Certain Federal benefit payments are exempt from garnishment. However, there has been no reliable means by which a bank is able to know which funds that have been deposited into an account are Federal benefit payments. Banks are caught between the competing interests of the accountholder (who expects the bank not to honor a garnishment order) and creditors (who expect the bank to honor the court's instructions). Thus, banks have no choice often except to place a hold on an account and let the debtor and creditor resolve the dispute. However, this can result in hardships for the payment recipient, who often needs the payment to live on.
ABA supports putting in place a system that preserves the customer's access to funds needed to live on while minimizing the burden on the banking industry. and
To strike the proper balance, the ABA has supported rules that have the following features:
- Clear ACH codes and descriptors of Federal benefit payments so that banks can identify these payments;
- A defined and limited "look-back" period for identifying whether benefit payments have been deposited electronically;
- No recurring obligation;
- A clear rule governing the amount of funds to be protected;
- Preemption of inconsistent state rules;
- Consistency across all paying agencies; and
- An adequate transition period to allow banks to adjust their systems.
ABA has worked closely with Treasury and the banking agencies on trying to address the needs of all parties. Treasury issued a proposed rule on April 10, 2010. While any change in garnishment procedures will result in additional burden for the industry, we have supported the Treasury proposal (with several suggested changes) because it attempts to address the industry's concerns in a manner that appears workable and less burdensome than other alternatives under consideration.