You may have seen the TV ads: An announcer says that if you need money and you have a job, up to $5,000 can be transferred into your bank account. The lender isn’t a payday lender, the ad continues. Yes, it’s expensive, the ad concludes, but only if you don’t pay back the loan on time.
The Federal Trade Commission (FTC) begs to differ. It has sued these lenders, claiming that they are, indeed, payday lenders, who didn’t go to court before they began issuing garnishment orders to borrowers’ employers. The defendants have agreed to halt their practices pending trial.
Shortcut to garnishment not allowed
Garnishment orders are the last stop on the debt collection highway. All private commercial creditors must apply to a court for garnishment orders, which debtors can contest. On the other hand, federal agencies can skip the court process and issue administrative garnishment orders directly to debtors’ employers.
By not going to court, the payday lenders were acting like federal agencies, the FTC said. More confusing for employers, according to the FTC, was that the lenders used garnishment orders that mimicked administrative garnishment orders.
What to do now
The fact that these payday lenders copied administrative garnishment orders isn’t illegal, since copyright law doesn’t apply to government documents. And even though the FTC was able to shut down these payday lenders—at least for now—other payday lenders may be following the same playbook. That puts you in a bind.
If you receive a suspicious administrative garnishment order, first determine whether the order is authentic by going to www.usa.gov/directory/federal/index.shtml. That’s a directory of all legitimate federal agencies.
Then, review the paperwork. Legitimate administrative garnishment orders consist of seven pages, assembled in this order:
- Letter to Employer & Important Notice to Employer. When in doubt: The bottom right corner of the document will read STANDARD FORM 329A (11-98)
- United States Government Wage Garnishment Order (SF-329B)
- Wage Garnishment Worksheet (SF-329C)
- Employer Certification (SF-329D).
PRACTICE TIP: If garnishment orders don’t pass muster, thrash out the company’s response with your attorney. Also, ask employees about their understanding of their agreements with creditors.