By: Robin Hollis, Regional Director ICUL
According to the US Census Bureau, In 2011 almost half of all Americans lived in a household that receive a direct benefit payment from the government and about 27% of this group lived below the poverty level. Extreme financial hardship can be caused by garnishing funds from individuals whose only source of income maybe derived from federal benefit payments. In an effort to help protect consumers who receive certain federal benefits payments federal law provides for garnishment rules.
The following federal benefit payments are protected that may be directly placed into deposit accounts at financial intuitions:
- veterans benefits administered by Veteran Affairs
- Social security benefits and supplemental security income payments administered by the Social Security Administration
- federal railroad retirement, unemployment, and sickness benefits administered by the Railroad Retirement Board, and
- Civil Service Retirement System and Federal Employee Retirement System benefits administered by the Office of Personnel Management.
When a financial institution receives a garnishment order it must:
- Determine whether a “Notice of Right to Garnish Federal Benefits” is attached (this notice is used for garnishment by state child support enforcement agencies and the US government). The financial institution has two business days to make this determination.
- The Garnishment Rule, 31 C.F.R. Part 212, does not apply to a garnishment with this type of attachment and when received the financial institution must comply with the garnishment order in accordance with its standard procedures for handling garnishments.
- If the order does not contain this attachment, the financial institution must follow the account review procedures set forth in 31 C.F.R. §§212.5 and 212.6.
- Inspect the deposits in the holders account to determine whether protected benefit payments were made into the account during the “lookback period” (the two-month period beginning on the date preceding the date of the account review and ending on either the corresponding date of the month two months earlier or the last date of the month two months earlier if the corresponding date does not exist). Normally, an account review must be completed no later than two business days after receiving the garnishment order and sufficient information from the creditor to determine whether the debtor is an account holder.
- If no covered benefit payments were deposited into the account, the rules and procedures to protect federal benefit payments do not apply and the financial institution must comply with the garnishment orders.
- If covered benefit payments were deposited during the lookback period, the financial institution must follow the procedures as outlined in 31 C.F.R. §212.6 to make certain that the account holder has full access to their “protected amount”.
- Financial institutions can only perform an account review once for each garnishment order after service of the first order. The financial institution may not repeat the account review or take any other action on the order if the same garnishment is served again. Only in the event of a new or different garnishment order on the accountholder is the financial institution required to complete an account review again.
- Calculate the protected amount. The protected amount,” as defined in the Garnishment Rule is the lesser of (a) the sum of all federal benefit payments deposited into the account between the close of business on the beginning date of the lookback period and the open of business on the ending date of the lookback period, or (b) the balance in the account when an account review is performed.
- The financial institution should follow its standard procedure for handling garnishment orders for any funds in excess of the protected amount in each of the holder’s accounts.
- Notify account holders within three business days of the account review if it shows:
- that during the lookback period a covered benefit payment was deposited into the holder’s account
- the balance in the account was greater than $0 on the date of account review and the institution established a protected amount, and
- funds in the account exceed the protected amount
- When agreed to by the financial institution and the account holder any method of delivery for notices is permitted. Refer to the Garnishment rule for detail on what to include in the Notice of Account Review.
While processing garnishments can be a chore, financial institutions cannot charge or collect garnishment fees either against protected amounts or after the date of the account review. However, if deposits are made into the account other than benefit payments during the account review period, financial institutions may charge a garnishment fee within five business days of the account review not to exceed the amount of non-benefit deposited funds.
In conclusion, when a financial institution simply freezes all the funds in an account as a reaction to a garnishment order it could very well be freezing protected funds in error. The commingling of federal benefit payments with funds from different sources in an account often make it difficult for financial institutions to tell which funds in a members account are protected. Financial institutions should ensure that the appropriate staff is trained and that its policies and procedures are reviewed for compliance with respect garnishment rules and federal benefit payments.
Please don’t hesitate to email us at [email protected] or contact your Regional Director if you have questions regarding this blog post.