Whose Safety Net? Reflections on"Untangling"

I. IntroductionAllen Myers's Note, Untangling the Safety Net: Protecting Federal Benefits from Freezes, Fees, and Garnishment,1 is the first serious academic scholarship to address the problem of garnishment of exempt benefits out of recipient bank accounts. Allen has given us remarkable detail on the variations of garnishment process, reasonable assessment of the interests of all the players, and excellent analysis of the potential solutions. I will add some comments on Allen's proposed solution, some recent developments, and brief reflections on how this travesty came to pass in the first place.II. Looking at the SolutionsAcknowledging some potential for state statutory and federal regulatory solutions, Allen's Note recommends a relatively simple five-point federal statutory solution to the benefits garnishment problem.2 His preference for a Congressional approach notes the universality of that approach compared to individual state garnishment reform, and the authoritative, less challengeable status of legislation compared to regulatory action.3 The uncertain footing and weakness shown in the recent collaborative effort of federal regulatory agencies, each with a finger in the pie, support that conclusion.4 The results of the 2008 federal elections may improve prospects on either the legislative or the regulatory front.Looking at the substance of the five point proposal in Allen's Note, it addresses simply and well the major points of reform required. The interim protection afforded by proposed Section 1 0 1 - a $ 1 ,000 minimum5 - is set too low for those benefit recipients wrestling with enormous subprime mortgage payments. In proposed Section 20 1 ,6 the Department of the Treasury should be expected to identify by ACH code not only the exempt benefits itemized and others within its discretion, but all federally exempt benefits. While proposed Section 204 fixes an accounting method to evaluate commingled accounts,7 the simpler solution favored by some state reform legislation8 would be easier for banks and courts to administer: a presumption that some fixed amount (such as $2,500) of balance in a direct deposit account is exempt. Finally, the statute might specifically provide for simple state legislation authorizing benefits exempt under state law to enjoy the same protective regime without recreating the whole statutory structure.III. New VariablesAlthough no proposed regulation has been published, testimony before a June 2008 Congressional hearing indicated that the Department of die Treasury had begun consideration of a regulation on garnishment of exempt benefits with many commendable features.9 On getting a garnishment order, a bank would be required to review electronic deposits in a 30-45 day look-back period, exempt some multiple - 2X or 2.5X - of the benefits deposited for the duration of the garnishment, and ensure that no bank fees are charged against that exempt amount.10 Any greater amount from exempt sources could still be reclaimed under state procedure.11 New York has just passed a statute with some similar features.12A second new development is a debit card called "Direct Express" that the Treasury Department has authorized for Social Security recipients.13 It can be used in lieu of a bank account deposit or a check in the mail, and is automatically refilled every month.14 It appears it would never be in reach of ordinary creditors. We are following several clients to see how well the debit card approach works in practice; unfortunately, such cards are not available for all forms of benefits at this time.IV. Reflections on How We Got HereThe practice of garnishing exempt property out of the bank accounts of the elderly and disabled has important parallels to two other mucky swamps that afflict the most vulnerable - namely, the excesses of the credit card industry and the failings of the subprime mortgage market.First, there is a perverted notion of contract in play. …