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MCUL > InfoSight Home > Accounts > Garnishment of Federal Benefit Payments

Garnishment of Accounts with Federal Benefit Payments: Summary
Last Reviewed: June, 2015

The Department of Treasury, Social Security Administration, Department of Veteran Affairs, Railroad Retirement Board, and the Office of Personnel Management (collectively referred to as the Agencies) have finalized their rule to establish procedures for financial institutions to follow when a garnishment order is received against an accountholder who receives certain types of Federal benefit payments through direct deposit.

When a garnishment order is received, the rule requires financial institutions to determine the amount of Federal benefit payments deposited to the account during a two-month period and to ensure that the accountholder is given access to an amount equal to that sum or to the current balance of the account, whichever is less.

According to the Department of the Treasury, the Financial Management Service (FMS) began encoding Automated Clearing House (ACH) payments to enable receiving financial institutions to easily identify Federal benefit payments subject to the requirements of the interim final rule.

The procedures and guidelines apply only to Federal benefits paid electronically via the ACH. Financial institutions are not responsible for examining accounts to identify Federal benefits paid by Treasury check.

What must credit unions do to comply?

Typically, when a credit union receives a court order for garnishment, in the past the credit union often placed a hold on the account funds and remitted the funds to the court. The new procedures require a credit union to include new steps for processing the order.

Initial Action - Determine if the garnishment involves Federal benefits.
Within two business days of when an order for garnishment is received, the credit union must determine how to proceed. If the United States or child support enforcement agency has attached a Notice of Right to Garnish Federal Benefits, then the credit union may process the garnishment order without further account review. When such a notice is attached to the order the credit union is not required to take any other action. If such a notice is not attached to the order then the credit union must proceed with an account review.

Account review
When a garnishment order is received that does not include a Notice of Right to Garnish Federal Benefits, the credit union must perform an account review no later than two business days after receipt of the garnishment order. Later dates may be negotiated with the court if a large batch of orders is received by the credit union.

Lookback Period
The interim final rule defines a lookback period as being the two months prior to the date of review. For example, the credit union receives a court ordered garnishment on May 17and the credit union chooses to review the account the same day. The look back period begins on May 16 and ends two months prior on March 16. Examples of the lookback period are provided in Appendix C of the interim final rule.

Federal Benefit Determination
If the account review shows no Federal benefits paid to the account, then the credit union will follow the customary garnishment procedures by freezing the account and carrying out the instructions of the order.

If the account review reveals Federal benefits paid, then the credit union must follow the interim final rule established procedures. For complete procedures, visit the Treasury’s Guide, “Guidelines for Garnishment of Accounts Containing Federal Benefit Payments.

Record Retention
Financial institutions must maintain records of account activity and actions taken in response to a garnishment order for two years from the date of receipt of the order.


Note: The rule does not prevent a credit union from honoring an account holder’s express written instruction, that is both dated and provided by the account holder to the credit union following the date on which it has been served a particular garnishment order, to use an otherwise protected amount to satisfy the order.


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