It is my understanding that the new garnishment rules will not apply to contractual right of setoff as they only cover actions resulting from court proceedings. Is this correct? Does anyone have any more insight into this?

Garnishment is one method of taking the customer's funds. Set off is a different method. There is no connection between them and the new regulations do not affect that.

If you are asking if you can exercise a right of set off against funds traceable to federal benefit payments, my response would be, "No."

Thank you for your reply, Ken!

A question regarding this topic...just for clarification...

Currently we Process Right of Setoff before garnishments and levies. Can we still do this? Or will be have review the account for protected funds, before our accounts control department performs Right of Setoff for Deliquient loans?

We don't do this very often, but when we do, we do Right of offset first then process the garnishment.

You must do any right of offsets PRIOR to receiving the garnishment in the bank. Once you've received the garnishment, you must hold/remit whatever funds are in the account at the time you received it less the protected amount.

Whether you have a right of setoff against garnishments may be a matter of state law. For example, you can't exercise setoff in front of an IRS levy (which isn't a garnishment order under the regulation, anyhow), but you might be able to setoff in front of a state-court-issued garnishment order. Check with bank counsel to determine when setoffs may and may not be taken, and the technical requirements involving default, etc.