Sailing Into a Safe Harbor: Ohio’s Courts Uphold Protections For Financial Institutions When Responding to Certain Account Garnishments

We all know that checking and other account garnishments can be a source of frustration when they don’t work. And no one wants to be left empty-handed knowing that funds exist to collect. In those cases, we’re not without options: we may ask a court to punish those who disobey garnishment orders with jail time, fines, or both. ⁱ But how do Ohio’s financial institutions avoid those penalties when they are the garnishment’s target? Federal rules may offer the answer.

In Ohio, checking or other account holders must turn over account funds when they are garnished. ⁱⁱ Federal law, however, does not allow the garnishment of federal benefits.ⁱⁱⁱ What should a holder do if, for example, the garnished account contains Social Security benefits? Fortunately, the Treasury Department has made laws to help account holders avoid risks by following some safe-harbor rules. And an Ohio appeals court recently confirmed that those rules continue to protect Ohio’s account holders.

When a financial institution receives a garnishment order, the Treasury requires it to review the last two months of account deposits.^iv If during that two-month period the account contained federal benefits, some of those funds may not be garnished.^v Importantly, it doesn’t matter if the account has multiple owners or even if they comingle their money—the bank or credit union must determine how much of the account is federal benefits.^vi That amount is protected from garnishment and the beneficiary of the benefits must have appropriate access to them.^vii Account funds that are not protected must be turned over as part of the garnishment to the court.

The Treasury’s rules protect Ohio’s financial institutions that follow them in good faith.^viii So long as that good faith exists, the holder will not be subject to, among other things, contempt of court or other penalty, even if that penalty is otherwise allowed under Ohio law. ^ix This is a powerful tool to minimize liability for a non-income producing, administrative task. This does not always mean, however, that an aggressive creditor won’t try.

In 2011, a creditor tried to garnish account funds held by Fifth Third Bank. ^x One of the three account owners owed money to the creditor, who reduced his claim to judgment. But another account holder—who has not the debtor—received Social Security deposits within the previous two months. Therefore, Fifth Third withheld $890 in protected funds and turned over $14.95. Angered about the small recovery, the creditor asked the trial court to hold Fifth Third in contempt of court and pay its entire outstanding judgment. The trial court refused.

In 2012, the Sixth District Court of Appeals confirmed that Fifth Third complied, in good faith, with the Department of the Treasury’s rules about protected garnishments. As a result, it ruled that the creditor could not hold Fifth Third in contempt or subject it to any other punishment. This decision is the latest to confirm that these protections remain applicable to Ohio’s financial institutions.

The Treasury’s rules, although protective, are detailed and require Ohio’s institutions to make a number of complex reviews, examinations, and notices. We always recommend the review of difficult or questionable garnishments with legal counsel to ensure compliance and avoid liability.

ⁱ Ohio Revised Code § 2705.02(A); § 2716.01(A), (B); § 2705.05.

ⁱⁱ Ohio Revised Code § 2716 et seq. There threshold minimums to garnish and other rules to follow. Consult with legal counsel with specific questions or issues.

ⁱⁱⁱ 11 U.S.C. § 407(a).

^iv 31 Code of Federal Regulations § 212.4; 31 Code of Federal Regulations § 212.5.

^v Unless a Notice of Right to Garnish Federal Benefits is attached. Only the U.S. Government and state child support agencies may garnish federal benefits. 31 Code of Federal Regulations § 212.4(a); 31 Code of Federal Regulations § 212.5; 31 Code of Federal Regulations § 212.6.

^vi 31 Code of Federal Regulations § 212.5(d). Consult legal counsel for questions about or issues with determining what amounts are protected under these rules per garnishment.

^vii 31 Code of Federal Regulations § 212.6

^viii 31 Code of Federal Regulations § 212.10.

^ix 31 Code of Federal Regulations § 212.10(a); 31 Code of Federal Regulations § 212.10(b).

^x Tillimon v. Wheeler, 2012 Ohio 5804 (Ohio Ct. App., Lucas County Dec. 7, 2012).

© 2013 Stultz & Stephan, Ltd.

This article is not a solicitation for business and is not intended to constitute legal advice on specific matters, create an attorney-client relationship, or be legally binding in any way.