We're reading through some of Federalist #10 in GOVT 2305 this week and this story reminded me of some of the paper's content. In it Madison argues that political conflict ultimately stems from self interest. We take positions on issues based on how they impact us. Policy tends to be set by which ever side has a majority - so the interests of the majority will be most likely be served. He offers this little tidbit:
Is a law proposed concerning private debts? It is a question to which the creditors are parties on one side and the debtors on the other. Justice ought to hold the balance between them. Yet the parties are, and must be, themselves the judges; and the most numerous party, or, in other words, the most powerful faction must be expected to prevail.
Based on this, its fair to say that the interests of creditors are far more represented in the legislature that the interests of debtors. The piece in ProPublica illustrates this. It concerns a law that allows wages to be garnished for credit card debt. It's worth considering whether the law presents the best and fairest way to handle credit card debt - or merely one that best secures the interests of the most powerful groups in Congress and those that support them.
- Click here for the article.
The federal law regulating garnishment harkens back to 1968, when the financial life of Americans was much simpler. Time has eroded what even then were modest protections. The law barred creditors from taking any wages from the very poorest of workers, but used a calculation based on the minimum wage to identify them. Since the federal minimum wage hasn't kept pace with inflation, today, only workers earning about $11,000 annually or less— a wage below the poverty line— are protected. The law also allows collectors to garnish a quarter of a debtor's after-tax pay, an amount that government surveys show is plainly unaffordable for many families.
And the law is silent on perhaps the most punishing tactic of collectors: It doesn't prohibit them from cleaning out debtors' bank accounts. As a result, a collector can't take more than 25 percent of a debtor's paycheck, but if that paycheck is deposited in a bank, all of the money in the account can be grabbed to pay down the debt.
State laws, while often more comprehensive than the federal rules, vary widely. Only a handful, for instance, automatically protect a minimum amount of funds in a debtor's account.
When garnishment protections do exist, the burden is usually on debtors to figure out if and how the laws protect their assets.
