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Full text of "Assignment, garnishment, and consumer credit in Illinois"

331.1 
no. 26 



JTE OF LABOR AND INDUSTRIAL RELATIONS 



IGNMENT, GARNISHMENT. 



AND CONSUMER CREDIT 



IN ILLINOIS 



/ERSITY OF ILLINOIS 



EDITORIAL NOTE The Institute of Labor and Industrial Rela- 

tions was established in 1946 to "inquire faith- 
fully, honestly, and impartially into labor- 
management problems of all types, and secure 
the facts which will lay the foundation for 
future progress in the whole field of labor 
relations." 

The Institute seeks to serve all the people of 
Illinois by promoting general understanding of 
our social and economic problems, as well as 
by providing specific services to groups directly 
concerned with labor and industrial relations. 

The Bulletin series is designed to implement 
these aims by periodically presenting informa- 
tion and ideas on subjects of interest to per- 
sons active in the field of labor and industrial 
relations. While no effort is made to treat the 
topics exhaustively, an attempt is made to 
answer questions raised about the subjects un- 
der discussion. The presentation is nontechnical 
for general and popular use. 

Additional copies of this Bulletin and others 
listed below are available for distribution. 

ROBBEN W. FLEMING BARBARA D. DENNIS 

Director Editor 



BULLETINS 

Copies $0.10 each except where indicated. 

UNIONS, MANAGEMENT, AND INDUSTRIAL SAFETY 

SUPERVISORY TRAINING — WHY, WHAT, HOW 

WORKERS ON THE MOVE 

JOB EVALUATION 

MOTION AND TIME STUDY ($0.25 EACH) 

WORKMEN'S COMPENSATION IN ILLINOIS 
($0.50 EACH) 

ASSIGNMENT, GARNISHMENT, AND CONSUMER CREDIT 
IN ILLINOIS ($0.50 EACH) 

ILIR BULLETIN NO. 36 

UNIVERSITY OF ILLINOIS BULLETIN 

Volume 55, Number 61; April, 1958. Published seven times 
each month by the University of Illinois. Entered as second- 
class matter December 11. 1912, at the post office at Urbana, 
Illinois, under the .'\ct of August 24, 1912. Office of publica- 
tion, 2 Administration Building (East), Urbana, Illinois. 



The person cha'-'^- his mat-^-i-^l is re- 
sponsible fo |.Jjg 



ASSIGNMENT, GARNISHMENT, 
AND CONSUMER CREDIT 
IN ILLINOIS 



BY FRANCIS M. RUSH, JR. 






CONTENTS 

7 Introduction 

9 The Growth of Consumer Credit 

10 Sources of Consumer Credit 

12 Obtaining Credit 

15 The Illinois Wage Assignment Law 

1 8 The Illinois Garnishment Law 

22 Assignment and Garnishment Laws in Practice 

25 Effect on Industrial Relations 

27 Wage Assignment and Garnishment as a Minority Group Problem 

28 Conclusion 

29 Footnotes 



LIBRARY 
UNIVERSITY OF ILUNOJS 
« UR8ANA-CHAMPAIGN 



This bulletin was prepared under the direction of Murray Edelman, associate 
professor of political science. Mr. Rush wishes to acknowledge the helpful assist- 
ance of Mr. Russel V. Willis, Allied Finance Company, Urbana; Mr. E. R. 
Hartley, Director of Industrial Relations, Illinois Manufacturers Association: Miss 
Agnes C. Ryan, Chicago Legal Aid Bureau; Mrs. June Cabe, Urbana; and a 
number of union officers in Chicago and downstate Illinois. 



Introduction 

A wage assignment is a contract which a worker gives to a creditor 
as a form of security for a loan or for the purchase of goods on credit. 
It provides that the creditor can take part of a worker's wage directly 
from his employer if the loan is not repaid when due. 

A ivage garnishment is a court order directing an employer to pay 
part of a worker's wages to a creditor. The creditor must show to a 
court's satisfaction that the worker owes him some money, that the 
worker has not paid him back on time, and that to take the worker's 
wages directly from the employer is the only way to collect the debt. 

In either case, the creditor may be a store which has sold the worker 
goods on credit, it may be a finance company which has loaned him 
money, or it may be a credit union or any other person or firm which 
has made a cash loan to the worker. 

Legislatures in 41 states have enacted laws permitting a worker to 
assign his future wages to a creditor. Forty-seven states and the District 
of Columbia have laws allowing creditors to garnish a worker's wages. 
Illinois has had a wage assignment law since 1935. The State garnish- 
ment law was first enacted in 1872 and was last amended in 1957. (See 
Tables 3 and 4 for legislation in other states.) 



The Growth of Consumer Credit 

Extension of credit to consumers with small incomes has been a 
comparatively recent development. The earlier belief was that a policy 
of "cash on the barrelhead" was necessary for sound personal economy. 
Credit was extended only to consumers with large incomes so that they 
might buy expensive durable goods with a high resale value. 

Consumer installment credit plans in this country developed during 
the nineteenth century, particularly after the Civil War, and gained 
wide acceptance during the 1920's.^ Today a good credit rating is 
important to all consumers. - 

Table 1 shows the amount of short- and intermediate-term credit 
oustanding at the end of selected years since 1916.^ In 1957 American 
consumers were borrowing more than seven times as much money as 
they were in 1945, at the end of World War II, although the value of 
the money had decreased only 36.1 per cent.* 

TABLE 1. Total U. S. Consumer Credit, 1916-1957 

(Estimated amounts of short- and intermediate-term credit 
outstanding in billions of dollars) 

End of Year Total Consumer End of Year Total Consumer 

OR Month Credit or Month Credit 

1949 17.3 

1950 21.4 

1951 22.6 

1952 27.4 

1953 31.2 

1954 32.3 

1955 38.6 

1956 41.9 

1957— Jan 40.9 

Feb 40.5 

Mar 40.5 

Apr 41.0 

Sources: Consumer Listallment Credit — Pari I, Vol. 2, pp. 220-221 ; Federal Reserve Bulletin, 
Vol. 43, No. 6 (June, 1957), p. 190. 



1916 


2.0 


1920 . 


2.8 


1925... . . 


4.2 


1929 


6.4 


1933 . . . . . 


3.5 


1936 . 


6.1 


1941 . 


9.2 


1943 . . . . . 


4.9 


1945.. .... 


5.7 


1946.. .... 


8.4 


1947.. .... 


11.6 


1948 


14.4 



Sources of Consumer Credit 

The principal sources of consumer credit today are commercial 
banks, retail stores, finance companies, and credit unions. The latter 
three most commonly take wage assignments as security and use both 
wage assignments and garnishments as collection methods. 

RETAIL STORES 

Although retail merchants extend most of the installment credit to 
consumers for the purchase of goods, they usually retain only about 
one-half of the contracts until the debts are repaid.' They sell the rest 
to banks or finance companies." 

It is difficult to say how many wage assignments are taken by retail 
merchants. Large companies or stores, with well established reputations, 
seldom take wage assignments. However, small retail merchants who 
offer credit to almost anyone on fairly loose terms usually will include 
a wage assignment agreement in a credit contract. All types of retail 
establishments may use garnishment proceedings to collect debts, but 
the small merchant probably will use them more frequently than the 
large firm. 

Illinois law places no limit on the amount of credit a retail mer- 
chant may extend to a customer, nor does the law limit the interest 
rate or special fees which a merchant may charge for the use of credit. 

PERSONAL FINANCE COMPANIES 

Personal finance companies in Illinois operate under the Small Loans 
Act, and the section of that statute dealing with wage assignments is 
slightly difTerent from the law of assignments which applies to other 
lenders. 

These companies offer cash loans at rates which are higher than 
those permitted for other agencies lending money. The rate of interest 
cannot exceed 3 per cent per month on any part of the unpaid principal 
balance of the loan up to $150.00, 2 per cent per month on the part of 
the unpaid principal balance between $150.00 and $300.00, and 1 per 
cent per month on any part of the unpaid principal balance over $300.00. 
Illinois' small loan companies can make loans in amounts up to $800.00. 

Table 2 shows the amount of lending by licensed personal finance 
companies in Illinois, how frequently wage assignments were the prin- 
cipal form of security, and how often wage assignments were used as a 
collection device." 



10 



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11 



UNIV£KSiTY OF ILLiNOUi 
LrBRARY 



CREDIT UNIONS 

Credit unions operate as non-profit, tax-tree organizations under 
both federal and state laws. Their interest rates arc limited, by law, to 
1 per cent per month on the unpaid prineipal balance — a rate much 
lower than other lending agencies normally charge. 

\\'hile credit unions can and do take wage assignments, they arc not 
bound by the restrictions of the general law. They can, for example, 
take an assignment of 100 per cent of a worker's wage, but they seldom 
do. In the case of a mass layofT at an industrial plant, the credit union 
located there could, under 100 per cent assignments, take the entire 
amount of the last checks of discharged employees who owed the 
credit union money. Some critics maintain that such assignments should 
be forbidden because they work a double hardship on the workers who 
have already lost their jobs. Proponents of credit unions, however, point 
out that such assignments are necessary to keep a credit union finan- 
cially secure, and they add that occasional hardships are more than 
oflfset by the advantages which non-profit credit unions offer to workers. 



Obtaining Credit 

The consumer can obtain credit from a number of diflFerent sources. 
What he should really look for is the best deal he can find to fill his 
needs at a particular time. To find the best deal, he should shop for 
credit, comparing the provisions of the various credit programs. 

TRUE INTEREST RATE 

A consumer and his neighbor may sign credit contracts calling for 
1 per cent interest on $100.00. If their contracts are with different types 
of lending agencies, they may find that they are paying entirely difl['er- 
ent total interest charges. To be certain what the true interest rate is, 
consumers should find the answers to two important questions: 

1. For what length of time is the interest rate computed? 

2. Is the interest figured on the total amount or on the unpaid bal- 
ance of the loan? 

An interest rate of 1 per cent computed monthly is equal to a yearly 
interest rate of 12 per cent. However, if the monthly rate is figured 
only on the unpaid balance of the loan or credit purchase and payments 
are made in equal amounts each month, the total interest charge would 
be only 6V2 per cent a year. 



12 



A loan at an apparent rate of 7 per cent a year may have a true 
rate of nearly double that figure. This is the case with loans on what 
is called the "discount-amortized" basis. That is, interest at 7 per cent 
for the full term of the loan is subtracted from the borrowed amount 
at the time of the loan. However, repayment of the principal in weekly 
or monthly installments begins at once. Thus the borrower pays interest 
on the full amount of the principal for the full term of the loan, 
although he has use of the full principal sum for only a brief period. 

HIDDEN CHARGES 

Some credit programs include extra charges over and above the 
interest. For instance, some credit agencies may charge for the investi- 
gation of a consumer's credit rating. Others may require the borrower 
to buy certain types of insurance, often at rates higher than the bor- 
rower would pay in the open market. 

The new Illinois Retail Installment Sales Act, effective January 1, 
1958, prohibits rates higher than those on file with the State Director 
of Insurance. The new act also permits the buyer on an installment 
sale to choose his own insurance company, subject to the seller's 
approval.* 

DEFAULT AND DELINQUENCY 

The consumer who signs a credit contract probably will figure his 
payments in his monthly family budget and will probably have every 
intention of making the payments on time. But an unforeseen emergency 
may arise, and he may find it hard — or impossible — to keep up his 
payments. 

Before he signs a credit contract, he should find out what will 
happen if he cannot meet his payments. He should ask if there are any 
penalties for late payments. Some agencies charge for the extra work 
involved in handling delinquent accounts. The new Retail Installment 
Sales Act limits charges for late payment to 5 per cent of an installment 
or $5.00, whichever is less.^ 

The consumer should also find out whether he must sign a wage 
assignment and what protection he has in case his goods are repossessed. 
A buyer whose goods are repossessed not only may owe the balance 
due on the original debt, but he also may be charged for the actual cost 
of repossession. 

The consumer also should ask about how repossessed goods are dis- 
posed of. This is important to him since he may be required to pay the 
difference between the sale price of the repossessed merchandise and 
the amount he still owes on the installment contract. 



13 



Repossession is governed in detail under the Illinois Retail Install- 
ment Sales Act. The buyer may not waive any right of action against 
the seller or holder of the contract for illegal acts committed in the 
collection of payments or in repossession of the goods. ^" Neither may 
the buyer give the seller or holder of the contract the right to act for 
the buyer in collecting payments or in repossessing the goods. ^^ 

If the seller or the holder of the contract repossesses the goods for 
the buyer's default, the buyer may have a right to redeem the goods by 
paving up the amount owed under the contract and the seller's expenses 
in taking and storing the goods. The buyer must redeem within 10 days 
after the goods were repossessed.^ - 

However, the seller can block this right to redeem by giving notice 
to the buyer 20 days before repossessing.^'' If the buyer does not or 
cannot redeem, the one repossessing can sell the goods at public or 
private sale.^* After costs of the sale and the repossession are paid, the 
proceeds of the sale are applied on the balance due under the contract. 
If anything is left, it is to be turned over to the buyer. ^^ 

If the goods do not bring enough at the re-sale to meet the expenses 
of repossession and the balance due on the purchase price, the seller or 
the holder of the contract may recover the difTerence from the buyer. 
The buyer is entitled to a court determination of the reasonableness of 
the expenses claimed by the seller and the reasonable value of the 
goods when repossessed.^*^ 

Revolving or "add-on" credit schemes are used cjuite frecjuently by 
retail stores. Under these plans, new credit purchases are simply added 
to contracts drawn up for an earlier sale upon which the consumer is 
still making payments. If the consumer fails to make payments, all 
goods bought on the contract may be repossessed: the goods purchased 
initially, which may be completely paid for, as well as the newly pur- 
chased items. This type of credit plan is enjoying increasing popularity 
with department and sales catalog stores. 

Here again, the Illinois Retail Installment Sales Act provides the 
buyer with a measure of protection. Any such "add-on" credit scheme 
has to be spelled out in detail in a written meniorandum given to the 
buyer, describing the additional goods, the new debt total, the finance 
charges, and the revised installment payments. The new payments are 
to be credited proportionately to the various purchases so that the 
earlier purchases are paid off in turn.^' 

REPAYMENT ALLOWANCES 

Because interest charges account for a large percentage of the total 
cost of credit purchases, the consumer will be wise to complete his pay- 



14 



merits as quickly as possible so that he can lower his interest rate. In 
the past some companies have refused to lower interest charges for early 
repayment. 

Under the Illinois Retail Installment Sales Act, the buyer is entitled 
to a refund credit for paying up his debt in full in advance of the date 
due. The buyer, however, must give the holder of the contract five 
days' notice of his intention to pay up the debt.^- The holder may be 
the original seller, but more likely will be a finance company or bank. 

GUARANTEES 

A consumer may be legally responsible for installment payments 
even if the merchandise he buys turns out to be defective. The buyer 
will best be protected by a contract including express statements war- 
ranting the goods to be free of defects. He should in no case waive his 
right to hold the seller for defective goods. Under the Illinois Retail 
Installment Sales Act, such waiver would be unenforceable in any case. 
However, a finance company or bank buying the contract from the 
seller probably cannot be held to the seller's warranties. ^^ 

CREDIT INFORMATION 

Better business bureaus and legal aid bureaus may serve the con- 
sumer as sources of information about particular lenders or lending 
practices. Better business bureaus, however, are usually more concerned 
with illegal or borderline business practices than with general credit 
information. 

The work ol the legal aid bureau is largely confined to helping 
people with small incomes after they are in financial trouble. The 
bureaus often are hampered in their efforts to assist because adequate 
safeguards for consumers have not been written into the law. 

Many trade unions have shown an interest in problems of consumer 
credit and provide information and advice to members and their wives. 



The Illinois Wage Assignment Law 

A general law regulating the assignment of wages in Illinois was 
first enacted in 1935 and last amended in 1957. However, personal 
finance companies operate under the Small Loans Act, and credit 
unions are regulated by the Credit Union Act. Both of these laws con- 
tain wage assignment provisions. 



15 



VALIDITY OF THE WAGE ASSIGNMENT 

The law provides that no assignment of wages earned or to be 
earned is valid unless the following conditions are met: 

1. The assignment must be in writing. 

2. It must be signed by the wage earner. 

3. At the time it is signed, it must show the name of the employer, 
the amount of money loaned or the price of the goods bought on credit, 
the rate of interest, and the date payments are due. 

4. The worker must get his money or goods before he signs the 
wage assignment or at the same time he signs it. 

5. The worker must be given an exact copy of the assignment when 
he signs it. 

TABLE 3. Wage Assignment Law Provisions'^ 



State 


Assign- 




ment 




Per- 




mitted 


Alabama 




Arizona 


* 


Arkansas 


* 


California 


* 


Colorado 


* 


Connecticut 




Delaware 


* 


D.C. 




Florida 


* 


Georgia 


* 


Idaho 


* 


Illinois 


* 


Indiana 


* 


Iowa 


* 


Kansas 




Kentucky 


* 


Louisiana 


* 


Maine 


* 


Maryland 


* 


Massachusetts 


* 


Michigan 


* 


Minnesota 


* 


Mississippi 


* 


Missouri 


*d 


Montana 


* 


Nebraska 


* 


Nevada 





Amount Consent Record- Consent Assignor 

OF Wage of Em- ing with of Must 

That plover Public Spouse Get 

May Be Required Official Required Copy 

Assigned Required 



10%b 

25%«= 
10%b 



10% 
10%'^ 

25% 

10%b 

10%b 



25% 

10%>^ 

10%t 



16 



6. The words, "WAGE ASSIGNMENT," must be printed or written 
on the assignment in heavy letters at least one-quarter inch high. 

7. The wage assignment must not be a part of any other paper. 

8. The assignment must have been made within the past three years. 

DEMAND ON AN EMPLOYER FOR A WORKER'S WAGES 

A creditor cannot present a wage assignment to an employer and 
demand a worker's wages unless — 

1. The employee has not made his payments on time. 

2. The demand shows the correct amount the employee owes. 

3. The creditor shows the employer the original or photostatic copy 
of the assignment. 

TABLE 3. Wage Assignment Law Provisions' — (Concluded) 



State 


Assign- 


Amount 


Consent 


Record- 




ment 


OF Wage 


OF Em- 


ing WITH 




Per- 


That 


plover 


Public 




mitted 


May Be 

Assigned 


Required 


Official 
Required 


New Hainpshire 


* 






* 


New Jersey 


* 


10%" 






New Mexico 


* 






* 


New York 


* 


10% 




* 


North Carolina 


* 




* 






North Dakota 












Ohio 












Oklahoma 


* 


10%" 








Oregon 


* 


10%'^ 








Pennsylvania 


* 










Rhode Island 


* 










South Carolina 


* 




* 






South Dakota 












Tennessee 


* 


10% 








Texas 


* 


10% 




* 




Utah 
Vermont 


* 
* 


10%'' 
10%'^ 








Virginia 


* 


25 %« 


* 






Washington 


* 




* 






West Virginia 


* 


25% 


* 






Wisconsin 


* 


10%'' 








Wyoming 


* 






* 





Consent Assignor 

of Must 

Spouse Get 

Required Copy 



Source: Revised statutes of various states. 

'^ Some laws apply only to small loans by licensed personal finance companies. 

^ Limit applies only to small loans by licensed personal finance companies. 

•^ Limit is 50% if assignor is not supporting family. 

'' Only wages already earned may be assigned. 

'^ Between $50 and $75 is exempt under any circumstances for householders. 



17 



4. The employer is the same as the one named on the assignment at 
the time it was written and signed. 

If any one of these conditions is not met, the creditor cannot enforce 
his demand for the worker's wages. A demand is good for only 30 days. 
It then must be renewed to be legally effective. 

25 PER CENT LIMIT 

No more than 25 per cent of a worker's wages can be collected by 
creditors who hold wage assignments. Even if the worker has assigned 
his wages to more than one creditor, no more than 25 per cent of his 
wages for any pay period can be collected. The creditors collect in the 
order in which they serve their demands on the employer. 

THE LAW RELATING TO PERSONAL FINANCE COMPANIES AND CREDIT UNIONS 

rhe wage assignment law which applies to personal finance com- 
panies is similar to the general statute. However, under the Small Loans 
Act, the creditor is not required to show the employer the original or 
photostatic copy of the assignment, the demand on the employer for 
the assigned wages does not have to be renewed every 30 days, and 
there is no provision regulating the procedure when there is more than 
one assignment of a worker's wages. 

The Credit Union Act regulates wage assignments taken by credit 
unions and the restrictions of the general law do not apply. 

PUBLIC EMPLOYEES 

The wages or salaries of public employees in Illinois may not be 
assigned. 



The Illinois Garnishment Law'' 

When a worker has no property which can be taken to pay off his 
debts, the law allows the creditor to take property owned by the worker 
but held by others. The most common type of property falling in this 
category is wages owed by an employer to an employee. Therefore, 
wages are the most common type of property garnished. 

CONDITIONS NECESSARY FOR GARNISHMENT 

Before a worker's wages may be garnished, the following conditions 
must be met: 



18 



1. The creditor must prove to a court that the wage earner owes 
him money and the creditor has a valid judgment lor the amount. 

2. The court must find that the debtor has no other property which 
might lawfully be claimed by the creditor. 

3. The employer must already owe the wage to the employee. Wages 
not yet earned and wages earned after the garnishment summons is 
served on the employer are not subject to garnishment. 

4. The worker must be notified in advance unless he has signed an 
agreement which gives the creditor the power to "confess judgment" 
for him. 

To make certain that the worker has no other property and that 
his wages therefore may be garnished, the law recjuires that a bailiff or 
officer of the court first investigate the case. The usual procedure, how- 
ever, is to have the worker sign a so-called "judgment note" at the 
time he gets his loan. The note specifies that the worker promises to 
pay back the loan by a certain date and gives the attorney for the 
merchant or loan company authority to "confess judgment" for hiin, 
that is. the worker agrees that his wages may be garnished without his 
being notified first. The result is that a worker's w^ages may be garnished 
without his knowing about it in advance and without his having a 
chance to settle the debt by another kind of payment. As long as the 
Illinois law does not ban the use of judgment notes, a worker may have 
a hard time getting a loan without signing one. 

SERVICE OF GARNISHMENT DEMAND UPON THE EMPLOYER 

After a creditor has gone to court to obtain a judgment against an 
employee, he must serve a "Demand in Garnishment" upon the employer 
and the employee (unless the employee has previously confessed judg- 
ment). The demand must be for the amount of the employee's wages 
over and above his legal exemption (see page 21). The demand must 
include the name of the court giving the judgment and the date of the 
judgment upon which the demand is based. 

A Demand in Garnishment must be served upon the employer in 
person or upon his superintendent, manager, cashier, general agent, or 
clerk. The demand served upon the employee must be delivered to him 
in person or to his home where it may be lelt \vith a member of his 
immediate family who is over 10 years of age. 

When an employer receives a Demand in Garnishment, he must hold 
all of the employee's wages over and above the legal exemption for a 
period of seven days. The creditor cannot bring a suit in garnishment 
until at least 48 hours after the Demand in Garnishm("nt is .served. If 



19 



the creditor does not bring the garnishment suit within seven days from 
the service of the demand, the employer must pay the employee the 
withheld wages. 

An employer may challenge the garnishment in court on any one 
of three grounds — that the employee is a minor, that the contract was 
fraudulent, or that the judgment is not enforceable because the debt is 
more than 10 years old. 

The law does not prevent an employer from paying an employee his 

TABLE 4. Wage Garnishment Law Provisions 



State 



Garnish- 
ment OF 
Wages 
Permitted 



.•\labama 
.•\iizona 
Arkansas 
Clalifornia 

Colorado 

Connecticut 

Delaware 

D.C. 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 



Minnesota 

Mississippi 
Missouri 



Amount of Wage Exempted from 
Garnishment for Household 
Heads 



Public Em- 
ployee Wages 
May Be 
Garnished 



60% of wages due or to become due 

50% per month 

60 days' pay 

30 days' pay, but Vz if debts were for 

necessities or to pay debtor's employer 

60% for householders 

$25 per week 

90% in New Castle County; 60% in 

Kent and Sussex Counties when debt 

is for necessities and o\-er S50 

$200 per month for 2 months 

100% 

$1.25 per day plus 50% of remainder 

75%, but not more than $100 

$40 per week 

Not more than $25 

100% of 90 days' pay 

90% of 3 months' wages 

90% if debtor earns less than $75 per 

month; $67.50 if he earns more than 

$75 per month 

Fixed by court 

$20 per month 

$100 

$40 per week 

60%; range from $12-$30 for one 

week pay period, $12-$60 for pay 

period of 7-16 days. $30-$60 for pay 

period over 16 days 

50% of net wages for 30 days, but not 

more than $75 per week 

$50 per month 

90%. with a maximum of $300 



20 



wages in advance, even though the purpose of the advance payment is 
to avoid garnishment of the employee's wages. 

EXEMPTION FROM GARNISHMENT 

A worker who is the head of his family and living with his family 
is entitled to a $40.00 a week exemption from garnishment against his 
wages, in addition to all regular deductions for taxes and debts he owes 
his employer. He must give his employer an affidavit saying that he is 

TABLE 4. Wage Garnishment Law Provision — (Concluded) 



State 



Garnish- 
ment OF 
Wages 
Permitted 



Amount of Wage Exempted from 
Garnishment for Household 
Heads 



Public Em- 
ployee Wages 
May Be 
Garnished 



Montana 

Nebraska 
Nevada 

New Hampshire 

New Jersey 
New Mexico 



New York 
North Carolina 
North Dakota 
Ohio 

Oklahoma 
Oregon 

Pennsylvania 

Rhode Island 

South Carolina 

South Dakota 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West Virginia 

Wisconsin 

Wyoming 



45 days' pay, but Vi if debts were for 

necessities. 30 days' pay if debt is $10 

or less 

90% 

30 days' earnings; but Yi if debts were 

for necessities 

SIO per week if debt is for necessities: 

$20 per week otherwise 

All wages of less than $48 per week 

80% of first $100; no exemption of 

earnings over $100 or if debt is for 

necessities 

90% 

60 days' earnings 

$35 per week 

80% of first $200 and 60% of balance. 

Must be at least $60 

75% 

$175 per month, but Vi if debts were 

for necessities 



Not more than $30 

100% 

60 days' earnings 

$40 

Current wages 

No exeinption 

$10 

75%, $100-150 per month 

$20 per week 

80% 

60-85% per month, depending on 

number of dependents; $100 minimum 

50% of 60 days' earnings 



21 



the head of a family before he is entitled to the exemption. If he files 
the affidavit, his employer must pay him the $40.00. Some early court 
cases ruled that an employer must "use diligence" to find whether an 
employee is a family head living with his family and must arrange to 
claim the exemption for him if this is the case." Many large firms keep 
blank aflEidavits on hand for employees to sign if their wages are gar- 
nished. The courts have always held that the exemption clause of the 
Illinois garnishment law should be applied generously so as to carry out 
the humane purpose for which it was intended.-'^ 

An employer who pays over to the creditor wages which were ex- 
empt must pay the employee the exempted amount anyway.-* But an 
exemption affidavit filed by an employee protects his employer against 
action by the creditor to collect the exempted amount.-' The exemption 
applies even to non-residents of the State who are sued in Illinois if 
their wages were earned in the State.-® 

PUBLIC EMPLOYEES 

The wages of public employees in Illinois may not be garnished. 



Assignment and Garnishment Laws in Practice 

In order to judge the adequacy of any law, it is necessary not only 
to see what its provisions are, but also to look at how the law is applied 
and interpreted in actual situations. 

BEHAVIOR OF DEBTORS 

Lack of knowledge on the part of borrowers probably is the single 
most important hindrance to the effective application of assignment and 
garnishment laws. Not only are many borrowers unaware of their rights 
under the law, but they also do not know the provisions of the loan and 
credit purchase contracts which they sign. 

The debtor who does not know that he is entitled to a copy of the 
wage assignment, or the worker who signs a blank assignment, puts 
himself at the mercy of the creditor. The borrower who fails to find 
out the true rate of interest or total interest costs may unintentionally 
assume debts which he is unable to pay. Many debtors do not under- 
stand that the entire unpaid balance of a loan or of an installment 
contract becomes due the first time they do not make a payment on 
the date due. Others who fail to read or do not understand the tcch- 



22 



nical fine print of installment contracts put themselves at a serious 
disadvantage. 

Even the most competent lawyer will often be unable to help the 
worker who has signed a blank wage assignment or given up nearly all 
of his rights in an installment sales contract. Unfortunately, those 
people who most need sound advice when they borrow money or buy on 
time are least able to afford such advice. In addition, they seem to be 
the people who are most likely to deal with unethical lenders. 

Some people feel that wage assignments should not be allowed as a 
form of security because a creditor can take a part of a man's wages 
without going to court to prove his claim. They maintain that this 
makes it much easier to "get around" the law. Others believe that this 
is the only kind of security that many workers with small incomes can 
offer to get credit. 

PRACTICES OF CREDITORS 

A majority of personal finance companies, retail merchants, and 
other consumer credit organizations operate according to legal and 
ethical standards. These ethical operators do use wage assignments 
and garnishments to collect debts. Social problems resulting from such 
collections may be blamed up)on the inadequacies of the law or upon the 
poverty or shortsightedness of the borrowers. It is a fringe of unethical 
operators who manage to subvert the intent of the law. 

These fringe operators conduct what amount to little more than 
successful rackets, but the uninformed, unwary debtor seldom is in a 
position to challenge the legality of wage assignment or garnishment 
proceedings. 

The most common device these questionable establishments use is 
the blank wage assignment. Although such assignments are clearly 
illegal, the debtor cannot prove that the assignment was filled in after 
it was signed because he was not given a copy of the assignment to 
which he was entitled. This practice not only permits the unethical 
creditor to alter the terms of the agreement but also gives him three 
blank wage assignments on which he may print the name of any em- 
ployer. Thus the creditor is able to obtain assignment of the worker's 
wages on any job, although the worker may have changed jobs after 
signing the assignment. 

Unethical lenders usually employ also such practices as high interest 
rates, false promises, and installment contracts which severely limit the 
debtor's rights. Often the merchandise is over-priced so that the seller 
would much prefer to force the worker to pay for it rather than to 
have to take it back. These practices combine to put the debtor at a 
distinct disadvantage. 



23 



HANDLING OF WAGE ASSIGNMENTS AND GARNISHMENTS BY EMPLOYERS 

The response of employers who are served with wage assignments 
or garnishment demands also has some influence upon how eff^ectively 
the wage assignment and garnishment laws operate. Employer policies 
vary from company to company and from situation to situation. 

An employer who is notified that an employee's wages are assigned 
should check the legality of the debt. Mistaken identity of the worker 
or another defect making the assignment illegal may cause trouble for 
both the employer and his employee. If an employer pays a creditor 
who has no legal claim to a worker's wages, he may have to pay the 
employee, too. If a part of an employee's wages is withheld during a 
period of confusion over the legality of an assignment, the employee and 
his family will sufTer. 

Some employers, especially in small companies or in industries where 
there is a high turnover of employees, make it a practice simply to 
withhold the entire paycheck of an employee whose wages have been 
assigned. They often do this because they are not sure of the provisions 
of the law and they want to avoid trouble with the creditor. Other 
employers simply do not want to be bothered with having to split 
checks. A few employers will fire an employee whose wages are assigned. 
Such steps increase the burden upon the worker and make it harder for 
him to repay what he owes. 

In garnishment actions, too, employers may respond with such arbi- 
trary steps, although the law is fairly explicit on what an employer 
should do. Some employers will accept the creditor's word that an 
employee does not support a family and is not entitled to the $40.00 
exemption, even though the law requires employers to honor an em- 
ployee's affidavit that he is the head of a household. 

Even more problems arise when an employer is served with several 
wage assignments or with several garnishments. Although there is no 
clear legal precedent, the general rule is that the claims are answered 
in the order that they are received by the employer. 

How an employer should divide a man's wages when an assignment 
and garnishment are both being met is, however, an unsettled question. 
Some employers take out the 25 per cent for the assignment creditor 
first and then give the garnishment creditor the difference between the 
employee's exemption and the remainder. Other employers give the 
garnishment creditor the total amount over and above the employee's 
exemption and take the assignment creditor's 25 per cent out of the 
amount exempted from garnishment. There are other methods of 
dividing a worker's check among his creditors, and the employee often 
winds up with a very small sum. If the problem of dividing the money 



24 



is particularly difficult for the employer, he may refuse to pay either 
the worker or the creditors until the matter is settled in court. 



Effect on Industrial Relations 

Some einployers object to the extra expense and trouble involved 
in handling wage assignments and garnishments. In an effort to reduce 
the number of cases they must handle, they have adopted a policy of 
disciplining einployees whose wages are assigned or garnished. These 
disciplinary policies have developed into a significant industrial relations 
problem, especially within the past few years. 

POLICIES OF EMPLOYERS 

One employer may handle a wage assignment or garnishment as a 
routine matter. Another inay discharge every employee whose wages are 
assigned or garnished. The only safe generalization which can be made 
is that the policies of employers vary. 

The Milwaukee Association of Commerce recently completed a 
study of how Milwaukee County firms handle problems relating to wage 
garnishment.-' Questionnaires were inailed to 285 firms, each of which 
employed 150 or more workers. Of the 149 firms answering the ques- 
tions, 132 said that the wages of one or more of their employees had 
been garnished within the preceding 12 months. Table 5 shows the type 
of action which these 132 employers reported they had taken in garnish- 
ment cases. 

Although the accuracy of some ot the replies in this type of survey 
can be questioned, they do point up the great variation in employer 
practices. Available information about policies of Illinois employers 
indicates about the same policies and the same variation. -- 

As many companies have had to handle an increasing number of 
wage assignments and garnishments in recent years, they have tended 
to become more strict in their policies. Some employers have tried to 
put disciplinary provisions into their collective bargaining agreements. 
It is argued that employees who have debt problems are not desirable 
workers and that their discharge is justifiable. It is objected that the 
company should not be put to the time and expense involved in process- 
ing assignments and garnishments. 

Experiences of firms which have tried the strict policy of dismissing 



25 



TABLE 5. Number of Milwaukee County Firms, Classified by Action 
They Take When Their Employees' Wages Are Garnished 

(Some of the 132 firms surveyed gave more than one type of action for any given offense) 

Action Taken First Second Third Other 

Offense Offense Offense Offense 

Suggest to the employee that he see 

an attorney 46 12 15 8 

Ask the employee to stay away from 

disreputable credit houses 38 17 10 9 

Suggest to the employee that he see 

his credit union for help 32 19 7 4 

Advise employee on how to budget 

his income 30 19 13 6 

Send employee to an attorney who 
will handle his case under the amor- 
tization plan 8 4 10 3 
Warn employee that next offense 
will result in his dismissal 7 14 24 12 



7 


14 





1 


21 


30 



Dismiss the employee 1 8 23 

None 21 30 27 34 

Source: Business Research Division, Milwaukee Association of Commerce. 



employees have ranged from those who found they were losing many 
capable employees to those who found that a strict policy reduced the 
number of wage assignments and garnishments among their workers. 

LABOR UNION POLICIES 

Labor unions are showing increased interest in problems of con- 
sumer credit. Many union newspapers carry special columns with buy- 
ing tips and credit advice for their members. At least one labor news- 
paper conducted an extended editorial campaign against garnishment 
of wages.-'' 

Not all unions, however, are concerned with wage assignment and 
garnishment problems. Highly skilled workers, for example, are not as 
likely to get into serious debt as workers whose wages are lower, and 
their unions have shown little interest in the consumer credit problems. 

Unions which are interested in the assignment and garnishment 
problems of their members have worked in four general areas. 

1. Legislation. Union leaders feel that any law which gives greater 
protection to all consumers will help their members. They do not like 
to see hard-won wage increases eaten up by high credit charges or 
inadequate exemptions. 

2. Education. Some unions have presented information on consumer 
credit problems through articles in union newspapers and magazines, 



26 



special booklets, and talks and discussions of the problem at union 
nice tings. 

3. Credit unions. Many unions have helped set up credit unions 
in industrial plants. Others have established credit unions of their own. 

4. Collective bargaining. Unions have tried to get clauses in col- 
lective bargaining agreements that assignment or garnishment of a 
worker's wages will not be cause for dismissal. This has not been an 
easy task for at least two reasons. First, many managements maintain 
that they have the exclusive right to fire a worker for what they con- 
sider just cause. Second, most union members do not regard the provi- 
sion as important enough to risk a strike to get it into the contract. 

Many union leaders and members feel that debt problems arc a 
personal affair of the individual and are not the concern of his em- 
ployer. While they may regret that the employer must assume the 
added expense of processing assignments and garnishments, they feel 
that this is the result of the legal regulations and that the workers 
should not be penalized. They also believe that to fire a man because 
of his debts offers no solution to the problem, but only increases 
individual hardship. 

Some union leaders also fear that if an employer is permitted to 
discharge a man because of a wage assignment or garnishment, he 
might use this as an excuse to discriminate among his employees. They 
point to a number of cases of this kind which have been brought before 
the National Labor Relations Board. The Board has ruled that an em- 
ployer can fire an employee whose wages have been assigned or gar- 
nished, if there is no evidence of discrimination on the basis of union 
activity. ^° 



Wage Assignment and Garnishment 
as a Minority Group Problem 

Wage assignment and garnishment may be primarily a minority 
group problem. What few statistics are available seem to indicate that 
a very large proportion of wage assignments and garnishments are 
served upon three segments of the population: Negroes, people who have 
moved recently from rural areas to the city, and recent immigrants from 
other countries, especially Mexico and Puerto Rico.^^ 

Many such persons have never been exposed to wealth as it is 
displayed in the stores of large American cities. They may become 



27 



convinced that they, too, can get and enjoy many of these goods with- 
out cash — on "easy credit terms." 

Usually they are not aware of the regulations on small loans and 
credit buying. When a buyer does not know his rights, an unethical 
merchant or lender will find it fairly easy to write any kind of contract 
he wishes. In addition, credit terms offered to members of minority 
groups may be less favorable than those offered to other people. 

An Illinois State Chamber of Commerce survey of 100 industrial 
firms indicates that employers consider wage assignments to be the most 
common of the several special adjustment problems of non-whites. The 
assignment and garnishment problems probably are related to broader 
social problems faced by members of minority groups. The results of the 
Illinois Chamber survey are shown in Table 6. 

TABLE 6. Special Problems of Non-Whites 

(47 firms which reported that their non-white employees had special problems) 

Types of Special Problems Number of Firms Reporting 

Wage Assignments 35 

Absenteeism 7 

Personality Problems 7 

Drinking 1 

Source: Illinois State Chamber of Commerce, Here's How Merit Employment Programs 
Work (Chicago, 1956), p. 16. 



Conclusion 

Wage assignment and garnishment problems go beyond the basic 
debtor-creditor relationship, and these broader issues certainly must be 
considered when new or amending legislation is proposed in the area. 

Whatever the answers may be, it is certain that the State must act 
both to protect the consumer from unethical and illegal operators and 
to protect the legitimate interests of the creditors. 



28 



Footnotes 



1. Board of Governors of the Federal Reser\e System, Consumer Installment 
Credit, Part I, Vol. I, "Growth and Import" (Washington: Government 
Printing Office, 1957), pp. 22-26. 

2. The establishment of a good credit rating today may call for more than the 
satisfactory repayment of previous debts. Many credit bureaus include in 
their files such information as activity in civic and business affairs, personal 
domestic data, and "quality" of citizenship. This information may even be 
sold to business concerns as an aid in the selection of personnel. 

3. For statistical purposes, the Federal Reserve System defines consumer credit 
as "all credit used to finance the purchase of commodities and services for 
personal consumption or to refinance debts originally incurred for such pur- 
poses." Real estate mortgage credit, however, is excluded as it is almost 
entirely long term. "Revision of Consumer Credit Statistics," Federal Reserve 
Bulletin, Vol. 39, No. 4 (April, 1953), pp. 336-354. It will be noted that 
these statistics are meant to indicate only the tremendous growth of consumer 
credit in recent times. Questions dealing with the desirability of this expan- 
sion and the need for regulation of consumer credit must be evaluated in the 
light of the broader and more complex problems of the effect of consumer 
credit on the total economy and are beyond the scope of this Bulletin. 

4. Consumer Price Index average for all items for 1945 was 76.9, compared to 
120.2 for June, 1957. (1947-49== 100) U. S. Department of Labor, Bureau 
of Labor Statistics, Monthly Labor Review. 

5. Board of Governors of the Federal Reserve System, op. cit., p. 36. This 
figure does not include credit given on the purchase of automobiles of which 
auto dealers currently hold less than 5 per cent. 

6. No matter how fraudulent the behavior of the seller may turn out to be, the 
debt remains perfectly legal if the bank or finance company bought it in 
good faith. This practice may, therefore, result in repayment problems. 

7. Statistics reporting the number and amount of wage assignment loans must 
not be taken as absolute as they include only those loans where the wage 
assignment was taken as principal security. There is no way of knowing how 
many loans were made with wage assignments as secondary security. Figures 
relating to the number of wage assignments filed are also subject to a certain 
amount of oversimplification as it is the practice of many personal finance 
companies to file a wage assignment only as a warning and to withdraw the 
assignment if a less severe settlement can be reached. 

8. Retail Installment Sales Act, Illinois Revised Statutes, 1957, Ch. 121i:', § 227. 

9. Ibid., § 228. 

10. Ibid., § 236. 

11. Ibid., § 238. 

12. Ibid.. § 246. 



29 



13. Ibid., § 245. 

14. Ibid., § 247. 

15. Ibid., § 248. 

16. Ibid., § 249. 

17. Ibid., § 250. 

18. Ibid., § 242. 

19. Ibid., § 239. 

20. Illinois Revised Statutes, 1957, Ch. 48, § 39.1-39.9. 

21. Illinois Revised Statutes, 1957, Ch. 62. 

22. Chicago, Rock Island and Pacific Railway Co. v. Mason, 1 1 111. .-\pp. 525 
(1882) ; Welker v. Hinze, 166 111. .\pp. 326 (1885). 

23. Bliss V. Smith, 78 111. 359 (1875). 

24. Chicago and Alton Railroad Co. v. Ragland, 84 111. 375 (1877). 

25. Chicago and Alton Railroad Co. v. Moore, 117 111. App. 147 (1904). 

26. Mineral Point Railroad Co. v. Barron, 83 111. 365 (1875). 

27. Business Research Division, Milwaukee Association of Commerce, A Survey 
of Wage Garnishments in Milwaukee County Firms (January, 1956). 

28. The author is indebted to the Illinois Manufacturer's Association for much 
of the information concerning the policies of Illinois employers on wage 
assignments and garnishments. See also articles by George Daniels in the 
Chicago Daily Defender, January 28-February 2, 1957. 

29. The Iowa Federationist, Feb. 15, March 8, April 26, May 10, June 14, July 
12, July 19, 1957. 

30. Michigan Lumber Fabricators, Inc., Ill NLRB No. 95 (February 10, 1955). 

31. Statistics for a number of specific industrial plants which show the high pro- 
portion of wage assignments and garnishments served upon Negroes are given 
in Daniels, op. cit., and in Illinois Human Relations (November-December, 
1956), p. 5. 



30 



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