This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

9939 

Vol. 76, No. 36 

Wednesday, February 23, 2011 

1See 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. 

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. 

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: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions on the Web site for 

submitting comments. 

• 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 

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9940 Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 / Rules and Regulations 

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. 

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 § 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-andcomment 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 

§ 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 

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

§ 212.2(b).’’ Other banks specifically 

urged the Agencies to revise the 

definition of benefit payment in 

proposed § 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 

§ 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 § 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 

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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 

§ 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 backpayment 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 § 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 

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Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 / Rules and Regulations 9943 

more fully in this preamble under the 

heading ‘‘Protection for funds 

transferred to another account (§ 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 

§ 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 §§ 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 § 212.4) 

Several State child support 

enforcement agencies argued that 

garnishment orders for purposes of 

child support should be treated in 

§ 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 

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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 

§ 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 

§ 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 § 212.5) 

Financial institutions broadly 

supported the proposal to exclude funds 

transferred to another account from the 

rule’s protection, and requested that 

§ 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 § 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 

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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 § 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 

§ 212.6(d)) 

One bank requested clarification on 

the requirement in proposed § 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 § 212.6(e)) 

One commenter requested that the 

language of proposed § 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 § 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 § 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 

§ 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. 

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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 smallbalance, 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 § 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, 

§ 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, § 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, 

§ 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 § 212.8) 

Consumer advocacy groups urged the 

Agencies to delete the language in 

§ 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. 

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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 § 212.6(c), § 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 

§ 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 § 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 § 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 § 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 

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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 Statespecific 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 coowner 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 

§ 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. 

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Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 / Rules and Regulations 9949 

Safe Harbor (Proposed § 212.10) 

Some commenters stated that 

proposed § 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 § 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 

§ 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 § 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 crossreference 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 

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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 

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

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9952 Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 / Rules and Regulations 

2Regulation CC, 12 CFR part 229, is the Federal 

Reserve’s regulation establishing rules covering the 

collection and return of checks by banks. 

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. 

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, 

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3Survey, Information on Processing Garnishment 

Orders, OMB Control Number 1505–0225, 

expiration date 2/28/2011. 

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). 

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: 

• 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. 

• 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. 

• Increasing the amount of time 

required to issue the notice from two 

business days to three business days 

from the date of account review. 

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• 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. 

• 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. 

• Limiting record retention to 2 years, 

in lieu of an open ended requirement to 

retain records to demonstrate 

compliance with the regulation. 

• 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. 

• 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 (§ 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 

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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: 

• Have we organized the material to 

suit your needs? If not, how could this 

material be better organized? 

• Are the requirements in the rule 

clearly stated? If not, how could the rule 

be more clearly stated? 

• Does the rule contain language or 

jargon that is not clear? If so, which 

language requires clarification? 

• 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? 

• 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 §§ 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. 

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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). 

§ 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. 

§ 212.2 Scope. 

This part applies to: 

(a) Entities. All financial institutions, 

as defined in § 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. 

§ 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 § 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). 

§ 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 

§ 212.5 and § 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 § 212.5 

and § 212.6. 

§ 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 

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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 § 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 § 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 § 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. 

§ 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 § 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 § 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. 

§ 212.7 Notice to the account holder. 

A financial institution shall issue the 

notice required by § 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 § 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 § 212.6. 

(8) A list of the Federal benefit 

payments subject to this part, as 

identified in § 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. 

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(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. 

§ 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. 

§ 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. 

§ 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 § 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 § 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 § 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 § 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. 

§ 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. 

§ 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 § 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 § 212.7. Although use of the 

model notice is not required, a financial 

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institution using it properly is deemed to be 

in compliance with § 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] 

Account number Amount in 

account Amount protected Amount subject to garnishment (now [frozen/ removed]) 

Garnishment fee 

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: 

• Social Security benefits 

• Supplemental Security Income benefits 

• Veterans benefits 

• Railroad retirement benefits 

• Railroad Unemployment Insurance 

benefits 

• Civil Service Retirement System benefits 

• 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: llllllllllllllllll

[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. § 3205, or the Mandatory Victims 

Restitution Act, 18 U.S.C. § 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. 

§ 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]. 

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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 coowner 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 

■ 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)). 

■ 2. Add § 404.1821 to read as follows: 

§ 404.1821 Garnishment of Payments After 

Disbursement. 

(a) Payments that are covered by 

section 207 of the Social Security Act 

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

■ 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. 

■ 4. Add § 416.534 to read as follows: 

§ 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 

■ 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. 

■ 2. Add § 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 

§ 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 

■ 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). 

■ 2. Add a new § 350.6 to read as 

follows: 

§ 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 

■ 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. 

■ 2. Add a new § 831.115 to Subpart A 

to read as follows: 

§ 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. 

■ 3. Add a new § 831.116 to read as 

follows: 

§ 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 

■ 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. 

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9962 Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 / Rules and Regulations 

■ 2. Add new § 841.110 to read as 

follows: 

§ 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. 

■ 3. Add a new § 841.111 to read as 

follows: 

§ 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 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 115 

RIN 3245–AG14 

Surety Bond Guarantee Program; 

Timber Sales 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Final rule. 

SUMMARY: The Small Business 

Administration (SBA) is issuing this 

final rule to amend its Surety Bond 

Guarantee Program rules to guarantee 

bid and performance bonds for timber 

sale contracts awarded by the Federal 

Government or other public and private 

landowners. 

DATES: This rule is effective on March 

25, 2011. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Barbara J. Brannan, Office of Surety 

Guarantees, 202–205–6545, e-mail: 

Barbara.brannan@sba.gov. 

SUPPLEMENTARY INFORMATION: SBA 

guarantees bonds for small contractors 

who cannot obtain surety bonds through 

the traditional commercial market. 

SBA’s guarantee provides surety 

companies with the incentive to bond 

these contractors, enabling them to bid 

on and be awarded more contracts. The 

Surety Bond Guarantee (SBG) Program 

consists of the Prior Approval Program 

and the Preferred Surety Bond (PSB) 

Program. In the Prior Approval Program, 

each bond guarantee application must 

be submitted to SBA individually for 

approval, while PSB sureties have the 

delegated authority to issue, monitor, 

and service bonds without SBA’s prior 

approval. 

The Forest Service of the U.S. 

Department of Agriculture (USDA), and 

other public and private entities that 

manage forests, may permit the 

harvesting of timber in exchange for the 

payment of an agreed upon sum of 

money. To bid on these timber sale 

contracts, the USDA and these other 

public and private entities may require 

the bidder to obtain a bond to ensure 

satisfactory compliance with the 

contract terms and conditions 

associated with forest management, 

such as the protection of natural 

resources, soil, water, erosion control 

and road maintenance. Unlike the 

typical contract for supplies or services 

where the Obligee pays the Principal for 

providing supplies or rendering 

services, the Principal in the timber sale 

contract (the harvester of the timber) 

pays the Obligee (e.g. the Federal 

Government) for the right to cut the 

designated trees. However, under the 

current definition of ‘‘Contract’’ in 13 

CFR 115.10, a contract for which SBA 

may issue a Surety Bond Guarantee 

cannot include a contract requiring any 

payment by the Principal to the Obligee. 

This final rule amends the definition of 

‘‘Contract’’ to permit SBA to issue bid or 

performance bond guarantees for 

contracts that require the Principal to 

pay the Obligee for harvesting timber or 

other forest products, such as biomass. 

This change applies to contracts 

involving forests managed by the U.S. 

Forest Service as well as other public 

and private entities. 

Discussion of Public Comments 

On October 15, 2010, SBA published 

the notice of proposed rulemaking with 

request for comments on this change to 

the SBG Program in the Federal 

Register. See 75 FR 63419. SBA 

received comments from four submitters 

before the comment period ended on 

November 15, 2010 and from two 

submitters after the comment period 

ended. SBA has considered all of the 

comments received. 

Three submitters stated that small 

businesses have difficulty or are unable 

to obtain bonding to bid on timber sale 

contracts. They expressed support for 

the proposed rule because it will enable 

small contractors to obtain bonding 

more easily, making it possible for them 

to bid against larger companies and 

compete for timber sale contracts. 

One submitter expressed concern that 

the fee assessed by SBA on the Principal 

for the bond may make it difficult or 

economically unfeasible for them to 

obtain timber sale contracts. SBA 

periodically reviews the program fees 

charged, which are established in the 

amounts SBA deems reasonable and 

necessary, in accordance with § 411(h) 

of the Small Business Investment Act of 

1958. 

One submitter suggested that SBA 

paperwork requirements, specifically 

the submission of SBA Form 990, Surety 

Bond Guarantee Agreement, with each 

bond could be cumbersome for timber 

sale bonds. However, SBA is not 

requiring any additional paperwork for 

timber sale bonds, and electronic 

application submission and processing 

is available in the Prior Approval 

Program. In addition, PSB sureties do 

not have to submit SBA Form 990 for 

any bond. The same submitter suggested 

that there is limited access to 

participating sureties in rural areas. SBA 

admitted six new sureties to the 

program in fiscal year 2010 and is 

working to expand access to the 

program. 

Lastly, one submitter suggested that 

SBA clarify its intent to exclude 

payment bonds from eligibility by 

changing the definition of Payment 

Bond. SBA agrees that payment bonds 

in connection with timber sale contracts 

should be excluded, as the guarantee on 

payment bonds under the SBG Program 

was not intended to reimburse the 

Obligee for amounts owed the Obligee 

by the Principal, but to cover the claims 

caused by the Principal’s failure to pay 

others furnishing supplies and materials 

for use in the performance of the 

Contract. SBA has added language to the 

rule to make it clear that the exception 

for timber sale contracts applies only to 

bid and performance bonds. Bid bonds 

are included because a small contractor 

may be required to submit a bid bond 

with its bid for the timber sale contract. 

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