JTE OF LABOR AND INDUSTRIAL RELATIONS
AND CONSUMER CREDIT
/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
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
Copies $0.10 each except where indicated.
UNIONS, MANAGEMENT, AND INDUSTRIAL SAFETY
SUPERVISORY TRAINING — WHY, WHAT, HOW
WORKERS ON THE MOVE
MOTION AND TIME STUDY ($0.25 EACH)
WORKMEN'S COMPENSATION IN ILLINOIS
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
AND CONSUMER CREDIT
BY FRANCIS M. RUSH, JR.
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
UNIVERSITY OF ILUNOJS
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.
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
1957— Jan 40.9
Sources: Consumer Listallment Credit — Pari I, Vol. 2, pp. 220-221 ; Federal Reserve Bulletin,
Vol. 43, No. 6 (June, 1957), p. 190.
1925... . .
1933 . . . . .
1943 . . . . .
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.
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
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
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
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UNIV£KSiTY OF ILLiNOUi
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.
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.
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.
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
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
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
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.
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.^'
Because interest charges account for a large percentage of the total
cost of credit purchases, the consumer will be wise to complete his pay-
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
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.
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. ^^
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
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.
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'^
Amount Consent Record- Consent Assignor
OF Wage of Em- ing with of Must
That plover Public Spouse Get
May Be Required Official Required Copy
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)
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.
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.
The wages or salaries of public employees in Illinois may not be
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:
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"
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
the creditor does not bring the garnishment suit within seven days from
the service of the demand, the employer must pay the employee the
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
Amount of Wage Exempted from
Garnishment for Household
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
$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
$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
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)
Amount of Wage Exempted from
Garnishment for Household
45 days' pay, but Vi if debts were for
necessities. 30 days' pay if debt is $10
30 days' earnings; but Yi if debts were
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
60 days' earnings
$35 per week
80% of first $200 and 60% of balance.
Must be at least $60
$175 per month, but Vi if debts were
Not more than $30
60 days' earnings
75%, $100-150 per month
$20 per week
60-85% per month, depending on
number of dependents; $100 minimum
50% of 60 days' earnings
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.-®
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-
nical fine print of installment contracts put themselves at a serious
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
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
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
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-
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
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
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
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
2. Education. Some unions have presented information on consumer
credit problems through articles in union newspapers and magazines,
special booklets, and talks and discussions of the problem at union
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
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
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
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
Personality Problems 7
Source: Illinois State Chamber of Commerce, Here's How Merit Employment Programs
Work (Chicago, 1956), p. 16.
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.
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.
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.
Institute Research Studies
LABOR-MANAGEMENT RELATIONS IN ILLINI CITY; VOLUME 1 THE CASE STUDIES AND VOLUME
EXPLORATIONS IN COMPARATIVE ANALYSIS. By W. Ellison Chalmers, Margaret I
Chandler, Louis L. McQuitty, Ross Stagner, Donald E. Wray, and Milton Derbe
VOLUME 1: CLOTH $10.00, CASE STUDY REPRINTS $1.
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BOTH VOLUMES: $15.1
CHANNELS OF EMPLOYMENT, INFLUENCES ON THE OPERATIONS OF PUBLIC EMPLOYMENT OFFIC
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UNION DECISION-MAKING IN COLLECTIVE BARGAINING, A CASE STUDY ON THE LOCAL LEVE
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LEGISLATION BY COLLECTIVE BARGAINING, THE AGREED BILL IN ILLINOIS UNEMPLOYME(
COMPENSATION LEGISLATION. Bv Gilbert Y. Steiner. (1951)
NATIONAL ECONOMIC PLANNING BY COLLECTIVE BARGAINING, THE FORMATION OF AUSTRIA
WAGE, PRICE, AND TAX POLICY AFTER WORLD WAR II. By Murray Edelman. (1954)
LABOR-MANAGEMENT RELATIONS AT THE PLANT LEVEL UNDER INDUSTRY-WIDE BARGAINING,
STUDY OF THE ENGINEERING (METAL-WORKING) INDUSTRY IN BRIMINGHAM, ENGLAND. By Mi
ton Berber. (1955)
SMALL CITY JOB MARKETS, THE LABOR MARKET BEHAVIOR OF FIRMS AND WORKERS. By Richai
C. Wilcock and Irvin Sobel. (1958)
THE UNION MEMBER SPEAKS. By Hjalmar Rosen and R. A. Hudson Rosen. (1955
(An ILIR research studv published bv Prentice-Hall, Inc.).
UNION-MANAGEMENT RELATIONS IN EAST ST. LOUIS. By Milton Berber. (1957) (A
ILIR research study available from East St. Louis Chamber of Commerce. )
LABOR AND THE NEW DEAL. Edited by Milton Berber and Edwin Young. (1957
(Prepared in cooperation with L^niversity of Wisconsin Bepartment of Economic
University of Wisconsin Press publication.)
INDUSTRIAL RELATIONS IN POSTWAR JAPAN. By Solomon B. Levine. (1958) (Univei
ity of Illinois Press publication. 1
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