In 2020, Wells Fargo Bank was hit with a $22.4 million judgment in connection with a writ of garnishment. Other banks have had similar experiences related to issues with responses to writ of garnishments with costly consequences.
Account garnishments are a common and routine occurrence for many financial institutions. Garnishments are governed by statute and have specific requirements when responding. What is required of banks? A writ of garnishment imposes a lien on all property in the hands of the bank that belongs to the judgment debtor at the time of service until the return date of the writ. The bank is not permitted a “reasonable time” to process the garnishment according to the Arkansas Court of Appeals, and it must hold funds immediately when it is served with the garnishment.
The writ of garnishment is a lien on any monies that are deposited into the bank account between the time of service and the date the bank’s answer is filed. The answer is required to be filed within 10 days of service and must be “under oath.” An unsworn answer is insufficient under Arkansas law. Moreover, it is important to note that the filing of the answer by an employee of the bank (and not an attorney) may also be considered the unauthorized practice of law.
It is important that all banks develop policies and procedures that appropriately respond to garnishments as required by statute. I encourage all banks to learn from the recent cases and take the appropriate actions now to make sure you are complying with the statutes and have implemented best practices. Do it now before it is too late.
Jake Fair is a partner and licensed CPA with Wright Lindsey Jennings. Jake is a member of the firm’s Banking Law Group and advises banks daily on issues revolving around, among other things, subpoenas, compliance, garnishments, loan documentation, and other issues related to both federal and state law.