Agencies Issue Rule on Garnishments

An interim final rule spells out how CUs must respond when they receive garnishment orders.

April 17, 2011

The Office of Personnel Management, Railroad Retirement Board, Social Security Administration, U.S. Treasury Fiscal Service, and Department of Veteran Affairs published an interim final rule and request for comment on garnishment of accounts containing federal benefit payments.

The rule establishes procedures that credit unions must follow when they receive a garnishment order against an accountholder who receives certain federal benefit payments (“protected benefits”) by direct deposit. The rule doesn’t apply to federal benefits received by check. The rule becomes effective May 1, 2011, and comments are due on May 24, 2011.

Generally, the rule prohibits the garnishment of “protected” benefits. But, there are exceptions to the prohibition provided for garnishments obtained by the U.S. and state child support enforcement agencies. When a credit union receives a U.S. garnishment or applicable child support garnishment order, it can process the order against protected funds.

After receiving the garnishment order, the credit union has two business days from the date of receipt to perform an account review. The rule provides additional time when credit unions receive garnishment orders with insufficient information or batched garnishment orders. As a part of the account review, the credit union must look back two months to determine the amount of federal benefit payments deposited to the member’s account. Credit unions must ensure that the member has access to the protected amount or the current balance of the account, whichever is lower. 

Credit unions also must notify the accountholder of receipt of the garnishment order. The notice must explain what a garnishment order is and provide information about the accountholder’s rights. If the account has a zero or negative balance on the date of the account review, the credit union isn’t required to issue the notice. The regulation provides a model notice. Credit unions that use the model notice will have satisfied the notice content requirements.   

Credit unions are prohibited from charging a garnishment fee against protected funds and are prohibited from charging a fee after the date of the account review. But credit unions can process a garnishment fee against any unprotected funds in the account.

Reg Z’s Escrow Rules

In February, the Federal Reserve Board issued a final rule and requested public comment on a second rule under Regulation Z (Truth in Lending) to revise the escrow account requirements for certain home mortgages.

The final rule implements a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The provision increases the annual percentage rate (APR) threshold used to determine whether a mortgage lender must establish an escrow account for property taxes and insurance for first-lien, “jumbo” mortgages. Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac.

In July 2008, the Fed issued final rules requiring creditors establish escrow accounts for first-lien, higher-priced mortgages. A first-lien mortgage is considered a higher-priced mortgage if its APR is 1.5 percentage points or more above the current average prime offer rate. Under this new rule, the escrow requirement will apply to first-lien jumbo loans only if the loan’s APR is 2.5 percentage points or more above the average prime offer rate. The APR threshold for nonjumbo loans remains unchanged. The final rule is effective for applications received on or after April 1, 2011, for covered loans.

The Fed also proposed a rule to expand the minimum period for mandatory escrow accounts for first-lien, higher-priced mortgages from one year to five years, and longer under certain circumstances, such as when the loan is delinquent or in default. The proposed rule would provide an exemption from the escrow requirement for certain creditors that operate in “rural or underserved” counties, as authorized by the legislation.

The proposal would implement new disclosure requirements contained in the Dodd-Frank Act. Disclosures would be required at least three business days before completion of a mortgage to explain, as applicable, how the escrow account works or the effects of not having an escrow account if one isn’t being established. The proposed rule also would require consumers to receive disclosures three days before an escrow account is closed. The comment period ends on May 2, 2011.

Elder Law Advisory

The Financial Crimes Enforcement Network (FinCEN) issued an advisory for financial institutions concerning the financial exploitation of elderly consumers. 

Financial institutions could play a crucial role in identifying and reporting this form of elder abuse, according to the group.

FinCEN highlighted a number of red flags that may signal exploitation. These include:

  • Uncharacteristic nonpayment for services;
  • Closing of certificates and other accounts without concern for penalties; and
  • A caregiver or other person who shows
  • excessive interest in an elder individual’s finances or assets.

FinCEN requests that financial institutions report such incidents using the Bank Secrecy Act Suspicious Activity Report (SAR).

When completing the SAR form, institutions should include the term “elder financial exploitation” in the narrative portion of the form and provide as much detail as is available. 

FinCEN acknowledges that elder abuse is normally reported and investigated at the local and/or state level. As such, credit unions should continue to report instances of elder abuse in accordance with their policies and procedures in addition to filing the SAR.

For further clarification on the advisory (FIN-2011-A003), contact FinCEN’s Regulatory Helpline at 800-949-2732.




Compliance Q&A

Q. Did Congress extend the Housing and Economic Recovery Act’s (HERA) foreclosure protections for returning servicemembers?

A. Yes. HERA amended the Servicemembers Civil Relief Act (SCRA)in 2008 to provide nine months of protection (formerly 90 days) from mortgage foreclosures for returning servicemembers after they separate from active duty. This provision was set to expire on Dec. 31, 2010. But the Helping Heroes Keep Their Homes Act, which was enacted in late December 2010, extended the protection through Dec. 31, 2012. HERA also permanently extended the SCRA’s 6% interest-rate cap for one year beyond the period of military service for mortgages.

Q. Can a credit union provide the model privacy form to its members electronically?

A. Yes. The privacy regulations permit the electronic transmission of the model privacy form so long as members have agreed to receive their privacy notices electronically. Credit unions may provide the privacy form in PDF or HTML format. The form can be provided as an e-mail attachment, or as a website link to the credit union’s privacy notice.

For more information, visit CUNA’s e-Guide to Federal Laws and Regulations, available at, and select “compliance.”