The CCPA & Garnishment
The Consumer Credit Protection Act is a federal law that provides certain protections to consumers who have incurred debt. Creditors use wage garnishment as a method to enforce debts against consumers. Wage garnishment occurs where the creditor goes to a third party, such as the debtor’s employer, and intercepts portions of the debtor’s income to help recover the outstanding debt. Typically, wage garnishment is done through judicial process. Once a creditor garnishes a debtor’s wages, the CCPA (as well as state law that deal with wage garnishment) kicks in.
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Use
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Typically, garnishment is a method creditors use to enforce unpaid debts. The employer is referred to as the “garnishee.” The employer deducts the money from the debtor’s paycheck much the same way it withholds income taxes, insurance premiums and other withholdings. The Internal Revenue Service uses garnishment as a means to collect unpaid taxes. Many states also allow custodial parents to use garnishment as a method to collect unpaid child support from their former spouses.
Discharge
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The CCPA prohibits employers from firing employees solely because a creditor has garnished that employee’s wages for a single debt. The section of the CCPA that deals with employee discharge is Title III. Title III covers all employees and employers who work in personal services. Title III covers all types of income, including salaries, bonuses, wages, retirement income and commissions. However, it generally does not include tips.
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Limitations
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The CCPA limits the amount of income a creditor can garnish per paycheck. The standard maximum amount that a creditor can garnish is 25 percent of the debtor’s disposable income or 30 times the minimum wage, whichever is greater. Disposable income means income after mandatory deductions such as income taxes, Social Security and unemployment insurance.
Exceptions
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The maximum amount of income that a creditor can garnish is higher for certain types of debt. For example, the CCPA permits a custodial parent owed back child support to garnish up to 50 percent of a debtor’s disposable income. In addition, the IRS and state tax authorities can garnish up to 60 percent of the debtor’s disposable income for back taxes. Finally, if a noncustodial debtor spouse falls 12 weeks into arrears on child support, the custodial spouse may garnish another 5 percent of disposable income.
Penalties
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If employers violate Title III of the CCPA, the Department of Labor can move to reinstate fired employees, attempt to force the employer to pay back wages or order the employer to restore illegally garnished wages. If the employer refuses, the Department of Labor may take the employer to court. Employers caught willfully violating the CCPA can face criminal penalties.
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