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: 

1. Determine whether any account held by the named account holder received exempt Federal payments by direct deposit; 
2. Determine the sum of protected Federal benefits deposited to each individual account during a two-month period; and 
3. 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 This is an external link to a website belonging to another federal agency, private organization, or commercial entity. here (Opens new window) .

• This is an external link to a website belonging to another federal agency, private organization, or commercial entity. Definitions (Opens new window)
• 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 ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.4 (Opens new window) ) 

1. 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 § This is an external link to a website belonging to another federal agency, private organization, or commercial entity. 212.5 (Opens new window) and § This is an external link to a website belonging to another federal agency, private organization, or commercial entity. 212.6 (Opens new window) .

Account Review ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.5 (Opens new window) )

1. 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 This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.11(b) (Opens new window) .

Rules and Procedures to Protect Benefits ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.6 (Opens new window) ) 

1. 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 This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.3 (Opens new window) ), 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.
2. Determine that the account holder has full and customary access to the protected amount established after the account review.
3. 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.
4. 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.
5. Determine whether the credit union ceased to garnish amounts deposited or credited to the account following the date of account review.
6. 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 ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.7 (Opens new window) )

1. 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 This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.3 (Opens new window) 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 This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.6 (Opens new window) .
   8. A list of the Federal benefit payments subject to this regulation, as identified in This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.2(b) (Opens new window) .
   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 This is an external link to a website belonging to another federal agency, private organization, or commercial entity. Appendix A (Opens new window) of the regulation to meet the requirements of This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.7 (Opens new window) . 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 ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.11 (Opens new window) )

1. 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.

Garnishment of Accounts Containing Federal Benefit Payments Checklist

Initial Action upon Receipt of a Garnishment Order ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. 31 CFR 212.4 (Opens new window) )

Item	Description	YES	NO	N/A
Item 1	Description Does the credit union, within two business days after receiving a garnishment order, review a garnishment order before taking any other action with regard to the order to ascertain whether the order is obtained by the United States or issued by a State child support enforcement agency?	YES	NO	N/A
Item 1(a)	Description If a garnishment order is 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, does the credit union follow its customary procedures to comply with the order?	YES	NO	N/A

If a garnishment order is not accompanied by a Notice of Right to Garnish Federal Benefits, proceed with the remaining examination procedures to determine whether the credit union follows the requirements of § This is an external link to a website belonging to another federal agency, private organization, or commercial entity. 212.5 (Opens new window) and This is an external link to a website belonging to another federal agency, private organization, or commercial entity. 212.6 (Opens new window) .

Account Review ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.5 (Opens new window) )

Item	Description	YES	NO	N/A
Item 2	Description Does the credit union perform an account review?	YES	NO	N/A
Item 2(a)	Description 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	YES	NO	N/A
Item 2(b)	Description By a later date permitted by the creditor in situations where the credit union is served a batch of a large number of orders? NOTE: 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 This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.11(b) (Opens new window) .	YES	NO	N/A
Item 3	Description If an account review shows that a covered benefit agency deposited a benefit payment into an account during the lookback period (i.e., during the preceding two month period as defined in This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.3 (Opens new window) ), does the credit union appropriately calculate and establish the protected amount, and if applicable, do this separately for each account in the name of the account holder?	YES	NO	N/A
Item 4	Description Does the credit union refrain from charging or collecting a garnishment fee against the protected amount?	YES	NO	N/A
Item 5	Description Does the credit union refrain from charging or collecting a garnishment fee against additional funds deposited to the account after five business days of the account review date?	YES	NO	N/A
Item 6	Description For any funds in an account in excess of the protected amount, does the credit union follow its customary procedures for handling garnishment orders, including the freezing of funds?	YES	NO	N/A
Item 7	Description Does the credit union cease to garnish amounts deposited or credited to the account following the date of account review?	YES	NO	N/A
Item 8	Description Does the credit union perform a one-time account review upon the first service of the order and only take action to freeze funds subsequently deposited or credited, if the credit union is served with a new or different garnishment order consistent with the regulation?	YES	NO	N/A

Notice to the Account Holder ( This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.7 (Opens new window) )

Item	Description	YES	NO	N/A
Item 9	Description If a covered benefit agency (a) deposited a benefit payment into an account during the lookback period, (b) the balance in the account on date of account review was above zero dollars and the credit union established a protected amount, and (c) there are funds in the account in excess of the protected amount, does the credit union send a notice within three business days of account review to the account holder named in the garnishment order?	YES	NO	N/A
Item 10	Description Does the notice including the following:	YES	NO	N/A
Item 10(a)	Description The credit union’s receipt of an order against the account holder?	YES	NO	N/A
Item 10(b)	Description The date on which the order was served?	YES	NO	N/A
Item 10(c)	Description A succinct explanation of garnishment?	YES	NO	N/A
Item 10(d)	Description The credit union’s requirement under the regulation to ensure that account balances up to the protected amount specified in This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.3 (Opens new window) 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?	YES	NO	N/A
Item 10(e)	Description The account subject to the order and the protected amount established by the credit union?	YES	NO	N/A
Item 10(f)	Description 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?	YES	NO	N/A
Item 10(g)	Description The amount of any garnishment fee charged to the account, consistent with This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.6 (Opens new window) ?	YES	NO	N/A
Item 10(h)	Description A list of the benefit payments subject to this part, as identified in This is an external link to a website belonging to another federal agency, private organization, or commercial entity. § 212.2(b) (Opens new window) ?	YES	NO	N/A
Item 10(i)	Description 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?	YES	NO	N/A
Item 10(j)	Description 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?	YES	NO	N/A
Item 10(k)	Description The name of the creditor, and, if contact information is included in the order, means of contacting the creditor?	YES	NO	N/A
Item 11	Description Does the credit union maintain 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?	YES	NO	N/A