BILL ANALYSIS Ó SB 501 Page 1 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 SB 501 Page 2 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that the existing wage garnishment formula shall remain operative until July 1, 2016, and, as of January 1, 2017, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2017, deletes or extends the dates on which it becomes inoperative and is repealed.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." SB 501 Page 3 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 SB 501 Page 4 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 SB 501 Page 5 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 SB 501 Page 6 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 SB 501 Page 7 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. SB 501 Page 8 Analysis Prepared by: Anthony Lew / JUD. / (916) 319-2334 FN: 0002114