Effective June 28, 2013, the U.S. Treasury Department, along with several other federal agencies adopted final rules governing procedures that financial institutions must follow when they receive a “garnishment order” against an account holder whose account contains certain types of directly-deposited federal benefit payments that are protected from garnishment under federal law ("exempt federal benefit payments). See 31 CFR Part 212, "Garnishment of Accounts Containing Federal Benefit Payments" (the final federal rules). The final federal rules apply to orders or levies issued by a State or State Agency or municipality within the definition of a "garnishment order". 31 CFR Part 212.3.
The new rules apply to deposit accounts held by a bank, savings association, credit union, or other entity chartered under Federal or State law to engage in the business of banking. As a result, the procedures in DOR Directive ("DD") 97-2, Levies on Property Maintained by Financial Institutions for Collecting Delinquent Taxes or Child Support, are modified for certain accounts as described in this Directive. In all other respects, DD 97-2 remains in effect. This Directive is intended to be informational for Massachusetts financial institutions implementing the new federal rules, but is not intended to alter or supersede those rules.
II. Issue: What new procedures must a financial institution follow when it receives a Notice of Levy from the Commissioner?
III. Directives: The financial institution must take the following steps:
1. Determine if the levy is for child support or tax. No later than two business days following receipt of the order, a financial institution that receives a notice of levy from the Commissioner must first determine whether the notice is a Child Support Enforcement ("CSE") levy or a tax levy. Generally, CSE levies are exempt from the final federal rules including the new procedures described below that apply to tax levies, provided that the "Notice of Right to Garnish Federal Benefits" is attached or included with the notice of levy. However, if the notice relates to a tax levy, the financial institution must follow the additional new procedures set forth below.
2. Conduct account review; give notice to account holder. No later than two business days following receipt of a tax levy from the Commissioner, the institution must perform an account review to determine if an exempt federal benefit payment was directly deposited into the account during a 60-day "lookback period." See 31 CFR 212.5 as to procedures pertaining to performing the account review. In addition, the financial institution must notify the account holder that the financial institution has received a notice of levy from the Commissioner. There is no requirement to send a notice if the balance in the account is zero or negative on the date of the account review. See 31 CFR 212.7 as to notice requirements.
3. Procedure for accounts containing directly-deposited exempt federal benefit payments. If the account review shows that an exempt benefit payment was directly deposited into an account during the 60-day lookback period, the financial institution should follow the procedures in 31 CFR 212.6. Under these procedures, a financial institution must immediately calculate the sum of the directly-deposited exempt federal benefit payments and establish a "protected amount" for an account. See 31 CFR 212.6(a). The "protected amount" is defined in 31 CFR 212.3 as “the lesser of the sum of all benefit payments 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, or the balance in an account at the open of business on the date of account review for an account." The financial institution must ensure that the account holder has access to the protected amount, which the institution shall not freeze in response to the levy. The financial institution shall calculate and establish the protected amount separately for each account in the name of an account holder, consistent with the requirement in section 212.5(f) of the rule to conduct distinct account reviews. See 31 CFR 212.6(b).
4. Remit funds in excess of protected amount to DOR. If an account contains additional funds in excess of the amount that is protected from levy under 31 CFR 212, the financial institution must, after calculating and separating any required protected amounts existing as of the date of the account review, freeze amounts in excess of the protected amounts remaining in the account as of that date, up to the amount of the levy, plus any allowable garnishment fee in accordance with G.L. c. 62C, § 52 (Expenses of Levy and Sale) for the 21-day holding period. At the expiration of the 21-day holding period, financial institutions must surrender all excess funds in that account as of the date of the account review up to the amount of the levy. However, additional funds deposited or credited to such an account after the date of the account review should not be frozen unless the financial institution receives a new or different garnishment order. See 31 CFR 212.6(g).
5. Procedure for accounts containing no directly-deposited exempt federal benefit payments. If the account review shows that no exempt federal benefit payment was deposited into a taxpayer's account during the 60-day lookback period, the financial institution must continue to follow the existing procedures set forth in DD 97-2, including freezing the account for 21 days, and surrendering all funds in the account, including deposits made during the 60 day period for which the levy remains in effect, up to the amount of the levy. The provisions of 31 CFR 212.6 do not apply to accounts containing no directly-deposited exempt federal benefit payments during the 60-day lookback period. Accordingly, financial institutions must continue to follow the existing procedures set forth in DD 97-2 as they apply to these accounts.
6. Collect garnishment fee. For an account containing a protected amount, the financial institution may not collect a garnishment fee from the protected amount. The financial institution may charge or collect a garnishment fee to the extent allowed by the Commissioner pursuant to G.L. c. 62C, § 62 up to five business days after the account review if funds other than a benefit payment are deposited to the account within this period, provided that the fee may not exceed the amount of the non-benefit deposited funds.
Commissioner of Revenue
November 20, 2013
 Federal benefit payments protected from garnishment include the following: 1) SSA benefit payments protected under 42 U.S.C. 407 and 42 U.S.C. 1383 (d)(1); 2) VA benefit payments protected under 38 U.S.C. 5301 (a); 3) RRB benefit payments protected under 45 U.S.C. 231m(a) and 45 U.S.C. 352(e); and 4) OPM benefit payments protected under 5 U.S.C. 8346 and 5 U.S.C. 8470.
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