Ways and Means Democrats have repeatedly called for a rule to end these practices, which violate Social Security Act statutes explicitly protecting benefits from debt collection in order to ensure that beneficiaries have a basic income. Members have been particularly concerned with the role banks have played in this problem by freezing beneficiaries’ bank accounts containing protected benefits in response to court orders obtained by debt collectors.
In the letter, Ways and Means Committee Chairman Sander M. Levin (D-MI), Social Security Subcommittee Chairman Earl Pomeroy (D-ND), Income Security and Family Support Subcommittee Chairman Jim McDermott (D-WA) and Oversight Subcommittee Chairman John Lewis (D-GA) state that, “The practice of freezing accounts containing these funds undermines the federal statutes, denies beneficiaries a basic income, and can often result in irreversible financial hardship due to fees and penalties assessed by the banks themselves to administer the freezes and in response to consequent overdrawn accounts.”
While the Chairmen note that the proposed rule “will help further protect beneficiaries and ensure greater compliance with the federal statutes exempting benefit funds from debt collection,” they also call for critical improvements, including the following:
- The rule should explicitly protect all exempt Federal funds from fees or penalties arising from garnishment proceedings. The proposed rule appears to permit banks to collect garnishment fees from exempt amounts that are not in the protected amount.
- The rule should extend the lookback period to longer than 60 days to ensure that a full two months of benefit payments are protected, as the rule intends.
- The rule should extend the “safe harbor” protection to financial institutions that release or refuse to freeze such clearly exempt funds to encourage banks to release to the beneficiary any clearly exempt funds that are above the amount protected by this rule.
- The rule should explicitly state that a determination by a bank that an amount is protected from freezing is also a final determination of exemption from garnishment, etc., and cannot be challenged by creditor as collectible. This explicit statement of the finality of this determination will protect beneficiaries and avoid needless legal proceedings against banks.
- The rule should explicitly state that a beneficiary’s access to the protected funds should not be hindered or otherwise restricted in any way. The proposed rule should provide sufficient clarity for how banks should respond to garnishment or freezing orders.
Text of the letter:
June 18, 2010
The Honorable Tim Geithner
Secretary of the Treasury
c/o Mr. Gary Grippo
Deputy Assistant Secretary
U.S. Department of the Treasury
1500 Pennsylvania Ave., NW
Washington, DC 20220
RE: Proposed Rule on Garnishment of Bank Accounts Containing Federal Benefit Payments
RIN Nos. 3206-AM17, 3220-AB63, 0960-AH18, 1505-AC20 and 2900-AN67
We write to express our appreciation to your responsiveness to the Committee’s request for this rulemaking. We also wish to submit our comments to the proposed rule, which will help ensure that federal benefits exempt from garnishment, levy, assignment and other legal collection proceedings by federal law are not subject to bank freezes.
The Committee on Ways and Means Subcommittee on Social Security held a hearing on this issue in 2008, and has continued its oversight on the efforts made by Treasury and the Social Security Administration in drafting this proposed rule. In May, 2009, Chairman Rangel, Subcommittee Chairmen McDermott and Tanner, along with Chairman Frank of the House Committee on Financial Services, wrote to Secretary Geithner to urge this rulemaking. Again, we thank you and your staff for your efforts.
The Social Security Act and other federal statutes explicitly protect Social Security, Supplemental Security Income, Railroad Retirement and certain Veterans benefits from debt-collection practices such as garnishment, levy and assignment. Congress established these protections to ensure that these benefits are always available as basic income for retirees, survivors, people with disabilities, and aged or disabled veterans.
The practice of freezing accounts containing these funds undermines the federal statutes, denies beneficiaries a basic income, and can often result in irreversible financial hardship due to fees and penalties assessed by the banks themselves to administer the freezes and in response to consequent overdrawn accounts. Enforcement of these statutory protections generally has become the burden of individual beneficiaries, who are often indigent, disabled, or elderly and unable to effectively navigate the legal processes involved, which typically begin with a state court order to freeze their bank account.
The rule proposed by Treasury and the various benefit-paying agencies will help further protect beneficiaries and ensure greater compliance with the federal statutes exempting benefit funds from debt collection. We urge that the rule be made final as soon as possible, with a few improvements outlined below as follows:
1) The rule should explicitly protect all exempt federal funds from fees or penalties arising from garnishment proceedings. Section 207 of the Social Security Act (42 U.S.C. 407) clearly bars any assignment of Social Security benefits. Therefore, any agreements between the beneficiary and a bank to allow the taking of fees from these amounts in response to a debt collection proceeding contravenes the intent of the statute.
2) The rule should extend the lookback period to longer than 60 days in order to ensure success in carrying out the intent of the rulemakers that two cycles of benefit payments will be protected. Annually, there are only two bi-monthly periods when the 60 day lookback period is sufficient to protect two months’ worth of benefits. All other times, a 60-day lookback period will usually result in only one month’s worth of benefits being protected from freezing. A longer period, such as 65 days, will not have this problem.
3) It is important to encourage banks to release to the beneficiary any clearly exempt funds that are above the amount protected by this rule. For this reason, the rule should extend the “safe harbor” protection to financial institutions who release or refuse to freeze such clearly exempt funds. Often beneficiaries receive large, lump sum retroactive payments (e.g., for a disability claim with an onset date two years prior), and deposit these sums into a saving account, separate from their monthly benefits in a checking account that possibly contains funds co-mingled with non-exempt funds. In such a case, the source of the funds in the savings account are easily determined by the financial institution and should not be frozen or made subject to garnishment or levy. A financial institution that releases these clearly exempt funds to a beneficiary should not be subjected to a frivolous challenge by the creditor or courts.
4) The rule should explicitly state that a determination by a bank that an amount is protected from freezing is also a final determination of exemption from garnishment, etc., and cannot be challenged by creditor as collectible. This explicit statement of the finality of this determination will protect beneficiaries and avoid needless legal proceedings against banks.
5) The rule should explicitly state that a beneficiary’s access to the protected funds should not be hindered or otherwise restricted in any way. The proposed rule should provide sufficient clarity for how banks should respond to garnishment or freezing orders. Further clarity is needed to ensure that financial institutions do not, for example, close beneficiaries’ existing accounts or limit access solely through a single branch office. The Committee is aware that some banks have responded this way under the complicated structure of state- and court-ordered garnishment policies. Such practices contradict the intent of Section 207 and other federal statutes that the beneficiary have access to the basic income provided by the federal benefits.
We urge you to make these changes and finalize the proposed rule as soon as possible. Thank you for your consideration.
