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Direct Deposit and Social Security: Not so Nice for Those who Owe: Part II

posted by Nathalie Martin

So just a bit more information on garnishing social security and other public benefits.   Basically 42 U.S.C. § 407(a) has always precluded creditors (other than the IRS for taxes or those holding child support claims) from garnishing social security benefits (SSA) or other public benefits. As I found out when my cousin got into trouble with a credit card company, however, the banks were under no obligation to determine if the funds in a bank account that contained funds from more than one source were non-garnishable (forgive me for making up words). NCLC’s Margot Saunders and others spearheaded the implementation of 31 C.F.R. 212.6, which provides in part:

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....

This is fabulous. It makes financial institutions responsible for figuring out which funds are available for garnishment and which are not.  Big improvement! But what is it they say? Possession (of a lawyer) is 9/10th of the law? Banks do not always do what they are told. Shocking, I know.  They also make mistakes. Again, shocking I know. Most people have no way of fighting back, and as esteemed reader, Wingo Smith notes, there is no private right of action following a mess-up. This is most certainly why Jonathan Ginsberg suggests that benefits recipients have a separate account (marked Social Security, for example) for their benefits, and that they nnever comingle the funds with other funds.Mess ups are less frequent and far easier to reverse and prove. 

Reader Truckstop makes another point that is worth repeating.  Beneficiaries can opt to receive a "Direct Express" card, which is essentially a pre-loaded debit card. The recipient can then get a cash advance, free of charge, from the teller window at any bank that accepts MasterCard. Truckstop notes that in his experience, some banks seem to think they can add a fee for this service. Spread the word, all.



This is from NCLC’s Margot Sauders herself. Thank you Margot!

1) Note that under Treasury Rule 212.6, benefits transferred from the account into which it was deposited is no longer protected -- this is important for folks to know.

2)Margot has fielded a lot more calls from folks who had banks honor garnishment orders against separate, protected accounts than when banks did not obey the garnishment rule, so the separate account idea is no panacea.

3) Neither protection shields funds from a garnishment order for past due child support from the state agency, nor does the Direct Express card -- only a private prepaid card will do that.

4) There is no private right of action, but some actions for conversion have been successful against banks for violating the Treasury rule. Margot is inserting this information into the NCL’s Banking and Payments manual.

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