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egulatorycompliance You just received a garnishment order. Now what? By Michael Carter, CUCE, Director of Compliance, Credit Union Association of New York LET’S SAY YOU HAVE A MEMBER WHO HAS FAILED TO PAY A creditor. After many attempts to contact the member (What??? People ignore calls from creditors?), the creditor obtains a judgment allowing them to attempt to attach funds in an account. Generally, when a credit union receives a garnishment order, it would turn over any funds the member may have at the credit union. But federal regulations put limitations on the amount that is subject to garnishment. So, how should you proceed? Read on for a full explanation. Know the key terms. First things first: Let’s define some important terms. • Account review – examining deposits in an account to determine if a benefit agency deposited a benefit payment into the account during the lookback period; • Benefit agency – the Social Security Administration, the Department of Veterans Affairs, the Office of Personnel Management or the Railroad Retirement Board; • Benefit payment – a federal benefit payment paid by direct deposit to an account 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; • Garnishment fee – any service or legal processing fee charged by a financial institution to an account holder for processing a garnishment order or any associated withholding or release of funds; • Garnishment order – a writ, order, notice, summons, judgment or similar written instruction issued by a court or a State child support enforcement agency, including a lien arising by operation of law for overdue child support to effect a garnishment against a debtor; • Lookback period – the two-month period that (a) begins on the date preceding the date of account review and (b) ends on the corresponding date of the month two months earlier or on the last date of the month two months earlier if the corresponding date does not exist (ex. June 31); and • Protected amount – the lesser of (i) the sum of all benefit payments posted to an account between the close of An account review is a one-time deal. business on the beginning date of the lookback period and the open of business on the ending date of the lookback period or (ii) the balance in an account at the open of business on the date of account review. Back to the garnishment order you just received. How do you properly determine if there are federal benefits in the account and what the protected amount should be? I’m so glad you asked! Perform an account review. When your credit union receives a garnishment order, you must: 1) determine if the United States or State child support agency has attached or included a Notice of Right to Garnish Federal Benefits, and 2) perform an account review no later than two business days following receipt of the order. The account review should be done regardless of: • whether other types of funds are in the account; • whether there is/are a joint owner(s); • the balance of the account, provided it is greater than zero; • the nature of the debt or obligation underlying the order. When applicable, separate account reviews must be done on each account. But remember: An account review is a onetime deal. If you receive the same garnishment order again, you should not repeat the account review or take any other action related to the order. (If you are subsequently served a new or different garnishment order against the same account holder, however, you should perform a separate and new account review.) Proceed with your normal garnishment procedures if one (or both) of these scenarios applies: • The order was received from the United States or child support agency. 14 SEPTEMBER 2012 Connection
• During the account review, you find that no federal benefits were directly deposited. If applicable, determine the protected amount. If there were federal benefits directly deposited during the lookback period, you must now determine the protected amount. To do this, calculate the amount of federal benefits deposited during the lookback period and compare it to the account balance. The protected amount is the lesser of the two. Notify the member. Once you have determined the protected amount, you must send a notice to your member within three business days. The notice should contain, at a minimum, the following information: • notice that a garnishment was received; • the date it was received; • a simple explanation; • your credit union’s requirement to make available the protected amount if a benefit agency directly deposited a benefit payment in the last two months; • the account subject to the order and the protected amount; • your credit union’s requirement pursuant to State law to freeze other funds in the account in order to satisfy the order; • the amount of any garnishment fee; • a list of applicable federal benefit payments; • the member’s right to claim further exemption for amounts above the protected amount to the creditor; • the member’s right to consult legal counsel; and • contact information for the judgment creditor if included in the order. Final thoughts As you navigate the exciting world of garnishment orders, here are a few other items to keep in mind: • There are no continuing or periodic garnishment responsibilities. • A garnishment fee may not be charged against the protected amount, and the fee may not be collected on funds above the protected amount after the date of account review. If you want even more information on this topic, I recommend reviewing the Treasury Department’s published guidelines. You can find them by visiting www.fms.treas.gov and searching the phrase “garnishment guidelines.” ■ Michael Carter can be contacted at michael.carter@cuany.org or (800) 342-9835, ext. 8143. www.cuany.org 15
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