Federal Garnishment Rule Customer Notice

Issue/Inquiry

The Federal Garnishment Rule requires the Bank to provide accountholders receiving covered benefit direct deposit payments a notice when their accounts are garnished. The Bank sends a copy of the actual levy notice to the customer when the account is debited, which includes the amount debited and the date of the debit. The levy appears to include all applicable information except for the accountholder’s right to consult an attorney or legal aid service in asserting a further garnishment exemption against the creditor that initiated the order for amounts above the protected amount.

How do other banks provide this notice?  Should the Bank have sent a separate notice along with the levy, or is the levy alone sufficient?

Response Summary

When an account receiving directly deposited federal benefits is garnished, a financial institution must send a notice to the accountholder that provides specified information. A notice that provides the required information in a readily accessible way will comply with the notice requirement. The notice is not required to include information concerning a free local attorney or servicer, as such is optional. The Federal Garnishment Rule provides a model form that a financial institution can use and in order to be in compliance with the notice requirement. As a matter of best practice, we recommend using the model form.

Response Detail

The interagency regulation pertaining to the Garnishment of Accounts Containing Federal Benefit Payments (31 CFR 212) requires a financial institution to follow certain procedures when it receives a garnishment order:

• Determine whether any account held by the named accountholder received exempt federal payments by direct deposit.
• Determine the sum of protected federal benefits deposited to each individual account during a two-month period (i.e., the “lookback period”).
• Ensure that the accountholder has access to an amount that is equal to that sum or to the current balance of the account, whichever is lower.

A financial institution must notify the accountholder named in the garnishment order if a covered federal benefit payment was directly deposited into the account during the lookback period, the balance in the account on the date of review was above zero dollars, and there are funds in the account in excess of the protected amount. The notice must contain the following information in readily understandable language:

• The financial institution’s receipt of an order against the accountholder
• The date on which the order was served
• A succinct explanation of garnishment
• The financial institution’s requirement under the interagency regulation to ensure that the account balances up to the protected amount are protected and made available to the accountholder if a benefit agency deposited a benefit payment into the account in the last two months
• The account subject to the order and the protected amount established by the financial institution
• The financial institution’s requirement pursuant to state law to freeze other funds in the account in order to satisfy the order and the amount frozen, if applicable
• The amount of any garnishment fee charged to the account, consistent with the Federal Garnishment Rule
• A list of the federal benefit payments subject to this interagency regulation
• The accountholder’s right to assert a further garnishment exemption against the creditor that initiated the order 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
• The name of the creditor and, if contact information is included in the order, the means of contacting the creditor.

In addition, the financial institution has the option of including any of the following information:

• The means of contacting a local free attorney or legal aid servicer
• The means of contacting the financial institution
• A disclaimer that the financial institution is not providing legal advice by sending the required notice to the account holder 12 CFR §212.7.

In this case, as the notice of levy provides the required information, sending a copy of it to the accountholder will fulfill the notice requirement of the Federal Garnishment Rule. Since information about contacting a local free attorney or legal aid servicer is optional, the notice will be valid even if this information is not included.

Appendix A of the Federal Garnishment Rule provides a model notice form. A financial institution is not required to use the model notice; however, if properly utilized, such form will fulfill the notice requirement of the Rule.

Most banks that we are familiar with generally use the model form. As a best practice, we recommend its use for the following reasons:

• The form provides the required information in a readily accessible manner, allowing the Bank to fulfill the notice requirement without having to determine whether a notice of levy or garnishment satisfies the requirements of the regulation.
• Completing the form helps the Bank confirm the information pertaining to the garnishment of an account receiving directly-deposited federal benefits, and allows the Bank to take a more thoughtful approach in complying with the requirements of the Federal Garnishment Rule.

This entry was posted on Monday, September 30th, 2019 at 6:00 am.