BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
AB 233 (Wieckowski)
As Amended June 10, 2013
Hearing Date: June 18, 2013
Fiscal: No
Urgency: No
TMW
SUBJECT
Wage Garnishment: Restrictions: Student Loans
DESCRIPTION
This bill would prohibit the use of an earnings withholding
order for purposes of enforcing a judgment for the collection of
debt that the judgment debtor proves is from a student loan that
is not made, insured, or guaranteed through a federal student
loan program. This bill would require a court to terminate an
earnings withholding order issued on or after July 1, 2014, upon
proof by the judgment debtor that the earnings withholding order
enforces a judgment for collection of non-federal program
student loan debt.
This bill would also establish procedures for a judgment debtor
to request to terminate or modify an earnings withholding order
enforcing a judgment based on a non-federal program student loan
debt.
BACKGROUND
In California, 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 provides for
exemptions from wage garnishment, such as for necessities for
living and child support. However, California consumers facing
large private student loan debt are not shielded from wage
garnishment.
This author-sponsored bill would prohibit wage garnishment for
the collection of debt that the judgment debtor proves is from a
(more)
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student loan that is not made, insured, or guaranteed through a
federal student loan program. This bill would also require a
court to terminate an earnings withholding order issued on or
after July 1, 2014, upon proof by the judgment debtor that the
earnings withholding order enforces a judgment for collection of
non-federal program student loan debt. This bill would
establish a new process for a judgment debtor to request the
court to terminate or modify an earnings withholding order
issued based on a judgment for non-federal program student loan
debt.
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 that "disposable earnings" means the
portion of an individual's earnings that remains after deducting
all amounts required to be withheld by law. (Code Civ. Proc.
Sec. 706.011(a).)
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(b).)
Existing law 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. 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. (Code Civ. Proc. Sec. 706.029.)
Existing law restricts 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. (Code Civ. Proc.
Sec. 706.050.)
Existing law exempts from garnishment the portion of the
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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
specified, or for debt relating to a state tax order. (Code
Civ. Proc. Sec. 706.051.)
This bill would prohibit the use of an earnings withholding
order for purposes of enforcing 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
(20 U.S.C. Sec. 1071 et seq.) or the William D. Ford Federal
Direct Loan Program (34 C.F.R. 685.100).
This bill would require a court to terminate or modify an
earnings withholding order issued on or after July 1, 2014, if
the earnings withholding order enforces a judgment based on a
non-federal program student loan debt.
This bill would authorize a judgment debtor to request to
terminate an earnings withholding order enforcing a judgment
based on a non-federal program student loan debt.
This bill would provide that a judgment creditor is liable to
the judgment debtor for all amounts collected by the judgment
creditor pursuant to an earnings withholding order issued to
enforce a judgment based on a non-federal program student loan
debt.
This bill would require a judgment creditor to specify in an
application for issuance of an earnings withholding order
whether the judgment is based in whole or in part on a claim for
debt from a non-federal program student loan.
This bill would require a judgment debtor who requests to
terminate an earnings withholding order enforcing a judgment
based upon a non-federal program student loan to include in the
request the following information:
the current mailing address of the judgment debtor;
the name and address of the judgment creditor;
the court in which the judgment was entered and the date the
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judgment was entered;
a statement, under penalty of perjury, of whether the judgment
is based in whole or in part on a claim for a non-federal
program student loan. Documents supporting the existence of
the student loan debt must be attached to the request;
whether an earnings withholding order was issued to enforce a
judgment based on a non-federal program student loan. A copy
of the order must be attached to the request;
the date of issuance of a writ of execution to the county
where the earnings withholding order is sought;
the total amount required to satisfy the earnings withholding
order on the date of issuance;
the name and address of the employer to whom the earnings
withholding order was directed; and
the name and address of the person to whom the order directs
the levying officer to pay the money withheld.
This bill would require the request to terminate an earnings
withholding order enforcing a judgment for a non-federal program
student loan debt to be made by filing with the levying officer
an original and one copy of the request.
This bill , upon the filing of a request, would require the
levying officer to send to the judgment creditor, at the address
stated in the application for the earnings withholding order, by
first-class mail, postage prepaid, both of the following: (1) a
copy of the request; and (2) a notice of the request, which must
state that the request has been filed and that the earnings
withholding order will be terminated or modified to subtract
from the amount to be withheld the portion that is based on a
judgment to collect a non-federal program student loan debt,
unless a notice of opposition to the request is filed with the
levying officer by the judgment creditor within 10 days after
the date of the mailing of the notice of the request.
This bill would require a judgment creditor, who desires to
contest a request to terminate an earnings withholding order
enforcing a judgment for non-federal program student loan debt,
to file with the levying officer a notice of opposition to the
request within 10 days after the date of the mailing of the
notice of the request.
This bill would provide that if a notice of opposition to a
request is filed with the levying officer within the 10-day
period, the judgment creditor is entitled to a hearing on the
request not later than 30 days from the date a notice of motion
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is filed by the judgment creditor.
This bill would require the judgment creditor to give written
notice of the hearing to the levying officer and serve a notice
of the hearing and a copy of the notice of opposition to the
request on the judgment debtor and, if indicated in the request,
on the attorney for the judgment debtor.
This bill would provide that service is deemed made when the
notice of the hearing and a copy of the notice of opposition to
the request are deposited in the mail, postage prepaid,
addressed to the judgment debtor at the address stated in the
request and, if service on the attorney for the judgment debtor
was indicated in the request, to the attorney at the address
stated in the request.
This bill would require the judgment creditor to file proof of
the service with the court.
This bill would require the levying officer to file the request
and the notice of opposition to the request with the court after
the levying officer receives the notice of the hearing and
before the date set for the hearing.
This bill would provide that if the levying officer does not
receive a notice of opposition to the request within the 10-day
period after the date of mailing of the notice of request and a
notice of the hearing not later than 10 days after the filing of
the notice of opposition to the request, the levying officer
must serve on the employer one of the following: (1) a notice
that the earnings withholding order has been terminated if the
entire amount to be withheld under the order is based on a
judgment to collect a non-federal program student loan debt; or
(2) a modified earnings withholding order that reflects the
subtraction from the amount to be withheld of the portion that
is based on a judgment to collect a non-federal program student
loan debt.
This bill would require, if, after hearing, the court orders
that the earnings withholding order be terminated or modified,
the clerk to transmit a certified copy of the order to the
levying officer who must serve on the employer of the judgment
debtor: (1) a notice that the earnings withholding order has
been terminated; or (2) a copy of the modified earnings
withholding order.
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This bill would authorize the court to order that the earnings
withholding order be terminated as of a date that precedes the
date of hearing; if the court determines that an amount withheld
pursuant to the earnings withholding order should be paid to the
judgment debtor, the court would be required to make an order
directing the person who holds that amount to pay it promptly to
the judgment debtor.
This bill would prohibit a judgment creditor, whose earnings
withholding order is terminated or modified, from applying for
another earnings withholding order to enforce the same judgment
or portion thereof that was determined to be based on a
non-federal program student loan.
This bill would provide that if an employer has withheld and
paid over amounts pursuant to an earnings withholding order
after the date of termination of the order but prior to the
receipt of notice of its termination, the judgment debtor may
recover those amounts only from the levying officer if the
levying officer still holds those amounts or, if those amounts
have been paid over to the judgment creditor, from the judgment
creditor.
This bill would require an employer, who has withheld amounts
pursuant to the earnings withholding order after termination of
the order but has not paid over those amounts to the levying
officer, to pay those amounts to the judgment debtor.
This bill would authorize an appeal from any court order
regarding the request to terminate an earnings withholding order
enforcing a judgment based upon a non-federal program student
loan, would provide that an appeal by the judgment creditor from
an order modifying or terminating the earnings withholding order
would not stay the order from which the appeal is taken, and,
notwithstanding the appeal, would provide that until the order
modifying or terminating the earnings withholding order is set
aside or modified on appeal, the order modifying or terminating
the earnings withholding order will be given the same effect as
if the appeal had not been taken.
This bill would specify that the procedures for the request to
terminate an earnings withholding order enforcing a judgment
based upon a non-federal program student loan would not apply to
a withholding order for support or a withholding order for
taxes.
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COMMENT
1. Stated need for the bill
The author writes:
AB 233 would permit a debtor to claim an exemption from a wage
garnishment when the collection is for a student loan that was
not made, insured or guaranteed by the United States
Government.
Student loan debt is not dischargeable in bankruptcy;
therefore the debtor cannot get rid of the debt and will have
to pay back his loan eventually. By permitting the prevention
of 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.
2. Prohibiting wage garnishment for non-federal program student
loan debt
Existing law authorizes a judgment creditor to apply for an
earnings withholding order to levy against a judgment debtor's
wages in order to collect payment of the judgment. This bill
would prohibit issuance of an earnings withholding order for the
collection of debt that the judgment debtor proves is from a
student loan that is not made, insured, or guaranteed through a
federal student loan program. This bill would also require a
court to terminate an earnings withholding order issued on or
after July 1, 2014, if the judgment debtor files a request to
terminate or modify an earnings withholding order enforcing a
judgment based on non-federal program student loan debt and
provides proof that the earnings withholding order enforces a
judgment for collection of non-federal program student loan
debt.
The author states that "[a] college degree has become ever more
crucial in order to succeed in the workforce. In the past
decade, education debt has soared 500 [percent]. Student loan
indebtedness is now over $1 trillion. Education debt outpaces
credit card debt as the leading source of household debt. These
mortgage-sized loans cause many graduates to postpone buying a
home or starting a family. The sluggish job recovery has led to
increased underemployment, with debt-saddled students taking any
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job available. Indeed, in the last decade, starting salaries
for college graduates fell 15 percent, debt for new graduates
increased 24 percent."
The author notes that there are many programs in place to help
people with federal student loans, and federal student loan
borrowers can get multiple types of deferments and forbearances.
Unemployment forbearance is even open for people who are
employed less than 30 hours a week. However, the author states
that "[t]his is not the case with private student loans. A
creditor can, and often does, garnish 25 [percent] 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. Other states, like Texas and Pennsylvania prohibit the
garnishment of student loans and other unsecured debt."
In support, the California Labor Federation argues that
"[s]tudent loan debt is not dischargeable in bankruptcy;
therefore the debtor cannot get rid of the debt and will have to
pay back his loan eventually. By preventing the 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."
A recent report on private student loan debt issued by the
Consumer Financial Protection Bureau notes that in the past
decade, private student loans grew from less than $5 billion in
2001, spiked at over $20 billion in 2008, then contracted to
less than $6 billion in 2011. (Consumer Financial Protection
Bureau, Private Student Loans, U.S. Dept. of Education (Aug. 29,
2012) < http://files.consumerfinance.gov/f/201207_cfpb_
Reports_Private-Student-Loans.pdf> [as of June 11, 2013] p. 3.)
Further, the report states that "[f]rom 2005-2007, lenders
increasingly marketed and disbursed loans directly to students,
reducing the involvement of schools in the process; indeed
during this period, the percentage of loans to undergraduates
made without school involvement or certification of need grew
from 18 [percent] to over 31 [percent]. As a result, many
students borrowed more than they needed to finance their
education. Additionally, during this period, lenders were more
likely to originate loans to borrowers with lower credit scores
than they had previously been. These trends made private
student loans riskier for consumers." (Ibid.) As of the date
of the report, Americans owed more than $150 billion in
outstanding private student loan debt. (Ibid.)
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The report stated that private student loan borrowers do not
have the same repayment options as federal student loan
borrowers, "including the ability to cap payments as a
percentage of discretionary income and remain in good standing.
While this may lead to greater total payments over the life of
these loans, the borrower can more easily avoid the economic
consequences of delinquency or default. . . . [M]any distressed
student loan borrowers [are] facing trouble making payments on
private student loans due to limited options for alternate
payment options. Consumers, as well as businesses, have been
able to restructure other types of debts through bankruptcy as a
last resort. But with less guaranteed flexibility compared to
federal loans and very limited bankruptcy options compared to
other consumer loans, private student loan borrowers facing
tough economic times may be challenged to emerge as productive
contributors to our society." (Id. at p. 87.)
This bill seeks to provide wage garnishment protection for
individuals with non-federal program student loan debt who have
defaulted on their loans. Notably, this bill would not
eliminate the student loan debt or judgment based thereon; an
individual who is subject to an outstanding judgment would still
be liable to the judgment creditor. Given the surge of college
graduates who face underemployment or unemployment due to the
recent job market crisis and are unable to otherwise arrive at a
payment plan that is acceptable to the student loan creditor, it
is arguably important to provide these individuals with the
ability to protect their wages from garnishment.
3. Procedures to request termination of earnings withholding
order
Existing law provides that a judgment debtor may claim that a
portion of his or her earnings should be exempt from an earnings
withholding order. This bill would not create an exemption from
an earnings withholding order but, instead, would prohibit the
use of an earnings withholding order as a method of enforcing a
judgment based upon a private student loan. For this reason,
this bill would not add to the existing procedures of claiming
an exemption from the earnings withholding order. Instead, this
bill would utilize procedures similar to an exemption to allow a
judgment debtor to alert the court that the judgment is based
upon a qualifying student loan and, therefore, no earnings
withholding order should be issued to collect on the judgment.
The judgment debtor would be required to provide documentation
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to the court that the judgment was based upon a non-federal
program student loan, and this bill would provide the judgment
creditor with the opportunity to oppose the request to terminate
or modify the earnings withholding order. Notably, this bill
would authorize the court to modify the earnings withholding
order if the judgment included amounts not based upon a
non-federal program student loan, which would allow the judgment
creditor to continue to collect wage garnishment for other
outstanding amounts owed by the judgment debtor.
4. Opposition concerns
The California Association of Collectors and the California
Bankers Association, in opposition, argue that this bill
"inexplicably singles out one form of debt from wage
garnishment, while similar forms of debt create a larger burden
for student loan borrowers." Opponents note that private
student loans only account for six percent of the market and
"include rigorous credit underwriting that responsibly assesses
a borrower's willingness and capacity to repay the loan, which
best prepares borrowers for successful repayment." Furthermore,
opponents argue that this bill "will effectively render
delinquent private student loan debt uncollectible," and assert
that "the availability of [private] loans will decrease and
fewer students will have an opportunity to go to collect and
graduate as a result."
In response, the author argues that private loans comprised
about 24 percent of the nation's total education loan volume in
2008. Further, though this represents a small percentage of
overall student loans, the yearly growth of private loans is
outpacing that of federal loans. The author asserts that the
main reason for the increased supply of private student loans is
the profitability of the business; the private loan market has
been profitable primarily because originators sell the loans
with the intention of packaging them for investors. The author
notes that the market for securitized student loans jumped 76
percent in 2006, and that private student loans are developed
for repackaging rather than to provide the most affordable and
sustainable products for borrowers.
The author also notes that the likelihood of a person defaulting
on a student loan with the expectation that a judgment creditor
could not garnish the person's wages is unlikely. Defaulting on
a loan wreaks havoc on a person's credit score and would
severely affect the ability of a person to obtain a mortgage or
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any credit whatsoever. The author argues that the consequences
of default are so great that a person earning a comfortable
salary would not sit idly by while his loans went into default
or collections.
The author further notes that wage garnishment is only one tool
a creditor/collector may use to get a debt repaid. The author
states that assuming there was a graduate who existed who was
earning more than enough to repay a debt but allowed the loan to
default and go into collections anyhow, creditors and collectors
would still able to use a bank levy or seizure of personal
property to satisfy the debt.
Support : Associated Students of University of California,
Davis; California Council on Economic Education; California
Labor Federation; Children's Advocacy Institute at the
University of San Diego School of Law; Latino Democratic Club;
Legal Aid Association of California; Veterans Caucus of the
California Democratic Party
Opposition : California Association of Collectors, Inc.;
California Bankers Association
HISTORY
Source : Author
Related Pending Legislation : AB 508 (Calderon) would prohibit
the issuance of an earnings withholding order or the levy of a
bank account of a homeless veteran in order to collect amounts
owed by the veteran relating to specified civil and criminal
fees, fines, forfeitures, or penalties. AB 508 is currently in
the Senate Committee on Appropriations.
Prior Legislation : None Known
Prior Vote :
Assembly Committee on Judiciary (Ayes 7, Noes 2)
Assembly Floor (Ayes 50, Noes 23)
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