Treasury Rule Effective May 1, 2011 Protects Direct Deposits of Certain Federal Benefits from Garnishment

Effective May 1, 2011, a new interim Treasury rule goes into effect that prevents banks from freezing and paying over money in a bank account pursuant to a court order where the bank account contains deposits from Social Security, SSI, veterans and other federal benefits, even if money from other, non-exempt sources, are also in te account. The rule requires financial institutions that receive a garnishment order to determine the sum of such Federal benefits direct deposited into the account during a two month period and to ensure that the account holder has access to an amount equal to that sum or to the current balance of the account, whichever is lower. 

This regulation does not apply if the funds are not direct deposited -- consumers must have their federal checks direct-deposited to their bank accounts in order to be protected from seizure of exempt funds.

Additional Resources:

• Interim Treasure Rule
• Press Release from the National Consumer Law Center Summarizing the Impact of the New Rule
• National Consumer Law Center Fact Sheet for Consumers about Direct Express® Prepaid Debit Card for Social Security, SSI and Other Federal Payments