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New Changes to Missouri Garnishment Law

Garnishments may seem like commonplace to many banks.  The general idea of turning over funds of a judgment debtor held by the bank to a judgment creditor appears to be a straightforward transaction with little risk to the bank.  Yet, a garnishment can often place a bank in a precarious position.  On one hand is the bank’s customer, who the bank strives to please.  On the other is the customer’s creditor, who may have a claim against the bank itself if the bank does not comply with requisite procedures.  In other words, the bank is caught between two parties with claims to the same funds, either of whom may attempt to collect from the bank if the funds are distributed improperly. In order to protect itself from potential liability to either party, a bank must keep current on changing laws and regulations relating to garnishments. 

A minor new change to the Revised Statutes of Missouri may impact banks’ potential liability.  Section 525.233 was recently amended to provide that only the last four digits of a social security number should appear on a garnishment.

A more substantial development in garnishment law came about as a holding in the case of Capital One Bank v. Edison Credit Union, 299 S.W.3d 662 (Mo. Ct. App. 2009).  The case held that a garnishee bank may assert an exemption on behalf of a debtor, but is not required to do so.  However, a bank who chooses to make such an assertion of an exemption for the customer does so at its own risk.  Where a bank is incorrect in asserting that funds are not subject to garnishment, the bank will be liable to the garnishor.  In the case, Capital One garnished the account of a member of Edison.  Edison, in turn, claimed that the funds in the account were exempt and refused to hold them.  Capital One filed suit against Edison, claiming that Edison did not have the standing to assert the debtor’s exemption.  In reaching its holding, the court relied on § 525.080.2 which provides that a garnishee is not required to deliver property to the court to the extent that the property is exempt.  The court further noted that a garnishee’s role in the garnishment process is to serve as a neutral party willing to disclose all relevant information and abide by the court’s decision. 

Banks should carefully consider the impact of the Capital One case before claiming an exemption on behalf of its customer.  Little risk exists for a bank which chooses to hold all garnished funds; whereas a bank asserting an exemption may be liable for the funds it refuses to hold.  Thus, a bank is best protected by simply notifying the debtor customer of the garnishment and allowing the customer to raise the exemption personally.  The court’s statement that garnishees should remain neutral seems to serve as a warning to banks in their decisions regarding the assertion of exemptions. 

Another recent change to garnishment law involves Missouri Supreme Court Rule 90.07.  This Rule is not only a change impacting banks’ garnishment practices; it is also the source of legal debate.  The new Rule became effective July 1, 2010, so banks must comply with the requirements on all forthcoming garnishments.  Rule 90.07 relates directly to interrogatories served on the bank as garnishee and provides that a bank must:

state whether at the time the writ of garnishment was served or at any subsequent time did the debtor have funds on deposit in an account in which all funds are: (A) Deposited electronically on a recurring basis, and (B) Reasonably identified as being funds on deposit that are exempt from garnishment pursuant to Section 513.430.1(10)(a), (b), or (c), RSMO; and, if so, identify each account, state the reason for the believed exemption, and identify the entity electronically depositing those funds.

The debate surrounding this Rule stems largely from the Capital One decision stating that banks may choose to assert an exemption.  Some attorneys argue that the Rule actually requires garnishee banks to release funds that are described in the Rule.  However, it seems clear from the plain language of the Rule that it merely applies to interrogatories.  If the Rule actually required such an action on the part of a bank, it would surely not relate directly to interrogatories and would employ active language, other than “state,” to describe the bank’s duties. 

Despite the seemingly clear language of the Rule, controversy still exists.  Nonetheless, in order to avoid potential liability to garnishors under the Capital One decision, banks should simply hold all garnished funds.  Until the plain language of the Rule changes or an official interpretation reaches a contrary decision, banks are not required to make a judgment as to whether funds are exempt. 

Though not a new development in the law, an often overlooked feature of the Missouri Revised Statutes regarding garnishments is the ability of banks to collect administrative fees.  Section 525.230 allows banks to collect the fee in the amount of the greater of eight dollars ($8.00) or two-percent of the funds garnished without court approval.  This fee is compensation for the expense of processing a garnishment.  The fee may be withheld in the same manner as the garnishment and may be collected first .  With court approval, the bank may also collect a reasonable allowance for items such as court costs and related fees.  Though these amounts may not appear to be great in regard to an individual garnishment, a bank dealing with a substantial number of garnishments may benefit from collecting such fees.  A bank should, however, modify its fee schedule using regular procedures to reflect this new garnishment fee.  Banks generally post notice of such changes for thirty days prior to the effective date of the change.

Banks should review internally review garnishment procedures to ensure that the aforementioned developments in garnishment law are met.  The seemingly simple garnishment process can turn into a costly liability for failing to follow the necessary legal requirements.  Fortunately, through awareness of the changes and clearly defined procedures, a bank can effectively serve as a garnishee while limiting its potential liability.  As seen in the December issue of Missouri Independent Bankers Association newsletter