[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Rules and Regulations]
[Pages 9939-9962]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3782]



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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 / 
Rules and Regulations

[[Page 9939]]



OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 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: Department of the Treasury, Fiscal Service (Treasury); Social 
Security Administration (SSA); Department of Veterans Affairs (VA); 
Railroad Retirement Board (RRB); Office of Personnel Management (OPM).

ACTION: Interim final rule with request for public comment.

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SUMMARY: Treasury, SSA, VA, RRB and OPM (Agencies) are issuing an 
interim final rule to implement statutory restrictions on the 
garnishment of Federal benefit payments. 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 interim final rule is effective May 1, 2011. Comments must 
be received on or before May 24, 2011.

ADDRESSES: The Agencies invite comments on all aspects of this interim 
final rule. In accordance with the U.S. government's eRulemaking 
Initiative, the Agencies publish rulemaking information on http://www.regulations.gov. Regulations.gov offers the public the ability to 
comment on, search, and view publicly available rulemaking materials, 
including comments received on rules.
    The Agencies will jointly review all of the comments submitted. 
Comments on this rule must only be submitted using the following 
methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions on the Web site for submitting comments.
    <bullet> Mail: Gary Grippo, Deputy Assistant Secretary, Fiscal 
Operations and Policy, U.S. Department of the Treasury, 1500 
Pennsylvania Avenue, NW., Room 2112, Washington, DC 20220.
    Instructions: All submissions received must include the Agencies' 
names and RIN numbers 3206-AM17, 3220-AB63, 0960-AH18, 1505-AC20, and 
2900-AN67 for this rulemaking. In general, comments received will be 
published on Regulations.gov without change, including any business or 
personal information provided. Treasury will also make such comments 
available for public inspection and copying in Treasury's Library, Room 
1428, Department of the Treasury, 1500 Pennsylvania Avenue, NW., 
Washington, DC 20220, on official business days between the hours of 10 
a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect 
comments by telephoning (202) 622-0990. Comments received, including 
attachments and other supporting materials, are part of the public 
record and subject to public disclosure. Do not include any information 
in your comment or supporting materials that you consider confidential 
or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Gary Grippo, Deputy Assistant 
Secretary, Fiscal Operations and Policy, U.S. Department of the 
Treasury, at (202) 622-6222.

SUPPLEMENTARY INFORMATION:

I. Background and Summary of Proposed Rule

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) benefits, VA benefits, Federal 
Railroad retirement benefits, Federal Railroad unemployment and 
sickness benefits, Civil Service Retirement System benefits and Federal 
Employee Retirement System benefits. See 75 FR 20299. The Agencies 
received 586 comments on the proposed rule, including comments from 
individuals, consumer advocacy organizations, legal services 
organizations, financial institutions and their trade associations, 
State attorneys general and State child support enforcement agencies. 
As described in Parts II and III of this SUPPLEMENTARY INFORMATION, the 
interim final rule adopts the proposal with a number of changes.
    Social Security benefits, SSI benefits, VA benefits, Federal 
Railroad retirement benefits, Federal Railroad unemployment and 
sickness benefits, Civil Service Retirement System benefits and Federal 
Employee Retirement System benefits are protected under Federal law 
from garnishment and the claims of judgment creditors.\1\ This legal 
protection continues after benefits are deposited to an individual's 
account at a financial institution. Nevertheless, creditors and debt 
collectors are often able to obtain court orders garnishing funds in an 
individual's account. To comply with court garnishment orders and 
preserve funds subject to the orders, financial

[[Page 9940]]

institutions often place a temporary freeze on an account upon receipt 
of a garnishment order and remit the garnished funds to the court or 
creditor. 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.
---------------------------------------------------------------------------

    \1\ See 42 U.S.C. 407(a); 42 U.S.C. 1383(d)(1); 38 U.S.C. 
5301(a); 45 U.S.C. 231m(a); 45 U.S.C. 352(e); 5 U.S.C. 8346(a) and 5 
U.S.C. 8470.
---------------------------------------------------------------------------

Proposed Rule

    To address the foregoing problems, the Agencies published for 
comment a proposed rule to require financial institutions to follow 
certain procedures upon receipt of a garnishment order, as follows: 
Upon receipt of a garnishment order, a financial institution would 
first determine if the United States is the plaintiff that obtained the 
order. If not, the financial institution would review the account 
history during the 60-day period that precedes the receipt of the 
garnishment order. If, during this ``lookback period,'' one or more 
exempt payments were directly deposited to the account, the financial 
institution would allow the account holder to have access to an amount 
equal to the lesser of the sum of such exempt payments or the balance 
of the account on the date of the account review (the ``protected 
amount''). The financial institution would be required to notify the 
account holder of the protections from garnishment that apply to exempt 
funds. The notice, which would have to include certain information, 
would be required to be sent within two business days of the completion 
of the account review. Financial institutions could choose to use a 
model notice contained in the rule in order to be deemed to be in 
compliance with the notice content requirements. Financial institutions 
that complied with the proposed rule's requirements would be protected 
from liability.
    For an account containing a protected amount, the financial 
institution would be permitted to collect a garnishment fee only 
against funds in the account in excess of the protected amount on the 
date of the account review, and only if the financial institution 
customarily charges its other account holders a garnishment fee of the 
same nature and in the same amount. In addition, for accounts 
containing a protected amount, a financial institution would not be 
permitted to charge or collect a garnishment fee after the date of 
account review. The proposed rule would not have required financial 
institutions to determine the purpose of a garnishment order, including 
whether the order seeks to collect child support or alimony 
obligations.

II. Comments and Analysis

    In general, individuals, consumer groups, legal aid organizations 
and State attorneys general were supportive of the proposed rule and 
urged that it be finalized, subject to a number of changes. Banks and 
banking industry trade groups generally acknowledged the need for the 
rule, but were critical of various aspects of the rule and commented 
that a number of changes should be made to the proposed rule in order 
to facilitate banks' ability to comply with the requirements of the 
rule. Many credit unions and several credit union trade associations 
opposed the proposed rule, and objected to various provisions as time-
intensive and burdensome, particularly for smaller credit unions. 
Several State child support enforcement agencies commented that the 
proposed rule would harm custodial parents and children receiving child 
support, and opposed the adoption of the rule unless protection from 
garnishment for child support obligations is removed.

Effective Date

    Many banks and banking industry associations commented that the 
rule should not become effective until one year following the 
implementation of the garnishment exemption identifiers that the 
Treasury will encode in Automated Clearinghouse (ACH) Batch Header 
Records. The commenters stated that systems programming and testing 
would be required to automate the detection of the identifiers. The 
Agencies are not delaying the effective date of the rule until a year 
after garnishment exemption identifiers have been included in the ACH 
Records. Although the Agencies understand that many financial 
institutions will make systems changes to help automate compliance, the 
Agencies do not consider such changes to be necessary for compliance 
and do not believe they should be established as a pre-condition to 
protecting Federal benefits exempt from garnishment by law. However, to 
provide financial institutions with additional time for staff training 
and procedural changes, as well as for potential systems changes, we 
are delaying the effective date until May 1, 2011. Before this date, 
the Treasury will include the garnishment exemption identifiers in 
benefit payments and will provide additional information on the 
identifiers in an update to the Green Book, A Guide to Federal 
Government ACH Payments and Collections.

Scope (Proposed Sec.  212.2)

    Some commenters, primarily individuals, noted that the proposed 
rule did not include within its scope various Federal payments that are 
protected from garnishment by statute. These commenters urged that the 
final rule cover all such payments, which include military retirement 
payments, as well as certain payments made by the Army, Navy, Air 
Force, Marines, Coast Guard, National Oceanographic and Atmospheric 
Administration and the Public Health Service.
    The Agencies are aware that some other Federal payments are also 
protected from garnishment and have structured the rule so as to create 
a framework in which such payments can be included in the future. 
Federal agencies that issue such payments could, 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 this rule.

Definition of ``Account'' (Proposed Sec.  212.3)

    Some banks and bank trade groups expressed concerns with the broad 
definition of ``account'' in the proposed rule, which defined an 
``account'' as ``an account at a financial institution to which benefit 
payments can be delivered by direct deposit.'' Banks observed that this 
definition does not distinguish between personal and business accounts, 
both of which could receive direct deposits of Federal benefits. Banks 
indicated that the definition raises operational issues, because if an 
account, such as a business account, is not held in the name of the 
personal customer or debtor it is not likely to be found during the 
search of accounts. They therefore recommended that the definition of 
the term ``account'' should be expressly limited to ``a personal 
consumer account at a financial institution to which benefit payments 
can be delivered by direct deposit,'' a definition that would more 
closely align with bank record keeping and research systems.
    The Agencies are not limiting the definition of account in the rule 
to an account held for personal, family or household purposes. Although 
the delivery of a benefit payment to a business account may be 
relatively uncommon, the Agencies see no reason why the protection 
afforded to a benefit payment should be contingent on its delivery to a 
personal account, as opposed to a business account. The

[[Page 9941]]

Agencies have refined the definition of account to include any account, 
whether classified as a master account or a sub account, to which an 
electronic payment may be directly routed. This clarifies, for example, 
how the definition would apply to credit union accounting structures 
where there is a main member number under which there are individual 
transactional accounts. It also makes the definition more consistent 
with the provisions of the rule that require financial institutions to 
conduct a separate account review for each account that may receive a 
benefit payment.

Definition of ``Benefit Payment'' and Use of a Garnishment Exemption 
Identifier (Proposed Sec.  212.3)

    Some banks and bank trade groups requested that the definition of 
``benefit payment'' be revised to avoid confusion in circumstances 
where an individual's benefit payments have been directly deposited to 
an account held by a representative payee. These commenters suggested 
that the term benefit payment be defined to mean ``a direct deposit 
payment made by a benefit agency to a natural person, or to a 
representative payee receiving payments on behalf of a natural person 
`whose name appears in the bank's records as account owner,' under a 
federal program listed in Sec.  212.2(b).'' Other banks specifically 
urged the Agencies to revise the definition of benefit payment in 
proposed Sec.  212.3 to exclude payments made to organizational 
representative payees.
    Many banks and payment organizations urged that the definition of 
``benefit payment'' be revised to make it clear that a payment 
constitutes a ``benefit payment'' only if the ACH Batch Header record 
contains the unique garnishment exemption identifiers discussed in the 
proposed rule. These commenters stated that an institution should be 
able to rely on these unique identifiers, and that this ability be 
codified in the regulation itself, by amending the definition of 
``benefit payment'' and/or the provisions in Sec.  212.5(a) regarding 
the account review to be performed by the financial institution. With 
respect to the proposal to encode an ``X'' in position 20 of the 
``Company Name'' Field of the Batch Header Record for each exempt 
benefit ACH payment, many financial institutions noted that encoding an 
``X'' in position 20 can result in the ``X'' not being readily readable 
because it is the last character position of that field. They 
recommended that, instead, an ``X'' be encoded in the first two 
positions of the ``Company Name'' Field--positions 5 and 6--which would 
make the identifier easier to recognize and would reduce the potential 
for false positives where a non-Federal agency company name begins with 
a single letter ``X.''
    One consumer advocacy organization urged that deposits made by 
check be protected under the same procedures applicable to a ``benefit 
payment,'' which was defined in the proposed rule to include only a 
directly deposited payment. The organization argued that a financial 
institution that has a particular type of account designated for 
recipients of exempt funds or that notes the exempt source at the time 
of the deposit should be encouraged not to freeze those exempt funds 
and should be provided the safe harbor protections under this rule.
    The Agencies are revising the definition of ``benefit payment,'' as 
recommended by the commenters, to make it clear that a payment 
constitutes a ``benefit payment'' only if the ACH Batch Header Record 
contains a specified unique garnishment exemption identifier. The rule 
provides that a payment constitutes a benefit payment if it contains 
the characters ``XX'' encoded in positions 54 and 55 of the ``Company 
Entry Description'' Field of the Batch Header Record of the direct 
deposit entry. While the proposed rule indicated that the garnishment 
exemption identifier should be in the ``Company Name'' Field of the 
Batch Header Record, the interim final rule provides that the 
identifier will be in the ``Company Entry Description'' Field to ensure 
that the identifier can be used with all types of ACH transactions. For 
example, placing the identifier in the ``Company Name'' Field would 
preclude its use with the International ACH Transaction (IAT) Standard 
Entry Class code, which does not contain the ``Company Name'' Field. As 
with the ``Company Name'' Field, the ``Company Entry Description'' 
Field is typically captured and included in an account statement, 
allowing both the financial institution and the account holder to 
readily identify Federal benefit payments exempt from garnishment.
    With the garnishment exemption identifier in the ``Company Entry 
Description,'' a Social Security payment that currently contains ``SOC 
SEC'' in this field will now be encoded as ``XXSOC SEC.'' A Federal 
retirement payment currently encoded as ``FED ANNUT'' will now appear 
as ``XXFED ANN.'' All benefit payments subject to the interim final 
rule will be similarly encoded. The encoding of payments will be in 
place by May 1, 2011.
    The comments regarding benefit payments delivered to representative 
payees have been addressed by changes to the definition of ``benefit 
payment'' and the addition of a new defined term, ``account holder.'' 
The reference to representative payees has been deleted from the 
definition of ``benefit payment,'' and the new term ``account holder'' 
is defined to mean ``a natural person against whom a garnishment order 
is issued and whose name appears in a financial institutions records as 
direct or beneficial owner of an account.'' These changes clarify that 
the protections in the rule apply whenever a person's name appears in 
the financial institution's records with an ownership interest in an 
account, either as the directly named owner or as the beneficial owner 
on an individual or organizational representative payee account, or on 
another type of fiduciary account.
    The scope of the interim final rule does not extend to check 
payments. Checks do not raise the same concerns raised by the direct 
deposit of exempt funds because a benefit recipient who receives a 
Treasury check representing exempt funds can choose to cash the check 
rather than to deposit the check and take on the risk that the funds 
will be garnished. In addition, financial institutions cannot readily 
identify whether a Treasury check that was deposited to an account 
represents exempt funds. Whereas ACH record formats and systems 
facilitate both the encoding and recognition of a garnishment exemption 
identifier with directly deposited payments, the systems and processes 
used to produce and receive Treasury checks do not facilitate an 
equivalent approach that would make it possible for financial 
institutions to determine whether a Treasury check represents an exempt 
payment. Even if the Agencies could develop a feasible way for an 
identifier to be included on a Treasury check, a financial institution 
would need to manually retrieve images or copies of recent items to 
find Treasury checks and visually inspect them. The fact that the rule 
does not address Treasury checks in no way affects an individual's 
right to assert or receive an exemption from garnishment by following 
the procedures specified under the applicable law.

Definition of ``Garnishment'' and ``Garnishment Order'' (Proposed Sec.  
212.3)

    Several commenters requested clarification on whether pre-judgment 
garnishments and similar extraordinary legal process are excluded from 
the scope of the definition of garnishment and the requirements of the 
rule, stating that the policy considerations behind

[[Page 9942]]

emergency and extraordinary legal process are different from those 
relevant to civil debt collection. One commenter, however, expressed 
concern that the definition of garnishment order in the proposed rule 
was too narrow and that it should be revised to include: Any order to 
freeze an account in anticipation of a further order to enforce a money 
judgment; any legal process issued as part of a civil proceeding but 
prior to entry of a money judgment; and any order of a State or local 
government or agency to freeze or pay funds in connection with an 
obligation owed to or collected by the State or local government or 
agency.
    The definition of ``garnish or garnishment'' has been revised to 
make it clear that pre-judgment garnishments are included within the 
definition. The proposed definition, which was ``execution, levy, 
attachment, garnishment, or other legal process to enforce a money 
judgment,'' has been revised by deleting the phrase ``to enforce a 
money judgment.'' With the deletion, the definition used in the rule is 
identical to the definition used in some of the Agencies anti-
garnishment statutes.

Definition of Lookback Period (Proposed Sec.  212.3)

    Many comments were received regarding the length of the lookback 
period. Individual benefit recipients and consumer groups generally 
commented that the 60 day lookback period should be extended, with most 
commenters suggesting a 65 day period in order to ensure that two 
months worth of payments are protected in all cases. Several consumer 
groups and individuals commented that the rule would not protect funds 
in an account that originated from a large back-payment of benefits, as 
could occur if a back-payment were credited to an account more than 60 
days prior to the receipt of a garnishment order. One consumer advocacy 
organization urged that the rule require banks to have an informal 
process in place to evaluate a claim by the debtor that the funds in 
excess of the two months are also protected under Federal garnishment 
rules in cases where a judgment creditor seeks more than two months of 
value of the debtor's protected income. The purpose of this informal 
process would be to protect beneficiaries with more than two months 
worth of Federal benefits in their financial institution and alleviate 
the burden of forcing them to go to court to protect exempt funds.
    Credit unions generally commented that, as creditors and potential 
garnishors, they felt it was inappropriate to shield 60 days of 
payments from garnishment, and that 30 days protection would be more 
appropriate. Some banks and credit unions stated that due to the way 
account history is archived, they could not easily comply with a 60 day 
lookback requirement and requested that the lookback period be limited 
to 45 days or one month. Most banks commented that they could comply 
with a 60 day lookback period, but some banks and bank trade groups 
commented that a two month lookback period would be easier to 
administer and less prone to potential errors. Using this two month 
definition, the lookback period would be measured not by counting back 
60 days, but rather by measuring a date-to-date period from a start 
date, for example September 15, and ending with the corresponding date 
of the month two months earlier, in this example July 15. In light of 
the comments, the Agencies have revised the lookback period. The 
interim final rule defines the lookback period as a two month period 
beginning on the date preceding the date of the account review. The two 
month lookback period will ensure that in almost all cases, the 
protected amount will include two benefit payments, as urged by 
consumers and consumer advocacy groups. The Agencies conducted research 
on Federal benefit payments covered by this rule over a 7 year period 
that showed that a 60 day lookback period will capture at least two 
payments in 95% of cases, whereas a two month lookback period measured 
date-to-date will capture at least two payments in 99% of cases. In 
addition, the two-month lookback period addresses financial 
institutions' request for a lookback period that is easier to 
administer and less error-prone.
    Moreover, in the proposed rule the lookback period began on the 
date preceding the date on which a financial institution is served a 
garnishment order. In the interim final rule, the lookback period 
begins on the date preceding the date of account review. This change 
reflects that the interim final rule allows two business days, and 
potentially additional time, to perform the account review after 
receipt of a garnishment order. By linking the lookback period to the 
date of account review and not the date an order is served, the rule 
ensures that the account review will better reflect the current state 
of an account and capture the most recent benefit payments that may be 
deposited on or after the day an order is served but before the account 
review is performed.

Definition of ``Protected Amount'' (Proposed Sec.  212.3)

    One bank questioned whether the ``balance on the day of the account 
review'' used in defining the protected amount refers to the beginning 
balance or ending balance on that day, and recommended that the rule be 
clarified by stating that financial institutions are to look at the 
beginning account balance. Another commenter asked whether items 
presented for payment against the debtor's account that arrive the same 
day as the garnishment are included in the protected amount and asked 
that the rule provide explicit guidance on whether the protected amount 
is calculated based on the account balance prior to or after posting of 
the debits or credits received on the same day as the garnishment.
    Some commenters urged the Agencies to define the protected amount 
as an aggregate across accounts, rather than applying a protected 
amount to each account separately. Under this proposed definition, the 
protected amount would be the lesser of (i) the sum of all benefit 
payments deposited ``into all accounts owned by the account holder'' 
during the lookback period or (ii) the ``aggregate balance in these 
accounts'' on the date of account review.
    Some commenters, including financial institutions, trade groups, 
and consumer advocacy groups, stated that protecting a flat dollar 
amount would promote certainty, clarity and administrative simplicity.
    The interim final rule refers specifically to beginning and ending 
balances in the definition of protected amount. Under the revised 
definition, items presented for payment against the account that arrive 
on the same day as the date of account review would not be included in 
the protected amount. The Agencies are not defining a flat dollar 
amount as the protected amount because the use of a flat dollar amount 
will invariably result in underprotecting some individuals and 
overprotecting others.
    The Agencies are not defining the protected amount based on the 
aggregate deposits and balances across all accounts, for several 
reasons. First, the Agencies believe the protection should be specific 
to the account(s) to which benefit payments are directly deposited, 
ensuring that a direct, verifiable connection exists between the 
protected amount and the evidence of an exempt Federal benefit payment. 
Second, defining the protected amount as an aggregate across all 
accounts assumes that amounts transferred between accounts must be 
exempt. As discussed

[[Page 9943]]

more fully in this preamble under the heading ``Protection for funds 
transferred to another account (Sec.  212.5),'' however, the Agencies 
do not believe the account review and the establishment of the 
protected amount can apply to funds transferred from one account to 
another. Third, an aggregated protected amount would introduce 
additional accounting complexities in different deposit and balance 
scenarios. For example, if the sum of benefit payments is less than the 
combined balance across accounts, but more than the balance in any 
individual account, the protected amount could cover only partial 
amounts in one or more accounts and would require a rule for allocating 
the protected amount across accounts.
    The interim final rule retains the subsection in the proposed rule 
that makes clear that a protected amount must be established separately 
for each account held in the name of the account holder.

U.S. Garnishment Orders (Proposed Sec.  212.4)

    Many commenters objected to excluding garnishment orders obtained 
by the United States from the protections of the rule. Legal aid 
organizations, consumer advocacy groups and individuals stated that 
these orders should not be excluded because doing so contradicts the 
goal of ensuring that beneficiaries retain their exempt benefits, and 
that no specific creditor should be treated differently from others. 
Financial institutions stated that the requirement in the proposed rule 
to treat garnishment orders where the United States is the garnishor 
differently from other garnishment orders adds an undesirable level of 
complexity to the garnishment process and raises compliance concerns. 
Some financial institutions expressed concerns that it may be difficult 
to determine whether the United States is the creditor is some cases.
    Financial institutions and financial institution trade groups 
requested that if the requirement to exclude orders obtained by the 
United States is retained, the final rule require that each order 
issued by the United States state on its face--preferably on the first 
page--that it is exempt from the requirements of 31 CFR 212.5 and 
212.6. Financial institutions argued that such a statement would 
provide certainty and allow for rapid decision-making and handling by 
the financial institution. Alternatively, financial institutions 
requested that each order issued by the United States be accompanied by 
a Notice of Garnishment as set forth in Appendix B of the rule so as to 
ensure that the initial examination is handled quickly and accurately.
    Financial institutions also requested confirmation that non-
garnishment forms of legal seizure issued by the United States are also 
excluded from the review/protection process. They explained that the 
term ``garnishment'' typically encompasses the orders used in the 
judicial collection of a civil money judgment, and indicated that they 
handle many non-garnishment legal orders that freeze customer funds on 
a continuing basis, such as temporary restraining orders, injunctions 
and seizure warrants. They recommended that all legal process issued by 
the United States be treated the same way, and be specifically excluded 
from the requirements of proposed Sec. Sec.  212.5 and 212.6.
    One commenter suggested that the rule be modified to require a 
financial institution receiving a garnishment order from the Federal 
government to screen the account for any of the types of benefits that 
are not exempt from collection by the Federal government. This 
commenter recommended the creation and use of a separate code for those 
Federal benefits that are not exempt from collection when the creditor 
is the Federal government, and that financial institutions be required 
to screen for this factor.
    The Agencies are retaining in the rule an exclusion for garnishment 
orders obtained by the United States. There are several Federal 
statutes that expressly permit the United States to garnish Federal 
benefit payments. See 18 U.S.C. 3613(a), 26 U.S.C. 6334(c), 31 U.S.C. 
3716(c)(3)(A)(i), and 42 U.S.C. 1320a-8(e)(1)(C). Absent a carve-out 
for all garnishment orders obtained by the United States, financial 
institutions would face uncertainty and the burden of determining on a 
case-by-case basis whether a particular order obtained by the United 
States was subject to the rule or not. Moreover, garnishments orders 
obtained by the United States are already governed by a comprehensive 
Federal statute, the Federal Debt Collection Procedures Act (FDCPA), 28 
U.S.C. 3001 et seq., which establishes a uniform framework with 
exclusive civil procedures for the collection of all judgments due the 
United States, including cases where the United States is prohibited 
from garnishing Federal benefit payments as well as cases where it is 
expressly allowed to garnish such payments. While the rule is needed to 
address the problems of garnishing exempt funds, it would both overlap 
and conflict with the framework of the FDCPA unless garnishment orders 
obtained by the United States are excluded.
    In order to allow financial institutions to quickly identify 
whether a garnishment order was obtained by the United States, the rule 
requires that such orders have attached or included with them a 
standard Notice of Right to Garnish Federal Benefits.

Child Support Orders (Proposed Sec.  212.4)

    Several State child support enforcement agencies argued that 
garnishment orders for purposes of child support should be treated in 
Sec.  212.4 in the same way as orders obtained by the United States. 
These agencies expressed concerns regarding the legality and equity of 
protecting benefit payments from garnishment for child support. State 
child support agencies pointed out that Federal law and administrative 
regulation not only allow but encourage child support enforcement 
programs to take enforcement action against most funds identified as 
``protected'' in the proposed rule in order to satisfy court ordered 
support requirements. They noted that an obligation to support children 
and family is not characteristically similar to other debts and that 
child support obligations are not treated like other debts in contexts 
of many Federal statutes, such as the Bankruptcy Code, the Fair Debt 
Collections Practices Act, and the Consumer Credit Protection Act.
    State child support enforcement agencies also pointed out that 
while SSA benefit programs participate with the Federal Office of Child 
Support Enforcement (OCSE) in data matching programs that allow child 
support programs to collect child support from Social Security Title II 
benefits, this is not the case for VA programs. There is no proactive 
matching that provides viable useful information on VA benefits, and 
there is not an effective program that efficiently allows for 
collection of child support from any VA benefits.
    Child support enforcement agencies argued that the proposed rule 
would diminish their powers in direct contravention of the rights and 
responsibilities assigned to the child support enforcement program by 
Federal law and regulation. In view of these concerns, commenters 
requested that a provision be added to the rule to require a financial 
institution to make a determination if an order was issued by a Child 
Support program under Title IV-D of the Social Security Act, in the 
same way that financial institutions are required to make as to whether 
a garnishment order was obtained by the United States. These agencies 
argued

[[Page 9944]]

that an exemption for child support orders would be consistent with the 
clear Congressional intent to require all persons to support their 
families. Commenters argued that such an exemption would not be 
burdensome for financial institutions to comply with because child 
support garnishment orders are distinctive and easily identifiable by 
financial institutions.
    The interim final rule contains an exclusion for garnishment orders 
issued by a State child support enforcement agency that administers a 
child support program under Title IV-D of the Social Security Act. 
These orders are treated in the same way as orders obtained by the 
United States. Under the rule, a financial institution must determine 
whether an order was obtained by the United States or issued by a State 
child support enforcement agency. In making this determination, a 
financial institution may rely on the presence of a Notice of Right to 
Garnish Federal Benefits, which must be attached or included with the 
order. If the notice is present, a financial institution is not 
required to perform an account review or take actions otherwise 
required by the rule. Rather, the financial institution follows its 
customary procedures for garnishment orders and treats the relevant 
account(s) as if no Federal benefit payment were present. However, the 
Agencies note that this exclusion does not alter an individual's right 
to assert any protections for benefit funds that may exist under 
applicable Federal law.

Deadline for Account Review (Proposed Sec.  212.5(a))

    Most of the banks and bank trade groups that commented on the 
proposed rule stated that the requirement to perform an account review 
within one business day of receipt of a garnishment order is 
unrealistic. Commenters stated that garnishment orders can be delivered 
to any bank location and may not reach the designated processing 
department until after one day from ``receipt.'' They also pointed out 
that sometimes States bundle together large numbers of garnishment 
orders and deliver them in a batch. Financial institutions requested 
that the final rule recognize the delivery of bundled/batches of large 
numbers of garnishments delivered in one shipment and permit financial 
institutions to commence the account review (and accordingly, the 
lookback period) as permitted by the creditor. Financial institutions 
argued that they should be allowed leeway in this regard as it may be 
impossible to meet the one day review requirement.
    Some commenters, primarily credit unions, asked that the deadline 
be increased to a period ranging from two to five business days 
following receipt of the order. Other commenters, primarily banks, 
asked that the obligation to commence review begin only after the 
institution receives the information necessary to identify the property 
of the benefit recipient. Some commenters asked for a combination: the 
longer of two business days or the receipt of the information necessary 
to identify the property of the benefit recipient.
    A number of commenters suggested that the phrase ``a garnishment 
order issued against an account'' in proposed Sec.  212.5(a) be 
rewritten to refer to ``a garnishment order against a natural person.'' 
These commenters pointed out that a garnishment order must be directed 
against an individual rather than a deposit account, as a garnishment 
order is directed against a judgment debtor and his or her property, 
and rarely against a deposit account. Commenters indicated that this 
definition would be more accurate and also avoid capturing garnishment 
orders directed against organizations.
    The Agencies have extended the account review deadline from one 
business day to two business days. To address situations in which a 
financial institution receives a garnishment order that does not 
include sufficient information to identify whether the debtor is an 
account holder, the rule provides that in such a case the two business 
day deadline commences when the financial institution receives 
sufficient information to determine whether the debtor is an account 
holder. Based on comments submitted by a variety of financial 
institutions, the Agencies understand that when a financial institution 
receives a garnishment order with insufficient information to identify 
the debtor, it notifies the creditor or court that additional 
information is needed and and can take no action on the order until it 
receives such information. The rule does not affect this status quo 
process, and recognizes that action on an order, including the account 
review, can't begin until the debtor is identified as an account 
holder.
    In cases where a financial institution is served a batch of a large 
number of orders at the same time, the interim final rule extends the 
account review deadline to a date that may be permitted by the creditor 
that initiated the orders.
    Finally, the language in the interim final rule has been revised to 
reflect that garnishment orders are issued against debtors rather than 
accounts.

Protection for Funds Transferred to Another Account (Proposed Sec.  
212.5)

    Financial institutions broadly supported the proposal to exclude 
funds transferred to another account from the rule's protection, and 
requested that Sec.  212.5 explicitly state that transferred funds are 
not subject to protection.
    One consumer advocacy organization commented that exempt money that 
is transferred from one account to another should be protected under 
the rule. This organization commented that to preserve economic 
security, elders and younger adults living with disabilities are 
generally counseled to transfer incoming income into a safe savings 
account. The organization argued that transferring exempt money into a 
secondary account should not be seen as forfeiting the protection 
available for exempt funds and that, at the very least, beneficiaries 
should be notified by the financial institution before transferred 
funds are released under the garnishment order and allowed the 
opportunity to show the institution that the transferred funds are 
exempt Federal funds and therefore protected under the rule.
    The Agencies have revised Sec.  212.5 to state explicitly 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 
savings or other secondary account following the initial deposit, it is 
not clear that transferred funds necessarily retain their exempt 
character in all cases, and, unlike a direct deposit payment, that 
transfer transactions will be readily identifiable as containing exempt 
funds.
    If the source account from which funds are transferred contains 
other deposits of non-exempt funds or withdrawals of exempt funds, or 
if the receiving account contains other credits or debits following the 
transfer of funds, there is no clear way to distinguish balances 
transferred into the receiving account as exempt. While the Agencies 
might develop a standard accounting convention to label and trace 
originally exempt funds transferred over time, doing so would likely 
generate inaccurate or inappropriate results given the uniqueness of 
transactions in a given case, and given the attenuated connection that 
may exist between the original deposit and subsequent transfer. 
Moreover, requiring the examination of all account transfers after a 
Federal benefit payment has been identified would impose a significant 
burden on financial institutions, since

[[Page 9945]]

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.
    While the interim final rule states that financial institutions 
should not attempt to trace the movement of funds between accounts in 
establishing a protected amount, the Agencies recognize that exempt 
funds may be transferred and note that nothing in the rule limits an 
individual's right to assert a further exemption for additional funds 
or to alter the exempt status of transferred funds that may be 
identifiable and traceable when the facts of a given case are reviewed.

Access to Protected Amount by Account Holder (Proposed Sec.  212.6(a))

    Consumer groups commented that the rule should make it clear that 
an account holder has ``full, unfettered and customary'' access to the 
protected amount, to prevent banks from improperly providing only 
limited access to account holders. One commenter urged that language be 
added to preclude any attempts by creditors to subsequently litigate 
whether the ``protected amount'' actually consists of exempt funds.
    The rule has been revised to state that a financial institution 
must ensure that the account holder has ``full and customary'' access 
to the protected amount. The Agencies intend by this language 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. Additional language 
also has been added to make it clear that a financial institution's 
calculation of the protected amount is not subject to a legal action by 
a creditor challenging that determination.

One-Time Account Review (Proposed Sec.  212.6(d))

    One bank requested clarification on the requirement in proposed 
Sec.  212.6(d) to determine whether a garnishment order that is 
received was previously served on the bank. The bank commented that 
financial institutions often receive multiple orders from the same 
creditor for the same account holder, and that it is difficult to 
determine whether the receipt of a second order would be considered the 
same order, which would not require another account review; or a new or 
different order, which would require a new account review. The Agencies 
are not addressing in the final rule what process financial 
institutions should use to determine whether a garnishment order is a 
new order or an order that was previously received, as this is 
necessarily a fact-specific determination.

Continuing Garnishment Responsibilities (Proposed Sec.  212.6(e))

    One commenter requested that the language of proposed Sec.  
212.6(e) be revised. That section provides that a financial institution 
``shall have no continuing obligation to garnish'' amounts deposited or 
credited to the account following the account review. The commenter 
observed that this wording would allow a financial institution to 
decide whether to comply with the terms of a continuing garnishment 
order, rather than prohibiting a financial institution from complying 
with the terms of a continuing garnishment order. The interim final 
rule has been revised to make it clear that a financial institution is 
not permitted to give effect to a continuing garnishment order 
affecting an account containing a protected amount.

Deduction of Garnishment Fees (Proposed Sec.  212.6(f), (g))

    Many comments were received on the provisions in the proposed rule 
regarding the imposition of garnishment fees by financial institutions. 
Consumer advocacy groups opposed the language in the proposed rule at 
Sec.  212.6(f) that affirms the ability of a financial institution to 
charge a customary garnishment fee if the account contains an 
unprotected amount. They argued that if a garnishment fee is prohibited 
on exempt amounts, it should be prohibited regardless of whether the 
exempt funds fall into the artificially narrow scope of the protected 
amount. They commented that proposed Sec.  212.6(f) should be deleted 
because it may provide support for the imposition of excessive fees. 
Consumer advocacy groups further urged that the definition of 
``garnishment fee'' be amended to include not only a fee for imposing 
the garnishment, but rather any fee that arises as a result of a 
garnishment.
    Financial institutions, on the other hand, strongly objected to 
restricting the collection of a garnishment fee to cases in which there 
are funds in the account in excess of the protected amount. They 
challenged the legality of the restriction and argued that it is unfair 
both to the financial institution and to other account holders, to whom 
the costs for administering these accounts will be transferred. Some 
financial institutions commented that this restriction may lead them to 
close accounts that contain benefit payments if a garnishment order is 
received.
    Some financial institutions argued that the provisions of the rule 
on garnishment fees exceed the Agencies' statutory authority, stating 
that none of the statutes cited as authority for the regulation allow 
the Agencies to limit or prohibit any fee a financial institution 
charges for any service based on the source of funds in the account. 
One financial institution argued that the prohibition may amount to an 
unlawful taking, running afoul of the Fifth Amendment to the United 
States Constitution. Another financial institution commented that the 
proposed rule contravenes a bank's legal right to take a security 
interest in its deposit accounts and its common law right of offset. 
Many financial institutions argued that the imposition of garnishment 
fees is a matter of contract between financial institutions and their 
customer, and that customers agree to pay for fees and charges with the 
maintenance of their deposit accounts.
    Banks also opposed the garnishment fee restrictions as a matter of 
policy and equity. Some banks commented that they did not understand 
the distinction drawn by the Agencies between a garnishment fee and 
other fees and charges incurred by a customer. Many financial 
institutions commented that they incur significant costs in processing 
garnishment orders, and that garnishment fees should be permitted 
whether or not an account has excess funds beyond any protected 
amounts. Financial institutions also argued that there is no principled 
reason why benefit recipients should be allowed to contract or pay for 
needed banking services but be legally shielded from a garnishment fee. 
Some financial institutions went further and argued that in fairness to 
customers who do not receive Federal benefit payments, a separate 
garnishment fee should be allowable for those accounts with Federal 
benefit payments to help defray the extra costs to the bank imposed by 
this regulation and to recognize benefit received by the customer from 
the protections of this rule.
    Financial institutions also opposed the proposed restriction to 
permit assessing the fee only on the date of account review. One bank 
indicated that it saw no purpose in mandating the date on which the fee 
may be assessed and that if banks are afforded only a single, specific 
date to assess the garnishment processing fee, they may automatically 
elect to assess this fee without regard to whether the fee may be 
waived in certain instances.

[[Page 9946]]

    Other financial institutions indicated that if they could not 
recoup their costs for processing garnishment orders, there would be 
little incentive to allow the account to remain open. Rather than incur 
the risk of future garnishment expenses, some financial institutions 
indicated that they might choose to close accounts for this population. 
Commenters noted that Federal benefit payment accounts are often small-
balance, labor intensive accounts that can be unprofitable for banks to 
maintain, and that limitations in the proposed rules on the ability of 
banks to recover their costs for handling garnishments exacerbate this 
situation.
    Some legal aid organizations and consumer advocacy groups appeared 
to anticipate that financial institutions might respond to the rule by 
closing accounts held by benefit recipients if the accounts are 
garnished. These organizations indicated that this practice already 
occurs in some instances. Specifically, in some cases banks that 
receive a garnishment order for an account containing only exempt funds 
send the account holder a check for the exempt funds and close the 
account. Legal aid organizations requested that the final rule prohibit 
this practice, which causes hardship for benefit recipients.
    The interim final rule prohibits financial institutions from 
charging a garnishment fee against a protected amount, and also 
prohibits the charging of a garnishment fee after the date of the 
account review. The Agencies believe that the anti-garnishment statutes 
support a prohibition against the imposition of a garnishment fee if 
the account contains only a protected amount. Some cases have held that 
financial institutions may charge account-related fees against 
protected funds in an account, and that the charging of the fees does 
not constitute garnishment or other legal process. For example, courts 
have upheld a bank's right to charge overdraft fees from Social 
Security and Supplemental Security Income funds deposited to a bank 
account. See Lopez v. Washington Mutual Bank, 2002 U.S. App. LEXIS 
24344; see also Wilson v. Harris, 2007 U.S. Dist. LEXIS 65345. The 
Agencies view garnishment processing fees as distinct from other 
account-related fees. If funds in an account are protected from 
garnishment, the Agencies find it unreasonable to conclude that those 
same funds can be subjected to a fee for handling a garnishment order--
an order that itself cannot legally be processed against the funds.
    The rule prohibits a financial institution from charging a 
garnishment fee after the date of account review 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. The Agencies 
believe that such an approach would be complex, confusing for account 
holders and at odds with the one-time review process established under 
the rule. Accordingly, the rule restricts the timing of garnishment 
fees.
    The Agencies do not believe that the anti-garnishment statutes 
support a general prohibition on imposing a garnishment fee against 
non-protected funds. In addition, the Agencies are not expanding the 
prohibition on garnishment fees to apply to ``any fee that arises as a 
result of a garnishment,'' because such a definition would be overly 
broad. The Agencies are not in this rulemaking addressing a financial 
institution's right to take a security interest in its deposit accounts 
or to exercise a contractual right to deduct fees or a common law right 
of offset against funds that are exempt from garnishment, except in the 
very narrow context of deducting a garnishment processing fee from an 
account containing a protected amount following receipt of a 
garnishment order.
    The interim final rule requires financial institutions to ensure 
that account holders have full and customary access to protected 
amounts. The rule does not address the conditions under which financial 
institutions may close accounts, which the Agencies believe is beyond 
the ambit of this rule.

No Actions After the Date of Account Review (Proposed Sec.  212.6)

    The proposed rule was based on the principle that a financial 
institution's response to a garnishment order must be a one-time event, 
based on the status of an account on the date of account review, and it 
prohibited financial institutions from taking any action on the account 
in response to the garnishment order after the date of account review. 
The interim final rule adopts this principle, which applies to all 
actions that a financial institution may perform on an account, 
including examining deposits, freezing funds, protecting funds, and 
collecting garnishment fees. Accordingly, Sec.  212.6(f) of the interim 
final rule provides that a financial institution must perform the 
account review only one time and may not repeat the review 
subsequently, including in cases where the same garnishment order is 
served again on the financial institution. Similarly, Sec.  212.6(g) 
preempts State laws requiring continuing garnishments and prohibits a 
financial institution from freezing funds deposited after the one-time 
account review. Likewise, Sec.  212.6(h) provides that a financial 
institution may not collect a garnishment fee from unprotected funds 
after the date of account review.
    The Agencies have necessarily established these provisions to give 
proper effect to the anti-garnishment statutes, since it is not 
feasible to implement both a protected amount and to permit continuing 
actions related to the garnishment order. Because the status of an 
account will change with every transaction following the account 
review, requiring both protection for exempt funds and permitting other 
subsequent actions would necessitate the monitoring of transactions in 
real time to continually re-assess the account balance and determine 
which funds are exempt and which are not exempt from garnishment. As 
was discussed in the supplementary information to the proposed rule, 
the Agencies believe that any policies that would necessitate the on-
going monitoring of transactions would be neither operationally nor 
economically feasible. Therefore, the rule does not permit actions 
related to a garnishment order after the date of account review, and 
requires all permissible actions to be based on the balance in the 
account derived from transactions occurring at or before the open of 
business on the date of account review.

Financial Institution Right of Offset (Proposed Sec.  212.8)

    Consumer advocacy groups urged the Agencies to delete the language 
in Sec.  212.8(b) of the proposed rule stating that nothing in the rule 
shall be construed to invalidate any term or condition of an account 
agreement that is not inconsistent with the rule, on the basis that 
this provision tacitly supports setoffs from exempt funds. Consumer 
groups noted that the proposed rule is silent as to overdraft charges 
and other setoffs against exempt funds. These commenters supported 
prohibiting setoffs against exempt funds for all types of fees, arguing 
that there are some cases that have held it is not legal for financial 
institutions to seize exempt funds. Alternatively, they requested that 
the Agencies clarify that this provision should not be construed to 
validate account agreements that permit the seizure of exempt funds 
through setoff or any other means.

[[Page 9947]]

    In contrast, some financial institutions commented that it is 
important that their existing rights of setoff be protected. Credit 
unions commented that currently there are two different mechanisms 
credit unions can employ in order to use members' funds on deposit to 
satisfy outstanding debts to the credit union. First, credit unions may 
create a contractual lien during the account opening and lending 
process that provides the credit union the right to use shares on 
deposit in the event an account holder becomes delinquent on a loan 
issued by the credit union. Additionally, the Federal Credit Union Act 
(FCUA) provides credit unions the statutory right to enforce a lien 
against a member's shares if the member is delinquent on a loan issued 
by the credit union. See 12 U.S.C. 1757(11). In order to take advantage 
of the statutory lien, a credit union must comply with 12 CFR 701.39 of 
the National Credit Union Administration's (NCUA) rules and 
regulations.
    The proposed rule did not address, nor did the Agencies intend to 
address, the right of financial institutions to set off obligations of 
an account holder against an account to which Federal benefit payments 
have been deposited. The rule is intended to protect account holders 
who receive directly deposited benefit payments from difficulties that 
may arise when a garnishment order against an account holder is served 
on a financial institution. Accordingly, the issue of setoff by 
financial institutions is outside the scope of the interim final rule.

Notice (Proposed Sec.  212.6(c), Sec.  212.7, Appendix A)

    Comments on the required notice to account holders were received 
from a broad array of commenters. The most frequent comment, which was 
received from all types of commenters, was that the model notice needs 
to be rewritten to be more easily understandable, and that the Agencies 
should have the notice revised by a literacy expert and tested. In 
addition, financial institutions commented broadly on a wide range of 
other issues relating to the notice. Many financial institutions 
objected to the requirement to send any notice, observing that this is 
outside the scope of a financial institution's responsibilities with 
respect to its customers, imposes considerable costs burdens on 
financial institutions, and likely will result in follow-up telephone 
calls which add to customer service burdens. Commenters argued that 
debtors who have protected Federal benefits deposited to their accounts 
will receive two notices from two different sources which is likely to 
generate additional confusion. Some commenters suggested that the rule 
provide, at least in the jurisdictions in which the creditor is 
required to send garnishment information to the debtor, that the 
creditor be required also to send a notice regarding Federal benefit 
payments to the debtor. Two State child support enforcement agencies 
objected to the requirement that any notice be sent, on the basis that 
the notice would lead to the withdrawal of funds and create the false 
impression that funds are protected from child support enforcement 
action.
    Many financial institutions also commented on specific aspects of 
the notice and notice requirement. Some financial institutions asked 
for longer periods of time ranging from 3 to 7 days to send the notice 
in light of the burden it imposes. One commenter noted that Sec.  212.7 
of the proposed rule does not indicate who is to receive the notice in 
cases where the account in question is held in the names of two or more 
persons, and recommended that in the case of multiple account holders, 
notice to any of the account holders should be sufficient, regardless 
of who is ultimately required to receive the notice. Some banks 
commented that if a customer has more than one account at a bank, the 
bank should have the option of sending one notice for all accounts or 
separate notices for each account. They stated that this would provide 
flexibility to design bank processes in the manner the bank deems most 
efficient while ensuring that the customer receives the information he 
or she needs.
    Financial institution trade groups recommended that the notice 
requirement not apply in situations where a financial institution finds 
when it conducts the account review that the account reflects an 
overdraft or zero balance, or where there are no funds in the 
customer's account that exceed the protected amount. They expressed 
substantial concerns that the requirement to provide notice in these 
cases would unnecessarily confuse the account holder, and that 
customers receiving this notice are likely to call the bank for an 
explanation, requiring additional resources to handle calls. They also 
indicated that requiring notice in these cases would be a significant 
burden for financial institutions. One bank estimated that 
approximately 60% of the orders it receives would involve accounts 
where no funds were frozen, either because there are no funds in the 
account or because the funds that are present are fully exempt.
    Some financial institutions commented that the list of benefits 
required under Sec.  212.7(a)(7) of the proposed rule to be included in 
the notice is confusing and misleading, both because account holders 
may construe it to mean that the funds should not have been held and 
because in many States these funds are not exempt once deposited in a 
bank account. Commenters requested that this requirement be amended to 
state simply that Federal or State law may provide additional 
exemptions and that comparable changes be made to the model form.
    A number of financial institutions requested the removal or 
revision of the requirement at Sec.  212.7(a)(8) of the proposed rule 
that the notice explain the account holder's right to assert a further 
garnishment exemption for amounts above the protected amount by 
completing exemption claims forms. They argued that this requirement 
imposes a considerable burden on the financial institution to keep 
apprised of the process for claiming exemptions in each jurisdiction 
and to provide a description of the process in the notice to the 
account holder, particularly for an institution with a presence in a 
large number of States. Some financial institutions argued that this 
provision goes beyond the stated purpose of the regulation, because in 
most cases the relevant exemptions would be under State law, which is 
not within the scope of the Federal garnishment laws. One large bank 
expressed concern that by providing guidance on the statutory 
processes, a bank risks creating the perception that it is providing 
legal advice. Some commenters urged that the notice simply state that 
the account holder may have a right to assert a further garnishment 
exemption for amounts above the protected amount by complying with the 
processes provided by State law. Other commenters recommended that this 
provision clarify that such claims are not against a bank that has 
complied with the proposed rules, so as to avoid potential customer 
confusion regarding available remedies and next steps he or she should 
take. Several commenters suggested that the Agencies urge the States to 
incorporate into State garnishment forms model language on the 
protection of Federal benefits, stating that uniform adoption of 
standard language on Federal benefit payments would reduce the 
potential confusion to account holders.
    Some financial institutions requested that Sec.  212.7(a)(9) and 
(10) of the proposed rule be revised to state that the notice include 
the means of contacting the judgment creditor and court only if

[[Page 9948]]

that information is contained in the garnishment order served on the 
financial institution.
    In contrast to financial institutions, consumer advocacy and legal 
aid organizations commented that the notice is important in ensuring 
that account holders are informed of the receipt of a garnishment order 
and aware of their rights in relation to it. One consumer advocacy 
group proposed that for those consumers that do in fact have their 
accounts garnished, notice be required to be given by either registered 
mail or personally served to ensure that the consumer actually receives 
notice of the garnishment. Several legal services organizations 
commented that the model notice should advise the debtor of his right 
to consult an attorney and include information on the availability of 
free legal aid attorneys.
    Consumer advocacy groups recommended that the notice specify 
exactly how much money the bank has frozen and the name and number of 
the account in which these funds are found. They also recommended that 
the notice specify the amount of any garnishment fee the bank has 
assessed against the recipient's account. Other recommendations 
included (1) the notice should state that future funds deposited in the 
account will not be subject to seizure as the result of this 
garnishment order; (2) the notice needs to include information about 
local, free legal programs; and (3) the regulation itself should 
reference and specifically recommend the use of the model notice with 
blanks to be filled in for State-specific information.
    As indicated above, both consumer advocacy organizations and 
financial institution trade groups criticized the complexity of the 
wording of the proposed model notice, noting that it uses complex 
language, compound sentences, and long paragraphs. Many commenters 
submitted proposed revisions to the wording to improve its readability. 
In general, commenters encouraged the Agencies to consider testing 
provisional form(s) with consumer focus groups directly or through 
voluntary financial institutions; to strike references to creditor and 
court contact information; and to rewrite the notice at more basic 
literacy standards, not to exceed an 8th grade reading level.
    An organization representing collection attorneys requested that 
the final rule require financial institutions to provide notice not 
only to the account holder but also to the judgment creditor. They 
argued that since the rule does not require notice to the judgment 
creditor/garnishor, it violates the creditor's constitutional rights to 
notice that its State law rights are preempted. They contended that 
such a result is patently unfair to judgment creditors/garnishors that 
have a right to know the particulars as to why a financial institution 
did not freeze certain funds otherwise subject to collection under 
State law.
    The interim final rule contains a number of changes to the notice 
provisions and to the model notice itself, reflecting the comments 
received. The amount of time required to issue the notice has been 
increased from two business days to three business days from the date 
of account review. The Agencies believe that the notice should be sent 
to the account holder named in the garnishment order, and not to a co-
owner of an affected account, and have revised the rule accordingly. 
The Agencies agree with comments made by consumer advocacy 
organizations that the notice should identify the account affected by 
the order and specify exactly how much money the financial institution 
has frozen, if any, as well as the amount of any garnishment fee 
assessed. The Agencies do not believe that notice should be required to 
be sent by registered mail or personally served on the account holder. 
The Agencies do not believe it serves a useful purpose, and agree that 
it may be confusing to an account holder, for a notice to be sent in 
situations where a financial institution finds when it conducts the 
account review that the account reflects an overdraft or zero balance. 
In contrast, however, the Agencies do not agree that a notice should 
not be required where there are no funds in the customer's account that 
exceed the protected amount. Therefore, the interim final rule requires 
notice to the account holder if the financial institution's account 
review results in the establishment of a protected amount.
    In the interim final rule, the Agencies have attempted to strike a 
balance between ensuring that account holders receive useful, relevant 
information and avoiding the complexity and confusion that a lengthy 
notice could create. The Agencies are also cognizant of the concerns 
expressed by financial institutions that the provision of certain 
information may be unduly burdensome and could create the impression 
that the financial institution is providing legal advice or acting as 
an intermediary between the debtor and the court or creditor. 
Accordingly, the interim final rule allows, but does not require, 
financial institutions to include: Additional information regarding 
State or local rules; the availability of legal resources that account 
holders might wish to consult; and a statement that by issuing the 
notice, the financial institution is not providing legal advice. In 
addition, the rule has been revised to state that in providing the 
notice, a financial institution shall not be deemed to be providing 
legal advice to the account holder. The requirement that financial 
institutions provide the means of contacting the creditor and court has 
been qualified to make it clear those requirements apply only if the 
order includes that information. Lastly, the Agencies are not including 
a requirement in the rule to send a copy of the notice to the creditor. 
The Agencies believe it is inappropriate for the financial institution 
to bear the cost of notification to a creditor since the financial 
institution has no relationship with the creditor, in contrast to the 
account holder.
    Finally, the Agencies have revised the model notice in the interim 
final rule to improve its readability based on input from financial 
education and literacy professionals. The organization of the model 
notice has been changed to a question-and-answer format with a chart 
showing the status of the benefit recipient's account, and the language 
has been re-written to reflect more basic literary standards and 
comprehension levels.

Preemption of State law (Proposed 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. These commenters urged the 
Agencies not to preempt greater protections that States provide with 
respect to garnishment of bank accounts and asked that the final rule 
explicitly state that it does not preempt State laws that are at least 
as protective to account holders as Federal law.
    The interim final rule preempts any State or local government law 
that is inconsistent with any provision of the rule. Such a preemption 
occurs only to the extent that an inconsistency between the rule and 
State law would prevent a financial institution from complying with the 
requirements of the rule. Some State laws, for example, may protect 
from garnishment funds in a bank account in an amount that exceeds the 
protected amount. The interim final rule does not displace or supersede 
such a State law requirement, provided that the financial institution 
has complied with all of the requirements of the interim final rule.

[[Page 9949]]

Safe Harbor (Proposed Sec.  212.10)

    Some commenters stated that proposed Sec.  212.10(c)(3), which 
allows for the account holder to provide express written instructions 
to use an otherwise protected amount to satisfy the garnishment holder, 
raises concerns. These commenters recommended that proposed Sec.  
212.10(c)(3) be removed from the regulation because, although the 
instructions need to be received by the bank after the date of the 
garnishment, there is nothing to prevent a creditor from forcing a 
recipient to sign such instructions in advance. If this section remains 
in the rule, these commenters recommended that language be added that 
such instructions cannot be a result of a prior agreement.
    Many banks commented that the Agencies should expressly extend the 
safe harbor provisions to instances where financial institutions are 
unable to comply with the requirement to perform an account review 
within one business day due to the need to obtain additional 
information or to handle the exceptional circumstances. Some financial 
institutions asked that the safe harbor be pushed back to the point 
where the financial institution relies on the ACH record to identify a 
benefit payment, stating that the safe harbor should clarify that when 
the institution relies on such record, the payment should be deemed to 
be a benefit payment. Some commenters urged the Agencies to strike the 
requirement of good faith compliance from proposed Sec.  212.10 as a 
condition to the safe harbor because this creates a triable issue of 
fact before the safe harbor is available. Other commenters suggested 
that the safe harbor be expanded to protect a financial institution 
from liability in cases where the financial institution, after a review 
of its own records, releases to the account holder benefit payments as 
defined by the rule.
    The Agencies have revised the language of the proposed rule to make 
it clear that an account holder may not instruct a financial 
institution in advance or in a standing agreement to use exempt funds 
to satisfy a garnishment order. Apart from this change and other minor 
technical revisions, the Agencies do not believe any change to the safe 
harbor language is necessary. Changes to the deadline for performing 
the account review adequately address the concern that the safe harbor 
should cover financial institutions that are unable to comply with the 
requirement to perform an account review within one business day due to 
the need to obtain additional information or to handle the exceptional 
circumstances. Similarly, because the definition of ``benefit payment'' 
has been revised to refer to payments in which the ACH identifier is 
present, it is clear that a financial institution that relies on the 
ACH record would be covered by the safe harbor. The Agencies are 
retaining the good faith requirement as a condition for the 
availability of the safe harbor. In addition, the Agencies do not 
believe it is appropriate to protect from liability a financial 
institution that voluntarily releases funds that fall within the rule's 
definition of ``benefit payments.'' This could result in the release of 
months' or years' worth of benefit payments, without regard to 
withdrawals, account activity or the extent to which funds in the 
account retain the characterization of exempt payments.

Enforcement and Record Retention (Proposed Sec.  212.11)

    Some consumer groups commented that they had significant concerns 
regarding lack of enforcement of the proposed rule. These commenters 
noted that while the Federal banking agencies have the right to enforce 
the proposed rule, they are often overwhelmed and lack the resources to 
address all of the abuses in the banking system. They recommended that 
the rule include a private right of action so consumers themselves can 
force financial institutions to comply with the new rules.
    Many banks noted that although the proposed rule required that 
records be maintained to demonstrate compliance with the rule, the 
proposed rule did not specify a time period for the requirement to 
maintain records. Most banks that commented on this issue recommended 
that a time period of one year following the account review be 
stipulated.
    Congress did not provide a private right of action in the statutes 
prohibiting garnishment of Federal benefits and therefore the interim 
final rule does not include such a provision. The Agencies have 
specified a two-year record retention period in the rule.

III. Summary of Interim Final Rule

    Under the 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 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 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.

IV. Section-by-Section Analysis for 31 CFR Part 212

    The provisions of the rule are set forth in a new part 212 to 31 
CFR. SSA, VA, RRB and OPM are each amending their existing regulations 
to include a cross-reference to 31 CFR part 212.

Section 212.1

    Section 212.1 sets forth the purposes of the rule.

Section 212.2

    The rule applies to every entity defined as a financial 
institution, if the financial institution holds accounts to which 
benefit payments are directly deposited by one or more of the Agencies.

Section 212.3

    Various terms used in the regulation are defined in section 212.3. 
``Account holder'' means a natural person against whom a garnishment 
order is issued and whose name appears in a financial institution's 
records as the direct or

[[Page 9950]]

beneficial owner of an account. ``Account'' is defined to mean any 
account, whether a master account or sub account, at a financial 
institution and to which an electronic payment may be directly routed. 
The definition includes master and sub accounts to reflect account 
structures used by credit unions. As defined, ``account'' does not 
include an account to which a benefit payment is subsequently 
transferred following its initial delivery by direct deposit to another 
account.
    The definition of ``benefit payment'' is limited to direct deposit 
payments that include an ``XX'' in positions 54 and 55 of the Company 
Entry Description field in the Batch Header Record of the direct 
deposit entry. Because benefit recipients can cash checks rather than 
deposit them and take the risk that funds will be garnished, financial 
institutions do not need to examine accounts to identify benefit checks 
for purposes of complying with the rule. To determine whether a payment 
constitutes a benefit payment, financial institutions may rely on the 
presence of an ``XX'' encoded in positions 54 and 55 of the Company 
Entry Description field of the Batch Header Record of a direct deposit 
entry.
    ``Financial institution'' is defined as a bank, savings 
association, credit union or other entity chartered under Federal or 
State law to engage in the business of banking. The definition is 
intended to be very broad, in order to capture any financial 
institution that might hold an account to which Federal benefits may be 
directly deposited.
    The definition of ``garnish'' and ``garnishment'' are taken 
directly from the wording of Agency statutes establishing the exemption 
of certain Federal benefit payments from garnishment. ``Garnishment 
fee'' is defined to mean any kind of a fee that a financial institution 
charges to an account holder related to the receipt or processing of a 
garnishment order. ``Garnishment order'' and ``order'' are defined to 
mean a writ, order notice, summons, or similar written instruction 
issued by a court to effect a garnishment, as well as an order issued 
by a State child support enforcement agency.
    ``Lookback period'' is defined to mean the two month period that 
(i) begins on the date preceding the date of account review and (ii) 
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. For example, under this definition, the lookback period 
that begins on November 15 would end on September 15. On the other 
hand, the lookback period that begins on April 30 would end on February 
28 (or 29 in a leap year), to reflect the fact that there are not 30 
days in February.
    ``Protected amount'' is defined 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, or (ii) the balance in an 
account at the open of business on the date of account review.
    ``State'' is defined to mean a State of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth 
of the Northern Mariana Islands, American Samoa, Guam, or the United 
States Virgin Islands.
    ``State child support enforcement agency'' means the single and 
separate organizational unit in a State that has the responsibility for 
administering or supervising the State's plan for child and spousal 
support pursuant to 42 U.S.C. 654, Title IV, Part D of the Social 
Security Act.

Section 212.4

    Section 212.4 of the rule sets forth the first action that a 
financial institution must take when it receives a garnishment order, 
which is to determine whether the order was obtained by the United 
States or a State child support enforcement agency. To make this 
determination, financial institutions may rely on the inclusion of a 
Notice of Right to Garnish Federal Benefits, as set forth in Appendix 
B. For orders obtained by the United States or a State child support 
enforcement agency, the financial institution is to follow its 
otherwise customary procedures for handling the order. For all other 
orders, the financial institution is required to follow the procedures 
in sections 212.5 and 212.6.

Section 212.5

    Section 212.5 outlines the account review a financial institution 
must conduct if it has determined, pursuant to section 212.4, that a 
garnishment order was not obtained by the United States or a State 
child support enforcement agency. In such cases, a financial 
institution must review the history of the account being garnished to 
determine if a benefit payment was deposited into the account during 
the lookback period. Generally, the account review must be completed 
within two business days following receipt of the order. If there is 
insufficient information included in the order to determine whether the 
debtor is an account holder, the deadline for completing the account 
review is extended until the financial institution is able to obtain 
such information. In addition, in cases where the financial institution 
is served a batch of a large number of orders, the deadline is extended 
to whatever date is permitted under the terms of the garnishment 
orders. This provision is intended to address situations in which a 
single batch containing multiple garnishment orders is received. This 
provision does not mean that a financial institution may extend the 
deadline simply because a large number of separate orders are received 
at one time.
    If the account review shows that no benefit payments were deposited 
to the account during the lookback period, then the financial 
institution would follow its otherwise customary procedures for 
handling the order. If a benefit payment was deposited into the account 
during the lookback period, then the financial institution must follow 
the procedures set forth in section 212.6.
    Section 212.5(d) lists factors that are not relevant to a financial 
institution's account review. The commingling of exempt and nonexempt 
funds in the account is not relevant to the account review, and neither 
is the existence of a co-owner on the account. Similarly, the fact that 
benefit payments to multiple beneficiaries may have been deposited to 
an account during the lookback period is not relevant, as could occur 
if an individual receives payments on behalf of several beneficiaries. 
Finally, any instructions or information in a garnishment order are not 
relevant, including information about the nature of the debt or 
obligation underlying the order.
    Section 212.5(e) makes it clear that financial institutions must 
perform the account review before taking any action related to the 
garnishment order that may affect funds in an account. Section 212.5(f) 
requires a separate account review for each account owned by an 
individual against whom a garnishment order has been issued, even if an 
individual holds more than one account at a financial institution. For 
example, if an individual maintains two accounts at the same financial 
institution, and payments issued under two different benefit programs 
are directly deposited to each account, both accounts must be 
separately reviewed and a separate protected amount must be calculated 
and applied for each account. Under section 212.5(f), a benefit payment 
that is directly deposited to an account and then subsequently 
transferred to another account is not treated as a benefit payment for 
purposes of the second account. For example, if a benefit

[[Page 9951]]

payment is directly deposited to an individual's checking account, and 
then subsequently transferred to the individual's savings account, the 
financial institution, in performing the account reviews, would treat 
the payment as a benefit payment for purposes of the checking account, 
but not for purposes of the savings account.

Section 212.6

    Section 212.6 contains the provisions that apply if a financial 
institution determines that one or more benefit payments were deposited 
to an account during the lookback period. In such a case, the financial 
institution must calculate the protected amount, as defined in section 
212.3. A financial institution may not freeze, or otherwise restrict 
the account holder's access to, the protected amount. The financial 
institution must provide the account holder with ``full and customary 
access'' to the protected amount. The Agencies intend by this language 
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 
protection against freezing triggered by the depositing of exempt funds 
during the lookback period is automatic. A financial institution may 
not require an account holder to assert any right to a garnishment 
exemption or take any other action prior to accessing the protected 
amount.
    Section 212.6(b) requires the financial institution to calculate 
and establish a protected amount for each account it holds in the name 
of an account holder. Under section 212.6(c), a protected amount 
calculated and established by a financial institution is conclusively 
considered to be exempt from garnishment under law.
    Section 212.6(e) requires the financial institution to send a 
notice to the account holder. The content and timing required for the 
notice are set forth in section 212.7.
    Section 212.6(f) addresses the situation in which a financial 
institution receives service of the same garnishment order more than 
once. The financial institution must execute the account review one 
time upon the first service of a given garnishment order. If the same 
garnishment order is subsequently served again upon the financial 
institution, the financial institution is not required to perform 
another account review and is restricted from taking any action on the 
account. If the financial institution is subsequently served a new or 
different garnishment order against the same account, the financial 
institution must execute a new account review.
    Section 212.6(g) provides that a financial institution shall not 
continually garnish amounts deposited or credited to the account 
following the date of account review, and may not take any action to 
freeze any amounts subsequently deposited or credited unless served a 
new or different garnishment order. A small number of States authorize 
the issuance of a ``continuing'' garnishment order, i.e., an order 
requiring the garnishee to monitor, preserve and remit funds coming 
into the garnishee's custody on an ongoing basis. The rule operates to 
prohibit a financial institution that is served with a continuing 
garnishment from complying with the order's ongoing requirements.
    Section 212.6(h) prohibits a financial institution from charging a 
garnishment fee against a protected amount, and further prohibits a 
financial institution from charging or collecting such a fee after the 
date of account review, i.e., retroactively.

Section 212.7

    Section 212.7(a) requires the financial institution to send the 
notice required under section 212.6(e) if a benefit payment was 
deposited into an account during the lookback period and the balance in 
the account on the date of account review was above zero dollars. There 
is no requirement to send a notice if the balance in the account is 
zero or negative on the date of account review. Section 212.7(b) sets 
forth the content of the notice that financial institutions are 
required to send to account holders. The financial institution must 
notify the account holder that the financial institution has received a 
garnishment order and must briefly explain what a garnishment is. The 
notice must also include other information regarding the account 
holder's rights. Financial institutions may choose to use the model 
notice in Appendix A to the rule, in which case they will be deemed to 
be in compliance with the requirements of section 212.7(b). However, 
use of the model notice is optional.
    Section 212.7(c) permits, but does not require, a financial 
institution to include the following additional information in the 
notice: Means of contacting a local free attorney or legal aid service; 
means of contacting the financial institution; and a statement that the 
financial institution is not providing legal advice by issuing the 
notice. Also, under section 212.7(d), the financial institution may 
modify the content of the notice to integrate information about a 
State's garnishment rules and protections, to avoid confusion regarding 
the interplay of the rule with State requirements, or to provide more 
complete information about an account.
    The financial institution must deliver the notice directly to the 
account holder, and only information and documents pertaining to the 
garnishment order may be included in the communication. The notice must 
be sent within three business days from the date of account review. If 
the account holder has multiple accounts, the financial institution may 
send one notice with information related to all the accounts. Section 
212.7(h) makes it clear that by issuing a notice, a financial 
institution shall not be deemed to be providing legal advice or 
creating any obligation to provide legal advice.

Section 212.8

    Section 212.8 makes it clear that the rule is not to be interpreted 
as limiting any rights an individual may have under Federal law to 
assert an exemption from garnishment, or as altering the exempt status 
of funds in the account. For example, although the rule does not 
require a financial institution to review and identify Federal benefits 
deposited by check to an account, those funds are protected under 
Federal law and the account holder may assert a claim for that 
protection in accordance with the procedures specified under the 
applicable law. In addition, it is possible that an account holder 
could have exempt funds on deposit in excess of the protected amount. 
In that case, the account holder could assert the protection available 
under Federal law for those funds. The rule does not limit or change 
the protected status of those funds.
    Section 212.8 provides that the rule is not to be construed to 
invalidate any term or condition of an account agreement between a 
financial institution and an account holder, as long as the term or 
condition is not inconsistent with the rule. The requirements of the 
rule may not be changed by agreement, except in the narrow circumstance 
permitted under section 212.10(d)(3), i.e., where an account holder 
instructs a financial institution, in written instructions dated after 
the date of service of the garnishment order, to use exempt funds to 
satisfy the order. Thus, a financial institution may not require an 
account holder to waive any protection available under the rule, nor 
may it include in an account agreement terms inconsistent with the 
requirements of the rule. However, the section 212.6(b)

[[Page 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,\2\ or a limitation on withdrawal applicable to a time deposit, the 
proposed rule would not override or affect those limitations.
---------------------------------------------------------------------------

    \2\ Regulation CC, 12 CFR part 229, is the Federal Reserve's 
regulation establishing rules covering the collection and return of 
checks by banks.
---------------------------------------------------------------------------

Section 212.9

    Section 212.9 preempts any State or local government law or 
regulation that is inconsistent with any provision of the rule, but 
only to the extent of the inconsistency. If a State law would prevent a 
financial institution from complying with the requirements of the rule, 
the State law is preempted. However, the rule does not preempt 
requirements under State law that are in addition to the rule's 
requirements. For example, some State laws may protect from garnishment 
funds other than benefit payments, or may protect a higher amount of 
benefit payments. Other State laws may require protection of a flat 
amount without regard to the types of funds that are deposited to an 
account. In such cases, the financial institution will need to satisfy 
the rule's requirements and then determine what, if any, additional 
obligations exist under State law. The rule does not displace or 
supersede such State law requirements, provided that the financial 
institution has complied with all the requirements of the rule.

Section 212.10

    Section 212.10 provides a safe harbor for financial institutions 
that comply in good faith with the rule. Thus, for example, if a 
financial institution made available the protected amount to an account 
holder in accordance with the rule, the financial institution would not 
be liable even if a judgment creditor were able to establish in court 
that funds in the account at the time the garnishment order was served 
were attributable to nonexempt deposits. In addition, if a financial 
institution performed an account review within the two business day 
deadline, and funds were withdrawn from the account during this time, 
the financial institution would not be liable to a creditor or court 
for failure to preserve the funds in the account, even if there was no 
protected amount for the account. This protection exists for a 
financial institution despite the occurrence of a bona fide error or a 
settlement adjustment.
    Section 212.10(c) provides a safe harbor specifically to a 
financial institution that provides in good faith any optional 
information in the notice to the account holder, as permitted in 
section 212.7(c) and (d). Section 212.10(d)(3) allows a financial 
institution to follow an account holder's express instruction to use an 
otherwise protected amount to satisfy the garnishment order. The 
instruction must be in writing and must be delivered after the date on 
which the financial institution received the garnishment order. This 
provision does not permit an account holder to instruct a financial 
institution, in advance or in a standing agreement, to use exempt funds 
to satisfy a garnishment order.

Section 212.11

    Under section 212.11, compliance with the rule will be enforced by 
the Federal banking agencies. Financial institutions must maintain 
records of account activity and actions taken in handling garnishment 
orders sufficient to demonstrate compliance with the rule for a period 
of not less than two years from the date on which the financial 
institution receives the garnishment order.

Section 212.12

    Section 212.12 provides that the rule may be amended only by a 
joint rulemaking issued by Treasury and all of the agencies defined as 
a ``benefit agency'' in 31 CFR 212.3.

Appendix A to Part 212

    Appendix A sets forth proposed model language that would satisfy 
the notice requirements of section 212.7(b). Financial institutions are 
not required to use this model language. However, financial 
institutions that use the model notice will be deemed to be in 
compliance with the requirements of section 212.7(b).

Appendix B to Part 212

    Appendix B contains the form of Notice of Right to Garnish Federal 
Benefits which is referred to in section 212.4(a).

Appendix C to Part 212

    Appendix C contains examples demonstrating how the Lookback Period 
and Protected Amount are calculated.

V. Regulatory Analysis

A. Executive Order 12866

    It has been determined that this interim final rule is a 
significant regulatory action as defined in E.O. 12866. The Office of 
Management and Budget has reviewed this regulation.

 B. Regulatory Flexibility Acts

    In the Regulatory Analysis to the proposed rule, the Agencies did 
not certify that the proposed rule would not have a significant 
economic impact on a substantial number of small entities, in 
particular small financial institutions. While the Agencies believed 
the proposed rule likely would not have a significant impact on small 
financial institutions, the Agencies indicated they did not have 
complete data to make a conclusive determination. Accordingly, the 
Agencies prepared a joint Initial Regulatory Flexibility Analysis 
(IRFA) in accordance with 5 U.S.C. 603 and specifically requested 
comment on the proposed rule's impact on small entities, including 
costs, compliance burden, and changes in operating procedures. The 
Agencies stated an interest in knowing whether particular aspects of 
the proposed rule would be especially costly or burdensome.
    For purposes of the IRFA, a ``small entity'' was a national bank, 
savings association, State member bank, or State or Federal credit 
union with assets of $175 million or less, based on regulations 
promulgated by the Small Business Administration (SBA). Using 
information provided by the commenter or information available to the 
Agencies regarding the asset size of a financial institution 
commenting, the Agencies identified comment letters from seven credit 
unions that qualified as a ``small entity'' under the SBA regulations. 
The Agencies also received comment letters from several financial 
institution industry associations whose membership could include small 
entities.
    No small entity submitted comments specifically quantifying its 
projected costs. Neither did any small entity provide information on 
the number of court ordered garnishments it received. All comments from 
entities of all sizes on the burden of the proposed rule were 
qualitative or subjective, in that no commenter offered empirical data 
or statistical evidence to quantify the economic impact. The following 
is a summary of comments and issues raised by the small entities and 
industry associations that may represent small entities.
    Bank trade associations, while critical of various aspects of the 
proposed rule, generally acknowledged the need for a Federal regulation 
and indicated they could comply with it, even as they offered numerous 
suggestions for streamlining and simplifying its requirements. The 
small credit unions,

[[Page 9953]]

and several but not all credit union trade associations, opposed the 
proposed rule and objected to various provisions as time-intensive and 
manual, and unreasonable given the required processing deadlines.
    Two credit union trade associations indicated that many credit 
unions would not have the data processing capability to conduct a 60 
day account review and would have to conduct the review manually, and 
suggested the length of the lookback period be reduced. One small 
credit union objected to the 60 day lookback period indicating that it 
would pose an undue operational burden requiring time, expense, and 
manpower not readily available. (Several small credit unions also 
objected to the 60 day lookback period on the policy grounds that, for 
those who truly subsist on Federal benefits, 30 days was long enough 
and sufficient to fund a dispute over other exempt benefits.) Several 
credit union associations proposed allowing financial institutions to 
use a uniform flat amount as the protected amount asserting that this 
option negates the need to conduct an account review and becomes a much 
more manageable process for credit unions with limited resources. One 
credit union trade association indicated that 90% of its members felt 
that requiring an account review within one business day of receipt of 
a garnishment order was unreasonable, but that two days struck the 
right balance between timeliness and flexibility. Many of the small 
credit unions expressed concern that the proposed rule would not apply 
to garnishment orders obtained by the United States. Commenters also 
raised concerns about the requirement to issue a notice to the account 
holder and the time allowed to produce the notice. One small credit 
union commented on the $175 million threshold used in the SBA 
definition for a small credit union, indicating that a credit union 
with $55 million in assets had little in common with a credit union 
with three times the assets, and that capabilities in staffing, 
operations, and cost tolerance varied greatly across the range of 
institutions under $175 million in assets.
    Based on a thorough analysis of comments on the proposed rule, and 
based on a survey of small Federal credit unions conducted by the 
Treasury following the comment period,\3\ the Agencies certify that 
this interim 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).
---------------------------------------------------------------------------

    \3\ Survey, Information on Processing Garnishment Orders, OMB 
Control Number 1505-0225, expiration date 2/28/2011.
---------------------------------------------------------------------------

    The Agencies' certification that the interim final rule will not 
have a significant economic impact on a substantial number of small 
financial institutions is based on three factual findings.
    First, the Treasury surveyed a representative sample of the 3,457 
active Federal credit unions with assets of $50 million or less, which 
represents the three smallest asset strata tracked by the National 
Credit Union Administration (NCUA): Assets of less than $2 million, 
assets of at least $2 million but less than $10 million, and assets of 
at least $10 million but less than $50 million. The survey sought 
information about the number of garnishment orders served on these 
small credit unions, their administrative procedures for handling 
garnishment orders, and amount of time it took to process a typical 
order. The survey sample was a statistically valid representation of 
the entire population, reflecting the variations in asset size and 
geographic location of all Federal credit unions with assets of $50 
million or less.
    The survey indicated that the mean number of garnishment orders 
received annually by these small credit unions was five, and that both 
the median and mode number of garnishment orders received annually was 
less than one. The survey revealed that 97 percent of these smallest 
credit unions received fewer than six garnishment orders per year, and 
that the rate at which garnishment orders were served was at most a 
function of one order per year per $5 million in assets. The Agencies 
conclude from this empirical data that the interim final rule does not 
represent a significant burden on these small entities. Even if a small 
credit union with assets under $50 million processed a garnishment 
order entirely manually and took an additional 2 hours to handle a 
garnishment order by following the new procedures in the interim final 
rule--including conducting an account review, establishing a protected 
amount, and mailing a notice--the actual processing time would on 
average represent marginal work on the order of 10 hours per year.
    If the results of the survey are extrapolated to other financial 
institutions with up to $175 million in assets, given a stable function 
of one order per year per $5 million in assets, the burden of entirely 
manual compliance for the average small entity would represent only 
marginal workload for one employee, or approximately 70 hours or 3.4 
percent of one annual full time equivalent. Therefore, even if a 
financial institution must use entirely manual processes to comply with 
the rule, the facts on the volume of garnishment orders typically 
served on small credit unions demonstrate that the regulation will not 
have a significant economic impact on a substantial number of small 
entities.
    Second, information provided by the NCUA indicates that only 2% of 
small Federal credit unions with assets of $20 million or less (fewer 
than 40 credit unions out of 1,924) use a manual accounting system to 
maintain share accounts and loan transactions and would not be able to 
perform an account review by accessing a system. Thus, nearly all 
credit unions large and small would have a capability to search an 
account history using an account processing system with stored data or 
stored account statements to help identify exempt Federal benefit 
payments. Therefore, the Agencies conclude that there are not many 
credit unions that would not have the data processing capability to 
conduct a two month account review and would have to conduct the review 
entirely manually. In addition, based on inquiries made of the vendors 
providing core processing systems to small credit unions, the Agencies 
note that there are no significant problems to enhancing the systems to 
include specific functionality for fully automating the measurement of 
the lookback period and the conduct of the account review.
    Third, as more fully discussed in the supplementary information 
above, the Agencies carefully considered the comments on the proposed 
rule and have made a number of specific changes in the interim final 
rule based directly on comments designed to lessen the administrative 
burden. These changes include among others:
    <bullet> Increasing the amount of time permitted to conduct an 
account review from one business day to two business days following the 
receipt of a garnishment order, and allowing further time to conduct 
the account review if the financial institution has difficulty in 
determining whether a debtor is an account holder at the institution.
    <bullet> Eliminating the requirement to issue a notice to the 
account holder in cases where the balance in an account is zero or 
negative on the date of account review, which based on comments from 
financial institutions is a substantial proportion of cases.
    <bullet> Increasing the amount of time required to issue the notice 
from two business days to three business days from the date of account 
review.

[[Page 9954]]

    <bullet> Eliminating the requirement that the notice must contain a 
means of contacting the financial institution, thereby reducing the 
incidence of customer service calls related to debt disputes to which 
the financial institution is not a party.
    <bullet> Eliminating the requirement to examine a garnishment order 
to ascertain whether the plaintiff named in the caption of the order is 
the United States, and allowing financial institutions to determine if 
a garnishment order is excluded from the rule's administrative 
requirements by relying solely on the presence of a garnishment 
certification attached or included with the order.
    <bullet> Limiting record retention to 2 years, in lieu of an open 
ended requirement to retain records to demonstrate compliance with the 
regulation.
    <bullet> Revising the definition of the lookback period from 60 
days to a two month ``date-to-date'' methodology, making the account 
review easier to administer and less prone to errors.
    <bullet> Allowing financial institutions to rely solely and 
conclusively on the exemption identifiers encoded in Federal ACH header 
records to determine if a Federal benefit payment has been deposited to 
an account. The Agencies again note that the garnishment exemption 
identifiers in the Federal ACH header records will be included in a 
field that is captured and appears on account statements, which will 
facilitate both automated and visual searches for exempt Federal 
benefit payments. Hence, even the smallest financial institutions that 
do not maintain an automated processing system, but receive paper 
reports from the organization that processes their ACH transactions, 
will be able to perform the account review straightforwardly.
    Thus, the administrative requirements of the rulemaking have been 
substantively reduced based on comments from financial institutions.
    For the foregoing reasons, the Agencies conclude the interim final 
rule will not have a significant economic impact on a substantial 
number of small entities.

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, 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) where the Agencies 
establish 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 Employee 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. 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 this rulemaking. Specifically, the Agencies sought 
perspective on those matters where Federalism implications could 
potentially conflict with State garnishment laws. The rule establishes 
certain processes that provide a financial institution protection from 
liability when a Federal benefit payment exempt from garnishment is 
directly deposited into an account and the financial institution 
provides a certain amount of lifeline funds to the benefit recipient.

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 one 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

[[Page 9955]]

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.

E. Plain Language

    In 1998, the President issued a memorandum directing each agency in 
the Executive branch to use plain language for all new proposed and 
final rulemaking documents issued on or after January 1, 1999. The 
Agencies specifically invite your comments on how to make this interim 
final rule easier to understand. For example:
    <bullet> Have we organized the material to suit your needs? If not, 
how could this material be better organized?
    <bullet> Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
    <bullet> Does the rule contain language or jargon that is not 
clear? If so, which language requires clarification?
    <bullet> Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the rule easier to understand? If 
so, what changes to the format would make them easier to understand?
    <bullet> What else could we do to make the rule easier to 
understand?

F. Paperwork Reduction Act

    The information collections contained in this interim final rule 
have been reviewed and approved by the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act (44 U.S.C. chapter 35) and 
assigned OMB control number 1510-0230. Under the Paperwork Reduction 
Act, an agency may not conduct or sponsor, and an individual is not 
required to respond to, a collection of information unless it displays 
a valid OMB control number.
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attn: Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to [insert contact information], 
Department of the Treasury, Washington, DC 20220. Comments on the 
collection of information must be received by May 24, 2011. Comments 
are specifically requested concerning:
    Whether the collection of information is necessary for the proper 
performance of the functions of the Agencies, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the collection 
of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the collection of information may 
be minimized, including through the application of automated collection 
techniques or other forms of information technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in these regulations are found in 
Sec. Sec.  212.6 and 212.11 and Appendices A and B.
    Estimated total annual reporting burden: 125,000 hours.
    Estimated average annual burden per respondent: 8 hours.
    Estimated number of respondents: 15,771.
    Estimated frequency of responses: As needed.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.

G. Authority To Issue Interim Final Rule

    The Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) 
generally requires public notice before promulgation of regulations. 
See 5 U.S.C. 553(b). The Agencies published a notice of proposed 
rulemaking requesting comment on the proposed garnishment rule on April 
19, 2010 (75 FR 20299). The Agencies have considered the comments 
received in developing this interim final rule but also wish to provide 
the public another opportunity to comment on it.

List of Subjects

5 CFR Part 831

    Administrative practice and procedure, alimony, benefit payments, 
claims, disability benefits, exempt payments, financial institutions, 
firefighters, garnishment, government employees, income taxes, 
intergovernmental relations, law enforcement officers, pensions, 
preemption, reporting and recordkeeping requirements, retirement.

5 CFR Part 841

    Administrative practice and procedure, air traffic controllers, 
benefit payments, claims, disability benefits, exempt payments, 
financial institutions, firefighters, garnishment, government 
employees, income taxes, intergovernmental relations, law enforcement 
officers, pensions, preemption, retirement.

20 CFR Part 350

    Alimony, benefit payments, child support, exempt payments, 
financial institutions, garnishment, preemption, railroad retirement, 
railroad unemployment insurance, recordkeeping.

20 CFR Part 404

    Administrative practice and procedure, aged, alimony, benefit 
payments, blind, disability benefits, exempt payments, financial 
institutions, garnishment, government employees, income taxes, 
insurance, investigations, old-age, preemption, Survivors and 
Disability Insurance, penalties, railroad retirement, reporting and 
recordkeeping requirements, Social Security, travel and transportation 
expenses, treaties, veterans, vocational rehabilitation.

20 CFR Part 416

    Administrative practice and procedure, alcoholism, benefit 
payments, drug abuse, exempt payments, financial institutions, 
garnishment, investigations, Medicaid, penalties, preemption, reporting 
and recordkeeping requirements, Supplemental Security Income (SSI), 
travel and transportation expenses, vocational rehabilitation.

31 CFR Part 212

    Benefit payments, exempt payments, financial institutions, 
garnishment, preemption, recordkeeping.

38 CFR Part 1

    Administrative practice and procedure, archives and records, 
benefit payments, cemeteries, claims, courts, crime, flags, exempt 
payments, financial institutions, freedom of information, garnishment, 
government contracts, government employees, government property, 
infants and children, inventions and patents, parking, penalties, 
preemption, privacy, reporting and recordkeeping requirements, seals 
and insignia, security measures, wages.

Department of the Treasury, Fiscal Service (Treasury)

 Authority and Issuance

    For the reasons set forth in the preamble, Treasury adds a new part 
212 to Title 31 of the Code of Federal Regulations, to read as follows:

PART 212--GARNISHMENT OF ACCOUNTS CONTAINING FEDERAL BENEFIT 
PAYMENTS

Sec.
212.1 Purpose.
212.2 Scope.

[[Page 9956]]

212.3 Definitions.
212.4 Initial action upon receipt of a garnishment order.
212.5 Account review.
212.6 Rules and procedures to protect benefits.
212.7 Notice to the account holder.
212.8 Other rights and authorities.
212.9 Preemption of State law.
212.10 Safe harbor.
212.11 Compliance and record retention.
212.12 Amendment of this part.

Appendix A to Part 212--Model Notice to Account Holder
Appendix B to Part 212--Form of Notice of Right to Garnish Federal 
Benefits
Appendix C to Part 212--Examples of the Lookback Period and Protected 
Amount

    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).


Sec.  212.1  Purpose.

    The purpose of this part is to implement statutory provisions that 
protect Federal benefits from garnishment by establishing procedures 
that a financial institution must follow when served a garnishment 
order against an account holder into whose account a Federal benefit 
payment has been directly deposited.


Sec.  212.2  Scope.

    This part applies to:
    (a) Entities. All financial institutions, as defined in Sec.  
212.3.
    (b) Funds. Federal benefit payments protected from garnishment 
pursuant to the following authorities:
    (1) SSA benefit payments protected under 42 U.S.C. 407 and 42 
U.S.C. 1383(d)(1);
    (2) VA benefit payments protected under 38 U.S.C. 5301(a);
    (3) RRB benefit payments protected under 45 U.S.C. 231m(a) and 45 
U.S.C. 352(e); and
    (4) OPM benefit payments protected under 5 U.S.C. 8346 and 5 U.S.C. 
8470.


Sec.  212.3  Definitions.

    For the purposes of this part, the following definitions apply.
    Account means an account, including a master account or sub 
account, at a financial institution and to which an electronic payment 
may be directly routed.
    Account holder means a natural person against whom a garnishment 
order is issued and whose name appears in a financial institution's 
records as the direct or beneficial owner of an account.
    Account review means the process of examining deposits in an 
account to determine if a benefit agency has deposited a benefit 
payment into the account during the lookback period.
    Benefit agency means the Social Security Administration (SSA), the 
Department of Veterans Affairs (VA), the Office of Personnel Management 
(OPM), or the Railroad Retirement Board (RRB).
    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 of the Batch Header Record of the direct deposit entry.
    Federal banking agency means the Federal Deposit Insurance 
Corporation, the Board of Governors of the Federal Reserve System, the 
Office of the Comptroller of the Currency, the Office of Thrift 
Supervision, or the National Credit Union Administration.
    Financial institution means a bank, savings association, credit 
union, or other entity chartered under Federal or State law to engage 
in the business of banking.
    Freeze or account freeze means an action by a financial institution 
to seize, withhold, or preserve funds, or to otherwise prevent an 
account holder from drawing on or transacting against funds in an 
account, in response to a garnishment order.
    Garnish or garnishment means execution, levy, attachment, 
garnishment, or other legal process.
    Garnishment fee means 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 or order means 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 means the two month period that begins on the date 
preceding the date of account review and 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. Examples 
illustrating the application of this definition are included in 
Appendix C to this part.
    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 at the 
open of business on the date of account review. Examples illustrating 
the application of this definition are included in Appendix C to this 
part.
    State means a State of the United States, the District of Columbia, 
the Commonwealth of Puerto Rico, the Commonwealth of the Northern 
Mariana Islands, American Samoa, Guam, or the United States Virgin 
Islands.
    State child support enforcement agency means the single and 
separate organizational unit in a State that has the responsibility for 
administering or supervising the State's plan for child and spousal 
support pursuant to Title IV, Part D, of the Social Security Act, 42 
U.S.C. 654.
    United States means:
    (1) A Federal corporation,
    (2) An agency, department, commission, board, or other entity of 
the United States, or
    (3) An instrumentality of the United States, as set forth in 28 
U.S.C. 3002(15).


Sec.  212.4  Initial action upon receipt of a garnishment order.

    (a) Examination of order for Notice of Right to Garnish Federal 
Benefits. Prior to taking any other action related to a garnishment 
order issued against a debtor, and no later than two business days 
following receipt of the order, a financial institution shall examine 
the order to determine if the United States or a State child support 
enforcement agency has attached or included a Notice of Right to 
Garnish Federal Benefits, as set forth in Appendix B to this part.
    (b) Notice of Right to Garnish Federal Benefits is attached to or 
included with the order. If a Notice of Right to Garnish Federal 
Benefits is attached to or included with the garnishment order, then 
the financial institution shall follow its otherwise customary 
procedures for handling the order and shall not follow the procedures 
in Sec.  212.5 and Sec.  212.6.
    (c) No Notice of Right to Garnish Federal Benefits. If a Notice of 
Right to Garnish Federal Benefits is not attached to or included with 
the garnishment order, then the financial institution shall follow the 
procedures in Sec.  212.5 and Sec.  212.6.


Sec.  212.5  Account review.

    (a) Timing of account review. When served a garnishment order 
issued against a debtor, a financial institution shall perform an 
account review:
    (1) No later than two business days following receipt of (A) the 
order, and (B) sufficient information from the creditor that initiated 
the order to

[[Page 9957]]

determine whether the debtor is an account holder, if such information 
is not already included in the order; or
    (2) In cases where the financial institution is served a batch of a 
large number of orders, by a later date that may be permitted by the 
creditor that initiated the orders, consistent with the terms of the 
orders. The financial institution shall maintain records on such 
batches and creditor permissions, consistent with Sec.  212.11(b),
    (b) No benefit payment deposited during lookback period. If the 
account review shows that a benefit agency did not deposit a benefit 
payment into the account during the lookback period, then the financial 
institution shall follow its otherwise customary procedures for 
handling the garnishment order and shall not follow the procedures in 
Sec.  212.6.
    (c) Benefit payment deposited during lookback period. If the 
account review shows that a benefit agency deposited a benefit payment 
into the account during the lookback period, then the financial 
institution shall follow the procedures in Sec.  212.6.
    (d) Uniform application of account review. The financial 
institution shall perform an account review without consideration for 
any other attributes of the account or the garnishment order, including 
but not limited to:
    (1) The presence of other funds, from whatever source, that may be 
commingled in the account with funds from a benefit payment;
    (2) The existence of a co-owner on the account;
    (3) The existence of benefit payments to multiple beneficiaries, 
and/or under multiple programs, deposited in the account;
    (4) The balance in the account, provided the balance is above zero 
dollars on the date of account review;
    (5) Instructions to the contrary in the order; or
    (6) The nature of the debt or obligation underlying the order.
    (e) Priority of account review. The financial institution shall 
perform the account review prior to taking any other actions related to 
the garnishment order that may affect funds in the account.
    (f) Separate account reviews. The financial institution shall 
perform the account review separately for each account in the name of 
an account holder against whom a garnishment order has been issued. In 
performing account reviews for multiple accounts in the name of one 
account holder, a financial institution shall not trace the movement of 
funds between accounts by attempting to associate funds from a benefit 
payment deposited into one account with amounts subsequently 
transferred to another account.


Sec.  212.6  Rules and procedures to protect benefits.

    The following provisions apply if an account review shows that a 
benefit agency deposited a benefit payment into an account during the 
lookback period.
    (a) Protected amount. The financial institution shall immediately 
calculate and establish the protected amount for an account. The 
financial institution shall ensure that the account holder has full and 
customary access to the protected amount, which the financial 
institution shall not freeze in response to the garnishment order. An 
account holder shall have no requirement to assert any right of 
garnishment exemption prior to accessing the protected amount in the 
account.
    (b) Separate protected amounts. The financial institution shall 
calculate and establish the protected amount separately for each 
account in the name of an account holder, consistent with the 
requirements in Sec.  212.5(f) to conduct distinct account reviews.
    (c) No challenge of protection. A protected amount calculated and 
established by a financial institution pursuant to this section shall 
be conclusively considered to be exempt from garnishment under law.
    (d) Funds in excess of the protected amount. For any funds in an 
account in excess of the protected amount, the financial institution 
shall follow its otherwise customary procedures for handling 
garnishment orders, including the freezing of funds, but consistent 
with paragraphs (f) and (g) of this section.
    (e) Notice. The financial institution shall issue a notice to the 
account holder named in the garnishment order, in accordance with Sec.  
212.7.
    (f) One-time account review process. The financial institution 
shall perform the account review only one time upon the first service 
of a given garnishment order. The financial institution shall not 
repeat the account review or take any other action related to the order 
if the same order is subsequently served again upon the financial 
institution. If the financial institution is subsequently served a new 
or different garnishment order against the same account holder, the 
financial institution shall perform a separate and new account review.
    (g) No continuing or periodic garnishment responsibilities. The 
financial institution shall not continually garnish amounts deposited 
or credited to the account following the date of account review, and 
shall take no action to freeze any funds subsequently deposited or 
credited, unless the institution is served with a new or different 
garnishment order, consistent with the requirements of this part.
    (h) Impermissible garnishment fee. The financial institution may 
not charge or collect a garnishment fee against a protected amount, and 
may not charge or collect a garnishment fee after the date of account 
review.


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; and
    (2) The balance in the account on the date of account review was 
above zero dollars and the financial institution established a 
protected amount.
    (b) Notice content. The financial institution shall notify the 
account holder named in the garnishment order of the following facts 
and events in readily understandable language.
    (1) The financial institution's receipt of an order against the 
account holder.
    (2) The date on which the order was served.
    (3) A succinct explanation of garnishment.
    (4) The financial institution's requirement under Federal 
regulation to ensure that account balances up to the protected amount 
specified in Sec.  212.3 are protected and made available to the 
account holder if a benefit agency deposited a benefit payment into the 
account in the last two months.
    (5) The account subject to the order and the protected amount 
established by the financial institution.
    (6) The financial institution's requirement pursuant to State law 
to freeze other funds in the account to satisfy the order and the 
amount frozen, if applicable.
    (7) The amount of any garnishment fee charged to the account, 
consistent with Sec.  212.6.
    (8) A list of the Federal benefit payments subject to this part, as 
identified in Sec.  212.2(b).
    (9) The account holder's right to assert against the creditor that 
initiated the order a further garnishment exemption for amounts above 
the protected amount, by completing exemption claim forms, contacting 
the court of jurisdiction, or contacting the creditor, as customarily 
applicable for a given jurisdiction.

[[Page 9958]]

    (10) The account holder's right to consult an attorney or legal aid 
service in asserting against the creditor that initiated the order a 
further garnishment exemption for amounts above the protected amount.
    (11) The name of the creditor, and, if contact information is 
included in the order, means of contacting the creditor.
    (c) Optional notice content. The financial institution may notify 
the account holder named in the garnishment order of the following 
facts and events in readily understandable language.
    (1) Means of contacting a local free attorney or legal aid service.
    (2) Means of contacting the financial institution,
    (3) By issuing the notice required by this part, the financial 
institution is not providing legal advice.
    (d) Amending notice content. The financial institution may amend 
the content of the notice to integrate information about a State's 
garnishment rules and protections, for the purposes of avoiding 
potential confusion or harmonizing the notice with State requirements, 
or providing more complete information about an account.
    (e) Notice delivery. The financial institution shall issue the 
notice directly to the account holder, or to a fiduciary who 
administers the account and receives communications on behalf of the 
account holder, and only information and documents pertaining to the 
garnishment order, including other notices or forms that may be 
required under State or local government law, may be included in the 
communication.
    (f) Notice timing. The financial institution shall send the notice 
to the account holder within 3 business days from the date of account 
review.
    (g) One notice for multiple accounts. The financial institution may 
issue one notice with information related to multiple accounts of an 
account holder.
    (h) Not legal advice. By issuing a notice required by this part, a 
financial institution creates no obligation to provide, and shall not 
be deemed to be offering, legal advice.


Sec.  212.8  Other rights and authorities.

    (a) Exempt status. Nothing in this part shall be construed to limit 
an individual's right under Federal law to assert against a creditor a 
further exemption from garnishment for funds in excess of the protected 
amount, or to alter the exempt status of funds that may be protected 
from garnishment under Federal law.
    (b) Account agreements. Nothing in this part shall be construed to 
invalidate any term or condition of an account agreement between a 
financial institution and an account holder that is not inconsistent 
with this part.


Sec.  212.9  Preemption of State law.

    (a) Inconsistent law preempted. Any State or local government law 
or regulation that is inconsistent with a provision of this part is 
preempted to the extent of the inconsistency. A State law or regulation 
is inconsistent with this part if it requires a financial institution 
to take actions or make disclosures that contradict or conflict with 
the requirements of this part or if a financial institution cannot 
comply with the State law or regulation without violating this part.
    (b) Consistent law not preempted. This regulation does not annul, 
alter, affect, or exempt any financial institution from complying with 
the laws of any State with respect to garnishment practices, except to 
the extent of an inconsistency. A requirement under State law to 
protect benefit payments in an account from freezing or garnishment at 
a higher protected amount than is required under this part is not 
inconsistent with this part if the financial institution can comply 
with both this part and the State law requirement.


Sec.  212.10  Safe harbor.

    (a) Protection during examination and pending review. A financial 
institution that complies in good faith with this part shall not be 
liable to a creditor that initiates a garnishment order, or for any 
penalties under State law, contempt of court, civil procedure, or other 
law for failing to honor a garnishment order, for account activity 
during:
    (1) The two business days following the financial institution's 
receipt of a garnishment order during which the financial institution 
must determine if the United States or a State child support 
enforcement agency has attached or included a Notice of Right to 
Garnish Federal Benefits, as set forth in Sec.  212.4; or
    (2) The time between the financial institution's receipt of the 
garnishment order and the date by which the financial institution must 
perform the account review, as set forth in Sec.  212.5.
    (b) Protection when protecting or freezing funds. A financial 
institution that complies in good faith with this part shall not be 
liable to a creditor that initiates a garnishment order for any 
protected amounts, to an account holder for any frozen amounts, or for 
any penalties under State law, contempt of court, civil procedure, or 
other law for failing to honor a garnishment order in cases where:
    (1) A benefit agency has deposited a benefit payment into an 
account during the lookback period, or
    (2) The financial institution has determined that the order was 
obtained by the United States or issued by a State child support 
enforcement agency by following the procedures in Sec.  212.4.
    (c) Protection for providing additional information to account 
holder. A financial institution shall not be liable for providing in 
good faith any optional information in the notice to the account 
holder, as set forth in Sec.  212.7(c) and (d).
    (d) Protection for financial institutions from other potential 
liabilities. A financial institution that complies in good faith with 
this part shall not be liable for:
    (1) Bona fide errors that occur despite reasonable procedures 
maintained by the financial institution to prevent such errors in 
complying with the provisions of this part;
    (2) Customary clearing and settlement adjustments that affect the 
balance in an account, including a protected amount, such as deposit 
reversals caused by the return of unpaid items, or debit card 
transactions settled for amounts higher than the amounts originally 
authorized; or
    (3) Honoring an account holder's express written instruction, that 
is both dated and provided by the account holder to the financial 
institution following the date on which it has been served a particular 
garnishment order, to use an otherwise protected amount to satisfy the 
order.


Sec.  212.11  Compliance and record retention.

    (a) Enforcement. Federal banking agencies will enforce compliance 
with this part.
    (b) Record retention. A financial institution shall maintain 
records of account activity and actions taken in response to a 
garnishment order, sufficient to demonstrate compliance with this part, 
for a period of not less than two years from the date on which the 
financial institution receives the garnishment order.


Sec.  212.12  Amendment of this part.

    This part may be amended only by a rulemaking issued jointly by 
Treasury and all of the benefit agencies as defined in Sec.  212.3.

Appendix A to Part 212--Model Notice to Account Holder

    A financial institution may use the following model notice to 
meet the requirements of Sec.  212.7. Although use of the model 
notice is not required, a financial

[[Page 9959]]

institution using it properly is deemed to be in compliance with 
Sec.  212.7.
    Information in brackets should be completed by the financial 
institution. Where the bracketed information indicates a choice of 
words, as indicated by a slash, the financial institution should 
either select the appropriate words or provide substitute words 
suitable to the garnishment process in a given jurisdiction.
    Parenthetical wording in italics represents instructions to the 
financial institution and should not be printed with the notice. In 
most cases, this wording indicates that the model language either is 
optional for the financial institution, or should only be included 
if some condition is met.

MODEL NOTICE:

    [Financial institution name, city, and State, shown as 
letterhead or otherwise printed at the beginning of the notice]

IMPORTANT INFORMATION ABOUT YOUR ACCOUNT

    Date:
    Notice to:
    Account Number:

Why am I receiving this notice?

    On [date on which garnishment order was served], [Name of 
financial institution] received a garnishment order from a court to 
[freeze/remove] funds in your account. The amount of the garnishment 
order was for $[amount of garnishment order]. We are sending you 
this notice to let you know what we have done in response to the 
garnishment order.

What is garnishment?

    Garnishment is a legal process that allows a creditor to remove 
funds from your [bank]/[credit union] account to satisfy a debt that 
you have not paid. In other words, if you owe money to a person or 
company, they can obtain a court order directing your [bank]/[credit 
union] to take money out of your account to pay off your debt. If 
this happens, you cannot use that money in your account.

What has happened to my account?

    On [date of account review], we researched your account and 
identified one or more Federal benefit payments deposited in the 
last 2 months. In most cases, Federal benefit payments are protected 
from garnishment. As required by Federal regulations, therefore, we 
have established a ``protected amount'' of funds that will remain 
available to you and that will not be [frozen/removed] from your 
account in response to the garnishment order.
    (Conditional paragraph if funds have been frozen) Your account 
contained additional money that may not be protected from 
garnishment. As required by law, we have [placed a hold on/removed] 
these funds in the amount of $[amount frozen] and may have to turn 
these funds over to your creditor as directed by the garnishment 
order.
    The chart below summarizes this information about your 
account(s):

                                 Account Summary as of [date of account review]
----------------------------------------------------------------------------------------------------------------
                                                                       Amount subject to
    Account number       Amount in account     Amount protected    garnishment (now [frozen/   Garnishment fee
                                                                           removed])               charged
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
(If the account holder has multiple accounts, add a row for each account.)

    Please note that these amount(s) may be affected by deposits or 
withdrawals after the protected amount was calculated on [date of 
account review].

Do I need to do anything to access my protected funds?

    You may use the ``protected amount'' of money in your account as 
you normally would. There is nothing else that you need to do to 
make sure that the ``protected amount'' is safe.

Who garnished my account?

    The creditor who obtained a garnishment order against you is 
[name of creditor].

What types of Federal benefit payments are protected from 
garnishment?

    In most cases, you have protections from garnishment if the 
funds in your account include one or more of the following Federal 
benefit payments:
<bullet> Social Security benefits
<bullet> Supplemental Security Income benefits
<bullet> Veterans benefits
<bullet> Railroad retirement benefits
<bullet> Railroad Unemployment Insurance benefits
<bullet> Civil Service Retirement System benefits
<bullet> Federal Employees Retirement System benefits
    (Conditional section if funds have been frozen) What should I do 
if I think that additional funds in my account are from Federal 
benefit payments?
    If you believe that additional funds in your account(s) are from 
Federal benefit payments and should not have been [frozen/removed], 
there are several things you can do.
    (Conditional sentence if applicable for the jurisdiction) You 
can fill out a garnishment exemption form and submit it to the 
court.
    You may contact the creditor that garnished your account and 
explain that additional funds are from Federal benefit payments and 
should be released back to you. (Conditional sentence if contact 
information is in the garnishment order) The creditor may be 
contacted at [contact information included in the garnishment 
order].
    You may also consult an attorney (lawyer) to help you prove to 
the creditor who garnished your account that additional funds are 
from Federal benefit payments and cannot be taken. If you cannot 
afford an attorney, you can seek assistance from a free attorney or 
a legal aid society. (Optional sentences) [Name of State, local, or 
independent legal aid service] is an organization that provides free 
legal aid and can be reached at [contact information]. You can find 
information about other free legal aid programs at [insert ``http://www.lawhelp.org'' or other legal aid programs website].
    (Optional section) How to contact [name of financial 
institution].
    This notice contains all the information that we have about the 
garnishment order. However, if you have a question about your 
account, you may contact us at [contact number].

Appendix B to Part 212--Form of Notice of Right to Garnish Federal 
Benefits

    The United States, or a State child support enforcement agency, 
certifying its right to garnish Federal benefits shall attach or 
include with a garnishment order the following Notice, on official 
organizational letterhead.
    Information in brackets should be completed by the United States 
or a State child support enforcement agency, as applicable. Where 
the bracketed information indicates a choice of words, as indicated 
by a slash, the appropriate words should be selected from the 
options.

Notice of Right to Garnish Federal Benefits

Date:------------------------------------------------------------------
[Garnishment Order Number]/[State Case ID]: ------------
    The attached garnishment order was [obtained by the United 
States, pursuant to the Federal Debt Collection Procedures Act, 28 
U.S.C. Sec.  3205, or the Mandatory Victims Restitution Act, 18 
U.S.C. Sec.  3613, or other Federal statute]/[issued by (name of the 
State child support enforcement agency), pursuant to authority to 
attach or seize assets of noncustodial parents in financial 
institutions in the State of (name of State), 42 U.S.C. Sec.  666].
    Accordingly, the garnishee is hereby notified that the 
procedures established under 31 CFR Part 212 for identifying and 
protecting Federal benefits deposited to accounts at financial 
institutions do not apply to this garnishment order.
    The garnishee should comply with the terms of this order, 
including instructions for withholding and retaining any funds 
deposited to any account(s) covered by this order, pending further 
order of [name of the court]/[the name of the State child support 
enforcement agency].

[[Page 9960]]

Appendix C to Part 212--Examples of the Lookback Period and Protected 
Amount

    The following examples illustrate this definition of lookback 
period.
    Example 1:  Account review performed same day garnishment order 
is served.
    A financial institution receives garnishment order on Wednesday, 
March 17. The financial institution performs account review the same 
day on Wednesday, March 17. The lookback period begins on Tuesday, 
March 16, the date preceding the date of account review. The 
lookback period ends on Saturday, January 16, the corresponding date 
two months earlier.
    Example 2:  Account review performed the day after garnishment 
order is served.
    A financial institution receives garnishment order on Wednesday, 
November 17. The financial institution performs account review next 
business day on Thursday, November 18. The lookback period begins on 
Wednesday, November 17, the date preceding the date of account 
review. The lookback period ends on Friday, September 17, the 
corresponding date two months earlier.
    Example 3:  No corresponding date two months earlier.
    A financial institution receives garnishment order on Tuesday, 
August 30. The financial institution performs the account review two 
business days later on Thursday, September 1. The lookback period 
begins on Wednesday, August 31, the date preceding the date of 
account review. The lookback period ends on Wednesday, June 30, the 
last date of the month two months earlier, since June 31 does not 
exist to correspond with August 31.
    Example 4:  Weekend between receipt of garnishment order and 
account review.
    A financial institution receives garnishment order on Friday, 
December 10. The financial institution performs the account review 
two business days later on Tuesday, December 14. The lookback period 
begins on Monday, December 13, the date preceding the date of 
account review. The lookback period ends on Wednesday, October 13, 
the corresponding date two months earlier.
    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, when the opening balance in the account 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 at the open of business on the date of account review 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.
    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, when the opening balance in the account 
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 at the open of business on the date of account 
review, the financial institution establishes the protected amount 
at $4,500 and seizes the remaining $500 in the account consistent 
with State law.
    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, and 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 $6,000 balance in the account at 
the open of business on the date of account review, 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.
    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 
at the open of business on the date of account review, 
notwithstanding the third Federal benefit payment posted on the date 
of account review, 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.
    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, when the opening 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 on the date of account 
review, there are no additional funds in the account which can be 
frozen.

Social Security Administration

20 CFR Parts 404 and 416

Authority and Issuance

    For the reasons set forth in the preamble, the Social Security 
Administration amends Parts 404 and 416 of Title 20 of the Code of 
Federal Regulations as follows:

PART 404--FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE

    (1950- )

Subpart S--Payment Procedures

0
1. The authority citation for subpart S of Part 404 continues to read 
as follows:

    Authority: Secs. 205(a) and (n), 207, 702(a)(5) and 708(a) of 
the Social Security Act (42 U.S.C. 405(a) and (n), 407, 902(a)(5) 
and 909(a)).


0
2. Add Sec.  404.1821 to read as follows:


Sec.  404.1821  Garnishment of Payments After Disbursement.

    (a) Payments that are covered by section 207 of the Social Security 
Act

[[Page 9961]]

and made by direct deposit are subject to 31 CFR part 212, Garnishment 
of Accounts Containing Federal Benefit Payments.
    (b) This section may be amended only by a rulemaking issued jointly 
by the Department of Treasury and the agencies defined as a ``benefit 
agency'' in 31 CFR 212.3.

PART 416--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND 
DISABLED

Subpart E--Payment of Benefits, Overpayments, and Underpayments

0
3. The authority citation for subpart E of part 416 continues to read 
as follows:

    Authority:  Secs. 702(a)(5), 1147, 1601, 1602, 1611(c) and (e), 
and 1631(a)-(d) and (g) of the Social Security Act (42 U.S.C. 
902(a)(5), 1320b-17, 1381, 1381a, 1382(c) and (e), and 1383(a)-(d) 
and (g)); 31 U.S.C. 3720A.


0
4. Add Sec.  416.534 to read as follows:


Sec.  416.534  Garnishment of Payments After Disbursement.

    (a) Payments that are covered by section 1631(d)(1) of the Social 
Security Act and made by direct deposit are subject to 31 CFR part 212, 
Garnishment of Accounts Containing Federal Benefit Payments.
    (b) This section may be amended only by a rulemaking issued jointly 
by the Department of Treasury and the agencies defined as a ``benefit 
agency'' in 31 CFR 212.3.

Department of Veterans Affairs

Authority and Issuance

    For the reasons set forth in the preamble, the Department of 
Veterans Affairs amends Part 1 of Title 38 of the Code of Federal 
Regulations as follows:

PART 1--GENERAL PROVISIONS

0
1. The authority citation for part 1 continues to read as follows:

    Authority: 38 U.S.C. 501(a), and as noted in specific sections.


0
2. Add Sec.  1.1000 and a new undesignated center heading preceding the 
section to read as follows:

Procedures for Financial Institutions Regarding Garnishment of Benefit 
Payments After Disbursement


Sec.  1.1000  Garnishment of payments after disbursement.

    (a) Payments of benefits due under any law administered by the 
Secretary that are protected by 38 U.S.C. 5301(a) and made by direct 
deposit to a financial institution are subject to 31 CFR part 212, 
Garnishment of Accounts Containing Federal Benefit Payments.
    (b) This section may be amended only by a rulemaking issued jointly 
by the Department of the Treasury and the agencies defined as a 
``benefit agency'' in 31 CFR 212.3.

Railroad Retirement Board

Authority and Issuance

    For the reasons set forth in the preamble, the Railroad Retirement 
Board amends Part 350 of Title 20 of the Code of Federal Regulations as 
follows:

PART 350--GARNISHMENT OF BENEFITS PAID UNDER THE RAILROAD 
RETIREMENT ACT, THE RAILROAD UNEMPLOYMENT INSURANCE ACT, AND UNDER 
ANY OTHER ACT ADMINISTERED BY THE BOARD

0
1. Revise the Authority citation to read as follows:

    Authority: 15 U.S.C. 1673(b)(2); 42 U.S.C. 659; and 45 U.S.C. 
231f(b)(5), 231m, 352(e), and 362(l).


0
2. Add a new Sec.  350.6 to read as follows:


Sec.  350.6.  Garnishment of payments after disbursement.

    Payments that are covered by 45 U.S.C. 231m or 45 U.S.C. 352(e) and 
that are made by direct deposit are subject to 31 CFR part 212, 
Garnishment of Accounts Containing Federal Benefit Payments. This 
section may be amended only by a rulemaking issued jointly by the 
Department of the Treasury and the agencies defined as a ``benefit 
agency'' in 31 CFR 212.3.

Office of Personnel Management

Authority and Issuance

    For the reasons set forth in the preamble, the Office of Personnel 
Management amends part 831 and part 841 of Title 5 of the Code of 
Federal Regulations 1 as follows:

PART 831-- RETIREMENT

0
1. The authority citation for part 831 is revised to read as follows:

    Authority: 5 U.S.C. 8347; Sec. 831.102 also issued under 5 
U.S.C. 8334; Sec. 831.106 also issued under 5 U.S.C. 552a; Sec. 
831.108 also issued under 5 U.S.C. 8336(d)(2); Sec. 831.114 also 
issued under 5 U.S.C. 8336(d)(2), and Sec. 1313(b)(5) of Pub. L. 
107-296, 116 Stat. 2135; Secs. 831.115 and 831.116 also issued under 
5 U.S.C. 8346(a); Sec. 831.201(b)(1) also issued under 5 U.S.C. 
8347(g); Sec. 831.201(b)(6) also issued under 5 U.S.C. 7701(b)(2); 
Sec. 831.201(g) also issued under Secs. 11202(f), 11232(e), and 
11246(b) of Pub. L. 105-33, 111 Stat. 251; Sec. 831.201(g) also 
issued under Secs. 7(b) and (e) of Pub. L. 105-274, 112 Stat. 2419; 
Sec. 831.201(i) also issued under Secs. 3 and 7(c) of Pub. L. 105-
274, 112 Stat. 2419; Sec. 831.204 also issued under Sec. 102(e) of 
Pub. L. 104-8, 109 Stat. 102, as amended by Sec. 153 of Pub. L. 104-
134, 110 Stat. 1321; Sec. 831.205 also issued under Sec. 2207 of 
Pub. L. 106-265, 114 Stat. 784; Sec. 831.206 also issued under Sec. 
1622(b) of Pub. L. 104-106, 110 Stat. 515; Sec. 831.301 also issued 
under Sec. 2203 of Pub. L. 106-265, 114 Stat. 780; Sec. 831.303 also 
issued under 5 U.S.C. 8334(d)(2) and Sec. 2203 of Pub. L. 106-235, 
114 Stat. 780; Sec. 831.502 also issued under 5 U.S.C. 8337; Sec. 
831.502 also issued under Sec. 1(3), E.O. 11228, 3 CFR 1965-1965 
Comp. p. 317; Sec. 831.663 also issued under Secs. 8339(j) and 
(k)(2); Secs. 831.663 and 831.664 also issued under Sec. 11004(c)(2) 
of Pub. L. 103-66, 107 Stat. 412; Sec. 831.682 also issued under 
Sec. 201(d) of Pub. L. 99-251, 100 Stat. 23; Sec. 831.912 also 
issued under Sec. 636 of Appendix C to Pub. L. 106-554, 114 Stat. 
2763A-164; Subpart V also issued under 5 U.S.C. 8343a and Sec. 6001 
of Pub. L. 100-203, 101 Stat. 1330-275; Sec. 831.2203 also issued 
under Sec. 7001(a)(4) of Pub. L. 101-508, 104 Stat. 1388-328.


0
2. Add a new Sec.  831.115 to Subpart A to read as follows:


Sec.  831.115  Garnishment of CSRS payments.

    CSRS payments are not subject to execution, levy, attachment, 
garnishment or other legal process except as expressly provided by 
Federal law.


0
3. Add a new Sec.  831.116 to read as follows:


Sec.  831.116  Garnishment of payments after disbursement.

    (a) Payments that are covered by 5 U.S.C. 8346(a) and made by 
direct deposit are subject to 31 CFR part 212, Garnishment of Accounts 
Containing Federal Benefit Payments.
    (b) This section may be amended only by a rulemaking issued jointly 
by the Department of the Treasury and the agencies defined as a 
``benefit agency'' in 31 CFR 212.3.

PART 841--FEDERAL EMPLOYEES RETIREMENT SYSTEM--GENERAL 
ADMINISTRATION

0
1. The authority citation for part 841 is revised to read as follows:

    Authority: 5 U.S.C. 8461; Sec. 841.108 also issued under 5 
U.S.C. 552a; Secs. 841.110 and 841.111 also issued under 5 U.S.C. 
8470(a); subpart D also issued under 5 U.S.C. 8423; Sec. 841.504 
also issued under 5 U.S.C. 8422; Sec. 841.507 also issued under 
section 505 of Pub. L. 99-335; subpart J also issued under 5 U.S.C. 
8469; Sec. 841.506 also issued under 5 U.S.C. 7701(b)(2); Sec. 
841.508 also issued under section 505 of Pub. L. 99-335; Sec. 
841.604 also issued under Title II, Pub. L. 106-265, 114 Stat. 780.


[[Page 9962]]



0
2. Add new Sec.  841.110 to read as follows:


Sec.  841.110  Garnishment of FERS payments.

    FERS payments are not subject to execution, levy, attachment, 
garnishment or other legal process except as expressly provided by 
Federal law.


0
3. Add a new Sec.  841.111 to read as follows:


Sec.  841.111  Garnishment of payments after disbursement.

    (a) Payments that are covered by 5 U.S.C. 8470(a) and made by 
direct deposit are subject to 31 CFR part 212, Garnishment of Accounts 
Containing Federal Benefit Payments.
    (b) This section may be amended only by a rulemaking issued jointly 
by the Department of the Treasury and the agencies defined as a 
``benefit agency'' in 31 CFR part 212.

    By the Department of the Treasury.

    Dated: February 3, 2011.
Richard L. Gregg,
Fiscal Assistant Secretary.
    By the Social Security Administration.
Michael J. Astrue,
Commissioner of Social Security.

    Dated: January 31, 2011.

    By the Department of Veterans Affairs.
John R. Gingrich,
Chief of Staff.

    By the Railroad Retirement Board.
Beatrice Ezerski,
Secretary to the Board.

    By the Office of Personnel Management.
John Berry,
Director.
[FR Doc. 2011-3782 Filed 2-22-11; 8:45 am]
BILLING CODE 4810-25-P