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CS Interest Rates - Should we follow suit

Glen Sacks - 6/12/2010 said
Massachusetts Knocks Down Interest on Overdue Child Support by 50%

The Massachusetts Department of Revenue has decided to knock down the interest rate on overdue child support by 50%. This is a move for which Fathers and Families has long advocated and agitated, both publicly and by Board Chairman Ned Holstein, MD, MS during his service on the Massachusetts Child Support Task Force. While interest rates still remain too high, we commend the DOR for this action.

Fathers and Families has long fought to reform Massachusetts child support, and was successful in lowering noncustodial parents child support by an estimated $200 million a year from 2001 to 2007. Holstein and numerous Fathers and Families members testified earlier this year at the DOR hearing considering the issue. Our testimony focused on the benefits lowered interest rates would produce both for people struggling to pay their child support and for the state. Holstein stated:

    Interest and penalty charges often work against the interests of states and their citizens. According to a 2007 study by the Urban Institute, eighteen states routinely charge interest, eighteen states and Guam intermittently charge interest, and fourteen states, Puerto Rico, the Virgin Islands and the District of Columbia do not charge interest at all. Massachusetts, like other states, does face significant challenges in collecting interest and penalties. States that routinely charge interest have experienced a much larger increase in arrears than other states.

    The Urban Institute study found that from 1987 to 2006, states that charged interest saw a tenfold increase in arrears, going from $5.4 billion in 1987 to $58.7 billion in 2006. Other states saw arrears grow about half as fast. States with no interest saw their arrears grow from $2.8 billion in 1987 to $19.5 billion in 2006…

    Penalties are also wrong for Massachusetts. Penalties on child support arrearages are inappropriate and hurt families. The problem of unpaid arrearages is primarily a problem of poverty. The Institute also found that 70% of all arrearages are owed by obligors who earn less than $10,000, and 96% are owed by obligors who earn less than $40,000. Other factors contributing to arrearages are loss of job, decreased earnings, illness and disability, the difficulty in obtaining modifications when misfortune strikes, pervasive errors by the Office of Child Support Enforcement (as documented in 2000 by the Massachusetts Auditor), incarceration, misidentification of the father, lack of notice of paternity, and unrealistically high support orders.

    None of these circumstances is helped by charging either interest or penalties. Neither does stronger enforcement of child support requirements work under such circumstances. Instead, as indigent fathers accumulate child support debts, they feel as if they must evade the child support system and the risk of incarceration. They are driven underground by an unforgiving system. The custodial parents and the Commonwealth then experience the complete termination of payments.

    Worst of all, when fathers go underground, their children also lose contact with them. Thus, they lose the most valuable thing the indigent father has to offer his children  his love and guidance, not his money, of which he has very little. Massachusetts needs to find another way to support its indigent children than to pretend that indigent fathers have money that they do not have, and then compounding the problem with interest and penalties…

To read Holsteins full testimony, click here.

Several Fathers and Families members testified at the DOR hearing.  John Natale wondered how the interest rate came to be 18% in the first place when he is refinancing his mortgage for 4.65%.  The DOR also heard from Sarah Blackford  a mother who depends on child support, but still thinks these interest rates are far too high.  She told the story of her friend who is constantly struggling to pay his child support, but is stuck in a $40,000 hole of interest and penalties that he may never be able to dig himself out of.

Chris Jenson stated simply and clearly why the current interest rate is outrageous.  He told the story of falling behind on child support by $375 and reported that he has now paid the $375, but he still owes $1,240 in interest and penalties  almost three times as much as the amount originally owed.  F & F members Bill Zamzow, Hector Montalvo, Philip Alvarado, and Franco Marzouki also testified to the importance of lowering the interest rate.

The current legislation includes a 20% interest rate, this is an absurd amount and quite obviously many of the reasons why are given above. Even 10% is absurd and would only result in an increase of what is taken away from children:

Child Support Registration and Collection Act said
Division 2Penalties
51  Penalty for late remittance of deductions
      Where an amount (in this section called the principal amount) payable to the Registrar by an employer other than the Commonwealth under subsection 47(1) (including that subsection as varied under subsection 47(4)) remains unpaid after the time by which it is required to be paid:
   (a)   the principal amount continues to be payable by the employer to the Registrar; and
   (b)   the employer is liable to pay to the Registrar, by way of penalty:
   (i)   in a case where the employer is a government bodyan amount at the rate of 20% per annum on so much of the principal amount as remains unpaid, computed from that time; and
   (ii)   in any other case:
   (A)   an amount (in this subparagraph called the relevant penalty amount) equal to 20% of the principal amount; and
   (B)   an amount at the rate of 20% per annum on so much of the principal amount as remains unpaid and so much of the relevant penalty amount as remains unpaid, computed from that time.
52  Penalty for failure etc. to make deductions from salary or wages
      Where an employer other than the Commonwealth contravenes subsection 46(1) in relation to a payment of salary or wages, the employer is liable to pay to the Registrar, by way of penalty:
   (a)   an amount equal to 20% per annum of so much of the amount that the employer refused or failed to deduct from the payment (in this section called the undeducted amount) as remains unpaid, computed from the end of the period within which, had the employer deducted the undeducted amount, the employer would have been required to pay the undeducted amount to the Registrar; and
   (b)   in the case of an employer other than a government bodyan amount equal to the undeducted amount.

Last edit: by MikeT

you may be looking at the wrong bit of legislation there mike, that one appears to deal with employers, who are withholding the deductions and then not sending them to csa in time.

the amount of penalties csa charges is hidden a bit deeper.
Using the Child Support Guide | Child Support Guide said
CSA calculates late payment penalties on the unpaid balance of a persons child support debt after the due date for each payment period. The rate of the penalty is the general interest charge rate under subsection 8AAD(1) of the Taxation Administration Act 1953 (section 67(3) of the R&C Act).

which you then have to hunt down on the ato site
Redirect Page | Australian Taxation Office said
Quarter
GIC                                annual rate  GIC daily rate
October - December 2010  11.74%       0.03216438%

I'm also unsure if american CS law permits remitting the interest charged as readily as australian csa will remit late penalties
Using the Child Support Guide | Child Support Guide said
Late Payment Penalty Incentive Offer

On 12 April 2010, CSA commenced a new Late Payment Penalty Incentive Offer aimed    at encouraging compliance and rewarding that compliance with an upfront remission    of a portion of the late payment penalty.

This offer replaces CSAs former incentive offer. Guarantees made under the    former offer will be honoured where a person has complied with the terms of that    negotiated payment arrangement.

Under the new Late Payment Penalty Incentive Offer, if a person enters into a reasonable    payment arrangement to pay all arrears while maintaining full and timely payment    of any current liability, and they satisfy the requirements of section 68:

CSA will remit 25% of the current late payment penalty upfront; and
at the same time, CSA will record a recommendation for the remission of the balance of the late payment penalty upon full payment of the arrears in accordance with the negotiated payment arrangement.
A reasonable payment arrangement will depend on the circumstances    of each case.

Note: a payment arrangement can be renegotiated if financial circumstances change    such that the agreed rate is no longer affordable.
If the late payment penalty is truly effective the outstanding CS debt balance would be rapidly reducing.  Guess what?  It is going up.  Why?  Because people cannot afford to pay the initial amount they are avoiding repayment.  Add a penalty amount, and they dodge it even more.  The reality is that lots of folk just do not have it.  

There you go, a post by me without me commenting on the level of underlying erors in CSA assessments.
Wednesday said
you may be looking at the wrong bit of legislation there mike, that one appears to deal with employers, who are withholding the deductions and then not sending them to csa in time.

the amount of penalties csa charges is hidden a bit deeper.
Thanks for pointing that out. I must admit I did a search for 20% based on recollection. However considering the issue, halving the current interest rate, or reducing it should still be on board as if applied (and I have little doubt that it is applied at least in the message that is frequently put across by officialdom in order to deride and thus abuse many parents of separated families and thus the children of those families simply to condone a system that is still very flawed at the fundamental level) it would reduce unnecessary abuse of children. In fact to impose a penalty on top of a very often dubious penalty itself is what I believe as being double dipping.

Wednesday said
I'm also unsure if american CS law permits remitting the interest charged as readily as australian csa will remit late penalties

Surely you mean may rather than will? However, much of the damage may have been done simply by the very mention of the interest on the penalties. A parent under severe financial stress, as far too frequently happens due to the bias against the paying parent that has been demonstrated as fact by the Ombudsman, I believe this was published earlier this year, may well see any interest rate as ensuring that there is no conceivable way of managing the financial situation and therefore take their life as the only means to escape the situation. As such I believe that there should not be any interest rate at all and especially more so if there is the likelihood of remittance of the penalty. The net result will be a child suffering the trauma of such a loss on top of any trauma already suffered through and after the separation. Such a child will, I believe, then be more likely to themselves commit suicide. All because of a system that cannot/will not cater for the human facet of a human situation. No child should be subject to this kind of support(sic), yet alone it is also suffice to say no person should be subject to such torture as such parents endure, this very often compounded by unfair decisions in other regards to the separation and often further compounded by events prior to the separation, and often over many years.
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