Marilyn Ray Smith, Chief Legal Counsel and Associate Deputy Commissioner,
Massachusetts Department of Revenue, Child Support Enforcement Division

Testimony Before the Subcommittee on Human Resources
of the House Committee on Ways and Means

Hearing on Oversight of the Child Support Enforcement Program

September 23, 1999

Madam Chairman, distinguished members of the Subcommittee: Good morning, and thank you for the opportunity to report to you on the significant accomplishments of the nation's child support enforcement program in the three years since passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

My name is Marilyn Ray Smith. I am Chief Legal Counsel and Associate Deputy Commissioner for the Child Support Enforcement Division of the Massachusetts Department of Revenue.

Madam Chairman, I would like to commend the leadership of this Committee for its work in crafting the child support provisions of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). This legislation contained the most comprehensive provisions on child support enforcement in the history of the program, and has moved us a long way toward reducing welfare dependency and ensuring that children get the child support they are due, on time and in full. It provides for better access to financial and employment information; it helps states streamline procedures to make maximum use of automation; it makes it easy for parents to establish paternity; and it removes barriers in interstate cases.

I will focus my remarks today on the financial institution data match, a program that was started first in Massachusetts and then adopted by Congress in 1996 as a requirement for all states. First, I will provide an overview of the program. Second, I will illustrate how effective financial institution data match has been in increasing child support collections in Massachusetts, contributing more than $25 million from almost 43,000 levies since its inception in 1993. Third, I will explain how it works -- for the banks, for the Department of Revenue (DOR), and for the noncustodial parents whose assets have been seized. Finally, I will address due process concerns that some may raise.

"Go Where the Money Is": Financial Institution Data Match

Someone once asked Willie Sutton why he robbed banks, to which he replied "That's where the money is." The same simple logic applies for child support programs. Many noncustodial parents who are delinquent in child support payments are not subject to wage assignments because they are self-employed or they work under the table. Or they make such small payments toward a large arrearage that it will take twenty years to pay it off. Meanwhile, they salt money away in a bank account, a credit union, or a money-market mutual fund, while their children do without -- often supported by the taxpayer.

Sometimes referred to by its acronym, "FIDM," the financial institution data match is one of the boldest and most innovative provisions of the 1996 child support reforms. Section 372 of PRWORA (42 U.S.C. 666(a)(17)) requires state child support agencies to enter into agreements with financial institutions doing business in the state to develop and operate a data match system, using automated data matches to the maximum extent feasible, to exchange information each calendar quarter on the name, customer address, Social Security or other taxpayer identification number, and other identifying information for each noncustodial parent who maintains an account at the financial institution and who owes past-due support. A 1998 amendment allows multi-state financial institutions to enter into one such agreement with the Federal Office of Child Support Enforcement (OCSE), which can perform the data match on behalf of all the states.

Financial institution data match is thus designed to establish a process where every quarter a magnetic tape of child support debtors subject to child support liens can be compared to tapes of account holders from banks, credit unions, mutual funds and other financial institutions (other electronic means may be used in lieu of magnetic tapes). A data match identifies account holders with child support debts and allows the child support agency to issue a levy to the financial institution, with notice to the account holder. The financial institution then freezes the funds in the account up to the amount of the child support debt and forwards the funds to the child support agency for distribution to the family (or to the state, where support has been assigned to the state).

Financial Institution Data Match Is a Powerful Collection Tool

As the charts on the following pages vividly illustrate, financial institution data match is a powerful tool for collecting past-due support. As Charts 1 and 2 indicate, since 1993, Massachusetts has collected more than $25 million from almost 43,000 levies through use of this remedy. Also of note is that bank levy is not just a remedy for non-welfare cases. Almost 45 percent of the total amounts collected were allocated to public assistance reimbursement. This is the case even though Massachusetts has followed "Family First" distribution rules since 1992. Under these distribution rules, in cases where arrears are owed to both the state and the family, we pay collections from bank levies to families first, before reimbursing the state for public assistance costs. Moreover, as shown in Chart 3, only the federal and state tax refund intercept programs collect more arrearages each year than the bank levy program. In fact, the average bank levy is $770, just $160 less than the average federal tax refund intercept of $930, and a significant $470 more than the average state tax refund intercept of $300 (Chart 4). There are just more of the latter to make up a greater total collection amount.

Just as the amount collected from tax refund intercepts varies from year to year depending on the number of cases submitted and the amount of withholding that has occurred, similar factors affect returns on the financial institution data match. While DOR was making the transition to the new automated computer system mandated by the Family Support Act, the bank levy program was temporarily suspended. In addition, there are generally more collections at the beginning of the program. Once a seizure takes place, it takes a while for a bank account to be replenished by new deposits. Or the noncustodial parent may close the account, and it takes a while for a new one to surface. Nonetheless, DOR projects that this year's financial institution data match will reach new highs, with estimates of collections between $6 and $7 million by June 30, 2000. One source of this boost is expected to come from the multi-state financial institution data match, which is underway at the Federal Office of Child Support Enforcement. When it is in full operation, interstate banking will no longer be a safe harbor for delinquent noncustodial parents. In fact, we just seized more than $6,000 on behalf of a mother in Ohio from bank accounts belonging to a vice president of a major Boston bank who owes more than $20,000 in back support. He had been contentedly repaying his debt at the rate of $150 per month -- a payment plan that would have taken 11 years to complete, all while he pulled down a salary of almost $100,000 a year!

 

MASSACHUSETTS DEPARTMENT OF REVENUE
CHILD SUPPORT ENFORCEMENT DIVISION

Automated Bank Match Program

CHART 1

 
Bank Levy Collections*
Color
AFDC
Non-AFDC
Total
FY93
$2,496,640
$2,611,114
$5,107,754
FY94
$1,383,660
$1,895,806
$3,279,466
FY95
$1,099,375
$1,370,343
$2,469,718
FY96
$3,150,251
$3,505,834
$6,656,085
FY97
$1,394,872
$2,012,184
$3,407,056
FY98**
$1,065,358
$1,430,900
$2,496,258
FY99**
$97,268
$144,442
$241,711
FY00***
$577,510
$1,062,475
$1,639,984
Grand Total
$11,264,934
$14,033,098
$25,298,032

 

 

 

*Collections are adjusted for refunds.
** The bank levy match program was not in use from November 1997 through May 1999.
*** Collections through first two months of FY2000

 


CHART 2

smith2.jpg (17330 bytes)

 

 


 

Automated Bank Match Program

CHART 3

 
Color
FY95
FY96
FY97
FY98
FY99
FY95-FY99
FEDERAL TAX
$10,741,691
$12,492,050
$13,807,501
$14,299,587
$6,049,830
$57,390,660
STATE TAX
$3,030,500
$2,843,061
$4,001,006
$4,265,170
$5,288,837
$19,428,575
BANK LEVY
$2,469,717
$6,656,085
$3,407,056
$2,496,258
$241,711
$15,270,827
WORKER'S COMP.
$1,476,967
$1,859,324
$1,376,632
$1,550,275
$2,555,379
$8,818,577
LIENS
$305,155
$321,933
$372,053
$867,030
$1,238,574
$3,104,744
LOTTERY
$461,193
$341,078
$356,951
$303,758
$317,901
$1,780,882

smith3.jpg (15953 bytes)

 


CHART 4

Recently, the average bank levy collection has been about $770 while the average federal tax intercept is about $930 and the average state tax intercept is about $300.

smith4.jpg (13420 bytes) 

How Financial Institution Data Match Works in Massachusetts

In 1993, as part of an ambitious and aggressive initiative by the Weld-Cellucci Administration to improve child support enforcement in advance of welfare reform, Massachusetts started its first financial institution data match. As you may recall, the child support agency in Massachusetts is housed in the Department of Revenue. At first, we used Form 1099 information that banks and other financial institutions were already required to report to DOR as the tax collection agency for the Commonwealth. However, we soon recognized that by the time it got to us, Form 1099 information was often stale and out of date, with bank accounts depleted or closed when we sent a bank levy. Inspired by our early successes, in 1994, the Legislature authorized the Commissioner of Revenue to require financial institutions to report account information to DOR every quarter (Mass. Gen. Laws, c. 62E, § 4). The required information consists of the account holder's name, customer address, Social Security number, and other identifying data.

Financial institutions may select either of two methods to comply with the requirement to provide information to the Commissioner of Revenue. Under the first method, the financial institution sends required data on all its accounts to DOR, with quarterly updates. DOR then compiles the data from the various banks, and matches it with our list of noncustodial parents owing past due support. When there is a "hit," a bank levy is automatically generated by DOR's computer and sent to the bank. One third of participating banks, usually the smaller ones with more limited computer capability, follow this method.

Under the second method, DOR sends to the financial institution the list of noncustodial parents owing past-due support (a threshold amount of at least $500). The financial institution conducts the data match, and sends the list of "hits" to DOR, which in turn issues the levy back to the financial institution. Two thirds of the participating financial institutions, usually the larger institutions, use this method.

Once the bank or other financial institution receives DOR's levy, it freezes the account for 60 days, so that any funds deposited into the account during this period are subject to the levy. Within 21 days of receipt of the bank levy, it sends the encumbered funds to DOR. We then hold the funds for at least another 21 days, to allow the noncustodial parent whose account has been seized an opportunity to file a request for administrative review if the noncustodial parent claims that he or she does not owe the money.

Banks do not hesitate to honor the DOR levies. Massachusetts law requires third parties such as financial institutions or insurance companies holding property belonging to a delinquent noncustodial parent to turn over the property, or be liable for the value of the property up to the amount of the child support levy, plus costs, interest and penalties (Mass. Gen. Laws c. 119A, § 6(b)(7)). Financial institutions receive a fee of $20 from the noncustodial parent's account for processing the levy. They are not compensated for providing information or conducting the data match (although this is the case in some other states).

To avoid tipping off obligors to upcoming levies, financial institutions are prohibited by statute from notifying the account holder or depositor that DOR has submitted his or her name for the data match (Mass. Gen. Laws, c. 62E, § 14). The penalty for violations is the lesser of $1,000 or the amount in the account. Financial institutions are permitted to tell account holders and depositors generally about DOR's authority to request identifying information under the financial institution data match.

To protect individual privacy, DOR has strict statutory safeguards in place to limit access to and disclosure of data. Personal information about individuals in the child support caseload is not a public record and may only be disclosed in specified circumstances. Penalties for unauthorized use, access or disclosure include dismissal from employment, fines of up to $1,000, up to one year in prison, and disqualification from holding office in the Commonwealth for up to three years (Mass. Gen. Laws, c. 119A, § 5A(c)). In addition, contractors who violate DOR's disclosure rules can have their contracts terminated and be barred from entering into future contracts with the state. Under PRWORA, all state child support programs are now required to have policies in place to restrict access to data and safeguard individual privacy (42 USC §§ 654(26), 654A(d)).

Almost 1,000 financial institutions doing business in Massachusetts participate in this program, including savings banks, credit unions, commercial banks, mutual fund companies, and brokerage firms. This process has worked well for the Massachusetts banking community, in large part because they worked closely with DOR both in drafting the legislation and in implementing the operational details to make the flow of information and paper as smooth as possible for all concerned. In general, we have found the banking community to be most cooperative in setting up this process, a manifestation of our shared common purpose that the children of the Commonwealth be supported by their parents.

Due Process Protections for Delinquent Noncustodial Parents

The financial institution data match program has ample due process protections for the noncustodial parent, which I will describe in some detail, as this may be of some concern for the members of the Committee. When property is seized, due process under federal and state law requires that the owner of the property have notice and an opportunity for a hearing. There are different due process standards for "pre-judgment" and "post-judgment" seizures, with the former generally requiring the notice and opportunity for a hearing before the seizure, and the latter after the seizure. In child support cases, the pre-judgment due process hearing takes place when the court sets the initial order.

As you know, under the Bradley Amendment enacted by Congress in 1986, a child support obligation becomes a judgment by operation of law as of the date that that it is due and unpaid. In addition, under Section 368 of PRWORA (42 U.S.C. 666(a)(4)), an administrative lien also arises by operation of law against any unpaid child support. It is therefore not necessary to return to court after each payment is missed to get past-due support reduced to a judgment in order to obtain a lien or enforce a judgment. This means that a child support agency can move quickly to seize income and assets of a delinquent noncustodial parent, without first passing through a judicial or quasi-judicial hearing process. In Massachusetts these provisions are codified in Mass. Gen. Laws, c. 119A, §§ 6 and 13.

To provide further due process protections, before a noncustodial parent's name gets on the DOR bank match list in the first place, at least once a year we send a general notice to the noncustodial parent, setting forth the name of the custodial parent, the amount of past-due support we claim that the noncustodial parent owes, and the court that issued the order.

The notice lays out the procedures to follow if the noncustodial parent disputes the amount of past-due support, and provides for an administrative appeal process. The notice also states that if the noncustodial parent does not pay the amount owed within 30 days, DOR will proceed without further notice to use a range of enforcement remedies to collect the debt. The notice indicates that real and personal property subject to lien, levy and seizure includes: real estate, motor vehicles, bank accounts, stocks, bonds, rental receipts, public and private pension or retirement funds, cash-surrender value on life insurance policies, and periodic sources of income, including wages, pensions, worker's compensation or unemployment compensation benefits, dividends and interest payments. The notice also lists other enforcement remedies including: an increase of 25 percent to collect arrearages; federal and state tax refund offset; federal administrative offset; referral to a collection agency; reporting to a consumer credit agency; intercept of proceeds from insurance claims; suspension, revocation or non-renewal of a business, trade, professional or driver's license; or referral to the U.S. Department of State for denial, revocation, restriction or limitation of a passport, if arrears are more than $5,000.

If the noncustodial parent disputes the amount of arrears claimed to be owed, he may request an administrative review of the account within 30 days of the date of the notice. Included with the notice is a form to request such a review. Evidence documenting payment must accompany the request for review. Examples of supporting evidence include: canceled checks or money order receipts; pay stubs showing the amount of child support withheld by the employer; a child support order showing that the amount of the order has been changed; receipts for child support payments made in cash; or a letter from the court through which child support was paid, documenting satisfaction of arrears, if this court issued the original order. During the pendency of the review, no further enforcement action is taken by DOR.

However, many noncustodial parents ignore these notices, in the apparent belief that since they have successfully avoided paying child support in the past, they will continue to get away with it in the future. To give them another opportunity to contest the amount owed, we send them another notice a few days after the bank or other account has been frozen. This notice lets them know the account has been seized, and again lays out the procedures to follow to request an administrative review and the evidence required to substantiate it. Other states have similar due process procedures.

Defenses to Bank Levy

In general, the only defense to the bank levy is mistake of fact: the noncustodial parent does not owe the money -- he already paid and has receipts to prove it -- or he is not the person named in the notice. Challenges to the validity of the underlying order of support, such as fraud or lack of jurisdiction, must be addressed in the court that entered the order. Arguments relating to visitation and change in circumstances are not valid defenses. If DOR and the noncustodial parent cannot resolve the amount owed through the administrative review process, the noncustodial parent can seek judicial review in the court that entered the original order.

The most common reasons for refunding bank levies is that payments were made or the court order was changed, and nobody notified DOR to update records on the system. Sometimes the noncustodial parent changes jobs, and pays the custodial parent directly until the new wage assignment kicks in. Other times, parties go to court and adjust the amount of arrears owed and do not tell us about it. Or the employer deducts the payment from the noncustodial parent's paycheck but does not remit it to DOR, or the employer sends it to DOR without enough identifying information for us to accurately post the account.

Under limited circumstances, DOR will grant a hardship appeal from a bank levy. To prove hardship, a noncustodial parent must show that seizure of the bank account is a substantial contributing factor to such hardships as: continuing or imminent homelessness; loss of utilities; inability to purchase food or necessary clothing; inability to commute to work or search for work; involuntary loss of employment; inability to obtain necessary medical treatment for self or dependents; inability to meet business payroll; imminent loss of business or business bankruptcy; or inability to leave or remain away from an unsafe situation involving domestic violence. In addition, certain funds may be exempt from bank levy, such as SSI, TANF, and other public assistance benefits, or funds held on behalf of another as a guardian or conservator. In the case of joint bank accounts, we follow state property law regarding the rights of the joint tenants.

If the noncustodial parent provides the necessary information, appeals are resolved expeditiously -- on average within two days for hardship appeals, and within 21 days for other appeals.

Financial Institution Levies Pass Constitutional Muster

In the case of Gray vs. Commissioner of Revenue, 422 Mass. 666 (1996), the Massachusetts Supreme Judicial Court found that the procedures followed by DOR in levying bank accounts passed constitutional muster and met all necessary due process requirements. This case involved the paternity of a 14-year-old child, in circumstances where the father was aware of the likelihood of his paternity from the time of the child's birth. The court awarded back support in the amount of $17,000. It also ordered $110 in current support, plus $25 a week to be applied toward the arrearage, both to be paid by wage assignment from the noncustodial parent's income as a U.S. postal clerk. A few months after the court order was entered, following the procedures described above, DOR issued a notice to Mr. Gray that his property was subject to levy and other enforcement remedies if he did not pay the arrearage within 30 days. Upon denial of his administrative appeal, DOR proceeded to seize $100 from a bank account and almost $5,200 from an IRA account. Mr. Gray's subsequent appeal to the court that entered the order and then to the Supreme Judicial Court alleged that his due process rights had been violated since he was paying the arrearage at the rate ordered by the court and therefore was not subject to any further enforcement action. He also claimed a violation of separation of powers, on grounds that DOR's enforcement action was an unconstitutional modification of the court's order setting forth the schedule for making weekly payments towards the arrears.

The Massachusetts Supreme Judicial Court upheld both the substance and the process of DOR's seizure of the accounts. It found that DOR's action was not in conflict with the court's order, but rather was entirely consistent with it. It also rejected Mr. Gray's due process claim, finding that all the necessary notice and hearing procedures had been followed, and that the governmental interest in collecting child support outweighed the risk of erroneous deprivation of Mr. Gray's private property interest. Indeed, the court observed, "It is hard to imagine a more compelling state interest than the support of its children."

Conclusion

Past-due child support is not an installment debt to be subsidized by the taxpayer or the custodial parent for decades until it is convenient to be paid off at five to twenty-five dollars per week. It is a judgment by operation of law as it becomes due and unpaid, subject to the full range of post-judgment enforcement remedies. The requirements of due process have been met before any seizure of property takes place; further due process protections are available after the seizure. The noncustodial parent has had his day in court, with notice and opportunity to be heard, has failed to obey the court order to pay support, has received prior written notice of the enforcement actions that can be taken to collect past-due support, has had an opportunity to request a review, has still failed to pay, and yet has acquired income and assets that are by law subject to seizure.

Moreover, there will never be a good record on payment of current support unless states are also tough on collection of past-due support. Today's current support unpaid becomes tomorrow's arrears. Yesterday's arrears, if not vigorously pursued, lead noncustodial parents to believe they can ignore today's current support. When a noncustodial parent is permitted to accrue an arrearage with impunity, he or she has no incentive to comply with current support payments, and there is little to deter future noncompliance. For some, this is undoubtedly a tough stance. However, children need support on time and in full every week. And for those parents who do regularly make the necessary sacrifices to pay in full, it acknowledges their commitment by taking steps to ensure that all parents fulfill their financial responsibility to their children. The financial institution bank match is an important part of this strategy.

Madam Chairman, thank you for your gracious invitation to testify before this distinguished Committee.