California Forum

California still lets debt collectors empty the bank accounts of poor people. Why?

Uber and Lyft drivers rally at the Capitol in 2014. Laws that allow debt collectors to empty the bank accounts of low income debtors are especially punishing on those who earn intermittently and live off of their savings, such as seasonal workers and members of the gig economy.
Uber and Lyft drivers rally at the Capitol in 2014. Laws that allow debt collectors to empty the bank accounts of low income debtors are especially punishing on those who earn intermittently and live off of their savings, such as seasonal workers and members of the gig economy. rbenton@sacbee.com

California should join 16 other states in protecting low income individuals from having all of their savings wiped out by debt collectors. Senate Bill 298, sponsored by Sen. Bob Wieckowski, D-Fremont, and passed by the Senate in May, would prevent debt collectors from taking all of the money in a person’s bank account.

SB 298 does not cancel any debts. But it would protect just enough money to keep low-income families from being made homeless or having their children go hungry.

The current law is especially punishing for farm laborers, substitute teachers, janitors, and others who work seasonally and so need to save when they are working so that there will be money during the dry season. When creditors take all of their savings, the consequences can be overwhelming.

The law allows a creditor, such as a credit card company or a department store, to obtain a judgment against someone who owes money and has not paid his or her debts. No one objects to that. Often debt-buying companies purchase the creditors’ accounts, usually for pennies on the dollar, and then try to collect the money that is owed.

Whoever is owed the money, the original creditor or the company that purchases the debt may then garnish the debtor’s wages to collect what is owed. But when garnishment occurs, the creditor must leave at least 75 percent of the debtor’s paycheck for basic living necessities.

This is a humane and necessary law to ensure that debtors still have enough money for food, shelter, and medical care.

In addition to garnishing wages, however, the creditor can seize the contents of the debtor’s bank account. Under current law, the creditor can take all of the money in the bank account.

Unlike with wages, there is no requirement that any funds be left to pay for life’s basic necessities. When their bank accounts are completely emptied, individuals often lose the savings that they need to pay for rent or groceries or prescription drugs.

The current law is especially punishing for individuals such as farm laborers, substitute teachers, janitors and others who work seasonally and so need to save when they are working so that there will be money during the dry season. When creditors take all of their savings, the consequences can be overwhelming. Families become homeless when they lose the money they saved to pay the rent or the mortgage. The money for groceries is gone.

Indeed, far too often, low-income individuals in California find that their bank accounts have been completely cleared out by debt collectors. Sometimes this occurs even when they didn’t owe a debt in the first place or their money should have been protected under law. It often takes months to get their money back, and in the meantime they cannot pay for housing, food or medicine.

SB 298, now pending before the California Assembly, would automatically protect from bank levies enough money to provide a person the basic necessities of life. Specifically, it would protect two months’ worth of savings at the amount of the hourly minimum wage. A number of other states, such as Wisconsin and Mississippi, safeguard even more funds in bank accounts.

The only protection under current law is for a consumer to file a “claim of exemption” after money has been seized to seek the return of the funds on the grounds that it was improperly taken or there is great need. But that process, which requires first convincing the court and then the sheriff’s office, can and does regularly take months before low-income debtors get their money.

In the meantime, the debtor is without money for food or housing or medical care. The much better course, as is followed in 16 states, is to ensure that creditors cannot seize all of the funds in bank accounts and leave a minimal amount needed for survival. That is what SB 298 would do.

The California Assembly should follow the lead of the Senate and pass this bill and Gov. Jerry Brown should sign it. The law already recognizes limits on what can be taken when a person’s wages are garnished. It should do the same for bank accounts.

Compassion for the most needy among us and basic decency require that SB 298 be put into law.

Erwin Chemerinsky is dean and professor of law at the UC Berkeley School of Law. He can be reached at echemerinsky@law.berkeley.edu.

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