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Consumers’ Wages Being Garnished by Debt Collectors

Michael Rapp Sept. 24, 2014

A story co-published by NPR and ProPublica details how millions of consumers’ wages were garnished in 2013 in order to pay outstanding debts. ADP, the largest payroll service provider in the United States released a study of more than 13 million workers’ payroll records.

The study indicates that 4 million workers, or 3% of the total working population, lost up to a quarter of their paychecks to debt collectors. ADP also found that 1 in 10 workers in the prime working age range of 35-44, had wages garnished in 2013.

The National Consumer Law Center finds the statistics in the ADP stud “alarming.” and believes, “States and the federal government should look on reforming our wage garnishment laws with some urgency.”

ADP found that a large number of consumers’ wages went to paying child support, but also credit card, medical bill, and student loan debts. In most states, debt collectors are legally allowed to deduct up to 25% of a consumer’s paycheck.

Exceptions to the 25% deduction include Texas, Pennsylvania, North Carolina and South Carolina, where laws prevent wage garnishment to some extent.

The ADP also indicates that in other instances, debt collectors have taken funds directly from consumers’ bank accounts.

The story notes that while creditors and lenders have taken consumers to court over unpaid debt, they are almost always represented by attorneys, but consumers who are obviously already struggling financially, are not.

Christopher McGraugh, an associate circuit court judge in St. Louis, explains, “the system is designed to give debtors a chance to dispute allegations in suits against them. But in debt collection cases, “it just doesn’t happen that much.”

Many consumers who owe debt don’t see the need to attend court sessions, since they know they already owe debt, which effectively allows debt collectors to garnish wages.

The rise in wage garnishment has also been a burden for employers who must handle and process large amounts of wage garnishment orders.

The American Payroll Associate encouraged the Uniform Law Commission in 2011 to draft a model state law on wage garnishment to make the process easier on employers.