United States: Notice to financial institutions: increase in the amount of the wage exemption for restriction notices and direct debits as of December 31, 2021
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Under New York’s Exempt Income Protection Act (“EIPA”), certain funds in deposit accounts are exempt from most restriction notices and withdrawals. An exemption under the EIAA relates to an amount deemed to be a protected wage, the amount of this exemption being linked to the minimum wage. Following an increase in the New York State minimum wage that will take effect on December 31, 2021, the amount of the wage exemption under the EIAA will increase from that date in certain parts of the state. .
The EIPA came into effect in 2009 and, among other things, requires financial institutions to exempt certain funds on deposit accounts from the reach of creditors seeking to restrict or draw on those accounts. There are two exemptions under the EIAA: (1) for wages; and (2) for direct deposit or electronic payment of amounts “reasonably identifiable as exempt funds by law” during the 45-day period preceding service of the restriction notice or withdrawal.
Under the wage exemption, a financial institution must make a certain amount available to the depositor based on the amount of the federal or New York State minimum wage (whichever is greater). Since the New York State minimum wage will increase on December 31, 2021, the amount of the wage exemption under EIPA will also increase from that date. Under legislation enacted in 2016, the minimum wage in New York State now varies depending on the location in New York State where the person is employed. As of December 31, 2021, the minimum wage in New York will remain $ 15.00 per hour; the minimum wage in Nassau, Suffolk and Westchester counties will increase to $ 15.00 an hour; and the minimum wage in all other parts of the state will drop to $ 13.20 an hour.
The corresponding wage exemptions based on the new minimum wage amounts as of December 31, 2021 are as follows: $ 3,600 in New York City and in the counties of Nassau, Suffolk and Westchester; and $ 3,168 in all other parts of the state.
The New York State Department of Financial Services (“DFS”) provided advice to banking institutions in April 2017 on how to determine the applicable wage exemption given the possibility that the institution may not know where its client is employed. DFS guidelines state that:
- If, after due diligence, a banking institution obtains the most recent information regarding the business address of an account holder … the banking institution should calculate the amount of exempt wages on the basis of this information.
- However, if, after due diligence, a banking institution is unable to obtain the most recent information, as described in point (i) above, the banking institution may use the lowest minimum wage. high in force in the state at the time of this calculation, thereby protecting the account holder’s salary as required by law.
Please note that the DFS guidelines do not specify what type of activity constitutes “due diligence” with respect to these matters.
As stated above, in addition to the salary exemption, there is an exemption for funds exempted by law. Under this separate exemption, if there has been a direct deposit or electronic payment of legally exempt funds to an account during the 45-day period prior to service of the prohibition or withdrawal notice , the institution must generally make available to the depositor up to $ 3,000 of the account despite the formal notice or the debit. The current amount of $ 3,000 was increased to this amount in April 2021 and is subject to change again in April 2024 and every three years thereafter based on changes in the Consumer Price Index.
Please note that this notice is a general overview of the application of EIPA and is not intended to be legal advice. The EIPA requirements are very detailed and must be reviewed in their entirety and in connection with the federal rules protecting certain funds from garnishment.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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