The Golden Rule Of Levy And Restraints

July 29, 2013 at 8:06 am 2 comments

I’ve said this before, but among the compliance challenges facing credit unions on a day-to-day basis none vexes them more than how to comply with levies and restraints.  This area has become even more complicated now that both state and federal law establish thresholds below which an account should not be frozen or garnished.  You can find out more about this in a previous post.

While I am not trying to minimize the complexity of these laws, one of the biggest mistakes credit unions make is forgetting that they ultimately are doing nothing more or less than holding money that is subject to a legal dispute between a debtor and a creditor.  So long as credit unions follow the right protocols, they shouldn’t concern themselves with whether the member is being punished by a mistaken creditor nor should they listen to requests of creditors that they do more than the law authorizes.

This is why I love a recent decision by the Court of Appeals for the Second Circuit.  You don’t get many levy and restraint issues getting this far in the legal process, mainly because if a debtor had the money and resources to get an attorney, they wouldn’t have their funds garnished in the first place.  So it’s always useful when a court takes the time to analyze garnishment issues and even better when it puts down in writing what I call the “you don’t have a dog in this fight” rule.  Let me explain.

Derry Sykes is a New York resident who in June of 2011 received a notice from New York State’s Child Support Processing Center that money in his Bank of America account was being frozen in order to get him to pay off his $27,500 in outstanding child support payments.  Remember that New York State exempted its own agencies from levy and restraint thresholds and federal regulations had not yet taken effect.  Sykes was, of course, outraged.

He brought a civil rights action, not only against the New York State processing center, but against Bank of America for honoring the restraint in the first place.  Mr. Sykes, a cancer survivor who could not afford to pay his debts, argued that Bank of America knew that the account was solely used to deposit his SSI direct deposits when they placed the restraint on these monies.

Now here is one of the key rulings from the case.  The trial level court dismissed Mr. Sykes’ entire case, but on appeal the Court of Appeals held last week that the case could go forward against New York State but not against the bank.  Why?  Because the Court concluded that SSI payments as opposed to SSD-I payments were not subject to federal law permitting the levy and restraint of accounts for the payment of child support.  The Court concluded that SSI payments were not based on an individual’s past employment and therefore were exempt from restraint.

Does that mean that Bank of America committed a mistake for which it could be sued when it froze the accounts pursuant to New York State law?  No.  Bank of America did no more than comply with a court order to restrain an account.  And here is my golden rule of the day:  “A garnishee has no discretion to ignore a restraining notice that is valid on its face. . .even if it questions the legal foundations on which the legal notice is based.”  In other words, so long as a bank or credit union follows the applicable state law, for example by making sure that funds are available over the applicable thresholds, it is doing nothing more than complying with a legal order.  When your member comes to you complaining that he or she has been wronged, tell him to take it up with the Court and that the credit union will do whatever it is ordered to do.  Bottom line:  although garnishment has been more complicated by both state and federal threshold requirements, the credit union’s job is purely a mechanical one.

Entry filed under: Compliance, Legal Watch. Tags: , , , , .

An Industry That Can Hold Its Head High The Key To Deterring Financial Abuse Is Protecting Financial Institutions

2 Comments Add your own

  • 1. motorola atrix deals  |  June 12, 2014 at 6:49 am

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  • 2. Derry Sykes  |  March 27, 2015 at 12:38 pm

    I am Derry Sykes and I find this article profoundly insightful into the banking industry and credit union given a cushion to skirt the laws and prey on mainly poor and uneducated customer usually minorities with known unlawful conduct. Yet the U.S. Senate Bank Committee often criticize these practices the refuse to punish because of the billions of dollars of lobby funds that find its way into their accounts. I still fight to make Bank of America pay for their crimes I have 4 days to file a writ of certiorari to the U.S. Supreme Court from a recent dismissal if my interlocutory Sykes v. N..Y.C. HRA et al. No. 14-3416, some how I shall make BOA accountable for shameful tactics of robbing customers by applying illegal legal fees even when the customer prove that the legal action was unwarranted by BOA which was a basis of my complaint. Thank you for being fair and concerned about these types of abuses.


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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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