A Comment on Untangling the Safety Net:Protecting Federal Benefits from Freezes,Fees, and Garnishment, by Allen C. Myers

In his Note, Untangling the Safety Net: Protecting Federal Benefits from Freezes, Fees, and Garnishment,1 Allen Myers provides a comprehensive analysis of the seemingly intractable problem of judgment creditors depriving recipients access to electronically deposited exempt federal benefits by garnishing their bank accounts. Mr. Myers addresses the state law process of garnishment and the constitutional issues that arise when that process freezes recipients' access to exempt benefits.2 Mr. Myers then analyzes potential methods to resolve these problems concluding that a statute requiring banks to protect a recipient's benefits provides the best solution.3 Although I agree that a comprehensive solution requires imposing a statute or regulation upon banks accepting electronic deposits of federal benefits, I suggest a partial solution that Treasury could provide by contract with Financial Agents to disburse benefits.Since 1996, Treasury has conducted an intensive effort to persuade recipients of federal benefits to open bank accounts and receive benefits by electronic funds transfer (EFT) to their accounts, rather than by paper checks.4 Although Treasury initially labeled this effort as the EFT '99 initiative,5 the Department now formally calls the effort its "Go Direct" program6 but frequently refers to it as its Direct Deposit program.7 One consequence of the Direct Deposit program is to subject a participating recipient of Social Security benefits8 to the risk that by garnishing her bank account a judgment creditor can deny the recipient her access to benefits. Subject to limited statutory exceptions,9 Social Security benefits are exempt from legal process.10 Because the exemption applies to benefits "paid or payable," Social Security benefits remain exempt after the beneficiary receives payment. ' ' Moreover, the benefits retain their exempt status after they are deposited in the beneficiary's checking or other demand account, provided that the benefits remain reasonably identifiable. 12 Nevertheless, many banks respond to a garnishment by freezing the bank account to which EFT benefits payments have been credited.13 The freeze not only deprives the recipient of access to her exempt benefits, but also frequently results in the assessment of substantial fees that the bank may collect from the recipient's exempt benefits.14 Additionally, to obtain relief from the freeze and regain access to her exempt benefits, the recipient may be required to appear in the garnishment proceeding to establish her exemption and prove the extent to which the funds in her frozen bank account can be identified as benefits exempt from legal process.15The unfortunate situation outlined above, which I refer to as the "garnishment problem," is the topic of Allen Myers's excellent note.16 Mr. Myers skillfully dissects the garnishment problem and proposes very reasonable regulatory and statutory solutions. In the year since Mr. Myers initially submitted his Note, debate over the garnishment problem has intensified. In response to continuing reports of recipients losing access to exempt benefits that they received by EFT under the Direct Deposit program,17 members of Congress have pressured Treasury to protect recipients from abusive creditor practices, including the garnishment problem, that had infected the Direct Deposit program.18 This pressure appears to have prompted a renewed effort by the federal agencies to address the garnishment problem. Treasury acknowledged, both in a hearing before die Subcommittee on Social Security of the House Ways and Means Committee19 and in a Government Accounting Office (GAO) examination of the electronic payment of benefits,20 that recipients of benefits by electronic transfer were concerned about garnishment depriving them of access to their benefits in violation of federal law. Although there is some indication that Treasury may be more concerned about the impact of garnishment on its Direct Deposit program than on the recipients,21 the Deputy Assistant Secretary for Fiscal Operations and Policy testified that Treasury was willing to coordinate an inter-agency effort to establish a regulatory solution to resolve the garnishment problem. …