Posts tagged ‘levy and restraint’

Levy and Restraint Protocols Impacted by NY’s Minimum Wage

Your faithful blogger has just turned the heat on meaning that fall has officially arrived and it’s a good time to remind you of the impact that New York’s minimum wage law has on your levy and restraint protocols.

In 2016 New York approved Legislation with the ultimate goal of phasing in a $15 state wide minimum wage.  But in order to account for regional differences, different regions of the state, New York City, Long Island and Westchester and Upstate were subject to different wage scales.  In addition, the state was given authority to scale back mandated wage increases depending on their economic impact.  On September 22, the Division of the Budget released the mandated regional assessment and confirmed that the minimum wage will rise to $15 on Long Island and Westchester in 2022, joining New York City which already has a $15 minimum wage.  In contrast, the minimum wage for the “Upstate Area” will be $13.20 for the 2020 calendar year. 

Not only do these changes impact your credit union as a New York State employer, but it has an impact on your levy and restraint practices as well.  Under the Exempt Income Protection Act (EIPA) a minimum amount equal to 240 times of the state minimum hourly wage is exempt from levy and restraint.  As a result, in this 2017 guidance, DFS advised banks and credit unions “…that they should, to the extent practicable, calculate the exempt amount based on the account holder’s address and the size of the employer.  However, if, after reasonable due diligence, this information is unavailable, DFS has advised banks to exempt from collection an amount that corresponds to the highest minimum wage in effect in the State at the time of the calculation”, which is now going to be $15.

On that note, enjoy your weekend.

October 1, 2021 at 9:07 am Leave a comment

Albany Moves On CU Priorities

Yesterday saw some important movement on legislation impacting credit unions.

First, legislation that would permit municipalities to deposit money in credit unions has been placed on the Senate Banking agenda which meets this Tuesday, May 18th. S670 sponsored by Banking Committee Chairman Sanders is of course a key priority for the industry.

Currently, municipalities, including school districts and local towns throughout the state, are prohibited from placing their money in credit unions even when it could help New York’s taxpayers by generating more interest on public funds and providing much needed competition in an area where banks currently hold a monopoly. We will be coming out with a Call To Action later today.

Secondly, yesterday the Governor signed legislation to exempt from levy and restraint COVID-19 stimulus payments. More specifically, the bill exempts from collection any payment to individuals under the Federal Family First Coronavirus Response Act exemption for emergency relief funds. Any payments to individuals, including tax refunds, recovery rebates, refundable tax credits, and any advances of any tax credits, under the Federal Families First Coronavirus Response Act (FFCRA), Coronavirus Aid, Relief, and Economic Security Act of 2020  (CARES Act), Consolidated Appropriations Act of 2021, and the American Rescue Plan Act Of 2021 (ARPA). The exemption does not apply to child and family support payments. In addition, the bill prohibits financial institutions from exercising a right-of-set-off on these funds. 

The Association joined with CUNA in advocating for stimulus payments to be exempt from levy and restraint.  Congress did not exempt the latest round of stimulus payments from levy and restraint apparently because doing so would have violated budget reconciliation rules which allowed the measure to be passed in the Senate by a simple majority.

May 14, 2021 at 9:22 am Leave a comment

Do Stimulus Checks Have To Be Garnished?

As early as this weekend credit unions may start seeing stimulus checks hit member accounts. While that is good news for the members it raises operational and legal challenges for both banks and credit unions depending on the sophistication of their core systems. This is a classic example of how operational constraints and bright-line rules can collide with good intentions.

How to handle the direct payments to our members has been a recurring question for the industry over the last year.  The first round of stimulus check legislation did not address garnishment leaving financial institutions having to choose between valid third party levy and restraints and the intent of Congress. In addition many financial institutions have systems that automatically deduct direct payments from negative balances. Many credit unions solved for this problem by reimbursing the member the amount that was setoff.

When it came to the second round of stimulus checks, Congress learned from its mistakes and exempted direct payments from Levy and Restraint as a matter of Federal law.  This development was not only pro-consumer, it was pro-financial institution by giving credit unions and banks the authority not to honor restraints and money judgements.  Why is this so important?  Because under New York law financial institutions which refuse to honor creditor demands can be liable for the resulting damages CSX Transportation, Inc. v Emjay Envtl. Recycling, LTD.

Earlier this week credit unions joined with a large cross section of industry stake holders to request that the latest round of stimulus checks also be exempt from garnishment but the constraints imposed by the reconciliation process made including garnishment exception language in the American Rescue Plan Act of 2021 impractical.   

Let’s assume that Congress doesn’t pass remedial legislation. Without additional guidance the law requires you to honor valid levy and restraints.  As for debts owed to your credit union, you are under no obligation to set-off these funds. Some institutions can put all their member accounts to a neutral balance so that the funds don’t automatically set-off negative balances.  For many institutions this is not a realistic option. What some credit unions have done is refund stimulus payments upon request.  The bottom line is you should all be making plans for how to handle these payments if you haven’t done so already.  Remember, there are not only legal and operational questions to consider but reputational ones as well.

March 12, 2021 at 9:38 am Leave a comment

New York’s AG: “Don’t Touch Those Stimulus Funds”

The AG on Saturday issued guidance making it illegal to garnish, restrain or set-off COVID-19 stimulus check funds. In a sternly worded press release, Letitia James informed financial institutions and debt collectors to:

“…keep their hands off New Yorkers’ stimulus payments. This official guidance makes clear that banks and debt collectors cannot freeze or seize stimulus funds that are on their way to New York families, and any institution that violates this guidance will face swift legal action from my office.”

Notwithstanding the needless hyperbole, the guidance provides much needed clarity to financial institutions. Most importantly, it means that financial institutions can now refuse to honor otherwise valid levy and restraint requests because they would violate this guidance. Without this prohibition, financial institutions would be in a classic “dammed if they do, damned if they don’t” situation.

You should make sure that whoever handles levy and restraints requests in your office is aware of this new guidance ASAP.

April 20, 2020 at 8:52 am 4 comments

Your Legal Rights And Responsibilities Regarding Those COVID-19 Checks

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.

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

Are You Doing Your Levy And Restraints The Right Way?

Judging by the number of calls we get on the compliance hotline, the proper way to respond to the demands of third-party creditors to restrain accounts is the most vexing operational issue that credit unions have to deal with. As a result, I’ve decided to chat a little this morning about a case decided in the spring which deals with the key issue of how banks and credit unions should calculate whether or not a member has enough funds in their accounts to be subject to restraint.

Under New York’s law, a restraining notice “shall not apply to an amount equal to or less than the greater of two hundred forty times the federal minimum hourly wage prescribed in the Fair Labor Standards Act of 19381 or two hundred forty times the state minimum hourly wage prescribed in section six hundred fifty-two of the labor law as in effect at the time the earnings are payable (as published on the websites of the United States department of labor and the state department of labor N.Y. C.P.L.R. 5222 (McKinney).” In addition, this threshold amount increases if protected funds are direct deposited into the member’s account. The Department of Financial Services periodically updates the threshold amount.

The question is, when determining whether or not a member has enough money in the credit union to be restrained, should a credit union do an individual examination of each account held by a member or should it aggregate all the money held in all the accounts by a member and restrain amounts above that threshold? It has remained unanswered by the appellate courts even though the statute has been around since 2008.

Fortunately, this precise issue was addressed by New York’s Appellate Division in Jackson v. Bank of America 53 N.Y.S.3d 71, (2nd Dept. 2017). BOA was being sued in a class action lawsuit by plaintiffs who argue that the bank improperly aggregates all the accounts held by a member in determining whether or not the restraint thresholds are breached. In ruling that the class action could go forward, the court held that, while N.Y. C.P.L.R. 5222 (i) is ambiguous. The legislative history lead the court to conclude that banks and credit unions have to individually examine each account held by a member without reference to any other funds held in that credit union. For those of you who already have interpreted the statute this way, you are in the clear. But for those of you who haven’t, you should really take a look at this case and have a discussion with your attorney.

One more takeaway. If the court’s interpretation is upheld, expect to see more clever members trying to avoid restraining notices, opening up more accounts at your credit union. Under the court’s interpretation, someone with $25,000 in savings could avoid being restrained simply by making sure that each individual account they open is below the restraint threshold.


Credit unions notched an impressive and crucial victory last night with the approval of an amendment defeating a proposal that would have made the NCUA subject to the federal budget appropriations process. As I explained in my blog just two days ago, I don’t think it is possible to understate the danger of this proposal. In addition, it simply isn’t a cost-effective way of doing business and it would have resulted in greater costs for credit unions.


September 14, 2017 at 8:44 am Leave a comment

Should CEO’s personally vouch for their BSA programs?

Should CEO’s have to personally attest to  the  adequacy of their Anti Money Laundering programs the same  way top executives have to vouch for the accuracy of their financial reports under Sarbanes-Oxley? That is an idea being considered by  Benjamin M. Lawsky, NY’s Superintendent of Financial Services for the State of New York’who outlined his proposal   in a speech on “Financial Federalism” at Columbia law school yesterday.

A recurring theme of Lawsky’s   public comments of  late has been his frustration with the unwillingness of major financial firms to change their practices even after they have been subjected to huge fines.  The former federal prosecutor argues that more has to be done to hold specific individuals and not just the corporations they run responsible for malfeasance that takes place on their watch.

For my money nowhere is this truer  than in the area of BSA and AML enforcement.  Just this morning BankingLaw360 reports that   Citigroup Inc. and its Banamex USA unit are under investigation by the Treasury and  California regulators  over their compliance with anti-money laundering requirements and the Bank Secrecy Act.

The truth is that even as the smallest of credit unions have made attempts to comply with BSA requirements some of the most  legally savvy, technologically advanced corporations  in the world have chosen to  ignore some of the most basic AML\BSA requirements.  It’s a national scandal that has gotten nowhere near the attention it deserves.  They write a big check when they get caught and then go about their business as if nothing ever happened.  Fines alone aren’t working.

Lawsky’s solution is to bring about more personal accountability:

“First, we are considering random audits of our regulated firms’ transaction monitoring and filtering systems, employing the same methodology our independent monitor used to spot deficiencies.

Second, since we cannot simultaneously audit every institution, we are also considering making senior executives personally attest to the adequacy and robustness of those systems.

This idea is modeled on the Sarbanes-Oxley approach to accounting fraud.”

In theory I love the idea,   Our nation’s BSA framework is only as effective as our largest banks are willing to make it.  Executives should generally  understand what transactions are being red flagged and why.

But  if this proposal gets  implemented I don’t want to see smaller institutions get sucked into the vortex.  Just as Sarbanes Oxley’s personal attestation provisions only applies to larger corporations a BSA attestation mandate should only apply to the largest banks.  The evidence shows that the vast majority  of credit unions and smaller banks  have committed resources to complying with federal anti- money laundering laws.  It’s the big guys who need to be reminded that violating the law isn’t in their personal or corporate best interest.

The entire speech is worth a read.  Here is a link.

Is another minimum wage hike on the way?

Governor Cuomo is pushing hard for legislation that would increase the State’s minimum wage to  $11.50 in New York City and $10.50 elsewhere.  Even if this wouldn’t directly impact your credit union’s  pay scale remember that NY law generally shields the higher of 240 times the state’s minimum wage or the federal minimum wage  from levy and restraint by private sector creditors  even for those members who  don’t have  government funds directly deposited into their accounts.   (N.Y. C.P.L.R. 5222). So as the minimum wage goes up so too does the amount of money in a member’s account shielded from creditors.    That’s right: The more money Government mandates people get paid the more money people get to  shield from their creditors.   Here is an article on the Gov’s minimum wage push.



February 26, 2015 at 8:51 am Leave a comment

How New York’s Minimum Wage Law Affects Your Credit Union

On December 31st, New York’s minimum wage increased to $8.00 an hour. Even if you pay your employees more than this minimum, your credit union’s operations have been directly affected by this increase whether or not you realize it.

New York law exempts an amount equal to 240 times the state or federal minimum wage — whichever is higher — from levy and restraint. Remember, this is a baseline number for those members who don’t have exempted funds electronically deposited into their account. That number is adjusted for inflation every three years. This means that as of December 31st, members have at least $1,920 exempt from a restraining or levy notice.

I haven’t seen any official notice on this increase from the Department of Financial Services, but something tells me that you will have impacted members cognizant of this increase irrespective of whether or not New York State gets the word out. As I have said in previous blogs, New York’s levy and restraint exemptions are very often the subject of compliance inquiries. This is, in part, a reflection of the fact that they impact both state and federal credit unions, but mainly because, as a review of the statute will indicate, there are different trip wires for your credit union to keep in mind whenever the collector comes calling.

On that note, your faithful blogger, who stayed up a little too late watching the Auburn-Florida State Game last night, wishes you all a pleasant day.

January 7, 2014 at 7:31 am Leave a comment

New York’s Levy And Restraint Laws: The Gift That Keeps On Giving

New York’s levy and restraint laws involve, in the words of Nassau County District Court Judge Fred J. Hirsh, “complex and convoluted practices and procedures to determine if funds on deposit in a judgment debtors bank account are exempt from execution pursuant to CPLR 5222-a.”  Because of pending changes to New York’s minimum wage law and a case to be decided by New York’s Court of Appeals, this statutory framework, which judging by the number of calls to the Association’s compliance hotline is among the most vexing state-level requirements, is about to get another turn in the spotlight.

Although I suspect that most of the New York readers of this blog already know this, remember that under New York law a statutorily prescribed minimum amount of funds is automatically exempt from levy and restraint.  This amount is adjusted for inflation every three years and now stands at a hefty $2,625 for .statutorily exempt payments that were deposited electronically or by direct deposit within the last forty-five days, 
  In addition, when a judgment creditor seeks to restrain or levy an account it must give the credit union exemption claim forms that are passed on to the member.  The failure to provide such forms makes the levy or restraint void, meaning it is not to be honored.

What happens when a financial institution mistakenly honors a restraining notice that should actually have been ignored because the member did not have money in the account above the statutory threshold or didn’t receive the exemption claim form?  Can the bank or credit union be sued?  If so, can the suit be part of a class action lawsuit seeking damages for the illegal practices or is the member constrained by a special proceeding?  Recently, the Court of Appeals for the Second Circuit certified these questions to New York’s highest court, its Court of Appeals.

You see, federal courts are only supposed to interpret and impose well settled state law.  In Cruz v. TD Bank, NA, account holders are trying to start class action lawsuits alleging that banks can be sued when they wrongly impose restraints on accounts that don’t contain money in excess of the statutory threshold.  Another case involving Capital One alleges that the bank restrained funds on an account below the statutory threshold.

I know credit unions continue to make a good faith effort to comply with the statute, but in my ever so humble opinion, the statute clearly protects financial institutions that make honest mistakes in implementing this Rube Goldberg contraption intended to protect debtors who have legally binding judgments against them.  Let’s hope the Court of Appeals doesn’t expand the potential scope of liability in an area of the law that already imposes too much cost on credit unions on a daily basis.

New York’s new state budget will also have an impact on levy and restraints.  The Legislature and the Governor agreed to raise the state’s minimum wage from $7.25 to $9 an hour over the next three years, beginning with an increase to $8 by the end of 2013.  The minimum amount of money exempted from levy and restraint is equal to the higher of 240 times the federal or state minimum wage “in effect at the time the earnings are payable.”  This means that not only will the exemption be going up, but because it will be going up in stages, whoever handles your levy and restraints is going to have to be cognizant of when the wage increases kick in.  Hopefully this is something that New York’s Department of Financial Services will provide notice of on its website.

April 12, 2013 at 7:55 am 2 comments

I spy with my little eye. . .

Going through New York’s budget bills is basically an adult version of “I Spy,” with the difference that no one tells you what you are supposed to find unless they want you to find it. 

One such provision in this year’s budget bill can be found in Part M of the Article VII bill, the piece of legislation that contains all the legislative changes necessary to implement the polices behind the appropriation bills.  At the very least, this section disallows banks and credit unions from setting off an account to pay a processing fee or applying the proceeds of a levy processing fee against the funds in such an account when the levy is to collect funds owed for child support payments or taxes owed to New York State.  The accompanying memo in support of the measure estimates that the change will generate $5 million in income for the state. 

No one wants to see someone’s child support reduced, but I would point out that this is yet another example of New York State exempting itself from its own levy and restraint laws. For instance, within months of imposing account thresholds as high as $2,500 before levies and restraints can be applied, the state exempted state agencies and municipal governments from these restrictions.  This type of double standard is the type of thing that frustrates the public about government.  The business owner deserves to get her debts paid, as well.

ALLL Together Now

A Joint Agency Guidance was issued yesterday afternoon outlining the responsibilities of financial institutions when making provisions in their Allowance for Loan and Lease Loss policies for junior liens.  The agencies urged financial institutions that hold a substantial number of junior liens to: “periodically refresh” credit quality indicators and make corresponding adjustments to their ALLL set-asides; segment their junior liens portfolio, and ensure that loans that must be charged off are charged off consistent with GAAP.

Must See T.V. 

Its content may make C-SPAN look like the Real Housewives of Beverly Hills by comparison, but NCUA deserves credit for unveiling a series of  presentations on economic developments on its YouTube channel.  The first presentation is a look at what is ahead for the economy in 2012.   Who knows, maybe someday we can all watch NCUA’s board meetings live over the Internet. 


February 1, 2012 at 6:51 am 1 comment

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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