Odell v. Wallingford Municipal Federal Credit Union
Social Security disability funds may be exempt from execution, levy, attachment garnishment or other legal process, pursuant to 42 United States Code §407. In 1999, the plaintiff, Naomi Odell, became a member of the Wallingford Municipal Federal Credit Union. In 2005, she co-signed her husband's application for a loan from the credit union. The credit union sued the plaintiff and her husband, alleging that they defaulted on the loan, and obtained judgment in the amount of $18,443. The plaintiff closed her checking account. After the U.S. Treasury deposited $13,801 into the credit union account, as a lump sum payment of Social Security disability benefits in 2008, the credit union redirected the funds to an open share account, placed a hold on the funds and then took the funds in partial satisfaction of the $18,443 judgment. The plaintiff had intended to use the funds to pay her mortgage and lost her home to foreclosure. The plaintiff sued, alleging that the credit union violated 42 U.S.C. §407. The credit union membership contract provided, "To the extent you owe the Credit Union money as a borrower . . . the Credit Union has a lien on any or all of the funds in any account in which you have an ownership interest, regardless of the source of the funds, unless prohibited by law." The court did not find any Connecticut court decisions interpreting §407 in the context of the bank's contract right to setoff. Ruling on an issue of apparent first impression in Connecticut, the court found that although funds in a bank account typically are subject to execution, Social Security benefits remain exempt even after they are deposited into a bank account, and they may not be subjected to execution or attachment. The defendant credit union's setoff was wrong, and it actions were not authorized. "The plaintiff," wrote the court, "maintained ownership in specific, identifiable money." The credit union violated §407. Its conduct violated federal and state policies that protects exempt funds, in violation of CUTPA, the Connecticut Unfair Trade Practices Act. The court granted the plaintiff's motion for partial summary judgment.