Payday lenders continue to cause payroll headaches

May 24, 2016

Payday lenders offer low-income employees a tantalizing proposition: Here’s the money you need right now. They don’t mention the usurious interest rates. Once employees fall into a bottomless pit of rolling over loans each payday that they can never repay, the lenders turn their attention, and their aggressive collection techniques, to you. Don’t be fooled.

It’s not an administrative garnishment. Several years ago, the Federal Trade Commission sued payday lenders who created garnishment orders that mimicked to a “T” administrative garnishment orders federal agencies use to recoup nontax overpayments. But this hasn’t stopped other payday lenders from using the same tactic. The key to administrative garnishments is that agencies don’t need to have courts issue them and that’s valuable to payday lenders.

The fact that payday lenders copy administrative garnishment orders isn’t illegal, since copyright law doesn’t apply to government documents. If you receive a suspicious administrative garnishment order, first determine whether the order is authentic by going to to check on the name of the federal agency. Then, review the paperwork. Legitimate administrative garnishment orders are assembled in this order:

  • Letter to Employer & Important Notice to Employer. When in doubt: The bottom right-hand corner of the document will read STANDARD FORM 329A (rev. 1/2005)
  • United States Government Wage Garnishment Order (SF-329B)
  • Wage Garnishment Worksheet (SF-329C)
  • Employer Certification (SF-329D).

It’s not a voluntary wage assignment, either. Some states allow employees to voluntarily assign their wages to a commercial creditor. But you have to agree to the arrangement and it’s advisable that you don’t. Regardless of what those documents say, voluntary wage assignments aren’t garnishments; only courts can issue creditor garnishment orders and only after the underlying collections case has been adjudicated. Upshot: You can’t be liable to the creditor or the employee for not withholding under a voluntary agreement.

PAYROLL PRACTICE TIP: If the documents you receive don’t pass muster, thrash out the company’s response with legal counsel. Also, ask employees about their understanding of the agreements with their creditors.