Financial Services

On April 23, 2020, California Governor signed Executive Order N-57-20, which exempts garnishment for any individuals receiving federal, state or local government financial assistance in response to the COVID-19 pandemic, including payments under the CARES Act.

Executive Order N-57-20 was issued pursuant to the Governor’s powers to suspend regulatory statutes and agency rules during a state of emergency. It provides that financial assistance under the CARES Act, and “any other federal, state, or local government financial assistance made available to individuals in express response to the COVID-19 pandemic, shall be exempt from any attachment, levy, execution, or garnishment” without requiring any action by the person receiving the assistance. Further, the exemption shall apply to funds held in an account “to the extent those funds are traceable to the financial assistance received by that individual.” Executive Order N-57-20 also provides “no financial institution shall have any lien upon, or any right of setoff against, any financial assistance or funds” that are made available in response to the COVID-19 pandemic. Again, funds held in an account shall be exempt from such a lien or a right of setoff “to the extent those funds are traceable to such financial assistance received by that individual.”

However, Executive Order N-57-20 also provides these exemptions do not apply “to any attachment, levy, execution, or garnishment in connection with any action for, or any judgment awarding, any child support, spousal support, or family support, or any criminal restitution payable to victims.”

Lastly, Executive Order N-57-20 provides it is unlawful to collect any funds in a manner inconsistent with the Executive Order or to retain such funds collected prior to the date of the Executive Order. Any money previously collected shall be promptly returned without any further action by the person that received the assistance.

Executive Order N-57-20 follows Executive Order N-52-20 on April 16, 2020, which among other things, suspended the State of California’s right to financial assistance made available to individuals under the CARES Act for judgments assigned to the State. It also follows New York and other states implementing similar rules, along with calls for Congress to implement a national exemption, which would avoid a piece-meal state by state framework and any questions over preemption.

Depository institutions should immediately implement appropriate procedures to ensure that funds from federal economic impact payments are not subject to garnishment or any other legal process unrelated to child/spousal support or criminal restitution. However, be aware that because the CARES Act did not identify economic impact payments as exempt, payments deposited directly do not have a standard ACH entry code associated with other government benefits. So careful attention must be given to identifying exempt funds.

Severson & Werson will continue to monitor this area for new developments and continue to evaluate Executive Order N-57-20 and other related orders.

The full text of Executive Order N-57-20 can be read here: https://www.gov.ca.gov/wp-content/uploads/2020/04/4.23.20-EO-N-57-20.pdf

Should you have an questions or seek additional information, please contact Mark Wraight at miw@severson.com or Laszlo Ladi at ll@severson.com