BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 501


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          Date of Hearing:   July 7, 2015


                           ASSEMBLY COMMITTEE ON JUDICIARY


                                  Mark Stone, Chair


          SB  
          501 (Wieckowski) - As Amended April 28, 2015


                              As Proposed to Be Amended

          SENATE VOTE:  26-11


          SUBJECT:  WAGE GARNISHMENT RESTRICTIONS


          KEY ISSUE:  IN ORDER TO ENABLE LOW-WAGE WORKERS TO RETAIN  
          SUFFICIENT WAGES EACH WEEK TO PAY FOR ESSENTIAL NEEDS FOR  
          THEMSELVES AND THEIR FAMILIES, SHOULD THE AMOUNT OF MONEY THAT  
          MAY BE GARNISHED FROM THEM TO SATISFY A JUDGMENT DEBT BE CAPPED  
          AT THIRTY PERCENT  OF THE AMOUNT OF THEIR WEEKLY WAGES WHICH  
          EXCEEDS THE STATE MINIMUM WEEKLY WAGE?


                                      SYNOPSIS


          According to the author, wage garnishment rates in California  
          are so high that they do not allow low-wage workers whose wages  
          are garnished to retain enough of their earnings to pay for  
          their household's essential needs and avoid slipping closer to  
          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  








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          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  
          their wages garnished are those workers who earn between $25,000  
          and $40,000 per year- bolstering the author's contention that  
          low-wage earners and blue collar workers are the workers who are  
          most impacted by the state's current wage garnishment laws.


          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.  As proposed to be  
          amended, this bill would lower the formula's cap on the  
          garnishment rate that is most applicable to low-wage earners, as  
          defined, while keeping the current 25% rate applicable for all  
          other wage earners.  Specifically, this bill would establish  
          that the maximum amount allowed to be garnished is the lesser of  
          the following:  (a) 25% of the individual's disposable earnings  
          for the week; or (b) thirty percent of the amount by which the  
          individual's disposable earnings for that week exceed 40 times  
          the state minimum wage, or the applicable local minimum hourly  
          wage, whichever is greater.  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 previous version of the bill was opposed by debt collectors,  
          bankers, and the California Retailers Association, among others,  
          who argued that the bill drastically reduced 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  








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          off their debts.  At the time of this analysis, it was not known  
          whether these opponents have revised their position on the bill,  
          as it is proposed to be amended.


          SUMMARY:  Reduces, in some cases primarily affecting low-wage  
          workers, the maximum amount of a person's weekly wage earnings  
          that 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)  
            twenty-five percent (25%) of the individual's disposable  
            earnings for that week, or b) thirty percent (30%) of the  
            amount by which the individual's disposable earnings for that  
            week exceed 40 times the state minimum hourly wage, or  
            applicable local 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;  








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            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  
            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).)


          4)Provides that on and after July 1, 2014, the minimum wage for  








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            all industries shall be not less than nine dollars ($9) per  
            hour, and on and after January 1, 2016, the minimum wage for  
            all industries shall be not less than ten dollars ($10) per  
            hour.  (Labor Code Section 1182.12.)


          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,  
               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 impacted  








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          by wage garnishment rates in California, which they also believe  
          are too high, considering California's high cost of living.   
          Supporters also contend that current wage garnishment rates do  
          not allow low-wage workers subject to garnishment the ability to  
          retain enough of their earnings to pay for their essential needs  
          and avoid slipping closer to 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  
          than against 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 struggle to make ends  
          meet.  Western Center writes:


               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  








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               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 and is high compared to other states.   
          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 for  
          child support or tax orders, meaning an even greater percentage  
          of a garnishee's wages could be withheld because of child  
          support orders and unpaid taxes.


          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.


          The author notes that California is the fifth most expensive  
          state in the nation in which to live, and more than half of the  
          other states in the nation have greater protections for judgment  








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          debtors than those 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.


          Proposed revision to the garnishment formula seeks to help  
          low-wage workers retain more earnings, while maintaining the  
          existing 25% garnishment rate for all other workers.  This bill  
          would revise the wage garnishment formula to reduce the maximum  
          amount of wages subject to garnishment, allowing primarily  
          low-wage workers to retain more of their earnings and removing  
          the disincentive to earn more than the minimum wage.  As  
          currently in print, this bill provides 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, or (b)  
          one-third of the amount by which the individual's disposable  
          earnings for that week exceed 40 times the state minimum wage,  
          or applicable local minimum hourly wage, whichever is greater.  


          This version of the bill is opposed by debt collectors, bankers,  
          and the retailers association, among others, who previously  
          submitted a joint 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 judgments,  
          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  








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          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.  They also question why the bill as currently in print  
          reduces the garnishment rate from 25% to 10% in the portion of  
          the formula less applicable to low-wage workers, given the  
          author's stated intent to help low-wage working families.


          To address these concerns, the author now proposes to amend the  
          bill as follows.  First, the bill no longer seeks to lower the  
          garnishment rate from 25% to 10% in the part of the formula not  
          applicable to the lowest wage earners; instead, the bill would  
          retain the 25% garnishment rate that is in existing law for this  
          part of the formula.  Second, the bill revises the part of the  
          formula most applicable to low-wage earners, reducing the cap on  
          garnishment to thirty percent (30%) of the amount allowed by  
          current law.  


          The table below illustrates how the wage garnishment formula, as  
          proposed to be amended, would apply to a person on a weekly pay  
          schedule, starting with a person making the current state  
          minimum wage of $9 per hour (Row 1 - one times the minimum  
          wage); next, a person making one and a half times the minimum  
          wage (Row 2 - one and a half times the minimum wage); etc.   
          Under the formula, a person working 40 hours per week making the  
          minimum wage of $9 per hour has weekly wage earnings of only  
          $360, and the result of the formula is that none of that  
          person's wages may be garnished.  A person with $720 in weekly  
          earnings (i.e. making twice the state minimum wage) has weekly  
          wage earnings of $720, and the result of the formula is that  
          $108 of that $720 (15%) may be garnished.


          TABLE 1:  California minimum wage: $9.00 per hour


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           |Multipl|Weekly  |(I) Amount |(II)       |Amount of  |Garnishment|
           |e of   |Earnings|under      |Amount     |Garnishment| Rate (%)  |
           |Min.   |        |706.050(a)(|under      | = Lesser  |           |
           |Wage   |        |1)         |706.050(a)(|of amounts |           |
           |       |        |           |2)         |(I) or     |           |
           |       |        |           |           |(II)       |           |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
           |-------+--------+-----------+-----------+-----------+-----------|
           |   1   |  $360  |    $90    |    $0     |    $0     |    0%     |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
           |-------+--------+-----------+-----------+-----------+-----------|
           |  1.5  |  $540  |   $135    |    $54    |    $54    |    10%    |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
           |-------+--------+-----------+-----------+-----------+-----------|
           |   2   |  $720  |   $180    |   $108    |   $108    |    15%    |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
           |-------+--------+-----------+-----------+-----------+-----------|
           |   3   | $1,080 |   $270    |   $216    |   $216    |    20%    |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
           |-------+--------+-----------+-----------+-----------+-----------|
           |   4   | $1,440 |   $360    |   $324    |   $324    |    23%    |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
           |-------+--------+-----------+-----------+-----------+-----------|
           |   5   | $1,800 |   $450    |   $432    |   $432    |    24%    |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
           |-------+--------+-----------+-----------+-----------+-----------|
           |   6   | $2,160 |   $540    |   $540    |   $540    |    25%    |
           |       |        |           |           |           |           |
           |       |        |           |           |           |           |
            ---------------------------------------------------------------- 
                 (I) 25% of the individual's disposable earnings for the  
          week (CCP 706.050(a)(1) as proposed to be amended.)








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                (II) 30% of the amount by which the individual's  
          disposable earnings for that week exceed 40 times the state  
          minimum wage (CCP 706.050(a)(2) as proposed to be amended.)
          In summary, the bill as proposed to be amended, would establish  
          that the maximum amount that may be garnished from a worker is  
          the lesser of the following:  (a) 25% of the individual's  
          disposable earnings for the week, or (b) thirty percent of the  
          amount by which the individual's disposable earnings for that  
          week exceed 40 times the state minimum wage, or applicable local  
          minimum hourly wage, whichever is greater.  Under operation of  
          the new formula, the earnings disincentive discussed above would  
          be eliminated, and any local minimum wage higher than the state  
          wage would be taken into account in calculating the applicable  
          amount under the formula for a worker living in such a  
          jurisdiction.


          As discussed above, the amendments proposed by the author are:


               On page 2, line 7, strike "Ten percent" and insert  
               "Twenty-five percent"


               On page 2, line 9, strike "One-third" and insert "Thirty  
               percent"


          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:


               Existing law authorizes counties to assess a $12 fee  








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               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.  


           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  
          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:










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               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  
               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.








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          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)


          East Bay Community Law Center (co-sponsor)


          American Civil Liberties Union










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          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 










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          SEIU


          Unite Here


          Western Regional Advocacy Project




          Opposition (to previous version of the bill)


          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








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          Analysis Prepared by:Anthony Lew / JUD. / (916)  
          319-2334