New Treasury Regulations Protect Exempt Federal Benefits
A recurring problem for recipients of direct deposit federal benefits has been the sudden freezing of their bank accounts containing these exempt funds once their bank has been served with a garnishment order.
Thanks to Mike Bulson for this important information:
Until recently, recipients were forced to request a court hearing within 10 days to challenge the seizure of their exempt funds, or they had to depend on the goodwill of the collection attorney (an oxymoron perhaps) in order to regain access to their accounts. Now, help has arrived in the form of federal regulations published on February 23, 2011 that require banks to conduct a two-month lookback once a garnishment order is received. If the lookback shows exempt funds deposited during this period, the bank must assure access to an amount equal to the benefits deposited or the current balance, whichever is lower. The new regulations will appear at 31 C.F.R. Part 212. The following is a summary of some of the key points in the regulations.
What federal benefits are protected by the new rules?
The protected benefits include: Social Security, SSI, VA, Railroad Retirement, Railroad unemployment and sickness, Civil Service Retirement and Federal Employee Retirement.
How quickly must the bank review my account?
The bank has two business days after a garnishment order is served to review the account and determine whether exempt federal benefits were deposited during the two-month lookback period.
How will the bank know that the deposits made to my account are protected?
The regulations require the federal agencies that issue these benefit payments to include in the deposit record (ACH Batch Header Record) a “specified unique garnishment exemption identifier.” This identifier will be captured and included in the account statement, thereby allowing both the bank and the account holder to identify federal benefit payments exempt from garnishment. For example, a Social Security payment will be encoded, “XXSOC SEC.”
Will I receive notice that my account has been reviewed?
Yes. The bank must still give you notice that a garnishment order has been received. It must notify you of the protections that apply to exempt funds. It must provide this notice within three days after completing the review. Among other things, the notice must tell you the name of the judgment creditor who served the garnishment order, an explanation of what a garnishment is, the amount of funds protected in the account, the amount of any excess funds that have been frozen, and further advice as to what may be done to protect the frozen funds, if they are exempt as well. Banks may include additional information, such as the availability of legal help through a legal aid office. There is no requirement to send the notice, if the account balance is zero or negative.
Do the same protections apply to my check deposits?
No. The Treasury reasons that check deposits do not raise the same concerns as direct deposits, since a recipient may choose to deposit a check and run the risk of garnishment. The bank cannot readily determine that a check deposit was an exempt federal benefit, since the check does not carry the ACH identifier. The procedures available under state law for challenging garnishment of exempt benefits deposited by check would still apply.
Do the rules apply to garnishments by the United States government?
No. Garnishment orders obtained by the United States government are excluded from coverage by these rules. Since a number of federal statutes allow the United States to garnish federal benefit payments, Treasury decided it would be too difficult for banks to determine on a case-by-case basis whether a particular order was subject to the rule. There are already a number of federal statutes that regulate how much the federal government may garnish—e.g., no more than 15 percent of SS benefits over $750 can be garnished to recover on a delinquent student loan. The United States must include with its garnishment order a standard Notice of Right to Garnish Federal Benefits.
What about child support garnishments?
Child support orders obtained by a state child support enforcement agency are also excluded under the rules. The agency must attach a Notice of Right to Garnish Federal Benefits to the order. This does not preclude the account holder from contesting the garnishment—e.g., while SSDI benefits may be garnished for child support, SSI benefits may not.
Do the rules affect continuing garnishment orders?
Yes. The rules provide that once a bank conducts an account review, it need not repeat the process under a continuing garnishment order. Rather, the collector must obtain and serve a new garnishment order, which will trigger a new review.
Can my bank charge me for conducting a review?
A bank may not charge a garnishment fee on protected amounts, nor may it charge any fees after the account review is completed. The bank may charge a fee against amounts that exceed the protected amount.
When do the new rules go into effect?
Although the rules are classified as “interim final,” the banks have until May 1, 2011 to begin complying with them. Comments may still be made until May 24, 2011.