Testimony Before The House Human Services Committee
Clara Sue Price, Chairman
HB 1172: Child Support Enforcement
January 11, 2005
Chairman Price, members of the House Human Services Committee, I am James Fleming, Deputy Director and General Counsel of the State Child Support Enforcement Division of the Department of Human Services. I am here to ask for your favorable consideration of House Bill 1172.
Section One addresses private collection agencies who attempt to enforce child support obligations for a fee charged to the family. As this industry grows, we also see a national trend for state legislatures to pass laws ensuring that the families are protected. The intent of the proposed new section is not to prohibit these companies from operating in North Dakota, but to protect consumers and ensure that the private collection agencies' activities do not interfere with the efforts of government child support enforcement programs.
The proposed section confirms that these agencies are subject to North Dakota law just like collection agencies that collect other debts and must obtain a license from the Department of Financial Institutions. In addition, due to the uniqueness of child support debts and the fact that the child support enforcement program is frequently enforcing the same debt at the same time, some additional provisions are proposed.
In legislative hearings for many years, the child support enforcement program and the Legislative Assembly have discussed that 1) child support payments should first be applied to the amount due in the current month before being applied to any arrears, 2) the right to current child support belongs to the children and cannot be waived or negotiated by the parents, and 3) all child support payments must be paid through the State Disbursement Unit (SDU) for proper recording and disbursement.
As a matter of public policy, attorneys are not allowed to charge contingency fees for the collection of a current monthly child support obligation. This bill would apply that policy consistently to private collection agencies as well. To avoid this public policy and state laws requiring that current child support be paid before arrears, we are aware that some agencies' contracts with families specifically provide that any collections received will first be applied to arrears. This denies children the current support they need and violates the distribution priority established by the Legislature. The bill would make it even more clear that such a practice is prohibited.
The bill would also ensure that all payments are properly processed through the SDU. Right now, we know that many private collection agencies do not inform us of payments that have been received and, as a result, the state's official payment records continue to show the obligor as delinquent even when money has been collected from the obligor or the obligor's employer by the private collection agency. In those cases, either the obligor is denied credit because the payment was not made through the SDU as required by state law and the court order, or else a worker in the SDU has to spend hours to “fix” the payment records to reflect a payment that was received by the private collection agency but not processed through the SDU. This situation can be avoided easily if the private collection agency turns over all collections to the SDU for proper recording and disbursement. If a collection agency does not comply with the new section, the obligor is not entitled to credit for the collection but has a claim against the agency for three times the amount withheld by the agency.
Some private collection agencies regularly ask us to redirect child support disbursements to the agency instead of sending the money directly to the family. Unless this bill is passed, we can't do that because we know that many standard contracts allow the agency to retain a percentage of a current child support payment. To redirect the disbursement to the agency on behalf of the family would assist in the distribution of child support that is contrary to state law. If we are able to program our system in the future to disburse payments of current child support to the families and unassigned arrears to a private collection agency, this bill gives the Department discretion to adopt rules allowing for payments to be redirected. This ensures that the children receive the current support they need, that any child support collections on assigned arrears are properly retained by the State rather than paid to the private collection agency, and that the State's payment records are accurate. In the meantime, the private collection agencies are free to collect their fees from the family.
Finally, we are aware that some agencies' standard contracts make it very difficult for a family to terminate its contract with the agency. The bill would protect families by allowing them to terminate an agreement on thirty days' notice without a cancellation fee.
We are offering an amendment to this section at the suggestion of the Department of Financial Institutions to clarify the interaction of the new section with existing state law.
Section Two proposes to make the mailing of notices of arrears or scheduling of contempt hearings optional rather than mandatory for the clerks of court. Under current law, whenever one payment is missed, the clerk is required to mail a notice of arrears or schedule a contempt hearing. The fact that one payment is missed does not necessarily mean an obligor is deliberately violating the court order. For example, an obligor may change jobs and assume that the new employer's payroll cycle will “take care of it,” when in fact the payment is not withheld by the employer and paid through the SDU until the next month. Because current law requires the clerk to act even when one payment is missed, a lot of time on the part of judges, clerks, state's attorneys, and parents is spent on contempt hearings that are unnecessary. When hearings for 20 or 30 obligors are scheduled at one time, it is difficult to separate those who are truly in contempt of court from those who have simply been careless in making sure their payments are made on time. This law will give the clerks of court the discretion to refrain from taking any action unless requested by the family or the child support enforcement program. It is our hope that making contempt proceedings more selective will also make those proceedings more effective.
Section Three amends current law in anticipation of a possible amendment to the federal regulations that define “reasonable cost” for health insurance. Currently, unless insurance coverage is available to the family for no or nominal cost, an obligor is required to carry insurance if insurance is available on a group basis or through the obligor's employer or union even if the coverage costs several hundred dollars per month. If the federal regulation is changed, this amendment will allow the Department of Human Services to establish a different definition by administrative rule rather than wait to implement any new definition until 2007.
Section Four proposes to extend the deadline for bringing contempt of court proceedings against an income payer from one hundred and eighty days to one year. This would give the child support enforcement program more time to complete settlement negotiations with an income payer.
Section Five creates a new fund in the state treasury for child support collections that we are unable to disburse within three years. Currently, these payments are deposited with the Unclaimed Property Division. At that point, the deposits in IV-D cases are considered by the federal government to be revenue to the State from operation of the child support enforcement program and the federal government wants its share of those deposits from the reimbursement it provides for our program's operations. For example, if total of $30,000 in payments in IV-D cases is deposited with the Unclaimed Property Division, there is a $19,800 deduction from the federal funds received by the Department of Human Services. This provision does not involve a lot of money, and as the fiscal note indicates, the amount that is deposited in this fund would get smaller and smaller now that we have gone to almost exclusively an electronic payment process. Nevertheless, if the Department is going to incur the cost of these unclaimed payments, we propose that the funds be used for outreach projects, a process Massachusetts enacted with the concurrence of custodial parents, that might not otherwise be a funding priority rather than deposited with the Unclaimed Property Division.
Section Six is one of two provisions in this bill regarding judgment interest and pertains to arrears management. As a result of legislation that was passed in the last two legislative sessions, the official payment records that we maintain are much more accurate regarding the judgment interest that is owed in each case. Unfortunately, with judgment interest at 12% per year on over $200 million in child support arrears owed in North Dakota, another $2 million in interest is added to that balance every month. This makes it even more important that we take a practical and realistic approach to how we manage this arrears balance.
Now that our payment records contain more accurate information, the next step is to look at ways to use the accrual of judgment interest as an incentive for obligors to pay their child support arrears. This provision will give the child support enforcement program the ability to initiate an amnesty program and enter into payment plans with obligors that suspend the accrual of judgment interest as long as the obligor makes the payments required in the payment plan. In short, we would have additional ability to work with obligors, if they are willing to work with us.
The second part of Section Six provides guidance on distribution of child support payments when the custodial parent is deceased. Our program has existed for long enough that we are dealing with more parents, both obligors and obligees, who have died. This proposed new subsection would allow the state's payment records to be updated to reflect a new payee without requiring the obligee's family or heirs to go back to court, unless one of the children is a minor.
Sections Seven, Nine, Eleven, Thirteen, and Fifteen resolve inconsistencies in current law regarding the interaction between the child support enforcement program and public retirement plans. Federal law requires that our program attach “public and private retirement funds” to satisfy a child support obligation. Again, as our program ages, more and more obligors are reaching retirement age and receive retirement benefits instead of other income. The first step in attaching retirement funds is to know who the retirees are. Sections seven, eleven, and fifteen amend current law to clarify that public retirement plans, like other government agencies and private retirement plans, should respond to the child support enforcement program's requests for information about retirees. Section nine, as the next step, resolves a conflict in state law and reiterates that public retirement funds may be attached through income withholding or other legal process for collection of child support. Finally, section fifteen authorizes the child support enforcement program to issue domestic relations orders (QDROs) to private and public retirement funds. We have worked with the agencies that operate these public retirement plans and understand that they do not object to these provisions.
Section Eight is the second provision on judgment interest. In previous legislative sessions, legislators have commented that the current judgment interest rate may be too high. This bill would replace the current fixed rate of 12% per annum, which has not been changed since 1981, with a variable rate that is set at four points above the current Bank of North Dakota prime interest rate. As of Monday, January 10, 2005, the current BND interest rate is 5.25%, so the judgment interest rate as of July 1, 2005, under this bill would be reduced from 12% to 9.25%. This rate would be adjusted every two years based on the interest rate in effect at that time. The bill would not change the interest rate on any existing judgments, except for child support judgments that are generally adjusted from time to time as payments are made and as new arrears become due and unpaid.
Section Ten identifies the proper court in which to pursue penalties for failing to report a newly hired employee when none of the employees has a current child support order.
Section Twelve would address overpayments and disbursements made to families in error. By statute, these disbursements are not a gift and must be repaid. However, there are times when the debt is simply uncollectible, either because the family is not able to pay the money back or because the amount due is too small to be cost-effective to pursue beyond an initial demand letter. Since proposing this section, discussion has continued on ways to address this issue. At this time, the Department requests that Section 12 be removed from the bill.
Section Fourteen proposes to remove the sunset on the current statute allowing the state child support enforcement program to enter into cooperative agreements to be a service provider to the regional child support enforcement units or an Indian tribe. This section was enacted last session as a way to improve the delivery of child support enforcement services through centralization of functions and also to improve the services provided to tribal children. However, no such agreements have been entered up to this point, which we believe is due in part to the fact that the expiration date on the current statute makes it difficult to plan for the long term.
Madame Chairman, this concludes my testimony. I would be happy to answer any questions the committee may have.