The U.S. Treasury Department and the federal agencies that oversee certain federal benefit payments have jointly adopted final amendments to the rules governing the garnishment of federal benefit payments that are directly deposited to accounts at depository institutions. The final amendments published on May 29 establish procedures that institutions must follow when they receive a garnishment order against an account holder who receives certain types of federal benefit payments by direct deposit. The amended regulation requires depository institutions that receive a garnishment order to first determine if the federal government or a state child support enforcement agency has attached or included a Notice of Right to Garnish Federal Benefits with the order. If so, the regulation requires the depository institution to follow its customary procedures for handling the order. If the garnishment order does not include a Notice of Right to Garnish Federal Benefits, the regulation requires the depository institution to review the account history for the prior 2-month period to determine whether, during this “lookback period,” one or more exempt federal benefit payments were directly deposited to the account. Such payments include Social Security benefits, Supplemental Security Income payments, VA benefits, Federal Railroad retirement benefits, Federal Railroad unemployment and sickness benefits, Civil Service Retirement System benefits and Federal Employees Retirement System benefits. The institution must determine the sum of the exempt federal benefit payments deposited to the account during the lookback period and ensure that the account holder has access to an amount equal to that sum or to the balance of the account on the date of the account review, whichever is lower. The final amendments become effective on June 28.
Nutter Notes: The amended regulation also requires the depository institution to notify the account holder that the institution has received a garnishment order. The regulation requires that the notice briefly explain what a garnishment is and include other information regarding the account holder’s rights. The regulation does not require such a notice if the balance in the account is zero or negative on the date of the account review. Depository institutions may use a model notice contained in the regulation. Use of the model notice is not mandatory, but use of the model provides a safe harbor for compliance with the notice content requirements. For an account containing a protected amount of federal benefit payments, the financial institution may not collect a garnishment fee from the protected amount. The depository institution generally may only charge a garnishment fee against funds in the account in excess of the protected amount and may not charge or collect a garnishment fee after the date of account review. However, if funds other than a benefit payment are deposited into the account at any time within 5 business days following the date of the account review, the institution may retroactively charge or collect a garnishment fee from the additional funds. The amended regulation also includes guidance and examples of how the account balance should be computed when conducting an account review and establishing a protected amount. Depository institutions that comply with the regulation’s requirements are protected from various sources of liability, including liability for failing to honor a garnishment order.