BILL ANALYSIS ” SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session AB 1775 (Wieckowski) As Amended April 17, 2012 Hearing Date: June 19, 2012 Fiscal: No Urgency: No TW SUBJECT Wage Garnishment: Exempt Earnings DESCRIPTION This bill would raise the minimum floor of a judgment debtor's wages that are exempt from garnishment from 30 times the federal minimum hourly wage to 40 times the California minimum hourly wage. This bill would become operative on July 1, 2013. BACKGROUND In 1978, the Legislature enacted the Employee's Earnings Protection Law, which was subsequently renamed the Wage Garnishment Law in 1983 when the wage garnishment provisions were revised and recast. Under the Wage Garnishment Law, a judgment creditor can seek garnishment of a judgment debtor's wages to satisfy a court judgment. The Wage Garnishment Law conforms to the federal wage garnishment law and provides that a wage garnishment may not exceed 25 percent of a judgment debtor's earnings for that week or the amount by which the disposable earnings for that week exceed 30 times the federal minimum hourly wage, as specified. (Code Civ. Proc. Sec. 706.050.) This provision has not been modified since it was enacted in 1983. This bill, sponsored by the Western Center on Law & Poverty, would raise the minimum floor of wages exempt from garnishment from 30 times the federal minimum hourly wage to 40 times the (more) AB 1775 (Wieckowski) Page 2 of ? California minimum hourly wage. CHANGES TO EXISTING LAW Existing law , the Wage Garnishment Law, establishes procedures regarding the garnishment of a judgment debtor's wages. (Code Civ. Proc. Sec. 706.010 et seq.) Existing law provides an exemption of the amount of earnings of a judgment debtor that may be garnished to the amount provided under federal law. (Code Civ. Proc. Sec. 706.050.) Existing law provides that "earnings" means compensation payable by an employer to an employee for personal services performed by such employee, whether denominated as wages, salary, commission, bonus, or otherwise. (Code Civ. Proc. Sec. 706.011(a).) Existing law does not define "disposable earnings." Existing federal law provides that "earnings" means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program. (15 U.S.C.S. Sec. 1672(a).) Existing federal law provides that "disposable earnings" means that part of an employee's earnings remaining after the deduction from those earnings of any amounts required by law to be withheld. (15 U.S.C.S. Sec. 1672(b).) Existing federal law restricts the amount of disposable earnings of a judgment debtor that may be garnished for any workweek to 25 percent of the judgment debtor's disposable earnings for that week or the amount by which the judgment debtor's disposable earnings for that week exceeds 30 times the federal minimum hourly wage, as prescribed by the Fair Labor Standards Act of 1938, in effect at the time the earnings are payable, whichever is less. (15 U.S.C.S. Sec. 1673.) Existing law exempts from garnishment the portion of the judgment debtor's wages proven to be necessary for the support of the judgment debtor or the judgment debtor's family supported in whole or in part by the judgment debtor. Existing law provides that this exemption is not available for debt incurred relating to the payment of attorney's fees under the Family Code, as specified, for debt incurred for personal services rendered by an employee or former employee of the judgment debtor, for debt relating to a child support order, as AB 1775 (Wieckowski) Page 3 of ? specified, or for debt relating to a state tax order. (Code Civ. Proc. Sec. 706.051.) This bill would provide that "disposable earnings" means the portion of an individual's earnings that remains after deducting all amounts required to be withheld by law. This bill would restrict the amount of garnishment of a judgment debtor's disposable earnings for any workweek to the lesser of 25 percent of the individual's disposable earnings for that week or the amount by which the individual's disposable earnings for that week exceed 40 times the state minimum hourly wage in effect at the time the earnings are payable. This bill would provide multipliers to determine the maximum amount of disposable earnings subject to garnishment for daily, biweekly, semimonthly, and monthly pay periods. This bill would provide a delayed operative date of July 1, 2013, so that the Judicial Council of California can revise the methods of computation provided in wage garnishment instructions to employers. COMMENT 1. Stated need for the bill The author writes: When someone falls behind on a consumer debt, the judgment creditor may, and nearly always will, garnish the wages of a worker until the debt (plus accruing interest) is satisfied. But existing California law only protects $217.50 per week from wage garnishment. The working poor, who live paycheck-to-paycheck, simply cannot make ends meet on this miniscule amount. When their wages are garnished, other essentials - rent, food, medicine - become unaffordable. They lose their homes, their children go hungry, and they and their families fall ill, or else they fall into further debt to credit card companies or predatory lenders. All of these problems have been exacerbated by the financial crisis, which has stripped families of their meager assets and decimated the safety net. The alternatives - bankruptcy or a claim of exemption - are problematic. Bankruptcy may ensure that no creditor is repaid. Obtaining a Claim of Exemption can take months. AB 1775 (Wieckowski) Page 4 of ? The Western Center on Law & Poverty, the sponsor of this bill, writes: Wage garnishments have enormous impacts on low income families. In one case from a Central Valley legal service program, a cannery worker had his wages garnished due to unpaid medical bills. Once his wages were garnished, he couldn't pay his auto loan. So his car was repossessed. And without a car, he couldn't get to work and lost his job. This should not happen. We also know that there is serious concern about the practices of debt collection companies, particularly third party debt collectors. One legal service program found that the statute of limitations had expired in half of the debt cases of its clients. We also know that many cases filed have inaccurate payment histories, incorrect social security numbers and misidentifications. Lastly, most wage garnishments are derived from default judgments in which the defendant did not appear or did not have adequate notice. Under current law debt collectors can garnish the wage of families who have disposable incomes above $217 a week or $942 a month. A salary at this level represents just 49 ›percent] of the federal poverty level for a family of four. In most communities in California this income level is insufficient to pay the Fair Market Rent for a two bedroom apartment. When food, utilities, insurance, clothing and other necessities are added in it is obvious that families at this income level do not have any disposable income to be garnished. 2. Increasing amount of disposable earnings exempt from garnishment This bill would increase the amount of a judgment debtor's disposable earnings that is exempt from garnishment to 40 times the state minimum wage rate. Existing law restricts the amount of a judgment debtor's earnings that may be garnished to the amount provided under federal law. (Code Civ. Proc. Sec. 706.050.) Existing federal law restricts the amount of disposable earnings of a judgment debtor that may be garnished for any workweek to 25 percent of the judgment debtor's disposable earnings for that week or the amount by which the judgment debtor's disposable earnings for that week exceed 30 times the federal minimum hourly wage, whichever is less. (15 AB 1775 (Wieckowski) Page 5 of ? U.S.C.S. Sec. 1673.) The author argues that, under existing law, judgment debtors only have garnishment protection of $217.50 (currently 30 x $7.25) per week, which is not enough for the judgment debtor to pay for rent, food, and medicine. This bill would provide greater consumer protection from a judgment creditor by raising the wage garnishment protection to $320 per week. This amount is based on California's minimum wage of $8.00 per hour instead of the lower federal minimum wage of $7.25 per hour. This bill would not change garnishment laws for unpaid spousal or child support. Case law has held that, if the federal garnishment exemption percentage differs from the state garnishment exemption percentage, "whichever is more restrictive and results in smaller garnishment is one which must be applied in any given situation. (Willhite v. Willhite (1976, Okla.) 546 P.2d 612, 616.) Federal law provides for a garnishment exemption of 30 times the federal minimum hourly wage. This bill, by providing for a garnishment exemption of 40 times the California minimum hourly wage, would provide more restriction on garnished wages and would result in a smaller amount of disposable earnings that may be garnished. The author points out that many other states have greater protection for judgment debtors and provide varying exemptions from garnishment so that the judgment debtors do not go into greater debt trying to sustain themselves and their families while paying for the judgment. Pennsylvania, Texas, North Carolina, and South Carolina do not allow wage garnishment for consumer debts. The following states permit varying levels of garnishment, which are lower than California: New York permits only 10 percent garnishment; Delaware, 15 percent; and Illinois, 15 percent. Illinois protects earnings up to 45 times the federal minimum wage, which amounts to $326.00 per week protected from garnishment. Given the number of states which protect higher levels of income from garnishment, the protections provided in this bill would not be unprecedented. Although California currently is not the leader in providing disposable earnings exemptions from wage garnishment, California is the fifth most expensive state in which to live and is the location of four of the top ten most expensive cities in the United States. The Public Law Center, a supporter of this bill, states that a family of four living on the existing exempted AB 1775 (Wieckowski) Page 6 of ? wages of $217.50 per week would find living in Orange County "a nearly impossible feat, considering the average rent for a family of four in Orange County is about $1,600 per month; almost twice what a wage earner with a garnishment order would be receiving. In Orange County, the living wage for a single adult without children is $553.60 per week - again more than twice what a wage earner with a garnishment order would bring home. Legal Services of Northern California, a supporter of this bill, reports that "the living wage for a single adult without children in some of our service areas is $412.40 for Yolo County, $417.20 in Sacramento County, and $450 in Solano County. The current protected amount ›from wage garnishment] covers only 50 ›percent] of the wages necessary for our clients to support the very basic needs of themselves and their families." As such, it is not difficult to comprehend that judgment debtors who are subject to the existing wage garnishment exemption provision are finding it exceedingly difficult to provide for themselves and their families. The California Advocates for Nursing Home Reform, in support of this bill, state that the modest raise of wage garnishment exemption provided in this bill, "families could prevent much unnecessary suffering, including hunger, evictions, repossessions, and bankruptcies - very important considerations under today's economic climate." The California Labor Federation, also in support of this bill, argues that "›t]he severe recession has pushed many families into financial crisis and they are unable to pay off debt accrued in better economic times. . . . Basic necessities like rent, food and medicine become unaffordable and people turn to predatory lenders to survive. Wage garnishment without a cushion creates a vicious cycle of debt eventually pushing families into poverty, homelessness, and illness." This bill, by raising the amount of disposable income that would be exempt from garnishment, would provide judgment debtors a better chance at sustaining themselves and their families while paying on a judgment. 3. Opposition A coalition of opponents to this bill argue that it is premature to further modify wage garnishment exemptions until the impacts of AB 1388 (Wieckowski, Ch. 694, Stats. 2011) are understood. AB 1388 deleted the exception from the wage garnishment exemption for common necessaries of life and instead provided an AB 1775 (Wieckowski) Page 7 of ? exception for wages necessary for the support of the judgment debtor and his or her family. AB 1388 also added the exception for debt incurred pursuant to an order or award for the payment of attorney's fees under specified sections of the Family Code. CAC argues that AB 1388 "added undue restrictions on the ability to collect on judgments based on necessaries, thus limiting a creditor's ability to be reimbursed for ? those services extended to consumers on credit terms that were previously a priority over non-necessaries." Opponents argue that this bill would further exempt even more of a debtor's income from garnishment and will make it more difficult for creditors to collect on lawfully owed debts. As with AB 1388, it should be noted that raising the minimum floor of exempt earnings would not make debts unenforceable through wage garnishment, or even stop the garnishment of the portion of wages not exempt from garnishment. Opponents of this bill argue that, among other things, "if a debtor chooses to take goods or services, their obligation should be to pay for what they have taken. If they truly cannot because there is a disastrous change in financial circumstances they can file for bankruptcy." Supporters of this bill argue that the better public policy is to provide the judgment debtor with sufficient access to his or her own earnings so that the judgment debtor is able to support themselves and their families, rather than increasing debts owed, and so that the judgment debtor will continue to pay on the judgment with non-exempt wages, instead of erasing the debt through bankruptcy. Further, the Consumer Law Project argues that this bill would help reduce burdens on the court because raising the amount of wages exempt from garnishment will result in fewer unlawful detainer actions, automobile repossessions, and instances of domestic violence related to financial stress. 4. Author's amendments To maintain consistency throughout the wage garnishment exemption section revised by this bill, the following author's amendment would strike "garnishment" and instead provide for "levy under an earnings withholding order." Author's Amendments : 1. On page 3, in line 27, delete and replace "garnishment" with "levy under an earnings withholding order" AB 1775 (Wieckowski) Page 8 of ? 2. On page 3, in line 38, delete and replace "garnishment" with "levy under an earnings withholding order" Support : American Federation of State, County and Municipal Employees; California Advocates for California Labor Federation, AFL-CIO; Central California Legal Services, Inc.; Inland Empire Latino Lawyers Association, Inc.; Legal Services of Northern California; Public Counsel; Public Law Center; Yuba Sutter Legal Center for Seniors; one individual Opposition : California Association of Collectors; California Bankers Association; California Chamber of Commerce; California Retailers Association; USCB, Inc. HISTORY Source : Western Center on Law & Poverty Related Pending Legislation : SB 890 (Leno, 2011) would enact the Fair Debt Buyers Practices Act and, among other things, require certain documents to be provided to a judgment debtor regarding wage garnishment. This bill is currently at the Assembly Desk pending referral. Prior Legislation : AB 1388 (Wieckowski, Ch. 694, Stats. 2011) See Comment 3. AB 1321 (Wieckowski, 2011), among other things, would have required an employer to cease wage withholding of a judgment debtor to the extent the judgment debtor claimed an exemption from garnishment. This bill died in the Assembly Appropriations Committee. Prior Vote : Assembly Floor (Ayes 46, Noes 25) Assembly Committee on Judiciary (Ayes 7, Noes 3) ************** AB 1775 (Wieckowski) Page 9 of ?