BILL ANALYSIS Ó
SB 501
Page 1
SENATE THIRD READING
SB
501 (Wieckowski)
As Amended September 4, 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) 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and, as of January 1, 2017, is repealed, unless a later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inoperative and is repealed.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