The Golden Rule Of Levy And Restraints

by. Henry Meier

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.

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