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Collection Actions: 15.2.5 Wage Assignments

Wage assignments—contractual clauses by which a worker assigns their wages to a creditor or some other entity—can affect debtors in ways similar to wage garnishments. While the CCPA wage garnishment limits do not apply to wage assignments,218 the Federal Trade Commission’s Credit Practices Rule prohibits wage assignments in connection with the extension of credit to consumers in or affecting commerce.219

There are three exceptions, however. A wage assignment is allowed if:

Collection Actions: 15.2.1.5.2 Wage garnishment calculations

After July 23, 2009, with a minimum wage of $7.25 per hour in effect, no garnishment can be made if an employee’s disposable earnings are $217.50 or less for the week in question. When an employee’s disposable earnings exceed $217.50, but are less than $290.00, only the amount over $217.50 can be garnished. For example, assume that an employee’s gross earnings in a particular week are $250.00. After deductions required by law, the disposable earnings are $220.00.

Collection Actions: 15.2.1.4.2 Periodic pension plan payments

The CCPA is explicit that “periodic payments pursuant to a pension or retirement program” constitute “earnings” protected by its garnishment limits.43 The language “pursuant to” refers to payments from the pension plan to a retiree, rather than payments by the employer or employee into the pension plan.44 However, wage garnishment protections may not prevent a creditor from reaching the fund itself, as opposed to the periodic payments it makes, to the extent the retiree is entitled

Collection Actions: 15.2.1.6.3 Is there a federal private cause of action?

The Fifth, Eighth, and Ninth Circuits and a number of district courts have held that there is no federal private right of action to enforce the CCPA protection against discharge of an employee because of garnishment.112 These decisions are based on the availability of alternative remedies. Some note the mandate in 15 U.S.C. § 1676 that the Secretary of Labor “shall enforce the provisions of this subchapter,” while others rely on the view that state statutes provide adequate private remedies.

Collection Actions: 15.2.6 Do Federal or State Wage Protections Apply to Paid or Deposited Earnings?

A paycheck that the employer has drawn but has not yet delivered to an employee is protected by the federal Consumer Credit Protection Act (CCPA).232 Ignoring the CCPA’s remedial purpose, however, several decisions have held that the CCPA does not protect earnings of a wage earner after the time that they are paid over to the employee, so the exemption is lost once the earnings are deposited in a financial institution.233 However, even these courts may recognize a distinction between direct

Collection Actions: 15.2.1.4.3 Tips

The wages of serving staff at restaurants are likely to amount to less than thirty times the minimum wage and therefore be completely protected from garnishment, as long as tips are not considered part of their “earnings.”46 A Department of Labor handbook states that tips paid directly to an employee by a customer are not considered earnings within the meaning of the CCPA.47 The same rule applies to tips that are transferred free and clear to a worker at the direction of a credit customer wh

Collection Actions: 15.2.1.6.4 Title VII claims

When the CCPA garnishment provisions do not provide an employee with protection from dismissal, or when the CCPA remedies are inadequate, another approach to challenging an employee discharge for garnishment is based on Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on race or certain other characteristics.118 This statute may also be used to challenge disciplinary action short of discharge or any other change in the terms and conditions of employment.119

Collection Actions: 15.2.7 Remedies for Excessive or Wrongful Wage Garnishment

The Wage and Hour Division of the Department of Labor has authority to interpret and enforce the CCPA’s wage garnishment restrictions.261 However, the CCPA does not specify any penalties for court orders allowing excessive wage garnishments. Congress intended the court issuing the garnishment to abide by the provisions of the Act, by stating that “no court of the United States . . .

Collection Actions: 15.2.1.5.4 Child support and alimony

The CCPA garnishment provisions offer debtors less protection where the debt involves a court order for child support or alimony.87 However, where the obligation arises from a separation agreement rather than a court order, the court may hold that the higher percentage is not allowed.88

The maximum amount of disposable income that may be garnished for child support or alimony payments may not exceed:

Collection Actions: 15.2.1.4.4 Payments to independent contractors

The CCPA explicitly includes “commissions” in its definition of earnings,52 suggesting an intent to cover the typical earnings of independent contractors as long as the compensation is for personal services.53 Even a court that takes the view, not supported by the statutory language, that the CCPA applies only to compensation that is paid periodically54 may accept this position, since commissions are often paid biweekly or monthly.

Collection Actions: 15.2.1.6.5 State law wrongful discharge claims

Even if federal causes of action cannot be maintained, an employee discharged because of a single wage garnishment may have a state law tort claim for wrongful discharge. Most states place tort liability on an employer who discharges an employee in violation of specific public policy interests of the state.132 In some states, this tort has been specifically recognized in the context of discharge because of wage garnishment.133

Collection Actions: 15.2.1.2 The Meaning of “Subject to Garnishment”

The CCPA protects earnings which are “subject to garnishment.” The statute defines garnishment as any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of debt.11 The term “subject to garnishment” has been interpreted broadly to relate to any seizure flowing from judicial action,12 including installment payment orders.13 Most wage garnishments are made by court order, with a cred

Collection Actions: 15.2.1.5.5 Multiple garnishments; multiple jobs

When there is more than one garnishment, the priority among them is determined by state law.92 Some states give priority to the garnishment that is prior in time.93 Other states require creditors to take turns garnishing a debtor’s earnings.94 Between creditor garnishments and garnishments for support, however, states often give priority to those for support, regardless of their timing.

Collection Actions: 15.2.1.4.5 Non-periodic payments

Courts differ as to whether the protections of the CCPA and similar state statutes extend to non-periodic payments which result from employment, such as profit sharing, incentive payments, deferred compensation, and tax refunds. Some courts simply conclude that tax refunds58 and non-periodic earnings59 are not protected by the CCPA or state garnishment laws.

Collection Actions: 15.2.2.1 Administrative Wage Garnishment When Federal Agency or Student Loan Guaranty Agency Is Creditor

Federal law empowers federal agencies to which delinquent debts are owed to issue administrative orders requiring debtors’ wages to be withheld “notwithstanding any provision of state law.”136 The amount deducted is limited to 15% of disposable wages,137 and can be reduced further upon a showing of financial hardship.138 Agencies have the authority to institute the garnishment administratively, without ever suing the debtor.

Collection Actions: 15.2.1.3 Types of Debts to Which the Protections Apply

The CCPA wage garnishment protections are not limited to consumer debts or debts incurred through credit transactions, but apply to garnishment to collect “any debt.”26 Thus, they apply to debts incurred for business as well as consumer purposes.27 One court, however, held that the CCPA did not limit the amount of the attachment of the salary of a polluter to pay the weekly cost of pumping and hauling sewage from his property after he was found in contempt for failure to comply with an order

Collection Actions: 15.2.1.6.1 CCPA discharge prohibition

The preservation of an employee’s job is one of the dominant purposes of the CCPA garnishment protections, which provide that no employer may discharge an employee whose earnings have been subject to garnishment for any one indebtedness.100 The Department of Labor interprets this protection as applying even if the garnishment is not the only factor motivating the employer: “[O]nly where garnishment for a single indebtedness plays no real part in the discharge is it beyond the prohibition of the Act.”1

Collection Actions: 15.2.3.3 Hardship Exceptions

Courts may have discretion to limit wage garnishment, especially in cases of hardship.197 In some states this discretion is provided by statute.198 Kansas forbids wage garnishment for two months after recovery of the debtor or a family member from an illness which has prevented the debtor from working at their usual employment for two weeks.199

Truth in Lending: 13.1.2 Structure of the Act

The CLA is one of five “parts” of the Truth in Lending Act,1 which in turn is the first of six “subchapters” of the Consumer Credit Protection Act.2 While the CLA is part E of Subchapter 1 (Truth in Lending), the CLA remedies are not found in part E, but rather in part B of Subchapter 1. When part B refers to remedies for “this subchapter,” the reference is not just to TILA’s credit provisions, but to all five TILA parts, including the CLA.