Treasury Releases Interim Final Rule Changing Garnishment Procedures

Late last week the Treasury released its interim final rule that will make radical changes to your credit union’s garnishment proceedings. This rule applies unless the garnishor is the Federal government or a State child protection agency.

Late last week the Treasury released its interim final rule that will make radical changes to your credit union’s garnishment proceedings. Under the rule, effective May 1, 2011, credit unions who receive garnishments will need to review member accounts to determine if federal benefit funds (such as Social Security, Veteran’s benefits, and Federal Retirement benefits) have been directly deposited within the last 60 days. If they have, the amount of the total direct deposits in the account must not be frozen or surrendered to the garnishor.

This rule applies unless the garnishor is the Federal government or a State child protection agency. If one of those entities is garnishing member funds, the credit union must apply state law to the garnishment.

For Washington credit unions this change is relatively clear cut. Under current Washington law, no look back is required; if the funds exist in the account, no matter their source, the credit union must freeze them. After May 1, Washington credit unions will merely need to look back 60 days and freeze as appropriate under the Federal rules.

Oregon credit unions, however, have a much more complex burden. Currently Oregon credit unions are required to look back for 1 month when they receive a garnishment and funds not only from the federal government but state funds such as unemployment or public assistance and even private funds such as from a retirement plan are exempt. This new rule means that Oregon credit unions will need to look 60 days back for directly deposited federal benefit funds and exempt them, plus look 1 month back for other funds and also exempt those funds. 

Because this is an interim final rule, credit unions will have the opportunity to comment. Comments on this change must be received by the Treasury by May 24, 2011, and may be submitted through the rulemaking website.

The NWCUA compliance department will be sending out a detailed bulletin later this week with more information on compliance details. As always, please contact compliance if you have any questions. Your compliance department can be reached at [email protected] or 800-546-4465