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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." 


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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 

0 

1 

21 

30 

Dismiss  the  employee  0  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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