Your Legal Rights And Responsibilities Regarding Those COVID-19 Checks

April 14, 2020 at 10:16 am Leave a comment

With some credit union members already receiving COVID-19 benefit checks, the compliance world is abuzz with questions about how to handle issues surrounding these checks. For example, are they exempt from levy and restraint? How about my set-off rights?

With the caveat that this is not legal advice, and that this is an issue you should certainly discuss with your outside counsel, how you handle these checks is going to vary depending on if you are dealing with a third party debt collector, or the credit union simply wants to get money back from a delinquent member.

With regard to the collection efforts of your credit union, having reviewed both State and Federal law, and in the absence of additional guidance from the Treasury Department, you can probably handle your COVID-19 checks the same way you would handle any other check that is deposited into your account. Legalities aside however, I’m urging each and every one of you to treat these checks the same way you would treat exempt funds such as Social Security deposits. The reputational risk to your credit union if you make any other decision is huge. Do you really want to be known as the financial institution that snatched away funds Congress intended for your members?

Conversely, if you are dealing with a third party debt collector, it is ultimately not your right to make a legal judgment as to whether or not COVID-19 checks are exempt from collection efforts. I would honor restraint requests but inform both the member and the debt collector that the funds being retrained are COVID-19 funds.

First, here is why I don’t think the funds are exempt as a matter of Federal Law. Federal Law has a very specific list of what funds are exempt from garnishment and restraining orders. Specifically, as a matter of Federal Law, the following funds are exempt:

  • Social Security and Supplemental Security Income benefits
  • Veterans benefits
  • Federal Railroad retirement,
  • Unemployment and sickness benefits
  • Civil Service Retirement System benefits
  • Federal Employee Retirement System benefits

In addition, New York law has an expanded list of exempted funds. This list includes:

  • Public assistance (welfare);
  • Spousal support, maintenance (alimony) or child support;
  • Disability benefits; including Black Lung
  • Workers’ compensation benefits;
  • Public or private pensions;
  • 90% of your wages or salary earned in the last sixty days;
  • Any bank account containing statutorily exempt payments that were deposited electronically or by direct deposit within the last forty-five days (note that this is adjusted for inflation), including, but not limited to, your social security, supplemental security income, veterans benefits, public assistance, workers’ compensation, unemployment insurance, public or private pensions, railroad retirement benefits, black lung benefits, or child support payments

As you can see, COVID-19 payment checks are not on this list of exempt funds. To be sure, there are some statutes susceptible to interpretations beyond their plain language, but statues with a stringent list of exemptions generally do not fall into this category. Can you imagine how much more difficult it would be to collect funds if lawyers had a good faith basis for arguing that funds not listed in these statutes are exempt?

As for New York law, the state exempts a certain amount of funds irrespective of their source, from levy and restraint. The amount gets adjusted every three (3) years.

With this background, let’s play out some possible scenarios. Upon a member’s account receiving a COVID-19 check, let’s assume that the member has money in the account exceeding New York’s statutory threshold. Can you set-off these funds? Since there is nothing legally unique about these funds, there is a strong argument to be made that the answer is yes. Should you set-off these funds? Absolutely not. Again, legalities aside, the PR hit your credit union would take would be tremendous.

A much more difficult issue involves third party levy and restraints. If, in fact, these funds are not exempt, then in the absence of additional guidance, the most prudent thing to do legally is restrain the funds. After all, a credit union can be held responsible for refusing to execute a legally valid restraining order. That being said, I would notify the member that their COVID-19 funds are being restrained at the request of a third party. You may even want to encourage them to address this issue with an attorney.

Ultimately, this is an issue that you need to discuss today with whoever handles your collection issues. You should also get the blessing of your outside counsel.

Entry filed under: Compliance, New York State, Regulatory. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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