Articles & E-Books


How to handle garnishments containing federal benefit payments

Aug 27, 2020

Many of your consumers might be the recipient of federal benefit payments, which federal law may protect from garnishment and the claims of judgment creditors. When your financial institution receives a garnishment order, you need to determine whether the garnishment falls under Garnishments of Accounts Containing Federal Benefit Payments.  

The garnishment rule is applicable to deposit accounts held at a financial institution into which federal benefits payments are directly deposited via direct deposit (ACH). The types of federal benefits payments covered by the interagency regulation are;

  • Social Security benefits
  • Supplemental security income benefits
  • Veterans benefits
  • Federal railroad retirement, unemployment and sickness benefits
  • Civil service retirement system benefits
  • Federal employee retirement system benefits

Account review and lookback period

Within two business days after receiving the garnishment order, and prior to taking any other action related to the order against the account, you will need to examine the order to determine whether the United States or a state child support enforcement agency attached or included a Notice of the Right to Garnish Federal. If so, the garnishment rule does not apply to the order and you need only comply with the specific terms of the order. Where the notice is not included, you must comply with the procedures established under the garnishment rule.

Where the garnishment rule applies, as long as there is enough information to determine whether the debtor is an account holder, you must perform an account review within two business days of receiving the order. This time period may be extended if the notice was served in a batch of orders, if permitted by the creditor. 

The purpose of the account review is to determine whether covered benefit payments were deposited into the account during a two-month “lookback” period. The lookback period starts from the date preceding the account review and counts back to the corresponding date of the month two months prior or the last date of the month two months earlier should the corresponding date not exist. 

For example, if the account review took place September 1, the lookback period would be from August 31 back through June 30.

Process for identifying and calculating protected funds

The account review to establish the protected amount must be performed separately for each account in the name of the account holder against whom the order had been issued. For each applicable account you will establish a protected amount. In performing the account reviews for multiple accounts, you should not trace the movement of funds between accounts, but instead only review for the direct deposit of covered payments via ACH from a covered government entity. 

The protected amount is the lesser of:

  1. The sum of all federal benefit payments deposited (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
  2. The balance in the account when the account review is performed.

For any funds in excess of the protected amount, the financial institution should proceed with customary procedures, including freezing of funds.

If no federal benefits payment was deposited during the lookback period, you may follow your routine procedures for handling garnishments.  

Notice requirement

In cases where there are funds in the account in excess of the protected amount, a notice must be sent to the account holder within three business days of the date of the account review. The notice must be issued directly to the account holder, or to a fiduciary who administers the account and receives communications on behalf of the account holder. 

Only information and documents pertaining to the garnishment order, including notices or forms required under state or local government law, may be included in the communication. The notice may include information related to multiple accounts of the account holder.

The model notice can be found on the Treasury’s website and includes all of the required and optional information. 

Other requirements to keep in mind

An account review may only be performed one time upon the service of a given garnishment order and you may not take any other action related to the order if the same order is subsequently served again, so no continuous garnishments are allowed.  If subsequently served a new or different garnishment order against the same account holder, a separate and new account review must be performed. 

You may not charge or collect a garnishment fee against a protected amount. A garnishment fee may be charged up to five business days after the account review, if funds other than federal benefit payments are deposited to the account within this period. The fee may not exceed the amount of the non-benefit deposited funds. 

Records of account activity and action taken in response to the garnishment order, sufficient to demonstrate compliance, must be maintained for at least two years from the date on which the garnishment order was received.

Any state or local government law or regulation that is inconsistent with a provision of the garnishment rule is preempted to the extent of the 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 the garnishment rule is not inconsistent if the financial institution can comply with both the garnishment rule and the state or local government law requirement.

When there is good faith compliance with the regulation during the following processes, safe harbor protection from certain types of liability will be received:

  • Examination and pending review of the garnishment order
  • Protection or freezing funds
  • Providing additional information to account holder
  • Bona fide errors despite reasonable procedures to prevent such errors 
  • Customary clearing and settlement adjustments affecting an account balance
  • Honoring an account holder’s express written instructions

Next steps

Ensure your garnishment procedures include the following:

  • Determine whether any account held by the named account holder received exempt Federal payments by direct deposit (ACH)
  • Determine the sum of protected federal benefits deposited to each individual account during a two-month lookback period
  • Ensure that the account holder has access to an amount equal to that sum or to the current balance of such account(s), whichever is lower
  • Notify the account holder if funds are garnished in excess of the protected amount
  • When garnishment fees may be charged or collected
  • Record retention requirements

Conducting periodic garnishment training to staff members involved in the garnishment process is key in ensuring compliance.

Receipt of a garnishment order isn’t an everyday occurrence for most financial institutions, and the compliance requirements can be somewhat complicated. When funds that should be protected or surrendered in response to a garnishment order your financial institution may be liable, unless safe harbor applies. 

We recommend you develop comprehensive procedures for complying with the garnishment rule and for processing garnishments in general. Strong written procedures can make your job easier and protect your institution.  


Nick Bonnema, JD, CRCM
View Profile