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Federal agencies provided a better definition of "account," as sought by NAFCU, in an interim final rule that kicks in May 1 regarding garnishment of accounts containing federal benefit payments delivered by direct deposit.

The rule, proposed last April, requires credit unions and other depository institutions that receive garnishment orders against persons who receive certain types of federal benefit payments by direct deposit to take steps to ensure those individuals continued access to some of their funds.

To do that, an institution must review the account within two business days of receiving the garnishment order, determine the sum of federal benefit payments deposited to the account during a two-month period and ensure that an amount equal to that or the current account balance, whichever is lower, remains available to the account holder.

NAFCU generally favored the intent of the proposed rule, but it sought clarification last June on how agencies would define "account." It also urged that credit unions not lose access to funds they could attach by statutory lien or setoff to cover members' delinquent debts to the credit union.

Under the final rule, account is defined to include any account, including a master account or sub account, to which an electronic payment may be directly routed; it does not apply to an account to which a benefit payment is subsequently transferred following initial delivery by direct deposit to another account. This is the clarification sought by NAFCU.

As for federal credit unions' statutory lien authority and financial institutions' right of setoff, the agencies said the rule was never intended to address such issues and does not do so now. It was meant to protect accountholders from difficulties arising from the garnishment of benefit payments; the issue of setoff "is outside the scope of the interim final rule," it states.

That is, the rule is silent on these matters. It also provides a safe harbor for institutions acting in conformance with the rule.

The interim final rule was published jointly by the Office of Personnel Management, Railroad Retirement Board, Social Security Administration, Treasury and Department of Veterans Affairs. Treasury is accepting comments until May 24.