BILL ANALYSIS Ó
SB 501
Page 1
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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SB 501
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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