[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.
---------------------------------------------------------------------------

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