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D.C. Council Chairman Phil Mendelson is aware that the optics aren’t great on this one.
On Tuesday, the Council passed a bill that increases the amount of District residents’ paychecks that are protected from debt collection.
D.C.’s current law uses a formula based on the federal minimum wage to calculate how much of a person’s weekly income is exempt from garnishment. That formula is 30 times the federal minimum wage of $7.25, which means at least $217.50 of a District resident’s weekly paycheck cannot be garnished.
The Wage Garnishment Fairness Amendment Act of 2017, introduced by At-Large Councilmember Elissa Silverman, changes that formula to 40 times the District’s minimum wage of $13.25—in effect, the bill protects all wages for a person making the District’s minimum wage of $530 a week (assuming they work 40 hours).
Before the bill passed, Mendelson pitched an amendment that would have lowered the amount of protected wages. Under Mendelson’s version, the formula would have been 35 times the District’s minimum wage, or $463.75 a week.
“Even though it sounds like I’m being horrible to low-income people, depending upon your assumption about disposable income, we could be talking about somebody who is earning $30 to $35,000 a year before this applies,” Mendelson says.
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Under the bill, if a person makes more than the minimum wage, debt collectors can garnish up to 25 percent of a person’s “disposable,” income, which is basically what’s left over after legally required withholdings such as federal and local taxes, Medicare, and Social Security. There’s no perfect formula for calculating disposable income. Some say it’s 75 percent of a person’s gross wages, some say it’s 90 percent.
Side note: For a household of one in the DVM metro area, HUD considers an annual income of about $41,000 to be the “very low income limit.” For a four-person household, that figure is $58,600.
Mendelson’s amendment had been shopped around to councilmembers by Wilson Building lobbyist Rod Woodson on behalf of debt collection companies Portfolio Recovery Associates and Encore Capital Group. Woodson tells LL that technically his client was Portfolio Recovery Associates, but Encore also supported the changes to the amendment he was pushing. Woodson argues that the more a government limits creditors’ ability to recoup loaned money, the more difficult it becomes to for people to borrow.
The optics are especially bad for Mendelson in light of a recent victory by D.C. Attorney General Karl Racine. In early December, Racine, along with 42 attorneys general across the country, announced a $6 million settlement with subsidiaries of Encore for engaging in underhanded debt collection practices.
One major issue the AG’s office uncovered was a practice known as “robo-signing,” where Encore employees would sign affidavits en masse, attesting to the accuracy of a debtor’s information without verification.
“We argued that practice is unfair under consumer protection laws,” says an assistant attorney general who worked on the case. “They’re not verifying the information and many times they got the information wrong.”
As part of the settlement, Encore agreed to pay a total of $577,783 to District residents.
And this was not the first time Encore found itself in hot water for deceptive debt collection. In 2015, the Consumer Financial Protection Bureau ordered Encore and Portfolio Recovery Associates to pay a combined $79 million in refunds and penalties for the same robo-signing racket.
The companies were also ordered to stop collecting on debts totaling $128 million, the New York Times reported.
Mendelson’s amendment failed, 8-5. Councilmembers Jack Evans, Kenyan McDuffie, Anita Bonds, and Brandon Todd, all of whom make $140,161 a year, voted in favor of the amendment. As chairman, Mendelson makes $190,000, and earlier this year the Council voted unanimously to give him a $30,000 raise.
Another side note: In his early 20s, Todd filed for bankruptcy. He was more than $20,000 in debt, much of which came from credit card charges to luxury clothing stores.
Jennifer Lavallee, an attorney for the Legal Aid Society, which helps District residents facing wage garnishment, testified in favor of the bill.
She says that people who are in danger of having their wages garnished are often dealing with a medical- or housing-related debt or unpaid credit cards. “We see a lot of folks who have been in poverty for a long time, or who’ve had financial hardships because of a job loss or medical hardship,” she says.
Lavallee says she’s “disappointed,” that Mendelson pushed to reduce the level of wages that are protected from garnishment. “Especially when you realized it was introduced at the request of collectors like [Encore] who’ve had a lot of problems with their debt collection cases,” she says. “It’s no wonder they’re pushing this.”
Mendelson points out that the bill contains other protections for debtors. Those who are receiving some public benefits, for example, can’t have their wages garnished. “The way I look at it is we’re talking about a market,” he says. “We’re not talking about one company. There can be others who go to court to garnish wages.”
The bill also includes a requirement that debtors be notified if a judge signs an order to garnish their wages. The full bill passed unanimously, and awaits Mayor Muriel Bowser’s signature.