Help on the Way: Stopping Garnishment of Exempt Public Benefits
Electronic transfers have increasingly become the preferred method for administering financial services and products, including public benefits. Families who are eligible for public assistance can choose to have their monthly payments deposited directly into a bank account via Electronic Benefit Transfer (EBT). EBT systems have some advantages over traditional check payments because of reduced chances for theft or fraud, quicker availability of funds and the ability to avoid costly check cashing services. Despite the many advantages of EBT systems, there are disadvantages, including the vulnerability of these funds to garnishment as a result of debt collection.
Federal law prohibits creditors from seizing federal assistance payments for programs such as Social Security, Supplemental Income (SSI) and veterans benefits. These laws exist to protect the low-income individuals who desperately need this assistance, however, the unfortunate reality is that banks typically freeze any account for which they receive a garnishment order, even if the account contains funds from Social Security or SSI payments. As a result, many people are left without the ability to access the money they need to provide for basic necessities like food and shelter.
New federal regulations, which became effective May 1st, will ensure that banks comply with these existing anti-garnishment laws. Under these regulations banks are now required to determine whether or not public assistance funds have been deposited into a beneficiary’s account and, if so, make sure that the account holder has access to those funds. Specifically, after receiving a garnishment order a bank must analyze the account and determine if any exempt funds had been deposited during the previous two months (i.e., a “look-back” period). If so, the bank is required to ensure that the account holder has “full and customary” access to the amount deemed exempt from collection.
Most of the people affected by the new regulations are surviving on minimal income, so it is essential that they be able to access whatever assistance they currently receive. The primary beneficiaries of the federal assistance programs that prohibit garnishment are senior citizens, retired federal employees, veterans, and individuals with disabilities. The new regulation does not cover state benefits such as unemployment insurance or Temporary Assistance for Needy Families (TANF).
The new garnishment regulations are a huge step in the right direction, but they could be strengthened to ensure the greatest protection for individuals by:
- Defining the “look-back” period as a full sixty-five days instead of two months to account for months with different lengths and holidays;
- Clarifying the meaning of “full and customary” and explicitly stating that accounts with garnishment orders and exempt funds cannot be closed;
- Further protecting account holders from any bank fees triggered by a garnishment order; and
- Protecting funds in special purpose saving accounts such as 529 plans and Individual Development Accounts.
Another option to protect exempt assistance funds from garnishment would be for beneficiaries to participate in an electronic payment card (EPC) system. Different from EBT, EPC systems deposit funds into an account that beneficiaries can access with a branded plastic card. The accounts are not administered by a bank and therefore cannot be frozen for debt collection. Recipients of federal benefits can participate in an EPC program by having their assistance payments loaded on a Direct Express card. This card is branded with a MasterCard logo and can be used in the same ways any debit card could be used, including paying bills online. While the DirectExpress card is a safe, government sponsored card, other EPC systems do raise consumer protection concerns since the cards are not given some of the same legal protections as traditional credit cards. Consumer advocates and legislators alike are pushing for stronger safeguards to make sure that such cards are given full protections as well as ensuring that there are adequate disclosures and no excessive fees.
We applaud the efforts of the participating federal agencies in prioritizing the needs of low-income, elderly and disabled public assistance beneficiaries.
For more information on the EBT and EPC systems please visit The Next Frontier in Public Benefits: Electronic Payment Cards. On this page you will find many resources related to the electronic distribution of public benefits, including a webinar on the topic presented by the Shriver Center. Additional analysis of this topic can be found in the 2011 May/June issue of the Clearinghouse Review.
Kelly Ward coauthored this blog post.
