A-15-08-28031 - Alternate Format

July 2, 2008

The Honorable Herb Kohl
Chairman
Special Committee on Aging
United States Senate
Washington, D.C. 20510

Dear Mr. Chairman:

the number of FIs that allowed the garnishment of Old-Age, Survivors and Disability Insurance and/or Supplemental Security Income payments;
the number of accounts upon which garnishment-related fees were imposed and the total dollar amount of fees charged to these accounts as a result of the garnishment; and
the types of fees these FIs charged beneficiaries.

However, because of the nature of the review and time constraints, we did not independently verify the information reported by the FIs.

A similar letter is being sent to Senators Baucus and McCaskill. If you have any questions or would like to be briefed on this issue, please call me or have your staff contact Wade Walters, Assistant Inspector General for Congressional and Intra Governmental Liaison, at (202) 358-6319.

Sincerely,

Patrick P. O'Carroll, Jr.
Inspector General

July 2, 2008

The Honorable Max Baucus
Chairman
Committee on Finance
United States Senate
Washington, D.C. 20510

Dear Mr. Chairman:

the number of FIs that allowed the garnishment of Old-Age, Survivors and Disability Insurance and/or Supplemental Security Income payments;
the number of accounts upon which garnishment-related fees were imposed and the total dollar amount of fees charged to these accounts as a result of the garnishment; and the types of fees these FIs charged beneficiaries.

However, because of the nature of the review and time constraints, we did not independently verify the information reported by the FIs.

A similar letter is being sent to Senators Kohl and McCaskill. If you have any questions or would like to be briefed on this issue, please call me or have your staff contact Wade Walters, Assistant Inspector General for Congressional and Intra Governmental Liaison, at (202) 358-6319.

Sincerely,

Patrick P. O'Carroll, Jr.
Inspector General

July 2, 2008

The Honorable Claire McCaskill
United States Senate
Washington, D.C. 20510

Dear Senator McCaskill:

I am pleased to provide you with the enclosed report addressing your August 7, 2007 letter asking that we determine whether financial institutions (FI) were deducting service fees and garnishments from beneficiaries' direct deposit, personal accounts. Specifically, we analyzed data maintained in the Social Security Administration's (SSA) systems to identify the 12 largest FIs and a sample of 13 small-, medium- and large-sized FIs that received electronic deposit of payments to Social Security beneficiaries in the United States. Based on the information provided by the FIs reviewed, this report reflects

the number of FIs that allowed the garnishment of Old-Age, Survivors and Disability Insurance and/or Supplemental Security Income payments;
the number of accounts upon which garnishment-related fees were imposed and the total dollar amount of fees charged to these accounts as a result of the garnishment; and
the types of fees these FIs charged beneficiaries.

However, because of the nature of the review and time constraints, we did not independently verify the information reported by the FIs.

A similar letter is being sent to Senators Baucus and Kohl. If you have any questions or would like to be briefed on this issue, please call me or have your staff contact Wade Walters, Assistant Inspector General for Congressional and Intra Governmental Liaison, at (202) 358-6319.

Sincerely,

Patrick P. O'Carroll, Jr.
Inspector General

CONGRESSIONAL RESPONSE
REPORT

Financial Institutions Deducting
Fees and Garnishments
From Social Security Benefits

A-15-08-28031

July 2008

Mission

By conducting independent and objective audits, evaluations and investigations, we inspire public confidence in the integrity and security of SSA's programs and operations and protect them against fraud, waste and abuse. We provide timely, useful and reliable information and advice to Administration officials, Congress and the public.

Authority

The Inspector General Act created independent audit and investigative units, called the Office of Inspector General (OIG). The mission of the OIG, as spelled out in the Act, is to:

Conduct and supervise independent and objective audits and investigations relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

Independence to determine what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.

Vision

We strive for continual improvement in SSA's programs, operations and management by proactively seeking new ways to prevent and deter fraud, waste and abuse. We commit to integrity and excellence by supporting an environment that provides a valuable public service while encouraging employee development and retention and fostering diversity and innovation.

Introduction
OBJECTIVE

The objective of our review was to determine whether financial institutions (FI) were deducting service fees and garnishments from beneficiaries' direct deposit, personal accounts. This report contains information related to the 12 largest FIs and a sample of 13 small-, medium- and large-sized FIs that received electronic deposit of payments to Social Security beneficiaries in the United States from September 1, 2006 through August 31, 2007. Specifically, this report contains information on

the number of FIs that allowed the garnishment of Old-Age, Survivors and Disability Insurance (OASDI) and/or Supplemental Security Income (SSI) payments;

the number of accounts upon which garnishment-related fees were imposed and the total dollar amount of fees charged to these accounts as a result of the garnishment; and

the types of fees these FIs charged beneficiaries.

BACKGROUND

Debt Collection Improvement Act

In Fiscal Year (FY) 1995, the Social Security Administration (SSA) electronically deposited 53.5 percent of the total number of OASDI and SSI payments. In April 1996, Congress passed the Debt Collection Improvement Act (DCIA), which requires that most Federal payments, except tax refunds, be made electronically as of January 1999. In FY 1999, SSA electronically deposited 71 percent of the total OASDI and SSI payments. Each year since FY 1999, SSA has continued to increase its reliance on direct deposit as a method for issuing payments. As of December 2007, SSA had electronically deposited 81.4 percent of the total OASDI and SSI payments. A

breakdown of direct deposit usage by program shows that 84.8 percent of OASDI payments were electronically deposited, whereas the total for SSI payments was 58.8 percent.

The Social Security Act

The Act protects the beneficiary's right to receive Social Security benefits (OASDI and SSI) directly and to use them as he/she sees fit. Specifically, Section 207(a) of the Act (42 U.S.C. §407(a)) states:

The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the monies paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

However, there are five exceptions related to Social Security benefits.

1. Section 459 of the Act (42 U.S.C. §659) allows Social Security benefits to be garnished to enforce child support and/or alimony obligations.

2. Section 6334 (c) of the Internal Revenue Code (26 U.S.C. §6334 (c)) allows benefits to be levied to collect unpaid Federal taxes.

3. Section 3402 (p) of the Internal Revenue Code (26 U.S.C. §3402(p)) allows beneficiaries to elect to have a percentage of their benefits withheld and paid to the Internal Revenue Service to satisfy their Federal income tax liability for the current year.

4. The DCIA allows benefits to be withheld and paid to another Federal agency to pay a non-tax debt the beneficiary owes to that agency.

5. The Tax Payer Relief Act of 1997 (Public Law 105-34; Title X, Subtitle C, Section 1024), (26 U.S.C. § 6331(h)) authorizes the Internal Revenue Service to collect beneficiaries' overdue Federal tax debts by levying up to 15 percent of each monthly payment until the debt is paid.

Generally, SSA's interpretation of its responsibility for protecting benefits against legal process and assignment ends when the beneficiary is paid. However, once paid, benefits continue to be protected under section 207 of the Act as long as they are identifiable. For example, only Social Security benefits are deposited into a particular bank account.

Financial Institutions' Garnishment of Social Security Benefits

SSA recommends, "If a creditor tries to garnish your social security check, inform them that unless one of the five exceptions apply, your benefits can not be garnished. You also may want to provide this same information to your financial institution and seek legal assistance if you believe it is needed."

Several newspaper articles have described how FIs have frozen and assessed fees on bank accounts into which Social Security benefits were electronically deposited. An article in the April 28, 2007 issue of the Wall Street Journal cited several cases nationwide where Social Security beneficiaries received their benefits through direct deposit and had their bank accounts garnished by debt collectors. The article further stated that, in these instances, the Social Security beneficiaries did not know their benefits were exempt from garnishment or how to assert the exemption.

A companion article in the same issue discussed how FIs tap into direct deposited Social Security benefits in bank accounts. The article indicated that, although Federal law exempts Social Security benefits from being garnished to repay debts, FIs assert they are not collecting debts; instead they are "setting-off" the debts.

One FI in our sample required that the account holder agree that the FI is allowed to "set-off" the debt. Specifically, the FI stated,

The security interest granted by this Agreement is consensual and is in addition to the Bank's right of setoff. Certain federal or state laws may be interpreted to protect funds received from federal or state agencies from setoff. You agree that our right of setoff applies to all funds deposited into your account, including funds received from the Social Security Administration and other federal or state agencies. By continuing to deposit these funds into your account you agree to allow the Bank to exercise its right of setoff against these funds, and not to assert any claim or defense that these deposits are exempt from setoff based on any federal or state law, rule or regulation.

In this way, the FI collects the moneys owed it from the moneys in the beneficiary's account.

Based on these and other articles, the Senate Special Committee on Aging and the Senate Committee on Finance, in an August 7, 2007 letter, requested that we determine whether FIs were deducting service fees and garnishments from beneficiaries' direct deposit, personal accounts. They specifically requested that we review the 12 largest FIs and a select number of small- and medium-sized FIs that received electronic deposits of payments to Social Security beneficiaries in the last 12 months to determine the following.

1. How many of these accounts have been garnished at creditors requests?

2. The number of accounts upon which fees in relation to such garnishment were imposed, the number of times these fees were imposed, and the total dollar amount of fees charged to these accounts as a result of the garnishment. This includes all types of fees charged by the institution in relation to such garnishment, including administrative fees, fees to garnish and/or release the funds, and non-sufficient funds (NSF).

In response to the request, we selected a sample of the 12 largest sized FIs and 13 randomly selected small- , medium- and large-sized FIs. Refer to Appendix C for the top 12 largest sized FI data and Appendix D for the 13 small-, medium- and large-sized FI data on the FIs included in this review.

We issued a subpoena to the FIs requesting statistical information, records and/or documents for the period September 1, 2006 through August 31, 2007. Also, we issued a follow-up letter to the FIs requesting information on the FIs "account hold" and "account freeze" process. Refer to Appendix G for the subpoena and follow-up letter questions.

Generally, the processes for holding and freezing funds are incorporated into the FIs' garnishment processes. Therefore, our results take into account the holding and/or freezing of funds.

For example, one FI stated that "account holds" or "account freezes" are processes that may be taken on an account for various reasons, including as part of a garnishment or levy action. Depending on the applicable State or Federal law and the type of garnishment or levy involved, an "account hold" or "account freeze" may be placed on an account.

If an account has sufficient funds to cover the entire garnishment or levy amount, only those funds necessary to cover the garnishment or levy will receive an "account hold," and no "account freeze" will occur. The remaining funds in the account will be available for use by the account holder, unless applicable law requires a larger "account hold" or an "account freeze" to be maintained for a period of time regardless of whether funds available in the account are sufficient to cover the amount of a garnishment or levy. From our review, we determined the laws of the States in this area were not uniform. Applicable law may require that an account with an insufficient balance of funds to cover the entire amount of the garnishment or levy have an "account freeze" placed on the account for a period of time to see if new deposits are received, which would also be subject to the garnishment or levy. In contrast, applicable law may only require that available funds currently in the account be seized at the time the garnishment or levy is received.

In response to the request, several FIs asserted that much of the information provided is confidential and should not be identified to a specific financial institution; therefore, we have not identified the FIs by name to protect confidentiality.

Results of Review
Although we did not independently verify the information reported by the 25 FIs, the data indicated that some FIs deducted service fees and garnishments from beneficiaries' direct deposit, personal accounts. We have presented the aggregate FI statistics on garnishments involving accounts receiving only direct deposited Social Security benefits and those accounts where there were both direct deposited Social Security benefits and other deposits. Specifically, we aggregated the information to determine the (1) number of FIs with garnishments, (2) number of SSA account holders, (3) number and total amount of garnishments, and (4) total amount of fees. Also, we identified potential safeguards to protect Social Security recipients from garnishments.

NUMBER OF FINANCIAL INSTITUTIONS WITH GARNISHMENTS

Based on the information provided, only 19 FIs were able to provide the information in a format that was usable for our review purposes, and 7 (37 percent) of the 19 FIs included reported that they had garnished funds in accounts where only SSA benefit payments had been deposited.

Table 1 - Number of Financial Institutions Garnishing
Only Direct Deposits of Social Security Benefits

Financial Institutions Number FIs
in Sample Number of FIs Garnishing
Only Social Security Deposits
Small-Sized 4 0
Medium-Sized 4 0
Large-Sized 5 1
Largest Sized 12 6
Total 25 7

Note: Refer to Appendix E for the limitation on the FI's information.

Also, two medium-sized and one large-sized FIs received garnishment orders but did not garnish the amounts due to the fact the funds were exempt (that is, Social Security funds).

With respect to accounts receiving direct deposited Social Security benefits as well as other deposits, we determined that 20 FIs were able to provide the data in a useful format, and 14 (70 percent) of the 20 FIs had garnished funds from the accounts meeting this criteria.

Table 2 - Number of Financial Institutions Garnishing
Direct Deposited Social Security Benefits and Other Deposits

Financial Institutions Number of FIs
in Sample Number of FIs Garnishing
Both Social Security and Other Deposits
Small-Sized 4 0
Medium-Sized 4 2
Large-Sized 5 4
Largest Sized 12 8
Total 25 14

Note: Refer to Appendix E for the limitation on the FI's information.

NUMBER OF ACCOUNT HOLDERS

There were about 1.3 million account holders included in our results receiving only direct deposited Social Security benefits. Although 19 FIs were able to identify the number of garnishments with only direct deposit of Social Security benefits, only 18 were able to tell us how many account holders there were for the accounts in question.

Table 3 - Number of Account Holders with
Only Direct Deposits of Social Security Benefits

Financial Institutions Number of FIs
in Sample Number of Account Holders
With Only Social Security Deposits
Small-Sized 4 491
Medium-Sized 4 3,170
Large-Sized 5 2,861
Largest Sized 12 1,282,343
Total 25 1,288,865

Note: Refer to Appendix E for the limitation on the FI's information.

Also, there were about 6.6 million account holders included in our results who were receiving direct deposited Social Security benefits and other deposits. Although 20 FIs were able to identify the number of garnishments with direct deposit of Social Security benefits and other deposits, only 17 were able to tell us how many account holders there were for the accounts in question.

Table 4 - Number of Account Holders with
Direct Deposited Social Security Benefits and Other Deposits

Financial Institutions Number of FIs
in Sample Number of Account Holders
With Social Security and Other Deposits
Small-Sized 4 76
Medium-Sized 4 3,894
Large-Sized 5 4,809
Largest Sized 12 6,554,764
Total 25 6,563,543

Note: Refer to Appendix E for the limitation on the FI's information.

NUMBER AND TOTAL AMOUNT OF GARNISHMENTS

Social Security Benefits

Nineteen FIs had garnished funds from 1,686 accounts receiving only direct deposited Social Security benefits for a total of about $1.1 million.

Table 5 - Number and Total Amount of Garnishments with
Only Direct Deposits of Social Security Benefits

Financial Institutions Total Number
of Garnishments Total Amount of Garnishment
on Only Social Security Deposits
Small-Sized 0 $0
Medium-Sized 0 0
Large-Sized 1 3,900
Largest Sized 1,685 1,075,658
Total 1,686 $1,079,558

Of these 1,686 garnishments, the FIs garnished 639 accounts receiving only direct deposited Social Security benefits for a total of $478,293 for Internal Revenue Service Tax Levy, Alimony, or Child Support.

Social Security Benefits and Other Deposits

Also, 20 FIs had garnished 12,747 accounts receiving direct deposited Social Security benefits and other deposits for a total of about $29.3 million.

Table 6 - Number and Total Amount of Garnishments with
Direct Deposited Social Security Benefits and Other Deposits

Financial Institutions Total Number of Garnishments Total Amount of Garnishment
On Social Security and Other Deposits
Small-Sized 0 $0
Medium-Sized 6 5,038
Large-Sized 7 50,151
Largest-Sized 12,734 29,244,743
Total 12,747 $29,299,932

Of these 12,747 garnishments, the FIs garnished 5,142 accounts receiving direct deposited Social Security benefits and other deposits for a total of about $9.2 million for Internal Revenue Service Tax Levy, Alimony, or Child Support.

Population Estimate

The FIs garnished $30,379,490 associated with the 7,852,408 beneficiaries in our sample. Assuming all Social Security beneficiaries and all FIs in the United States exhibit similar characteristics, we estimate about $177.7 million in total garnishments for the population of approximately 45.9 million direct deposit beneficiaries in the United States (as of February 2008).

Also, 6,563,543 of the 7,852,408 beneficiaries received direct deposit of Social Security benefits and additional direct deposits into their accounts, and $29,299,932 of the $30,379,390 in garnishments (approximately 96.45 percent) was attributable to these individuals. For the remaining 1,288,865 beneficiaries whose sole direct deposit consisted of Social Security benefits, $1,079,558 was garnished (approximately 3.55 percent).

Therefore, assuming all Social Security beneficiaries and all FIs in the United States exhibit similar characteristics, we estimate approximately $171.4 million in garnishments could be attributable to beneficiaries receiving direct deposit of Social Security benefits and additional direct deposits, and approximately $6.3 million could be attributable to beneficiaries whose sole direct deposit consisted of Social Security benefits.

TOTAL AMOUNT OF FEES

Based on the information received, we identified several FIs that charged several types of fees as a result of the garnishments; however, not all of the FIs had actually charged such fees. The most common fees were for legal processing and non-sufficient funds (NSF).

Only 17 FIs were able to provide the information in a format that was usable for our review purposes. These FIs assessed fees of $30,555 for accounts receiving only direct deposited Social Security benefits.

Table 7 - Total Amount of Fees with
Only Direct Deposits of Social Security Benefits

Financial Institutions Total Amount of Fees on
Only Social Security Deposits
Small-Sized $0
Medium-Sized 0
Large-Sized 50
Largest Sized 30,505
Total $30,555

Note: Refer to Appendix E for the limitation on the FI's information.

In addition, 19 FIs assessed fees of $994,543 for accounts receiving direct deposited Social Security benefits and other deposits.

Table 8 - Total Amount of Fees with
Direct Deposited Social Security Benefits and Other Deposits

Financial Institutions Total Amount of Fees on
Social Security and Other Deposits
Small-Sized $0
Medium-Sized 50
Large-Sized 350
Largest-Sized 994,143
Total $994,543

Note: Refer to Appendix E for the limitation on the FI's information.

POTENTIAL SAFEGUARDS TO PROTECT SOCIAL SECURITY RECIPIENTS

During our review, we identified potential safeguards to protect Social Security recipients from garnishments as follows.

1. FIs stated they did not have an easy method of identifying Federal exempt electronic deposits (that is, SSA's OASDI or SSI benefits) since there was no Automated Clearing House (ACH) code for exempt electronic funds. Therefore, the Department of the Treasury (Treasury) could establish an ACH code for exempt Federal benefits to assist FIs in easily identifying exempt and non-exempt funds. Also, Treasury should ensure the dissemination of the ACH codes to the FIs.

2. The relationship between State garnishment law and Federal benefit exemptions is complex. SSA's interpretation of the garnishment exemptions appears to complicate this relationship. SSA recommends to beneficiaries that "If a creditor tries to garnish your social security check, inform them that unless one of the five exceptions apply, your benefits can not be garnished." In other words, it appears the exemption provision is to be treated as a defense to be raised by a beneficiary after a freeze or hold has been placed on an account pursuant to a garnishment order, rather than an absolute bar against the imposition of the freeze or hold.

Therefore, we suggest SSA revisit its interpretation of the garnishment exemption provision for Social Security benefits to determine if it should be an absolute bar against the imposition of the freeze or hold. If SSA interprets the garnishment exemption provision as an absolute bar, then FI regulators (such as Treasury, Federal Deposit Insurance Corporation, Credit Unions etc.) need to enforce SSA's interpretation.

3. FIs stated that it is difficult to distinguish exempt and non-exempt funds when the account holders' funds are co-mingled. Therefore, FIs and financial regulators should work together to establish a policy on determining an adequate method of prorating garnishments between exempt and non-exempt funds (such as, First-In, First-Out; Last-In, First-Out; or Weighted Average). Several FIs have stated they prefer States to set an amount that must be retained in a bank account and cannot be garnished when exempt funds are involved. Connecticut and California already have such a law in place.

4. FIs stated there is no standard length of time (that is, 1 month, 1 year, inception of personal account) to review an account holder's historical deposits to determine whether the account holder's personal account includes exempt and/or non-exempt deposits. If FIs were instructed to search a specified period of time for co-mingled exempt and non-exempt funds, each FI could consistently determine whether there are co-mingled non-exempt funds available to garnish.

Also, a FI stated that it is difficult to interact with the legacy system of another FI as a result of a merger with that FI. The legacy system makes it difficult to identify exempt funds from the merged FI.

Therefore, FIs and financial regulators should work together to establish a policy on determining a specific period of time the FIs have to search for co-mingled funds and/or maintain legacy systems.

Additionally, the American Bankers Association has developed proposed solutions to the problems that currently arise when a creditor garnishes an account at a FI that contains Federal benefits payments. The full text of the American Bankers Association's proposed solutions is included in Appendix F.

Conclusion

Millions of beneficiaries rely on Social Security benefits as their only source of income for basic needs such as housing and food. When a creditor's garnishment order is enforced and these Federal funds withheld, the lives of a vulnerable segment of the population are placed at risk. As such, additional safeguards are needed to protect beneficiaries in this situation. To that end, we believe the potential safeguards identified in this report provide a framework for decision makers as they identify strategies to protect this vulnerable population.

The U.S. Senate introduced the Illegal Garnishment Prevention Act (S. 2850) on April 14, 2008, a bill that would prevent Treasury from promoting the use of direct deposit for Social Security beneficiaries until they put a stop to the garnishment of Government benefits from the bank accounts of private citizens.

AGENCY COMMENTS

SSA provided specific comments on the potential safeguards discussed in our report. SSA agreed with our potential safeguards to protect Social Security recipients from garnishments. SSA also provided technical comments, which we addressed as appropriate. SSA's comments on the potential safeguards are included in Appendix H.

Other Matters

This section provides additional information about SSA and Treasury's ability to garnish Social Security Title II benefits in accordance with the exceptions to section 207 of the Act. SSA and Treasury garnished about $781.1 million of Social Security benefits as follows.

SSA made a total of 275,566 Court Ordered Garnishment System (COGS) payments totaling about $417.9 million from September 1, 2006 through August 31, 2007.

Treasury's Financial Management Service (FMS) collected from Benefit Payment Offset (BPO) of Social Security benefits about $124.6 million for FY 2007.

Treasury's Internal Revenue Service (IRS) collected $238.6 million via Federal Payment Levy Program (FPLP) from Social Security benefits for FY 2007.

SOCIAL SECURITY ADMINISTRATION GARNISHES TITLE II BENEFITS

Section 459 of the Act, 42 U.S.C. § 659, contains a specific exception to section 207 so Title II benefits are generally subject to legal process (that is, writ, order, or summons) brought by an individual in a State court for the enforcement of a legal obligation to provide child support and/or make alimony payments. SSI payments are not subject to levies or garnishment.

At SSA, the manager (or designated representative) of any Social Security field office or processing center can be "served" (that is, delivered in a manner prescribed by law) a legal process document for the enforcement of a legal obligation to provide child support and/or make alimony payments.

Therefore, SSA has implemented the COGS to process any garnishments. COGS is a national system to automate withholding from beneficiaries in compliance with State or court-ordered garnishment requests. The system will adjust Title II benefits, issue payments to the appropriate payee, as designated in the garnishment order, and issue appropriate notices to the garnished beneficiary and the Court.

COGS limits the garnishment amount to the lesser of the State maximum or the maximum under the Consumer Credit Protection Act (CCPA) (15 U.S.C. §1673 (b)) and

is based on the law of the State where the beneficiary resides. The CCPA limits garnishment to

50 percent, if the beneficiary is supporting a spouse and/or child other than the spouse and/or child whose support has been ordered;

60 percent, if the beneficiary is not supporting another spouse and/or child; or

55 percent or 65 percent respectively, if the garnishment order or other evidence submitted indicates the original support ordered is 12 or more weeks in arrears.

TREASURY GARNISHES TITLE II BENEFITS

Treasury garnishes Social Security Title II benefits as part of the BPO program and the FPLP as follows.

BPO of Federal Payments

DCIA authorized BPO. BPO is the reduction of Social Security's Title II benefit payments to recover delinquent non-tax debts owed to other Federal agencies. It is an automated process performed by FMS. By law, BPO will not reduce benefit payments below $750 per month. Therefore, Social Security beneficiaries who have been identified by the BPO process as delinquent debtors will still receive a minimum $750 per month.

Unpaid Federal Taxes

The Taxpayer Relief Act of 1997 (P.L. 105-34) authorizes the IRS to collect overdue Federal tax debts of individuals who receive Federal payments, including Social Security payments. The law authorizes the IRS to levy up to 15 percent of each payment until the tax debt is paid.

In July 2000, the IRS, in conjunction with FMS, started the FPLP. The FPLP is an automated system that does not require SSA to take any action to reduce a payment. The reduction, or levy, is done by FMS after SSA certifies a payment and sends it to Treasury for disbursement. Unlike the BPO program in which the benefit payment cannot be reduced below $750, there is no minimum amount that cannot be subjected to FPLP. Thus, Title II benefit payments can be reduced below $750 per month to collect a tax debt, and Title II benefit payments less than $750 a month are subject to FPLP.

Appendices
APPENDIX A - Acronyms
APPENDIX B - Scope and Methodology
APPENDIX C - Top 12 Largest Sized Financial Institutions
APPENDIX D - Small-, Medium- and Large-Sized Financial Institutions
APPENDIX E - Limitation on the Financial Institution's Information
APPENDIX F - Letter from the American Bankers Association
APPENDIX G - Subpoena and Follow-Up Questions
APPENDIX H - Agency Comments

Appendix A
Acronyms
ACH Automated Clearing House
Act Social Security Act
BPO Benefit Payment Offset
CCPA Consumer Credit Protection Act
COGS Court Order Garnishment System
DCIA Debt Collection Improvement Act
FI Financial Institution
FMS Financial Management Service
FPLP Federal Payment Levy Program
FY Fiscal Year
IRS Internal Revenue Service
NSF Non-Sufficient Funds
OASDI Old-Age, Survivors, and Disability Insurance
OIG Office of the Inspector General
P.L. Public Law
POMS Program Operations Manual System
SSA Social Security Administration
SSI Supplemental Security Income
Treasury Department of the Treasury
U.S.C. United States Code

Appendix B
Scope and Methodology

On August 7, 2007, the Senate Special Committee on Aging and the Senate Committee on Finance requested that we determine whether financial institutions (FI) were deducting service fees and garnishments from beneficiaries' direct deposit, personal accounts. We did not assess, and do not express an opinion on, the overall acceptability of the FIs' internal controls or accounting systems. To complete our objective, we:

Reviewed applicable Federal laws and regulations, pertinent parts of the Social Security Administration's (SSA) Program Operations Manual System and other relevant criteria.

Interviewed staff and officials at SSA Headquarters and FIs.

Obtained a data extract of one segment (Segment 18) of SSA's systems for beneficiaries with Old-Age, Survivors and Disability Insurance (OASDI) and/or Supplemental Security Income (SSI) payments receiving direct deposits from
June 1, 2006 through May 31, 2007.

Obtained the FI names and routing numbers from the Federal Reserve Financial Services website (https://www.fededirectory.frb.org/FedACHdir.txt).

Compared the bank routing numbers in the data extract to the Department of the Treasury file to identify the names of the FIs. We identified 11,431 FIs in the United States with OASDI and/or SSI recipients receiving direct deposit from June 1, 2006 through May 31, 2007.

Selected the top 12 largest sized FIs in the United States with OASDI and/or SSI recipients receiving direct deposit from June 1, 2006 through May 31, 2007.

Statistically selected four small-sized FIs, four medium-sized FIs and four large sized FIs in the United States with OASDI and/or SSI recipients receiving direct deposit from June 1, 2006 through May 31, 2007. However, because of the inconsistency in the bank naming conventions in the Treasury file, one of the FIs selected in our sample of four large size FIs were, in effect, two separate FIs. Therefore, our sample consisted of five large size FIs .

Issued subpoena to the FIs requesting statistical information, records and/or documents for the time period September 1, 2006 through August 31, 2007. Also, we issued a follow-up letter to the FIs requesting information on the FIs "account hold" and "account freeze" process.

We consolidated the information received from the FIs to show the number of beneficiaries receiving (1) only direct deposits of Social Security benefits and (2) both direct deposits of Social Security benefits and other benefits. For each group, we identified the number of garnishments, total dollar amount of garnishments, amount of garnishments allowed by law, and the total amount of fees charged.

We were unable to determine the reliability of the data because of the following factors: (a) short time frame, (b) voluminous information, (c) FIs' difficulty interacting with legacy system of another FI as a result of a merger and (d) FIs' difficulty in providing the data due to technological issues. We believe it is reasonable to use these data because they were used for background, and we are not drawing conclusions based solely on the data. In addition, the use of these data is limited to informational purposes and should therefore not result in incorrect or unintentional conclusions.

The entity responsible for garnishments is under the Deputy Commissioner for Retirement and Disability Policy, Office of Income Security Programs, Office of Payment Policy. Our field work was conducted at SSA Headquarters from September 2007 through March 2008.

We conducted this review in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the review to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our objectives.

Appendix C
Top 12 Largest Sized Financial Institutions

We are presenting the top 12 largest sized financial institution (FI) data for informational purposes. We did not determine the reliability of the data provided by the FIs.

Table 9 - Top 12 Largest Sized Financial Institutions with Only Direct Deposits of Social Security Benefits

Financial
Institution
No. of
Account Holders
No. of
Garnishments
Total Amount of
Garnishments No. of Garnishments
For Child Support, Alimony or Tax Levy Amount of Garnishments For Child Support, Alimony or Tax Levy
Total Amount
of Fees
T-02 N/A N/A N/A N/A N/A N/A
T-04 92,745 194 $319,396 64 $177,129 $12,835
T-06 60,777 59 54,078 26 22,531 2,115
T-07 267,986 156 101,790 60 32,586 14,400
T-08 252,832 759 108,266 229 47,975 N/A
T-10 347,645 333 333,533 115 61,543 1,155
T-11 177,357 0 0 0 0 0
T-12 83,001 184 158,595 144 132,629 N/A
Subtotal 1,282,343 1,685 $1,075,658 638 $474,393 $30,505

N/A - Not Available

Three largest sized FIs received garnishment orders and identified the court order amount but were unable to identify if any amounts were actually withheld due to system limitations. Therefore, we excluded these FIs from the results presented in the body of the report. In addition, one largest sized FI was unable to provide any useable information.

Table 10 - Top 12 Largest Sized Financial Institutions with Only Direct Deposits of Social Security Benefits - Court Order Amounts

Financial
Institution
No. of
Account Holders
No. of
Garnishments
Court Order
Garnishments No. of Garnishments
For Child Support, Alimony or Tax Levy Amount of Garnishments For Child Support, Alimony or Tax Levy
Total Amount
of Fees
T-01 590,963 1,229 $2,418,114 N/A N/A $158,612
T-03 224,543 442 733,773 N/A N/A 25,026
T-05 N/A N/A N/A N/A N/A N/A
T-09 N/A N/A N/A N/A N/A N/A
Subtotal 815,506 1,671 $3,151,887 0 0 $183,638

N/A- Not Available

Total 2,097,849 3,356 $4,227,545 638 $474,393 $214,143

Legend:
T = Top Largest-Sized Financial Institutions

Table 11 - Top 12 Largest Sized Financial Institutions with Direct Deposited Social Security Benefits and Other Deposits

Financial
Institution
No. of
Account Holders
No. of
Garnishments
Total Amount of
Garnishments No. of Garnishments
For Child Support, Alimony or Tax Levy Amount of Garnishments For Child Support, Alimony or Tax Levy
Total Amount
of Fees
T-02 2,419,034 4,424 $4,831,847 1,657 $2,465,710 $248,636
T-04 1,668,330 3,497 19,756,869 1,198 4,011,682 470,950
T-06 439,778 1,368 1,478,888 488 740,736 91,256
T-07 787,484 864 1,702,528 444 805,563 108,120
T-08 273,257 689 106,613 213 30,634 N/A
T-10 660,703 1,056 247,747 371 46,914 5,575
T-11 121,344 528 820,126 528 820,126 45,456
T-12 184,834 308 300,125 237 245,303 24,150
Subtotal 6,554,764 12,734 $29,244,743 5,136 $9,166,668 $994,143

N/A - Not Available

Table 12 - Top 12 Largest Sized Financial Institutions with Direct Deposited Social Security Benefits and Other Deposits - Court Order Amounts

Financial
Institution
No. of
Account Holders
No. of
Garnishments
Court Order
Garnishments No. of Garnishments
For Child Support, Alimony or Tax Levy Amount of Garnishments For Child Support, Alimony or Tax Levy
Total Amount
of Fees
T-01 6,775,287 19,274 $37,976,702 N/A N/A $1,960,648
T-03 1,987,118 8,651 11,482,804 N/A N/A 479,939
T-05 N/A N/A N/A N/A N/A N/A
T-09 1,154,678 833 7,319,383 0 0 32,590
Subtotal 9,917,083 28,758 $56,778,889 0 0 $2,473,177

N/A - Not Available

Total 16,471,847 41,492 $86,023,632 5,136 $9,166,668 $3,467,320

Appendix D
Small-, Medium- and Large-Sized Financial Institutions

We are presenting the 13 small, medium and large-sized financial institution (FI) data for informational purposes. We did not determine the reliability of the data provided by the FIs.

Table 13 - Small-. Medium- and Large-Sized Financial Institutions with Only Direct Deposits of Social Security Benefits

Financial
Institution
Number of
Account Holders
Number of
Garnishments
Total Amount of
Garnishments No. of Garnishments
For Child Support, Alimony or Tax Levy Amount of Garnishments For Child Support, Alimony or Tax Levy
Total Amount
of Fees

S-01 31 0 $0 N/A N/A $0
S-02 86 0 0 N/A N/A 0
S-03 24 0 0 N/A N/A 0
S-04 350 0 0 N/A N/A 0
Small FIs 491 0 $0 N/A N/A $0

M-01 1,206 0 $0 0 0 $0
M-02 N/A N/A N/A N/A N/A N/A
M-03 973 0 0 0 0 0
M-04 991 0 0 0 0 0
Medium FIs 3,170 0 $0 0 0 $0

L-01 N/A 0 $0 0 0 $0
L-02 971 0 0 0 0 0
L-03 678 1 3,900 1 $3,900 50
L-04 0 0 0 N/A N/A 0
L-05 1,212 0 0 N/A N/A 0
Large FIs 2,861 1 $3,900 1 $3,900 $50

N/A - Not Available

Table 14 - Small-. Medium- and Large-Sized Financial Institutions with Direct Deposited Social Security Benefits and Other Deposits

Financial
Institution
Number of Account Holders
Number of
Garnishments
Total Amount of
Garnishments No. of Garnishments
For Child Support, Alimony or Tax Levy Amount of Garnishments For Child Support, Alimony or Tax Levy
Total Amount of Fees

S-01 18 0 $0 N/A N/A $0
S-02 N/A 0 0 N/A N/A 0
S-03 14 0 0 N/A N/A 0
S-04 44 0 0 N/A N/A 0
Small FIs 76 0 $0 N/A N/A $0

M-01 2,285 4 $4,973 3 $2,440 $50
M-02 N/A N/A N/A N/A N/A N/A
M-03 265 2 65 0 0 0
M-04 1,344 0 0 0 0 0
Medium FIs 3,894 6 $5,038 3 $2,440 $50

L-01 N/A 1 $4,002 1 $4,002 0
L-02 N/A 1 500 1 500 0
L-03 3,230 4 45,480 1 3,900 350
L-04 450 0 0 N/A N/A 0
L-05 1,129 1 169 0 0 0
Large FIs 4,809 7 $50,151 3 $8,402 $350

N/A - Not Available

Legend:

S = Small-Sized Financial Institutions
M = Medium-Sized Financial Institutions
L = Large-Sized Financial Institutions

Appendix E
Limitation on the Financial Institutions' Information

Although we consolidated the financial institution (FI) data for the 25 institutions (see Tables 9 through 14), the data collected were inconsistent. Several of the FIs were limited in the amount of information available as follows.

1. Two FIs did not have the ability through an automated search process to provide the requested information for the entire time period of September 1, 2006 through August 31, 2007. Instead, the FIs provided information for 1 month. Therefore, we extrapolated the figures from this month to the entire 12-month period to estimate the numbers for the covered time period.

2. Six FIs could not provide either the number of account holders who received only Social Security deposits or number of account holders who receive Social Security deposits and other deposits due to technological issues (that is, FIs' computerized system did not maintain this information). Additionally, one FI stated it had to manually research the hard copy reports to respond to our request.

3. One FI did not keep records on garnishments, such as the dollar amount that was withheld from the account. Also, three FIs were only able to provide the amount on the court order but were unable to identify if any amounts were actually withheld due to system limitations. Additionally, two FIs were unable to segregate the alimony garnishment from the third-party garnishments because of system limitations.

4. Two FIs did not keep records on the dollar amount of any fees that were charged against the account because of the garnishment.

5. One FI stated that it was difficult to interact with the legacy system of another FI as a result of a merger with that FI. The legacy system makes it difficult to identify exempt funds from the merged FI.

The lack of consistent information limits the use of this data to informational purposes.

Appendix F
Letter from the American Bankers Association

Appendix G
Subpoena and Follow-Up Questions

In September 2007, we issued a subpoena to the FIs requesting statistical information, records and/or documents for the time period September 1, 2006 through August 31, 2007. Specifically, we requested the following:

1. With regard to all accounts and account holders in your institution receiving only direct deposits of Social Security benefits:

A. Your institution's polices and procedures regarding third party garnishments, and your own use of "set-off" to collect money your customers owe you.

B. The number of account holders at your financial institution receiving only Social Security and Supplemental Security Income (SSI) benefits through direct deposit.

C. The total number of garnishments involving bank accounts receiving only direct deposited Social Security benefits.

D. The total dollar amount of garnishments involving bank accounts receiving only direct deposited Social Security benefits.

E. The total dollar amount of all charges and fees assessed by your institution related to all garnishment activity.

F. A breakdown of the types of charges and fees assessed by your institution related to garnishment activity, including but not limited to: fees for imposition of a freeze on the account; fees for any resulting bounced checks; fees for short term loans; fees for release of a freeze on the account; and any other fees.

2. With regard to all accounts and account holders in your institution receiving both direct deposited Social Security benefits and other deposits:

A. Your institution's polices and procedures regarding third party garnishments, and your own use of "set-off" to collect money your customers owe you.

B. The number of account holders at your financial institution receiving both direct deposited Social Security and SSI benefits and other deposits.

C. The total number of garnishments involving bank accounts receiving both direct deposited Social Security benefits and other deposits.

D. The total dollar amount of garnishments involving bank accounts receiving both direct deposited Social Security benefits and other deposits.

E. The total dollar amount of all charges and fees assessed by your institution related to all garnishment activity.

Also, in January 2008 we issued a follow-up letter to the FIs requesting information on the FIs "account hold" and "account freeze" process as follows:

Account Hold and Account Freeze

Also, from analyzing the information provided, we found that in the course of a garnishment /levy, there are "account holds" and "account freezes" which are part of the process. As we have previously indicated, we are concerned as to the effect such actions may have on individuals who are receiving Social Security benefits and SSI. As a result, we have identified six additional "account hold" and "account freeze" questions to which we are requesting your response. The questions are as follows:

1. Are "account holds" and "account freezes" considered to be a process unto itself or are they considered to be part of the garnishment/levy process? Please describe when an account hold would be placed on an account and when an account freeze would be placed on an account.

2. We understand that each State has its own statute regarding the length of time within which a person has to object to a hold or freeze against their bank account. In addition, each State has varying time periods within which you, as a financial institution that has been served with a garnishment/levy, have to respond to the garnishment/levy.

We have several procedural questions as to the mechanics of the account holds and/or account freezes in relation to the garnishment/levy.

a. If the funds in the individual's bank account exceed the amount of the garnishment/levy, does the individual have immediate access to the funds over the amount of the garnishment/levy?

b. If the funds in the individual's bank account are less than the amount of the garnishment/levy, are subsequent deposits subject to the receipt of the garnishment/levy unavailable to be accessed by the account holder? If so, under what circumstances are other funds deposited subsequent to receipt of the subject garnishment/levy available to be accessed by the account holder?

If the garnishment/levy is dismissed by agreement or court order after an account hold and/or account freeze is initiated and prior to any funds being forwarded by the financial institution to satisfy the garnishment/levy:

c. Are any checks which may have not been honored during the period that the account hold and/or account freeze was in effect due to insufficient funds honored? If this has occurred, could you please provide the number of checks that were subsequently honored?

d. Are any fees assessed against the bank account due to the account hold or account freeze of funds forgiven and returned to the account holder? If this has occurred, can you please provide the total amount of fees that were returned?

3. We would like to confirm that the figure you previously provided to question 1C of the subpoena regarding the total number of garnishments (see Enclosure) includes the number of account holds and/or account freezes placed on the account.

a. If this is incorrect, please explain what this figure represents. If account holds and account freezes are not included in the total number of garnishments, in what circumstances are these not included in the total number of garnishments? Also, please provide the number of account holds and/or account freezes placed on an account receiving only direct deposited Social Security or SSI funds for the period from September 1, 2006, through August 31, 2007.

b. From the total number of account holds and account freezes, please provide the number of account holds and/or account freezes that were removed without any funds being removed from the account to satisfy the garnishment/levy.

4. We would like to confirm that the figure you previously provided to question 1E of the subpoena regarding the total dollar amount of all charges and fees assessed by your institution related to garnishments (see Enclosure) includes the amounts of account holds and/or account freezes placed on an account.

a. If this is incorrect, please explain what this figure represents. If account holds and account freezes are not included in the total dollar amount of all charges and fees related to garnishments, in what circumstances are these not included in the total dollar amount of garnishments? Also, please provide the total dollar amount of all charges and fees assessed by your institution related to the account holds and/or account freezes placed on an account receiving only direct deposited Social Security or SSI funds for the period from September 1, 2006, through August 31, 2007.

b. From this total dollar amount of all charges and fees related to the account holds and account freezes, please provide the total dollar amount of all charges and fees assessed by your institution related to the account holds and/or account freezes that were removed without any funds being removed from the account to satisfy the garnishment/levy.

5. We would like to confirm that the figure you previously provided to question 2C of the subpoena regarding the total number of garnishments (See Enclosure) includes the number of account holds and/or account freezes placed on the account.

a. If this is incorrect, please explain what this figure represents. If account holds and account freezes are not included in the total number of garnishments, in what circumstances are these not included in the total number of garnishments? Also, please provide the number of account holds and/or account freezes placed on an account receiving both direct deposited Social Security or SSI funds along with other direct deposits for the period from September 1, 2006, through August 31, 2007.

6. We would like to confirm that the figure you previously provided to question 2E of the subpoena regarding the total dollar amount of all charges and fees assessed by your institution related to garnishments (See Enclosure) includes the amounts of account holds and/or account freezes placed on an account.

a. If this is incorrect, please explain what this figure represents. If account holds and account freezes are not included in the total dollar amount of all charges and fees related to garnishments, in what circumstances are these not included in the total dollar amount of garnishments? Also, please provide the total dollar amount of all charges and fees assessed by your institution related to the account holds and/or account freezes placed on an account receiving both direct deposited Social Security and/or SSI funds along with other direct deposits for the period from September 1, 2006, through August 31, 2007.

Appendix H
Agency Comments

RESPONSE TO REQUEST FOR COMMENTS
Office of the Inspector General's (OIG) Congressional Response Report (A-15-08-28031), "Financial Institutions Deducting Fees and Garnishments From Social Security Benefits"

Thank you for the opportunity to review the above-subject report. We appreciate the OIG's work in exploring this issue. We believe that the report is a valuable contribution to understanding and addressing the garnishment problem.

Comments on Safeguards

With respect to recommended safeguards 1, 3, and 4, we fully support and encourage the efforts of the Treasury Department and the regulators to explore these and other safeguards.

With respect to recommended safeguard 2, we offer the following clarification. Section 207 is clearly both a bar against garnishment and a defense to be raised when necessary. We believe the defense should be needed only when a party attempts to garnish social security benefits despite section 207 clear prohibitions. We will review our procedures to ensure that they clearly state that the garnishment exemption is both a bar and a defense.

Overview of the Office of the Inspector General
The Office of the Inspector General (OIG) is comprised of an Office of Audit (OA), Office of Investigations (OI), Office of the Counsel to the Inspector General (OCIG), Office of External Relations (OER), and Office of Technology and Resource Management (OTRM). To ensure compliance with policies and procedures, internal controls, and professional standards, the OIG also has a comprehensive Professional Responsibility and Quality Assurance program.

Office of Audit
OA conducts financial and performance audits of the Social Security Administration's (SSA) programs and operations and makes recommendations to ensure program objectives are achieved effectively and efficiently. Financial audits assess whether SSA's financial statements fairly present SSA's financial position, results of operations, and cash flow. Performance audits review the economy, efficiency, and effectiveness of SSA's programs and operations. OA also conducts short-term management reviews and program evaluations on issues of concern to SSA, Congress, and the general public.

Office of Investigations
OI conducts investigations related to fraud, waste, abuse, and mismanagement in SSA programs and operations. This includes wrongdoing by applicants, beneficiaries, contractors, third parties, or SSA employees performing their official duties. This office serves as liaison to the Department of Justice on all matters relating to the investigation of SSA programs and personnel. OI also conducts joint investigations with other Federal, State, and local law enforcement agencies.

Office of the Counsel to the Inspector General
OCIG provides independent legal advice and counsel to the IG on various matters, including statutes, regulations, legislation, and policy directives. OCIG also advises the IG on investigative procedures and techniques, as well as on legal implications and conclusions to be drawn from audit and investigative material. Also, OCIG administers the Civil Monetary Penalty program.

Office of External Relations
OER manages OIG's external and public affairs programs, and serves as the principal advisor on news releases and in providing information to the various news reporting services. OER develops OIG's media and public information policies, directs OIG's external and public affairs programs, and serves as the primary contact for those seeking information about OIG. OER prepares OIG publications, speeches, and presentations to internal and external organizations, and responds to Congressional correspondence.

Office of Technology and Resource Management
OTRM supports OIG by providing information management and systems security. OTRM also coordinates OIG's budget, procurement, telecommunications, facilities, and human resources. In addition, OTRM is the focal point for OIG's strategic planning function, and the development and monitoring of performance measures. In addition, OTRM receives and assigns for action allegations of criminal and administrative violations of Social Security laws, identifies fugitives receiving benefit payments from SSA, and provides technological assistance to investigations.