31 CFR Part 212 Explained: The Federal Benefit Garnishment Rule for Banks

31 CFR Part 212 is the rule that tells a bank what to do when a garnishment order arrives against a customer who receives Social Security, SSI, VA, federal retirement or railroad benefits by direct deposit. Most of it is mechanical: check the order, look back two months, protect the benefits deposited in that window, notify the customer, keep records. The mechanics are also where examiners find mistakes: a review done on the wrong date, a lookback counted in days instead of calendar months, a garnishment fee taken from the protected amount, a second review run on a re-served order.

This guide follows the rule in the order a processor applies it. Section citations are to the current eCFR text of 31 CFR Part 212.

Why Treasury Wrote the Rule and Which Agencies Enforce It

Federal statutes have long protected certain benefits from garnishment: Social Security and SSI (42 U.S.C. 407 and 1383(d)(1)), VA benefits (38 U.S.C. 5301(a)), Railroad Retirement Board benefits (45 U.S.C. 231m(a) and 352(e)), and civil service and federal employee retirement (5 U.S.C. 8346 and 8470). In practice, once benefits landed in a bank account, banks froze them like any other funds when a garnishment arrived. Beneficiaries then had to go to court to prove the money was exempt, and often went weeks without access to their only income.

Treasury and the four benefit agencies (SSA, VA, RRB and OPM) issued an interim final rule effective May 1, 2011, and a final rule effective June 28, 2013. The rule moves the burden: the bank identifies directly deposited benefits and leaves a protected amount available automatically, without the customer asserting an exemption.

Enforcement. Under 212.11(a), the federal banking agencies enforce compliance: the FDIC, the Federal Reserve, the OCC and the NCUA (the rule's definition still lists the former OTS). The rule applies to all financial institutions, which 212.3 defines to include banks, savings associations and credit unions. Examiners use interagency examination procedures to test it.

Which Federal Benefits Are Covered and How the Bank Identifies Them (ACH Benefit Codes)

Covered agencies and payments (212.2(b) and 212.3). "Benefit agency" means SSA, VA, OPM or RRB. Treasury's model notice lists the covered payments as Social Security benefits, Supplemental Security Income, veterans benefits, railroad retirement benefits, Railroad Unemployment Insurance benefits, Civil Service Retirement System benefits and Federal Employees Retirement System benefits.

Other federal payments, such as military retirement, are not within the rule's scope, although other law may protect them. The agencies built the rule so other paying agencies could be added by future rulemaking.

How a deposit is identified. A "benefit payment" for Part 212 purposes is one paid by direct deposit with:

• the characters "XX" in positions 54 and 55 of the Company Entry Description field, and
• the number "2" in the Originator Status Code field

of the ACH Batch Header Record. A bank may rely on these codes and does not have to judge the source of the funds any other way. Two consequences:

• Benefits paid by paper check and deposited by the customer are not "benefit payments" for the automatic protection, even though the underlying statute still exempts them. The customer must claim that exemption through the state process.
• Benefits that reach the account indirectly (for example, via a prepaid card program or a transfer from another account) are generally not flagged and are not counted.

The Account Review: Timing After the Order Is Received

Step 1: check for the federal notice (212.4). Before taking any other action, and no later than two business days after receipt, examine the order for a Notice of Right to Garnish Federal Benefits (the form in Appendix B). If it is attached or included, follow your customary procedures and skip 212.5 and 212.6.

Step 2: review the account (212.5). If there is no Appendix B notice, perform the account review no later than two business days after receiving the order and, if the order lacks it, enough information from the creditor to determine whether the debtor is an account holder. If a creditor serves a large batch of orders, the review may happen later if the creditor permits, consistent with the orders, and the bank must keep records of the batch and the permission.

The review rules that trip up processors:

• Priority (212.5(e)). Do the review before any other action that may affect funds in the account. No preliminary freeze.
• Uniform application (212.5(d)). Ignore commingled funds, co-owners, multiple beneficiaries, the balance (as long as it is above zero), contrary instructions in the order, and the nature of the debt.
• Separate accounts (212.5(f)). Review each account separately. Do not trace benefits transferred from one account into another.
• One review per order (212.6(f)). Review once, on first service. If the same order is served again, do not review again or take further action. A new or different order gets a new review.

Safe harbor (212.10). A bank that complies in good faith is not liable to the creditor for account activity during the two business days it has to look for the Appendix B notice, or between receipt and the account review deadline.

The Protected Amount and the Two-Month Lookback Period

Lookback period (212.3). The lookback begins on the date before the account review and ends on the corresponding date two months earlier, or on the last day of that earlier month if the corresponding date does not exist. The rule counts calendar months, not 60 days.

Appendix C examples:

• Order received and reviewed Wednesday, March 17: lookback runs from March 16 back to January 16.
• Order received Wednesday, November 17, reviewed Thursday, November 18: lookback runs from November 17 back to September 17.

Protected amount (212.3). The lesser of:

1. the sum of all benefit payments posted to the account between the close of business on the beginning date and the open of business on the ending date of the lookback period, or
2. the account balance when the review is performed.

Worked example. A customer receives $1,450 in Social Security on the third Wednesday of each month. Two such deposits fall in the lookback, so the sum is $2,900. If the balance at review is $3,600, the protected amount is $2,900 and $700 is subject to the bank's customary garnishment procedures. If the balance is $1,800, the protected amount is $1,800 and nothing is frozen.

Handling (212.6). Calculate and establish the protected amount immediately. Give the customer "full and customary access" to it; do not freeze it, and do not require the customer to claim an exemption. A protected amount established under the rule is conclusively exempt (212.6(c)). Funds above it follow your customary procedures, including a freeze. The bank must not continually garnish later deposits or freeze funds deposited after the review unless it is served a new or different order (212.6(g)).

Clearing adjustments. The safe harbor covers customary clearing and settlement adjustments that reduce a protected balance, such as returned deposited items or debit card transactions that settle higher than authorized (212.10(d)(2)).

The Notice of Right to Garnish Federal Benefits (Exception)

The exception covers orders obtained by the United States (Appendix B cites the Federal Debt Collection Procedures Act, 28 U.S.C. 3205, and the Mandatory Victims Restitution Act, 18 U.S.C. 3613) and orders issued by a State child support enforcement agency under 42 U.S.C. 666. Those creditors may garnish benefits that are otherwise protected. To claim the exception, they attach or include the Appendix B notice on official letterhead.

Practical points:

• Rely on the notice, not the caption. The bank does not have to analyze who the plaintiff is. The presence of the Appendix B notice decides the path.
• No notice, no exception. A child support order without the notice gets a normal account review.
• Good faith protects you.10(b)(2) protects a bank that determined, by following 212.4, that the order came from the United States or a state child support agency.

Customer Notice Requirements and What the Bank May Not Charge

When a notice is required (212.7(a)). Send it when (1) a benefit payment was deposited during the lookback, (2) the balance was above zero and a protected amount was established, and (3) there were funds above the protected amount. If the entire balance is protected, no Part 212 notice is required.

Timing and delivery. Send the notice within three business days of the account review (212.7(f)), directly to the account holder or to a fiduciary who administers the account. Include only material about the garnishment order, plus any state-required forms (212.7(e)). One notice may cover multiple accounts. For joint accounts, the 2013 preamble says banks may send the notice to both holders but are not required to.

Required content (212.7(b)). Receipt of the order and the date served; a short explanation of garnishment; the federal requirement to protect benefits deposited in the last two months; the account and protected amount; any amount frozen under state law; any garnishment fee; the list of covered benefits; the customer's right to claim further exemptions and to consult an attorney or legal aid; and the creditor's name and contact information if it is in the order.

Model notice (Appendix A). Treasury's model notice, titled "Important Information About Your Account," includes an account summary table (amount in account, amount protected, amount subject to garnishment, fee charged). Using it properly is deemed compliance with 212.7. Banks may amend it to fit state garnishment rules (212.7(d)).

Fees (212.6(h)). A bank may not charge or collect a garnishment fee against a protected amount. It may collect a fee up to five business days after the account review if non-benefit funds are deposited during that window, and the fee may not exceed those non-benefit funds.

Records (212.11(b)). Keep records of account activity and actions taken sufficient to demonstrate compliance for at least two years from receipt of the order.

How Part 212 Interacts With State Exemption Laws

Preemption (212.9). State law inconsistent with Part 212 is preempted to the extent of the inconsistency. State garnishment law otherwise still applies. A state law that protects a higher amount is not inconsistent if the bank can comply with both.

Layering. Part 212 sets a floor. Many states also exempt a fixed dollar amount in deposit accounts or protect other sources of funds. The bank establishes the federal protected amount, then applies state rules to the remainder as its state procedures direct. Part 212 does not limit a customer's right to claim further federal exemptions against the creditor for amounts above the protected amount (212.8(a)).

When state law means no action. In the 2013 preamble, the agencies said the rule presupposes that a bank would give effect to the order. If the bank will not act on an order because of state law, it need not check for the Appendix B notice or take the rule's other steps.

Which orders count. Part 212 applies to writs, orders, notices, summonses, judgments, levies and similar instructions from courts, states and state agencies, municipalities, and state child support agencies. It also covers child support liens arising by operation of law and orders to freeze assets. Since 2013 that includes state tax levies and restraining orders.

Deceased-customer reclamations are a separate Treasury process; see our post on Treasury reclamations on deceased accountholders. For the wider legal-order workflow, see our garnishments and levies overview and our training on bank account garnishments.

Build the Review Into Muscle Memory

Part 212 errors are rarely about understanding the rule. They come from a step taken out of order under time pressure. Our Federal Benefit Payment Garnishment Rule training takes legal-order and deposit staff through the Appendix B check, the lookback calculation, protected amounts, notices, fees and recordkeeping with worked examples, so the review is right the first time.

Frequently Asked Questions

Can a bank garnish Social Security deposited into an account?

Not the protected amount. Under 31 CFR Part 212, when a garnishment order arrives without a Notice of Right to Garnish Federal Benefits, the bank must protect the lesser of the benefits directly deposited in the two-month lookback period or the balance at review. Only funds above that amount follow the bank's normal garnishment procedures. Orders obtained by the United States or by a state child support agency that carry the Appendix B notice are an exception.

How long does a bank have to perform the account review?

Two business days after receiving the garnishment order and, if the order lacks it, enough information from the creditor to determine whether the debtor is a customer. For large batches, the creditor may permit a later date consistent with the orders, and the bank must keep records of that permission. The review must come before any other action that could affect funds in the account.

Does the rule protect benefits deposited by check?

No. The automatic protection applies only to benefits paid by direct deposit carrying the "XX" code in positions 54 and 55 of the Company Entry Description and "2" in the Originator Status Code of the ACH batch header. Benefits deposited by check are still exempt under federal statute, but the customer must assert that exemption through the state's exemption process.

What if the account is jointly owned?

Part 212 requires the review regardless of a co-owner. The bank establishes the protected amount based on benefit deposits to the account, whoever the beneficiary is. Multiple beneficiaries or programs depositing into the same account do not change the review. State law then governs how much of any remaining balance the order reaches. The customer notice may go to both owners, but the rule does not require it.

Can the bank charge a garnishment fee?

Not against the protected amount. The bank may collect a garnishment fee only from non-benefit funds deposited within five business days after the account review, and the fee cannot exceed those funds. If the fee is taken from funds above the protected amount, the Part 212 notice must show the fee charged.

Do we review again if the same order is served a second time?

No. The review happens once, on first service of a given order. If the same order is re-served, the bank does not repeat the review or take further action on it. A new or different order against the same customer triggers a fresh review. The bank also may not garnish deposits made after the review date unless it receives a new order.