Bank guidance for Executive Order 20-50 on Garnishments

By Andrew Steil

On May 4, 2020, Governor Tim Walz signed Emergency Executive Order 20-50, which stops “all” garnishments relating to consumer debts. The exceptions are garnishments related to domestic support obligations such as child support and spousal maintenance. The order also clarifies that United States Recovery Rebates paid under the CARES Act are fully exempt. 

The governor also instituted a penalty of up to $25,000 per violation of the order. Banks are liable if you process a garnishment on a “consumer debt” or otherwise involuntary seize the Recovery Rebates that the federal government is providing under the CARES Act.

Garnishments

Under Executive Order 20-50, garnishments are no longer allowed on consumer debts. Consumer debt is defined as a loan to a “natural” person “whose debt originated from the purchase of goods or services purchased primarily for a personal, family, or household purposes, and not for a commercial, agricultural, or business purpose.” 

There is a very narrow exemption from penalty for banks if the garnishment predates the executive order and it does not identify the type of debt. (Garnishment summons form, at least at this point, does not identify whether debt is consumer, business, commercial or ag-related.) 

Here is the specific provision from the Executive Order relating to garnishments:

Beginning immediately, the provisions in Minnesota Statutes 2019, Chapters 571, which permit service of a garnishment summons on a consumer debtor or consumer garnishee, are suspended. For the purposes of this Executive Order, the terms “Consumer Debtor” and “Consumer Garnishee” have the definition of “debtor” and “garnishee” as used in Minnesota Statutes section 571.712, subdivisions 2(b) and 2(c), when applied to debtors and garnishees who are natural persons and whose debt originated from the purchase of goods or services purchased primarily for a personal, family, or household purpose, and not a commercial, agricultural, or business purpose.

If your bank receives a garnishment for a consumer debt – or if the cover letter and garnishment documents don’t disclose that it pertains to business, commercial or agricultural debt – you have to evaluate responding that you are unable to process it due to Executive Order 20-50. Be sure you keep a copy of the letter returning it to the creditor to document its receipt.  

Recovery Rebate

In addition to changing the way your bank is processing garnishments, you must be aware that the Recovery Rebates are “government assistance based on need” and are entirely exempt from creditors, including any setoff or other attachment by your bank. Recovery Rebates stem from the CARES Act and are the cash assistance paid directly to individuals and families, of up to $1,200 per individual or $2,400 for married couples. You cannot setoff Recovery Rebates or otherwise seize these funds, even if you have a security interest in the deposit accounts where the Recovery Rebates are located. To quote the order, the Recovery Rebates are “exempt from all claims . . . including contractual setoff or security interest asserted by a financial institution, attachment, garnishment, seizure or sale, or any process.”  

Andrew Steil is a partner at Lathrop GPM. Contact him with questions at 320.202.5354 or Andrew.Steil@lathropgpm.com.

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