BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2015 - 2016 Regular Session SB 501 (Wieckowski) Version: April 28, 2015 Hearing Date: May 12, 2015 Fiscal: No Urgency: No TMW SUBJECT Wage garnishment restrictions DESCRIPTION This bill would reduce the maximum amount of disposable earnings subject to wage garnishment from 25 to 10 percent of the individual's disposable earnings for that week or one-third of the amount by which the individual's disposable earnings for that week exceed 40 times the state minimum hourly wage. This bill would provide that if a judgment debtor works in a location where the local minimum hourly wage is greater than the state minimum hourly wage, the local minimum hourly wage in effect at the time the earnings are payable would be the amount upon which to base the maximum amount of wage garnishment. This bill, for any pay period other than weekly, would base the maximum amount of disposable earnings subject to levy on the applicable local hourly minimum wage rather than the state hourly minimum wage. 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. When wages are garnished, the employer withholds money from the debtor employee's paycheck and sends the money to the creditor. The Wage Garnishment Law provides for exemptions from wage garnishment, such as for necessities for living and child support. AB 1775 (Wieckowski, Chapter 474, Statutes of 2012) codified the definition under the federal Consumer Credit Protection Act for SB 501 (Wieckowski) Page 2 of ? "disposable earnings" and the maximum amount of weekly wage garnishment of 25 percent of the individual's disposable earnings. AB 1775 also capped the weekly wage garnishment amount at 40 times the state minimum hourly wage and provided certain multipliers to determine a maximum amount subject to levy for pay periods other than weekly. This bill would further reduce the maximum amount of disposable earnings subject to wage garnishment from 25 to 10 percent of the individual's disposable earnings for that week or one-third of the amount by which the individual's disposable earnings for that week exceed 40 times the state minimum hourly wage, as specified. This bill, for any pay period other than weekly, would base the maximum amount of disposable earnings subject to levy on the applicable local hourly minimum wage rather than the state hourly minimum 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 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 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(a).) Existing law requires that for any pay period other than weekly, the following multipliers are to be used to determine the maximum amount of disposable earnings subject to levy under an earnings withholding order that is proportional in effect to the SB 501 (Wieckowski) Page 3 of ? weekly calculation, as specified: for a daily pay period, the amounts shall be identical to the weekly garnishment amounts; for a biweekly pay period, multiply the state hourly minimum wage by 80 work hours; for a semimonthly pay period, multiply the state hourly minimum wage by 862/3 work hours; or for a monthly pay period, multiply the state hourly minimum wage by 1731/3 work hours. (Code Civ. Proc. Sec. 706.050(b).) Existing law , on and after July 1, 2014, requires the minimum wage for all industries to be no less than $9.00 per hour, and on and after January 1, 2016, the minimum wage for all industries to be not be less than $10.00 per hour. This bill would reduce the maximum of disposable earnings subject to levy from 25 to 10 percent of the individual's disposable earnings for that week or one-third of the amount by which the individual's disposable earnings for that week exceed 40 times the state minimum hourly wage. This bill would provide that if a judgment debtor works in a location where the local minimum hourly wage is greater than the state minimum hourly wage, the local minimum hourly wage in effect at the time the earnings are payable shall be used for the above calculation. This bill for any pay period other than weekly, would base the maximum amount of disposable earnings subject to levy on the applicable hourly minimum wage rather than the state hourly minimum wage. COMMENT 1. Stated need for the bill The author writes: No one should experience poverty, especially people who work. When they do, it is essential we do what we can to prevent hardships for workers and their families. SB 501 will improve the ability of low-wage working families to meet their basic needs by remedying two problems with current wage garnishment law: 1) The disincentive for a worker facing a garnishment to earn more than the local minimum wage, and; 2) The unjustly SB 501 (Wieckowski) Page 4 of ? high percentage of income taken from a worker's paycheck. 2. Increasing amount of disposable earnings exempt from garnishment Existing law restricts the amount of disposable earnings of a judgment debtor that may be garnished for any workweek to the lesser of 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 40 times the state minimum hourly wage, whichever is less. (Code Civ. Proc. Sec. 706.050.) This bill would, instead, cap those amounts at 10 percent of the judgment debtor's disposable earnings for that week or one third the amount by which the judgment debtor's disposable earnings for that week exceed 40 times the state minimum hourly wage. This bill would also specify that the local minimum hourly wage, if higher than the state hourly minimum wage, should be used for this calculation. The author argues that "California law requires the garnishment amount be the lesser of the following: (a) 25 [percent] of the individual's post-tax earnings, or (b) any income that exceeds the state minimum wage. The perverse result of this formula is that a worker who earns $10, $11, or $12 an hour only takes home the state minimum wage of $9 and the rest of it is garnished - all of it. This is the case even when a worker lives in a community that has voted for and enacted a higher minimum wage, thus undermining local decisions and local economies." The East Bay Community Law Center, co-sponsor, states that "[c]urrent wage garnishment laws place immense pressure on low-income individuals. With recent increases in the cost of living in California, it is harder than ever for low-income individuals to get by. Clients who come to our office, even before garnishment, barely have enough to pay for housing, food, transportation to work, and basic utilities. To keep their heads above water, our clients will creatively juggle bills, making payments on the most necessary items. But this is a precarious balancing act that falls apart when a creditor starts taking out 25 percent of a person's wages. At that point[,] there simply is not enough money to go around. Many people are forced to turn to stopgaps, often taking out more debt from exploitative payday or title lenders." Further, the Western Center on Law & Poverty (WCLP), co-sponsor, notes that researchers have found that individuals whose wages are being SB 501 (Wieckowski) Page 5 of ? garnished are living below the California Poverty Measure. WCLP argues that "[b]y allowing wage garnishment for a wider range of debt than other states, California undermines the value of work, especially considering the high cost of living in the state. When low-income workers' wages are garnished, they often face more severe cutbacks, losing their assets and falling into further debt to credit card companies or predatory lenders. As a result, workers are more likely to remove themselves from the job market or to file for bankruptcy if they are unable to meet their basic needs through working. This undermining of work also reduces the wages earned by low-income workers that is spent in the local community and saved for future emergencies; ironically, increasing the likelihood that they will need to loan again and reducing their ability to pay back old debt." 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. Yet, as noted by the author, more than half of other states have greater protections 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 of gross earnings; 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. The Public Law Center, in support, states that "[t]he changes proposed by SB 501 would make a significant difference in the lives of our low-income clients. Our clients will benefit from the added protection of capping the garnishment at 10 [percent] of weekly disposable earnings or one third of the amount the earnings exceed the relevant minimum wage. Instead of having to make choices between food, rent and utilities, or clients may be able to survive by clipping a few extra coupons or creatively reducing utility bills." 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. Oppositions' concerns SB 501 (Wieckowski) Page 6 of ? A coalition of creditor stakeholders, in opposition, contends that this bill drastically reduces the ability of judgment creditors to recover on valid, court-issued judgments, and may result in harming the very consumers this bill is trying to protect. The coalition argues that the amount a creditor can garnish is severely limited by law and there are robust exemptions for certain categories of income making this bill unnecessary since California debtors can already file a claim of exemption to reduce the amount withheld in a wage garnishment, and those claims are commonly granted. The coalition asserts that this bill will result in higher administrative costs (a $12 assessment is charged to the debtor for each disbursement under a writ of attachment) the debtors will have to pay, which costs could total $624 over the course of a year, and this bill would have little or no impact on the already declining bankruptcy rate. The coalition also argues that the new layer of complexity to calculate exemptions from wage garnishment will unnecessarily burden employers and sheriffs' offices that process garnishments. Further, the coalition states that the proposed rate cap in this bill is substantially more restrictive than the cap in New York because the New York cap is the lesser of 25 percent of disposable income or 10 percent of gross income, not 10 percent of disposable wages as proposed in this bill. The coalition also notes that, although a few states do not allow wage garnishment of any kind, those states provide judgment creditors with other remedies that are less favorable to consumers. The coalition also asserts that this bill will create an imbalance that will be detrimental to the vast majority of consumers who are fiscally responsible by placing more restrictions on the collection of validly owned debt, which, in turn, causes the availability of credit to decrease while increasing the cost of credit. Finally, the coalition notes that the Consumer Financial Protection Bureau (CFPB) is currently engaged in a broad rulemaking of debt collection that will likely cover almost every aspect of the industry, and the coalition requests that the Legislature wait to make significant changes to collectors' ability to recover on judgments until the CFPB has issued its rules. One attorney, Harvey R. Wolf, in opposition, argues this bill should be amended to create a sliding scale (i.e., 10 percent, 15 percent, 20 percent, etc., of disposable incomes) to account SB 501 (Wieckowski) Page 7 of ? for varying levels of income, as well as account for a debtor having multiple jobs. Support : Bay Area Legal Aid; California Labor Federation, AFL-CIO; California Reinvestment Coalition; California Rural Legal Assistance Foundation; Consumer Federation of California; Public Law Center; Consumers Union; Service Employees International Union California; Western Regional Advocacy Project Opposition : California Association of Collectors; California Bankers Association; California Chamber of Commerce; California Creditors Bar Association; California Retailers Association; DBA International; Encore Capital Group; PRA Group; San Diego Regional Chamber of Commerce; one individual HISTORY Source : East Bay Community Law Center; Western Center on Law & Poverty Related Pending Legislation : None Known Prior Legislation : AB 1775 (Wieckowski, Chapter 474, Statutes of 2012) See Background. AB 1388 (Wieckowski, Chapter 694, Statutes of 2011) deleted the exception from the wage garnishment exemption for common necessaries of life and instead provided an 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. **************