Testimony Before The Senate Judiciary Committee
Regarding Senate Bill 2310 - Interest on unpaid child support
January 26, 2005
Chairman Traynor, members of the Senate Judiciary 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 on behalf of the Department to respectfully ask for a “Do Not Pass” recommendation on Senate Bill 2310.
The Department sees merit in the proposal – as the balance of unpaid child support in North Dakota tops $200 million, we do not want to see that amount inflated with judgment interest that cannot be collected. Ironically, if this bill had been introduced in 1999 or 2001, the Department likely would have been neutral on the bill or supported it. However, the Department believes it is premature at this time to discontinue assessing judgment interest on unpaid child support.
Some context on child support judgment interest may be helpful to the committee's consideration of the bill. In 1989, the North Dakota Supreme Court held that unpaid child support is a judgment by operation of law, N.D.C.C. § 14-08.1?05, and therefore accrues interest at the statutory rate. Baranyk v. McDowell, 442 N.W.2d 423 (N.D. 1989). However, aside from the few child support judgments that were docketed with the clerk of court, no one was computing the interest on these debts.
In the late 1990s, the clerks of court and staff in the child support enforcement program were working hard to build the Fully Automated Child Support Enforcement System (FACSES) and store all existing payment records in that system. In early 1999, the North Dakota Supreme Court issued a decision in a child support case that confirmed the fact interest is owed and payments on each month's debt should be applied to interest before principal. Martin v. Rath, 589 N.W.2d 896 (N.D. 1999). At the time, FACSES was not designed to handle judgment interest, and we were in the curious position of applying all payments to the unpaid child support knowing that a portion of those payments should have been applied instead to the interest.
The Martin v. Rath decision was rendered too late in 1999 to prompt legislation on whether unpaid child support should continue to accrue interest. In 2001, the Department requested legislation in the area of judgment interest. The bill passed by the Legislature, House Bill 1168, did not attempt to reverse the prior court cases, but instead authorized the Department to accrue interest on all debts that first became due and unpaid after July 1, 2002. This delay gave the Department time to program FACSES to support the calculation of judgment interest. The bill also provided that the Department was not required to go back and compute interest on the older debts. A judgment creditor is free to compute interest for these prior periods and have the amount of interest approved by the court.
In 2003, we were ready to take the next step and supported legislation, enacted as Senate Bill 2246, to authorize the Department to compute interest on the “older” debts for months after January 1, 2004. Again, the delay was intended to give the Department time to program FACSES and did not require the Department to go back and compute interest for prior periods of time.
Under today's law, the records on FACSES accurately reflect all judgment interest that has accrued on unpaid child support that first became due on or after July 1, 2002. Interest is also accruing on all other unpaid child support owed under North Dakota court orders. Our records have never been more accurate regarding the judgment interest that is due in each case.
As in 2001, there are positives and negatives to charging judgment interest.
On the negative: