Requesting CA Guidance: Garnishment, Liens, and Right of Setoff

Capitol building in Sacramento, CA

To help credit unions avoid major operational and compliance challenges, the California Credit Union League has requested that the California Department of Business Oversight (DBO) bring recognition of an important CARES Act stimulus issue to the attention of Gov. Gavin Newsom’s office — namely member garnishment, liens, and right of setoff.

The League sent a joint letter with the California Bankers Association to the DBO this week on the matter.

Newsom recently issued Executive Order N-57-20, which exempts CARES Act stimulus funds and any other federal, state or local government financial assistance in response to the COVID-19 pandemic received by individuals from garnishment. The order also states that no financial institution shall have any lien upon, or any right of setoff, against CARES Act stimulus funds, and that consumers entitled to these funds do not have to take any action.

The League’s letter to the DBO discusses the complexity for credit unions in complying with this order and the unintended consequences it has created. Overdrawn member accounts made whole by stimulus funds present a huge operational challenge for credit unions. The League has spoken with, and is diligently working with, the DBO on this financial industry issue. It will keep credit unions informed on what it learns.

In the meantime, credit unions should comply to the best of their ability. They should ensure all staff are aware that if a member has had any stimulus funds automatically applied to cover an overdraft and wishes the overdraft to be reinstated, the credit union will take immediate action.

Credit unions should consult with their legal counsel. Additionally, posting a message on your credit union’s website similar to the one below may be prudent in keeping your members informed, including a staff representative’s name, phone number and email address for members with additional questions:

  • At your credit union, if accounts are overdrawn, any deposits are automatically applied to cover negative balances. However, we are committed to ensuring you have full access to your CARES Act stimulus funds. Please contact us if you have questions or need further information on how we can help you. Your credit union continues to be here for you during these unprecedented times.

CUs Continue Stepping Up for Members
According to weekly survey data collected by the California and Nevada Credit Union Leagues from late March to late April, credit unions in California and Nevada have accomplished the following for their members:

  • Nearly 459,000 members have been provided financial relief.
  • Nearly 459,000 extensions made on $12.1 billion in member loans.
  • About $44.3 million provided in emergency loans to members.
  • More than 1.4 million fees waived for members.
  • Approximately $519 million employee/business loans made via the Paycheck Protection Program (PPP) loans from the U.S. Small Business Administration and Treasury Department’s federal relief program.

While credit union data in both states is still being gathered every week, the Leagues' ongoing COVID-19 Impact Survey continues to track how credit unions are assisting consumers during the economic fallout from the Coronavirus pandemic and which ones are participating in the SBA’s PPP funding efforts.

The data represents a great majority of credit unions in California and Nevada, but not all. The Leagues are encouraging credit unions every Monday to complete the survey by sending CEOs a link. The numbers continue helping the Leagues tell a powerful, compelling story about the impact credit unions are making in their communities.

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