A pair of new laws in California are going to make it more difficult for debt buyers to take action in the event of summary judgments and affect the amount that any organization can garnishee the wages of residents of The Golden State.
The bills were both signed into law earlier this month.
Under SB 641, the state’s Fair Debt Buying Practices Act is amended, so that consumers would have a period of six years to set aside a default judgment. The six-year window applies to the period after the default judgment is entered. Alternatively, the borrower has 180 days after first notice of the action, whichever is earlier.
Debt buyers are now also required to submit a sworn affidavit to establish their legitimate claim to collect, when requesting a judgment.
The collections industry, as can be expected, isn’t thrilled with this law.
“There needs to be finality in litigation,” said Joann Needleman, practice leader at the law firm of Clark Hill. “Everyone has a responsibility. When you get a summons, you have to appear. There is a burden on the consumer to show timely action upon notification.”
The law may also be superfluous. There is already an existing law on the books to allow for setting aside a default judgment, said Harvey Moore of the Moore Law Group and president of NARCA.
“I don’t see a need to have a separate set of rules setting aside a default judgment obtained by a debt buyer vs. those obtained by someone else,” Moore said. “There’s no need for two sets of rules.”
The other piece of concerning legislation deals with how much can be garnished from a debtors’ bank account or paycheck. This does not just apply to collections, but any kind of garnishment. The law goes into effect next July 1.
The specifics of how much can be garnished is a complicated formula. Under the new law, the amount garnisheed can not exceed the lesser of 25% of the individual’s weekly disposable earnings or 50% of the amount by which the individual’s disposable earnings for the week exceed 40 times the state minimum hourly wage, or applicable local minimum hourly wage, if higher, in effect at the time the earnings are payable.
Michael Kahn of Patenaude and Felix created a chart to show some examples of how the law affects garnishments.
