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CARES ACT-STIMULUS PAYMENTS: New York Attorney General Issues Guidance Exempting Recovery Rebates from Garnishment

Author: Barry J. Glickman, Esq.

New York Attorney General Letitia James has issued Guidance (please see link below) on CARES Act Payments by which she announces that emergency stimulus payments of as much as $1,200. to taxpayers filing individually, and $2,400. to those filing jointly ("Recovery Rebates"), pursuant to the CARES Act "are exempt from garnishment under New York law, any creditor or debt collector that garnishes such payments has violated New York and federal law, and [the NYAG] will aggressively prosecute such violations." The guidance specifies certain state and federal laws it claims an improper garnishment would violate. It follows a letter the NYAG sent to the United States Department of the Treasury earlier in the week on behalf of twenty-five State Attorneys General and the Hawaii Office of Consumer Protection in which she asked the Trump administration to, inter alia, issue a regulation or guidance designating these Recovery Rebates as exempt from garnishment pursuant to 31 C.F.R. Part 212, an interagency federal regulation financial institutions must follow when served with a garnishment order against an account holder who receives certain federal benefit payments by direct deposit. The NYAG claims no action was taken in response to that request.

The NYAG's guidance holds that Recovery Rebates "should not be subject to garnishment and similar legal process." Critically, it continues, "Banking institutions are advised that they should treat CARES Act payments as subject to the same protections as statutorily exempt payments," citing to CPLR § 5222(h) for support. But, this provision simply requires banks to apply a $2,850 exemption to accounts into which statutorily exempt payments were made by direct deposit or electronically during a forty-five day period immediately preceding service of a garnishment. And, in a press release that accompanied the guidance, the NYAG "advises banking institutions that CARES Act payments will follow similar legal processes as other public benefits." It is, thus, unclear if the guidance is intended to require a bank to identify a Recovery Rebate credited to an account that is presently restrained, for which an exemption was previously applied, and to make such funds available to its depositor.

Finally, NYAG comments that a bank's exercise of its right of setoff against a Recovery Rebate in satisfaction of a debt owed by a depositor "would be unfair and abusive." As a result, she "urges" banks to refrain from engaging in such action.

We are here to consult with you on any questions concerning this matter.

The complete text of the guidance may be found here: https://ag.ny.gov/sites/default/files/cares_act_guidance.pdf