Action Transmittal OCSE-AT-98-07

ACTION TRANSMITTAL
OCSE-AT-98-07
March 2, 1998

TO: STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS

SUBJECT: Policy Questions and Answers regarding the Financial Institution Data Match Requirements under the Provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996

BACKGROUND: There are a number of new provisions which affect financial institutions.

Section 466(a)(17) of the Social Security Act (the Act), as added by section 372 of Pub. L. 104-193, requires States to establish procedures under which the State child support enforcement (IV-D) agency shall enter into agreements with financial institutions doing business in the State for the purpose of securing information leading to the enforcement of child support orders. The State will develop and operate, in coordination with financial institutions doing business in the State, a data match system in which each financial institution will provide quarterly the name, record address, social security number or other taxpayer identification number, and other identifying information for each noncustodial parent who maintains an account at such institution and who owes past-due support. The State must supply the names and social security numbers or other taxpayer identification numbers. These procedures must provide for automated data exchanges to the maximum extent feasible. In addition, such financial institutions will be required to encumber or surrender the assets of the delinquent obligor held by the institution in response to a notice of lien or levy.

Section 466(a)(17)(B) of the Act establishes that the State IV-D agency may pay reasonable fees to financial institutions for conducting the data match, not to exceed the actual costs incurred by each financial institution. Pursuant to section 466(a)(17)(C) of the Act, a financial institution will not be liable under any Federal or State law to any person for any disclosure of data match information to the State IV-D agency for (1) encumbering or surrendering any assets held by a financial institution in response to a notice of lien or levy issued by the State IV-D agency or (2) for any other action taken in good faith to comply with the requirements of section 466(a)(17) of the Act.

Section 466(c)(1) of the Act as added by section 325 of Pub. L. 104-193 requires States to establish procedures which give the State IV-D agency the authority to take various actions relating to the establishment, modification, or enforcement of child support orders without the necessity of obtaining an order from any other judicial or administrative tribunal. States must also establish procedures to recognize and enforce the authority of other States' IV-D agencies to take those same actions. These actions include the authority to: subpoena any financial or other information needed to establish, modify, or enforce a child support order and to impose penalties for failure to respond to such a subpoena; access information held by financial institutions; and attach and seize assets held by financial institutions.

Section 466(a)(4) of the Act, as revised by section 368 of Pub. L. 104-193, requires States to have procedures under which liens arise by operation of law against real and personal property for amounts of overdue support owed by a noncustodial parent who resides or owns property in the State.

Section 469A(a) of the Act as added by section 353 of Pub. L. 104-193 states that, notwithstanding any other provision of Federal or State law, a financial institution will not be liable under any Federal or State law for disclosing any financial record of an individual to a State IV-D agency attempting to establish, modify, or enforce a child support obligation against the individual.

Section 469A(b) of the Act as added by section 353 of Pub. L. 104-193 establishes that a State IV-D agency which obtains a financial record of an individual from a financial institution pursuant to subsection (a) may disclose such financial record only for the purpose of, and to the extent necessary in, establishing, modifying, or enforcing a child support obligation against the individual.

Section 469A(c) of the Act as added by section 353 of Pub. L. 104-193 states that if anyone knowingly or by reason of negligence discloses a financial record of an individual in violation of subsection (b), the wronged individual may bring a civil action for damages in a district court of the United States. However, no liability will arise under this subsection with respect to a disclosure which results from a good faith, but erroneous, interpretation of subsection (b).

The primary purpose of this Action Transmittal (AT) is to inform States and other interested individuals and organizations of OCSE's policy response to inquiries regarding financial institution data matches. OCSE is mindful that it can and should serve as a catalyst, facilitating the exchange of necessary operational information among the States and otherwise helping States carry out section 466(a)(17) of the Act while concurrently resolving issues which have arisen regarding the closely related statutory provision for high-volume automated administrative enforcement in interstate cases. OCSE is committed to taking a proactive role, working in close collaboration with our State partners and other interested parties in implementing these interrelated features of PRWORA.

ATTACHMENT: Attached are questions and answers regarding these provisions.

INQUIRIES: Regional Administrators

________________________

David Gray Ross

Commissioner

Office of Child Support

Enforcement

I. DEFINITIONS

Question 1: What is the definition of a financial institution?

Answer: Section 466(a)(17)(D) of the Act states that financial institution has the meaning given the term in section 469A(d)(1) of the Act. Section 469A(d)(1) of the Act defines a financial institution as:

a depository institution, as defined in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c));

an institution-affiliated party, as defined in section 3(u) of such Act (12 U.S.C. 1813(u));

any Federal credit union or State credit union, as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752), including an institution-affiliated party such as a credit union, as defined in section 206(r) of such Act (12 U.S.C. 1786(r)); and

any benefit association, insurance company, safe deposit company, money-market mutual fund, or similar entity authorized to do business in the State.

This is the meaning given to the term "financial institution" throughout this document.

Question 2: What constitutes a "similar entity authorized to do business in the State"?

Answer: A "similar entity authorized to do business in the State" is one that provides financially related services or activities and maintains accounts for individuals.

Question 3: How is an account defined?

Answer: Section 466(a)(17)(D)(ii) of the Act defines an account as:

a demand deposit account;

a checking or negotiable withdrawal order account;

a savings account;

a time deposit account; or

a money-market mutual fund account.

Question 4: What are demand deposit accounts, time deposit accounts and money-market mutual fund accounts?

Answer: OCSE has adopted the following definitions. As defined in Baron's Business Guides Dictionary of Banking Terms:

"Money-market mutual fund accounts" are accounts in mutual funds that invest in short-term debt instruments, such as acceptances, Treasury bills, commercial paper, and negotiable certificates of deposit. Money market mutual funds are managed by investment companies registered with the Securities and Exchange Commission and the funds sell shares to investors who receive regular interest payments.

As defined in 12 CFR 204.2:

"Demand deposit" means a deposit that is payable on demand, or a deposit issued with an original maturity or required notice period of less then seven days, or a deposit representing funds for which the depository institution does not reserve the right to require at least seven days' written notice of an intended withdrawal. Demand deposit accounts may be in the form of checking accounts; certified, cashier's, teller's and officer's checks; traveler's checks and money orders that are primary obligations of the issuing institution; checks or drafts drawn by, or on behalf of, a non-United States office of an depository institution on an account maintained at any of the institution's Untied States offices; letters of credit sold for cash or its equivalent; withheld taxes, withheld insurance and other withheld funds; time deposits that have matured or time deposits upon which the contractually required notice of withdrawals was given and the notice period has expired and which have not been renewed; and an obligation to pay, on demand or within six days, a check (or other instrument, devise, or arrangement for the transfer of funds) drawn on the depository institution, where the account of the institutions' customer already has been debited.

"Time deposit" means a deposit that the depositor does not have a right and is not permitted to make withdrawals from within six days after the date of deposit unless the deposit is subject to an early withdrawal penalty of at least seven days' simple interest on amounts drawn within the first six days after deposit. "Time deposit" includes funds payable on a specified date not less than seven days after the date of deposit; payable at the expiration of a specified time not less than seven days after the date of deposit; payable only upon written notice that is actually required to be given by the depositor not less than seven days prior to withdrawal; held in "club" accounts that are deposited under written contracts providing that no withdrawal shall be made until a certain number of periodic deposits have been made during a period of not less than three months even though some of the deposits may be made within six days from the end of the period; or share certificates and certificates of indebtness issued by credit unions, and certifiable accounts and notice accounts issued by savings and loan associations. Time deposit accounts are also savings accounts; IBF time deposit accounts; borrowings, represented by a promissory note, an acknowledgment of advance, or similar obligation. A time deposit may be represented by a transferable or nontransferable or a negotiable or nonnegotiable certificate instrument passbook or statement or by book entry or otherwise.

Question 5: How is a financial record defined?

Answer: A financial record, as defined in 12 U.S.C. 3401(2), the Right to Financial Privacy Act of 1978, is the original of, a copy of, or information known to have been derived from, any record held by a financial institution pertaining to a customer's relationship with the financial institution.

Question 6: What is the definition of the term "agreement" as it is used in section 466(a)(17)(A) of the Act?

Answer: The statute does not define the term "agreement". It is up to the State to determine the appropriate matters to be covered by the agreement. However, we would expect that the agreement would specify the specific information to be reported, the procedures to be used in conducting the data match and reporting the information, the time frames for reporting the information, and any data formats to be used. OCSE's Financial Institution Work Group (comprised of financial institution associations, their constituents, State CSE representatives, and OCSE Regional Office and Central Office representatives) will be developing sample agreements.

Question 7: How often may States require financial institutions to provide the match?

Answer: The statute requires the match be performed for each calendar quarter. States may require financial institutions to perform the match more frequently.

II. GENERAL POLICY

Question 8: Do agreements have to be signed by individual banks or may they be signed by banking associations or other organizations?

Answer: Agreements must cover each financial institution that is subject to the requirement to perform the data match. At State option, if a banking association or other organization has the authority and permission to act as the agent of one or more individual financial institutions, it could sign on their behalf.

Question 9: Are all financial institutions in a State subject to the data match requirements?

Answer: Any financial institution that maintains accounts as defined in section 466(a)(17)(D)(ii) for its customers is subject to the data match requirements under procedures States must enact to conform to section 466(a)(17) of the Act.

Question 10: Must States enter into agreements covering very financial institution with which they are required to conduct data matches?

Answer: Yes.

Question 11: Is a State required to have an agreement with every financial institution in the State which meets the definition of section 466(a)(17)(D)(i) of the Act?

Answer: No. A State may limit the agreements to those financial institutions which maintain "accounts" as defined in section 466(a)(17)(D)(ii) of the Act.

Question 12: What happens if a financial institution is unwilling to reach an agreement with the State IV-D agency?

Answer: The statute requires financial institutions to coordinate with State IV-D agencies. The State is required to have in place whatever procedures or laws are necessary to meet the requirements of section 466(a)(17) of the Act. Should a State fail to do so, Federal IV-D funding and possibly Federal TANF funding could be at risk. To encourage cooperation, the statute does allow State IV-D agencies to pay a reasonable fee, not to exceed the actual costs incurred by such financial institutions, to financial institutions for conducting the data matches. In addition, States may include penalties in their State laws. OCSE will be able to provide technical assistance to State IV-D agencies and financial institutions that want our help in negotiating the agreements.

Question 13: Please explain the entire process for attachments and levies' including the appeals. The financial institution must receive an administrative lien or court order to disburse the money to the child support office. Is there a "fast track" on appeals for accounts that have been seized or frozen?

Answer: There is no single process established by the Federal IV-D statute. As required by section 466(c)(1)(G)(ii) of the Act, the State's IV-D agency must have the authority to administratively (without the necessity of obtaining an order from any other judicial or administrative tribunal) attach and seize the assets of delinquent obligors held in financial institutions.

In many States a lien will serve to "freeze" a financial account, but may not give the financial institution the authority to transmit the encumbered proceeds to the IV-D agency. In these instances a "levy" or other execution instrument must be issued to the financial institution as soon as is allowable under State law.

Section 466(c) of the Act requires States to establish procedures such that in cases in which there is a support arrearage, assets may be secured to satisfy the arrearage by attaching and seizing assets of the obligor held in financial institutions subject to due process safeguards, including (as appropriate) requirements for notice, opportunity to contest the action, and opportunity for an appeal on the record to an independent administrative or judicial tribunal. A request for a hearing, by itself, may not result in a release of the account. State law also governs the defenses available in a hearing scheduled in response to a contest.

Question 14: May States limit the types of accounts they place liens against?

Answer: Yes. Neither section 466(a)(4) nor section 466(a)(17) requires States to impose a lien against every account identified as the result of a data match. States may use their discretion in choosing when and which types of accounts to take action against. The accounts defined in section 466(a)(17) of the Act are personal property and would be governed by the provisions of State lien laws enacted pursuant to section 466(a)(4) of the Act.

Question 15: Can there be an exclusion amount for the account, i.e., leaving $500 in a checking account, $250 in a savings account, etc.?

Answer: As stated above, liens against financial institution accounts would be subject to the provisions of lien laws established by the State. If such exclusions were established under a State's lien law or implementing procedures, they can be applied to financial institution accounts.

Question 16: Are there due process protections for persons subject to liens against assets held by financial institutions on behalf of delinquent obligors?

Answer: In section 466(c)(1) of the Act, the statute requires States to establish procedures such that in cases in which there is a support arrearage, assets may be secured to satisfy the arrearage by attaching and seizing assets of the obligor held in financial institutions subject to due process safeguards, including (as appropriate) requirements for notice, opportunity to contest the action, and opportunity for an appeal on the record to an independent administrative or judicial tribunal.

III. LIABILITY AND CONFIDENTIALITY

Question 17: What liability will accrue to financial institutions for the release of account information under section 466(a)(17) of the Act?

Answer: Section 466(a)(17)(C) of the Act establishes that a financial institution shall not be liable under any Federal or State law to any person for any disclosure of information to the State IV-D agency for providing the required information covered in section 466(a)(17)(A)(i) of the Act. Similarly, financial institutions shall not be liable under any Federal or State law for encumbering or surrendering any assets they hold in response to a notice of lien or levy issued by the IV-D agency. In addition, financial institutions will not be held liable for any other action taken in good faith to comply with the requirements of section 466(a)(17)(A) of the Act.

Question 18: Are financial institutions required to perform data matches with States in which they are not doing business?

Answer: Such exchanges are not required by section 466(a)(17) of the Act. However, financial institutions may share information with any State as long as they are permitted to share such information under State and Federal laws.

IV. MATCH ISSUES

Question 19: What data must be included to make the match?

Answer: As specified in the statute at section 466(a)(17)(A)(i), each quarter the State's financial institutions must provide the name, record address, social security number, or other taxpayer identification number, and other identifying information for each noncustodial parent who maintains an account at the financial institution and who owes past-due support. The State will inform the financial institution of the types of identification that must be provided. The State must provide the financial institutions the name and social security number or other taxpayer identification number.

Question 20: Will each quarterly match consist of a running list of delinquent obligors or will the list be the same for the year?

Answer: A delinquent obligor's name must be submitted by the State to financial institutions or where applicable, be matched against the list of account holders submitted by the financial institutions to the State, for each quarter in which he or she continues to owe past-due support.

Question 21: May a State specify a length of time after which it will stop submitting a delinquent obligor's name if there has been no success in finding any accounts belonging to the obligor?

Answer: No. There is no time limit specified in the statute.

Question 22: May a State set thresholds for arrearage amounts below which they will not submit a name to a financial institution or for account balances below which they will not take action if a match does occur?

Answer: Yes. States may take into consideration such factors as the arrearage amount in deciding which names to submit and the account balance in deciding which accounts to take action against.

Question 23: Can States give financial institutions the option of sending a list of depositors to child support (Option One) or receiving a list of delinquent obligors from child support (Option Two)? In Massachusetts, small banks preferred Option One and large banks preferred Option Two.

Answer: Under Section 466(a)17), States have the discretion to decide whether to give financial institutions this option. States would need to determine that such an option would also be in compliance with State law. Issues such as these should be covered in the State/financial institution agreement.

V. FEE QUESTIONS

Question 24: How will fees for financial institutions work?

Answer: The statute specifies at section 466(a)(17)(B) of the Act that the State IV-D agency may pay reasonable fees to financial institutions for conducting the data match. These fees are not to exceed the actual costs incurred by the financial institution. States will have to determine what, if any, fees to pay.

Question 25: Will Federal financial participation (FFP) be available to partially reimburse States for the costs of paying fees to financial institutions?

Answer: Federal funding is available to partially reimburse States for the cost of reasonable fees paid to financial institutions for the processing of data matches.

Question 26: What are the actual costs to financial institutions of conducting the matches? States need to understand these in order to avoid allowing financial institutions to profit from this law.

Answer: OCSE and the financial institution workgroup will develop material that will assist States to determine these costs and reasonable fees to pay for these services. However, these costs can be minimized if all States use the standardized forms developed by the financial institution workgroup.

VI. GENERAL QUESTIONS

Question 27: Are the delinquent obligor's assets and liabilities both covered?

Answer: The statute speaks only of the delinquent obligor's assets under section 466(a)(17).

Question 28: What are the media for doing the match? Major financial institutions would like this match to be as automated as possible.

Answer: The statute at section 466(a)(17)(A)(i) requires the match to be as automated as feasible. The level of automation that is feasible will be determined by each State.

Question 29: What are the penalties on financial institutions for not reporting as required to State IV-D agencies?

Answer: Section 466(a)(17) does not specify any penalties. States may establish penalties on financial institutions for not reporting to them or complying with the terms of the agreement. In addition, section 466(c)(1)(B) of the Act requires States to have procedures which allow State IV-D agencies to subpoena financial information and impose penalties for the failure to comply.

Question 30: What is a reasonable time for financial institutions to respond to a match request?

Answer: The statute does not establish specific timeframes for responses. States will have to establish these times. We urge States to work with their financial institutions and spell out reasonable timeframes in the agreements. Financial institutions have requested that the States avoid peak periods created by other government-required financial reporting. The financial institutions have also suggested that the States all use consistent timeframes. Therefore, the States are urged to consider mailing tapes to financial institutions quarterly on the 15th of January, April, July, and October, and to provide financial institutions 45 days to respond.

Question 31: What is the best way to exchange data with the vast number and range of financial institutions (i.e., banks, credit unions, etc.) in each State?

Answer: The Financial Institution Work Group discussed above will be developing sample agreements, standard operational procedures and an outreach/implementation plan which should help in addressing and reaching the various types of financial institutions within each State. However, States should not wait for sample agreements from the Work Group before beginning to reach agreements with their State financial institutions.

Question 32: With which States must multistate financial institutions conduct data matches and which accounts are subject to a given State match?

Answer: Multistate financial institutions must conduct data matches against their account records with each State in which they do business. The precise answer would depend on whether the multistate financial institution had separate legal entities in each State or one charter covering several States. If the financial institution has separate legal entities in each State, it would run the match against all accounts for each legal entity with the list received from the State in which the entity was located and report any matches to that State. If the financial institution had several States under one charter, it would run the list received from each of the States covered by the charter against all the accounts covered by that charter.

Question 33: How should financial institutions deal with account holders who live in a State that is different from the State that is conducting a match?

Answer: The residence of the customer or account holder is irrelevant for purposes of conducting the data match. If a financial institution is doing business in a State, it must furnish the required information about all its account holders who match the names on the list furnished by that State.

Question 34: Are financial institutions liable for information errors committed in good faith (i.e., incorrect taxpayer ID numbers)?

Answer: No.

Question 35: May financial institutions choose not to match against a category of accounts such as checking accounts?

Answer: No. The financial institution must give the State all the matches for a given social security number for all covered accounts. Covered accounts are defined in section 466(a)(17) of the Act and question #3 of this action transmittal. The State will choose which accounts to place a lien or levy against.

Question 36: To the extent that financial institutions charge penalties or fees, such as for early withdrawal or for the failure to maintain a minimum balance, on accounts identified by the data match when these accounts are subsequently reduced by liens or levies, who will be responsible for paying such fines?

Answer: This is an area for States to address in State banking laws or rules or, in the absence of any such State laws or rules, is a matter to be addressed by the financial institution's rules or practices.

Question 37: What is the effective date for the requirement at 466(a)(17) of the Act?

Answer: As stated in section 395 of the Personal Responsibility and Work Opportunity Act of 1996 (PRWORA), the provisions requiring the enactment or amendment of State laws under section 466 of the Act must be effective on the later of the date specified in PRWORA or the effective date of laws enacted by the legislature of a State implementing the provisions. In no event shall the effective date be later than the 1st day of the 1st calendar quarter beginning after the close of the 1st regular session of the State legislature that begins after the date of the enactment of PRWORA. If a State has a 2-year legislative session, each year of the session will be deemed to be a separate regular session of the State legislature.