Garnishment Of Accounts Containing Federal Benefits
The Office of the Comptroller of the Currency recently released its “Garnishment of Accounts Containing Federal Benefit Payments” booklet, which is new to the Comptroller’s Handbook and establishes procedures that financial institutions must follow when they receive a garnishment order against an account holder who receives certain types of federal benefit payments by direct deposit.
Prior to 2011, developments in collection practice and the direct deposit of federal benefits had led to increased freezing of accounts containing protected federal benefit payments. In response to this trend, several federal agencies jointly issued a regulation mandating financial institutions’ actions upon receiving a garnishment order against an account holder who receives federal benefit payments by direct deposit. The regulation applies to accounts into which the following benefits have been directly deposited:
- Social Security Administration
- Social Security benefits
- Supplemental Security Income benefits
- Department of Veterans Affairs
- Veterans benefits
- Railroad Retirement Board
- Federal Railroad retirement, unemployment, and sickness benefits
- Office of Personal Management
- Civil Service Retirement System benefits
- Federal Employee Retirement System benefits
First, when a financial institution receives a garnishment order, it must first determine whether the United States or a state child support enforcement agency obtained the garnishment order. In either case, the financial institution follows its customary procedure for handling the order since these agencies can generally garnish federal benefit payments.
If the United States or a state child support enforcement agency did not obtain a garnishment order, the financial institution must examine the deposits in the account to determine if a benefit agency has directly deposited a benefit payment into the account during a two-month “lookback” period. The lookback period is the two-month period beginning on the day before the account review and ending on the corresponding date of the month two months earlier, or on the last date of the month two months earlier if the corresponding date does not exist. For example, the lookback period that begins on November 15 ends on September 15. On the other hand, the lookback period that begins on April 30 ends on February 28 to reflect the fact that February does not have 30 days.
Once the financial institution determines the sum of protected benefits deposited into each individual account during the lookback period, it must ensure that the account holder has full access to an amount equal to that sum or to the current balance of the account(s), whichever is less (the “Protected Amount”). The financial institution may not freeze the Protected Amount. However, the financial institution should follow its customary procedures for handling garnishment orders – including freezing of funds – for any funds in an account in excess of the Protected Amount.
Finally, the financial institution must notify the account holder that the financial institution has received a garnishment order if: (1) A covered benefit agency deposited a benefit payment into an account during the lookback period; (2) The balance in the account on the garnishment date 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. Under the regulation, the notice must provide the consumer with a litany of information in “readily understandable language.” A listing of the required information is available at 31 CFR 212.7.