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THE FEDERAL CONSUMER CREDIT PROTECTION ACT AND GARNISHMENT FOR CHILD SUPPORT

Laura W. Morgan

Pursuant to federal law, consumers are protected from having more than 25% of their aggregate disposable earnings subject to garnishment by creditors. 15 U.S.C. § 1673(a). As defined in the statute, “garnishment” is defined to mean “any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of any debt.” 15 U.S.C. § 1672(c).

The consumer protections of § 303(a) of the Act do not apply, however, to “any order for the support of any person issued by a court of competent jurisdiction . . . which affords substantial due process, and which is subject to judicial review.” 15 U.S.C. § 1673(d)(1). In such cases, a garnishment to enforce any order of support shall not exceed 50% of an individual’s disposable earnings if the individual is supporting a spouse or dependent child other than the spouse or child for whose support the order is to be used. 15 U.S.C. § 1673(b)(2), or 60% where the individual is not supporting another spouse or child. 15 U.S.C. § 1673(b)(2). Thus, any order for garnishment of wages for purposes of support must comply with § 303(b) of the Act. E.g., Voss Products, Inc. v. Carlton, 147 F. Supp.2d 892 (E.D. Tenn. 2001); Marshall v. District Court for Forty-First-b Judicial District of Michigan, 444 F. Supp. 1110 (E.D. Mich.1978); State Comptroller v. First Alabama Bank, 642 So. 2d 1349 (Ala. Civ. App. 1993); Cameron v. Hughes, 825 P.2d 882 (Alaska 1992); Bitzer v. Bitzer, No. CA 98-648 (Ark. Ct. App., Feb. 24, 1999); Garcia v. Garcia, 560 So. 2d 403 (Fla. 3d DCA 1990); Naedel v. Naedel, 115 Md. App. 347, 693 A.2d 60 (1997); Magee v. Magee, 755 So.2d 1057 (Miss. 2000); Gardiner v. Fanning, 1994 Neb. 246 (1994); Bigness v. Obit, 448 N.Y.S.2d 120 (N.Y. Fam. Ct. 1982); In re Yeauger, 83 Ohio App. 3d 493, 615 N.E.2d 289 (1992); Laws v. Laws, 758 A.2d 1226 (Pa. Super. 2000); Center for Gastrointestinal Medicine v. Willitts, 137 N.H. 67, 623 A.2d 752 (1993).

The statute provides:

§ 1673

(a) Maximum allowable garnishment

Except as provided in subsection (b) of this section and in section 1675 of this title, the maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not exceed (1) 25 per centum of his disposable earnings for that week, or (2) the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage prescribed by section 206(a)(1) of title 29 in effect at the time the earnings are payable, whichever is less. In the case of earnings for any pay period other than a week, the Secretary of Labor shall by regulation prescribe a multiple of the Federal minimum hourly wage equivalent in effect to that set forth in paragraph (2).

(b) Exceptions

(1) The restrictions of subsection (a) of this section do not apply in the case of (A) any order for the support of any person issued by a court of competent jurisdiction or in accordance with an administrative procedure, which is established by State law, which affords substantial due process, and which is subject to judicial review. (B) any order of any court of the United States having jurisdiction over cases under chapter 13 of title 11. (C) any debt due for any State or Federal tax. (2) The maximum part of the aggregate disposable earnings of an individual for any workweek which is subject to garnishment to enforce any order for the support of any person shall not exceed - (A) where such individual is supporting his spouse or dependent child (other than a spouse or child with respect to whose support such order is used), 50 per centum of such individual’s disposable earnings for that week; and (B) where such individual is not supporting such a spouse or dependent child described in clause (A), 60 per centum of such individual’s disposable earnings for that week; except that, with respect to the disposable earnings of any individual for any workweek, the 50 per centum specified in clause (A) shall be deemed to be 55 per centum and the 60 per centum specified in clause (B) shall be deemed to be 65 per centum, if and to the extent that such earnings are subject to garnishment to enforce a support order with respect to a period which is prior to the twelve-week period which ends with the beginning of such workweek.

The restrictions on garnishment laws do “not annul, alter, or affect or exempt any person from complying with the laws of any state prohibiting garnishments or providing for more limited garnishments than are allowed under” the federal law. 15 U.S.C. § 1677. Evans v. Evans, 429 F. Supp. 580 ( ); see Hisquierdo v. Hisquierdo, 439 U.S. 572, 587 n. 20 ( ). The statutory scheme has been viewed as an exemption statute. Hodgson v. Cleveland Municipal Court, 326 F. Supp. 419 ( ). The intent of Congress was to put a limitation on the garnishment of wages, in order to “relieve countless honest debtors driven by economic desperation from plunging into bankruptcy in order to preserve their employment and insure a continued means of support for themselves and their families.” U.S. Code, Cong. & Admin. News, 1968, vol. 2, p. 1979. Thus, federal law provides a consumer with protection from court ordered deductions which go beyond a certain percentage of an individual’s disposable income.

When a support order provides for payment to the support collection unit and all such orders mush provide for a wage deduction order upon a failure to make a designated number of payments, the federally mandated percentages apply. This is so because the wage deduction order is served on the employer upon the happening of the contingency of nonpayment, and no such order could be carried out by an employer which exceeds the mandated percentages without additional notice to the respondent. See Fuentes v. Shevin, 407 U.S. 67 (); Sniadach v. Family Finance Corp., 395 U.S. 337 ( ).

As new forms of compensation become increasingly common, a new question has arisen: are profit-sharing awards and bonuses “earnings” for purposes of the Act? In the recent case of Genessee County Friend of the Court v. General Motors Corp., ___ Mich. ___, 626 N.W.2d 395 (2001), the court decided that such incentives were “earnings” under the Consumer Credit Protection Act. Therefore, the extent to which they could be garnished for child support was subject to the caps contained in the Act.

In this case, the employees received annual profit-sharing payments and an annual $2,000 “signing bonus” pursuant to a collective bargaining agreement. In addition, some employees received discretionary “recognition awards” in lieu of raises. The plaintiffs were seeking to enforce support orders against the employees. The plaintiffs argued that the payments the employees received did not constitute earnings under the Act, and therefore were not subject to the federal cap. In particular, the plaintiffs argued the payments could not be considered earnings because they were lump sum payments of uncertain amounts, rather than consistent amounts of money received at regular intervals.

The court held that “earnings” are compensation paid or payable for personal services. The fact that the amounts of the payments were not known in advance and, in some cases, subject to the discretion of management, did not change the character of the payment as compensation of personal services.

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