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
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"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
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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
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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
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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
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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
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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.
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