Changes to Debt Collection Law

9/14/15 Update.

The governor signed both of these bills and they will become effective on July 1, 2016.

The new formula will result in a change to the Earning Withholding Order form in an effort to try to explain this to an employer withholding wages to comply with the garnishment.

Two California senate bills will affect the process of consumer debt collections providing relief to judgment debtors.

SB 501 amends CCP § 706.050 and changes the formula for calculating the percentage of disposable income subject to a wage garnishment, giving some relief to low income judgment debtors. Under current law, a wage garnishment is a continuing levy that orders the employer to withhold 25% of the employee’s disposable income. This change will limit that amount to an amount not to exceed the lesser of 25% of the employee’s disposable income, or 50% of an amount 40 times the local or state minimum wage. In 2016, the state minimum wage increases to $10 per hour, and local cities may be higher.

Quoting from the Assembly Legislative Analysis, “[a]ccording 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…” This lower cap on the garnishment amount will only apply to those making minimum wage, with graduated multipliers for above minimum wage.  Those making twice minimum wage will continue to cap out at 25%.

This law would be operative on July 1, 2016, and would be repealed on January 1, 2017 unless the legislature extends it.

SB 641 amends the Fair Debt Buying Practices Act (FDBPA) affecting consumer debts that were sold or resold after January 1, 2014, and adds a new section, Civil Code § 1788.61.

Under current law, a judgment debtor may file a notice of motion and motion to set aside a default or default judgment and for leave to defend an action relating to the debt up to 2 years after a default judgment is entered. This amendment would allow a judgment debtor of a sold or re-sold consumer debt up to 6 years after that date, or 180 days after actual notice of the action.

There is a special provision for those victims of identity theft.

The judgment debtor who files the motion must also include “an affidavit stating under oath that the person’s lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect.”

Further, “[e]ither party may introduce, and the court may consider, evidence in support of its motion or opposition, including evidence relating to the process server who appears on the proof of service of the summons and complaint.”

What this means for a process server is unclear. “Evidence relating to the process server” might mean evidence of the service of an action for a sold or re-sold consumer debt, such as server’s service instructions, notes, photos, GPS tracking, evidence of evasion, attempts, etc. All would relate to an effort to defend the service, and or attack the defendant’s avoidance of service, or the service itself.
If that is what “evidence relating to the process server” means, it may require record retention of the server’s notes for at least 6 years, or 180 days after actual notice of the action – an unknown period of time.

For instance, if a judgment is entered in 2016, and 8 years later the plaintiff serves a wage garnishment or deposit account levy, the judgment debtor may file a motion 180 days after actual notice of the action.