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Thursday, April 22, 2010

MN Supreme Court Decision on jointly held bank account garnishments

Friends,

The Minnesota Court just decided a case on a number of questions regarding a creditor's ability to garnish a jointly held bank account when one of the account holders is not liable on the judgment which underlies the collection effort. The case was a Certified Question from the United States District Court, District of Minnesota that went the Supreme Court of Minnesota to decide the following issues.

First: "May a judgment creditor serve a garnishment summons on a joint account to satisfy the debt of an account holder when not all of the account holders are judgment debtors"? Answer: The court found that Minn. Stat. Sec. 524.6-203(a) does not limit a judgment creditor from serving a garnishment summons on a garnishee (bank usually), and attaching funds in a joint account to satisfy the debt of an account holder, even though not all of the account holders are judgment debtors.

Second: If the answer to the first question is to the affirmative the next question is "Is it the judgment creditor or the account holders who bear the burden of establishing net contributions to the account during the garnishment proceedings"? This is a germane question as the Minnesota garnishment statute states that a garnishment summons only pertains to money that is "due" or "belonging" to a debtor. Obviously this is problematic when the debtor has co-mingled funds with a non-debtor and a garnishment summons is served and all the funds in an account are attached for the garnishment. Answer: The court found that the burden of establishing net ownership of contributions to a joint account holder in a garnishment lies with the account holders and NOT the garnishing creditor.

Third Question: What applicable presumptions regarding ownership, if any, apply in the absence of proof of net contributions? (good question) Answer: The court, unfortunately for our side...., decided that the presumption will be that the judgment debtor is initially, but rebuttably (meaning, of course, that presumptions can be argued against and overcome), presumed to own all the funds in the joint account.
The court didn't go into any great detail about what exactly the circumstances are for rebutting the presumption of ownership in the account funds by the judgment debtor would be but that should be a fairly easy exercise especially these days with the standard practice by banks imaging checks and whatnot that are deposited into accounts. Cash deposits though...tougher row to hoe with that one.

Moral of the story............if you owe people money don't merge your funds with anyone else's money in a joint account. Not even your kids for a minor custodial account...we've seen problems with those too. If you are not a judgment debtor...don't open an account with someone who is or you may get a nasty surprise when one of their judgment creditors executes on your funds and then you've got a battle on your hands to get it back.

Wednesday, April 7, 2010

Federal Reserve Board announces rules

The Federal Reserve Board has announced that it has adopted amendments to Reg. Z--Truth In Lending (12 CFR 226) to protect consumers from abusive practices perpetrated by credit card companies.

1) Limitations on raising interest rates. The rate cannot be increased in the first year and after that a new rate can only be applied to new transactions with 45 days notice.

2) New accounts cannot be opened or a credit line on an existing account can't be increased without considering the account holders ability to pay. (What exactly the standards are for that one has to wonder)

3) Young adults and college kids. If under the age of 21 no account can be issued unless the ability to pay is demonstrated on the application or there is a co-signer over the age of 21 with demonstarted ability to make the payments. There are also limits on marketing credit cards to students. (I remember credit card companies doing this on campus back in the 80's...free T-shirt for signing up....what a crock that was...ended up being the most expensive "free" T-shirt that anyone could have imagined).

4) Over limit fees. Issuers must obtain permission from the account holder before the impose any fee for a transaction exceeding the limit on the account. No more than one over limit fee per billing cycle. They also can't impose an over limit fee for the same over the limit purchase/transaction for more than a maximum of three billing cycles.

5) Payment allocation. Payments that exceed the minimum amount on an account balance on an account with more than a single balance must be applied to the balance with the higher rate.

6) Standard credit card agreements must be disclosed and posted on a credit company's own website and also must be provided to the Federal Reserve to post on it's website to be available to consumers.

7) Fees. Fees cannot be charged to an account (other than fees for credits on returned payments, late payment or exceeding the credit limit fees) totalling in excess of 25% of the credit limit established when the account was opened during the first year the account is active/open.

8) All periodic statements are required to disclose payment information regarding payoff of the account balances. They have to state the total cost and the actual amount of time that it would take pay off the balance in full by making only minimum payments. They are also required to disclose what it would take to pay the balance in full within 36 months.

9) Credit card issuers can't charge fees for making a payment unless it is a fee for expedited service by a representative of the credit card company.

10) Credit card issuers cannot "Double-Cycle" bill consumers. If a part of a balance is paid before a grace period expires the credit card company can't assess charges on that portion of the balance that has already been repaid.

Note that the amendments to the Credit Card Act are effective 2/22/10 but that some provisions are not mandatory and so may not be in effect until 7/1/10.