendant is an account holder. Thus, a financial institution may have more than two business days to identify an account holder and complete the account review. During this account review period, the financial institution must allow an account holder unimpeded access to funds in the account.
#2. If protected federal benefit payments are identified by the financial institution, the account holder must be given access to those funds. Federal benefit payments are protected and are not provided to the party seeking to seize or restrain them.
#3. The only exception to these requirements is permitted for state child support enforcement agencies and certain federal garnishment orders where a “Notice of Right to Garnish Federal Benefits” has been attached to garnishment order. If a “Notice of Right to Garnish Federal Benefits” is attached to the order, the financial institution should follow its customary procedures for handling the order.
State child support enforcement or certain federal garnishment orders may
bypass the account review process ONLY when a Notice of Right to Garnish
Federal Benefits is attached to the garnishment order.