BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 501


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          SENATE THIRD READING


          SB  
          501 (Wieckowski)


          As Amended  September 4, 2015


          Majority vote


          SENATE VOTE:  26-11


           -------------------------------------------------------------------- 
          |Committee       |Votes|Ayes                   |Noes                 |
          |                |     |                       |                     |
          |                |     |                       |                     |
          |                |     |                       |                     |
          |----------------+-----+-----------------------+---------------------|
          |Judiciary       |6-2  |Mark Stone, Alejo,     |Gallagher,           |
          |                |     |Chau, Chiu, Cristina   |Maienschein          |
          |                |     |Garcia, Holden         |                     |
          |                |     |                       |                     |
          |                |     |                       |                     |
           -------------------------------------------------------------------- 


          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) 50% 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.


          4)Provides that implementation of these provisions shall not  
            become operative until July 1, 2016, and makes corresponding  
            technical amendments to provide that the existing wage  
            garnishment formula shall remain operative until July 1, 2016,  
            and, as of January 1, 2017, is repealed, unless a later  
            enacted statute, that becomes operative on or before January  
            1, 2017, deletes or extends the dates on which it becomes  
            inoperative and is repealed.


          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."










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          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  
          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  








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          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  
          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 current 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  








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          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.


          Proposed revision to wage garnishment formula.  This bill seeks  
          to 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 order  
          to address opposition concerns that reducing the maximum  
          garnishment rate from 25% to 10% for some individuals would make  
          California's garnishment rate at odds with the federal rate, and  
          one of the lowest rates in the nation, the author amended this  
          bill on July 9, 2015 to retain the 25% garnishment rate in  
          existing law for that component of the formula.  Subsequently,  
          the bill has been further amended to revise the component of the  
          formula most applicable to low-wage earners, specifically, to  
          reduce the cap on garnishment to 50% of the amount allowed by  
          current law, rather than 30% of that amount.  In summary, this  
          bill now provides 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) 50% 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 this bill, 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.


          According to the author, for workers being paid at the state  








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          minimum wage rate of $10 per hour (effective 2016), this bill as  
          amended would allow a lower cap on garnishment only for those  
          workers earning $40,000 in adjusted gross income (i.e. $800 in  
          weekly earnings.)  A person working full-time at the state  
          minimum wage rate of $10 per hour earns $20,000 per year (i.e.  
          $400 in weekly earnings), so in other words, this bill will not  
          provide any decrease in garnishment to workers who make more  
          than twice the state minimum wage.  According to the author, to  
          illustrate operation of the revised formula, a worker living in  
          a city paying the state minimum wage who earns $25,000 per year,  
          a 10% garnishment rate would apply; at $30,000 per year, a 17%  
          rate would apply; and at $35,000 per year, a 21% rate would  
          apply.  At $40,000 per year, the formula yields a 25%  
          garnishment rate, which is the highest rate that can be applied  
          to any worker under this bill and under existing law.


          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 state that "Existing law authorizes  
          counties to assess a $12 fee to judgment debtors for each  
          disbursement under a writ of attachment, regardless of the  
          amount. 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 that "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  








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          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 pursuant to Code of Civil Procedure  
          Section706.105(f)."  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."


          Delayed implementation until July 1, 2016.  Recent amendments to  
          the bill delay implementation of these provisions until July 1,  
          2016, which, among other things, will allow the Judicial Council  
          time to revise necessary legal forms used in wage garnishment  
          cases.  Specifically, the bill now clarifies that the existing  
          wage garnishment formula shall remain operative until July 1,  
          2016, and, as of January 1, 2017, is repealed, unless a later  
          enacted statute, that becomes operative on or before January 1,  
          2017, deletes or extends the dates on which it becomes  
          inoperative and is repealed.









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          Analysis Prepared by:                                             
          Anthony Lew / JUD. / (916) 319-2334  FN: 0002114