BILL ANALYSIS Ó
SB 501
Page 1
SENATE THIRD READING
SB
501 (Wieckowski)
As Amended July 9, 2015
Majority vote
SENATE VOTE: 26-11
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Judiciary |6-2 |Mark Stone, Alejo, |Gallagher, |
| | |Chau, Chiu, Cristina |Maienschein |
| | |Garcia, Holden | |
| | | | |
| | | | |
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SUMMARY: Revises the formula for calculating the maximum amount
of a person's weekly wage earnings that can be garnished 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) 25% of the individual's disposable earnings for that week,
or b) 30% of the amount by which the individual's disposable
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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.
FISCAL EFFECT: None
COMMENTS: According to the author, this bill "will improve the
ability of low-wage working families to meet their basic needs
by remedying two problems with current wage garnishment law,
namely the disincentive for a worker facing a garnishment to
earn more than the local minimum wage, and 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 this bill contend that low-wage
workers in California are those who are most negatively impacted
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
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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 on Law and Poverty (WCLP), wage
garnishment most often affects low-wage workers in households
who struggle to make ends meet. WCLP notes that researchers at
Stanford have developed the California Poverty Measure (CPM),
which factors in receipt of government assistance and typical
costs faced by families, such as housing and child care, for the
state. Their data indicate that 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. According to the author, in this
context the ADP study suggests that households are having their
wage garnished at wages below the California Poverty Measure,
that is, below the level at which Stanford researchers believe
these households 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: 1) 25% of the
individual's disposable earnings for that week, or 2) 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
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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
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%
garnishment of gross earnings; Delaware, 15%; and Illinois, 15%.
Like California, these latter states all have relatively high
costs of living compared to other states in the nation.
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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.
In opposition to the previous version of this bill, debt
collectors, bankers, and the retailers association, among
others, contend that this 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% is consistent with the federal
government rate and the 25% 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%, opponents
contend that reduction of the garnishment rate from 25% to 10%
would make California's garnishment rate at odds with the
federal rate, and one of the lowest rates in the nation. They
also contend that such a reduction is not consistent with the
author's stated intent to help low-wage working families.
To address these concerns, the author has amended this bill so
that it 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, this bill would retain the 25%
garnishment rate that is in existing law for this part of the
formula. Second, this bill revises the part of the formula most
applicable to low-wage earners, reducing the cap on garnishment
to 30% of the amount allowed by current law.
In summary, this bill now provides that the maximum amount that
may be garnished from a worker is the lesser of the following:
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a) 25% of the individual's disposable earnings for the week, or
b) 30% 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.
Extra fees and interest accrued as a result of more payments.
Opponents contend that this 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
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 this bill that prevents, or even discourages, such
persons from making higher or additional payments to reduce
interest and fees. They state:
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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 this bill is unnecessary because California debtors
can already file a Claim of Exemption to reduce the amount
withheld in a wage garnishment. They contend that such claims
for exemption are commonly granted under timelines ranging from
10 days to 30 days, stating "Under California Code of Civil
Procedure Section706.105 (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. . . . 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
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workers who need to file for a claim of exemption and frequently
referring them to the court self-help centers."
Analysis Prepared by:
Anthony Lew / JUD. / (916) 319-2334 FN: 0001185