BILL ANALYSIS Ó
SB 501
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Date of Hearing: June 30, 2015
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
501 (Wieckowski) - As Amended April 28, 2015
SENATE VOTE: 26-11
SUBJECT: WAGE GARNISHMENT RESTRICTIONS
KEY ISSUE: SHOULD THE MAXIMUM AMOUNT OF A PERSON'S WEEKLY WAGE
EARNINGS THAT MAY BE GARNISHED TO SATISFY A JUDGMENT DEBT BE
REDUCED, AS SPECIFIED, SO THAT THE WORKER IS MORE LIKELY TO
RETAIN SUFFICIENT WAGES EACH WEEK TO PAY FOR BASIC NEEDS AND NOT
BE DISINCENTIVIZED FROM EARNING MORE THAN THE MINIMUM WAGE?
SYNOPSIS
According to the author, wage garnishment rates in California
are too high and do not allow low-wage workers whose wages are
being garnished to retain enough of their earnings to pay for
their household's essential needs and avoid slipping closer into
poverty. The author also contends that when the wages of
low-wage workers are garnished at high rates, those workers
often suffer more severe financial setbacks, including losing
their assets and falling deeper into debt. Recent research
using three years of payroll records for 13 million workers
nationwide finds that the workers who are most likely to have
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their wages garnished are workers earning between $25,000 and
$40,000 per year- bolstering the author's contention that those
who are most negatively affected by current state wage
garnishment laws are low-wage earners and blue collar workers.
This bill, co-sponsored by the Western Center on Law and Poverty
and East Bay Community Law Center, seeks to revise the wage
garnishment formula to reduce the maximum amount of garnishment
in California, thereby allowing workers to retain more of their
earnings to pay for basic life essentials. Specifically, this
bill would establish that the maximum amount allowed to be
garnished is the lesser of the following: (a) 10% of the
individual's disposable earnings for the week (a decrease from
25%), or (b) one third of the amount by which the individual's
disposable earnings for that week exceed 40 times the state or
local minimum hourly wage, whichever is greater (a 67% decrease
from the applicable amount). The bill is strongly supported by
legal aid providers, consumer advocates, and organized labor
groups, who believe the revised formula will help struggling
working families move forward towards financial
self-sufficiency, while still allowing lenders to recover
legitimate debt. The bill is opposed by debt collectors,
bankers, and the California Retailers Association, among others,
who argue that the bill drastically reduces the ability of
judgment creditors to recover on valid, court-issued judgment,
and harms rather than helps debtors with outstanding debt, as
they will accrue a significant amount of additional interest and
extra administrative fees imposed by the county because of the
greater number of individual payments required to ultimately pay
off their debts. Furthermore, because more than 40 states allow
for wage garnishment at a rate that is higher than the proposed
10 percent rate in this bill, opponents contend that the bill
puts California's wage garnishment rate at odds with the federal
rate of 25%, which would be one of the lowest rates in the
nation.
SUMMARY: Reduces the maximum amount of a person's wages that
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can be garnished by creditors to satisfy a judgment debt.
Specifically, this bill:
1)Reduces the maximum amount of disposable earnings which are
subject to wage garnishment to the lesser of the following: a)
10 percent of the individual's disposable earnings for that
week, or b) 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.
2)Provides 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.
3)Bases the maximum amount of disposable earnings subject to
levy on the applicable local hourly minimum wage, rather than
the state hourly minimum wage, for any pay period other than
weekly.
EXISTING LAW:
1)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 when the earnings are payable. (Code of
Civil Procedure Section 706.050(a). All further references
are to this Code unless otherwise stated.)
2)Requires that for any pay period other than weekly, the
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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 weekly calculation, as specified:
a) For a daily pay period, the amounts shall be identical
to the weekly garnishment amounts;
b) For a biweekly pay period, multiply the state hourly
minimum wage by 80 work hours;
c) For a semimonthly pay period, multiply the state hourly
minimum wage by 86 2/3 work hours; or
d) For a monthly pay period, multiply the state hourly
minimum wage by 173 1/3 work hours. (Section 706.050(b).)
3)Provides that, with respect to an earnings assignment order
for support, one-half of the disposable earnings (as defined
by Section 1672 of Title 15 of the United States Code) of the
judgment debtor, plus any amount withheld from the judgment
debtor's earnings pursuant to any earnings assignment order
for support, is exempt from levy under this chapter where the
earnings withholding order is a withholding order for support.
(Section 706.052(b).)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: According to the author:
Approximately 64% of poor Californians live in a home
that earns wages. No one should experience poverty,
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especially people who work. When they do, it is
essential we do what we can to prevent hardships for
workers and their families. The key issue raised in
this bill is modifying wage garnishment law - which is
essentially a statutory floor on debt repayment - so
that creditors are still 100% repaid but not at a rate
at which a debtor and his family cannot survive
without incurring more debt, or relying on public
assistance.
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
high percentage of income taken from a worker's
paycheck.
High wage garnishment rates in California primarily impact
low-wage workers, making it more difficult for them to pay for
basic needs. Supporters of the bill contend that low-wage
workers in California are those who are most negatively affected
by wage garnishment rates in California, which they also believe
are too high, considering California's high cost of living, and
do not allow low-wage workers whose wages are being garnished to
retain enough of their earnings to pay for essential needs and
avoid slipping closer into poverty. They further contend that
when the wages of low-wage workers are garnished at high rates,
those workers often suffer more severe financial setbacks,
including losing their assets and falling deeper into debt,
often accruing additional debt to credit card companies or
predatory lenders.
Recent data reported by ADP, the largest payroll services
provider in the nation, supports the author's contention that
wage garnishment is used more often against blue-collar workers
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than high-earning white-collar workers. Based on anonymous
payroll records for the previous three years in a sample size of
13 million employees, the ADP report found that the income level
most likely to be subject to wage garnishment was between
$25,000 and $40,000 per year. (ADP Research Institute,
"Garnishment: The Untold Story," Sept. 2014.) As a result,
contends Western Center, wage garnishment most often affects
low-wage workers in households who can barely make ends meet.
They write:
For perspective of the wages earned by people whose
wages are garnished, it is useful to compare these
amounts to the California Poverty Measure (CPM). This
measure, developed by Stanford University and the
Public Policy Institute of California, factors in
receipt of government assistance and typical costs
faced by families, such as housing and child care, for
the state. According to researchers, the CPM for the
lowest cost county in the state is $29,500 for a family
of four and the highest CPM is $37,400. This suggests
that households are having their wage garnished at
wages below the California Poverty Measure (emphasis
added), that is, below the level at which Stanford
researchers believe they are able to meet their basic
needs and financial obligations.
Wage garnishment formula in California creates a disincentive
for additional earnings. Under existing state law, the maximum
amount of earnings allowed to be garnished is the lesser of the
following: (a) 25% of the individual's disposable earnings for
that week, or (b) the amount by which the individual's
disposable earnings for that week exceed 40 times the state's
minimum hourly wage in effect at the time when the earnings are
payable. This maximum amount applies to most debts, but does
not apply to withholdings to pay child support or tax orders,
meaning a greater percentage of a garnishee's wages could be
withheld to pay for child support orders and unpaid taxes.
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According to the author, the seemingly perverse result of this
garnishment formula is that a worker who earns $10, $11, or $12
per hour ends up taking home only the state minimum wage of $9
per hour because the formula provides for garnishment of all
income above the minimum to be garnished (up to approximately
$12 per hour). This result creates a strong disincentive to
earn additional income, contends the author, stating:
"Low-income workers wish to honor and pay back their debts like
everyone else, but a 100% taking on these earnings contributes
to poverty among working families, putting life essentials-food,
rent, utilities-out of reach and discouraging work." This
disincentive still exists, the author notes, even when the
worker lives in a community that has enacted a higher local
minimum wage than the state, thus undermining local economic
policy and priorities that establish higher minimum wages.
Proposed revision to the garnishment formula seeks to help
workers retain more earnings. This bill would revise the wage
garnishment formula to reduce the maximum amount of wages
subject to garnishment, allowing workers to retain more of their
earnings and removing the disincentive to earn more than the
minimum wage. Specifically, the bill would establish that the
maximum amount allowed to be garnished is the lesser of the
following: (a) 10% of the individual's disposable earnings for
the week (a decrease from 25%), or (b) one third of the amount
by which the individual's disposable earnings for that week
exceed 40 times the state or local minimum hourly wage,
whichever is greater (a 67% decrease from the applicable
amount.) Under operation of the new formula, the earnings
disincentive discussed above would be eliminated and any newly
enacted local minimum wage would be taken into account in
calculating applicable amounts under the formula.
The bill is opposed by debt collectors, bankers, and the
retailers association, among others, who have submitted a joint
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letter of opposition to the Committee. These opponents argue
that the bill drastically reduces the ability of judgment
creditors to recover on valid, court-issued judgment, and may
result in harming the very debtors the bill is trying to
protect. They note that California's existing wage garnishment
rate of 25 percent is consistent with the federal government
rate and the 25 percent rate in the majority of other states.
Because more than 40 states allow for wage garnishment at a rate
that is higher than the proposed 10 percent, opponents contend
that this bill therefore makes California's garnishment rate at
odds with the federal rate, and one of the lowest rates in the
nation.
In response, the author notes that 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.
Furthermore, the author points out that more than half of the
other states have greater protections for judgment debtors than
provided under California law. According to the author, some
other states provide varying exemptions from garnishment so that
judgment debtors do not fall into greater debt when trying to
sustain themselves and their families by paying for the
judgment. For example, Pennsylvania, Texas, North Carolina, and
South Carolina prohibit wage garnishment for all consumer debts,
and the following states allow garnishment at rates lower than
California: New York permits only 10 percent garnishment of
gross earnings; Delaware, 15 percent; and Illinois, 15 percent.
Like California, these latter states all have relatively high
costs of living compared to other states in the nation.
Extra fees and interest accrued as a result of more payments.
Opponents contend that the bill will harm, rather that help,
debtors because they will not be able to quickly resolve their
obligations and will accrue higher administrative fees imposed
by the county and additional interest because more payments
would be necessary. They explain:
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Existing law authorizes counties to assess a $12 fee
to judgment debtors for each disbursement under a writ
of attachment, regardless of the amount. For
wage-earners who are paid weekly, this fee could total
$624 over the course of a year. Biweekly wage-earners
would pay as much as $324 in 2015. By extending the
term of the repayment, the bill increases the number
of times a judgment debtor has to pay this fee. This
is just another expense for judgment debtors that the
bill creates. For example, on a $3,000 judgment
balance, solely because of a prolonged wage
garnishment period as proposed under SB 501, debtors
earning $450 each week would pay $1,817 more in
service fees and interest. That is 61 percent in extra
fees and interest, caused solely by the extended
garnishment period that the bill creates.
In response, supporters note that this argument assumes that
low-income workers who were financially able to pay off their
debts more quickly would not choose to do so, and there is
nothing in the bill that prevents or even discourages such
persons from making higher or additional payments to reduce
interest and fees. They state:
A debtor can always choose to pay more if they can
afford to, and so SB 501 gives low-income garnished
workers more choices, not fewer. When a worker is not
undermined by high wage garnishments, they are less
likely to file for bankruptcy or to rely on high-cost
and predatory payday lending entities. In the long run,
preventing financial hardship for workers actually
increases their likelihood of being able to pay off
debt quicker and eventually exit the debt trap.
Existing exemptions available to debtors. Opponents also
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contend that the bill is unnecessary because California debtors
can already file a Claim of Exemption to reduce the amount
withheld in a wage garnishment. They content that such claims
for exemption are commonly granted under timelines ranging from
10 to 30 days, stating:
Under California Code of Civil Procedure §706.105 (f),
if the Claim of Exemption by the debtor is unopposed
within 10 days, the sheriff stops withholding wages
immediately or reduces the garnishment to the amount
requested by the debtor. In practice, if the debtor
appears to qualify for the Claim of Exemption, the
creditor will not oppose. If the creditor opposes the
Claim of Exemption and requests a hearing, under
California Code of Civil Procedure §706.105 (e), the
court must set a hearing on the Claim of Exemption
within 30 days after the creditor's opposition was
filed with the court unless the court continues the
hearing for good cause. During this hearing process,
no payments are sent to the creditor and they are
instead held by the sheriff, so there is no financial
incentive by the creditor to extend the timeline out
to six to eight months. In addition, creditors are
required to provide an employer with the Claim of
Exemption and a financial statement form and the
employer must provide these forms to the debtor within
10 days, thereby making it easy for the debtor to file
the Claim of Exemption.
In response, proponents counter that workers whose wages are
subject to garnishment still experience serious financial
hardships, notwithstanding the ability to file for a claim of
exemption. Western Center writes:
While it is true that workers can request a claim of
exemption, the relief provided through this process is
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not immediate and the process is somewhat complicated.
Not everyone has the resources or support to apply for
the claim and the court forms are not language
accessible. Legal services report not having the staff
resources to support workers who need to file for a
claim of exemption and frequently referring them to the
court self-help centers.
Previous Related Legislation. AB 1775 (Wieckowski), Chap. 474,
Stats. 2012, increased the amount of a judgment debtor's weekly
earnings that are exempt from wage garnishment from 30 times the
federal minimum wage to 40 times the California minimum wage.
AB 1388 (Wieckowski), Chap. 694, Stats. 2011, allowed the court
to grant a judgment debtor's claim of exemption from wage
garnishment in cases where the underlying debt was incurred for
medical care or hospital services rendered to the judgment
debtor or his or her family.
AB 1321 (Wieckowski) of 2011 would have allowed a debtor to
obtain a temporary stay on wage garnishment for the period
between the filing of a claim of exemption and the hearing date
for the court to enter judgment on the claim. That bill died in
Assembly Appropriations.
REGISTERED SUPPORT / OPPOSITION:
Support
Western Center on Law and Poverty (co-sponsor)
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East Bay Community Law Center (co-sponsor)
American Civil Liberties Union
Bay Area Legal Aid
California Employment Lawyers Association (CELA)
California Labor Federation
California Partnership
California Reinvestment Coalition
California Rural Legal Assistance Foundation
Consumer Federation of California
Consumers Union
Courage Campaign
Law Foundation of Silicon Valley
Law Offices of Antonio Gallo and Associates
National Employment Law Project
Public Law Center
SEIU
Unite Here
Western Regional Advocacy Project
Opposition
California Association of Collectors
California Bankers Association
California Chamber of Commerce
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California Creditors Bar Association
California Retailers Association
DBA International
Encore Capital Group
PRA Group
San Diego Regional Chamber of Commerce
Analysis Prepared by:Anthony Lew / JUD. / (916)
319-2334