Maryland Order Protects Stimulus Payments
On April 29, 2020, Governor Lawrence Hogan issued an order prohibiting financial institutions from holding federal stimulus rebates — issued under the federal Coronavirus Aid, Relief, and Economic Security Act — in connection with private creditor garnishments. The order also prohibits Maryland banks and credit unions from exercising a right of setoff to the extent that funds are traceable to a federal stimulus rebate. This order remains in effect until Governor Hogan terminates the COVID-19 state of emergency and does not apply to child support-related garnishments. The order left financial institutions with questions concerning: (1) how to identify stimulus rebates when they are coded as tax refunds; (2) what does a financial institution need to do if a stimulus rebate had already been paid to a third-party judgment creditor; and (3) is the application of a stimulus rebate to a negative account balance a prohibited setoff under the order.
In response to the order, on April 30, 2020, the Maryland Office of the Commissioner of Financial Regulation issued guidance for depository institutions. If an institution froze stimulus rebate funds or paid them to a third-party judgment creditor prior to the order, the commissioner will not consider the institution to have violated the governor’s order. Notably, however, the commissioner’s guidance directs institutions who did freeze or disburse stimulus rebate funds to “endeavor” to release or retrieve those funds. It is unclear how a financial institution could retrieve funds already paid to a third-party judgment creditor.
As a followup to the commissioner’s guidance, on May 4, 2002, the Maryland Office of Legal Counsel issued interpretive guidance concerning the governor’s order. The interpretive guidance provides that enforcement action will not be recommended for financial institutions that, prior to receiving notice of the governor’s order, either paid stimulus rebate funds to a third-party judgment creditor or held such funds pursuant to a garnishment order (if the funds still on hold are released).
The interpretive guidance also clarified that enforcement action will not be recommended for financial institutions that, after receiving notice of the governor’s order and due to “bona fide” operational limitations, failed to identify a stimulus rebate (and therefore subjected it to a hold), return stimulus rebate funds on hold and make “all reasonable efforts to eliminate, or develop work-arounds” for the operational limitations that prevented compliance with the governor’s order. Finally, the interpretive guidance clarified that when stimulus rebate funds are deposited into a deposit account with a negative account balance, the application of such stimulus rebate funds to the negative balance is not a setoff under the governor’s order — and is permissible.
Please contact Christopher R. Rahl with any questions concerning the treatment of deposits, garnishments and the recent order and guidance.