Garnishment of Accounts Containing Federal Benefit Payments

Overview

Many consumers receive Federal benefit payments protected under Federal law from access or “garnishment” by creditors, other than the United States government and certain State agencies, through a garnishment order or similar written instruction issued by a court. Despite these protections, developments in debt collection practices and technology, including the direct deposit of benefits, financial institutions, including credit unions, may receive garnishment orders freezing accounts containing Federal benefit payments. As a result, the Department of the Treasury (Fiscal Service), the Social Security Administration, the Department of Veterans Affairs, the Railroad Retirement Board, and the Office of Personnel Management jointly issued a rule¹ (31 CFR Part 212) that a credit union must follow when it receives a garnishment order against an account holder, who receives certain Federal benefit payments by direct deposit. The types of Federal benefit payments covered by the regulation are:

Social Security benefits;
Supplemental Security Income benefits;
Veterans benefits;
Federal Railroad retirement, unemployment and sickness benefits;
Civil Service Retirement System benefits; and
Federal Employee Retirement System benefits.

Additional benefit payments and/or additional protections may be covered under state law. Please check your state’s laws.

The regulation provides the NCUA with authority for enforcing compliance as to all credit unions. Under the regulation, generally, credit unions that receive a garnishment order are required to follow certain procedures, including the following:

Determine whether any account held by the named account holder received exempt Federal payments by direct deposit;
Determine the sum of protected Federal benefits deposited to each individual account during a two-month period; and
Ensure that the account holder has access to an amount equal to that sum or to the current balance of such account(s), whichever is lower.

You can find the full text of the regulation here.

Definitions
Associated Risks
Examination Objectives
Examination Procedures
Checklist

Associated Risks

Compliance risk can occur when the credit union fails to implement the necessary controls to comply with garnishment orders for accounts containing federal benefit payments.

Transaction risk can occur when the credit union does not have adequate internal controls in place and as a result suffers a loss.

Reputation risk can occur when the credit union incurs damaging publicity as a result of failure to comply with garnishment orders for accounts containing federal benefit payments.

Strategic risk can occur when the credit union incurs fines as a result of failure to comply with garnishment orders for accounts containing federal benefit payments.

Examination Objectives

To assess the quality of the credit union’s compliance management policies and procedures for addressing garnishment orders for accounts with federal benefit payments.
To Initiate effective corrective action when violations of law are identified or when policies or internal controls are deficient.

Examination Procedures

Initial Action upon Receipt of a Garnishment Order (§ 212.4)

Determine whether, prior to taking any action relating to a garnishment order, the credit union reviewed the order within two business days of receiving the order to ascertain whether it was obtained by the United States or issued by a State child support enforcement agency.
1. If the garnishment order was obtained by the United States or issued by a State child support enforcement agency as indicated by an attached or included Notice of Right to Garnish Federal Benefits, determine whether the credit union followed its customary procedures to comply with the order.
2. If the garnishment order is not accompanied by a Notice of Right to Garnish Federal Benefits, proceed with the remaining examination procedures to determine whether the institution followed the requirements of § 212.5 and § 212.6.

Account Review (§ 212.5)

Determine whether the credit union performed an account review:
1. No later than two business days following receipt of both the garnishment order and sufficient information from the creditor to determine whether the debtor is an account holder;
  
  or
2. By a later date permitted by the creditor in situations where the credit union is served a batch of a large number of orders. The date must be consistent with the terms of the orders and the credit union must maintain records on such batches and creditor permissions consistent with § 212.11(b).

Rules and Procedures to Protect Benefits (§ 212.6)

If an account review shows that a covered benefit agency deposited a benefit payment into an account during the lookback period (i.e., the preceding two-month period as defined in § 212.3), determine whether the credit union has appropriately calculated and established the protected amount, and has done this separately for each account in the name of the account holder, if applicable.
Determine that the account holder has full and customary access to the protected amount established after the account review.
If a garnishment fee has been assessed, determine that it was charged or collected up to five business days of the account review date and was not charged against a protected amount.
For any funds in an account in excess of the protected amount, determine whether the credit union followed its customary procedures for handling garnishment orders, including the freezing of funds.
Determine whether the credit union ceased to garnish amounts deposited or credited to the account following the date of account review.
Determine whether the credit union performed one-time account review upon the first service of the order and only took action to freeze funds subsequently deposited or credited if the credit union was served with a new or different garnishment order consistent with the regulation.

Notice to the Account Holder (§ 212.7)

If a covered benefit agency deposited a benefit payment into an account during the lookback period, the balance in the account on the date of account review was above zero dollars, the credit union established a protected amount, and there are funds in the account in excess of the protected amount, determine whether the credit union sent a notice to the account holder named in the garnishment order in readily understandable language within three business days of account review and included the following:
1. The credit union’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 credit union’s requirement under the regulation to ensure that account balances up to the protected amount specified in § 212.3 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. Identification of the account subject to the order and notice of the protected amount established by the credit union.
6. The credit union’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, consistent with § 212.6.
8. A list of the Federal benefit payments subject to this regulation, as identified in § 212.2(b).
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.
11. The name of the creditor, and, if contact information is included in the order, means of contacting the creditor.

A credit union may also provide optional notice content or amend the notice content consistent with this section of the regulation.

A credit union may use the model notice in Appendix A of the regulation to meet the requirements of § 212.7. Although use of the model notice is not required, a credit union that uses it properly is deemed to be in compliance with this section.

Record Retention (§ 212.11)

Determine whether the credit union maintains records of account activity and actions taken in response to a garnishment order for at least two years from the date on which it receives the garnishment order.