[Federal Register Volume 78, Number 103 (Wednesday, May 29, 2013)]
[Rules and Regulations]
[Pages 32099-32110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-12567]
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OFFICE OF PERSONNEL MANAGEMENT
5 CFR Parts 831, 841
RIN 3206-AM17
RAILROAD RETIREMENT BOARD
20 CFR Part 350
RIN 3220-AB63
SOCIAL SECURITY ADMINISTRATION
20 CFR Parts 404, 416
RIN 0960-AH18
DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 212
RIN 1505-AC20
DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 1
RIN 2900-AN67
Garnishment of Accounts Containing Federal Benefit Payments
AGENCY: Fiscal Service (Treasury), Department of the Treasury; Social
Security Administration (SSA); Department of Veterans Affairs (VA);
Railroad Retirement Board (RRB); Office of Personnel Management (OPM).
ACTION: Final rule.
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SUMMARY: Treasury, SSA, VA, RRB and OPM (Agencies) are adopting as
final an interim rule to amend their regulation governing the
garnishment of certain Federal benefit payments that are directly
deposited to accounts at financial institutions. The rule 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. The rule requires
financial institutions that receive such a garnishment order to
determine the sum of such Federal benefit payments deposited to the
account during a two month period, and to ensure that the account
holder has access to an amount equal to that sum or to the current
balance of the account, whichever is lower.
DATES: This final rule is effective June 28, 2013.
FOR FURTHER INFORMATION CONTACT: Sheryl Morrow, Deputy Fiscal Assistant
Secretary, at (202) 622-0560; Barbara Wiss, Fiscal Affairs Specialist,
at (202) 622-0570 or [email protected]; or Natalie H. Diana,
Senior Counsel, Financial Management Service, at (202) 874-6680 or
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
On April 19, 2010, the Agencies published a proposed rule to
address concerns associated with the garnishment of certain exempt
Federal benefit payments, including Social Security benefits,
Supplemental Security Income (SSI) payments, VA benefits, Federal
Railroad retirement benefits, Federal Railroad unemployment and
sickness benefits, Civil Service Retirement System benefits and Federal
Employees Retirement System benefits. See 75 FR 20299. The Agencies
received 586 comments on the proposed rule. On February 23, 2011, the
Agencies published an interim final rule and request for public
comment. See 76 FR 9939. The Agencies received 39 comments on the
interim final rule, including comments from individuals, consumer
advocacy organizations, legal services organizations, an organization
of credit and collection companies, a prepaid card association, and
financial institutions and their trade associations. As described in
Parts II and III of this SUPPLEMENTARY INFORMATION, this final rule
amends certain provisions of the interim final rule to address certain
issues raised by commenters.
Interim Final Rule
The interim final rule established procedures that financial
institutions must follow when they receive a garnishment order for an
account holder. Under the interim final rule, a financial institution
that receives a garnishment order must first determine if the United
States or a State child support enforcement agency is the plaintiff
that obtained the order. If so, the financial institution follows its
customary procedures for handling the order. If not, the financial
institution must review the account history for the prior two-month
period to determine whether, during this ``lookback period,'' one or
more exempt benefit payments were directly deposited to the account.
The financial institution may rely on the presence of certain Automated
Clearing House (ACH) identifiers to determine whether a payment is an
exempt benefit payment for purposes of the rule.
The financial institution must allow the account holder to have
access to an amount equal to the lesser of the sum
[[Page 32100]]
of exempt payments directly deposited to the account during the
lookback period or the balance of the account on the date of the
account review (the ``protected amount''). In addition, the financial
institution must notify the account holder that the financial
institution has received a garnishment order. The notice must briefly
explain what a garnishment is and must also include other information
regarding the account holder's rights. There is no requirement to send
a notice if the balance in the account is zero or negative on the date
of account review. Financial institutions may choose to use a model
notice contained in the rule in order to be deemed to be in compliance
with the notice content requirements.
For an account containing a protected amount, the financial
institution may not collect a garnishment fee from the protected
amount. The financial institution 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. Financial institutions that comply with the rule's requirements
are protected from liability.
II. Comments and Analysis
Scope (Sec. 212.2)
Some commenters urged that the Agencies move expeditiously to cover
in the rule all Federal payments protected from garnishment by statute,
including military retirement payments. One commenter proposed that the
rule be expanded to protect certain non-Federal payments deposited to
bank accounts--specifically, payments originating from Employment
Retirement Income Security Act (ERISA) retirement plan distributions.
Other commenters suggested that the Agencies contact the U.S. Senate
and propose legislation to make all Federal benefit payments exempt
from garnishment. In contrast, a financial institution commenter argued
that Federal benefit payments should not be protected from garnishment.
One consumer organization recommended that the rule be revised to cover
benefit payments made by check as well as payments made by direct
deposit.
An organization representing credit and collection companies
requested that the final rule provide a procedure under which the
creditor garnishing an account be granted access to the debtor's
account information, including, but not limited to, the amount held in
the garnished account, documentation supporting the financial
institution's application of the final rule, and any calculations
supporting the financial institution's decision to not freeze certain
funds. The association expressed concern that without any transparency
into the deliberative process that a financial institution uses to
decide which funds are protected by law, an environment could be
created in which financial institutions would refuse to freeze funds in
the garnished accounts without clear explanation or verified
justification.
As discussed in the preamble to the interim final rule, the
Agencies have structured the rule to create a framework in which
payments protected by statute from garnishment can be included in the
future. Federal agencies that issue such payments can, through a public
notice-and-comment rulemaking process, amend their regulations to
provide that their exempt payments are covered by this rule. The
Agencies would then issue a rulemaking to include those payments within
the scope of the rule. The Agencies do not have authority to expand the
rule to include non-Federal payments, nor do the Agencies believe it is
appropriate to seek a legislative change to address Federal payments
that they do not issue and over which they do not have regulatory
jurisdiction. For the reasons discussed when promulgating the interim
final rule, the Agencies do not believe it is feasible or necessary to
address checks within the final rule. See 76 FR 9939, 9941.
The Agencies are not adopting the suggestion that creditors be
granted access to debtors' account information. Account information is
protected under various State and Federal privacy laws. Creditors who
believe that a legal basis exists to permit disclosure of a debtor's
account information should seek access to that information in
accordance with such laws.
Definition of Account (Sec. 212.3)
The interim final rule defined an account to mean ``an account,
including a master account or sub account, at a financial institution
and to which an electronic payment may be directly routed.'' The
Agencies received various requests asking for clarification of this
definition. One commenter requested that the Agencies clarify that a
``master'' account, under which multiple sub accounts may be
established and held, does not require an aggregate account review as a
separate and distinct ``account'' for purposes of the rule. Credit
unions in particular requested clarification on whether a ``whole share
account,'' as opposed to various sub accounts, is subject to the
account review and lookback.
Some credit unions commented that credit unions typically assign an
individual member (or ``primary'') number to each member. The member
may then open multiple accounts ``under'' or ``within'' this member
number with each account being designated by different ``sub accounts''
or ``suffixes.'' The member number does not denote an account per se,
but rather serves as a ``prefix'' for all individual sub accounts of
the member to or from which deposits and withdrawals may be made. For
example, a new member might be given member number 9876. When the
member opens a savings (or a share) account, that individual savings
account might be noted as sub account ``S'' or ``01.'' Similarly, if
the same member establishes a checking (or share draft) account, that
individual checking account might be noted as sub account ``C'' or
``02.'' Both are sub accounts of the member's ``membership'' account
9876.
The requirement to perform an account review applies to the deposit
account to which a Federal payment is routed and credited. In cases
where a payment recipient is assigned a member number that doesn't
represent an account per se, but that serves as a ``prefix'' for
individual sub accounts, it is the individual sub account (and not the
``master account'') that is subject to the account review and lookback.
Definition of Benefit Payment (Sec. 212.3)
Immediately following publication of the interim final rule, some
financial institutions requested clarification on the definition of
``benefit payment'' for purposes of identifying Federal benefit
payments. The interim final rule defines a benefit payment as a Federal
benefit payment ``with the character `XX' encoded in positions 54 and
55 of the Company Entry Description field of the Batch Header Record of
the direct deposit entry.'' The Agencies were asked whether financial
institutions may rely solely on the presence of the ``XX,'' without
regard to whether there is a ``2'' in the ``Originator Status Code''
field of the Batch Header Record for the payment. Financial
institutions pointed out that it is possible that payments other than
Federal payments could contain an ``XX'' encoded in positions 54 or 55.
Following the inquiry, the Agencies published guidance stating that
financial institutions must verify that a payment containing an ``XX''
encoded in positions 54 or 55 is in fact a Federal benefit payment,
which they may do by checking for a ``2'' in the ``Originator Status
Code'' field of the Batch Header Record (Position 79) or by reviewing
the
[[Page 32101]]
description of the payment in the ACH Batch Header Record Company Entry
Description to ensure that the payment is one of the exempt Federal
benefit types listed in the guidance.\1\ The Agencies are codifying
this guidance by amending the definition of benefit payment in the
final rule to provide that both the ``XX'' and the ``2'' be present in
the appropriate locations of the Batch Header Record.
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\1\ See www.fms.treas.gov/greenbook/guidelines_garnish0311.pdf,
at pp. 5-6.
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Definition of Garnishment Order (Sec. 212.3)
The Agencies received many requests for clarification on the
definition of ``garnishment order'' and some commenters indicated that
confusion regarding the definition is resulting in compliance
difficulties. Consumer advocacy groups, financial institutions, and
banking associations recommend that the Agencies revise the definition
of ``garnishment order'' so that it is clear exactly what kinds of
documents are considered garnishment orders. The interim final rule
includes a broad definition of ``garnishment,'' which closely tracks
the definition in the Agencies' statutes. However, the rule's
requirements are triggered only by the receipt of a ``garnishment
order,'' which was defined more narrowly in the interim final rule as
``a writ, order, notice, summons, judgment, or similar written
instruction issued by a court or a State child support enforcement
agency . . .'' (emphasis supplied). Under this wording, levies issued
directly by a State agency such as a State revenue department would not
be subject to the rule.
The Agencies received many comments stating that levies are
frequently issued directly by State agencies or municipalities to seize
funds in bank accounts. Consumer advocacy groups expressed concern that
the narrow definition of ``garnishment order'' leaves benefit payments
exposed to improper garnishment and freezing. Some financial
institutions commented that while they do not have a position on
whether tax levies issued directly by a State agency should be included
within the scope of the rule, guidance on the process of determining
what sorts of orders or levies are within the scope of the rule would
be helpful. One commenter suggested that the Agencies consider
providing an exhaustive list and additional guidance as to exactly
which garnishment orders are within the rule's scope.
Some commenters questioned whether the definition of garnishment
order in the interim final rule applies to restraining orders, i.e.,
orders issued pursuant to judgments which restrain an account's funds
pending future legal action. Several commenters asked if orders issued
by an attorney acting in his or her capacity as an officer of the court
are considered to be issued by a court. For example, in the State of
New York, garnishment orders (commonly referred to as levies and
restraints) can be issued not only by courts, but also by attorneys
acting on behalf of judgment creditors.\2\ One commenter asked if the
rule applied to seizures in criminal actions. This commenter noted that
the proposed rule had defined ``garnishment'' as ``execution, levy,
attachment, garnishment, or other legal process to enforce a money
judgment'' (emphasis supplied), but that the phrase ``to enforce a
money judgment'' was removed from the definition of ``garnishment'' in
the interim final rule. The commenter questioned whether by removing
the phrase, the Agencies intended that the rule cover not only civil
money judgments, but also seizures in criminal actions.
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\2\ New York CPLR5230 provides that ``at any time before a
judgment is satisfied. . . . An execution may be issued from the
Supreme Court. . . . By the clerk of the court . . . or the attorney
for the judgment creditor as an officer of the court. . . .''
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The Agencies are revising the definition of garnishment order to
include orders or levies issued by a State or State agency or
municipality. To remove any doubt as to whether the rule applies to
restraining orders, the Agencies are amending the definition of
garnishment order to include ``an order to freeze the assets in an
account.'' With regard to the question of whether a ``garnishment
order'' includes an order issued by the clerk of the court or an
attorney acting in his or her capacity as an officer of the court, it
was not the Agencies' intention that an order ``issued by a court'' be
so narrowly construed as to exclude such orders. The Agencies' view is
an order issued by the clerk of the court or an attorney acting in his
or her capacity as an officer of the court in accordance with State law
constitutes an order issued by the court. Lastly, the Agencies did
intend by removing the phrase ``to enforce a money judgment'' from the
definition of ``garnishment'' in the interim final rule to ensure that
the rule is not limited to civil money judgments.
Definition of Lookback Period (Sec. 212.3)
One commenter urged that the lookback period be extended from 2
months to 65 days, while another commenter urged that it be shortened
from 2 months to 30 days. For the reasons discussed in promulgating the
interim final rule, the Agencies believe that a 2 month lookback period
is appropriate. See 76 FR 9939, 9942.
Definition of Protected Amount (Sec. 212.3)
Several financial institutions requested guidance on how the
account balance should be computed when conducting an account review
and establishing a protected amount. The interim final rule defined the
``protected amount'' as the lesser of: (i) The sum of all benefit
payments posted to an 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 and (ii) the balance in an account
at the open of business on the date of the account review. Some
financial institutions commented that it was not clear whether the
account balance for purposes of clause (ii) refers to the ledger
balance, the memo ledger balance, the Regulation CC \3\ available funds
balance or the memo available funds balance. Other commenters noted
that the procedure for calculating the protected amount does not take
into account intraday postings of credits or debits. Therefore,
depending on the time of day that an account review is performed and
whether items have been posted to the account during the day,
establishing a protected amount without taking into account intraday
debits could result in the establishment of a protected amount that
exceeds the funds in the account. For example, if $1,000 in protected
funds were deposited during the lookback period, and the account
balance was $600 at the open of business on the date of the account
review, then the protected amount would be $600. If, however, the
account review is performed in the afternoon, and all $600 had been
withdrawn by the time the account review was performed, then the
financial institution would be in the position of establishing and
providing access to a $600 protected amount for an account containing
no funds.
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\3\ Regulation CC, 12 CFR part 229, is the Federal Reserve
regulation governing when funds deposited to bank accounts must be
made available for withdrawal by customers.
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To address this incongruity, the Agencies are amending the rule to
provide that the relevant account balance is the account balance when
the account review is performed, so that the balance will include
intraday items such as ATM or cash withdrawals. Financial institutions
should not use the Regulation CC available funds balance, but should be
aware that the
[[Page 32102]]
requirement to provide access to the protected amount is subject to the
usual restrictions on funds availability under Regulation CC, as
discussed in the preamble to the interim final rule.\4\ In addition,
the Agencies do not intend that any line of credit associated with the
account be considered as part of the ``account balance'' for this
purpose.
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\4\ See discussion of section 212.6(b) at 76 FR 9952
(``requirement that a financial institution ensure that the account
holder has access to the protected amount would be subject to any
limitation on funds availability to which the account is subject.
For example, if funds on deposit are subject to a hold consistent
with Regulation CC, [footnote omitted] or a limitation on withdrawal
applicable to a time deposit, the proposed rule would not override
or affect those limitations.'').
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One commenter questioned the calculation of the account balance in
the context of accounts in which the concept of a ``ledger balance''
may be inappropriate. For instance, some accounts hold securities,
alternative instruments, real estate, and other assets. For those
accounts, the commenter suggested that the Agencies clarify that the
account balance is the available market value of the account, which
would be the opening balance on the day of account review minus
intraday activity. The Agencies are not making this change because the
rule applies only to deposit accounts held by a bank, savings
association, credit union, or other entity chartered under Federal or
State law to engage in the business of banking.\5\ The rule does not
apply to asset accounts or address any protection that may exist for
securities or other assets purchased with Federal benefit payments.
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\5\ Federal benefit payments may be delivered only to deposit
accounts at financial institutions (see 31 CFR 210.5(a)).
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Initial Action Upon Receipt of a Garnishment Order (Sec. 212.4)
The Agencies received comments noting that although the interim
final rule establishes procedures that financial institutions must
follow when served with a garnishment order, there will be situations
where a financial institution determines that it will not act on a
garnishment order. Commenters asked whether the rule's procedures must
still be followed in these situations. One example provided by a
commenter is when an account holder has more than one account and the
first account review reveals (a) no protected amount and (b) sufficient
funds to satisfy the judgment. In such situations, the financial
institution's obligation to garnish ends when the bank tenders over an
amount to pay the debt. By logical extension, the commenter argued, the
financial institution's obligation to review the other account(s) in
the account holder's name also should end. However, the commenter
pointed out that a literal reading of Sec. 212.5(f) (which requires a
separate account review for each account in the name of an account
holder against whom a garnishment order has been issued) arguably
requires reviews of the other account(s) even when there is no
remaining debt. A review of a second or third account could then lead
to the presence of another ``protected amount'' (even though the
garnishment has been satisfied) and thereby trigger the requirement to
send another notice.
Another example cited by a commenter postulated a situation in
which a financial institution receives a garnishment order directed
against the beneficiary of a ``pay on death'' or ``revocable trust''
account. In this situation, the beneficiary has only a contingent
interest in the account, the beneficiary's name is not likely to be
included on the account and the financial institution would not
normally take action against the account based on the beneficiary's
contingent interest. A third example, provided by a financial
institution trade group, would occur if a financial institution
determines that a garnishment order cannot be given effect under State
law because all of the funds in the account are protected from
garnishment under State law (for example, where State law establishes a
dollar amount that is protected).
The Agencies agree that it serves no useful purpose to follow the
rule's procedures in situations where a financial institution has made
a determination not to take any action affecting an account as the
result of the receipt of a garnishment order. The first step required
under the rule when a financial institution receives a garnishment
order is to examine the order to determine if a Notice of Right to
Garnish Federal Benefits is attached or included. The requirement to
perform this first step, however, is prefaced by the words, ``Prior to
taking any other action related to a garnishment order issued against a
debtor . . .'' See Sec. 212.4(a). Accordingly, if a financial
institution has determined not to take action related to a garnishment
order, neither this step nor any subsequent requirement of the rule is
triggered. The Agencies have published a set of frequently asked
questions (FAQs) on the garnishment rule that states that if a
financial institution will not be freezing or removing funds from an
account in response to a garnishment order, then the financial
institution should not perform an account review to determine if a
protected amount should be established.\6\ In light of this guidance
and the wording of Sec. 212.4(a), the Agencies do not believe it is
necessary to revise the rule itself on this point.
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\6\ See www.fms.treas.gov/greenbook/FAQs-May-12-trsy-ver1.pdf.
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Exception for Orders Obtained by State Child Support Enforcement
Agencies or the United States (Sec. 212.4)
One consumer advocacy organization opposed permitting any
garnishment of exempt funds by the United States or a State Child
Support Enforcement Agency. This commenter argued that an agency that
is statutorily permitted to seize exempt Federal benefits should
proceed through the Federal benefit offset program because the bank
garnishment process is not well suited for such collections and should
not be permitted. Several consumer advocacy organizations commented
that the interim final rule's exception allowing for the processing of
child support orders issued by State child support agencies illegally
and inappropriately permits the seizure of SSI payments and VA payments
to pay child support obligations. Some organizations argued that the
garnishment of these benefits for child support obligations is
prohibited by 42 U.S.C. 659, a statute that permits garnishment orders
to be served on the United States. Others commented that the rule
should not provide the basis for garnishment of exempt Federal funds
from bank accounts that cannot legally be offset directly from the
Federal paying agency. Some commenters recommended that the Agencies
incorporate in the rule the limitations that apply when child support
arrearages are collected by offset directly from the Federal benefit
agency, and ensure that these limits are applied to the garnishment of
Federal funds from bank accounts.
One commenter suggested that the Agencies establish a minimum
amount to be protected in every bank account even from garnishment
orders issued from State child support enforcement agencies. This
commenter recommended that the final rule provide that for garnishment
pursuant to child support orders, the protected amount would include
the lesser of the sum of 2 months' exempt deposits or $750 (one twelfth
of $9,000). The Agencies note, however, that although Federal benefit
payments deposited to a bank account are protected by statute from
garnishment for most debts, Federal and state law provides that this
protection generally does not extend to garnishments for child support
once
[[Page 32103]]
these benefits have been deposited into a bank account, with exceptions
for certain benefits.
Another commenter suggested that the Agencies protect SSI payments
from seizure for child support garnishment by adopting a procedure for
financial institutions to follow when they receive a garnishment order
from a State child support enforcement agency. That procedure would
require financial institutions to examine every order that includes a
``Notice of Right to Garnish Federal Benefits'' to determine whether
the order was obtained by a child support enforcement agency. For all
such orders, the financial institution would have to conduct an account
review to determine whether SSI payments were deposited to the account
during the lookback period. To make it possible for financial
institutions to identify SSI payments without manually reviewing the
account history, financial institutions would have to make the
programming changes necessary to detect the identifier for SSI payments
located in positions 56-63 of the Company Entry Description field of
the ACH Batch Header Record.
The Agencies did not previously seek comment on imposing a process
on banks to prevent the potential garnishment of SSI or VA payments by
child support enforcement agencies, because they were aware of U.S.
Department of Health and Human Services Office of Child Support
Enforcement (DHHS OCSE) instructions that direct State child support
enforcement agencies not to serve orders on financial institutions to
garnish SSI payments and DHHS OCSE's public information that VA
payments are generally not subject to garnishment.\7\ DHHS OCSE has
recently issued additional guidance to State child support enforcement
agencies reiterating its policy that SSI payments are not to be
garnished and urging state agencies to implement automated and manual
processes to prevent improper garnishments. See Dear Colleague Letter
[DCL-13-06] and Fact Sheet ``Garnishing Federal Benefits for Child
Support.''
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\7\ See Dear Colleague Letter 00-103 (Oct. 6, 2000) <http://www.acf.hhs.gov/programs/cse/pol/DCL/2000/dcl-00-103.htm.
DHHS OCSE also provides public information regarding garnishment of
VA payments for child support. See OCSE VA, Income Withholding and
Veteran's Benefits, Guides/Publications/Reports (March 1, 2012) at
http://www.acf.hhs.gov/programs/css/resource/income-withholding-and-veterans-benefits.
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The Agencies do not have information on the difficulty or burden
that would be associated with manually reviewing every order that
includes a Notice. The Agencies also do not have information on the
costs to financial institutions of making programming changes necessary
to identify SSI or VA payments delivered to an account. However, these
procedures would seem to impose an additional burden on financial
institutions. In light of this potential burden, the Agencies have
sought to evaluate the extent to which the garnishment of SSI or VA
payments by child support enforcement agencies presents a genuine
hardship for noncustodial parents.
After further consultation with DHHS OCSE, it does not appear that
the garnishment of SSI or VA payments by child support enforcement
agencies raises the same concerns that are raised by the garnishment of
Federal benefits by commercial creditors. First, noncustodial parents
receive substantial advance due process before a child support
enforcement order is issued. This is in marked contrast to garnishment
orders obtained by commercial creditors, where there is no advance due
process and therefore no opportunity for the debtor to challenge the
garnishment of benefit payments in a bank account until after the order
has been executed. A noncustodial parent has the opportunity, before a
child support enforcement order is issued, to notify the agency that
the parent receives SSI or VA payments. Second, DHHS OCSE has
instructed child support enforcement agencies not to serve orders on
financial institutions to garnish SSI payments and has provided public
information that VA payments generally are not subject to garnishment
by child support enforcement agencies. Specifically, Federal payments
subject to garnishment by child support enforcement agencies under 42
U.S.C. 659 are limited to payments based on remuneration for
employment, which do not include SSI payments or VA payments other than
those representing compensation for a service-connected disability paid
to a former member of the Armed Forces who is in receipt of retired or
retainer pay and who has waived a portion of the retired or retainer
pay in order to receive such compensation.\8\
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\8\ See 42 U.S.C. 659(h)(1)(A)(ii)(V).
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Finally, if an account containing SSI or VA payments is garnished
by a state child support enforcement agency, the noncustodial parent is
not required to go to court to have the funds released and therefore
does not necessarily face a time-consuming, expensive, and confusing
process to free the funds. Rather, a noncustodial parent whose account
is garnished for child support can contact the child support
enforcement agency directly (usually by phone), explain that the
account being garnished contains SSI or VA payments, and provide a copy
of his or her SSI or VA payments statement in order to have the
benefits released.
In the notice of proposed rulemaking, the Agencies explained the
need for the rule:
Creditors and debt collectors are often able to obtain court
orders garnishing funds in an individual's account at a financial
institution . . . Although state laws provide account owners with an
opportunity to assert any rights, exemptions, and challenges to the
garnishment order, including the exemptions under applicable Federal
benefits laws, the freezing of funds during the time it takes to
file and adjudicate such a claim can cause significant hardship for
account owners . . . If their accounts are frozen, these individuals
may find themselves without access to the funds in their account
unless and until they contest the garnishment order in court, a
process that can be confusing, protracted and expensive. 75 FR
20300.
It was the significant hardship posed by this after-the-fact due
process procedure that the rule is designed to eliminate. Because the
child support enforcement process does not raise the same concerns, and
in light of the burden for financial institutions that would be created
by instituting a new and separate process for handling child support
enforcement orders, the Agencies are not revising the exception in the
rule allowing for the processing of orders from State child support
enforcement agencies when the appropriate notice is attached to the
order. The Agencies note that nothing in the rule restricts or prevents
an individual who receives SSI payments, VA payments or any other
Federal benefit payments from challenging in court the garnishment of
those payments for child support obligations in the event a State child
support enforcement agency does serve such a garnishment order on a
financial institution. The Agencies further note that nothing in this
rule restricts or prevents an individual from challenging, in court,
any order of garnishment against a benefit payment.
A State child support enforcement agency commented that the
requirement to attach a Notice of Right to Garnish Federal Benefits
places an additional and unnecessary compliance burden on States. The
commenter also noted that as more States expand their electronic
processing capabilities to include the transmission of documents,
including garnishment orders/notices, the mandatory notice conflicts
with the rationale for the electronic transmission of documents and
serves to mitigate any
[[Page 32104]]
associated cost benefits. The commenter recommended the requirement to
attach the notice be made optional, and that the Agencies set forth the
content or prescribed language for the certification of the right to
garnish benefits. States could then choose to use the model notice to
be deemed compliant or to ensure that their garnishment notices/orders
contain the appropriate identifying language.
The Agencies believe that it is important that financial
institutions be able to quickly identify whether a garnishment order
was obtained by a State child support enforcement agency, without
searching through the order itself to locate verbiage. Moreover, the
Agencies do not believe that the inclusion of the notice precludes the
electronic transmission of a garnishment order. Accordingly, the
Agencies are not revising the requirement that the notice be attached
to an order obtained by a State child support enforcement agency for
such an order to be excluded from the rule's requirements.
Account Review (Sec. 212.5)
One commenter urged the Agencies not to allow 2 business days in
which to examine orders for the inclusion of a Notice of Right to
Garnish Federal Benefit Payment and (if not present) conduct an account
review. The commenter observed that court orders generally require
garnishments to be processed on the day of receipt, and that banks that
delay account reviews, but then find no benefit payments, will violate
court orders. Another commenter suggested that the Agencies define
``business day'' with a cross reference to an existing regulation,
preferably Regulation CC.
A trade association representing prepaid card providers commented
that the 2 business day deadline for conducting the account review is
unrealistic for financial institutions that issue prepaid cards because
of the complexity in the administration of prepaid card programs. This
commenter stated that financial institutions commonly support multiple
prepaid card programs affiliated with a number of different programs
and data processors, making the logistics of coordination more complex
and time-consuming than with a regular deposit account. According to
the commenter, determining the protected funds in such cases will
require communication with several third-party vendors in addition to
coordination of the account review by bank personnel. The commenter
suggested that 5 business days would be an appropriate deadline.
A consumer advocacy organization commented that the Agencies should
not exclude funds transferred from one account to another from the
account review and the establishment of the protected amount if the
benefit funds are transferred to special purpose savings accounts such
as 529 plans and Individual Development Accounts.
Based on the extensive comments received on the interim final rule
regarding the time allowed for conducting the account review, the
Agencies believe it is necessary to allow 2 business days for financial
institutions to identify orders subject to the rule and conduct account
reviews, if required. It should be noted that financial institutions
will not violate State law by utilizing the 2-day period, because the
rule preempts any State requirement that an order be processed on the
day of receipt. The Agencies understand that processing garnishment
orders may involve more complexity in the context of prepaid card
accounts, but believe that prepaid card holders who receive benefit
payments on prepaid cards should have the same protection against
improper garnishment orders as individuals whose benefit payments are
directly deposited to conventional bank accounts. Accordingly, the
Agencies are not extending the time period permitted for the account
review for prepaid card accounts.
The Agencies are retaining in Sec. 212.5(f) of the final rule the
provision that funds transferred from one account to another are
excluded from the account review and the establishment of the protected
amount. Although the Agencies understand that exempt funds may be
transferred to a special savings or other account following the initial
deposit, requiring the examination of all account transfers after a
Federal benefit payment has been identified would impose a significant
burden on financial institutions, since they would not be able to rely
on a transaction indicator, like the ACH identifier, in searching
account histories to determine whether transferred funds should be
classified as exempt. Moreover, the Agencies note that nothing in the
rule restricts or prevents an individual from asserting that the
benefit retained its exempt character and, thus, was not subject to
garnishment.
Access to Account (Sec. 212.6)
One commenter suggested that the Agencies ensure that the
requirement to provide ``full and customary'' access to an account
containing a protected amount is not abused by explicitly stating that
financial institutions are prohibited from closing such accounts.
Another commenter requested guidance on the ``full and customary
access'' requirement in States where a continuing garnishment order is
served, requiring that any deposits into the account before the date on
which the garnishment order expires (the ``return date'') be garnished
and any withdrawals before the return date be prevented. The commenter
explained that there could be situations, in States that allow
continuing garnishments, in which a protected amount is established for
an account, but another account held by the account holder containing
no protected amount would be subject to a continuing freeze. The
commenter stated that it is customary for financial institutions to
temporarily suspend the use of a debit card on all accounts connected
to that debit card and that financial institutions cannot apply this
suspension on an account-by-account basis. The commenter asked how a
financial institution could comply with the requirement to freeze the
second account while still allowing ``full and customary access'' to
the account containing the protected amount.
The final rule does not address the conditions under which
financial institutions may close accounts, which the Agencies believe
is beyond the scope of this rule. The Agencies have conducted research
into the ability of financial institutions to suspend debit card access
to one account held by an account holder while enabling debit card
access to another account. It appears that many financial institutions
have the capability to do so. Moreover, the number of States in which
this issue might arise is very small, since most States do not provide
for continuing garnishments. The Agencies indicated in the preamble to
the interim final rule that the requirement to provide the account
holder with ``full and customary'' access to the protected amount was
intended to ensure that after a garnishment order is received, the
account holder continues to have the same degree of access to the
protected funds that was provided prior to the receipt of the order.
The Agencies' view is that where an account holder had debit card
access to an account prior to the receipt of a garnishment order, the
requirement to provide full and customary access to the protected
amount means that the account holder should have debit card access to
that amount.
Same Versus New or Different Garnishment Order (Sec. 212.6(f))
Some commenters requested clarification on when a garnishment order
constitutes a new or different
[[Page 32105]]
order as opposed to the same order. In some States, financial
institutions are served with recurring, short-term continuing
garnishments. These garnishments are customarily re-issued after the
date on which they expire (the ``return date''). The reissued
garnishment pertains to the same matter and the same parties and is
procedurally required to continue to pursue collection of a judgment.
The garnishment would have the same case number but be filed under a
different execution number. Commenters questioned whether a garnishment
order that is re-issued after its return date would be considered the
``same'' or a ``new'' garnishment order.
The Agencies have published a FAQ stating that a ``new''
garnishment order means that the creditor has gone back to court and
obtained a new order, as opposed to re-filing an order that was
previously served.\9\ The FAQ indicated that, in the case of an order
from a State child support enforcement agency, a new order would be an
order that is not simply the re-delivery of the same order. The
Agencies' view is that a garnishment order that is re-issued after the
return date, under a different execution number, would not constitute a
``new'' garnishment order.
---------------------------------------------------------------------------
\9\ See www.fms.treas.gov/greenbook/FAQs-May-12-trsy-ver1.pdf.
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Garnishment Fee (Sec. 212.6(h))
A number of financial institutions and their trade associations
commented that financial institutions should be allowed to assess
reasonable garnishment fees whether or not an account has excess funds
beyond any protected amounts, and even if imposing the fee would create
an overdraft in the account. Several commenters asserted that costs to
financial institutions of processing garnishment orders will increase
as a result of the rule and that in light of the fee restrictions
imposed by the rule, banks may decide to close accounts. Financial
institutions asserted that garnishment order processing and compliance
is a very time-consuming and often complex process and that it is
unreasonable for financial institutions, which are generally not a
party to the dispute between the creditor and the debtor, not to be
compensated for the expenses and liabilities they incur. Expenses cited
by financial institutions in processing garnishment orders include
salaries and benefits for staff receiving and logging garnishment
orders, performing account searches, conducting account reviews,
identifying and calculating available and protected funds, placing hold
orders, processing remittances, mailing and filing notices and
documentation, and handling inquiries from depositors and creditors, as
well as legal and compliance support staff. Financial institutions
argued that without the ability to charge the customer a fee each time
an account review commences, the financial institution will be forced
to recoup costs against all customers, creating unfairness to both the
financial institution and the financial institution's other customers.
These commenters requested that the rule be revised to allow
financial institutions to assess reasonable garnishment fees even in
instances where the fee must be collected either partially or fully
from protected amounts. They also requested that the Agencies revise
the prohibition in Sec. 212.6(g) against charging or collecting a
garnishment fee after the date of the account review. In addition, a
financial institution trade association requested that the final rule
clarify that garnishment fee limitations do not apply to attorney's
fees assessed by a court, and that such attorney's fees can be
recovered from future nonprotected balances.
In contrast, a consumer advocacy group commented that the
prohibition on charging a garnishment fee against a protected amount or
charging a garnishment fee after the date of the account review should
be extended to protect funds from any other fees triggered by the
garnishment order. Another commenter proposed that the Agencies require
the creditor to pay the garnishment fee charged by the financial
institution upon filing the legal document and then have the creditor
add this fee to the amount owed to the creditor by the debtor.
One commenter asked for clarification on whether the rule prohibits
charging a garnishment fee in the following scenario: a customer has
multiple separate accounts or subaccounts, only one of which receives
electronic Federal benefit payments. The other accounts are not subject
to the rule. The commenter asked if the financial institution could
collect an agreed upon garnishment fee from accounts not subject to the
rule. The commenter also asked if a financial institution could collect
a garnishment fee from an account that is not subject to the regulation
after the account review by taking that account balance negative.
The Agencies continue to believe that financial institutions should
not be permitted to collect a fee from the protected amount and are not
amending that provision of the rule. The Agencies are not expanding the
prohibition on garnishment fees to encompass ``any fee that arises as a
result of a garnishment,'' because such a definition would be overly
broad. However, in light of the comments received, the Agencies have
decided to amend the rule to provide financial institutions with an
opportunity, for 5 days following the account review, to impose a
garnishment fee in the event that nonprotected funds become available
following the account review.
The Agencies stated in the preamble to the interim final rule that
the prohibition on charging a garnishment fee after the date of account
review was necessary because otherwise the rule would need to prescribe
procedures that financial institutions would follow to monitor accounts
in real time to track deposits and withdrawals, determine whether new
deposits are exempt or not, and determine whether a garnishment fee
could be imposed. In light of the comments received from financial
institutions, the Agencies have decided to establish a procedure that
financial institutions may follow, if they choose, for a limited time
following the account review to determine whether nonprotected funds
are available to support the imposition of a garnishment fee. If funds
other than a benefit payment are deposited to an account during the 5
business days following the date of the account review, the financial
institution may charge or collect a fee from the additional funds. In
order to impose such a fee, a financial institution could choose to
check the account at any time during the 5 days after the account
review to determine if funds other than benefit payments were
deposited.
In response to the question as to whether a garnishment fee may be
collected from accounts that do not contain a protected amount, the
Agencies emphasize that such accounts are not subject to any
restrictions under this rule, and that a financial institution may
collect an agreed upon garnishment fee from such accounts in accordance
with the customer agreement and any applicable laws.
Notice to Account Holder (Sec. 212.7)
A number of comments were received regarding the form, contents and
means of delivery of the notice that must be provided to account
holders. One commenter stated that financial institutions should not be
required to provide a notice to the account holder and that it would be
appropriate to put this burden on the party issuing the garnishment
order. Other commenters urged the Agencies to revise the rule to
require a notice to an account holder
[[Page 32106]]
only in cases where there are funds in the account in excess of the
protected amount. The interim final rule requires that a financial
institution send a notice to the account holder if the balance in the
account on the date of the account review is above zero dollars and the
financial institution establishes a protected amount. A number of
financial institutions noted that this requirement means that a
financial institution must notify an account holder when a garnishment
order is received for an account into which exempt benefit payments
have been electronically deposited during the lookback period even in
cases where no account funds are frozen. Financial institutions
commented that providing a notice in this situation is of no benefit to
account holders and will result in unnecessary confusion to account
holders, many of whom will be unlikely to read the entire notice and
will erroneously believe that their entire account balance has been
frozen. These commenters stated that financial institutions will incur
the expense of preparing and mailing garnishment notices for accounts
in which no funds will be turned over to a creditor, as well as for
responding to inquiries from account holders confused by the notices.
One commenter recommended that financial institutions be permitted
to mail the notice to the customer's address according to its records.
Other commenters stated that it is unclear whether a bank is prohibited
from sending notice to joint account holders. Financial institutions
commented that they typically send notices regarding a joint account to
all the account holders and that requiring that a garnishment order be
sent solely to the person named in the order would require them to
change their processes and would result in information not being
communicated that the account holder likely would find important. In
some States, according to commenters, State law requires banks to
notify all account holders of a garnishment order that has been
received and to send a copy of it to the account holders. Commenters
therefore requested that the Agencies add a sentence at the end of
Sec. 212.7(e) in the final rule that states that a bank may follow its
normal practice of communicating with joint account holders when
sending a garnishment notice. They also requested that a conforming
change be made to the model notice that indicates that the recipient of
the notice may be receiving it because he or she is a joint holder of
an account that has been garnished.
One financial institution trade group noted that Sec. 212.7(e),
which addresses delivery of the notice to the account holder, says only
that a financial institution shall ``issue'' the notice directly to the
account holder. This trade group stated that electronic notices can be
provided promptly and securely and help banks to avoid unnecessary
compliance costs, and requested that the Agencies allow a financial
institution to issue a notice, or make a notice available,
electronically, through an email or a proprietary Web site in instances
where an account holder has consented to electronic communication.
The same commenter requested that the Agencies permit a bank to use
either the model notice or an alternative version that provides the
same information but in a more streamlined way. As proposed by the
commenter, the alternative notice would have a copy of the garnishment
order attached and would refer back to the order in places where the
model notice requires information to be added that is unique to the
garnishment in question.
With regard to the requirement that contact information for the
creditor be included in the notice, a commenter noted that generally
garnishments served on our clients arrive with limited information
about the creditor, but full contact information for the attorney for
the creditor. The commenter questioned whether financial institutions
should include, in lieu of limited information on the creditor, the
full information to contact the attorney for the creditor. Another
commenter recommended that the list of protected payments be removed
from the model notice because the list must be updated continuously.
The Agencies agree that the requirement to send a notice to account
holders in cases where there are no funds in excess of the protected
amount may be of little benefit and is likely to result in unnecessary
confusion for some account holders. Accordingly, the Agencies are
revising the rule to require a notice to an account holder only in
cases where there are funds in the account in excess of the protected
amount. With regard to the delivery of notices, the Agencies believe it
is acceptable for financial institutions to mail the notice to the
address of record, and do not believe that anything in the rule
suggests otherwise. In the case of joint accounts affected by a
garnishment order, financial institutions may deliver the notice to
both account holders, but there is no obligation to do so. The Agencies
do not believe it is necessary to amend the rule to state specifically
that a bank may follow its normal practice of communicating with joint
account holders when sending a garnishment notice. In such a case, the
financial institution may indicate in its notice that the recipient of
the notice may be receiving it because he or she is a joint holder of
an account that has been garnished. The rule does not specify the means
of delivery of the notice, so that any method of delivery for notices
agreed to between the financial institution and the account holder,
including electronic delivery, would be acceptable.
The Agencies are not creating an alternative to the model notice.
Financial institutions are not required to use the model notice and may
create their own alternative notices. In cases where a financial
institution receives a garnishment order with limited information about
the creditor, but full contact information for the creditor's attorney,
the Agencies' view is that the financial institution may include, in
lieu of limited information on the creditor, the full information to
contact the attorney for the creditor.
The Agencies are not removing the list of protected payments from
the notice because this information is likely to be helpful to account
holders. The payments included in the list have been protected from
garnishment by Federal statutes for many years and there is no reason
to anticipate a change in these statutes.
Preemption of State Law (Sec. 212.9)
Some financial institutions expressed confusion over the interplay
of the rule with State law and questioned how the preemption of State
law would work in certain situations. One commenter posed a scenario in
which State law treats a joint account held by two spouses as being
held in tenancy by the entirety, and protects the account from
garnishment unless the garnishment order is in both spouses' names. The
commenter pointed out that where a garnishment order naming just one
spouse is served on the financial institution, and protected benefit
payments are deposited to the account, the rule would require that an
account review be performed and a protected amount established.
However, under State law, the account would not be subject to
garnishment at all. The commenter questioned the interplay between the
rule and State law in this scenario. Another commenter questioned
whether, when protected benefit payments are deposited to an account,
the rule is to be applied exclusively, or whether the rule is to be
applied to determine a protected amount followed by the application of
[[Page 32107]]
a more protective State law to funds exceeding the protected amount in
the same account.
A financial institution trade group suggested that the Agencies
provide guidance on how the rule operates in the context of a specific
State law by maintaining an ``evergreen'' set of FAQs that are updated
as issues are raised.
One credit union association commented that it conceptually opposes
the rule in its entirety with specific note to the ``continuing
garnishment'' provision at Sec. 212.6(g) and argued that Sec.
212.6(g) is both a logically unpermitted exercise of authority and
unconstitutional.
As discussed above (See Initial action upon receipt of a
garnishment order (Sec. 212.4)), the rule's requirements presuppose
that a financial institution would give effect to a garnishment order.
It serves no useful purpose to follow the rule's procedures in
situations where a financial institution has made a determination not
to take any action against an account on the basis of a garnishment
order. Accordingly, if a financial institution will not act on a
garnishment order due to the operation of State law, the financial
institution need not examine the order to determine if a Notice of
Right to Garnish Federal Benefits is attached or included or take any
of the additional steps required under the rule.
The Agencies intend to maintain the FAQs that have been published
as an ``evergreen'' document, meaning that they will be updated as
appropriate. However, the Agencies do not intend to routinely address
preemption questions within the FAQs.
The Agencies do not agree that the ``continuing garnishment''
provision at Sec. 212.6(g) is an unconstitutional exercise of
authority. As discussed in the preamble to the interim final rule, the
rule's treatment of continuing garnishments is necessary to give proper
effect to the anti-garnishment statutes that the rule is implementing,
since it is not possible to implement both a protected amount and give
effect to continuing actions related to a garnishment order. See 76 FR
9946.
Record Keeping (Sec. 212.11)
A State banker's association commented that some banks would like
more specificity as to what the record keeping requirement encompasses.
This commenter suggested that the Agencies create a ``job aid'' for
financial institutions that would make it clear what documentation a
financial institution is required to maintain for 2 years. The Agencies
believe that it is up to financial institutions to decide what
documentation to retain, and that the appropriate documentation may
vary depending on the circumstances of each situation.
Other Comments
Garnishment of Fraudulently Obtained Benefit Payments
A banking trade group commented that benefit payments should not be
protected from garnishment where the garnishment order is for the
purpose of recouping fraudulently obtained benefits. This commenter
suggested that the Agencies address this scenario in the rule by
creating an exception in the rule that would require financial
institutions to give effect to an order that states on its face that
benefit payments were obtained fraudulently, without regard to the
protection from garnishment that otherwise would apply to properly-
obtained benefit payments.
The Agencies do not believe that financial institutions should be
required to read and make judgments on the basis for, and merits of,
garnishment orders, and have structured the rule accordingly. In the
case of garnishment orders to recover fraudulently issued Federal
benefits, such benefits will typically be recovered in an action by the
United States, which can attach a Notice of Right to Garnish Federal
Benefits, if applicable.
Effective Date
A bank trade association recommended that the effective date of the
final rule be delayed for 6 to 12 months following its publication,
stating that it would take that long for most community banks to be
able to implement the necessary systems programming and testing
required to automate the detection of the unique ACH identifiers. A
financial institution questioned whether the rule applies to continuing
court orders already in place prior to May 1, 2011 or whether a Notice
of Right to Garnish Federal Benefits must be provided in order for the
financial institution to continue to honor such orders.
The interim final rule has been in effect since May 1, 2011, and
the Agencies understand that financial institutions generally began
implementing the rule's requirements as of that date. The amendments to
the interim final rule in this rulemaking should not change or
complicate compliance, and the Agencies therefore are not delaying the
effective date of the final rule beyond the 30 days prescribed by the
Administrative Procedure Act (5 U.S.C. 553(d)). The rule does not,
however, apply retroactively to orders, including continuing orders,
that were in place prior to the May 1, 2011 effective date.
FAQs
One commenter requested that the FAQs either be incorporated
directly into the rule or attached as an appendix. The Agencies believe
it would be cumbersome, and unnecessary, to amend the regulation to
codify the informal interpretive guidance included in the FAQs. The
Agencies anticipate that they may modify or add to the FAQs to clarify
issues that may be raised in the future. Codifying the FAQs in the rule
would preclude the Agencies from amending the FAQs without going
through a notice-and-comment rulemaking process.
III. Section-by-Section Analysis
Section 212.3
The definition of ``benefit payment'' is revised to mean a direct
deposit payment that includes not only an ``XX'' in positions 54 and 55
of the Company Entry Description field, but also the number ``2''
encoded in the Originator Status Code field of the Batch Header Record
of the direct deposit entry.
The definition of ``garnishment order'' and ``order'' is revised to
include a levy, and also to include orders issued by States and
municipalities, as well as orders to freeze assets.
The definition of ``protected amount'' is revised to refer to the
balance in an account when the account review is performed.
Section 212.6
Section 212.6(h) is revised to provide an exception to the
prohibition against charging or collecting a garnishment fee after the
date of account review, i.e., retroactively. Under the exception, if
funds other than a benefit payment are deposited to the account at any
time within 5 business days following the date of the account review,
the financial institution may charge or collect a fee from the
additional funds.
Section 212.7
Section 212.7 is revised to require that the financial institution
send a notice to an account holder only where financial institution has
established a protected amount and there are funds in the account in
excess of the protected amount.
Appendix C to Part 212
The examples demonstrating how the protected amount is calculated
have been revised to reflect the use of the account balance when the
account review is performed rather than the
[[Page 32108]]
opening balance in the account on the day of the account review.
IV. Regulatory Analysis
A. Executive Order 12866, and Executive Order 13563
Executive Orders 13563 and 12866 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits, of
reducing costs, of harmonizing rules, and of promoting flexibility.
This rule has been designated a ``significant regulatory action''
although not economically significant, under section 3(f) of Executive
Order 12866. Accordingly, the rule has been reviewed by the Office of
Management and Budget.
B. Regulatory Flexibility Act
In the proposed rule, the Agencies prepared a joint Initial
Regulatory Flexibility Analysis and requested comment on the proposed
rule's impact on small entities. Based on the Agencies' analysis of the
comments on the proposed rule and based on a survey of small credit
unions conducted by the Treasury, the Agencies certified that the
interim final rule would not have a significant economic impact on a
substantial number of small entities. One credit union, one bank and
one credit union association commented that in their opinion the
interim final rule does impose a burden, that the burden on financial
institutions will likely be more significant than the Agencies believe,
and that the burden will be more significant for small institutions.
One of these commenters stated that it will take hours of manpower and
some system reprogramming to meet the rule's requirements. Another
commenter stated that smaller credit unions may not find it cost
effective to upgrade their systems in order to automate the measurement
of the lookback period and the performance of the account review in
light of the small number of garnishment orders they receive. This
commenter stated that although the time required to conduct an account
review may be minimal, time spent reviewing the account is necessarily
time the employee cannot spend working on his or her day-to-day
responsibilities. None of the commenters provided any estimates of
costs.
Some of the changes that the Agencies are adopting in the final
rule will reduce the costs and burden of complying with the rule's
requirements. Financial institutions will have an additional
opportunity to charge a garnishment fee, and thereby recoup some costs,
because the rule allows a fee to be charged against any nonprotected
amounts deposited to an account within 5 business days following the
account review. In addition, financial institutions will not be
required to send a notice to an account holder unless there are funds
in the account in excess of the protected amount. In light of these
changes and for the reasons discussed in the interim final rulemaking,
the Agencies certify that this final rule will not have a significant
economic impact on a substantial number of small entities, in
accordance with 5 U.S.C. 605(b).
C. Executive Order 13132 Determination
Executive Order 13132 outlines fundamental principles of
Federalism, and requires the adherence to specific criteria by Federal
agencies in the process of their formulation and implementation of
policies that have ``substantial direct effects'' on the States, the
relationship between the national government and States, or on the
distribution of power and responsibilities among the various levels of
government. Federal agencies promulgating regulations that have these
Federalism implications must consult with State and local officials,
and describe the extent of their consultation and the nature of the
concerns of State and local officials in the preamble to the
regulation.
In the Agencies' view, nothing in this final rule affects the
Federalism implications already considered in the promulgation of the
interim final rule. The Agencies stated, when promulgating the interim
final rule, that the rule may have Federalism implications, because it
has direct, although not substantial, effects on the States, the
relationship between the national government and States, or on the
distribution of power and responsibilities among various levels of
government. The provision in the rule (Sec. 212.5) that establishes a
process for financial institutions' treatment of accounts upon the
receipt of a garnishment order could potentially conflict with State
garnishment laws prescribing a formula for financial institutions to
pay such claims.
The rule's central provision requiring a financial institution to
establish a protected amount will affect only a very small percentage
of all garnishment orders issued by State courts, since in the vast
majority of cases an account will not contain an exempt Federal benefit
payment. Moreover, States may choose to provide stronger protections
against garnishment, and the regulation will only override State law to
the minimum extent necessary to protect Federal benefits payments from
garnishment.
Under 42 U.S.C. 407(a) and 42 U.S.C. 1383(d)(1), Federal Old-Age,
Survivors, and Disability Insurance benefits and Supplemental Security
Income payments are generally exempt from garnishment. 42 U.S.C. 405(a)
provides the Commissioner of Social Security with the authority to make
rules and regulations concerning Federal Old-Age, Survivors, and
Disability Insurance benefits. The Social Security Act does not require
State law to apply in the event of conflict between State and Federal
law.
Under 38 U.S.C. 5301(a), benefits administered by VA are generally
exempt from garnishment. 38 U.S.C. 501(a) provides the Secretary of
Veterans Affairs with the authority to make rules and regulations
concerning VA benefits. The statutes governing VA benefits do not
require State law to apply in the event of conflict between State and
Federal law.
Under 45 U.S.C. 231m(a), Federal railroad retirement benefits are
generally exempt from garnishment. 45 U.S.C. 231f(b)(5) provides the
RRB with rulemaking authority over issues rising from the
administration of Federal Railroad retirement benefits. The Railroad
Retirement Act of 1974 does not require State law to apply in the event
of conflict between State and Federal law.
Under 45 U.S.C. 352(e), Federal railroad unemployment and sickness
benefits are generally exempt from garnishment. 45 U.S.C. 362(1)
provides the RRB with rulemaking authority over issues rising from the
administration of Federal railroad unemployment and sickness benefits.
The Railroad Unemployment Insurance Act does not require State law to
apply in the event of a conflict between State and Federal law.
Under 5 U.S.C. 8346, for the Civil Service Retirement System (CSRS)
and under 5 U.S.C. 8470, for the Federal Employees Retirement Systems
(FERS), Federal retirement benefits are generally exempt from
garnishment. 5 U.S.C. 8347 and 5 U.S.C. 8461, respectively, provide the
Director of OPM with the authority to make rules and regulations
concerning CSRS and FERS benefits.
[[Page 32109]]
OPM benefits statutes do not require State law to apply in the event of
conflict between State and Federal law.
In accordance with the principles of Federalism outlined in
Executive Order 13132, the Agencies consulted with State officials on
issues addressed in the interim final rule. Specifically, the Agencies
sought perspective on those matters where Federalism implications could
potentially conflict with State garnishment laws. The final rule does
not present new Federalism implications that have not already been
considered during the promulgation of the interim final rule.
D. Unfunded Mandates Reform Act of 1995 Determinations
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (Unfunded Mandates Act) requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
Federal mandate that may result in expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any 1 year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. The Agencies have determined
that this rule will not result in expenditures by State, local, and
tribal governments, or by the private sector, of $100 million or more.
Accordingly, the Agencies have not prepared a budgetary impact
statement or specifically addressed the regulatory alternatives
considered.
List of Subjects in 31 CFR Part 212
Benefit payments, Exempt payments, Financial institutions,
Garnishment, Preemption, Recordkeeping.
Department of the Treasury, Fiscal Service (Treasury)
Authority and Issuance
Accordingly, the interim final rule which was published at 76 FR
9939 on February 23, 2011, is adopted as a final rule with the
following changes:
PART 212--GARNISHMENT OF ACCOUNTS CONTAINING FEDERAL BENEFIT
PAYMENTS
0
1. The authority citation for part 212 continues to read as follows:
Authority: 5 U.S.C. 8346; 5 U.S.C. 8470; 5 U.S.C. 1103; 31
U.S.C. 321; 31 U.S.C. 3321; 31 U.S.C. 3332; 38 U.S.C. 5301(a); 38
U.S.C. 501(a); 42 U.S.C. 405(a); 42 U.S.C. 407; 42 U.S.C. 659; 42
U.S.C. 1383(d)(1); 45 U.S.C. 231f(b); 45 U.S.C. 231m; 45 U.S.C.
352(e); 45 U.S.C. 362(1).
0
2. In Sec. 212.3, revise the definitions of Benefit payment,
Garnishment order or order, and Protected amount to read as follows:
Sec. 212.3 Definitions.
* * * * *
Benefit payment means a Federal benefit payment referred to in
Sec. 212.2(b) paid by direct deposit to an account with the character
``XX'' encoded in positions 54 and 55 of the Company Entry Description
field and the number ``2'' encoded in the Originator Status Code field
of the Batch Header Record of the direct deposit entry.
* * * * *
Garnishment order or order means a writ, order, notice, summons,
judgment, levy or similar written instruction issued by a court, a
State or State agency, a municipality or municipal corporation, or a
State child support enforcement agency, including a lien arising by
operation of law for overdue child support or an order to freeze the
assets in an account, to effect a garnishment against a debtor.
* * * * *
Protected amount means the lesser of the sum of all benefit
payments posted to an 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 the balance in an account when
the account review is performed. Examples illustrating the application
of this definition are included in Appendix C to this part.
* * * * *
0
3. Revise Sec. 212.6(h), to read as follows:
Sec. 212.6 Rules and procedures to protect benefits.
* * * * *
(h) Impermissible garnishment fee. The financial institution may
not charge or collect a garnishment fee against a protected amount. The
financial institution may charge or collect a garnishment fee up to
five business days after the account review if funds other than a
benefit payment are deposited to the account within this period,
provided that the fee may not exceed the amount of the non-benefit
deposited funds.
0
4. In Sec. 212.7, revise the introductory text and paragraph (a), to
read as follows:
Sec. 212.7 Notice to the account holder.
A financial institution shall issue the notice required by Sec.
212.6(e) in accordance with the following provisions.
(a) Notice requirement. The financial institution shall send the
notice in cases where:
(1) A benefit agency deposited a benefit payment into an account
during the lookback period;
(2) The balance in the account on the date of account review 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.
* * * * *
0
5. In Appendix C to part 212, revise the examples of the definition of
protected amount to read as follows:
Appendix C to Part 212--Examples of the Lookback Period and Protected
Amount
* * * * *
The following examples illustrate the definition of protected
amount.
Example 1: Account balance less than sum of benefit payments.
A financial institution receives a garnishment order against an
account holder for $2,000 on May 20. The date of account review is
the same day, May 20, and the balance in the account when the review
is performed is $1,000. The lookback period begins on May 19, the
date preceding the date of account review, and ends on March 19, the
corresponding date two months earlier. The account review shows that
two Federal benefit payments were deposited to the account during
the lookback period totaling $2,500, one for $1,250 on Friday, April
30 and one for $1,250 on Tuesday, April 1. Since the $1,000 balance
in the account when the account review is performed is less than the
$2,500 sum of benefit payments posted to the account during the
lookback period, the financial institution establishes the protected
amount at $1,000. The financial institution is not required to send
a notice to the account holder.
Example 2: Three benefit payments during lookback period.
A financial institution receives a garnishment order against an
account holder for $8,000 on December 2. The date of account review
is the same day, December 2, and the balance in the account when the
account review is performed is $5,000. The lookback period begins on
December 1, the date preceding the date of account review, and ends
on October 1, the corresponding date two months earlier. The account
review shows that three Federal benefit payments were deposited to
the account during the lookback period totaling $4,500, one for
$1,500 on December 1, another for $1,500 on November 1, and a third
for $1,500 on October 1. Since the $4,500 sum of the three benefit
payments posted to the account during the lookback period is less
than the $5,000 balance in the account when the account review is
performed, the financial institution establishes the protected
amount
[[Page 32110]]
at $4,500 and seizes the remaining $500 in the account consistent
with State law. The financial institution is required to send a
notice to the account holder.
Example 3: Intraday transactions.
A financial institution receives a garnishment order against an
account holder for $4,000 on Friday, September 10. The date of
account review is Monday, September 13, when the opening balance in
the account is $6,000. A cash withdrawal for $1,000 is processed
after the open of business on September 13, but before the financial
institution has performed the account review, so that the balance in
the account is $5,000 when the financial institution initiates an
automated program to conduct the account review. The lookback period
begins on Sunday, September 12, the date preceding the date of
account review, and ends on Monday, July 12, the corresponding date
two months earlier. The account review shows that two Federal
benefit payments were deposited to the account during the lookback
period totaling $3,000, one for $1,500 on Wednesday, July 21, and
the other for $1,500 on Wednesday, August 18. Since the $3,000 sum
of the two benefit payments posted to the account during the
lookback period is less than the $5,000 balance in the account when
the account review is performed, the financial institution
establishes the protected amount at $3,000 and, consistent with
State law, freezes the $2,000 remaining in the account after the
cash withdrawal. The financial institution is required to send a
notice to the account holder.
Example 4: Benefit payment on date of account review.
A financial institution receives a garnishment order against an
account holder for $5,000 on Thursday, July 1. The date of account
review is the same day, July 1, when the opening balance in the
account is $3,000, and reflects a Federal benefit payment of $1,000
posted that day. The lookback period begins on Wednesday, June 30,
the date preceding the date of account review, and ends on Friday,
April 30, the corresponding date two months earlier. The account
review shows that two Federal benefit payments were deposited to the
account during the lookback period totaling $2,000, one for $1,000
on Friday, April 30 and one for $1,000 on Tuesday, June 1. Since the
$2,000 sum of the two benefit payments posted to the account during
the lookback period is less than the $3,000 balance in the account
when the account review is performed, the financial institution
establishes the protected amount at $2,000 and places a hold on the
remaining $1,000 in the account in accordance with State law. The
financial institution is required to send a notice to the account
holder.
Example 5: Account co-owners with benefit payments.
A financial institution receives a garnishment order against an
account holder for $3,800 on March 22. The date of account review is
the same day, March 22, and the balance in the account is $7,000.
The lookback period begins on March 21, the date preceding the date
of account review, and ends on January 21, the corresponding date
two months earlier. The account review shows that four Federal
benefit payments were deposited to the account during the lookback
period totaling $7,000. Two of these benefit payments, totaling
$3,000, were made to the account holder against whom the garnishment
order was issued. The other two payments, totaling $4,000, were made
to a co-owner of the account. Since the financial institution must
perform the account review based only on the presence of benefit
payments, without regard to the existence of co-owners on the
account or payments to multiple beneficiaries or under multiple
programs, the financial institution establishes the protected amount
at $7,000, equal to the sum of the four benefit payments posted to
the account during the lookback period. Since $7,000 is also the
balance in the account at the time of the account review, there are
no additional funds in the account which can be frozen. The
financial institution is not required to send a notice to the
account holder.
By the Department of the Treasury.
Richard L. Gregg,
Fiscal Assistant Secretary.
Dated: May 9, 2013.
By the Social Security Administration.
Carolyn W. Colvin,
Acting Commissioner of Social Security.
Dated: May 1, 2013.
By the Department of Veterans Affairs.
Jose D. Riojas,
Interim Chief of Staff .
Dated: April 25, 2013.
By the Railroad Retirement Board.
Martha P. Rico,
Secretary to the Board.
By the Office of Personnel Management.
Elaine Kaplan,
Acting Director.
[FR Doc. 2013-12567 Filed 5-28-13; 8:45 am]
BILLING CODE 4810-25-P