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Protecting Federal Stimulus Payments From Creditors Ballard Spahr srl

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In the federal government’s continued efforts to revive the U.S. economy and help those affected by the economic damage caused by the coronavirus pandemic, one important detail has gone underestimated: the most recent set of federal stimulus payments to the United States. individuals are subject to garnishment by creditors. And this fact creates legal and operational challenges for the banking industry.

Unlike federal stimulus payments provided to individuals and families under the Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”, Pub. Law 116-136, 134 Stat. 281) and the Consolidated Appropriations Act of 2021 (Pub Law 116-260), federal stimulus payments under the American Rescue Plan Act of 2021 (Pub. Law 117-2) are not exempt from garnishment by creditors under federal law. Within the banking industry, the three sets of US Treasury Department payments – known as “economic impact payments” – are commonly referred to as EIP1, EIP2, and EIP3, respectively. In the absence of congressional action, however, several states have stepped in to provide garnishment protection for PIEs3 through various directives or guidance. In addition, some banks and financial institutions voluntarily seek to protect PIEs3 either individually or through coalitions, although they are not required to do so by federal or state law.

The American Rescue Plan Act, which was enacted on March 11, 2021, is a massive $ 1.9 trillion COVID-19 economic stimulus bill. The legislation provides for targeted economic relief, in part through EIP3 in the amount of $ 1,400 for people earning up to $ 75,000 and $ 2,800 for couples earning up to $ 150,000. These amounts are quickly disappearing, so that people earning between $ 75,001 and $ 80,000 and couples earning between $ 150,001 and $ 160,000 receive only partial EIP3s, and people earning more than $ 80,000 and couples earning more. of $ 160,000 receive no payment.

The reconciliation process Democrats used to pass the US Senate bailout bill did not allow for the inclusion of certain pieces of legislation and, in the case of PIE3, no language protecting those payments from foreclosure. – judgment by creditors has not been added. To address this issue following the enactment of the American Rescue Plan Act of 2021, Senators Robert Menendez (D-NJ), Sherrod Brown (D-OH), Ron Wyden (D-OR) and Chris Van Hollen (D- MD) have jointly introduced autonomous legislation (S. 823) of March 17, 2021 which would protect PIE3 from garnishment by creditors. (The language was allegedly identical to the anti-garnishment language contained in the Consolidated Appropriations Act of 2021, although according to Congress.gov, the invoice text is not yet available.)

On March 18, Senator Brown and Senator Wyden attempted to advance Section 823, the EIP3 Garnishment Protection Bill, and requested its passage by unanimous consent. Unfortunately, Senator Pat Toomey (R-PA) opposed it, and his only objection made this bill effectively dead. Although theoretically the federal bill could be resurrected, this seems highly unlikely, and the issue is now largely moot since the Treasury Department has already issued the majority of PIEs3. As a result, PIE3 are currently not protected from garnishment by creditors under federal law.

In light of Congress’ failure to protect PIE3 from garnishment by creditors, several states have sought to protect PIE3 in recent weeks. At least one state, new York, has sought to protect PIE3 through legislation, while other states have issued decrees, guidelines and directives. Here are examples of executive actions:

  • On March 15, 2021, Governor of Maryland Larry Hogan issued Executive decree 21-03-15-01 prohibiting the garnishment of PIE3. The decree provides that PIE3 are exempt from garnishment, and all financial institutions are required to treat these payments as protected amounts that cannot be subject to judicial garnishment.
  • On March 17, 2021, Massachusetts Attorney General Maura Healey released advice advising that PIE3 are protected against garnishment by creditors and debt collectors. The AG’s guidelines state that EIP3 assistance payments constitute “public assistance” under Massachusetts law and, as such, EIP3s are exempt from garnishment or garnishment. Any attempt to seize, seize or seize these funds to collect or attempt to collect a debt violates the Attorney General’s Debt Collection Regulations.
  • On March 24, 2021, Governor Phil Murphy signed Executive Decree No. 233, which provides that PIEs3 issued to residents of New Jersey under the American Rescue Plan Act of 2021 are exempt from any seizure, levy, execution or garnishment by creditors. However, the Executive Order continues to authorize garnishment in any action or judgment awarding child support, spousal or family support, or any criminal restitution payable to victims.
  • On the same date, New York Attorney General Letitia James released advice New York State banking institutions, creditors and debt collectors clarifying that PIEs3 issued under the American Rescue Plan Act of 2021 are exempt from garnishment under New York law. In his press release accompanying the guidelines, AG James said that “any institution that violates these guidelines will be held accountable to the fullest extent of the law.” AG James’s advice is based on several federal and state consumer protection laws and states that any attempt by New Yorkers to seize EIP3 will be considered a violation of those laws. The guidelines inform banking institutions that PIE3 will follow legal processes similar to those of other public benefits (such as public assistance, social security, and veterans’ and pension benefits), and any person or entity that seizes or attempts to seize these payments will violate several state and federal consumer protection laws.

Although executive orders and directives from the state attorney general do not generally take precedence over state garnishment laws, state laws often confer broad emergency powers on officials of the state. state to mitigate damage to consumers during crises like the COVID-19 pandemic. However, each order or directive must be analyzed to determine whether it is legally valid. As a general rule, as long as the state decree, directive or guidance sets out a basis rationally linked to the state laws on which they rely, we believe that financial institutions should follow them and declare their trust. in these documents in response to a judicial garnishment orders and creditors / customers communications.

In the meantime, the CFPB has issued a declaration on March 17, 2021, encouraging financial institutions and debt collectors to allow PIEs3 to reach consumers without being “intercepted” to cover overdraft fees, overdue debts or other debts. The CFPB said it applauds the actions of states that have taken swift action to protect PIE3 and pledged to “closely monitor consumer complaint data and other information that will help [the Bureau] better understand how these issues affect consumers. The Bureau also noted favorably that recently “numerous professional associations in the financial sector [have been] in consultation with the CFPB [stating] they want to work with consumers… to take proactive steps to ensure that consumers can access the full value ”of their PIE3.

To this end, state banking professional associations worked behind the scenes with legislators and state leaders to help develop and / or advocate for legislation or guidelines that would protect PIE3. In addition, some financial institutions voluntarily seek to protect PIE3 for their clients, either at the level of each institution or through coalitions. For example, New Jersey Governor Phil Murphy issued a Press release on March 24, announcing that it had secured support from 50 federal and state banks and credit unions, including several large banks, to protect New Jersey residents’ PIE3s, and more financial institutions are expected to sign. Governor Murphy noted that the New Jersey Bankers Association and the CrossState Credit Union Association have endorsed this initiative and encouraged their members to adopt these policies.

These voluntary actions of financial institutions, if they are not based on an ordinance, a directive or a direction of the State, are of the nature to ask the creditors to avoid entering the EIP3 or to inform their customers during the receiving a garnishment order to allow the client to raise any legal objections they may have with the creditor. The voluntary actions of financial institutions may also involve a restriction on the exercise of the right of set-off (which derives from state law) against the outstanding debt owed by the client to the institution.

In summary, PIE3 are not protected against garnishment by creditors, unless a state has chosen to act to protect them through a valid directive or a financial institution has voluntarily taken steps to do so, although it is currently not required to do so by federal or state law. .

Analyzing these legal issues and determining how to try to protect PIE3 in an operational manner already creates significant challenges for financial institutions when subject to a garnishment order from a court of law. State. Garnishment services should consult with legal counsel on how to manage these issues and mitigate legal, operational and reputational risks in the future.


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