BILL ANALYSIS Ó
AB 233
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ASSEMBLY THIRD READING
AB 233 (Wieckowski)
As Amended April 9, 2013
Majority vote
JUDICIARY 7-2
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|Ayes:|Wieckowski, Alejo, Chau, | | |
| |Dickinson, Garcia, | | |
| |Muratsuchi, Stone | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Wagner, Maienschein | | |
| | | | |
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SUMMARY : Prohibits wage garnishments for the collection of
student loan debt unless the loan was made, insured, or
guaranteed by the United States government, pursuant to
specified programs. Specifically, this bill :
1)Prohibits the issuance earnings withholding orders for
purposes of collecting a judgment for the collection of debt
that the judgment debtor proves is from a student loan that is
not made, insured, or guaranteed by the United States
government pursuant to the Federal Family Education Loan
Program or the William D. Ford Federal Direct Loan Program.
2)Requires a court to terminate an earnings withholding order
issued on or after January 1, 2014, upon proof by the judgment
debtor that the earnings withholding order enforces a judgment
in violation of this section.
EXISTING LAW :
1)Provides that service of an earnings withholding order creates
a lien upon the earnings of the judgment debtor that are
required to be withheld pursuant to the order, and upon all
property of the employer subject to the enforcement of a money
judgment in the amount required to be withheld pursuant to
such order. Also provides that the lien continues for a
period of one year from the date the earnings of the judgment
debtor become payable unless the amount required to be
withheld pursuant to the order is paid as required by law.
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2)Specifies the procedural requirements by which a judgment
debtor may claim an exemption from the earnings withholding
order, and by which a judgment creditor may contest a claim of
exemption in order to obtain a court hearing to evaluate the
merit of the claim.
3)Provides that the amount of earnings of a judgment debtor
exempt from the levy of an earnings withholding order, except
as specified, shall be that amount that may not be withheld
from the judgment debtor's earnings under federal law in
Section 1673(a) of Title 15 of the United States Code.
4)Provides that the maximum part of the aggregate disposable
earnings of an individual for any workweek which is subject to
garnishment may not exceed 25 per centum of his or her
disposable earnings for that week, or the amount by which his
or her disposable earnings for that week exceed 30 times the
federal minimum hourly wage in effect at the time the earnings
are payable, whichever is less.
5)Exempts from levy, with certain categorical exceptions, the
portion of a judgment debtor's earnings which the judgment
debtor proves is necessary for the support of the judgment
debtor or his or her family supported in whole or in part by
the judgment debtor.
FISCAL EFFECT : None
COMMENTS : Under existing law, a judgment creditor may obtain an
earnings withholding order (also known as a wage garnishment
order) from a court in order to collect from a judgment debtor.
The order is served upon the judgment debtor's employer who, in
turn, is obligated to withhold from the employee's wages the
amount specified in the order. Federal law prohibits the amount
that the employer may withhold in any given pay period to 25% of
the employee's disposable income for that period. In addition
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to this federal limitation, state law permits a court to reduce
the amount of the garnishment if it is necessary for the support
of the debtor and his or her family. Existing law also sets
forth the procedural requirements that a debtor must follow in
order to claim an exemption for a wage garnishment order, as
well as the means by which the creditor may contest the merits
of a claim for exemption.
This bill would create a new exemption under the wage
garnishment law by prohibiting the issuance of an earnings
withholding order to collect on a student loan debt, if the
debtor can prove that the debt is from a loan not made, insured,
or guaranteed by a federal student loan program. Federal
student loans - which constitute the majority of student loans -
would still be subject to wage garnishment. According to the
author, these federal loan programs already have mechanisms in
place to offer students deferments and forbearances, and
therefore would not be covered by this bill. It should be
stressed that this bill does not seek to absolve the student
debtor of his or her obligation, or to prevent a creditor from
recovering by means other than wage garnishment. It would only
remove the tool of wage garnishment. The author hopes that by
restricting this option, the lender will have greater incentive
to work out a reasonable payment plan with the student debtor.
This bill prohibits the issuing of a wage garnishment order if
the judgment debtor proves that the underlying debt is from a
student loan that was not made, insured, or guaranteed pursuant
to a federal student loan program. Under existing law, an
earnings withholding order is issued by a levying officer upon
receiving an application submitted by a judgment creditor. The
levying officer then serves the withholding order upon the
debtor's employer, who is obligated to comply with the order,
and the employer in turn serves notice upon the debtor. Under
existing law, a debtor may claim an exemption for any portion of
the withholding amount that the debtor proves is necessary for
the support of the debtor or the debtor's family. Code of Civil
Procedure Section 706.105 sets forth the procedure by which a
debtor may make a claim of exemption.
According to the author, total student loan indebtedness is now
over $1 trillion. Many recent graduates, the author contends,
postpone buying a home or starting a family. In addition, the
"sluggish job recovery has led to increased underemployment,
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with debt-saddled students taking any job available. Indeed, in
the last decade, starting salaries for college graduates fell 15
percent, [while] debt for new graduates increased 24 percent."
The author argues that while there are many programs in place to
help people with federal student loans - such as deferments and
forbearances - this "is not the case with private loans. A
creditor can, and often does, garnish 25% of a person's
disposable income, even though student loan debt cannot be
discharged in a bankruptcy - meaning student loan debt can never
go away . . . By [prohibiting] garnishment of wages for many
student loans, creditors will be more inclined to work with the
debtor and figure out a repayment plan that the student can
manage, benefitting thousands of young underemployed Americans
with oppressive education loans."
The California Association of Collectors (CAC) and the
California Bankers Association (CBA) oppose this bill because it
"inexplicably singles out one form of debt from wage
garnishment, while similar forms of debt create a larger burden
for student loan borrowers." First, the opponents argue that
the "bill targets a loan product that occupies only a fraction
of the student loan market compared to the federal student loan
program." Federal loan programs account for about 85% of the
market, while the "private" loans - i.e. those not part of a
government student loan program - constitute only about 6% of
the market. While the private student loans have a much smaller
share, CAC and CBA claim that "they include rigorous credit
underwriting that responsibly assesses a borrower's willingness
and capacity to repay the loan, which best prepares borrowers
for successful repayment. On the other hand, federal student
loans provide access to easy credit without any credit
evaluation or an ability to pay determination." CAC and CBA
argue that private student loans serve an important function by
filling the gap created by "increasing tuition rates without
commensurate financial aid," and they claim that these private
loans, like the federal loans, "also have competitive rates with
flexible repayment plans." If this bill passes, the opponents
claim that "it will effectively render delinquent private
student loan debt uncollectable." If that happens, "the
availability of [private] loans will decrease and fewer students
will have an opportunity to go to college and graduate school as
a result."
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Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334
FN: 0000098